IS BLOCKCHAIN A GOOD FIT FOR YOUR BUSINESS?
Say “blockchain” and the word that most frequently comes to mind is “cryptocurrency”. And with good reason. Blockchain technology was invented to support the invention of the world’s first-ever cryptocurrency: Bitcoin.
Launched in early 2009 by someone calling themselves Satoshi Nakamoto, Bitcoin remains the world’s most valuable cryptocurrency. Valued at over $40,000 in April 2022, experts predict that the crypto will cross $81,680 in 2022, and $420,240 by 2030. Without blockchain technology, Bitcoin would not exist, much less achieve such stunning success.
And yet, blockchain is about more than just Bitcoin or cryptocurrencies. Over the years, a number of new applications and use cases have emerged for blockchain technology. All kinds of organizations can leverage its power for the use cases that matter most to their businesses and customers. They can also automate processes, minimize supply chain disruptions, protect data and intellectual property, and reduce fraud. Ultimately, blockchain provides powerful capabilities that empower businesses to cut costs and boost their bottom line.
This article explores these benefits of blockchain in detail. It also pulls back the curtain how blockchain works and how organizations can determine if they need blockchain for their needs. So, if you are a product owner, developer, or organizational leader curious about blockchain and its potential, this article is for you!
What is Blockchain?
Blockchain is a distributed ledger technology (DLT) where all transactions happen on a decentralized peer-to-peer (P2P) network and are stored in a decentralized ledger. Simply put, blockchain is a type of database that stores transactions and related information in a digital format. The database is distributed and decentralized, meaning it exists on multiple nodes on a computer network.
Blockchain technology records transactions in a secure way. These transactions may be orders, payments, accounts, escrows, stock splits, or anything else involving multiple parties making some kind of a deal. Transaction participants can confirm these transactions and track the assets involved in the transaction, including intangible assets like cryptocurrencies, patents and intellectual property, and tangible assets like land, buildings (e.g., homes), or cash.
Over the years, blockchain technology has evolved from its original crypto/Bitcoin roots to now incorporate dozens of real-world applications and use cases. For instance, blockchain is used for international fund transfers, capital market settlements, public voting systems, accounting and audits, supply chains, insurance claims, and much more.
Anatomy of a Blockchain Network
Regardless of its purpose or application, every blockchain network comprises of the following few key building blocks:
Distributed Ledger Technology
DLT is the primary foundation of any blockchain network. All transaction participations and permissioned network members can access the ledger and its transaction records. Every transaction gets recorded and this happens only once per transaction.
This is how blockchain consistently maintains an immutable record of transactions. It also eliminates duplicate records that are a common problem on many other networks and databases.
Blocks
The blockchain database collects information from transactions in groups or blocks. Each block can hold a set of information and has a specific storage capacity. Numerous blocks are chained together, hence the name blockchain. Moreover, strong cryptographical protocols protect these blocks from tampering and data breaches.
Smart Contracts
Smart contracts are a unique feature of blockchain. A smart contract is a set of rules and conditions stored on the blockchain and executed automatically during a transaction. Smart contracts bring greater predictability, trust, confidence, and speed to transactions.
Many kinds of transactions rely on smart contracts on a blockchain network, including:
- Corporate bond transfers
- Insurance terms, claims automation, and disputes resolution
- Cross-border payments
- Raw Material Tracing
- International trade
- Digital identity management
- Dividend distributions
- Home mortgages
- Pharmaceutical clinical trials
Immutable and Transparent Records
The blockchain ledger is both shared, which allows multiple participants to view and access it, as well as immutable, which prevents anyone from changing or tampering a recorded transaction.
If a particular record includes an error, say, because someone tried to change it deliberately or maliciously, the error must be reversed. To do this, a new transaction must be added to the ledger. Once this is done, both transactions will become visible on the network and remain there permanently.
How Blockchain Works
Blockchain works the same way regardless of transactions, users, or applications. Here are the processes involved in a typical transaction:
1. Transaction Request
The blockchain’s operation starts when a user requests a transaction. The transaction is entered into the network and shows the movement of the associated asset that all participants can “see”.
For instance, an individual may transfer some funds to a different country or a hospital may update some patient records or a media company may distribute premium video content to consumers.
2. Broadcast Transaction to a P2P Network
The blockchain’s P2P network consists of multiple computers known as nodes. These nodes are scattered all over the world, giving the blockchain its inherently distributed nature. The requested transaction is entered into this network. These nodes use algorithms to solve a series of complex mathematical equations in order to validate the transaction and confirm the identity of users.
3. Create Blocks
Once the network confirms that the transaction and user are both genuine, the information is clustered into blocks. A block can store multiple transactions and all their relevant information until its storage capacity is reached. When a block becomes full, it is closed and linked to the previous full block to lengthen the chain of information. No other block can be inserted between two existing blocks. A new block will then be created to record new transactions. This new block will also be added to the chain once it becomes full.
4. Complete the Transaction
After a transaction is added to the existing blockchain, it is said to be completed. At this point, it becomes permanent and immutable. Further, the network’s transaction verification mechanism makes it near-impossible to hack the system, disrupt transactions, or modify data.
Benefits of Enterprise Blockchain
Blockchain was first proposed as a research project in 1991. It then entered the mainstream in 2009 when Bitcoin was launched. Since those early days, the use of blockchain has exploded and the number of blockchain applications has increased exponentially because it delivers numerous benefits.
Blockchain in conversation usually refers to public blockchain technology, such as Ethereum. For enterprise, private blockchain ledgers can be setup to provide a secure, purpose-built application. Companies like Microsoft offer pre-built Blockchain Services on their Azure platform, making it easier for companies to adopt blockchain.
The benefits of using enterprise blockchain can be compelling for businesses to consider adopting.
Secure Transactions
One of the biggest benefits of enterprise blockchain is that it offers advanced security and trustworthiness compared to other databases or networks. One reason is that it is a “members-only” network, which means that its records are confidential, and only visible and accessible to authorized members.
Further, each entry on the database is encrypted, stored on a permanent block, and confirmed by P2P networks. The ledger itself is tamper-proof, thus guaranteeing the fidelity and integrity of records. All these qualities allow participants to trust blockchain transactions without having to involve a third party or a central clearing authority.
Transparent Transactions
In addition to its security and trust benefits, blockchain also offers an unbeatable combination of transparency and privacy. All permissioned members get a single source of the truth, so they can see every transaction from the start until it is validated, accepted, added to a block, and finally completed. At the same time, no one outside the network can see the data, protecting it from prying eyes and potential breaches.
Immutable Information
All validated transactions are recorded permanently on the shared ledger. In addition, all users collectively control the database and provide consensus on data accuracy. So, there’s no chance for any user — including system administrators — to modify, manipulate, or delete a transaction. Traditional databases and networks don’t provide this level of transparency or immutability.
How Blockchain Benefits Businesses
Blockchain technology has a lot of potential to create tangible value for organizations. It is already used in a number of industries including:
- Healthcare
- Financial services
- Insurance
- Media and advertising
- Government
- Manufacturing and supply chain
- Oil and gas
- Retail
- Travel and transportation
Over the coming years, enterprise implementations will proliferate to even more sectors. These implementations will deliver all these benefits to organizations and their stakeholders:
Reduce Costs
Virtually any kind of transaction can take place on a blockchain. The technology removes the need for third parties to validate, verify, or reconcile transactions. Moreover, it helps automates many processes with the help of data blocks, algorithms, and smart contracts. All these qualities can reduce IT, labor, and data management costs for businesses.
For instance, businesses that accept credit card payments may incur a small fee that’s imposed by banks or payment-processing companies. But blockchain and cryptocurrencies require no centralized authority so there’s no middleman or associated fees.
Track Assets and Transactions
A blockchain network is capable of tracking all kinds of transactions and assets since every transaction gets recorded and its data always remains immutable and available for view. This is why a real estate company can track property ownership and the transfer of this ownership at any time during a transaction.
Similarly, a food products company can trace its products’ lifecycle all the way from farm to plate. Even non-profits can use blockchain to trace their donations, and track where funds are coming from and where they are going.
Eliminate the Need for Unnecessary Record Reconciliations
Reconciliations are required in many kinds of transactions, especially if there are multiple parties holding out-of-date or slightly different information. These differences make it harder to trust the transaction or each other.
Enterprise blockchain helps resolve this common challenge. Since it is based on a distributed ledger that’s shared among authorized members, everyone can see the same data at any given point of time. Moreover, smart contracts establish the terms of the transaction which are executed automatically.
All of this makes it easier to facilitate and verify transactions, while removing the need for time-wasting reconciliations or duplicate record-keeping.
Protect Data from Breaches
Organizations all over the world and in every industry worry about cyberattacks and data breaches. Per the Identity Theft Resource Center’s 2021 Data Breach Report, there were a record 1,862 breaches in 2021, up 68% from 2020 and well exceeding the previous record of 1,506 set in 2017.
According to IBM, the average cost of a data breach has gone up from $3.86 million in 2020 to $4.24 million. These numbers reflect a grim picture of a year where high-profile cyberattacks targeted all kinds of companies, including large oil pipelines, financial companies, healthcare organizations, and even social media firms like LinkedIn and Facebook.
Blockchain protects data from data breaches and exfiltration by ensuring that only authorized users can view or access it. Further, the data is always stored in an encrypted format and no one can modify it. Even if a hacker does manage to get their hands on a copy of the blockchain, they can only compromise a single copy of the information rather than the entire network.
Prevent Fraud and Counterfeiting
Blockchain’s built-in encryption also helps prevent fraudulent transactions in a wide range of areas, including money transfers, trading, voting, and real estate. It can also help authenticate and trace physical goods to prevent their counterfeiting — a common issue in the pharmaceuticals, luxury retail, electronics, and art industries.
Prevent Money Laundering
The technology can also combat a serious problem for countries everywhere — money laundering. Since blockchain networks can trace funds at every stage of a transfer, it’s harder for criminals to hide the source of their funds, which is exactly what they do to convert dirty money into clean (or laundered) money.
By preventing money laundering, blockchain enables governments to tackle other crimes that rely on the availability of laundered money. These include terrorism, human trafficking, and drug trafficking.
Streamline KYC
A blockchain network provides reliable record-keeping and trustworthy data storage. This enables businesses to identify and verify the identities of their clients and customers — a system that’s commonly known as “Know Your Customer” (KYC).
Blockchain Adoption Checklist: Should My Business Adopt Blockchain?
In this article, we have seen how, as a decentralized, secure, and immutable form of record-keeping, blockchain is unrivaled by any other kind of technology. However, blockchain is far from perfect. For one, it can be fairly complex and expensive to implement, making it harder for smaller firms to adopt it for their use cases.
Another challenge is that the regulatory regime around blockchain is uncertain, which is a worrying prospect for organizations with a heavy compliance burden. Transaction speeds are also limited on blockchain networks since blocks have to validate and confirm each transaction before it can be finalized.
Finally, there is a shortage of experts who can help companies with the implementation of blockchain networks, making it harder to adopt the technology. TechBlocks is one such technology partner that can help businesses implement public or private blockchains.
For all these reasons, organizations should not impulsively jump onto the blockchain bandwagon. Rather, it’s worthwhile to first do a self-assessment to gauge their need for the security, data immutability, and transparency that blockchain can provide.
It’s may be useful to review some of the questions below to understand if you can benefit from blockchain.
Do you Collect Sensitive Data That Must be Protected?
A company that collects and manages a lot of sensitive data such as customers’ personally identifiable information (PII) or patients’ healthcare information needs to safely store and protect this data.
They must also comply with stringent laws or regulations on information security and consumer privacy. In these cases, blockchain can be very useful.
Do you Have Intellectual Property, Patents, or Trademarks to Protect?
Blockchain is also a good choice for organizations that need to protect valuable intellectual property or other kinds of intangible assets. Since assets can be traced at any time on the network, it’s almost impossible for fraudsters to steal a patent or make illegal copies of a brand asset.
Do you Need to Carry out Transactions Without Third Parties?
As we have seen, the decentralized nature of blockchain allows organizations to carry out and trust transactions without involving a third party such as a central clearing authority. Many organizations can carry out transactions without middlemen if they could verify the transactions and get assurance that all involved parties can be trusted. This includes companies in real estate, banking and finance, healthcare, media, energy, and even government.
Could you Benefit from Blockchain’s Shared Database?
Without blockchain, organizations have to maintain a separate database for their transactions and data. A blockchain’s shared database is a consensus-based system with instant traceability and full transparency from end-to-end. Plus, all transactions are time- and date-stamped, and only authorized users can see them. All of this increases trust and transparency across the entire network.
Do you Need to Trace Physical Goods in a Supply Chain?
Blockchain’s transparency makes it easy to trace all kinds of physical assets through supply chains. Manufacturers, suppliers, and logistics companies can track products or raw materials in real time. They can also record the origins of materials, verify product authenticity, and confirm that products remain safe for consumption.
Conclusion
The growing popularity of blockchain means that global spending on the technology is expected to reach a staggering $17.9 billion by 2024. This represents a healthy CAGR growth of 46.4%.
Organizations in all sorts of industries are becoming more aware of the power and potential of blockchain. And yet, what we are seeing now is just the tip of the iceberg. In the coming years, many more blockchain applications will be developed. And when that happens, blockchain will help solve many real-world problems and enhance the human experience. And that can only be a good thing!
