The buzz surrounding blockchain has reached a new level. No matter who you’re talking to, from Uber drivers to CIOs, blockchain is the hot topic. And no wonder, it is the digital advancement that will impact us on many personal and professional levels now, and for years to come. The technology, in its simplest form, is a ledger. One that is updated in real-time and monitored by millions of computers around the globe.
Blockchain is the backbone of cryptocurrency Bitcoin, it’s the database that makes the de-centralised currency impossible to forge. Insurance companies, financial institutions and many other industries are now starting to take the idea of using blockchain technologies seriously. Organisations have invested heavily in researching the technology and are patenting their own apps to take advantage of the system. This article takes a closer look at blockchain’s potential and its business application across the globe.
What is blockchain?
Blockchain was developed by a person or unknown group of people who use the alias Satoshi Nakamoto. Author of Blockchain Revolution Don Tapscott describes blockchain as an incorruptible digital ledger that can be programmed to record not just financial transactions, but virtually everything of value. The records of these transactions aren’t just being updated in one location on one computer, but are duplicated thousands of times across a large network of computers. And this network regularly updates and reconciles the ledger.
This short video will give you an easy to understand example.
Blockchain enables a number of benefits traditional ledger models can’t. To begin, it’s not centralised. Because the blockchain database is stored in multiple locations, it enables the records to be public and easily verifiable to anyone on the internet, making it fully transparent. Next, the blockchain database has a self-auditing ecosystem that checks in on itself every 10 minutes. When it does this, all blocks in the blockchain are joined together making them permanent and essentially unalterable, which means it’s impossible for a hacker to corrupt. For anyone to try and tamper with a block they would need an impossible amount of computer power to override the whole network. In addition to transparency, this authentication and auditing process enables trust between parties in transactions.
Smartest application of blockchain in business
The notion that a ledger is unhackable, automatically authenticates, and is easy to audit and verify in real-time, presents a lot of opportunities to business. While Bitcoin is the largest working example in the market right now, other industries are researching how they can leverage the database specifically in the area of smart contracts.
Smart contracts are the future of business and the opportunities they present are exciting. Smart contracts are coded and will automatically execute the requirements of a contract when specific conditions are met. Block Geeks explain that because these contracts are run on the blockchain database, they run as programmed, which means there’s no chance of fraud, downtime or third party interference. Ethereum is an open source coding project aiming to enable these contracts to execute. It focuses on running the programming code of any decentralised application.
Applications of smart contracts
Smart contracts can be used in many different industries, examples of these are explored below.
Trade clearing and settlement, coupon payments, micro-insurance and insurance claim processing will all become transparent, accurate and secure with smart contracts. Each application to these areas is different. Smart contracts for trade clearing and settlement would automate most of the manual work eliminating human error, long wait times and security concerns. In this case, a smart contract would manage the approval workflows between counterparties, calculate trade settlement amounts and transfer the funds when the trade criteria is met. The data is safe, auditable and all parties can operate in a trust-based economy where they’re guaranteed to get accurate and fair trades.
A report by Deloitte explains: “Because current paper systems drive $18 trillion in transactions per year, there’s an attractive opportunity to decrease costs and improve reliability in supply chain and trade finance. Four start-ups have emerged in this area, all of which have noted engagement with banks in proof-of-concept activities. Funding has not been disclosed, but backers include three respected venture funds in addition to Barclays.”
In 2016 the Commonwealth Bank of Australia, Wells Fargo and Brighann Cotton undertook the first global trade transaction between two independent banks using a combination of blockchain, smart contracts and Internet of Things. The transaction involved a shipment of cotton from Texas, USA to Qingdao, China, using the efficiencies of a distributed ledger – Skuchain’s Brackets system – for all parties. It worked perfectly. The Commonwealth Bank said:
“The use of blockchain technology creates transparency between buyer and seller, a higher level of security and the ability to track a shipment in real-time. The advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger reduces errors and accomplishes in minutes what used to take days.”
Interestingly the Australian Stock Exchange has successfully built a blockchain-style system set to replace CHESS - the current system for clearing and settling stock trades - if testing is successful. It’s expected to be tested throughout 2017.
Technology and media
The music and movie industries are prime examples of an unfair ecosystem. Artists who would once make tens of thousands of dollars after a song release have found themselves bringing in less than $100 because of streaming services and other new technologies. Smart contracts in the technology and media industries can change this. In 2015, singer songwriter Imogen Heap released her song Tiny Human through a new blockchain technology prototype. When downloaded it distributes the royalties on Heaps’ terms to the correct people automatically. It’s predicted this type of contract will make a big impact on the future of the entertainment industry.
Smart contracts in peer-to-peer transacting enables trust between parties. WeiFund is an upcoming crowdfunding platform set to use smart contracts to execute payments used to fund a campaign. While it’s still in its early development, the data and funds of every transaction will go to the right people, at the right time and be entirely secure.
Blockchain outside of smart contracts
There are examples of blockchain use outside of smart contacts. For example Abra. Abra is an online wallet for Bitcoin. However, the creators have taken it a step further and are now facilitating transactions that don’t require Bitcoin. They’ve enabled people to use the wallet to hold their own cash from their own banks, and transfer it from Abra to a bank in another country. Why is this future focused?
Abra are using blockchain to facilitate safe remittance. This is a major area of enablement and empowerment for developing countries. Transferring money to another country is expensive and it can take up to two weeks for the funds to appear in the recipient's bank account. This entire process can be simplified, more cost effective and faster through blockchain powered applications. The recipient can receive the money in minutes and at a low cost of 2%. If the recipient doesn’t have an ATM close by the cash can be hand delivered. Here’s an example of a migrant worker transferring money to their personal bank account in their home country.
Collaboration through blockchain guarantees transparency and security, which results in trust. This idea of trust in our increasingly globalised world is exciting for many industries and businesses. The full potential of blockchain is still being explored by companies and institutions around the world. For business leaders interested in learning how to apply blockchain in their business, specifically smart contracts, begin looking at manual workflows, multi-party agreements and interdependent transactions and see if these auto-executing smart contracts is a good starting point.
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