This post is all about the benefits of blockchain technology, but if you are looking for a primer on what it is, try this blog post first.
Blockchain technology has many benefits compared to traditional record keeping:
NOTE: The term ‘transaction’ below does not only just refer to any financial transaction, but also to any instance where a data entry is stored in a blockchain block. These data entries could consist of records, details of product provenance, agreements and pretty much any kind of business documentation.
Once transactions have been validated and confirmed by nodes on the network, they are very difficult to change and in general, the older the transaction, the harder it is to change.
This means that for a refund to be given for a financial transaction on the blockchain, a new transaction for the refund would have to be added to the blockchain, rather than simply editing the original transaction in the block.
Due to its immutability, the result is a secure, tamper-proof audit trail.
This brings the possibilities of automated audit trails, transaction authentication, asset tracking and registry systems, to name a few.
Should someone attempt to corrupt or alter the system in any way, the changes they make will quickly become apparent and will be corrected automatically.
Trust and Transparency
Trust is perhaps the greatest innovation in blockchain technology since the use of digital certificates and cryptographic hashing allows all interacting parties on the system to collaborate without having to go through a third party to verify identity or credentials.
The fact that no single user controls the blockchain and that all participating nodes can inspect changes made ensures a level of trust that is difficult to establish without the use of intermediaries.
For example, legal documents could be notarized without the use of a notary and the ownership of valuable assets such as fine art or other luxury goods could be quickly verified.
Rather than reconciling each transaction with a counterparty, banks are already considering the use of blockchains for checking ownership, rather than multiple internal private ledgers, thus reducing counterparty risk.
As there are no intermediaries, transaction processing between blockchain nodes takes just a few hours or minutes compared to banks and traditional institutions where transactions can take days or even weeks.
This results in much faster clearing, settlements, and remittance operations. The reduction in transaction processing times translates into significant cost savings.
Cost savings in reporting can also be gained because of greater transparency, a more reliable access to stored data on the blockchain and time savings in identity and Know Your Customer processing.
The innovation of smart contracts in blockchain technology means that funds, title and ownership transfers and other digital assets can be quickly and automatically transferred only under specific conditions, defined in advance by users of the system.
Smart contracts help to streamline the processing of agreements as the whole process acts as an automated system encoded in a programming language.
This might sound daunting or unapproachable to the non-technically minded, but software and systems that enable quick smart contract creation via user-friendly interfaces such as drag and drop interfaces are emerging.
The authenticity of information and data is ensured by independently verified complex cryptography as well as additional encryption in the form of digital certificates used in both the blockchain network nodes and the identity of the owners of transactions.
This means that identity management becomes significantly cheaper and more convenient to manage and identity theft much more difficult, if not impossible.
The combination of the distributed nature of typical blockchain network architecture, access permissions (which are used more commonly in private blockchain systems) and cryptographic hashing make system tampering easy to pinpoint should it ever occur.
Even if a hacker manages to penetrate a network and tries to steal funds or other assets, the other nodes on the system would quickly notice the discrepancy as they all store copies of the entire blockchain.
This means that while hacking a distributed ledger is not 100% impossible, it is extremely difficult and highly improbable that a hacker would succeed in making anything but a temporary and minor change to the system, which even then would be quickly reversed or eliminated when spotted by other nodes on the system.
In conclusion, blockchain technology provides several key advantages for any application that can benefit from secure, safe and trustworthy storage of data. Applications that benefit from auditable trails and better trust relationships are ideal. Smart contracts allow for more efficient processing of transactions and event triggering, for better productivity and satisfaction.
Blockchain technology will disrupt many institutions from government, through heavy industry, healthcare, transportation and agriculture. Its benefits will be felt around the globe. Every industry should examine the applicability of this technology and prepare to integrate it where it makes sense as soon as possible.