What is the promise of blockchains?

Now that you have an overview of blockchains and what makes them so interesting, it’s time to consider what they offer to us.

In the context of business, let’s explore four key promises of how implementing blockchain can and will drastically change the business landscape.

Promise 1: Blockchains cut out the middleman

Blockchain technology allows for the creation of new digital ecosystems that do not need to be controlled by entities such as private companies or government agencies in order to ensure trust. The nature of the digital architecture of a blockchain allows for trusted transactions and operations to take place within the blockchain environment.

These transactions are:

• Protected using clever cryptography, giving rise to the popular term “cryptocurrency”
• Verified and stored using smart computer code
• Secured using a consensus among numerous hosts of the chain that makes it near impossible to change the data.

The ability for a digital environment of trust to be established using computer code and consensus presents significant implications and opportunities that will be discussed further in this course. For instance, removing the middleman from digital transactions stands to reduce costs, speed up the process, and ensure that data is only accessed by those that the owner of the data approves. However, the use of intermediaries in the global economy is well entrenched and this is likely to affect the uptake of a new solution.

Promise 2: Blockchains give people control over their data

As mentioned above, data stored in a blockchain is secure and verified using smart computer code, and a consensus system involving numerous approved hosts, mimicking a community of trust. As such, the owners of the data can digitally control who has access to it and how it is used using what is called a smart contract (which we will explore later in this topic).

Unlike systems that require you to agree to let them own your data in order to access the digital service, such as online chat services, mobile phone applications and shopping platforms, a blockchain ecosystem can be accessed without surrendering data. In fact, the data stored in the chain can be leveraged by the owner, such as allowing spending patterns to be viewed by third parties for a price according to the smart contract in place. Imagine having your personal data, such as medical records, education transcripts, property ownership, shopping history, etc, securely stored on the internet in a manner that no one can see unless you provide specific permission, and you do not need to do this to access services.

Promise 3: Blockchains are secure and can be trusted

The security of data in a blockchain is protected using clever cryptography and data architecture. For instance, the data that is written into a block is kept secure using cryptography to create a unique digital signature for that block (which is called a hash, and we will also cover this later this week) which is encrypted and can only be decrypted using a private key.

When blocks are linked to form a chain, the digital signature of the previous block is contained in data that creates the signature for the new block. This creates a daisy chain effect that means if any changes are made to any previous block, the most current block will also be altered, resulting in the host that was hacked being removed from the consensus system (this is referred to as being ‘tamper evident’). This level of automated security makes blockchains ideal vessels for information that cannot be tampered with such as votes in an election, records of expenditure of charitable organisations and results of education programs.

Promise 4: Blockchains will save businesses time and money

When doing business in a blockchain ecosystem, transactions can be processed quickly because an intermediary is not involved and the parties are connected directly. Imagine a typical supply chain with 10 or 15 companies involved that begins with a resource being extracted, and moves through the value chain to a product being created, transported, and sold. At each step, the businesses involved have their own separate data management system which typically interacts with other businesses via contracts and invoices, causing lengthy delays and costs.

Imagine if each of the companies in the supply chain were able to transact in one single trusted database; a database that is so trusted it can host its own digital currency, which has implications for supply chain finance – such as the VeChain blockchain which was designed by the CIO of Louis Vuitton China to deal with counterfeit products. Inside such a database, as the material or product moves along the value chain, a number of contract terms can be automatically triggered, such as signing off on delivery which results in agreed payments being released.

This also provides a full transaction record from the very beginning, providing valuable provenance information about products that can validate origin and assist in product recall management. This also removes the need to undertake manual reconciliations and verification processes which avoid the associated time spent, transaction fees and commissions along the chain along with reducing the chance of errors and fraud.

Share your thoughts

Considering the four key promises that blockchain offers to the business sector, can you identify any other opportunities related to these benefits?