Block-chain, known as the backbone of a new type of internet, emerged as a real-world tech option in 2016 and 2017. It was originally devised for the digital currency, Bitcoin block-chain however, the tech community has now found other potential uses for the technology to change IT in much the same way open-source software did a quarter century ago. A block-chain is, in the simplest of terms, a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain).
Blockchain or database?
In some studies, blockchain is considered analogous to database. They only differ in the way data is structured in each. A blockchain collects information together in groups, also known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain.” All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.
What is so special about blockchain?
The blockchain network has no central authority — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
Blockchain consists of three important concepts: blocks, nodes and miners.
Every chain consists of multiple blocks and each block has three basic elements:
- The data in the block.
- A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash.
- The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small).
When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined.
Blockchain use cases in banking and finance
International Payments: Blockchain provides a way to securely and efficiently create a tamper-proof log of sensitive activity. This makes it excellent for international payments and money transfers.
Capital Markets: Blockchain-based systems also have the potential to improve capital markets. A McKinsey report identifies benefits that blockchain solutions offer capital markets, some of which include:
- Faster clearing and settlement
- Consolidated audit trail
- Operational improvements
Trade Finance: Historic methods of trade financing have been a major pain point for businesses because the slow processes often interrupt business and make liquidity hard to manage. Cross-border trade involves a large number of variables when communicating information – such as country of origin and product details – and transactions generate high volumes of documentation.
Regulatory Compliance and Audit: The extremely secure nature of blockchain makes it rather useful for accounting and auditing because it significantly decreases the possibility of human error and ensures the integrity of the records. On top of this, no one can alter the account records once they are locked in using blockchain tech, not even the record owners. The trade-off here is that blockchain tech could ultimately eliminate the need for auditors and erase jobs.
Money Laundering Protection: Once again, the encryption that is so integral to blockchain makes it exceedingly helpful in combating money laundering. The underlying technology empowers record keeping, which supports “Know Your Customer (KYC),” the process through which a business identifies and verifies the identities of its clients.
Insurance: Arguably the greatest blockchain application for insurance is through smart contracts. These contracts allow customers and insurers to manage claims in a transparent and secure manner. All contracts and claims can be recorded on the blockchain and validated by the network, which would eliminate invalid claims, since the blockchain would reject multiple claims on the same accident.
Peer-to-Peer Transactions: P2P payment services such as Venmo are convenient, but they have limits. Some services restrict transactions based on geography. Others charge a fee for their use. And many are vulnerable to hackers, which is not appealing for customers who are putting their personal financial information out there. Blockchain technology, with all its aforementioned benefits, could fix these roadblocks.
Blockchain Applications in Business
Supply Chain Management: Blockchain’s immutable ledger makes it well suited to tasks such as real-time tracking of goods as they move and change hands throughout the supply chain. Using a blockchain opens up several options for companies transporting these goods.
Healthcare: Health data that’s suitable for blockchain includes general information like age, gender, and potentially basic medical history data like immunization history or vital signs. On its own, none of this information would be able to specifically identify any particular patient, which is what allows it to be stored on a shared blockchain that could be accessed by numerous individuals without undue privacy concerns.
Real Estate: The average homeowner sells his or her home every five to seven years, and the average person will move nearly 12 times during their lifetime. With such frequent movement, blockchain could certainly be of use in the real estate market. It would expedite home sales by quickly verifying finances, reduce fraud thanks to its encryption, and offer transparency throughout the entire selling and purchasing process.
Media: Media companies have already started to adopt blockchain technology to eliminate fraud, reduce costs, and even protect Intellectual Property (IP) rights of content – like music records.
Energy: Blockchain technology could be used to execute energy supply transactions, but also to further provide the basis for metering, billing, and clearing processes.
Blockchain Applications in Government
Record Management: National, state, and local governments are responsible for maintaining individuals’ records such as birth and death dates, marital status, or property transfers. Yet managing this data can be difficult, and to this day some of these records only exist in paper form. And sometimes, citizens have to physically go to their local government offices to make changes, which is time-consuming, unnecessary, and frustrating. Blockchain technology could simplify this recordkeeping and make the data far more secure.
Identity Management: Proponents of blockchain tech for identity management claim that with enough information on the blockchain, people would only need to provide the bare minimum (date of birth, for example) to prove their identities.
Voting: Blockchain technology has the ability to make the voting process more easily accessible while improving security. Hackers would be no match to blockchain technology, because even if someone were to access the terminal, they wouldn’t be able to affect other nodes. Each vote would be attributed to one ID, and with the ability to create a fake ID being impossible, government officials could tally votes more efficiently and effectively.
Taxes: Blockchain tech could make the cumbersome process of filing taxes, which is prone to human error, much more efficient with enough information stored on the blockchain.
Non-Profit Agencies: Blockchain could solve the anti-trust problems charities are increasingly facing through greater transparency; the technology has the ability to show donors that NPOs are in fact using their money as intended.
Compliance/Regulatory Oversight: The majority of regulatory oversight stems from recordkeeping, but the consequences of not maintaining records is inarguably much worse. Thus, compliance is non-negotiable for companies. Blockchain can make record updates available to regulators and businesses in real time, in turn reducing time lags and allowing red flags and inconsistencies to be spotted sooner.
Blockchain is also used in other industries such as Financial Management and Accounting, Record Management, Cybersecurity, Big Data, Data Storage, IoT.