Blockchain has recently become one of the most frequently used words in numerous industries. The potential of this cryptocurrency technology to transform business, finance and value exchange is truly impressive. But can blockchain be a solution to the ills of other industries? There’s been a lot of buzz around blockchain these days, but very few people understand it in depth. We’ll try to help you separate the truth from the hype – whether this technology can help your business and whether it is worth trying to apply it to your business.
Blockchain – the most overrated word of 2018
According to the advertiser perceptions survey for Media Post’s Research Intelligencer conducted in January 2019, the terms “blockchain”, along with “AI” and “programmatic”, were given too much weight in the advertising industry in 2018. Many large companies use the term “blockchain” to get free hype in the media and to cultivate a public image as the most innovative companies. Myriads of startups claim to find use of block and chain technology to make things better everywhere – from healthcare to legal services.
The corporate marketing hype often gets nowhere – early in 2019 the American management consulting firm released a report on the state of blockchain technology in business stating that of the “over 100 supposed use cases presented, the vast majority of pilots and proofs of concepts are still stuck in “pioneering mode” or are being shut down while many projects have failed to raise Series C funding rounds”.
Too many “experts” but too little knowledge
Blockchain is a relatively new technology – for the past 5 years we’ve seen a lot of people writing and teaching about it. Among those there are people who know what they’re talking about, however, there are also those who just “ride the wave” and keep the hype up.
The main problem is that blockchain is a new technology which has not been standardized yet. The very term “blockchain” is still not unified. The main source of confusion lies in the attempts to refer to it both as one thing and many things. Since 2009 when Bitcoin, the world’s most well-known cryptocurrency, was invented, many different blockchain projects have been launched based on different types of block chains. Sometimes when talking about blockchain people are referring to a wider notion known as decentralized, or distributed ledger technology (DLT). DLT includes blockchain technology. It is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time.
So, what is blockchain in simple words?
The simplest explanation would be as follows: a blockchain is a time-stamped series of data records (blocks), which is managed by a cluster of computers not owned by a single entity, i.e. is decentralized. Blocks are connected with each other in chronological order creating a chain of blocks linked together. Each block of the data is secured and bound to other blocks by means of cryptography.
Such a chain of blocks forms a distributed ledger, i.e. the ledger is spread across the network among all peers in it, and a copy of the complete ledger is held by each peer. Each time the ledger is updated, everybody can see the change. A distributed ledger can be used to record both static data (registries), and dynamic data (transactions).
Among the key attributes of blockchain making it more favorable than traditional systems of ledger information keeping are:
1. Peer-to-peer: the key difference from traditional databases – distributed ledgers have no central data store or administration functionality, i.e. all participants talk to each other directly and data exchange is made directly. It is worth mentioning that the distributed ledger technologies underlying blockchain have the potential to speed transactions, as the technology allows removing the need for a central authority or middleman, and to reduce costs of transactions.
2. Cryptographically secure distributed ledgers spread across the whole network makes tempering a complicated matter.
3. Add-only distributed ledgers mean data can only be added in time-sequential order. Once data is added to the blockchain, it is almost impossible to change that data, i.e. it makes the data practically immutable.
4. Ability to update a ledger only by consensus. Updating the ledger cannot be controlled or manipulated by any central authority. There are strict criteria defined by the blockchain protocol for validation of any updates made to the blockchain, and adding any data to the blockchain is possible only after a consensus has been reached among all participating peers/nodes on the network.
Blockchain application in the business world
Open source distributed ledger technology offers a wide array of possibilities for business – we can already see some significant use cases of blockchain in industries such as supply chain and logistics, agriculture, healthcare, manufacturing, IoT applications and more.
Fintech use cases
The most widely known example of blockchain use in the financial sector is smart contracts – small automated protocols that run on top of a blockchain, which are intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract allowing the performance of credible transactions without third parties. Such smart contracts trigger transactions automatically when certain predefined conditions are met.
The first sophisticated smart contracts appeared in the Ethereum network when it was launched in July 2015. It then became clear that blockchain technology can be used for other things besides currency trading. Smart contracts allow making faster settlements for any kind of contract in many different industries helping to exchange money, property, shares, or anything of value in a transparent, conflict-free way without involving a middleman.
Smart contract examples can be found in different areas of finance – from clearing and settlement to insurance. One of the most noteworthy use cases for blockchain and smart contracts in particular is the cooperation of Bank of America and Microsoft for creation a state-of-the-art Standby Letter of Credit.
Blockchain technology is actively involved with large banking institutions and investment companies to achieve more efficiency, greater transparency, opportunities for new revenue, and lower cost bases. Another example of organizational change is the result of cooperation between BBVA and Indra - a new form of corporate loan, the digital facility (D-Loan). The innovation lies not only in the new product developed (corporate loans) but also in the different blockchain platforms it used (Hyperledger, Testnet).
The trade finance sector is also already realizing the benefits of the technology – for example, the We.Trade blockchain trade finance platform is backed by nine major European banks.
This technology is also successfully used for cross-border payments as it allows avoiding passing a payment through multiple banks to the final destination, a process that makes payments expensive, slow, and uncertain. Blockchain can address these shortcomings. MoneyGram, one of the world’s largest money transfer companies, announced a strategic partnership with Ripple leveraging blockchain-based technology for cross-border settlement using digital assets. MoneyGram uses XRP, the native digital asset of the XRP (Ripple) Ledger, in payment flows through xRapid, Ripple’s solution for on-demand liquidity.
Blockchain based smart contracts have already been successfully used by insurers for natural catastrophe swaps and creation of blockchain-based marine cargo insurance certificates.
Internet of Things examples
Blockchain empowers IoT devices to enhance security and bring transparency in IoT ecosystems. Combining IoT with blockchain has a significant impact in multiple industries, such as smart homes, the automotive industry, supply chain and logistics, sharing economy, pharmacy and agriculture.
For example, the smart homes industry is experimenting with blockchain and distributed ledger technologies (DLTs) to ensure data security and provide a common platform to support smart devices and integrative applications. Telstra, Australian telecommunication, and media company, has implemented blockchain and biometric security to ensure no one can manipulate the data captured from smart devices.
Sharing economy, a very popular concept around the globe, also can involve blockchain technology to create decentralized, shared economy applications to earn considerable revenue by sharing goods or services. Slock.it is an example of a blockchain based platform for sharing of IoT-enabled objects or devices.
Supply chain and logistics can benefit from blockchain based IoT applications to improve end-to-end visibility for all stakeholders of the supply chain. Many companies already use IoT enabled vehicles to track movement throughout the shipment process, and using blockchain technology can help enhance the reliability and traceability of the network of IoT devices. When data is saved on the blockchain, stakeholders who are participants of smart contracts get access to the information in real-time. Thus, all supply chain participants can accordingly prepare for transshipment and run cross-border transactions. For example, Golden State Foods (GSF), a restaurant supplier with a fleet of over 2,000 delivery trucks, works together with IBM on IoT-focused business transformation projects. Blockchain technology allowed them to create secure, immutable, and visible ledgers, accessible by different stakeholders, to improve accountability and transparency.
We can name many more cases of successful blockchain implementation, as the technology is very promising. But there’s always a dark side.
What blockchain CANNOT do
Blockchain can disrupt and transform traditional business models in certain fields, yet it cannot be a universal fix for everything. What are the problems it cannot fix? Let’s cover the main shortcomings.
Blockchain is not a 100% guarantee of cyber attack prevention. It can protect against DDoS attacks and privacy intrusions. Decentralization makes it harder to alter or destroy data. However, blockchain won’t help against attacks involving manipulating people into harming their own interests.
Blockchain cannot eliminate human errors. The technology is great at accurate recordkeeping, but you have to remember that there's still a margin for human error that technology can't fix. Records can be falsified unintentionally due to the error of human operators.
Smart contracts still maintain an option of breaches. These contracts are supposed to act as a safeguard and ensure the transaction is finalized only upon the fulfillment of its terms. But it is still possible to fool the algorithm.
Blockchain is not a corruption stopper. The technology can offer a lot of benefits when it comes to accountability and recordkeeping. It can indeed provide the information that helps reduce corruption, but it doesn't always mean that people having evidence of corruption will act on it.
And, there is still a problem of verifiable interface between the offline world and its digital representation. As Harvard Business review analysts say, the “usefulness of the technology still critically depends on trusted intermediaries to effectively bridge the “last mile” between a digital record and a physical individual, business, device, or event”.
Can blockchain be useful for your business?
Very often blockchain is referred as a silver bullet for the business world. The effect of the “silver bullet” imagery is an interesting mental model in management theory. It relies upon the belief that fundamental change in approach or technology will solve all the problems of an organization in some mysterious way. For example, that the adoption of a new technology will instantly result in an increase in customers. However, the answer to this question was given as early as in 1986 by Frederick P. Brooks in his paper “No silver bullet”. Brooks says there is no universal method in any technology or management paradigm which can substantially boost productivity, reliability and ease of use.
You shouldn’t believe there’s an effective solution someone will bring you on a silver platter – any efficient solution is created by focused conscious efforts based on technological insight and a wide grasp of global trends. Blockchain technology is still under development, yet it indeed creates a wide array of possibilities for business.
Our team of professionals experienced in blockchain technology will gladly help your company figure out if blockchain is the best solution for your business investment. Contact us to get more information about possible applications of blockchain technology for your business.