The Importance of Blockchain Technology
Blockchain technology was initially the technical solution that made Bitcoin’s attempt to become a reliable and decentralized infrastructure for transacting monetary value through the internet as electronic cash successful. The utility of the technology was later on optimized with the development of smart contracts that paved the path to a third iteration of the internet (Web 3.0) or the internet of information and monetary value.
What is Blockchain Technology?
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a distributed network. Think of it as one immutable Google Sheet that any user can add to but no one can take away from. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of monetary value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
Business runs on information. The faster it’s received and the more accurate it is, the better. Blockchain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members. A blockchain network can track orders, payments, accounts, production, and much more. And because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, as well as new efficiencies and opportunities.
The Evolution of the Internet
Web 1.0 (the 1980s — early 2000s)
Protocol-based, mostly decentralized, not for profit.
Web 1.0 started in the mid-1980s and refers to the first stage of development on the World Wide Web that was characterized by simple static websites (i.e., read-only).
Web 2.0 (the 2000s — today)
Service-based, centralized, for profit.
Web 2.0 enabled both read and write functions (e.g., YouTube, Google, Facebook) but has largely been categorized as a data arms race by the major service providers, most notably Google who provides mostly “free” services to users in exchange for their data.
Web 3.0 (Enabled by blockchain technology)
Protocol-based, mostly decentralized, for profit.
Web 3.0 shifts the data ownership from centralized third parties to the user; in this shift, we will see users being paid for enabling a protocol or service provider to use their information. and usage of a given platform while hosting is decentralized amongst all parties involved through blockchain (e.g., Ethereum) rather than on centralized servers (e.g., AWS).
To summarize, today we transact through 3rd party companies that own user data. All revenues/profits created from leveraging that data flow back to the company and are not shared with its users. The total value of consumer data is claimed to exceed oil.
The next evolution of the internet (web 3.0) shifts ownership of data back to its users which results in privacy for users in addition to users getting paid for the data/content they own. There is heightened awareness and significant demand to move over to this model as creators/influencers more clearly understand that large companies such as (Youtube, Facebook, Music Studios, and Instagram) are making billions on data and content they are not creating. As we move into this new era of the internet we will see fewer “middlemen” controlling/dictating profit share.
If you look back to history you can clearly see how there were different innovations that led to some of the biggest technological advances in our time (Internet, Banknotes, telegraph, etc). One clear understanding around the internet is that once open-source code was created, it resulted in developers creating some of the most relevant applications of our time. Blockchain is an open-source technology as well and the growth in the number of developers looking to leverage its many use cases is growing at a pace that cannot keep up with the demand.
The real value is in the underlying technology that blockchain enables, today mainly optimized via smart contracts.
What are Smart Contracts?
Smart contracts are self-executing contracts with the terms of the agreement between two or more parties (e.g., buyer and seller) being directly written into lines of code. This functionality is core to enabling and enforcing contracts in a more autonomous way. A smart contract is stored on the blockchain and executed automatically. It can define conditions for corporate bond transfers, include terms for travel insurance to be paid, and much more. When thinking through many of the repetitive operations in business and corporate America, smart contracts enable companies to enforce immutable rules that are transparent and automatic which can drastically improve the efficiencies of a company’s operations.
Smart Contract Use Cases
A small list of the real-world use cases that blockchain and optimization of smart contracts bring and why are there so many builders using these frameworks.
Digital Advertising/Social Media
Rather than companies paying a middle company to advertise to you, blockchain technology eliminates the middleman and puts the user in control of whether or not they want to be advertised to. In the event that they do, the advertiser pays the user aside from paying a middleman that is storing your data in a database. Data is always kept with the user. This is not theoretical and already is in practice. Brave browser is a decentralized browser that allows its users to sell their data to advertisers on the platform. The advertisers and the browser are never able to see or store the data being used.
Personal Healthcare Data
Individuals will be able to secure and earn from their health data on a decentralized zero-knowledge rollup that is secured by the blockchain. Medical record-keeping has already been moving toward the digital realm for many years. With blockchain, patient records could be stored even more securely in a way that would make them impossible to tamper with. Some companies are even exploring the possibility of sharing healthcare data in a way that remains private yet can be verified by both parties as being true and accurate.
The goal of DeFi is to give users control by using blockchain technology and open-source coding to facilitate traditional financial services in ways that do not require a bank. Similar to owning your own data, blockchain now enables an ability to store funds in a personal and secure wallet that is in that individual’s complete control. Because of smart contracts, there are more controls in place which result in greater transparency and more control over the management of financial transactions. For example, because all transactions are trackable and transparent it is seamless to manage the collateralization and or payoff schedule of a loan.
Enhances Efficiency: The process of changing an insurance company is a tiresome process. There is also the risk of losing control over information by the customers. Blockchain answers this problem. It offers the security of information and the efficiency of operations. An individual has complete control over the information while the confirmation is present on the Blockchain.
Increases Trust: The financial services industry is suffering from a lack of trust. Despite institutions being strong, the lack of trust is palpable. High expenses, the inefficiency of operations, and lack of trust result in under-insurance. With elements of transparency and straightforwardness, Blockchain encourages trust amongst all the parties.
Claims Processing: Blockchain and smart contracts resolve issues facing the insurance industry. Customers find insurance contracts to be too long and confusing. While insurance companies are facing fraud at various levels, smart contracts help in overseeing claims transparently and responsively. The whole process starts with recording and confirmation of contracts on the Blockchain. At the time of submission of a claim, Blockchain ensures the passing of only valid claims. In case there are many claims about the same incident, Blockchain would again come into play. It would ensure the passing of proper claims only. All this without human intervention. Thereby improving the speed of resolution of claims.
Prevention of Fraud: The insurance industry loses over the US $ 80 billion to fraud every year. Blockchain can detect and prevent fraudulent activities. This is one of the biggest reasons for the rapid integration of Blockchain in insurance. Blockchain technology stores transactions in a decentralized manner. It can check for the authenticity of transactions, policies, and claims. By harnessing the synergy of operations, insurance agencies can save a lot of money.
Product Development: Blockchain provides insurance agencies with the latest data and information. It is not possible to combine data from various sources. Blockchain technology handles these issues. Blockchain can help plan efficient actuarial models. This is possible by linking various data sources. These products will be in sync with the latest requirements of the customers. And will help with the expansion of the business.
Cost Saving: Blockchain helps in the reduction of costs for insurance companies. This is achievable through the automation of processes. These processes are the verification of claims, the identity of policyholders, and the validity of the contract. This will help reduce administrative costs for the insurance companies.
Blockchain significantly improves collaboration by enabling everyone to access a single source of truth easily through transaction validation. Transparency of the blockchain supports each party to easily validate transactions and improves overall data security since data is stored in immutable records.
Asset ownership largely through a legal contract or representation. Blockchain facilitates a mechanism to more easily transfer, record, track, and sell assets on an immutable ledger that will optimize the way assets transact.
Revenues are able to be automatically assessed and distributed amongst companies as income flows given prespecified percentages and a combination of off-chain and on-chain monitoring of these contracts and transactions.
Derivatives (options/futures) are normally underwritten via a specific entity however with smart contracts and pooled liquidity, protocols are able to provide options and futures contracts backed by decentralized liquidity pools optimizing liquidity management and mobilization for all sides.
Automated Market Making
Instead of a book being managed by a centralized entity and individual market makers, DeFi protocols like Uniswap enable users to transaction tokens at market price through two-sided liquidity pools managed by smart contracts and operating 24/7/365.
Tokenization of Real-World Assets
Tokenization of assets like real estate provides many benefits to traditionally illiquid asset classes including global accessibility, permissionless liquidity, on-chain transparency, and reduced transactional friction.
Currently, ERP systems largely record and have a role in storing financial and HR data and information. Blockchain enables better record keeping in addition to an ability to sell data in a way not previously done. Blockchain is a ledger itself so there will be significant disruption in this space due to the native capabilities that so highly correlate to accounting and record keeping.
Transitioning certain government and company budgets would help provide transparency.
Self-Driving Cars/ Artificial Intelligence/ML
Self-driving cars and AI need data to properly execute the right commands. This data is something that needs to be very secure and not easily manipulated. Blockchain is a robust source of security being immutable, decentralized, and encrypted while providing and enabling smart technology that will drive AI and ML.
Supply Chain Management
Using blockchain, businesses could zero in on inefficiencies within their supply chains while also being able to know exactly where any item is at any given time. The immutable record kept by a blockchain could also allow businesses and consumers to verify information like how products were tested and where they came from.
Companies like Microsoft are working on ways to create blockchain applications that would create digital IDs within an authenticator app, giving users full control of their digital identities. This could allow people in impoverished regions to gain access to the financial system, healthcare, various areas of industry, and so on.
This may be one of the most compelling and straightforward blockchain use cases: Blockchain could make the possibility of voter fraud a thing of the past. People could cast their votes digitally in a way that could not be altered and could be seen and verified by everyone.
Record Keeping for Transactions
Currently, real estate transactions are centralized in one place. Typically, they are paper-driven processes that are ultimately stored in a county recorder. There are several existing circumstances of records being manipulated or lost that plague both the real estate markets and every such market that uses a contract to engage in business transactions. Putting these transactions on a blockchain keeps an immutable record of transactions that cannot be manipulated. One company currently working on this use case is Propy.com, which is already conducting real estate transactions on-chain.
Cross Border Payments
Globalization leads organizations to make more cross-border transactions. According to Smarter Payment Tracker, cross-border B2B payments accounted for $125 billion in revenues in 2018. Blockchain has the potential to enable secure, efficient payments in cross-border transactions by removing the need for intermediaries. Multiple organizations are taking advantage of blockchain to enable cross-border transactions.
Wills and Inheritances
Digital wills and signatures are a convenient way to create testaments, they are at the risk of fraud. Individuals can benefit from blockchain technology to prevent tampering of their wills. Testators can distribute their assets to inheritors via a crypto-will network that can be accessed by related parties. This can be built in the form of a smart contract that can be automatically executed after the death of the testator.
Influencer/Artist Ownership and Royalties
As the world transitions to an influencer economy, creators of content will transition to owning what they create. This is inevitable and has already begun to occur. Blockchain enables creators to own more of the value they deliver. (This will be disruptive across every social channel that currently makes money on its creators.)
Blockchain offers digitization of assets with IoT sensors so that organizations can label their assets and provide a transparent tracking system. Digitization enables us to identify the location and condition of items. The blockchain can store, manage, protect and transfer all this information.
While the above are some of the use cases that validate why blockchain technology is so relevant, it is a nascent technology that will help the evolution of how individuals and businesses interact. We are in a period similar to that of the dot.com era, and there will be projects that do not succeed.
The most relevant projects understand the technology and focus on building the infrastructure that will align with solving the world’s largest issues. The important thing to understand is that digital currencies that do not provide real-world benefits fail to provide value which risks being irrelevant in the long term.
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