Bringing Blockchain Into the Mainstream: Applications in Various Sectors
What is Blockchain technology?
Before going to the benefits of blockchain, lets start off with what is blockchain technology?
A blockchain is a digitized, decentralized public ledger of all cryptocurrency transactions. This technology grows in complete blocks. The most recent transactions are recorded and added to it in chronological order. The core benefit of blockchain is that anyone transacting in online currencies can keep track of every transaction without the intervention of any central record-keeping. Each node (a computer or any digital device) connected to the network gets a copy of the blockchain which gets downloaded automatically.
It was originally developed for the accounting of the online virtual currency called Bitcoin. Blockchain uses distributed ledger technology.
Let's get the concept of Distributed ledger clear. It is a database that is consensually shared and synchronized across networks. That's how the occurrence of the transaction have "public" witnesses. The process makes vulnerability to cyber attacks less.
Deep dive into Blockchain
What are the "blocks" in a blockchain?
A block is the "current" part of a blockchain. These blocks record some or all of the recent transactions. Once completed, a block goes into a blockchain as a permanent database. Whenever one block gets completed with information and moves into the blockchain, a new block is generated and takes it's place. There are countless number of blocks in the blockchain, connected to each other in proper linear, chronological order. The blocks are added through cryptography ensuring the data can be distributed but never copied.
Advantages of Blockchain:
The Distributed Ledger Technology (DLT) that blockchain technology implies, does extensive cost saving. DLT systems make it possible for businesses and financial organizations to streamline operations. Thus the concept of central repository of data is eliminated resulting in reduced errors, time and expenses.
Expert's take on the widespread adoption of DLT in businesses:
- Electronic ledgers are economically more viable to maintain than traditional methods. Employee count thus being less.
- A fully automated DLT system commits way less errors and eliminates repetitive confirmation steps in a process.
- Less transaction delay in various process thus resulting in a better cash flow. Capital held against pending transactions are greatly reduced.
- Greater transparency and ease of auditing leads to lesser threats of money-laundering.
Blockchain's association with Bitcoins and IOT
[Bitcoin isn't regulated by any central authority of any country. The users of Bitcoin validate the transactions when one person pays another for any goods or services. Thus the need for a third party mediator is eliminated. The completed transactions are recorded publicly on blocks and eventually those blocks move into the blockchain. The information of transactions on the blockchain are again verified and relayed by Bitcoin users. On average a block moves into the blockchain every 10 minutes. And the overall limit of mining Bitcoins sits at 21 million. The Bitcoin blockchain is robust where every digital device holds the record of every transaction that ever happened on that blockchain.
Now let's come to applications of blockchain in IOT. Blockchain can be the base for future IOT advancements for the same reasons as cryptocurrencies. It provides assurance that the data used in IOT is legitimate and the process which introduces new data is well-defined.
But does that mean blockchain can serve as a base for any IOT network?
No is the answer because of some of it's inherent problems. The basic process in case of Bitcoin is that blockchain simply moves currency from one anonymous owner to another. To support a full fledged IOT network implies huge complexity. The complexity rises in terms of security, authentication and control layers. Just getting blockchain to register a device without proper infrastructure to manage the device wont work. Same goes for the accessibility of data to users: upto what level and which user can view data.
Another limitation of blockchain in the field of IOT is the "51 percent" problem. As I have already mentioned blockchain works on consensus, if 51 percent of the processing power in a network results in the change of a transaction, that change will take place. Now citing the above flaw, Bitcoin manages to circumnavigate it by having a wide diversity of nodes. These nodes are physically distributed across the globe, hence mitigating the 51 percent risk. Now compared to that a small IOT network can never have that many distributed nodes. So an external hacker can easily hack into a blockchain based IOT network by concentrating 51 percent of the processing power in a single location.
Now getting an IOT network to compute that huge a data if at all the network was to get connected to a larger one, is a daunting task. Standard IOT devices just don't have that huge a computational power. The same method is also implied in case of blockchain. That is why as the Bitcoin blockchain gets bigger and bigger, it is impossible to mine a Bitcoin in a PC anymore. The reason is simple, a PC does not have the computational power to mine Bitcoins connected to a huge blockchain.
So blockchain supported IOT may be a far-fetched idea requiring huge computational and electrical power.
Blockchain in Financial Sector
Let's dive into the applications of blockchain technology in the financial markets:
Capital market- Trading on stock markets started off long before the advent of the internet. After the internet came into existence, continuous improvement in the entire trading process were undertaken by various stock exchanges around the world. As a result the trading process became optimized. Yet the entire transaction process of a simple buy or sell of shares are complicated and costly. What blockchain brings to the table is optimizing the after-trade of the entire transaction. This technology can help in shorter clearing cycles and reducing transaction risks.
- The stock trading takes only seconds to complete, but the clearing process may go upto days, hence blocking capital flows. Blockchain will put a stop to that.
- Instances may arise where a person quickly changes the specification of the number of shares to be traded. In that case additional communication with more manpower is required to tackle the outdated information. Due to the inherent ability of blockchain making data public, this issue will be put to rest.
- Operating risks can also be eliminated with blockchain's ability of pre-transaction checking.
Cross-border payments- Blockchain technology removes the middlemen involved in cross border trades. This technology makes remittances more affordable. In the current scenario a remittance can bear operational costs between 5 to 20% of the remittance amount. Blockchain can reduce it to 2 to 3%. Added perks being real-time and transparent transaction process across borders.
Improving digital identity- As online identity database is moving towards blockchain, users can decide whom to share their identity with. If a given set of service providers are using blockchain, an user can have one uniform identity for all the service providers. This can help where there is user KYC requirements. This enables users to do tasks faster and thus service providers can cut down on cost drastically. This all happens with the data being secure.
Improving loyalty and rewards program- Blockchain facilitates in transparency and trace-ability of transactions. This helps organizations to understand the full potential of loyalty programs. Hence organizations can engage their customers in a more captivating manner. This will in turn result in positive word of mouth and higher customer retention of an organization.
Role of Blockchain in transforming the modern day Supply Chain
As supply chains of organizations become more competitive to give a better bottom line, trace-ability and transparency are the most important aspects of the modern supply chain. Blockchain offers a shared ledger, updated and validated in real-time with each network participant. It ensures what a supply chain professional wants, end to end visibility. This stretches from the supplier's supplier to the end customer. It gives a vivid idea where goods (in any form) are held at any point of time and in what condition it is.
In short blockchain can help in various supply chain areas:
- Reducing and eliminating fraud and errors
- Improving and optimizing inventory management
- Minimizing logistics cost
- Reducing delays from extra paperwork
- No issues in trace-ability
- Increase supplier and consumer trust, hence engage in sustainable and strategic growth
After using those management jargons, let's have a look at how can blockchain really contribute to the modern day supply chain:
Automotive supplier payments: Blockchain facilitates seamless flow of funds anywhere in the world and helps set up transaction links directly between payer and payee. Secure and rapid, these trasansactions through cryptocurrencies can reduce capital tied up from credit sales to a bare minimum.
Electric power microgrids: Increasing demand of energy and shortage of fossil fuels as well as reducing the carbon footprint are the trends of 21st century. To address this, smart contracts can be given to smaller power distributors to distribute excess energy from renewable sources to areas where there is a deficit in energy. This will form small microgrids in various geographical scenarios. Now these small players can't survive in the market where payments get stuck up for months due to poor government regulations. This is where cryptocurrencies come in to speed the entire payments process and thus help in these businesses to flourish.
RFID driven contract executions: RFID technology is normally used by organizations to track shipments anywhere around the world, The tags can be read easily and automatically and processed by the IT systems of a firm. Now the question arises, why not use RFID with blockchain to handover smart contracts to logistics partners. Suppose a firm tagged their goods with RFID consisting the location and date of delivery of goods. Various logistics partners can run applications and bid for the logistics contract of delivering the goods. The partner with the best quotation and terms of service, wins the contract. All of this can be made possible on the blockchain where information flow is the key.
Cold Chain monitoring: The dearth of adequate cold chain warehouses leads to the rise of the concept of sharing warehousing space. The ideal conditions for storing cold chain items like drugs, frozen vegetables and foods are replicated at specified temperatures in warehouses. This data can be uploaded onto the blockchain. As soon as the ideal conditions deviate even a little, an alarm goes off to every stakeholder connected to the blockchain. Thus they can take preventive measures and rectify the situation. This will eventually help firms in becoming proactive armed with more connected data, rather than being reactive.
Challenges faced by Blockchain, what can be done to change the scenario?
Now, are all of the above some random thoughts or are these going to become the future of businesses?
The impediments to embracing blockchain might be:
Lack of proper ecosystem: Whenever any new invention hits the human race head on, they take time in embracing it. Same goes for blockchain, it's only a matter a time before businesses understand the true potential of this technology and connect the dots. As a result there will be widespread acceptance of blockchain in many businesses.
Currency volatility: The most known cryptocurrency, Bitcoin has issues regarding it's exchange rates with various currencies of different countries. As these currencies fluctuates, so does Bitcoin exchange rates. Payment terms may also be shorter than expected due to this uncertainty.
Reluctance to change: Blockchain was incubated with the idea that people with power can't call all the shots. Decentralization is the name of the game with blockchain. Banks and central authorities are constantly trying either to tag the online currencies illegal or impose strict regulations on them. It will take time and convincing to ride the blockchain wave.
Keeping these aspects in check, blockchain can really establish itself as an open global network for free and fast exchange of information and money. This will give rise to a truly connected world.