Blockchain for Businesses

Blockchain is the big buzzword that's been going around the tech and business world this year. However, what exactly is it and should businesses really pay attention to it?

If there is one technology that’s gotten much hype in 2018, it’s definitely blockchain. For many, the first thing that springs to mind when the term blockchain is mentioned is cryptocurrency, more specifically bitcoin. This is no surprise as the bitcoin was one of the hottest topics of 2017, especially with its ballooning price (and subsequent crash). With the interest in bitcoin though, people have also started paying attention to the underlying technology and bitcoin was built on, blockchain.

In fact, blockchain was a priority topic at Davos and a World Economic Forum survey suggested that 10 percent of global GDP will be stored on blockchain by 2027. Plenty of governments have also published reports on the potential implications of blockchain, and in the past two years there have been more than half a million new publications on the technology.

So as it stands, with so much interest in the technology, we just had to take a look at it and see how much implications it would have for businesses now and in the long-term.

A Brief Look at what is Blockchain 

But first, what exactly is blockchain? It isn’t a single technology by itself but an architecture. In very simple terms, blockchain is a ledger system that uses an open, distributed record to keep track of transactions. In this case transactions can be anything from cryptocurrencies, medical information, voting or home records, and more.

These transactions get packaged into blocks, and each block gets verified by other users in the system by completing a math problem. Once a block gets verified, it cannot be altered and gets added to a chain of other permanent, previously verified blocks. The records held within these blocks form a blockchain, and the blockchain's users all keep track of this record. A very simplistic view or explanation would be it’s basically a giant, shared ledger. In practice, it's much more than that.

A more detailed explanation on how the technology works is as such. The Harvard Business Review laid out five principles that all blockchains have in common:

01. All Blockchains Use a Distributed Database 

Blockchain is based on a distributed, peer-to-peer topology where data can be stored globally on thousands of servers. It’s decentralized where the database is not stored on a single server but can be on up to thousands of servers globally. As such every user in a blockchain can access the complete database, including its past transaction history. This transparency allows users to verify any information they need and to complete transactions directly, without any intermediaries.

02. Any Transactions or Communications Get Conducted Between Peers 

In a blockchain each user stores records and sends information directly to all other parties. As a result of this, intermediaries and central storage institutions, like banks, are unnecessary. Users, also known as nodes, have all the information they need to vet other users.

03. Each User Associated With a Blockchain Can Remain Anonymous 

As a protection for users’ identification, each user has their own unique 30-plus-character alphanumeric address instead of a name. Users can then choose to share their identity or remain anonymous with their blockchain address. These alphanumeric addresses are also used to verify transactions. How this verification works is as such.

When someone wants to make a transaction, and therefore add new record or “block” to the ledger, they first need to solve what is essentially a math problem.

Many of you might have heard the term mining when it comes to cryptocurrencies like bitcoin and it’s this mining process that solves the math problem by suing computers’ computing power to “mine” for the answer, which is then vetted by the network of users.

If the answer is correct, the new block is added to the ledger. A token, also known as a coin, is generated when this occurs and this acts like a receipt to prove that it happened.

04. As Blockchain Uses a Digital Ledger, The Entire Transactional Process Can Be Automated Using Algorithms 

What this means is that a lot of complex transaction processes are cut out and handled by the blockchain. For example, in the case of house purchase, in real life, there are plenty of other costs that are involved in a purchase of a house like legal fees, registration fees etc. Add to that the people involved in processing, providing access and administration from one person to another, its more than just putting your name on the title ownership of a house.

Blockchain makes most of this complexity disappear. It allows you to record property data and even build in digital rules — called smart contracts — that, once fulfilled, allow the system to automatically transfer a property title or money for purchase.

05. Once a Record Gets Created, It Cannot Change 

This is one of the most important aspects of blockchain, the permanence of a transaction. When miners verify a transaction, that record is shared with every other party in the blockchain as part of the decentralized ledger. Part of each verified transaction is also used to generate the math puzzle for the next block in the chain. This means each transaction gets linked to the ones that came before it and all those transactions get stored across multiple computers with no single point of failure.

What Sort of Benefits Does Blockchain Bring to Businesses? 

The explanation before is as simple as one can explain about the basics of blockchain. There is no doubt that blockchain in general can be quite complicated on a technical basis, however, businesses do not necessarily need to understand it’s technical complexities as much as they need to understand what blockchain can do for their businesses.

The benefits can be broken down into about three parts; Increased Security, Smart Contracts and, increased Speed and Efficiency. Let’s look at each benefit one by one.

01. INCREASED SECURITY
The biggest benefit of a blockchain is its ultra-secure network. Data transmitted using blockchain is inherently encrypted, so it’s much more secure than your standard username-password security system. The real security benefits however, come from blockchain's network of users.

Data in blockchain networks are decentralized. As explained above it’s not stored in a single drive but hundreds to thousands of drives. This makes it extremely difficult to hack into because no “single point of failure” exists.

To break into a blockchain network or to “hack” it, a blackhat hacker would have to overwhelm over 50% of the network in less time than it takes to create a new block. The amount of computing power that is needed to do this on most blockchain networks is humongous. We’re talking hundred upon thousands of computers, and if the particular blockchain network is larger, it’s even harder to hack as data is a lot more decentralized and have more computers working to verify transactions.

And if there is a case of data being tampered on a block, thanks to hash functions, it’ll be easy to detect. Hashes from one block are added to the data in the next block. Anyone who tries to alter a block will end up changing the hash completely, setting off a red flag and disabling the block completely.

As an added layer of security, blockchain networks also offer anonymity. Instead of using a variety of information like most normal systems would (addresses, identification numbers, etc.) to verify transactions, what matters in a blockchain is a user’s private key.

Each blockchain user has two keys: a public key and a private key. Their public key is derived from their private key using a mathematical formula and then combined with other information to form their public address for transactions. Without the private key, it is impossible to verify transactions to the public address. This private key never gets shared with outsiders which means multiple complex formulas stand between a user's private key and their public address.

For many businesses this increased sense of security would be a major boon, especially for those related to the fintech industry, requiring plenty of transactional data that must be recorded, stored and not tampered with. In a traditional system, a single database might be shared and easily tampered or manipulated with by a user. Within a blockchain system, this tampering and manipulation will be recorded and can be resolved by sharing the suspicious activity down the line.

02. SMART CONTRACTS
Smart contracts could possibly be the most powerful application for blockchain networks. What smart contracts do is use blockchain to automate payments and transfers based on a predetermined set of conditions. Using smart contracts, one could automatically send pay to a supplier when goods are delivered. The transaction would be sent securely to the supplying company and verified using blockchain. This automated process saves a lot of time and would prevent the incurrences of more late payment fees and the best part; one would never have to think about scheduling a payment again.

The long term effect of smart contracts is that as more transactions are automated using smart contracts, the need for middlemen and outside organizations will diminish, thus unneeded extra costs from businesses.

03. INCREASED SPEED AND EFFICIENCY
Blockchain networks can be fast and efficient. In typical systems, manual data entry can be tedious and prone to errors. Add the fact that many organizations maintain multiple record systems for different tasks, reviewing these multiple records would definitely take time. However, with blockchain implementation, all this information gets stored and verified as it gets generated.

The speed of verification that a blockchain system has will definitely be a big benefit for businesses. Simple stock purchases that takes up to a week to verify with existing methods due to multiple middle-men and form can be done away with. With blockchain implementation, there is no need for third-party verification because all the information needed to complete and verify the transaction gets included in the ledger. What this means is stock transfers can happen almost instantaneously instead of a full week later.

Should Businesses Look Into Blockchain? 

The thing about blockchain is that despite all the benefits that we’ve listed above, blockchain technology itself is still considered an immature technology. Despite the fact it’s been around for at least 10 years, the market for it is still nascent and a clear recipe for success has yet to emerge. Many of the current blockchain solutions and implementations are in their conceptual stages and it’ll take a while before we’ll see them be commercially available, what more commercially successful.

Although there are successful implementations of blockchain applications and solutions in production, they are still small in number. Many projects are still conceptual, and it’ll take time to see mass adoption. Maybe in a year or two, we’ll see more live usage of blockchain applications.

Then there is the issue of costs. To develop blockchain based applications and systems, it is not exactly cheap. That is to say if a business decides to implement a blockchain based solution in-house instead of going for a third party application or solution, as the cost involved would be the equivalent of hiring a team of developers.

However, despite the nascent level of the tech, the benefits we’ve listed above are still very much real, and business owners especially should pay heed to this upcoming technology. After all if both the Dubai (which plans to be a fully blockchain powered government by 2020) and Malaysia (which plans to fully adopt blockchain by 2025) has given special interest to it, why shouldn’t businesses do so either? The thing is: How much do businesses and business men need to know though?

Top Blockchain, Bitcoin and Cryptocurrency Books to Read

The literacy for blockchain doesn’t necessarily need to be high among the general public. The public doesn't need to know SQL database is the back end of any online store when they shop there. The onus is on programmers and business owners to understand it so they can think of ideas on how to use the technology to create or improve new or existing businesses.

Those ideas especially might be just the thing that would eventually be the difference on whether a company pulls ahead, or is left in the dust.