While blockchain technology may have originally been designed as a foundational part of Bitcoin, it has far greater potential and could even change how businesses operate. Read on to discover how blockchain applications can make a difference to your business.
What is blockchain?
When pseudonymous developer Satoshi Nakamoto created Bitcoin, he also devised a technology known as blockchain to ensure the security of cryptocurrency transactions. To be truly decentralised, Bitcoin needed to find a way to prevent people from double spending, an issue normally monitored by a central governing authority.
Blockchain was a viable solution because it allows data to be publicly shared but not altered. It essentially acts as a ledger, creating a record of transactions or data, which is stored in blocks. Each block is linked and secured via an encryption technique known as cryptography.
By design, blockchain is extremely secure; once data is entered into the system, it cannot be altered or changed. It prevents double spending by only processing one transaction at a time.
If transactions are requested for identical funds, only the first transaction can be processed. Anyone with internet can access the blockchain, so records are simultaneously stored on numerous servers across the world, which makes it impossible for data to be lost or corrupted.
Possibilities for businesses beyond cryptocurrency
Blockchain can be used to record interactions and store data about them – and not just cryptocurrency transactions.
Blockchain is still a relatively young technology. However, some argue it could be used to achieve more efficient international supply chains, land registration, contracts and public ledgers, social networks, centralised financial systems and more.
Blockchain applications for businesses
If integrated into a company’s core structure, blockchain technology could level the corporate playing field, making it possible for small and medium-sized enterprises to compete with large-scale corporations by lowering transaction costs through avoiding the fees accrued by middlemen as well as improve transparency, privacy and security.
Blockchain could also be used to store a company’s financial and non-financial transactions such as with smart contracts.
Most simply defined, smart contracts are self-automated, extremely secure computer programs that can facilitate, verify and process contracts without a governing authority. Smart contracts make it faster, easier and cheaper to create agreements between multiple parties.
As it’s impossible to change information once it’s been entered into the block, these contracts are more secure than traditional contracts. Plus, smart contracts are designed to be automatically executed when a specific event, such as an expiration date, occurs.
Companies are already using smart contracts within their daily operations across a variety of industries.
For example, Share&Charge uses smart contracts to automate the process of paying to rent electric vehicle charging stations, Propy to facilitate international property purchases, and Fizzy AXA, a French airline, to help travellers process insurance claims for flight delays.
Smart contracts are still a relatively new technology and have yet to become mainstream but this may change in the near future.
Payment and money transfers
While originally created for cryptocurrency, blockchain can also facilitate real-time cross-border fiat payments. More than 1,000 companies, including financial institutions such as Santander, UniCredit, UBS and Royal Bank of Canada, use Ripple’s blockchain technology to send and receive money.
International money transfers using blockchain technology are quicker and cheaper than traditional transfers as third-party intermediaries aren’t involved, which is perfect for companies with global or remote staff.
Distributed cloud storage
As data stored on blockchain is impossible to corrupt or change, blockchain technology also has the potential to work like the cloud. Information can be accessed by multiple individuals, as long as they have proper decryption codes, and from any location with internet access.
It could offer customers high levels of privacy and reliability. Storj is one company currently offering this service.
Digital identity and signatures
Blockchain provides a more secure way to confirm someone’s identity than traditional password-based methods. Traditional passwords can easily be hacked but blockchain uses an authentication system based on public key cryptography and unique digital signatures.
Only the individual with a specific private key can access or consent to information.
As such, blockchain could improve the security of online accounts, e-residencies, passports and birth certificates. Some companies, such as ShoCard, are already offering this service.
Flaws in blockchain technology
While blockchain certainly has many benefits, like any developing technology, it is far from perfect.
The issue of the 51% Attack
As data cannot be changed once it’s entered, it’s incredibly important for the original information to be accurate and honest. If more than 51% of the computers report false information, then this information becomes a truth within the system.
While this situation is relatively rare, it becomes particularly problematic if hackers gain control of the majority of computers working as nodes in the system. In this case, they could potentially reverse or freeze in-process transactions. Satoshi Nakamoto recognised this flaw and referred to it as the 51% Attack.
Blockchain transactions are not instant. Miners must solve algorithms to secure hash keys to link and confirm the transactions. This takes time and slows the speed of transactions.
According to BlockGeek, Ethereum can only process 20 transactions per second while Bitcoin can only process seven. Compared to PayPal, which processes 193 and Visa which manages 1667, these numbers are shockingly low.
The slow processing speed is one of the biggest factors preventing blockchain technology from being scaled.
Nonetheless, blockchain is already disrupting some industries. Some blockchain experts argue that it may, overtime, revolutionise every industry. Early adopters will certainly have a competitive edge as masters of this complex technology.
Fund administration, information services, property, traditional financial institutions, escrow, legal and insurance industries are just some of the markets already being impacted by blockchain.
With well-known, respectable companies such as Santander, JP Morgan, British Airways, FedEx and IBM adopting the technology, other smaller companies are likely to soon jump on the blockchain bandwagon.
How businesses can start using blockchain
Blockchain is still in its developmental stages and is really only available to businesses through third-party companies. For example:
- Ethereum was specifically designed to offer a range of different smart contracts. The Create a Democracy Contract Guide explains how to draft non-financial smart contracts.
- Ripple’s blockchain technology allows businesses to securely send international payments, source liquidity, or process payments. It’s currently used by more than 1,000 companies and has a sound reputation.
- Storj (the oldest and most well-known brand), Sia, or MaidSafe are three of the largest organisations offering decentralised cloud storage. Finecoin is another up-and-coming cloud storage company but its services haven’t yet been launched.
- Companies such as ShoCard provide organisations with blockchain identity services. ShoCard allows companies to verify and authenticate employees’ identity for access to the company’s network and data without a username or password.
- E-commerce business owners can begin accepting Bitcoin payments through retail platforms such as Shopify and Magento. Magento allows you to also accept Litecoin, Ethereum, Ripple and more than 50 other cryptocurrencies.
There are a host of other companies that offer blockchain services but most are relatively new or in early developmental stages. Before implementing a blockchain service, it’s worth researching the specific benefits of the services.
Nonetheless, the blockchain market is expected to continue to grow so if the perfect service isn’t currently available, it soon could be.