What is Blockchain Technology?
Blockchain technology refers to a decentralised database comprising of various blocks, linked with each other, which cannot be altered and is protected through cryptography. In other words, it is a digital public ledger shared among a community of users who can add new transactions/records in the blockchain network but cannot make any changes to the existing records. This unique property of the blockchain makes it an efficient way to record data in a transparent manner as every user gets to see the data.
How to create a blockchain transaction
As we have discussed in our previous blockchain articles, on the blockchain network, when two parties enter into a transaction data gets encrypted. After verifying the transaction, a new block is created and is added to the existing chain of blocks. This way the transaction gets completed and the ledger gets automatically updated.
Cryptocurrencies is the first major and widely used application of the blockchain technology launched in 2008. They are a form of digital currency which can be exchanged by the people among themselves without the need of central or regulatory authority. More than 6000 different cryptocurrencies have been created as of today. The modern cryptocurrencies became widely known throughout the globe in 2009 with the launch of Bitcoins, the first decentralized modern cryptocurrency.
However applications of blockchain technology go far beyond the cryptocurrencies. This technology is impacting various industries and businesses with its immense benefits like time saving and cost efficiency, transparency, reduction in frauds, privacy, etc.
Can we use blockchain in different industries?
Blockchain technology has a lot of potential in facilitating cross border payments, thus changing the way in which banking sector works. Already, many companies are providing end-to-end blockchain powered remittance services.
Various global banks have already adopted bitcoins for facilitating transactions including Deutsche Bank, DBS Bank, Royal Bank of Canada, etc. Some of the benefits of adopting blockchain in the banking sector are speedy and faster transactions, reduction in cost and third party fees, enhanced security, real time maintenance of ledgers, etc. As per the recent article published by ComputerWorld, global banks can save $8-$12 Billion annually by using blockchain technology.
Blockchain networks helps the doctors and patients to securely transfer personal health documents. As the documents shared over the network are encoded, hence blockchain technology ensures that only the specified individuals can get access to the medical records using a private key which is similar to a password. Also, medical documents stored on a blockchain can be used by the doctors for accessing the complete medical histories of patients. Some of the healthcare startups and companies which are using this technology includes MedRec, Factom, Uledger, Simply Vital health, etc.
BurstIQ is a US based healthcare company which provides blockchain enabled data solutions and helps in the transfer of medical data between patients and doctors in a secured manner.
Blockchain has a lot of potential to bring significant changes and growth in the insurance industry. It will allow sharing of data in real time between the insurance company and its clients in a trusted and transparent way, thus resulting in cost savings, improvement in efficiency, reduced chances of insurance fraud, better customer engagement and lesser time for processing insurance claims.
In the above insurance blockchain framework, various insurance processes like issuance of new policies, premium collection, settling claims, etc. are encoded into smart contracts which regulates the terms of agreement in the blockchain system. Some of the companies providing online insurance services using blockchain includes Blocksure, Pantera, Tradle, etc.
Some of the biggest challenges that music industry is facing nowadays includes royalty payments, transparency and ownership rights. Use of blockchain in the music industry is helping the artists getting paid fairly through automatic royalty payments and will create a level playing field for the artists and distributors in terms of sharing revenue.
Also, blockchain will enable micropayment system for artists whereby through the direct payment gateway, cryptocurrencies will be sent to the digital wallet of artist each time their songs are being played or used by others. Some of the companies in music industry using blockchain includes Ujo, Vezt, BitTunes, Pledge Music, Mycelia, etc.
Some possible use cases for music industry:
- Royalty systems can be made transparent for all the stakeholders
- Revenue shares for the talent
- Affordable music platforms
- Universal musical elements database
- Micro-payments for artists can be made possible
- Fair trade database
- Fighting Piracy
- Digital Rights Management
- Securing Digital music and its copyrights
Real Estate has involved a lot of pen and paper work for a long time in the last few decades. Also, investment in real estate using traditional methods posed a lot of problems for most people like lack of transparency, difficulty in liquidating assets, high risk of frauds, etc. But usage of blockchain has transformed the way in which traditional real estate transactions used to happen. Blockchain will make the process of searching property easier, reduce the need for intermediaries or third parties, secured and safer property transactions, increased transparency in all records, reduction in costs and decrease in number of property frauds, etc.
Through blockchain decentralized record keeping technology, efficient solutions can be created for residential and commercial property sector from purchasing assets to ensuring due diligence to transfer of ownership. Some of the real estate companies using blockchain includes Ubitiquity, Safe Chain, BrikBit, Blocksquare, etc. Buying a property through blockchain concept can increase transparency and also prevent frauds and black money transactions. Smart contracts can replace the current offline process of property purchasing.
Supply chain is like the backbone for any type of business. Without an efficient supply chain management in place, businesses cannot do well in the long run. Supply chain process of today’s era is facing a lot of issues ranging from lack of transparency, rising cost of procurement and inventory, no proper system for tracing the origin of the goods. However, blockchain has the ability to transform the supply chain management through cost saving efficiencies, improving inventory management, reducing and eliminating errors and frauds, etc.
In blockchain based supply chain network, smart contracts are being used under which parties interact with each other and various documents ranging from purchase order, invoices, receipts, inventory sheet, and other trade documents get automatically matched on the blockchain network, and also initiate automatic payment transactions.
Blockchain has a lot of potential to deliver government services to the public in an efficient and a more secure and transparent way. As we have seen in recent times, Government of various countries are shifting to digital platforms to provide various public services. There are a lot of issues that act as an impediment in the way of providing government services to public such as too much power with the centralized government agencies which leads to corruption, lack of transparency, slow and inefficient processes, etc.
Blockchain can provide better solutions in the government sector. The government can use blockchain in conducting elections in a transparent way without the risk of fraud. It can also perform identity management of each citizen, maintaining records of individual citizens in a secure way.
Pros and Cons of Blockchain Technology
Blockchain technology just like any other modern technology has both advantages as well as disadvantages. Implementing blockchain in various industries has brought tremendous benefits in terms of enhanced security, transparency whereas its huge storage space requirements results in efficiencies and huge amount of energy consumption.
- Enhanced Security:
Blockchain network provides high level of security to the users as all the data exchanged on the network is encrypted and can be accessed by the intended receiver using his private keys only. Also, data once written on the network cannot be changed ensuring protection of the data.
- True traceability:
Since data written on the blockchain network cannot be changed or manipulated, hence it helps in tracing the true identity of the user. This feature of blockchain has tremendous benefits for the Supply Chain Industry where it was, traditionally, very hard to trace the goods leading to counterfeit, theft, etc. Blockchain has helped supply chain in becoming transparent by enabling various channels to trace the goods, thereby reducing the chances of counterfeit or theft of goods.
- Reduction in costs:
In various industries like banking, insurance, real estate, and many others, businesses and individuals spent a lot of money on fees charged by third party vendors. On blockchain, there is no involvement of third party vendors resulting in cost savings for the businesses and individuals.
- Inefficient as Blockchain requires huge storage space:
As more and more transactions take place on blockchain network, large amount of space is required to store the data. The size of bitcoin blockchain is around 200 GB which can consume huge storage space of a laptop. For storing the blockchain data, user has to download huge GBs of data which ultimately increase the time taken to complete a transaction.
- Use excessive energy:
For the purpose of creating new blocks, various miners compete among themselves and for that purpose, huge amount of electricity is consumed by them. The machines working on proof of work algorithm on bitcoin network are consuming lot of electricity which is resulting in huge carbon dioxide emissions in the atmosphere.
- Human Errors:
Public keys are used to gain ownership of the blockchain data and for each of the blockchain address, there is a corresponding private key. Users can get access to their funds through private key only. If a user loses their private key, he loses out the money and nothing can be done to get that amount back.
Future Trends of Blockchain Technology
Some of the blockchain development trends that are expected in near future are:
- Due to the immense popularity that blockchain technology has gained over the last few years, there is going to be a huge demand for people with blockchain skills. As it is a very new technology, there are very few engineers who are blockchain experts. So, one of the future trend is going to be the high demand for blockchain developers.
- Financial institutions are going to be at the forefront in the adoption of blockchain technology in their operations. As per a recent report by PWC, banking sector will engage in transactions worth a billion dollars by using cryptocurrencies by 2020. Also, some new cryptocurrencies based on blockchain can be launched which will be regulated by the government authorities.
- With the rise in the use of cryptocurrencies in the last few years, governments of various countries have expressed skepticism over its usage and authenticity. However, recently Petro, national cryptocurrency of Venezuela, was launched and is backed by nation’s oil reserves. Russian President also proposed the idea of launching its national cryptocurrency. In the near future, we will see more countries launching their respective cryptocurrency.
- The government agencies are going to be integrating their humongous data using blockchain network. As different agencies maintain separate database, it increases the workload of government officials as they have to keep asking for data from each other. Estonia through blockchain has already created a digital ledger which contains information of all of its citizens protected through encryption. Governments maintaining huge amount of data will store them on blockchain network.
Blockchain and COVID-19
The scientists and researchers across the globe are using digital technologies like artificial intelligence, internet-of-things, big data analytics and blockchain in the fight against COVID-19. Each of these technology is playing a significant role in the fight against the virus.
Through blockchain, huge amounts of data like patients medical reports, number of infected cases, death cases, regions affected, etc. that is being collected and stored by various agencies, could easily be traced. As information is coming from different sources, no source is able to provide accurate data. On the other hand, storing all this data on blockchain will ensure transparency and build trust on the data.
IBM blockchain network has recently launched IBM Rapid Supplier connect which will allow health care and government agencies to obtain supplies of medical equipment and personal protective equipment(PPE) from vendors who are outside of their regular supply chain. It will also carry out validation of data and updating of inventory data on real time basis.
Blockchain technology has a lot of potential to disrupt the traditional business models, and entirely transform the economy and society. Just like internet changed the way businesses conducted commerce in the last 20 years, similarly blockchain has the ability to revolutionize the way in which businesses will be conducted in future along with many other technological developments in the field of computer science. According to a JP Morgan Chase report, there is still a long way to go in the mainstream adoption of blockchain technology as it is still in the early stage of development and its true potential will be visible to us in the future not so far away.
Prepared by: Jatin Aggarwal, IIM Nagpur
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