There’s been a lot of hype over the last few years around blockchain and both startups and established companies have been running through proof of concepts around it’s applications. In 2016 alone, there’s been over $1 billion in Venture Capital invested in the technology, which is a 600% increase over 2015. The good news is that now many of the tests are moving out of the proof of concept stage and into customer use.
For the uninitiated, a blockchain is simply a ledger (sometimes referred to as a distributed ledger) of data transactions that is shared with every computer in a given network. Some of the benefits include:
- Lower transaction costs – the technology allows you to cut out 3rd party intermediaries by creating a direct connection to the ledger
- Quicker transactions – many issues around verifying identities and letters of credit can take days to process. With blockchain these issues take minutes and are processed 24/7
- Transparency and immutability – transactions are part of the public ledger and viewable by all parties. This creates transparency and the transactions cannot be altered or deleted.
Banks and other financial institutions have been some of the largest investors into the technology as it has the potential to disrupt the way they are currently doing business. This investment is set to nearly quadruple from between 2016 and 2019.
Now let’s take a look at 3 uses for blockchain technology that are actually happening today.
According to Wikipedia, “Smart Contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Proponents of smart contracts claim that many kinds of contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security superior to traditional contract law and to reduce other transaction costs associated with contracting.” Think about the amount of time and money spent on legal negotiation and enforcement.
Supply Chain Finance relies heavily on letters of credit (contracts) for the funding of the programs. Two companies using blockchain to speed up this process are the partnership between IBM and Mahindra as well as Skuchain. Below you can see the mechanics of a normal letter of credit.
Mechanics of a Letter of Credit, Source: GT News
Another use for smart contracts is that of notarizing documents. In essence you need a notary to certify contracts, deeds and other legal documents. Stampery is using blockchain for this purpose and they’re also one of the technology providers behind the Estonian governement’s E-residency program where companies can register a location independent business.
Traditionally Cross border payments have been dominated by SWIFT who connects over 11,000 financial institutions in 200 countries and serves as the backbone of the global payments infrastructure. They can be seen as a middleman between people, businesses, banks and countries. This is exactly the type of model that blockchain is perfect for disrupting.
A competitor to SWIFT, which was unthinkable only a few years ago, is now emerging. Ripple is building their payment network based on blockchain technology and has recently signed a deal with several global banks to create a Global Payment Steering Group in order to guide the future of payments and create an infrastructure with less friction, costs and inevitably less middle men.
Today, we live in a world where governments and financial institutions more or less own our identities. You need to apply for driver’s license, passports, national ID’s, retailers need your pin# for transactions etc. Even worse is the fact that you log into hundreds of sites and apps and need to remember passwords for all of them.
Now envision a world where you own your Identity and it can travel and grow with you and is linked only to you without fear of identity theft. This is where companies such as evernym and Onename come into the picture. Remember that blockchain is immutable and unchangeable. In theory this means once your identity is linked to you, it cannot be changed. No more need for passwords, passports and pin numbers. This becomes even more important when we think about the IoT (the internet of things) where all our devices are connected, possibly to us and our own ID.
We are moving from hype to practical application and the technology is now seeping into many of the processes and industries we interact with on a daily basis. If your company isn’t already exploring blockchain technology for use in your own products, then now may be the time. Remember to look at your own processes and consider how the benefits of quicker transactions, lower costs and transparency could build your own competitive advantage. Be assured that if you’re not thinking about this, the competition is.