Cryptocurrencies of all types make use of distributed ledger technology known as blockchain. Blockchains act as decentralized systems for recording and documenting transactions that involve digital currency. Put simply, blockchain is a transaction ledger that maintains identical copies across each member computer within a network. The fact that the ledger is distributed across each part of the network helps to facilitate the security of the blockchain.
While Bitcoin and other cryptocurrencies grew intensely popular among the general financial and investment worlds in late 2017 and early 2018, they have since become more of a niche area for cryptocurrency enthusiasts. However, blockchain technology remains a relevant development for companies across a host of industries. It is possible that blockchain technology will ultimately be seen as the most important innovation to come out of the cryptocurrency boom. Below, we'll take a closer look at blockchain and see why this technology could be valuable to businesses of all kinds.
Key Takeaways
- Blockchain technology has far-reaching applications across many industries.
- Blockchain is already used to facilitate identity management, smart contracts, supply chain analysis, and much more.
- The full potential of blockchain technology likely remains to be discovered, but it is likely to be used in conjunction with emerging technologies.
Basics of Blockchain
Depending upon the blockchain, parties may be able to view previous ledger entries and record new entries, although most blockchain networks have complex rules for adding new records, or "blocks," to the chain of records. The blocks and their contents are protected by cryptography, which ensures that previous transactions within the network cannot be altered. In this way, blockchain technology allows for a trusted transaction network without relying on a central authority. It is for this reason that cryptocurrencies are considered "decentralized."
While blockchain is most famous for its role in facilitating cryptocurrency popularity since 2009, there are also many other non-cryptocurrency uses. Indeed, some blockchain proponents believe that the technology could far outpace cryptocurrencies themselves in terms of its overall impact, and that the real potential of blockchain is only just now being discovered. As such, it's likely that financial advisors and many others in the investing world will encounter blockchain technology much more in the years to come, whether it is linked with a specific cryptocurrency or if it's being utilized in any number of other advancements.
Cross-Border Payments
Traditionally, the transfer of value has been both expensive and slow, especially for payments taking place across international borders. One reason for this is that when multiple currencies are involved, the transfer process typically requires the participation of various banks in multiple locations before the intended recipient can collect their money. There are existing services that help speed this process, but these tend to be quite expensive.
Blockchain technology has the potential to provide a much faster and cheaper alternative to traditional cross-border payment methods. Indeed, while typical money remittance costs might be as high as 20% of the transfer amount, blockchain may allow for costs at just a fraction of that, as well as guaranteed and real-time transaction processing speeds. There are hurdles to be passed, including regulations in different parts of the world and security concerns.
Cross-border payment processing is one of the most promising and talked-about areas of blockchain technology application.
Smart Contracts
Smart contracts are often seen as a highly powerful application of blockchain technology. These computer programs, while not smart or even contracts, can initiate and automate the required actions written into an actual contract. When certain conditions are met, smart contracts execute the actions they are programmed to perform. For proponents of smart contracts, these tools provide a more secure, more automated alternative to trusting that another party will fulfill their obligations.
The potential applications of smart contract technology are essentially limitless and could extend to almost any field of business in which contract law would normally apply. Of course, while highly touted, smart contracts are not a magical substitute for old-fashioned diligence. In fact, the case of the Decentralized Autonomous Organization(DAO)is a cautionary tale and a warning to investors not to assume that smart contracts are any better than the information and organization that a user puts into them. Nonetheless, smart contracts remain one of the most exciting ways that blockchain technology has already extended beyond the cryptocurrency space and into the broader business world.
Identity Management
One of the most problematic results of the Internet age has been identity security. As diligent as many individuals and organizations are in maintaining their online identities and securing private information, nefarious actors are always looking to steal and profit from these digital items. Blockchain technology has already demonstrated the potential to transform the way that online identity management takes place.
Blockchain offers a tremendous level of security, thanks to independent verification processes that take place throughout member computers on a blockchain network. In digital currency cases, this verification is used to validate transactions before they are added to the chain. This mechanism could just as easily be applied to other types of verification procedures, including identity verification and other applications.
The applications for blockchain and identity management are wide-ranging. For instance, blockchain could potentially be used to aid in maintaining voter information and ensuring the proper functioning of the electoral process. It could also be used to securely and efficiently transfer user data across platforms and systems. Additionally, it could act as a way to maintain and protect real estate ownership records, titles, and more.
Supply Chain Uses
For many businesses across various industries, a key to success is a well-functioning, efficient supply chain. Blockchain technology has already been used in multiple industries as a means of keeping tabs on supply chains and ensuring their efficiency. This could eliminate human work and the potential for error in a complex and crucial process.
Is Blockchain the Future of Supply?
Blockchain is already being used in some supply systems, but it is likely to be only a part of supply's future as technology changes. It's very possible that artificial intelligence will be used to create much more efficient and capable technologies and systems using blockchain techniques.
Will Blockchain Replace Money?
Blockchain is a distributed ledger secured by cryptography, so it is not considered a replacement for money. Cryptocurrency, the tokens created using blockchain, could replace money if conditions require it.
Is Blockchain the Next Big Thing?
Blockchain was introduced to the public in 2009 but has been under development for much longer. It is still very relevant for science, enterprise, government, and personal uses, and new ways to use it are still being developed, but the hype is beginning to slow down as the tech sector focus seems to be shifting to developing artificial intelligence solutions.
The Bottom Line
At this point, blockchain is a technology with an exceptionally broad set of potential uses. Although it is most famous for its connections to cryptocurrency, several other applications have already been explored. Perhaps even more exciting, though, is that new ways of utilizing blockchain emerge daily.
Whether you are directly involved in the digital currency space or not, it's essential to develop an understanding of blockchain and how it may be used in the future.
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