Gillian Elias, Senior Economist at BDC, answers five common questions about blockchain and its potential impact on the way we do business.
1. What are blockchains and how do they work?
In simple terms, blockchains are digital records of asset owners that are continually updated. Transaction information, such as date, time, amount, and who participated in the transaction , is encrypted in a block that is then joined with other blocks to form a chain.
There is no central authority controlling blockchains; this is one of the reasons why bitcoin and other cryptocurrencies are so fascinating. Everyone participating in a blockchain has access to the same information, which ensures transparency and continuous reconciliation of transactions.
Because these strings are present on many computers, there is no centralized version of the information that a hacker could attack. This eliminates the need for a trusted third party to verify information about you and the transaction you are attempting to make.
2. What are some concrete examples of the application of blockchain technology?
The financial services industry is beginning to use blockchain technology to develop new services and achieve cost savings. For example, the Australian Stock Exchange recently announced that it would begin using blockchain to settle transactions. This technology will be used to record share holdings and manage the clearing and settlement of equity transactions.
Another example of blockchain being applied in financial services comes from the company Abra. It uses a money transfer platform that allows workers abroad to send money back home in 54 different currencies. Workers can transfer money quickly and cheaply using the platform rather than a traditional service provider, such as Western Union, which charges fees that average 7% of the amount sent, according to the World Bank.
Another project using blockchain technology has been launched by the World Wildlife Fund and three companies that are collaborating to ensure a responsibly harvested tuna supply in the Pacific Ocean. ConsenSys (a blockchain company), TraSeable (an IT company) and SeaQuest Fiji (a tuna fishing and processing company) are using blockchain to ensure the traceability of tuna caught and sold.
From fishermen and women to fish brokers and local fishmongers, every transaction is recorded on a blockchain. Consumers can therefore be certain that the tuna they are buying is of high quality and that the management of this resource is legal and responsible.
3. What does this mean for business owners?
Several large companies, including Microsoft, IBM (with over 400 blockchain projects underway worldwide), Unilever, and Toyota are investing in blockchain. But the impact of this technology won’t be dentist database limited to large corporations. Your business could also be impacted in the near future.
If your business involves verifying transactions of any kind, you should consider how this technology could impact your business. You only have to look at the risks associated with stock clearing and settlement to see how many back-office functions and other services could be affected.
If you’re part of a supply chain, your partners may require you to start tracking your processes digitally. And especially if you supply large enterprises, you should start thinking about where you fit into your customers’ supply chains and whether they might ask you to participate in a blockchain.
If you supply goods to customers or other businesses, could you benefit from tracing your products back to their origin? Consider the premium prices fishmongers get when they sell their tuna by assuring customers that the resource is being harvested responsibly.
4. How can this technology help in tracking goods and settling payments?
In supply chain logistics, the combined use of blockchain, smart contracts, and the Internet of Things will allow companies to track shipments of goods and settle payments when certain conditions are met (e.g., when the product is delivered). Maersk, the world’s largest shipping company, began testing blockchain technology last year to track its cargo in collaboration with Dutch customs authorities, the U.S. Department of Homeland Security, and the companies that ship the goods.
Small businesses could also benefit from this technology. Imagine a grocery store that is running low on inventory. Smart containers of produce could be programmed to notify a wholesaler that they need to be restocked. The wholesaler would then contact a trucking company to pick up the produce and deliver it to the retailer. Every step could be recorded and payments settled using blockchain, as all transactions would be verified.
5. Could blockchains be used on a large scale?
Despite its potential, blockchain technology is still in its early stages. There are three major issues that need to be addressed before it can be used on a large scale: energy consumption, processing speeds, and compatibility between blockchains.
Verifying transactions before adding them to blockchains consumes a lot of energy, as computers perform all the calculations and solve equations through trial and error. Technology companies are working to develop solutions that would keep the process secure while reducing its energy consumption.
On the other hand, the processing time is slow because of all the calculations that have to be done. However, specialists are looking for ways to simplify the calculations and increase the number of transactions.
There are currently many blockchains, some public and some private, that cannot communicate with each other. The next generation of blockchains will probably solve this problem.
Blockchain has the potential to transform many industries. Used alone, it can verify and track transactions. Used in conjunction with the Internet of Things and smart contracts, it can speed up transactions.