Many of the technologies currently making headlines, from NFTs to the metaverse, rely on blockchain technology. If you’ve managed to avoid learning about it, or ignored the hype it had a few years ago, now is the time to pay attention. Not only is the power of blockchain coming into a new reality of use cases, it is being heralded as the mechanism that’s about to change the nature of trust as we know it.
With a US$1.7 trillion boost to global GDP forecast by 2030, blockchain’s potential to create value is just getting warmed up.
It’s important to note that there is no one ‘blockchain’ (similar to there being no such thing as ‘the cloud’). Blockchains come in different sizes, types and capabilities. At their most basic they can be thought of as a digital length of chain.
Each ‘link’ in the blockchain is a unit of data, referred to as a block. Each block points backwards with an encrypted ‘hash’ to the block before it (for simplicity, you can think of this like a key or password, but know that in reality it’s more nuanced). For the length of the chain, these blocks form a chronological history (a ledger) of discrete moments or actions. In cryptocurrencies, like Bitcoin, these blocks represent monetary transactions. In other blockchains, blocks might contain different information, such as automated steps to execute when certain states are met (a smart contract).
Blockchains can be private (internal to an organisation and permissioned), public, a hybrid of both or federated/consortium blockchains (where a group of organisations build a blockchain together). Public blockchains are accessible to anyone, and stored in copies across multiple nodes (servers) on a network, such as the internet (this is why blockchains are referred to as decentralised - the data does not live in one location). The nodes constantly cross-check the chain with each other, validating information is legitimate. Essentially, changes must be agreed upon before they are actioned.
Once verified, the information is added to the chain (or ‘mined’) as a new encrypted block. The computing power required, and/or consensus needed, to add a block make altering blockchains with nefarious intentions pretty difficult, and economically unworth the trouble.
As a technology, blockchain just stores information – where it gets interesting is in how it does that. A text file, for example, can be password protected and stored on the internet – but its usefulness is limited to people you trust to share the password with and provides a single target for hacking. Once the password is broken, the file can be altered, copied and disseminated so that there is no longer a single source of truth.
In contrast, blockchain allows information to be accessible to anyone, and for it to be amended with integrity – nothing can be added to the blockchain without being validated as legitimate (long story short, the hashes need to match) and the network nodes then agreeing to information being added (via majority consensus).
Even if a hacker tried to suggest false activity had taken place – say by adding a block that claimed cryptocurrency had changed hands, or changing 10 bitcoins to 100 – the rest of the network peers, with different, unvalidated information, would fail to agree on the change and the block would not be written.
This is the game changing ability of blockchain. With inbuilt immutability, the information on a blockchain can be trusted. That’s no small thing. The chain is transparent and forms a traceable ledger of past actions. Third parties, or intermediaries who provide trust by validating information to be true – such as banks, credentialing organisations, insurers, brokers and so on – are no longer needed. The blockchain will verify that a user has the claimed money, the qualification, paid the insurance premium and so on. As a consequence, transactions become faster, and the cost of doing business goes down.
Blockchain has a surprisingly large number of use cases. Here are just a few:
Cryptocurrency and payments – Digital currencies are the original use case of blockchain. Bitcoin is the most well-known example of this, but is not the only one (Ether, for example, runs on the Ethereum blockchain). Users can access their cryptocurrency via a virtual wallet. With blockchain, central banks around the world are also exploring issuing national currencies digitally (CBDCs) and new ways of low-fee cross-border payments.
Provenance – Blockchain has enormous potential to help organisations verify the sources of their goods and track their movement at every step, strengthening transparency in any supply chain. Fraud, contaminations or counterfeits can be pinpointed immediately, ensuring customer safety and enhancing efforts to be socially and ethically responsible. Food, luxury goods and pharmaceuticals are just some of the areas provenance could be especially useful.
Smart contracts - Blockchains that allow for the use of smart contracts - contracts which are automated and self-fulfil when requirements are met - such as Ethererum and Hyperledger, could change the way that contracts are executed and disputes resolved. Smart contracts on blockchains are also enabling the current NFT digital art craze.
Tokens - NFTs, or non-fungible tokens, can also be used to represent just about anything as a token. From loyalty cards, brand experiences, restaurant access, event ticketing to sports membership, NFTs can provide exclusive access, and resellability (for instance if you can’t go to the game, or your reservation needs to be changed, a secondary market could enable you to buy and sell your place, legally).
Web3 and the metaverse - Being decentralised with no corporate ‘owner,’ blockchain can also be used as an architectural building block (if you’ll pardon the pun). Web3, the predicted next evolution of the internet will, it is argued, be built on blockchain – meaning that everyone will be able to read, write and own the platforms, content and companies that exist there. Web3 is expected to underpin the metaverse.
Identity - Blockchain can safeguard valuable personal credentials online, from personal identification, such as driving licences, to professional credentials and certificates, bringing vast cost efficiencies and helping to curb fraud and identity theft.
Blockchain is moving from hype to reality as businesses and industries start to understand its use more fully, looking beyond Bitcoin. For companies considering experimenting with blockchain, we encourage you to do so - but make sure you have C-suite support to get from hobby to proof of concept.
With a climate crisis, and ESG reporting on the horizon, environmental issues need to be taken into consideration (certain types of blockchains use large amounts of energy in the consensus/mining process) but at the same time, companies should consider that blockchain can help reduce reliance on other forms of energy-intensive tech.
Finally, where blockchain shines is in its ability to enable cross-organisational industry collaboration, and more of these use cases should be explored for real value.
Looking for government use cases? Stay tuned for upcoming articles in Digital Pulse.
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