You’ve heard about Bitcoin. Actually, I think you’re sick of hearing about Bitcoin. You probably know a bit about Blockchain as well: the two are rarely brought up separately.
But, being a businessman rather than a technician, you haven’t got time to delve deeply into nifty mathematics that power the technology. You’ve got a company to run.
And the truth is, figuring out all the intricacies and the inner workings of Blockchain is unnecessary to most entrepreneurs. It’s the benefits it brings – that’s what they should care about.
Understanding Blockchain perks, however, is what many have problems with.
As leading enterprises, law firms and even Trump’s administration have recently gotten on board with Blockchain, the hype around the term has grown out of proportion. Speculations, promises that the technology is just about to change the whole wide world are unceasing, and it is confusing. People can’t distinguish anymore which claims about Blockchain are realistic, and which are idle tales of the sensation-loving bloggers.
Today, we’d like to dispel all the false assumptions.
In the article below we will discuss what Blockchain is, in detail and without much ardor, talk about its impact, and review industries we think it is most likely to disrupt.
Sounds good? Read on then.
Blockchain has been enwrapped in mystery from the very beginning. Its founder, known under pseudonym “Satoshi Nakamoto”, is still unidentified; and the definition of the term, to this day, varies from source to source.
However, filtering out all the hype and technical limbo, we can say that Blockchain, basically, is a record-keeping system. It allows monitoring transactions between party A and party B; it stores information about digital events (eliminating the possibility of modifying them) and shares records peer-to-peer, across all databases within its network.
Unlike traditional ledgers though, that strive to embrace privacy, Blockchain stands for “public” transactions. It shares data across multiple elements (nodes in the blockchain network), creates dependencies between digital events and, therefore, ensures that the records can’t be tampered with unnoticeably. The ledger it provides doesn’t belong to any centralized entity and is maintained by a group of personal computers – miners, as they are otherwise known.
Again, we’ll try our best to stick to simple terms.
Each time someone posts a transaction on Blockchain it gets encrypted in a block.
Afterward, miners – the other nodes in the network with vast computing powers – start to compete in solving the coded problems and thus validating the said transaction.
After one of them succeeds, the record becomes publicly updated; everyone else’s ledger registers a new entry, linking it to a previous block, and the transaction, overall, becomes locked.
These entries (which are blocks, which are transactions) are added chronologically to the record so that the entire history of digital events can always be traced back to the very first one. And this system of linking blocks to one another is where we get the chain analogy from.
The genius of this feature (and of its founder, whoever he, she, or they might be) lies in the security it provides: if anyone attempts to hack the ledger, they’ll have to modify every transaction that has taken place earlier – all the way to the first one. And nobody, not even hackers from Bond movies, would dream to pull that off.
Blockchain’s basic gist, as you might have figured from the previous paragraphs, is disintermediation. It brings two end parties closer in each given transaction.
In the financial sector, for example, Blockchain is often said to one day render banks obsolete, and here is what makes many believe that: All our digital assets – stocks, money, intellectual property – are, essentially, just files: easy to harm and reproduce.
As far as digital transactions go, the involvement of a reputable intermediary, such as a government or a bank, has always been considered necessary. It used to be the only way to ensure trust.
Authentication, record keeping – that’s how financial institutions have instilled certainty into digital transactions, and, up until recently, we’ve been more than willing to pay them for establishing security.
But now we’ve got Blockchain – a tamper-proof ledger that eliminates the need for such services. It makes people responsible for trust, as opposed to intermediaries, and gives them tools – mass collaboration and advanced code – to do so efficiently.
Finance must be the first.
Our current financial systems, the structures responsible for supporting a 100 trillion global economy and servicing billions of clients daily, are not at their best, to put it mildly.
Yes, some institutions do attempt to get modernized, but rarely a huge bank or a financial data analytics firm is willing to undergo any substantial structural changes.
Rather, what passes for cutting-edge banking solutions nowadays are legacy, paper-based processes that are slightly manicured – enwrapped, sloppily, into the digital packaging.
Banks are centralized, which drastically limits their resources. They are vulnerable to data breaches and overall system failures, and they are pricey enough to alienate millions of people from utilizing their services.
To top that, they like lobbying for the status quo and monopolistic policies, thereby hindering disruptive innovation.
Blockchain has a potential to rid our financial systems of all of these limitations.
Here are 8 ways Blockchain can change financial sector:
1 Enabling peer-to-peer loans. Lending business is a substantial part of the finance industry. Apart from banks ensuring creditworthiness, there are specialized institutions whose sole purpose is checking credit scores, checks, and ratings. With Blockchain, anyone can initiate trading or settle debt instruments directly, and anyone, anywhere, can access peers to get a loan.
2 Eliminating the payment service’s fee. To avoid the double-spend problem – the service for which banks charge a considerable fee – Blockchain leverages its extensive peer-to-peer network and utilizes advanced cryptography. The first transaction and all the following transactions are time-lapsed along with the details describing them; the value that has been spent is recorded. So if someone attempts to use the asset again (say to spend the same sum of money again), the system will simply reject the transaction.
3 Introducing new ways of saving. A common person, who wants to get interest on their money, turns to a bank to get started with a deposit box or a savings account. With Blockchain, they need not do so; all the value producing instruments can be replicated peer-to-peer.
4 Reducing the need for trust. People pay banks and analytics firms for verifying identity, reputation and thus ensuring trust. On Blockchain, the identity and reputation of peers are verifiable, and cryptographically secured – the trust can be ensured whenever it’s needed, without third-party involvement.
5 Reduce settlement time. After trading happens (i.e., someone buys financial instruments or sells them to someone else) a cycle of clearing and settlement procedures ensue afterward. Traditionally, it takes a few days, or sometimes weeks, to get a transaction over with, and Blockchain can reduce this time to minutes or seconds.
6 Changing investing. Blockchain can eliminate intermediaries, such as lawyers and investment bankers, from investor-business matchmaking. It can largely automate the matchmaking processes and enable transparent peer-to-peer financing.
7 Reducing risks. Risk management is an industry of its own sake in the world of finance. Numerous derivative products exist to allow hedging against unfavorable events; they insure companies against loss and uncontrollable situations. Blockchain enables decentralized insurance models and thus helps use these risk management tools in a much more transparent way. It shows detailed info to insurers, such as a person’s capital, both social and economic, their previous actions and other crucial reputation attributes, and thus helps make accurate assessments.
8 Improving accounting. Current accounting processes can’t keep up with the velocity of today’s finance; the digitalisation has yet to sweep the accounting industry. Blockchain, however, being a ledger that’s managed online, can drastically enhance audit and reporting. It could enhance measuring and processing of financial records, make the procedures more transparent and accessible in real time.
The second industry Blockchain can benefit is Healthcare
As disruptive technology emerges and evolves frenetically on the market, healthcare firms face severe pressure to remain competitive. They seek new ways to improve patient care and try to keep their costs low.
To solve the problem, many firms adopt patient centricity: they make clients much more deeply informed and involved in the delivery of healthcare services.
They strive to expand the role of healthcare providers beyond “expertise sources” and, eventually, they want to turn them into advanced patient care coordinators.
By uniting the two concepts – customer centricity and well-coordinated care – firms aim to reduce the cost of healthcare delivery while adding to its quality. And what they need to make it work is a storage system that would make data protected and publicly available.
Blockchain is ideal for such purposes: it can store the ever-changing, chronologically-added data and provides the kind of security to comply with advanced medical data protection standards.
And, it allows removing middlemen.
One of the major pain points in the healthcare industry, the issue most healthcare firms fail to address, is the time it takes to process a medical claim. It takes 2 to 4 weeks for electronic claims to be settled, and 4 to 8 week – for paper ones.
Using Blockchain, firms can reduce the processing time to just 15 minutes.
Instead of involving intermediaries (to execute patient-firm contracts), they can have a logic developed and put on the network that is able to receive claims, process them in real time and, then, immediately, transmit payments to healthcare providers.
Those are called “smart contracts” and adopting them, as well as removing third-parties from the equation, would allow healthcare companies to cut administrative costs, by a lot. It would also help increase the efficiency of claims processing.
Additionally, Blockchain can affect medical tourism – the practice of seeking affordable, quality medical care abroad, which has become a growing trend among Americans. According to Patients Beyond Borders, the number of US citizens who pursued a cross-border healthcare option exceeded one million last year, and the demand for it is expected to grow.
The problem with medical traveling, however, is that foreign clinics might not be familiar with a patient’s cumulative medical data; their entire medical history. So, they either have to conduct comprehensive testing, which takes lots of time, or make their judgments based on current symptoms, without analyzing the “whole picture”.
Blockchain can become a sort of secure cloud storage for medical histories and resolve the issue.
The last industry we’d like to discuss today, which also seems ripe for Blockchain disruption, is music distribution.
No other content is pirated more than music.
The industry is in the constant turmoil – labels have feuds with streaming services, streaming services – with file-sharing sites, while artists, who themselves produce the content, are at odds with everyone else in the distribution network.
Blockchain can change the way songs are sold. It can eliminate third-parties from the distribution process – labels etc. who feed off of artists’ toil – and, instead, enable direct payments from fans to producers.
Each record published on the network can have its own ID and timestamp to prevent pirates from copying and sharing it. It could also include metadata – ownership and copyright details – to ensure the right people are rewarded each time the content is downloaded.
The payment procedure would become disintermediated, too, due to smart contracts we’ve mentioned earlier. Music fans can pay artists immediately upon listening to songs using Bitcoin and Ethereum – the Blockchain powered cryptocurrencies that support micropayments, and no payment fees would be charged.
Not only could this benefit a songwriter; it can potentially bring new music to music lovers. All the amateur producers, who aren’t backed by major record labels, will get a chance to share their tracks across the globe and get fairly compensated. This would motivate aspiring musicians to produce more records.
At present, Blockchain is not used heavily in the music industry, not like in finance where major banks are investing in the technology. But there are firms, like Pledgemusic and Peertracks, who try persistently to use the Blockchain ledger to power this new way of music sharing. And who knows – maybe soon it’ll become the standard for all of us?
Blockchain holds vast promise for businesses, societies and all of us individually. It could enable unbanked people to participate in wealth creation, create a new, robust and immutable system for sharing intellectual property, and eliminate intermediaries from every kind of transaction out there. Suddenly, there would be no Uber – just you paying a driver, and no Airbnb – just you renting the room via a self-executing smart-contract.
Learn more about the Blockchain technology here:
We will hold our predictions for now. Let’s experiment with the technology and see where it leads us. If you’d like to discuss how Blockchain can be used to benefit your business – contact our expert right now to get a few tips.