Blockchain has been so hyped for so long, people may want it without quite understanding what it actually does. There are plenty of reasons for this confusing state of affairs. The biggest culprit is the business of crypt-currencies, which use blockchain technology as their foundation. But, there is much more to blockchain than just Bitcoin and the like. There are many practical blockchain initiatives you can implement today. We will present five of them in this article.
First, what is a “block chain”?
Let’s un-conjoin the two word to help clarify things. Blockchain was originally called “block chain.” The “block” refers to a record, like a financial transaction or any other piece of data. The “chain” is a cryptographic formula known as “hashing” that links each block to the next block in a sequence, known as a “ledger.”
The unique mathematical hash of each block, generated by cryptography, establishes a condition where a block cannot be changed once it has been created. For this reason, blockchains are great for virtual currencies, which require trust among unknown entities and no possibility of double usage. The management of blockchains involves distributed architectures that enable multiple people to interact with the ledger without knowing anyone else’s identity.
Putting blockchain to work
How do you actually implement blockchain? There is more than one answer, for sure, way more. If you want, you can buy a blockchain platform from a major IT vendor like Oracle or IBM. They have assembled many blockchain creation and management tools. It’s possible to build a blockchain application on your own using a wide range of open source tools and platforms. This is for experts only, of course. The big cloud providers like AWS and Microsoft Azure also offer certain components of blockchain solutions on-demand. For example, Azure has Decentralized Blockchain apps (DApps) on-demand. DApps are necessary for the remote, arm’s-length interactions with blockchain ledgers.
5 Blockchain Initiatives that Can Be Implemented Today
Blockchain is not an easy technology to adopt, with the exception of pre-packaged solutions for cryptocurrencies. In a few years, you’ll probably have out-of-the-box blockchain software, but it’s not here yet. Still, when you look at what you can achieve with blockchain, you’ll probably see that it’s easier to work with blockchain than create comparable functionality with conventional methods—if it’s even possible without blockchain. With that in mind, here are five applications of blockchain that are viable today:
Tokenization of Financial Assets
Traditionally, if you wanted to raise capital to purchase an asset like a building, you would ask individuals or institutions to buy units of ownership proportional to the value of the asset. These might take the form of limited partnership interests or shares of stock. Now, blockchain offers a new way to achieve this funding objective, but with a bigger number of potential investors. By carving the asset into investment units represented by digital “token,” each matching a blockchain ledger entry, it is possible to streamline the sale of an investment in the asset.
Blockchain enables this capability by providing a secure, immutable transaction record for the purchase of the token. The tokens can be comparatively small, perhaps even $100 each, for example. In contrast, a limited partnership to buy a share of a building might be hundreds of times higher at a minimum. The reason for this has to do with transaction costs. Conducting due diligence and writing contracts for investors is time-consuming and expensive. With blockchain, an investor can buy a token, or tokens and the investment transaction is then complete.
Creating traceability in commercial transactions
Industries like food and pharmaceuticals are under pressure, if not actual legislation to demonstrate traceability in their sourcing of their products’ ingredients. For example, counterfeit drugs remain a problem in the US, with even company experts sometimes unable to tell the difference between products they’ve manufactured themselves and fakes. In the food business, it can be useful (and good for the brand) to know exactly where an ingredient came from in the event of a recall. Blockchain offers a solution, creating a tamper-proof ledger of supply chain transactions.
Making transactions transparent
Certain business circumstances demand transaction transparency. For example, a government agency may want to prohibit people from laundering money by using it to purchase real estate through shell corporations. Blockchain is good for this requirement. A blockchain ledger can reveal precisely where the money came from. This assumes that there is a will to make this happen, of course. It may be hard to accomplish such transparency in regulatory and political terms. However, as a matter financial and legal record-keeping, blockchain is amply suited to the task.
Embedding trust into transactions, e.g. insurance policies
Blockchain is great at embedding trust into transactions. The parties to the transaction need not trust, or even know each other. The blockchain ledger locks them together permanently. This capability has great applicability in the insurance industry. Processes like issuing certificates of insurance can leverage blockchain to establish clear, authenticated insurance coverage. Similarly, law enforcement could use blockchain-based insurance claims to identity stolen property. Nationwide Insurance is adopting blockchain for these use cases, for example.
Creating payment and loyalty systems
Payments systems and loyalty systems present compelling use cases for blockchain. These programs typically involve trust-based transactions between entities at arm’s length. For instance, a stored value card (i.e. a gift card) might take money in from Entity A but then spend it in Entity B. In order to enable this transaction without forcing Entities A and B to set up a specialized application and people to stay on top of the transactions, a blockchain solution makes the whole process a lot simpler. The deposits and purchases are permanently and irrevocably entered into the blockchain ledger.
It is possible to build software that meets the requirements of each of these use cases. However, doing so would be a big project—creating auditable, secure transaction records and so forth. Blockchain does this automatically, and better. The technology is still relatively new. Adopting blockchain takes knowledge and skills, though as we are seeing, it’s getting easier to use all the time.