Commercial Applications of Blockchain
In this article, BANKEX Managing Director Constantine Kurbatoff talks about the advantages that blockchain technology will bring to a range of business segments.
The Advantages of Blockchain
To understand the nature of benefits that blockchain can bring to a business, we need only to recall the characteristics of blockchain technology. Simply put, blockchain is a database technology that leverages two unique features, namely transparency, and decentralization. We all value transparency — the willingness of a person or organization to accept scrutiny. Even the desire to be audited or examined by our peers is seen as the hallmark of honesty and integrity. Decentralization is a less familiar feature that nevertheless offers familiar market-like qualities — when a system used by a large group of participants doesn’t depend on any one of those participants to function properly and in which their effectiveness judges actions. The ability to realize these features has only become possible very recently with the advent of low-cost, high-speed Internet connections and affordable high-capacity computers. This foundation, which enables mining, has been a prerequisite for the proliferation of blockchain technology.
The main advantage that the blockchain database has over a standard database is the distributed nature of the technology used to maintain it. A blockchain database has no centralized repository, so if there is a disruption in one server, other servers will maintain the integrity of the network. This gives the owners of particular servers an opportunity to simultaneously update the data on blockchain from a particular location and maintain the consistency of information across all nodes of the network. Another advantage is that information on a blockchain database is stored in blocks that are linked with each other sequentially, and so it is impossible to change, delete or falsify information once it has been entered on the blockchain. If you change the data in one block, you will have to change the data in the rest of blocks in the network. Changes in one place are seen in all places.
Why Integrate Blockchain Technology in Business?
What advantages does blockchain offer for commercial enterprises? To answer this, we can reflect on the reasons a business might need a database that cannot be deleted or changed.
First of all, integrating blockchain technology will make a business more transparent. When information in a database cannot be deleted or altered, this will bring significant changes to the activity and incentives of the company. Free access to the information in a blockchain database will expose its activity to the outside world and motivate a company to be highly responsible for its activities reflected in data it generates. The use of blockchain will make it impossible to cover up mistakes or intentionally malicious activity on the part of employees. The fact that they are observed by all will significantly change their behavior. On the other hand, better performance and compliance with laws and best practice will also be visible — and this will be an irrefutable means of demonstrating excellence, skill, and diligence that make up the foundation of integrity and commercial reputation. Blockchain will also be useful in processes connected to client interaction because the storage of data in a distributed and transparent database will be a proof of good faith towards clients as well as protection against fraud and scams perpetrated by clients with false claims.
Blockchain in Supply Chains
Nowadays, blockchain technology is already being integrated into supply chains which connect multiple participants with different commercial interests. Thanks to the fact that participants can verify each others performance and track the movement of products along the supply chain in a public database, the end consumer benefits as well — not only is there readily available information about a product a consumer may want to purchase, but the consumer benefits from the efficiency of the supply chain in the form higher value and even in some cases reduced cost.
Among the benefits for retailers and end consumers purchasing products through a blockchain supply chain is an assurance of certain characteristics of a product such as its authenticity, date, and location of production and other information that helps participants in the supply chain determine quality and value. It is a frequent situation where a manufacturer either intentionally or mistakenly specifies the wrong point of origin for the production of goods. According to European law enforcement agency Europol, the global volume of Intellectual Property crimes is valued at up to $461 billion annually. The transparency of a blockchain based supply chain system, supported by independent audits made by both participants and specialized companies and institutions with a stake in the openness of the system, could provide 100% proof of the authenticity of particular products and their quality characteristics.
Blockchain in the Financial Sphere
Another use of blockchain technology is in the financial sphere. Currently, international transactions, for example, are facilitated by the SWIFT network. The SWIFT network is not transparent. When one party makes a transaction via SWIFT, they have to wait until a bank confirms the transaction. The recipient has to wait until their bank verifies the transaction by sending an approval message to their bank. If one bank has service problems or is closed for holidays, the transaction will be delayed.
A blockchain based financial transfer system would mitigate these problems. The encryption of transactions on blockchain will protect then from third parties who will be able to see a transaction but not identify its source, volume or recipient. Such transfers would also not involve intermediary banks, and they would be both faster and cheaper to conduct.
Commercial transaction made on blockchain will disclose all costs that make up a final fee. It will be impossible to charge more or less without indicating the cause of such variables such as increased production costs or new pricing strategy or lower administrative costs. Such information will be very useful for any commercial company as well.
Blockchain for Democracy
Blockchain technology will have useful applications in other areas as well, including various voting and consensus processes. Today, the integrity of voting fully depends on the person who counts the votes. As Napoleon III famously said, “I care not who casts the votes of a nation, provided I can count them.” Human error and manipulation are factors that affect all democratic processes whether they are for a nation or a club, a company or a committee.
To eliminate the problems of error and intentional vote tampering, voting systems could be built on the blockchain. Blockchain algorithms and immutable smart-contracts will prevent abuses in casting votes and vote counting. Blockchain technology for voting has already been used in the presidential election in Sierra-Leone in 2018. During the election, anonymized votes and ballots were recorded on the Agora blockchain and were available for any interested party to review, count and validate. Voting on blockchain is the fairest, most transparent way hold on elections at the moment.
As blockchain penetrates our business and organizational structures and institutions, it will not only make these processes more efficient and transparent. This increased level of performance will change the nature of organizations and how we interact with them. When the value of transparency moves from being a rare commodity to a ubiquitous one, new relationships — both in business and society — will be possible.
In these articles, we have highlighted the reasons why some businesses and organizations are seeking the advantages of integrating blockchain based systems. There are other significant applications for blockchain technology in industry and BANKEX is working hard to develop faster, more reliable and user-friendly blockchain technology and integrating it with the off-chain world.
