3 blockchain applications transforming industries
The buzz around blockchain has been brewing for years. Now it’s about to spill over into actual applications with monumental potential for disruption.
To best grasp the promise of blockchain, consider this historic example.
Introduced in 1712 as a prototype, the steam engine proved that steam could mechanize machines. It wasn’t until nearly 60 years later that James Watt created a more reliable and efficient model that would become one of the most important inventions of the industrial revolution.
The use of blockchain for bitcoin was like the prototype steam engine. We’re about to see blockchain hit the James Watt stage.
That stage of the steam engine propelled boats down waterways. The next evolution created an entire industry: the railway. This family of milestones enabled businesses to build factories inland and move goods across distances that once seemed impossible.
As the industrial revolution unfolded on the back of the steam engine, biocost decreased and opportunities for profits increased.
Blockchain is on the cusp of this kind of disruption, and it won’t take decades to come to fruition. In this post, we’ll cover what blockchain is, as well as three ways businesses are set to take advantage.
What is blockchain?
In its most basic structure, a blockchain is a distributed ledger for transactions, meaning it’s a type of database that spans multiple data centers or institutions. Distributed ledger data (or assets) are immutable, so every transaction is recorded and no single person can modify the historic state of the data or asset.
To change the state of an asset, a new block of data must be added to the ledger with the proposed modifications, and then a consensus point must be reached among all peers before the changes are written to the chain.
This process of reaching the consensus point is known as “mining” and the computational power used to complete the mining is known as proof of work (POW). Just like cloud technologies, there are public, private, and hybrid blockchain architectures.
Still confused? Think of it like baseball. There are teams that can score runs (users), umpires who enforce the rules of the game (miners), a score book recording the details of the game as it unfolds (POW), and a single league that the teams belong to (blockchain).
If one team smashes a grand slam at the bottom of the ninth in a tied game, and the umpires validate it, the scorebook, scoreboard, and official league standings are updated to show that team won the game. This is a simple example of a permissioned ledger where a small set of actors (umpires, or miners) validate the modifications to the end results (the league standings, or blockchain).
Putting theory into practice
This technology is already supporting some world-changing applications. Here are three of the biggest.
1. Financial compliance
One of the many functions of financial compliance is Know your Customer (KYC), which verifies a customer’s identity and shields against money laundering, bribery, and fraud. Right now each financial institution has to perform its own due diligence and investigation for every new client, a process that can take 30-50 days and cost upward of $500 million per year, according to Thomson and Reuters.
But what if an organization could run the KYC processes once per client and offer the results to all financial institutions? Blockchain could eliminate the duplicate efforts, provide a historical record, and preserve anonymity while supporting transparency. This could bring massive cost reductions, increased customer retention, and increased profits to firms leveraging this service.
IBM just completed a proof of concept of this exact use case with a collection of customers. It showed how a blockchain-based IBM Shared KYC platform “provides a secure, decentralized and efficient mechanism for banks to collect, validate, store, share, and refresh trusted KYC information of corporate customers.”
2. Identity verification
Today the state and federal governments issue paper-based documents with seals on them to prove who you are—a method that, given technological advancements and the dedication of fraudsters, seems a bit easy to counterfeit.
Writing birth certificates, home and land deeds, social security numbers, or even employment records to the blockchain enables agencies to cryptographically verify who you are or what you own.
This can also extend to on-the-spot payments for individuals. For example, social media websites could introduce new business models in which they compensate users for posts. If you post a picture or status update, the social network using that data for ad targeting could give you a cut of the revenue using your digital identity. By paying for your contribution, they could incentivize more sharing.
3. Supply chain tracking
Suppl chain may be the biggest blockchain opportunity today. The challenges with trackability and authenticity of products and goods in the supply chain are handled by sophisticated systems, but there’s still not a trusted, mutually agreed-upon record that’s shared across industries.
The relationships that exist are typically between a few teams, when they should be between one team and a million others, given the number of parties that interact with a good or service across its lifecycle.
Food safety is a great example of this. Food moves from farm to fork through multiple actors, including cultivating machines, trucks to deliver to distributors, distributors delivering to sellers, and restaurants preparing the meal. All of these actions are just for one single ingredient in the meal, so you could be looking at hundreds of thousands of food miles when eating a single meal from an Iron Chef.
If a major bacteria infected peanuts, how would authorities know which batch had the bacteria, which suppliers distributed that batch, and what restaurants are serving food with those contaminated ingredients?
This could take weeks to nail down, and more weeks for suppliers to find the customers. If the lifecycles of these shipments were traced on a shared ledger across all actors, authorities could easily pinpoint who has interacted with the infected batch.
Companies are already experimenting in this area. Maersk and IBM have teamed up to deploy a blockchain-based electronic shipping system. By digitizing supply chains, organizations from manufacturers to shippers to government agencies will be able to track international cargo in real-time and ensure a faster, more seamless transport.
How to get started with blockchain in your own organization
The concept of blockchain on its own is interesting, but its use cases are what will really drive change. You can apply blockchain to your own business leveraging smart contracts, also known as decentralized apps (dApps).
A dApp is a programmatic digital handshake that can complete a portion or entirety of a task. It is a strict set of ordered rules that align to each step in the sequence of a transaction. The first killer dApp today is starting an initial coin offering (ICO), which is the equivalent of crowdfunding your startup. The amount of trust required to transfer value is being disrupted and is almost completely relieved by what can be done with Ethereum, a decentralized platform that runs smart contracts. The barriers for institutional, trustworthy funding have been removed.
There are a few low-risk opportunities to start using blockchain technology in your organization. For instance, you can start by evaluating your current internal application suite. Look for applications that manage physical/digital assets, use systems that rely on identity verification, or have an extraordinary amount of overhead because of data silos.
Tinkering with a small purpose-built dApp can aid development of the real skills needed to build next-generation applications. Luckily cloud platforms from startups and juggernauts like Amazon or Microsoft reduce the barrier to entry and make it easy to start testing.
Harvard Business Review offered some great advice in an article about blockchain.
Innovation with blockchain
Just like the steam engine, blockchain has the potential to monumentally change entire industries. The steam engine made land travel more efficient, completely revolutionizing the way goods were produced and shipped in the process. Blockchain similarly makes verification and transaction easier, which could shake up everything from banking to supply chains.
Blockchain’s potential has barely scratched the surface. It’s up to businesses and innovators to continue to dig deeper.