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Behold the BlockChain: A New-Age Platform for Modern Trade


Gold Cog and Wheel Graphic

Just casually name-drop blockchain at a tech startup meeting and watch as attention focuses, eyebrows rise, eyes twinkle and saliva starts to drool. All jokes aside, this trend is smoking hot; according to the Deloitte report, there were 26,000 blockchain applications started on GitHub (a software project repository) last year alone, and investors are jumping in. Blockchain, a unique digital platform was originally designed in 2008, by a mysterious entity or person Satoshi Nakamoto as a way to buy and sell bitcoin, electronic currency (cryptocurrency). Today, this unique system is finding a new home in a broad array of industries. Both startup companies and the corporate establishment are making deliberate moves to exist on it. So, what is so enticing about this new system for modern businesses and why do we care? The answer lies partly in our current state of world affairs. We now live in an age of globalism, artificial intelligence, cyberthreats, fake news, advanced counterfeit goods (e.g. fake food), and fierce competition between corporate giants. These forces make doing business complicated and time consuming, as it becomes increasingly difficult to verify the security and legitimacy of a trade. This is important to businesses, and as we will see, it will become important to consumers as well.

What exactly is blockchain?

The blockchain is a digital ledger technology, a sort of chain-of-custody (as a rough forensic analogy) to securely record data and transactions. As a decentralized database, there is no single entity which owns or controls it. All authorized stakeholders can share ownership and access to the information over the network from their own machines, which are automatically updated, and the data is retained indefinitely. This can move transactions to a new level of accountability. Check out this video below, from the Institute for the Future for a quick description of why blockchain is useful.

What are the benefits of blockchain?

The beauty of blockchain is the fact that the technology is difficult to tamper with, there is no central controlling authority, and for smaller blockchain applications or powerful computing machines, the speed of transactions is relatively fast. The way it works is data is stored in blocks or packages, signed with an encrypted alphanumeric hash string, bound to a key held by the stakeholders. Sequential transactions are joined together, as each block also stores the unique hash of the block before it and the block after it along with its own hash and the data. Each transaction makes the chain even more secure. Any potential insertions, deletions or alterations would have to decode and alter the entire chain, so they cannot be done, surreptitiously or otherwise. Furthermore, each alteration has a timestamp and identity of the user making the change. Hence, tampering with the system would create additional records which would be visible to all involved parties. In an ideal case, each transaction takes a matter of seconds, and is available for all stakeholders to view and verify, regardless of how each company does business. No more waiting for email, faxes, postal mail with ink signatures, reviews, verifications, and/or paying a third-party payment system to secure and complete a business deal. This could change the pace of business transactions from taking weeks to a single afternoon. This rapid and secure data transaction system is direct between parties, and well-suited for high-stakes industries such as finance, government, healthcare and big corporate supply chains, which can’t afford to have uncertainty in the validity of transactions. People have touted blockchain as the system to "remove the middleman", and many believe it will eliminate the need for banks, and other regulatory or controlling institutions altogether, as bitcoin has already started.

Nonetheless, banks have already begun moving to blockchain to improve their own transactions. According to Financial Times, banks are beginning to use blockchain to reduce the time of clearing and settlement of loans and securities, to reduce the time of processing syndicated loans, to shift payments away from third-party providers, to secure trade financing deals and to verify customer and business identities.

Although the health care industry has not formally adopted blockchain, many industry leaders perceive that the potential is enormous. As discussed by MIT review, the medical record is one document housing a chain of transactions which could well benefit from the blockchain. Maintaining a strict and secure, HIPAA- compliant, legal health record, with access controlled by the patient, which could be made available to providers wherever the patient goes to receive care, would be beneficial for all involved parties. One project beginning the process of moving the electronic health record to blockchain is MedRec TM. The other aspects of healthcare which could improve with blockchain are the hospital reporting, regulations compliance, and notably billing and payment transactions, which may be slow, inefficient, and subject to fraud in their current state. Decreasing this inefficiency and waste may perhaps even lower the costs of healthcare.

Using blockchain to manage the supply chains of big corporations has great implications as well, for both businesses and consumers. Walmart and other global food suppliers have recently begun a plan to provide transparency and security in the acquisition of food products, by using blockchain to track its food sourcing. This is extremely helpful in tracking down and minimizing food-borne illnesses due to contamination, and counteracting the sale of fake-food or food fraud which is a major issue in China, but also occurs in the United States. Widespread adoption of this system could make the food system safer for all. After all, how do you know your organic, pasture raised, grass fed beef is truly that?

Other industry transactions which may benefit from using blockchain include maintaining the provenance of fine art, maintaining clothing supply chains, for businesses to prove ethical and sustainable practices, recording real estate and other large asset transactions, distributing music and media, and securing the internet of things (IOT).

What are the disadvantages of blockchain?

Blockchain is not the best solution for every business model. A careful analysis of the particular use case is necessary to determine whether it is worth the cost of custom implementation and deployment, where other existing systems may be better suited as IBM warns. Blockchain operates best on a fully developed business network with low volume, high value transactions between businesses. The involved parties must all be equipped to process information this way. Blockchain is not a mature, fully developed system and it may take years to be established in a way that best facilitates its use, as Harvard Business Review concludes. The energy costs are high; one single bitcoin transaction has been found to consume enough energy to power an entire country. Not all blockchain applications will use as much energy as a bitcoin transaction, however energy costs, and computing power needed must be considered. The data on the blockchain is stored indefinitely, hence storage space, and transaction time on each node or machine of the system will continue to increase as the blockchain becomes larger. The cost and logistics of maintaining this ever-increasing storage need will have to be accounted for. This may be a limiting factor affecting scalability of a particular application in some systems. The technology requires high accuracy and high quality input for the information to be worthwhile as there is no room for mistakes and errors since all data becomes part of the permanent record. Finally, future quantum computers may have the power to process large transactions, but they would also be potentially capable of cracking the cryptography that blockchain relies on. For these reasons, some still question whether blockchain will truly take-off in the future.

What does it mean to society?

Beyond the new business trend, blockchain has the potential to become the new way in which all transactions occur. As it stands now, blockchain is becoming an interconnected, secure web for business to business transactions. However, there is currently an open source blockchain platform being built with contributions from several corporate institutions, including IBM, which point towards much broader application. One such major umbrella project is called Hyperledger from The Linux Foundation Projects, with a foundational blockchain development platform called Fabric. This project is being developed to allow various types of blockchain applications from different industries to be created and communicate with each other towards the goal of more streamlined and mainstream use. This provides a new way for businesses to interact with different industries and consumers. This would lend itself towards a future in which contracts, loans and large asset transactions could occur on a blockchain that consumers participate in. Even more drastically transformative, privacy would be a completely different concept, if our educational history, C.V.s, credentials, medical records, assets and even bio-identification parameters, could exist on the blockchain as an unalterable digital permanent record for each individual, precluding the need for lengthy background checks. We would have to be the guardians of our digital blockchain records of the future even more than we control and monitor our credit and social media profiles, today, as any record is permanent. Yet, institutions could also presumably have the power to create records on the blockchain about consumers. Regulations would invariably be necessary to protect consumers. So, what do you think of this new potential future in blockchain? a) Can’t wait b) I’ll pass or c) The jury is still out? Thanks for checking out this blog post, feel free to leave a comment with your thoughts, and check out our other futuristic blog posts.

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