The blockchain revolution is in full swing. Over a one year period, Forbes reports that Google search requests for ‘blockchain’ rose by 250%. The US Senate recently held a public discussion about the most well-known application of the technology – cryptocurrencies, such as bitcoin. Even some public entities are adding ‘blockchain’ to the name of their company.
So what is blockchain, and how will businesses and their senior executives benefit from it?
A blockchain is what is known as an append-only transaction ledger. This means the ledger can be added to with no information, but the old information that is stored in blocks, can never be changed, edited or adjusted. This is done by using cryptography to link the new block contents with each preceding block. So any change to contents of an older block would invalidate the data in the blocks that come after.
Blockchain is driven by consensus. Many computers are connected to the blockchain network and reduce the chances for a cyber attacker to add transactions. Those that add to the blockchain must work to solve a complex mathematical proof, and the results are shared with the other computers on the network.
Thus, the work of appending data in the blockchain is decentralized. No one entity can take control of information on the blockchain. Users do not need to trust a single entity as they rely on an agreement of many entities instead. What is wonderful about this construct for businesses is that the recorded transactions in the blockchain can be published publicly and verified. So anyone can view the blockchain contents and verify that events that were recorded actually occurred.
In summary, blockchains are transaction ledgers, driven by consensus, immutable, decentralized, secured by cryptography and can be made public. They also are not based upon a system of trust.
Before blockchain, it was impossible to secure and validate the ownership of a digital asset or to verify a transaction in a public and trustless manner. A good example is using a software license to access Microsoft Word. To enforce the right to use this software, it must check with the main server that is run by Microsoft. If Microsoft wishes, it could deny access to the program or give those permissions to another person. Of course, Microsoft is regarded as a trusted entity, but the risk of illicit action and behavior increases when an untrusted party is involved.
Another example is the ownership of a share in a company, or a valuable digital asset such as a unique piece of digital artwork. To transfer shares of a company, current business models require large amounts of paperwork, an attorney or other centralized and trusted entity, such as the New York Stock Exchange.
For a piece of digital art, how do you stop people from copying the file and sending many people a copy? If you cannot publicly verify the transfer of the asset to one entity, it is impossible to enforce ownership. Blockchain is the first technology that allows digital ownership to be transferred in a trustless, decentralized way.
Over time, it is expected that technology and supporting platforms for blockchain will evolve. But as far as which businesses will benefit from using blockchain, they are entities that have these traits:
Both CEOs and CFOs are often curious about how new technologies can affect growth and profits and decrease business risk. With blockchain, it is possible that traditional financial auditing as it was known will soon be at an end.
Some believe that the financial auditing of corporations will see the most revolutionary changes since the Sarbanes-Oxley Act was passed in 2002. With blockchain, financial auditing will ensure that companies are being fiscally responsible. In some cases, this new business model could save lives.
In January 2010, a 7.0 magnitude earthquake hit Port-au-Prince in Haiti. Red Cross was flooded with nearly $500 million in donations. Yet, CNN reported that Red Cross build only six homes from those funds. A year after the quake, the death toll was estimated to be up to 300,000. Red Cross would not disclose how its donations were distributed in Haiti. It is safe to assume that much of that $500 million did not make it to those in need.
A technical team from consulting company Deloitte launched a new tool called PeraRec at the 2016 Shanghai Blockchain Hackathon. During the two day event, this solution was created that allows corporations to record financial transactions in a ledger that is globally distributed that resides in the blockchain. The PermaRec solution links Oracle, SAP and other financial reporting systems. Deloitte can then review financial transactions from both parties to ensure everything is legitimate. While this product is not fully developed, it is a revolutionary use of blockchain that could affect the entire world.
Imagine if this solution had been used by Red Cross after the Haiti earthquake. It is highly possible that much more money would have made it to people who had been displaced and were gravely injured or ill. Lives could have been changed.
With blockchain, it is possible for the donation business to change forever. When consumers have the chance to donate funds for disaster relief and every transaction is available for viewing on the blockchain, more donations are sure to be made.
According to the Association of Certified Fraud Examiners, fraud costs companies $3.7 trillion per year, or an astounding 5% of the Gross World Product. Extending the above Deloitte application using blockchain, it could be used to fight all types of financial fraud. For Medicare, Medicaid and Social Security, fraud could be curtailed by doing transactions to each beneficiary and provider through the blockchain.
Blockchain could be used by companies in any situation where a verifiable public record is needed, and control is not needed or desired by one entity.
Blockchain is being used for many types of applications by companies in virtually every industry. Below are 10 of them. How could an executive in your company use blockchain to help yours?
Blockchain is fast growing with huge potential but it still has practical limits. It may not be a good choice where centralization is required or where malleability of transactions is needed.
One area where blockchain could introduce complication without added value is medical records. Information privacy is safeguarded by federal law, so having them easily accessible to the general public may not be desirable.
The only way this could work would be if the data were encrypted. The encryption keys would need to be stored on a centralized entity so that other nodes could read the data that was encrypted. However, this would require certain parties to be able to read and write the data that was encrypted. So, a central authority is necessary to control how the information is licensed to ensure that bad actors cannot hijack your medical records.
The potential for blockchain to be used in business is virtually unlimited. It is a smart and savvy CEO who learns about blockchain now and begins to apply it to their business operations.
About the Author
Joseph Pickett is Senior Jobs Editor at BusinessStudent.com. He writes on careers, trends and other topics in business and technology and many other matters for the mid-level career professional. He recently completed a list of the top 25 computer science careers for 2018. Let’s just say he breathes tech.