Applications and potential of blockchain technology
After discussing the possibilities of new business models and ecosystems through the use of digital assets in our last article on the token economy, the following is an overview of possible blockchain applications for enterprises.
An article by Severin Kranz and Christian Klugow
German version available here
Blockchain applications are all services and products that can be created using blockchain technology. As shown in the figure, such applications are based on the selected infrastructure and the respective blockchain protocol. Using Ethereum as an example, the infrastructure layer corresponds to the provision of computing power by the miners, the storage of data by the network nodes, and networking via the Internet. The blockchain protocol defines how access and privacy are regulated in the network and how the network comes to an agreement regarding the transactions that have taken place (consensus algorithm). Based on these prerequisites, companies can use existing platforms to create blockchain services and products.
The best-known example of such a service is the Bitcoin, which is now increasingly used as a digital means of payment. The development of Ethereum and the Ethereum Virtual Machine made it possible for the first time to tokenize further assets on the basis of the underlying block chain. Classically, these tokens are generated in an Initial Coin Offering (ICO). ICOs are used by blockchain startups to obtain funding for their project by issuing a token. This is a special form of another blockchain service — a Smart Contract. As the name implies, Smart Contracts are rule-based, digital, automated and therefore smart contracts. In an ICO, for example, Bitcoin is paid into the address of a Smart Contract on the Ethereum Blockchain. The Smart Contract then automatically remunerates the sender of the Bitcoins with the respective tokens.
Probably the most complex form of smart contract is a decentralized autonomous organization (DAO). The idea is to run an organization decentrally, without employees or legal entities, through a smart contract. In a Smart Contract, incentive and governance systems are defined by rules. The best known example of a decentralised autonomous organisation is the Ethereum DAO. The Ethereum Community was able to allocate the development budget to specific program features through voting rights. Functions that received the most votes were therefore implemented by the developers. On 17 June 2016, however, a hacker succeeded in stealing 3.6 million ethers (then 70 million USD) through a vulnerability in the Smart Contract. For this reason, security audits of Smart Contracts are essential.
For the application of Smart Contracts in a business context, information interfaces to the real world are often required as a basis for decision-making. These interfaces are called oracles. Examples for software Oracle are databases for weather, flight or financial data. Different sensors are referred to as hardware oracles. In both cases, the challenge is that the data provided must be trustworthy. This is often not the case due to conflicts of interest or manipulation possibilities.
Since smart contracts often operate in the background, many block-chain applications interact with the user via a decentralized application (DApp). DApps are blockchain-capable user interfaces. Smart Contracts, on the other hand, represent the connection and interaction with the blockchain. In comparison to classic, central apps as we know them from our smartphones, a DApp is based on the decentralized backend of the blockchain.
mm1, the consultancy for connected business supports companies from the idea generation to the choice of technology and partners to the realisation of your blockchain initiatives.
This article is part of an article series on blockchain technology. Read more articles from our blockchain team:
- Blockchain in 100 words
- 6 Myths about blockchain
- Different types of blockchains
- The token economy
- Application areas of blockchain technology (this article)
- mm1 blockchain use case assessment
- Blockchain in the mobility sector
- mm1 roadmap for blockchain initiatives
Severin Kranz has worked for several years as a consultant in the Fintech sector and in asset management. Since 2015 he has also been intensively involved with crypto currencies and distributed ledger technologies. Through his Master in Business Innovation at the University of St. Gallen, he has specialized in business model innovations as well as human-centered innovations through design thinking.
Christian Klugow is a management consultant focusing on the mobility industry and an expert in identifying use cases for Blockchain applications. He advises large companies, mid-sized companies and start-ups on the market launch of new digital products and on the optimization of their value chain.
