Businesses can save billions by embracing blockchain technology. Here’s what they need to know
We hear it all the time: how will the decline in cryptocurrency prices affect the blockchain?
The blockchain is a digitally distributed, decentralized public ledger that facilitates the recording of transactions and the tracking of assets in a network; these assets can be tangible, like a car or land, or intangible, like patents. More simply, blockchain technology provides “a way for untrusted parties to agree on the state of a database, without using an intermediary.” While cryptocurrencies operate on the blockchain, the technology itself has applications that go far beyond Bitcoin, Ethereum and altcoins, involving a variety of different types of digital assets.
Global spending on blockchain technology is projected to reach nearly $19 billion by 2024, with a compound growth rate of nearly 50 percent. More than 80 of the world’s top 100 public companies use it in one form or another, be it for insurance contracts, supply chain management, vaccine distribution, fraud prevention or other use cases. Blockchain will power Web 3.0 by empowering users to own (and monetize) their data and assets. And as the metaverse takes flight, blockchain technology will be fundamental to enabling decentralized applications—everything from games to businesses to virtual events and more—that power an economy of user-owned digital assets and data.
However, understanding the scope of blockchain’s use cases and risks can be an obstacle to successful adoption. Here’s what business leaders need to know.
Applications of blockchain in business
Businesses can save millions by implementing blockchain technology. For example, a survey of eight global banks found that blockchain technology could reduce the average annual cost of clearing and settling transactions by $10 billion, while another recent study found that blockchain could reduce supply chain-related costs for companies in Western Europe by $450 billion dollars.
Below we provide an overview of some top blockchain applications:
SMART CONTRACTS
Smart contracts—blockchain-based programs that automatically implement terms of multiparty agreements when a specific external event triggers them to go through—have a variety of applications, from insurance contracts and supply chain management to financial data recording, copyright management, clinical trial tracking, and real estate. ownership transfers. With fewer intermediaries and less independent processing required by each counterparty, the time spent during a transaction can go from days to minutes.
The smart contract space is evolving rapidly and often involves new algorithms that exceed the knowledge of those using them. To avoid surprises, someone who understands the language of smart contracts must review the code before it is entered into the blockchain. These audits, which involve a detailed analysis of the contract’s code to identify security issues and incorrect coding, should also take place after deployment.
DIGITAL ASSETS AND NON-FUNCTION TOKENS
Digital assets include all elements that are uniquely identifiable and registered on a cryptographically secured distributed ledger (block chain). The best-known digital assets are non-fungible tokens (NFTs), which represent ownership or proof of authenticity of a unique item or content. While fungible tokens like Bitcoin or other cryptocurrencies are interchangeable with each other, each NFT is unique – and cannot be replicated or exchanged for anything else on a one-to-one basis.
NFTs have made a big splash in the art, fashion and entertainment industries since they prove unique ownership of an asset using the blockchain. The financial world is also experimenting with NFTs and other types of digital assets to symbolize or represent traditional securities, such as stocks, bonds and alternative assets. This could create more interoperable capital markets and allow investors to pledge a wider range of tokenized shares whenever they wish. For example, JPMorgan Chase leverages NFT technology to transfer security settlements after the market closes.
Real estate players are also getting into NFTs, as these tokens can represent land, property, maintenance, tax and other records, thereby streamlining the buying and selling process.
STREAMLISING OF INTERNAL INFRASTRUCTURE
Blockchain-based infrastructure can eliminate the need for manual data aggregation, improve processes such as regulatory reporting and audit documents, and help decommission legacy IT infrastructure. By replacing these cumbersome, outdated processes with decentralized blockchain technology (as opposed to a centralized database), organizations can create more transparency, security and efficiency.
For assets and documents that do not need to be decentralized, there is also the concept of “private blockchain”. These chains are cryptographically secure, but do not exist on a public blockchain infrastructure. This can be particularly useful for items that require both additional protection and provability.
FRAUD PREVENTION
Banks bringing in new customers must go through a burdensome (and expensive) know-your-customer (KYC) process to verify their identity. Using blockchain technology, a customer can prove their identity once and then bring the proof with them to other service providers, thereby speeding up the process.
The risk of implementing blockchain in business
Despite its far-reaching benefits, blockchain is still a work in progress. Here are three key risks that organizations may face in implementing this emerging technology.
INTEGRATION CAN BE DIFFICULT
Moving to new blockchain-based market infrastructure is operationally challenging, and integration with non-blockchain systems can be complex. Businesses must choose the right chain to build upon, determine the return on investment (ROI) of transitioning to a blockchain-based infrastructure, and then acquire the right talent to program those changes—all while blockchain developers are becoming increasingly difficult to obtain. .
SMART CONTRACTS ARE NOT IDIOTPROOF
Smart contracts can encode intricate business, financial and legal arrangements on the blockchain. However, smart contracts have suffered underutilization due to poor programming, unexpected user actions, and poor business logic.
Organizations must implement robust tests and adequate controls to mitigate the risks associated with blockchain-based business processes. In particular, when a smart contract has code errors, the exploit cannot be reversed – although the contract itself can be updated to close the exploit.
INTELLECTUAL PROTECTION
If you’re going to use a public blockchain, your IP is available for others to view and copy – but for now, the copyright of items on the blockchain has not been tested in the real world.
As a result, you cannot have IP on public blockchain and expect it to be protected as a trade secret (ie it is no longer secret). However, using a private blockchain or other methods can help further protect your IP.
What companies need to know to implement Blockchain
Replacing existing business processes with blockchain technology is not an easy task. It requires thoughtful planning, including cost-benefit analyses, selection of appropriate use cases, market analyses, security controls, and more.
In a space filled with potential – but also fraud and noise – now is the time to do the necessary due diligence to understand the possible opportunities and challenges of implementing blockchain in your business.
