Blockchain technology easily features among the biggest technology disruptors of recent times. Over the last five years or so, the number of times ‘blockchain’ has been Googled has jumped by close to 1950% – a clear indication of the exponentially growing interest in the distributed ledger system introduced by Satoshi Nakamoto. Often billed as Internet 2.0, the value of the global blockchain industry has been projected to soar to $2310+ million by the end of 2021 (in 2016, the value was ~$210 million) – with the 2016-2021 CAGR hovering around the 60% mark. We will here highlight the main advantages of blockchains and why it should be implemented by organizations:
Longevity and immutability
Transaction data (block data) stored on a public blockchain remains on the open digital ledger as long as the ledger itself remains operational. There are no chances whatsoever of data losses and/or problems in accessing information – since all the parties in a network can view all transactions. What’s more, since blockchain records are immutable – they cannot be altered or deleted by malicious third-party agents (or a rogue player), without creating a consensus first. The integrity of the confirmed blocks in a blockchain remains unaffected at all times.
Decentralized and disintermediated
The blockchain technology facilitates direct, peer-to-peer (P2P) transactions – and does away with the involvement of centralized authorities/units (say, an IoT gateway), working as intermediaries. Such transparent and trustless exchanges minimize the chances of counterparty risks cropping up at any stage. Since the technology is decentralized, the data is not stored in any central database – and is kept at all the edge nodes of the networks (i.e., with each party in a network). There is no ‘single point of failure’ that can be targeted by hackers. This ensures enhanced safety and reliability for users.
Availability of clear audit trails
Blockchains are created by miners, by systematically adding new transaction records (called ‘blocks’) to the existing chain in the distributed ledger. A trail of all transactions on a particular asset can, hence, be closely examined at the time of financial audits. This benefit makes distributed ledger technology particularly useful in the banking and financial sector, while the functionality comes in handy for checking supply chains, food audits and even art provenance. The creation and easy availability of audit trails makes blockchains a great tool for storing land registry records as well.
Security and scalability
In a traditional data transfer/transmission setup, scalability is often a point of concern. The centralized portals/gateways, in particular, cannot be scaled up quickly – and that causes efficiency losses. Blockchain technology, by virtue of being shared, is completely scalable, and can be used to deliver optimized services in all scenarios (blockchains are often called the ‘internet of value’). In addition, blockchains offer enhanced data security – since all processes/new records are validated by by ‘miners’ from all over the world. Chances of fake/manipulated transactions getting added to the chain are minimal. The fact that transactions are generally anonymized (the transactions are open; the identity of the transacting parties are not) also adds to the user-privacy layer.
Note: There have been talks about the ethereum blockchain platform (with the ‘ether’ cryptocurrency) switching over to a ‘proof-of-stake’ model. As and when that happens, the authenticity of the miners’ activities will receive a further boost.
The best IoT registry
From ownership and maintenance of digital assets and connected devices, to authorization and usage – blockchain technology has a big role to play in the IoT (internet of things) space. It is relatively straightforward to write small programs to prove the ownership of any remote device, while repairs/modifications can be done after secure authorizations validated on the ledger. Data from both home-based IoT systems as well as enterprise IoT systems can be fed into blockchains – to ease usage and keep confusions and probable conflicts over asset ownership at an arm’s length. The technology helps in building a level of trust among users (OEMs, suppliers, end-users) and facilitates better collaboration among all parties.
Improved security standards and feedback
Blockchains make data storage more secure than ever before. Advanced independent cryptography (pre-verified) is used by miners, for storing each and every new transaction record/block. Under the existing ‘proof-of-work’ system, complex mathematical problems have to be solved by the blockchain miners, for adding new blocks to a chain in the distributed ledger. On an optimally functioning blockchain network, it is easy to connect assets with actions, and remove all probabilities of security breaches. Since end-to-end traceability is a key feature of the technology, owners of digital assets can receive real-time feedback at various stages (installation, shipping, implementation, etc.). Such feedback goes a long way in pulling up asset management standards.
Quality of data
For digital recordkeeping and analysis to be effective, the collected data has to be highly authentic. Irrespective of the sector where it is being used, blockchains offer the best services in that regard. The presence of a single, distributed ledger (as opposed to the task of adding records to multiple ledgers) keeps the blockchain ecosystem transparent and decluttered. The data, as already mentioned above, is readily available to all parties on a network as and when required, and is highly accurate (thereby bolstering reliability). The consistency and completeness of blockchain data also contribute to enhancing the overall data quality. Authorized users can access information on transactions in the network at any time.
Blockchains as ‘consortium databases’
Operating in a blockchain network fosters cooperation and collaboration even among competing parties. A classic example of this would be the ‘Open Music Initiative’ for protecting the intellectual property rights of artists and music labels. The ‘Corda’ distributed ledger platform used in the R3 consortium for banking/financial markets is yet another instance of blockchains bringing competitors together. In a blockchain-powered consortium, the individual members are not controlled by/do not have to give their powers to a centralized authority – and that, in turn, diminishes friction among the parties. Blockchain technology also encourages the interoperability of public networks, increasing usability levels further.
Note: ‘Interplanetary Linked Data’ and ‘Interledger’ are two important protocols for interoperating networks (i.e., ‘network of networks’).
Creation and maintenance of smart contracts
This is one of the biggest advantages of blockchain technology. On an autonomous distributed ledger, users can code self-executable smart contracts (in essence, ‘if-then statements’) – which are triggered as soon as certain pre-specified conditions/limits are met. In other words, the smart contracts regulate the precise manner in which transactions between two parties would take place (say, releasing water for irrigation in smart agriculture, or releasing payments after receiving a shipment). These smart contracts can be securely stored and maintained in the blockchain system. Product manufacturers can also store important metadata about their items on the network. In a highly digitized field like 3D printing, the benefits of implementing blockchain technology are immense.
Lower time and cost requirements
In a traditional data exchange setup, significant investments are required for: a) installing the centralized gateway, and b) arranging for the resources and manpower for ensuring complete security of the system. With the removal of intermediaries in a blockchain, such overhead costs no longer have to be incurred – and that brings down the overall transaction costs (for asset exchanges). In addition, through a distributed ledger system, transactions can be completed much more quickly than in a conventional setup. The cycle of inter-bank transactions can be brought down from a few days to a matter of minutes, with the help of blockchain technology.
Benefits of a transparent system
For seamless transactions between business collaborators, there has to be a certain level of trust among the transacting parties. Blockchains bring that desired level of ‘commercial transparency’ to the table. Probable delays and damages in relations following negotiation attempts have no chances of happening – and all commerce can take place place promptly. Detailed transaction records are storable next to the individual commercial constructs, offering heightened trust and transparency.
Ensuring single-spend of data/resources
Blockchains have already found widespread popularity on online voting platforms. An important reason behind the growing adoption of distributed ledgers in this domain is the fact that, the underlying technology rules out the problem of ‘double spending’ (i.e., the practice of spending the same resource (coins, tokens, a cryptocurrency unit, etc.) multiple times or sending the same data to more than one user). Many otherwise efficient virtual decentralized systems suffer from the problem of ‘double spending’ – something that the P2P verification process in blockchains can effectively do away with.
Formation of ‘native assets’
In a blockchain, the database in the open ledger is not owned by any particular unit (say, a central gateway). Instead, the control lies with all the network members/colluding parties. The records are immutable too – and these factors combine to open the possibility of the assets themselves being stored and maintained in the ledger database (as ‘native assets’). The creation of such ‘native assets’ can be an effective way of tackling problems while implementing and validating exchanges – both on traditional platforms (Bitstamp, NASDAQ, GridSingularity), as well as on multi-side platforms.
Note: Given the openness and the complete decentralization of blockchain networks, they can be used as cutting-edge ‘public utility resources’. Bitcoin, for example, is a cryptocurrency/digital money utility.
Blockchain technology has already made its presence felt – albeit in different degrees – in many different industries, from law, defense and retail, to healthcare, energy and governmental affairs. The technology is still at a fairly nascent stage, and there are a fair few challenges, in the form of the huge computing/processing power required, uncertainties over integration, the need for sizeable investments and confusions over the legal status of cryptocurrencies. The technology is here to stay though – and it can be reasonably expected that most of these problems will be ironed out within the next few quarters. Blockchain Internet 2.0 is upon us – and the revolution will only get stronger with time.