The technical features of blockchains such as i) the use of distributed ledger technology ii) cryptographically secured iii) the ability to have smart contract logic encoded into it. This means block chains can allow multiple mutually untrusting users to transact transparently on a ledger ( smart contracts self execute transactions ) without the need for a trusted intermediary.
The most compelling use cases which I believe will greatly reduce inefficiencies and unlock value are in areas of existing industry where trusted intermediaries are required to record, validate and reconcile transactions without really adding additional value to the original transaction.
One of the most exciting uses cases is in the application in financial services and in particular asset tokenization in financial and real assets. Using blockchain technology, previously illiquid assets can now be converted into its tokenized form and cheaply and efficiently fractionalized, traded and settled on chain (rather than go through the lengthy process of clearing and settlement process through third parties like clearing houses). This can unlock liquidity for small business owners, entrepreneurs, residential real estate owners and alternative investments such as previously illiquid venture capital and private equity, commercial real estate and art. This means that access to investments that were previously only accessible by institutional investors can be accessible to retail investors. Tokenization of assets removes the frictions for an asset to be freely traded on a global market place and allows investors to diversify their investment across a larger opportunity set, enhances liquidity and market depth of assets that otherwise would not be actively traded and allows asset owners to capture a liquidity premium. AlphaPoint estimates that the total value of illiquid assets, including gold, real estate and more, is $11 trillion.
Supply Chain Management
The second most compelling use case for blockchain is in the area of supply chain management. One of the biggest problems that firms face when managing their supply chain is the issue of transparency. Blockchains allow multiple parties to access a database to act as the single source of truth. Recorded transactions are immutable, are append only and provide a time stamped audit trail. Blockchains allow a product to be documented in real time as it moves from its original provenance and all it’s touch points. Blockchain technology helps enhance transparency into an otherwise opaque network, helps stop counterfeits and thefts, improves regulatory compliance, reduces paperwork and lessens costs significantly. From a consumer’s point of view, blockchains can empower end consumers to find out precisely if products are what they claim to be.
The decentralised nature of blockchains means that there is no centralised point of weakness for hackers to target, which may lend itself as a good use case for digital identity management. A self sovereign ID can be used to verify identity without needing an individual to produce numerous documents and paperwork each time they need their identity verified. This could be done with a single key that can be matched against an immutable ledger. The digital ID can also collect other online information about a user’s identity like social security information, medical records and social media credentials and have that stored securely on the blockchain. This can allow users more control of their private data to transact more securely online but more importantly, takes away the power from companies to monetize this data and puts control back to the users. For those billions of people who are unbanked, allowing them to have a digital identity is the first step to help these people gain access to financial services in order for them to participate in the global economy.
Another compelling use case for blockchain technology is the role it can play to decentralise the energy market, which is typically controlled by a few large corporations in each market. Blockchain technology enables the smart metering of electricity generated through an individual’s solar panels to be recorded, traded and settled on a ledger. If electricity can be traded like any other commodity, energy prices instead of being a fixed regulated price, will respond to forces of demand and supply in a fully functioning distributed electricity market. This allows individuals to be both producers and consumers of energy, which can reduce costs and improve efficiency by not having to rely on a centralised grid.
In the current state of healthcare, patient data is held across different institutions in legacy silos in various different formats and standards, making sharing of the data ill suited for the modern user’s expectation for instantaneous access. Using blockchain technology to record patient information on a distributed ledger can allow different stakeholders conditional access to a single source of truth where each interaction with a patient’s health data can be recorded on a ledger as a transaction with a time stamped audit trail. This makes access to a patient’s health information more secure (patient data is encrypted), can take out the inefficiencies with current data management practices and offers patients more control over their own health data (including monetizing their own health data for research purposes ).
Examples of healthcare data exchange platforms include Medicalchain.