The Promises & Drawbacks of Blockchain
If you’ve had an eye on the latest finance and investing trends, you must have come across the term ‘blockchain.’ Blockchain technology has been around for over a decade now, and has been catching a lot of steam in the business world lately. The way it has enabled fast and secure transactions, without the involvement of any middlemen, makes it of great use for business people worldwide. Let’s dig deeper into the topic to see what it is, how it works, and how it can be beneficial for your business.
Blockchain 101: What is Blockchain?
Simply put, Blockchain is an automated way of passing information from point A to B in a completely safe manner. All in all, it consists of small blocks of digital data stored in a public database, spread across a decentralized network of computers. Each block contains information about the transaction and has a unique identification code. The transaction is initiated by creating one such block, which is then verified by thousands, perhaps millions of computers distributed across the net. Once verified, it is added to an already existing chain (database) and hence gets associated with a unique history.
Since the chain (database) is spread out across many computers, it is virtually impossible to tamper with a block, hence making the Blockchain an extremely secure method of sharing information.
A simple example to understand this whole process could be that of a train ticket station. Each ticket could be considered a block containing all the information about the departure time, price of the ticket, etc. In contrast, the chain could be the entire train network comprising of every ticket ever sold to each person in the system. Each ticket is uniquely associated with the chain and is only accepted when verified by the entire system.
The Promise of Blockchain
The blockchain technology has the revolutionary potential to transform how businesses operate and collaborate. It has found its applications not only in the banking and finance sectors but also across the corporate world, enabling information sharing, digital contracts, processing payments, and tracking client information. Some of the leading businesses around the globe have been using Blockchain to speed up their everyday tasks, with minimum middlemen costs. VISA and HSBC could be simple examples of their use in the finance sector, whereas Walmart and Unilever have been using it in their supply chain to track the physical movement of goods. It does not stop here. The healthcare industry has extensive use of Blockchain, where companies such as Pfizer and GlaxoSmithKline have been using it to manage digital inventories for various pharmaceutical products.
Since the transfer of information is fast and completely secure, it has also found its way in international trade and travel. Market giants such as British Airways, Singapore Airlines, and Lufthansa have been using it extensively. The concept of ‘Blockchain for Aviation (BC4A)” was born through this industry. Every stakeholder in the value chain, including aircraft manufacturers, logistics providers, software developers, on-field staff, has been involved in the process. In this sense, Blockchain has been a disruptive force in the industry that no one can tame. It has disrupted marketplaces across the world and has proven its utility in almost all industries.
How the Blockchain Fell Short
With such a promising potential for the corporate world, there are also some areas the blockchain technology falls short in and hence takes it far from perfect for use in every industry. Here are some disadvantages of using blockchain technology.
- Not as Efficient
The blockchain technology might come off as a highly efficient way to share information; however, this is not always true. As the number of participants in the network increases, the process gets slower as it requires 100s of GBs of space and too much energy to process the transactions.
- Data is Immutable
Most of the data store in a blockchain is immutable. This means that once it is written, it cannot be removed. While this may help in fraud prevention, this can also raise many privacy concerns for the users.
- High Implementation Costs
The implementation of a blockchain can sometimes be costly. The costs are mainly associated with hiring developers and experts to operate the whole system, while there are some fixed licensing costs as well.
- Security Concerns
Blockchain may be relatively safer than the conventional transactional procedures, yet there is some vulnerability attached to the data stored. If an attacker gets access to 51% or more of the network, all of it is lost.
The Birth of Private Blockchains
Blockchain technology does spread the data across a broad set of computers across the network, but this does not have to be this way. This is where private blockchains come in. Private blockchains develop a closed network of transactions that operate within restricted parameters. Some basic access controls limit the people who can participate in the network, which leads to reliance on third parties for enabling transactions. Some providers offering private blockchain networks include Ripple, Hyperledger Fabric, and R3’s Corda.
Companies such as Comcast and the streaming giant Spotify have been using private blockchains to cater to different privacy concerns while still keeping the transactions transparent.
Unique Blockchain Use Cases
There are several ways Blockchain can be useful for your business. Here are some use cases you should try out.
- Financial Transactions
If you still haven’t tried out cryptocurrencies, you’re lagging way behind your competitors. Blockchain allows you to transact without any additional costs, whether the payments are international or local.
- Fraud Prevention
Since tampering with a single block in the chain requires tampering with the whole network, which is almost impossible, there are zero chances of fraud. Implement Blockchain to take care of any fraudulent transactions and efficiently track the culprits.
- Smart Contracts
Smart contracts present all the terms of the parties involved in the form of a code. These self-automated programs run without any downtime and make sure you get paid once you’ve held your end of the deal.
- Tracking Client Data
Blockchain provides a unique connection to each block in the chain, making it easy to track where specific data is coming from. This could be implemented in marketing campaigns to see what customers are purchasing what items, and hence the campaign can be personalized.
Where does Blockchain go next?
While no one knows what the future holds for Blockchain, one thing experts agree on is that the disruptive effect it has had on the world economy is not going away anytime soon. Two industries that will be the most affected by Blockchain soon are International Trade and eCommerce. And this is not only limited to financial transactions. New and innovative use cases will completely transform every aspect of the value chain from manufacturing goods to stocking, supply chain, marketing, and customer care. Furthermore, since a significant part of the world economy will be affected by Blockchain, the governmental regulations will be high. From taxation policies to the rules of international trade, everything will be completely transformed.