You may have heard about Bitcoin, the most popular cryptocurrency in the world, and how it relates to “blockchain.” Many people have heard the term but still don’t understand the basics of blockchain technology, who is using it, and how it is currently being implemented by countless organizations worldwide.
Blockchain technology is disrupting every sector that you can imagine. There are oil companies interested in blockchain technology, real estate companies already using it, and hospitals trying to determine how blockchain can improve the healthcare experience. All over the world, blockchain is being implemented and utilized for increased transparency, efficiency, security, and more.
What is blockchain technology?
Blockchain technology consists of a shared and immutable – unchanging over time – distributed ledger where blocks of data are created and transactions are recorded. The ledger participants are called “nodes,” which typically adhere to a common “protocol.” Blockchain nodes are often computers that execute basic blockchain network functions.
If these are new terms to you, don’t worry! Let’s start with a few definitions:
- blockchain – this technology is essentially a type of database that’s called a “digital ledger”, but it stores information differently – in distributed blocks.
- nodes – in a blockchain, data is stored within blocks of data, and those blocks of data are stored in nodes; think of a tiny server where all nodes are connected to each other in a way that they can continuously share information with one another across the blockchain.
The blockchain is completely decentralized, meaning that a single individual or entity cannot control it. The blockchain is instead managed by a peer-to-peer (P2P) network. After a transaction is recorded, no participant can alter or tamper with a transaction. Blockchain technology also includes aspects of cryptography that help keep the network secure.
A blockchain can be considered an ever-evolving database, but it stores information much differently than traditional databases. Blockchain collects data in the form of “blocks,” chained together in an immutable timeline. Blockchain technology is called blockchain because it involves stringing together these chains of “blocks,” hence the name “blockchain.” Blockchain technology is often considered a “distributed ledger technology,” as well.
These blockchain nodes work together to confirm and verify transactions, but blockchains can often differ in how they agree on the information. Many blockchains have various “consensus protocols,” which determine how the blockchain network agrees on a transaction. Some blockchain networks achieve a consensus through mining, while others use a “staking” method.
The nodes that participate in a blockchain network can verify transactions independently, and these transactions are accessible to everyone. Even though the data is public, it doesn’t include personally identifiable information. For validating transactions, nodes are rewarded with the native currency (token) of that particular blockchain.
The first block of a blockchain network is often referred to as the “genesis block.” The concept of a “blockchain” was first proposed decades ago. Noted cryptographer David Chaum first conceived of the term. The paper he published about it inspired Satoshi Nakamoto. Nakamoto then created Bitcoin, improving upon the idea of Chaum’s blockchain by adding a hashcash-like method to timestamp the blocks.
The advantages of blockchain
There are many advantages that blockchain can provide. The benefits can often depend on the sector in question, the cryptocurrency regulations in a specific region of the world, and the specific blockchain use case implemented. Blockchain can be critical in various ways, including:
- Enhancing speed and efficiency for transaction operations
- Reducing the cost of intermediaries
- Improving security through end-to-end encryption
- Offering transparency with smart contracts
Speed & efficiency of blockchain
One of the most obvious advantages of blockchain is improved speed and efficiency for various operations. While some companies may have to wait days for a transaction to settle, transactions on blockchain can be handled in as little as several seconds. There are some variables to consider, such as network traffic and the amount of block data involved.
Blockchain is a technology that has transformed the finance sector, since it allows for almost real-time settlement, which was not possible with previous technologies. The technology can settle contracts and transactions almost in real-time, which means that blockchain can automate manual processes and perform them quicker and more efficiently.
Reduced costs of intermediaries
Blockchain can reduce the costs of intermediaries, “third parties,” and other administrative tasks. Blockchain’s ability to develop smart contracts means that individuals and organizations can enter contracts without even having to know or “trust” each other. Two organizations in different countries can participate in a smart contract that is executed automatically without dealing with additional costs associated with a lawyer or financial intermediary.
Organizations can also save massive amounts of money by utilizing smart contracts, which are executed automatically. For example, companies can reduce costs simply by settling payments using a blockchain-based payment system rather than a legacy payment provider.
Blockchain technology offers a way for individuals and businesses to receive their money quicker while also reducing transaction costs. The smart contracts made possible by blockchain can also automate payments (such as payroll and invoicing) that can reduce costs associated with labor and improve overall productivity.
Improved security through end-to-end encryption
Blockchain offers end-to-end encryption, which means that data is much more secure concerning potential fraud or other illegal activity or manipulation. It is also exponentially more difficult to “hack” a blockchain network.
While some companies can be hacked due to something as simple as improper patch management, an attack on a blockchain network would be much more expensive and complicated. Most attacks involve a miner, or a group of miners, who can gain over 50% of the blockchain network’s mining power. These rare attacks are known as “51% attacks.”
Since blockchain anonymizes the data, it’s also ideal for organizations that are concerned about data privacy. Blockchain can also decentralize digital identity so that users can gain more control over their data.
Transparency through the use of smart contracts
The blockchain is also much more transparent than other technologies, since two parties can enter a smart contract anonymously, and the contract will still be executed. Most blockchains are completely open-source, which offers a new level of transparency compared to other emerging technologies.
Blockchain offers massive benefits when it comes to agreements in almost any sector, as a contract can involve a financial transaction, a property transfer, or even a loan or mortgage. The immutable and transparent nature of the blockchain eliminates the need for intermediaries and third parties.
This kind of transparency is ideal for organizations that might be concerned about fraud or liability. It also offers a new level of traceability, which can help improve inefficiencies with respect to both supply chain and retail organizations. A restaurant or grocery store, for example, can use blockchain technology to trace their products from farm to table.
How is blockchain being used?
Some of the most influential and powerful organizations in the world are already implementing blockchain in some form or fashion. Google is working on creating its own blockchain, while also making strategic investments in the sector. IBM also built an entire network on the Stellar Lumens blockchain, which was created as a global mobile payments network. The network, called World Wire, was also used to issue stablecoins for various banks.
Many governments, organizations, corporations, and nonprofits all over the world are implementing blockchain technology and researching and exploring how it can potentially transform various industries.
Here are some of the ways in which blockchain is being used today.
Blockchain is responsible for the rise of the cryptocurrency market, which is already worth trillions of dollars, and the rise of DeFi, or decentralized finance. Decentralized finance refers to financial products and services based on blockchain, and the sector has already been growing significantly. Some crypto experts estimate that the DeFi sector alone, which is possible because of blockchain technology, will soon be its own $800 billion sector.
One way in which blockchain has already disrupted finance is related to cross-border payments. Individuals and organizations can use cryptocurrency to settle transactions in real-time, threatening the inefficiencies of legacy finance systems. Many traditional financial institutions are investing and exploring how blockchain can be used to reduce bank fraud, help keep transactions secure through encryption, and facilitate faster transactions.
One of the most obvious ways that blockchain can disrupt finance is simple: it can make financial services more accessible to everyone. Blockchain technology can be crucial for those who may not have access to traditional financial institutions, like banks or credit unions. You can find out more about how blockchain and crypto can help the unbanked in our blog.
Blockchain can introduce financial services to individuals and businesses that may lack access to basic banking infrastructure. Blockchain technology also allows for loans and smart contracts that can help empower marginalized communities that may not have access to basic financial services.
Blockchain also can disrupt one of the most critical sectors in the world: healthcare. One of the most significant issues with respect to healthcare is that medical record privacy is extremely crucial to the sector. Many experts believe that storing medical records on the blockchain will improve the overall privacy of medical records and make it much easier for the right healthcare professionals to access records when necessary.
What are some other potential blockchain use cases for the healthcare sector? Blockchain could potentially be used to verify the authenticity of a particular drug. This use case alone can help pharmaceutical companies save billions of dollars. Blockchain could also provide medical supply tracking to ensure that hospitals are using equipment that meets their standards, and be utilized to accurately track the medical credentials of employees from one institution to another.
Clinical trials can also be recorded on blockchain, and trial results can be shared for maximum accuracy and transparency. Healthcare also often suffers from fragmented data management, and blockchain technology can offer a more accessible but secure environment for medical records in general.
There are many different ways that organizations and companies can utilize blockchain to transform the real estate industry. Thanks to blockchain technology, real estate can be tokenized so that a transaction can happen quickly between buyer and seller.
Real estate is often known for various broker fees and closing costs, and blockchain can help both buyers and sellers save money on commissions and fees. Financial institutions can also start issuing loans and mortgages on the blockchain, which can streamline the process to make it much more efficient.
Propy, for example, is a blockchain-based real estate management platform that markets itself for its ability to “automate their real estate transaction process.” Propy claims to save its clients an average of 10 hours of paperwork per transaction.
There are already several blockchain startups that are creating and implementing blockchain-based solutions to common real estate pain points. Blockchain can help clarify property ownership in regions of the world that may lack government infrastructure, and it can also help reduce both time and costs associated with real estate transactions. Blockchain technology can help replace outdated paper real estate documents and deeds, as well.
About the Author
Michael Hearne
About Decentral Publishing
Decentral Publishing is dedicated to producing content through our blog, eBooks, and docuseries to help our readers deepen their knowledge of cryptocurrency and related topics. Do you have a fresh perspective or any other topics worth discussing? Keep the conversation going with us online at: Facebook, Twitter, Instagram, and LinkedIn.
