Blockchain without cryptocurrencies: it's possible, but only with certain blockchains – and many businesses are using them. Discover more with FinTech Weekly.
Despite being often confused with cryptocurrencies, blockchain is different: blockchain is a digital, secure and tamper-evident ledger where data can be stored; cryptocurrencies are digital currencies built on top of blockchains.
Since blockchain and cryptocurrencies are not the same, it's important to know that blockchain can be used without cryptocurrency - and many businesses already do so.
Can we use blockchain without cryptocurrency?
Yes. Blockchain is a chain of blocks made up of data, where users can store virtually every piece of digital data they want or need.
The reason why blockchain is used also without cryptocurrencies is that it is more secure than traditional databases. Besides being tamper-evident, it's distributed, so there's no reliance on single points of failure.
There is, however, one consideration to keep in mind: not every blockchain can be used without cryptocurrency.
Cryptocurrency vs. Blockchain – How does it work
Actually, only private blockchains can avoid using digital assets. Here's how it works.
Public blockchains can be accessed by everyone, but to be able to interact with the blockchain you need some sort of token that allows you to complete your transactions.
To give you a practical example, consider smart contracts, the backbone of decentralized finance.
The crypto project most widely used for these contracts is Ethereum, which is public, decentralized and distributed. Everyone can write a smart contract, compile it, and send it over to the blockchain to make it immutable and interactive. In this case, you'll need cryptocurrencies to broadcast your “message” – that is, your lines of code.
The analogy with messages is useful to understand why cryptocurrencies are necessary in these cases: blockchains contain data, and data take space. Think of what would happen if everyone could broadcast transactions for free: the blockchain would be congested and probably full of spammy transactions.
So, cryptocurrency is a sort of fuel that allows anyone to interact with distributed and decentralized blockchains – like Ethereum – while paying the necessary fees to make the network work correctly and be profitable for everyone.
But there are also different types of blockchains. Private blockchains are the other main type of blockchain: they're still distributed, benefiting from the main advantages of blockchain technology, but they're not decentralized.
Nevertheless, there's still a central authority that manages it and decides who can use the blockchain – that’s why we say that they’re not decentralized.
In this case, you should consider the blockchain as a simple database, very similar to the traditional ones we're used to.
Private blockchains don't necessarily need cryptocurrencies, for the simple reason that there is a manager that grants you access to the technology – more or less it's like when we whitelist some email address to give them access to our documents – and you don't need to use a token or coin to have access to that database autonomously.
To mix the advantages of distribution and centralization, many are the use cases of private blockchains in business.
Business use cases of blockchain technology without cryptocurrency
In order to demonstrate that blockchain can be used without cryptocurrency, we’re listing some of the top business use cases of this technology – with concrete examples of big companies that are benefiting from DLT (Distributed Ledger Technology).
Identity verification
Identity verification is a huge challenge for businesses. While they need it to be compliant with national and international regulations, there are still concerns about privacy and points of failure. What if the company loses access to its database? Think about what this could mean for users, especially when credentials are used to create financial accounts.
Blockchains can solve these kinds of issues in two ways:
- By providing a distributed database that can work 24/7, even if one point of communication fails;
- By granting privacy and/or freedom of choice.
A good example of a business that uses blockchain – also – for identity verification is IBM. The giant tech company works on digital identity related projects that range from governmental to academic to provide secure and tamper proof digital identities that can be used to easily manage data and use them across a variety of services.
Supply chain
In a world where people and investors – fortunately – tend to prefer fair businesses that take into account ESG principles, the lack of transparency in supply chains is an issue business owners need to consider.
People want to know if what they're eating, drinking or wearing is produced safely and fairly. Consequently, investors and top companies look for businesses and technologies able to guarantee access to any information in a seamless and transparent way.
An example of a top company that invested in blockchain to improve its supply chain is Walmart. In particular, the DLT solution adopted by Walmart Canada clearly explains how blockchain technology can improve businesses: the company tested a private blockchain – it doesn’t need cryptocurrencies – to solve the problem of payment disputes with carriers.
Furthermore, blockchain offers businesses several direct and practical benefits: by identifying weaknesses in supply processes and intervening early, businesses can save time and money.
Financial services
Blockchain is often associated with financial transactions, and finance is actually the top use case mentioned when we talk about fintech and blockchain. But in our example we’d like to talk about a use case of blockchain that has to do with the management of data needed to perform correct financial transactions.
In 2021, JPMorgan Chase announced the launch of Confirm, their blockchain-based solution that works globally and allows verification of data before any financial transaction.
The company also made this product accessible to other users via API. But why is it so important for the financial space? By introducing this type of service, people have the possibility to check if an account is owned by a specific person, avoiding frauds and costly delays. Payments become faster as well, since the verification process is almost instantaneous.
Conclusion
Blockchain technology, even if it is mostly associated with cryptocurrencies, has virtually infinite use cases, even when digital assets are not involved.
If we consider that blockchains are simply digital ledgers, they can be used as traditional databases, but they are more secure – as well as immutable. Private blockchains don’t have to rely on the use of cryptocurrencies to work. There’s always a central management that decides who can be involved in the network, and therefore no need to use digital currencies to benefit from the advantages of this technology.
