Blockchain Technology - What's all the buzz about?
Since 2008 when Bitcoin was introduced using blockchain technology, the term blockchain has become incorrectly synonymous with “cryptocurrency.” While this was the first prominent use case of blockchain technology, it has since been adapted and applied to a variety of purposes on many scales, both industrial and private. Blockchain is a form of distributed ledger technology (DLT), a term for technology that records details of transactions and assets in multiple places on a peer-to-peer network. The central concept of blockchain is synchronized, decentralized verification and documentation of records. Blockchain technology records transactions using cryptography to store as a “block”. Each block is linked to its predecessor and successor, as well as grouped with other blocks. Once a change is verified, all members of the blockchain network (referred to as “nodes”) are simultaneously updated with this new information. This creates a transparent, constant, and incontestable ledger. The appeal of this synchronized, verifiable ledger is that it offers applications for businesses of all sizes.
On the World Stage
Bitcoin is famous for its pioneering of blockchain technology, and while cryptocurrency was the initial use case of blockchain, this technology is rapidly expanding to new applications. Cloud computing and storage firms are using blockchain technology to back up data, both for protection against cyber-attacks and for distribution of storage. While no cybersecurity technology can ever be perfectly secure, blockchain offers a strong defense against cyber-attacks and data loss. Since the blockchain record is unmodifiable, its record is impervious to an attack on or loss of a primary data source, or any one node of the blockchain. Blockchain has also entered the banking world. Firms such as Santander were amongst the first to utilize blockchain technology for payment security and smart contracts, with many banks continuing to adopt the technology.
The security of blockchain is appealing to many governments, protecting against targeted hacks and secure storage of private information. The Australian government is a pioneer in the governmental blockchain space, partnering with IBM to create a blockchain for secure storage of government information and documents. In British Columbia, the provincial government launched OrgBook BC which is intended to allow businesses to share information with government, banks and other parties. It also allows individuals to verify that businesses are legally incorporated and in good standing.
Usage for blockchain further expands to military and defense applications as well as use in the healthcare space. The US and Chinese militaries have both begun projects in the blockchain space. In healthcare, firms have begun to adopt blockchain as a method for secure patient information storage and sharing. The utility and security of blockchain technology has captured the attention of large firms and governments alike.
Scalability of Blockchain
With daunting examples of blockchain usage on the large scale, the pertinence of blockchain is often overlooked by many small businesses. A common misconception is that blockchain carries an overwhelming initial cost for setup. On the contrary, while the specific use and size of a blockchain will determine its cost of implementation, expenditures on small scale projects can be kept to a few thousand dollars. Many business owners synonymously associate blockchain with cryptocurrencies and are unaware of the suitable applications of blockchain for their business. DLT offers value in the areas of smart contracts, payment solutions, security and privacy, or even for supply chain management. These areas are often interlocking.
Smart contracts are self-executing and self-enforcing contracts. They allow the transfer of money, assets, or inventory between two parties in a transparent and autonomous manner. In a smart contract, terms and obligations are drafted normally, but are submitted to the blockchain as code. All parties are nodes in the blockchain, allowing for both accountability and transparency. As obligations and terms are met, the smart-contract executes commands such as transferring payment or ownership of an asset. Both parties are bound by the initial obligations of a contract, and since the contract is self-executing, terms of the contract are automatically fulfilled when obligations are met. Refunds and nullifications of the contract are also outlined within the smart contract, in the event obligations are not fulfilled. This further eliminates the need for a middle 3rd party to facilitate transactions or hold assets in escrow. For sensitive contracts, smart contracts maintain the privacy of both parties, providing a method of enforcing obligations securely and privately. Governments and regulators can still view executions within the contract, while parties remain anonymous.
Smart contracts are often used in supply chain management, especially when many parties are involved in one contract. Suppliers can send goods prior to payment reception to ensure prompt delivery, and the smart contract ensures ownership is maintained until compensation is received. Similarly, the customer can pre-pay for the ordered goods, with the smart-contract holding the funds until the supplier’s obligations are met. Lease contracts are another suitable application of smart contracts. Property owners can enter lease terms and conditions into the blockchain ledger, many of which can be automatically enforced. The smart contract prevents issues over payment or liability, both automating the transaction and offering a transparent, protected contract.
For young and small firms, smart contracts offer a method of managing obligations and transactions between suppliers, clients, and employees. Employee contracts can be automated to ensure prompt payment as well as fulfill basic accounting needs. For external purposes, recurring transactions can be automated for regular clients or suppliers. The smart contract can handle the transfer of responsibility for goods and the goods themselves, as well as payment.
Smart contracts are especially useful in preventing issues in cash flow. Since smart contracts are comprehensively enforceable, small businesses can be assured that funds will arrive when expected. This frees the business to deliver their contractual obligations without uncertainty of payment. The transparent transfer of ownership, date of payment, and contractual obligations also provides clarification for accounting purposes. While smart contracts are a common application of blockchain technology for the small scale, the security benefits of blockchain are also extraordinarily useful for smaller businesses.
Implementing Blockchain Technology
Blockchain is currently being applied in hundreds of unique ways, with the range and volume of businesses adopting the technology growing every year. Implementing blockchain technology is specific to each business, its industry, and unique operational needs. Blockchain technology is malleable and adaptable, allowing for ease of implementation in many unique situations. Areas of application can generally be identified in any documentation or record system, situations of recurring contracts and obligations, and private data storage. Blockchain networks can also be used to eliminate 3rd parties and streamline client-business transactions. Cybersecurity consultants can help in identifying both the need for and best application of blockchain technology in a given business situation.