What is Blockchain and Can it Really Help Businesses?
Chances are, you’ve seen the word “Blockchain” numerous times…but how many people actually know what it is — or, the appeal of it?
Blockchain was first used in a significant way with the introduction of Bitcoin in 2008. Since then, this concept has gained steam and is widely included in discussions about its use in corporations and other government functions. Why though? Before diving into the uses, we need to simplify what Blockchain is.
What is Blockchain?
Blockchain is peer-to-peer (P2P) system, also called a Distributed Ledger, that allows data to be stored globally by all users that are using the network. Everyone that is on the network can see everyone else’s entries or modifications in real-time. Simply put, a Blockchain is a chain of blocks…each block containing its own set of data. The data contained in blocks is different for various businesses and applications.
For example, each block in Bitcoin’s blockchain contains details about a single transaction. Every transaction that happens is entered into a new, unique block, given a unique code (hash), verified by all users, and added to the chain of blocks. Because each block contains its own unique code, also called a hash, attempting to change or modify data in any single block will cause that hash to change and all subsequent blocks to become invalid.
A quick example to aid in conceptualizing Blockchain is a google doc — while Blockchain is much more complex than a google doc, the concept is the same — everyone that has access to the doc can see entries or modifications in real-time.
Blockchains can have numerous connected users, but each Blockchain is completely separate and unique from other Blockchains.
What problems does blockchain solve that makes it so appealing?
- Transactions between users are quicker and more efficient.
- It deals with the problem of data security.
- Creates an easy-to-track paper trail for supply chain visibility.
Transactions
When you send a check or transfer money to another person, the process can take days. There are verification steps that need to be completed before the payment can be cleared for use by the other party. This is especially true with international payments. With blockchain, this inefficiency becomes near-opposite with transactions being processed and completed in an average of 4–6 seconds.
According to Deloitte, “for transactions made using Blockchain, the involved parties incur around 40–80% less remittance fees than traditional methods.” These remittance fees can include banks, lawyers, cross-border fees, tariffs, or anything else you can think of.
Since the transaction still has to be verified by all users in the blockchain, can’t be reversed or changed, there are no middlemen or fees, and processing time is a matter of seconds, it’s an extremely secure and efficient way of transferring money.
Data Security
As we discussed in the introduction, each block contains its own hash. This is a long string of characters that contains letters and numbers. The hash is typically around 40 characters long. This code is what makes each block unique and identifiable.
Because each block must be approved by all users in the network and changing or modifying a block causes all subsequent blocks to become invalid, the system is highly secure.
With hundreds-of-thousands of blocks, possibly millions or tens-of-millions, it makes it almost impossible to tamper with data because you would have to modify so many subsequent blocks that it would render your life over. Plus, you probably wouldn’t even make it that far because your modifications would be noticed and not approved anyway.
Of course, no system is “unhackable,” but some are more unhackable than others. According to Alex Tapscott, CEO and founder of Northwest Passage Ventures, “in order to move anything of value over any kind of blockchain, the network must first agree that that transaction is valid, which means no single entity can go in and say one way or the other whether or not a transaction happened. To hack it, you wouldn’t just have to hack one system like in a bank…you’d have to hack every single computer on that network, which is fighting against you doing that.”
Supply Chain Visibility
Supply Chain Management is the planning and execution of all related processes leading to the deployment of a finished product.
One of a supply chain professional’s main responsibilities is to streamline processes in a way that provides easy-to-track data and a consolidation of all that data into the least amount of different systems or networks as possible, while still providing high visibility. Because you probably had to read that last sentence twice, you can imagine that this can be a messy and difficult job.
An optimized supply chain ensures maximum productivity with low overhead costs.
Blockchain’s use in this field could be potentially extraordinary — visibility could be increased at an exponential rate (I don’t actually know how to measure the rate of increase of visibility within the supply chain but I’m confident it would be high).
If all the suppliers, buyers, distribution centers, final receivers, and contractors have access to a single network that shows the history of transactions, product tracking, manufacturing schedule, and demand planning, the future of managing supply chains could be held in the hands of Blockchain.
Allowing all parties within a supply chain to have access to the same updated information could allow supply chain scalability globally too. With this new level of visibility and scalability, data will be easier to manage, distribute, and communicate.
Blockchain is still much more complex and detailed than what is written here. There are nuances and issues, like any new system, that will prohibit wide-spread use for probably at least a decade.
Voting in presidential elections is a use for Blockchain that’s become very popular because of the higher security and verifiability of it compared to our current system. We have seen businesses already implementing it in their companies. Yes, the technology is exciting, but before corporations are sure that it is worth the investment, we may not see this system used for many years.
