The most overrated word: blockchain. But is it? Highly adopted in financials, valued by some governments, and loved by speculators. Providing infrastructure for cryptocurrencies that have some ups and downs. Blockchain benefits have a wide spectrum of recipients nowadays.
Blockchain technology has made progress to become one of the most sought-after technological advancements as the world slowly shifts into a digital-first society.
Both private and public sectors are seeking ways to implement this technology to use the benefits of blockchain such as improving existing functions and new business models in their organizations.
What is blockchain?
Blockchain is a type of database. It is known to store records of business transactions across a distributed database that is shared among the nodes of a computer network, making it harder for cyberattacks to infiltrate and compromise vital digital information.
During collecting data, blockchain networks group it together and store it in “blocks”. These have a certain storage capacity that once filled, the block is closed and linked to the previously filled one, thus the “chain” of blocks is formed.
What is the main purpose of blockchain?
Let's look at blockchain applications from a few perspectives: a fintech startup, a modern government, and a healthcare company. Although each of these entities operates in a different field and manner, they all have something in common.
They rely on high data security, need to operate without any downtimes, and should provide transparent information about data processing. These various needs are usually managed separately, which engages a lot of effort and time. Blockchain answers that challenge by being a platform that offers the mentioned services as built-in features. Its multi-purpose technology makes it ultimately easier to integrate into organizations.
Often, one of the main goals of implementing blockchain-based solutions is to provide a transparent and secure data transfer between parties. It ensures that the data blocks stored and chained across a network are uneditable.
Once information is stored, users or any outside source are unable to alter or destroy the said information, making blockchain an immutable ledger. Moreover, blockchain can enable users to view the said information. Access would then be divided for either public (unrestricted) or private (restricted) use.
Although the technology mainly operates behind cryptocurrencies, modern digitization is allowing it to move further into business technology, with a high potential of redefining the movement of information across multiple platforms.
4 major benefits of blockchain technology
Blockchain technology has been accelerating technological innovation for numerous years. In previous decades, tech companies and organizations saw its potential and took advantage of its features to boost their business and their financial capacity.
Now, along with the recent onslaught of the COVID-19 pandemic, more companies were urged to find ways to provide digital and online platforms that are safe and reliable to be able to meet the growing needs of their consumer base. As blockchain grows, its functionality slowly took the appeal to more serious business technology and functions.
To give you an insight, here are four of the most important benefits blockchain can provide for your business.
How often is the database corrupted? How regularly can we see news about lost data? Of course, it can be easily fixed. We back up everything, store it in different places, and provide policies to recover lost data. But there is an easier way.
Blockchain by design stores data in multiple places, ensuring that everything is synchronized and closed to any modifications. It's the basic principle of blockchain to create a chain of information across multiple platforms. That said, the more data we have stored, the more likely it is to be secure. Modification in blockchain is ultimately impossible. All data created and stored within blockchain is strongly linked to one another, making it all the more secure to store data.
This is a clear win for the banking sector. Take a look at PKO BP - the largest bank in Middle and East Europe. They use this feature of blockchain to create a Durable Medium. This feature allows banks to send private documents and store information.
It uses cloud-based solutions and the blockchain technology, thanks to which private documents generated for individual customers of the bank can be delivered to them quickly and securely. Customers can easily verify authenticity and immutability of the documents.
Security by design
The emergence of traditional digital platforms as a means to transact has opened numerous opportunities for businesses and individuals. Its accessibility allows users to access their digital properties from their smart devices (smartphones, tablets, smartwatches, etc.) at any time and from anywhere. But as such innovation grows, dangers and threats to security and data compromise also followed suit.
Have you heard about Estonian e-services? They are also powered by blockchain to ensure high security. Estonia, after cyber-attacks, switched to a system that enforces data security. Blockchain is designed to provide correctness of data and network. It forces all processes to follow good practices and reduces reliance on authorities.
But how does blockchain ensure enhanced security? Blockchain technology has the ability to significantly change how critical and sensitive information is viewed. Its primary function to increase security is its ability to store immutable data. Once uploaded to the cloud, data modification is simply impossible.This form of data structuring inherently increases trust and confidence of users that work with such data.
Blockchain ledger provides features that require the use of cryptographic keys within the system instead of the traditional email/username and password solutions. Such keys are used to authenticate users within the system and add new data.
What are cryptographic keys? A cryptographic key is a string of characters used within an encryption algorithm for altering data so that it appears random. In a sense, it is like a physical key that locks data within through the use of encryptions where it allows only one person with the right key to open it. It simply turns plaintext into ciphertext once the key is merged with it. Such makes it harder to guess or hack by eternal threats.
Moreover, cryptographic keys can be stored physically. Devices such as those provided by devices Trezor or Ledger are examples of physical cryptographic keys that carry your encrypted key for all your blockchain transactions.
Ensuring consistent uptime
Have you ever encountered downtimes while your systems are running? In such an event, how much money do you lose for every minute when your systems render to be offline?
Uptime of services, especially in the digital age, is one crucial aspect entrepreneurs and developers prioritize immensely. Depending on the scale of your business, every second can vary its worth from thousands to millions.
When we take a look at decentralized blockchains, their encounters with downtime are close to none. Since blockchain operates with hundreds of networks and nodes all around, it is easy to have hundreds of servers working all the time to keep systems up to date. It's even different from cloud solutions because they rely on a single authority. The decentralized solution is distributed between different locations, people, and machines. It operates constantly, so you can easily rely on continuous uptime.
Blockchain comes in different forms and configurations, from a decentralized distributed network to a centralized private one. They often serve different purposes, but still feature all of their great and beneficial approaches. It's also easy to scale from a centralized solution on a private server to multiple servers in different locations.
Blockchain technology often has built-in solutions to sync between different devices across the globe. Ethereum is one of the examples where we have a big network of decentralized nodes. It has thousands of servers worldwide that contain the same data. This enables them to provide the same data from different servers should one server encounter downtime or technical issues.
Blockchain, thanks to its trustworthy decentralized nature, allowed for the creation of new entities. They rely on smart contracts to distribute the votes and management of the platform to all users. Everything in such an organization is automated and through smart contracts, you can send proposals, create voting, and automatically get funding once the proposal is accepted.
Smart contracts are digital contracts stored in a blockchain that performs automated functions when certain conditions are met. Moreover, this process reduces the risk of error through human intervention and the risk of data compromise when passed through third-party verifiers.
Disadvantages of using blockchain
Although blockchain offers tremendous benefits to its users, it still faces several disadvantages. Here are a few aspects of blockchain that you should consider before incorporating it into your business.
High implementation costs
Although technological advancements push for low-cost options for their users, it possesses a high implementation cost for companies. High implementation costs can delay mass adoption and implementation of blockchain.
Overuse of security and private keys
Blockchain technology boasts its high level of security, attracting numerous users to take advantage of the platform when making financial transactions. However, companies have the tendency to overuse security systems which can prevent users to experience frictionless login processes. Moreover, bombarding users with a plethora of security requirements can damage their customer satisfaction.
Storage capacity and scalability
Digital platforms require companies to constantly monitor the capacity of cloud and local storage spaces. This is due to the amount of information and data companies receive and gather within seconds or every session.
Although blockchain can be easily scaled to cater to the growing number of consumer data, companies may have a hard time catching up with the costs of scaling physical and digital storage spaces to store such information.
The downside quickly might appear when we try to scale our system. High data integrity needs in this case a lot of created copies. Computation time might cost a lot. Also depending on the high security and chosen algorithm it might also increase energy consumption.
Sustainability is an important topic right now. Specialists try to improve algorithms and reduce the heaviness of blockchain. Current solutions can be too complex for simple systems. You need to understand a lot of factors that are summing up into a working platform.
When it comes to sustainability, blockchain technology can be in for potential negative contributions to environmental factors. To efficiently and effectively run blockchain it requires a massive amount of computing power – and electricity – to process certain transactions. In some countries, such a high cost of energy can be prohibitively expensive.
There are always trade offs when we want to increase some other parameters. Each system tries to find balance, and with blockchain, we move it more into security and stability. The downside quickly might appear when we try to scale our system.
High data integrity needs in this case a lot of created copies. Uptime might cost a lot of computing time. Also depending on the high security and algorithm chosen it might also increase energy consumption. However, numerous reports suggest providing new regulatory frameworks to address the potential of high power costs in blockchain.
Industries that reap the most out of blockchain benefits
Numerous industries have seen great potential with the implementation of blockchain technologies into their practices. Its high security, data integrity, and constant uptime became the few of the many blockchain features that drove enterprises to take advantage of the technology.
To give you an insight into the potential future use of blockchain, we listed several industries that fully utilize the functions of blockchain technology.
Banking and fintech services
One of the main industries that gains on benefits of blockchain is the banking and fintech industry. Blockchain can flourish in the financial field due to its distributed, decentralized, transparent, and immutable digital ledger technology which enables bankers and financial institutions to provide a new type of freedom and security.
Moreover, blockchain has the potential of providing greater efficiency and transparency to the banking industry. With its known utilization of cross-border transactional data, real-time transactions, implementation of cryptocurrency, and FIAT currency exchange, the industry can now have the potential to foster multiple currencies and monetary exchanges at a faster and more secure rate in comparison to traditional methods.
Blockchain technology is one of the most secure and safest platforms due to its immutable record-keeping features. Implementing this technology into a cybersecurity system can pose a significant change in securing digital platforms, identities, and properties.
Moreover, its tracking system can also be used as a means of a transparency system, allowing users to see how companies ensure the security of sensitive consumer data.
Supply chain management in retail
Likewise, the supply chain management industry can reap the benefits of blockchain by taking advantage of its traceability. Moreover, it can act as a connection module between supply chain partners, easily sending such data to relevant sources, allowing them to track the origin and progress of their purchases without hassle and.
Blockchain can create an unmodifiable ledger that lets us track the history of a product. Karl Bedwell from Walmart says:
“Creating a (traceability) system for the entire food supply ecosystem has been a challenge for years, and no one has figured it out. We thought that blockchain technology might be a good fit for this problem, because of its focus on trust, immutability, and transparency.”
Healthcare and medicine
Blockchain can also be used to properly store and collate patients' data and place them in a secure database. The healthcare industry still possesses problems when it comes to the storage and protection of patients’ crucial data. By taking advantage of blockchain technology, the industry can eliminate this problem and provide a more efficient and secure data management process within their services.
Government and public sectors
Security breaches and fraudulent pursuits are an ongoing problem. Despite having new and existing developments in cybersecurity and data protection, fraudulent cases are still one of the major problems public sectors face.
With blockchain technology, government agencies can effectively protect sensitive data while having the capacity to effectively track and identify sources of fraud and cyberattacks.
Is blockchain the future?
Blockchain is only the beginning of society’s leap into the future. Businesses, private and public sectors are quickly jumping into the wagon of implementing the technology into their practices and gain on the benefits of blockchain. This makes room for organizations to improve existing procedures and develop new and innovative business models along the way.
Blockchain is a natural choice for some cases. Can you find the surrounding issue that can be solved by transparent and immutable ledger? We explored it together, and personally, I can tell that blockchain is the future. Future for some positive changes in our world tackling food tracking or public services. Although blockchain is facing some sustainability issues nowadays, there come alternative algorithms and ways to create architecture for big, reliable systems.