Greg wants to transfer money to his friend while abroad. He can’t do it directly, so he goes to a bank. He has to pay a fee and the exchange rate is not great. However, Greg doesn’t have any other choice - all the institutions making money transfers abroad charge a commission. Moreover, his friend doesn’t receive the money transfer for three working days.
Kate decides to buy an apartment on the Spanish coast. But to do this she has to travel to Spain, meet the seller in person, and sign many documents. The process will also involve a broker, land registry service, and a money transmitter. It will take months for Kate to finally become the legitimate owner of the property.
Fred and Richard have founded a startup. To develop a successful product, they need money. They decide to crowdfund their idea but offers from the most popular crowdfunding platforms aren’t very attractive as they charge a commission. Besides, if the funding doesn’t reach the initial goal, the startup won’t receive anything. In addition to that, the crowdfunding process takes too much time, and the guys need the money ASAP!
Have you recognized the common problem in all three situations? It’s the need to involve a third party when it comes to exchanging any type of value (including money, property, intellectual rights, etc.) between two parties. The intermediary is involved to ensure the legitimacy of the transaction, but it requires a lot of time and usually charges a high fee. Besides, any transaction approved by a third party isn’t secure against fraud.
The solution was found recently and its name is blockchain.
What is blockchain technology?
One of the most exact definitions of blockchain technology states that it is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” In other words, blockchain is a decentralized, distributed and public database of transactions shared across a network where all transactions are secure and can’t be changed or deleted from the database.
Blockchain enables peer-to-peer transactions, eliminating the role of the third party.
How does blockchain work?
As you have probably guessed, blockchain is a chain of blocks that create a huge database. Each block contains data about a transaction, the exact time when it was processed and a cryptographic hash of the previous block in the chain. Linkage to the previous block ensures the security and constancy of the transaction data – no one can change any information in the block without changing the unique hash, which in turn would break the interconnection in the chain.
Blockchain is a decentralized digital ledger. This means that it doesn’t rely or depend on any institution or government. As a result, it can seamlessly process international transactions.
Blockchain is a distributed digital ledger. This means that all transaction records are distributed across a number of computers in the network, ensuring that the data can’t be changed retroactively or deleted.
Blockchain is a public digital ledger. This means that transactions can be seen by all the members of the network. In addition, these transactions need to be approved by the network to be considered valid. Consensus in blockchain depends on the algorithm the system has adopted.
And now about blockchain explained with simple words
Let’s imagine there is a file that contains information on how much money all of us have. However, it doesn’t have any names or other personal information, only the public key for each network member. This file is distributed in the network so that everyone can check and agree with this information. When you decide to send a certain amount of money to a friend, who is also on the list, this information is shared with everyone, and people on the network can validate or deny your transaction. When consensus is reached, the account balances for your friend and you change almost instantly and with no additional cost.
Blockchain transactions are also extremely secure. First, you have private and public keys that enable you and only you to access your wallet. Second, each transaction is encrypted in a single block. All blocks containing information about your transactions (both incoming and outgoing) are connected in a chain. They can’t be changed or deleted (read: faked), since they are constantly distributed across the network. As a result, all actions in blockchain are very secure.
Generally, we can describe blockchain as a trusted and secure way to store information of practically any kind by distributing it between many participants in one network instead of storing it on a single server. This information can’t be erased, and changes are possible only with the consent of the majority of the network participants, also maintaining previous entries in the chain. Blockchain technology has obvious advantages for peer-to-peer transactions as it enables you to eliminate the use of third-party services.
Blockchain use cases
The technology may seem really complicated at first. But it has a strong potential to reshape almost every sphere of our everyday life. Just check this out:
- Financial transactions
This is the first and the most obvious use of blockchain technology. The hype around bitcoin has shown that there is a problem with traditional money transfers. Users highly appreciate the advantages that blockchain offers: security, speed, no fees and complete anonymity.
And Greg’s problem, which we mentioned in the first paragraph of this article, is solved! With blockchain, his transactions within a country or abroad are instant, free and protected by thousands of network members who ensure the legacy of every action.
- Real estate trading
Blockchain is also a solution for the quick and secure exchange of ownership rights. This works perfectly for the real estate market. In October 2017, most major media wrote about the first apartment bought through blockchain. This technology erases borders. The founder of TechCrunch Michael Arrington bought an apartment in Kiev without having to travel to Ukraine, visit institutions, sign documents, or wait for several months. Real estate trading via blockchain is making its first steps. This technology, which is based on smart contracts, seems to have an impressive potential to transform the market in the near future.
It seems that Kate will be also able to move to her dream house on the Spain seaside without the boring and time-consuming routine.
- ICO instead of crowdfunding
As you know from the example of Fred and Richard, crowdfunding requires a lot of preparation and doesn’t guarantee that you will get your money. They can now fund their product development with ICO, or initial coin offering.
The idea of ICO is quite simple: the company issues tokens, which count as internal currency in the service that should be developed. Naturally, everything happens on blockchain in order to ensure that every token is unique and can’t be faked. Potential investors can buy tokens and therefore invest in the development of the product. If the service turns out to be really successful, the actual price of the tokens rises dramatically.
For example, Ethereum was selling its ETH tokens for 0,0005 BTC in early 2016. At the beginning of 2018, ETH is worth 0,1 BTC. Mind the rise in bitcoin value as well. People that once believed in the potential of Ethereum may be happy with their investment. Besides operating one of the top cryptocurrencies, Ethereum is also the main platform for ICOs.
- Smart contracts
Smart contracts is another great feature that is available to everyone thanks to Ethereum. This is an application that holds money or other assets in escrow and transfers it to another party only once the terms of the contract are met. Due to blockchain technology, any downtime, censorship, fraud or third-party interference are excluded. The smart contract is executed automatically and irrevocably.
Elections are very important for every country, but it is still impossible to guarantee the security and accuracy of the votes. However, the introduction of blockchain gives us hope that elections will soon become just as they should be – representative of true voter desires.
Blockchain-based voting can verify the personality of the voter, ensure that every person votes only once, and ensure that all votes are recorded and counted. The distributed ledger makes it impossible to manipulate the voting results.
- Collecting taxes
Blockchain enables the elimination of a third party in collecting taxes. This means that everyone can now pay tax authorities directly, minimizing the time and costs of such transactions. Besides, blockchain is also capable of overcoming tax-avoidance schemes. All information on payments is stored in a shared file. The data is secured from fraud or other interventions. As a result, the distributed database lets everyone track every transaction so that an individual or a company can’t manipulate their taxes.
Implementation of private blockchain for enterprises
We were speaking about blockchain as a decentralized, distributed and public database. This means that anyone can enter the network and access the information stored in the blocks. Although this openness could limit the use of blockchain for enterprises, which value data privacy. As a result, private blockchain has been developed.
Private blockchain (also called enterprise blockchain) inherited the advantages of its elder brother, with some limitations. For example, all the participants of the network should be approved by the network starter or with the consensus of several participants. Different consensus algorithms are used to meet any decisions.
The technology of private blockchain is young, and it is hard to predict how it will develop in the near future. Despite this fact, it is already being implemented by some industry leaders. Their ideas for enterprise blockchain uses are quite inspiring.
Renault creates the first blockchain-based car maintenance book
Groupe Renault has partnered with Microsoft and VISEO to create the first digital car maintenance book that stores all the information about a car in a secure and transparent way.
The idea was to gather all the data about every single car in a unified database. This will bring the information from automakers, insurers, repair shops under one hood. Blockchain ensures that the data won’t be faked or changed retroactively. This means that when buying a used car, the buyer will be able to access the file with the history of the car and make a decision about their purchase.
Implementing blockchain in this project will enable Renault to better understand the lifecycle of its vehicles in order to make data-driven steps towards customer satisfaction improvement.
Walmart uses blockchain technology to improve the traceability of products
In cooperation with IBM, Walmart is going to use blockchain to track the origin of products, starting with food that is sold in the chain’s supermarkets. The system will use QR code scanning at all stages of product breeding and delivery, including farmers, brokers, distributors, processors, retailers, regulators, and consumers.
QR codes can’t be faked and blockchain-based data is secure and reliable. As a result, the company will be able to track the entire path of every product sold in the chain to ensure that the products are of the highest quality.
It previously took months to find the true origin of any product since all the data was separated. The unified blockchain database allows this information to be accessed in seconds.
Alibaba solves China’s fake goods problem with blockchain
For a long time the label “Made in China” was a synonym for a fake product. From expensive alcohol to Louis Vuitton bags - it was very hard to buy a true product in China. The market giant, Alibaba, thought of a modern solution involving blockchain to fight this problem.
Similar to the previous example, blockchain is used to improve the traceability of a product’s origin. Using QR codes and NFC chips, the entire journey of every product is recorded in blockchain. Upon purchase, the buyer can scan the QR code with their Alipay app to get access to detailed information about the item.
This method doesn’t rely on the QR code itself, and there is a complicated infrastructure that is too expensive to fake. Therefore, the blockchain-based information remains secure and reliable and the client can always ensure that they are buying an authentic product.
Mastercard launches blockchain payments
Payments on blockchain aren’t something new. Every day thousands of transactions involving bitcoin, ether, and other cryptocurrencies occur. However, Mastercard decided to offer blockchain payments without introducing a new cryptocurrency. All transactions are independent from cryptocurrency since they are done with traditional local currency.
The Mastercard blockchain network includes 22,000 banks and financial institutions around the world. As a result, this method is much more convenient as it introduces benefits associated with blockchain systems, such as the speed and transparency of international transactions within the existing financial system. So, businesses aren’t forced to exchange their local money for cryptocurrency to make a blockchain transfer. The wide network of banks makes such transactions available to almost any business across the globe.
Blockchain is a young, yet extremely prospective technology that could transform all spheres of our everyday life. This invention is often compared with the invention of the internet just decades ago. Just like then, the market is still empty. If you have an idea of how to implement blockchain to improve people’s lives you may find yourself in a blue ocean with minimum competition. However, innovators understand the huge possibilities of the technology, so the situation may change rapidly.
If you have an idea for a blockchain-based service, hesitating is the worst thing you can do right now. Contact us to discuss the potential of your project with our business analyst. Besides, we can help you implement blockchain in your existing business process to improve data security and transparency.
Let’s innovate together!