Blockchain for Business: Applications of Blockchain Systems
Blockchain technology first emerged in 2009 with its first major application, the bitcoin cryptocurrency system.1 Bitcoin has ignited a cryptocurrency craze that has captured the imagination of everyone from ordinary programmers to billionaire venture capitalists.2 But while blockchain is still strongly associated with bitcoin in the popular imagination, the two are not synonymous.
There are a number of more conventional blockchain applications in the business world, influencing everything from payroll management to data storage. Learn more about the basics of blockchain technology and read about some of the key applications of blockchain for business.
What Is Blockchain?
A blockchain is a digital transaction ledger that is "append-only," meaning information can only be added to it, not edited or changed once posted.3 A blockchain's immutability is ensured by the complex set of steps required to add a "block" containing new information (typically records of multiple transactions grouped together) to the existing chain. In order to record and validate the addition of a new block, a user must solve mathematical problems that grow in complexity with each new addition. This system is tamper-proof because editing information on any block requires recalculating the mathematical problems for every other block on the chain, which would require an unrealistically high accumulation of computing power and time.1
A blockchain's security is also protected by its decentralized, consensus-driven nature. Due to the complexity of the mathematical problems required to add to the chain, multiple users dispersed across the network simultaneously work to solve it, driven by the incentive of a valuable asset (such as a bitcoin) offered to the user who eventually solves one. This both mitigates against the possibility of a single user with ill intentions recording a transaction alone and obviates the need for a central registering agency, as all transactions are legible and verifiable publicly to all participants on the network.4
Due to its highly secure nature, one of the applications of blockchain for business is the generation of "smart contracts." These are contracts that are set up to execute automatically and transfer funds held in escrow when certain conditions have been met by all parties involved. By this definition, every blockchain addition constitutes a smart contract, as they require the consensus of multiple computer users working in concert to fulfill the condition of solving the mathematical proof. However, the largest blockchains have yet to fully embrace the potential for this kind of digital agreement beyond cryptocurrency mining, to incorporate real-world market conditions into those that must be met for the contract to be executed and funds transferred.4
Some financial organizations have worked toward developing private blockchains to administer specific contracts, but due to the smaller number of people involved in completing the calculations required to add to the chains, they have been unable to match the larger blockchains in terms of consensus-driven security. As the technology improves and corporate entities become more comfortable with blockchain's complexities, blockchain-enabled smart contracts can be key to enforcing responsible business interactions.
The decentralized nature of blockchain systems makes it possible to move currency across international borders without many of the typical roadblocks involved in the process. Conventional methods of transferring funds between companies overseas currently require the participation of multiple intermediary banks. This process can take a significant amount of time and result in fees totaling 7 percent of the transaction amount on average.5
Blockchain payments are, in contrast, immediately accessible to the receiving party as soon as the transaction is recorded. They can be completed with either a nominal fee set by the agency administering the blockchain or no fee at all, and they benefit from the security and transparency that all blockchain-enabled transactions enjoy. Blockchain payments can be particularly useful for companies whose regular payroll includes a significant number of international workers, as their wages can be available in a more regular and consistent manner.6
Storage Beyond the Cloud
The business world today utilizes and generates a massive amount of data on a daily basis, and data storage is consequently a primary concern for all organizations. Current cloud storage technologies rely on conventional, centralized, trust-based systems. Because blockchain technology offers an alternative to these systems, a novel method of storing data securely and in large quantities is another potential benefit of blockchain for business.7
Some analysts predict that by utilizing excess hard drive space on the computers of users across a blockchain network, data totaling up to 300 times the amount currently contained in the conventional cloud today could be securely stored.7 This potential storage is a massive untapped asset that could drive down storage costs for businesses across the globe.
How Environmentally Responsible Is Blockchain?
Blockchain as it is currently implemented places a massive strain on energy resources due to the sheer computing power required to solve its mathematical proofs, and it consequently has a concerningly negative impact on the environment. Estimates contend that just the original Bitcoin blockchain alone generates CO2 emissions equivalent to as many as 2.358 million cars annually.8
Environmental groups are hesitant to dismiss the technology, however. Blockchain has been shown to have powerful applications to various eco-friendly causes, from securely tracking the ethical sourcing of goods to logging data about the environment in a tamper-proof format.9 Consequently, efforts are underway to develop "green" blockchain technology from a variety of angles. These include algorithms that require computers working on a blockchain equation to balance that effort against equal time spent working on an environmentally friendly pursuit,10 attempts to move to a "farming" model utilizing dormant hard drive storage instead of the energy-intensive "mining" model, cryptocurrencies that are backed by renewable energy and can either be exchanged for that energy or traded on the open market, and more.8
A less-than-rosy record of responsibility to the environment is one of the major hurdles facing blockchain technology at this time, but one that all parties invested in it are striving to overcome.
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1. Retrieved on May 28, 2019, from cnbc.com/2018/06/18/blockchain-what-is-it-and-how-does-it-work.html
2. Retrieved on May 28, 2019, from money.com/money/5002207/richest-people-with-bitcoin/
3. Retrieved on May 28, 2019, from forbes.com/sites/forbesagencycouncil/2018/04/05/what-is-blockchain-and-what-can-businesses-benefit-from-it/#5e806618675f
4. Retrieved on May 28, 2019, from americanbanker.com/opinion/smart-contracts-are-the-future-of-blockchain
5. Retrieved on May 28, 2019, from forbes.com/sites/forbestechcouncil/2019/03/12/how-blockchain-is-transforming-cross-border-payments/#49f334957df2
6. Retrieved on May 28, 2019, from execed.economist.com/blog/industry-trends/5-applications-blockchain-your-business
7. Retrieved on May 28, 2019, from venturebeat.com/2015/03/28/4-ways-blockchain-technology-will-change-the-world/
8. Retrieved on May 28, 2019, from insideecology.com/2018/06/15/blockchain-and-the-environment/
9. Retrieved on May 28, 2019, from disruptionhub.com/blockchain-sustainability-blessing-or-curse/
10. Retrieved on May 28, 2019, from cnbc.com/2018/02/23/bitcoin-blockchain-consumes-a-lot-of-energy-engineers-changing-that.html