What are the real-world applications of Blockchain technology?
Blockchain Simplified — Part 2
From the previous part Blockchain- An overview, we could see the following key features of Blockchain :
- A development platform: Blockchain, born with Bitcoin, has proven to be a reliable platform for the development of multiple ‘contractual’ and ‘transaction’ based use cases.
- Holds a distributed System of Record: Both dynamic data (transactions) and static data (registry) are recorded in the blockchain.
- Secure and Immutable: Due to it’s distributed structure and consensus- driven mechanism all participants/nodes in the peer-to-peer network need to validate the transaction and hence the nature of blockchain is very secure. Any attempt to tamper data will create a need to change data present on all computers (nodes) within the network, and any violation will make the tampering invalid.
With these features, there is a major hype around possible use-cases of blockchain technology. But before we try to explore some truly valid use cases, let us try to understand ‘why’ do we need Blockchain or more importantly, do we really need it?
In this article, let’s look at the real-world applications of the blockchain -those supported by large and active developer communities :
1. Banking access in remote areas: In a country like Zimbabwe and Afghanistan, where all people may not have access to banks or the banking infrastructure itself is not robust due to uncertainties, currency fluctuations and mistrust; Blockchain is useful as a stable form of currency, which would not lose its entire value overnight.
2. International payments: Typically, if one wants to transfer money to a person or an institution in another country, they use a bank/money exchange based wire transfer. This process of wire transfer takes two business days because it has to go through domestic Automated Clearing House (ACH) of both nations involved in the transfer. Additionally, international wire transfers have huge minimum costs (approx US $45–50) to initiate the transfer. Using Blockchain, this transaction would be done in less than 10 minutes with transaction fees of around 15–50 US cents.
3. B2B payments: Though Cryptocurrencies(Blockchains biggest application) are garnering a lot of attention these days, an institutional level of acceptance is still missing. The system would get a major push if banks are willing to accept and hold cryptocurrencies as deposits and exchange it for fiat currencies.
Currently, there are initiatives taken by banks, not just to take deposits or trade currencies but for international B2B payments as well. Through a consortium, 22 banks across the world are participating in a SWIFT based Blockchain proof of concept. The could enable banks to make fast payments and reduce transaction costs, thus eliminating the need of maintaining large cash reserves.
According to Investopedia, a ‘Letter of Credit’ refers to a document issued by the bank guaranteeing a seller about the accuracy of time and value from the buyer. If a buyer is unable to make payments, the bank will cover the full or remaining amount of the purchase. This is a widely tool due to difference in laws and economy of multiple regions and countries involved, where the possibility of valid and timely payments are not guaranteed.
The typical process of issuing ‘letter of credit’ is very time-consuming and paper-based. This slow process creates liquidity issues for businesses as the time consuming nature of processing makes sellers wait for the payment till the buyer receives goods. Using Blockchain, this can be done in few hours.
There are various initiatives taken to implement this. R3, a global banking consortium for Blockchain, is building prototypes to support trade finance on this technology. Barclays has partnered with the Israeli Fin-tech Wave to guarantee a letter of credit for export of $100,000 worth of agricultural products. Such solutions could solve issues in hours which would have otherwise taken days to complete.
Stock exchanges are experimenting with Blockchain technology to streamline time-consuming and inefficient processes involved in trading securities. Security trading, in a nutshell, is a financial activity of purchase or sale of security assets like stocks, bonds, commodities and currency in order to make money in the short term. Certain long-winded, complex processes like pre-trade, trade, post-trade and custody, and securities servicing involved are time consuming. For this reason, exchanges like the U.S.based NASDAQ, Australian Stock Exchange, the London Stock Exchange,exchanges in Japan and Korea are experimenting with blockchain technology.
Nasdaq received a patent for ‘a data transfer and logging system, with a blockchain used to track trades and clearing positions.’ As per the patent script, ‘transactions within the system occur through a two-step process. Each transaction gets logged in two blocks: one that records the transaction as it comes from the source to the intermediary, and a second as it passes through that intermediary to its destination’, thus offering improved speed and efficiency towards the clearing and settlement processes performed in a computerized environment.
A Smart contract is nothing but a piece of code stored on all computers of the blockchain network. It defines a set of conditions to which all parties using the contract mutually agree upon. Once the required conditions are met, certain actions are executed and all members of the network get to the same result by executing this action. This enables smart contracts to execute contractual obligations without any human intervention. The integration of Smart contracts, a big application of blockchain, with payment gateways, would automate a major process.
There are multiple ways in which Smart contracts can be used. For instance, in case of insurance claims, all contracts(claims) can be recorded on a blockchain, thus eliminating multiple claims being registered by one user. Concurrently, the user is also not scammed out of a claim by the company stating that they have already issued a payout.
Supply Chain Tracking
Most of the companies in the world have ERP and supply chain management software yet, there is a limited visibility and details about the whereabouts of product at any given moment. Blockchain can ease the tracking of items across the global supply chain.
The product can be tracked at every stage creating the record of the location, who handled it and when. It can also record details like temperature, internal pressure at each point to help retailers be assured of product safety. This could possibly solve the problem of lost or damaged products in the shipment and increase accountability at each point. Due to an accurate, specific and immutable nature, retailers can resolve issues easily.
Wal-Mart is experimenting with blockchain to address food safety by tracking the place of food items and faster identification of the source of an issue if any product is causing health problems to customers.
Generation-1 Blockchains (like bitcoin) have now settled into just being either monetary transactions or stores of value (digital gold). But innovative advances in the usage of the underlying principles of blockchain is leading us to many amazing solutions, thus showcasing that this is truly a technological marvel of the future.
If you want to understand and know more about Blockchain, here’s a list
Part 1: What is blockchain?
Part 2: Blockchain- Applications and use cases
Part 3: Top 8 cryptocurrencies to watch in 2018
Part 4: Everything you need to know about ‘Ethereum’ and Smart Contracts
Part 5: Blockchain Investment landscape and state of ICOs
Part 6: Blockchain- Future ahead