Image by: https://www.nbr.co.nz
Most recent media coverage of blockchain technology has focused on cryptocurrencies, such as bitcoin. However, the underlying technology offers business and government enormous potential to reimagine existing processes and innovate.
The blockchain process essentially allows for the recording of transactions in a distributed “ledger.” The blockchain may be public, or “permissionless,” or “permissioned,” in which case participants are invited to join.
For example, stakeholders in a supply chain can own, operate and enforce unique rules for their own shared-blockchain. They can coordinate logistics, payments, financial terms and set contract rules.
The blockchain initiative by Maersk is a good example of this. An estimated 20% of the cost of shipping a container is accounted for by documentation of some form. When international port authorities and supporting industries embrace this initiative, all consumers will benefit from lower costs and improved efficiencies.
It also increases the efficiency of processes and lowers auditing costs because records can be instantly and independently verified. The ability to trace data from its source is a powerful factor in reducing disputes and discouraging fraudulent activity.
Blockchain creates an immutable record, or an inviolate version of data, visible to all participants in a particular blockchain. This is a key benefit. Any information sharing across organisations – which require trust, transparency and efficiency – will likely benefit.
Compliance with pre-determined rules can be easily tracked. Business contracts, with pre-set rules for transactions between two or more parties on a blockchain can dramatically lower the risk of noncompliance and lower costs, known as a “smart contract.”
Entire industries will benefit from blockchain technology in different ways. In the automotive industry it will be possible to track a vehicle's history from pre-production to sale and potentially until its end of life.
The banking industry is already being disrupted as blockchain threatens to disintermediate or eliminate many financial institutions’ functions. However, payment processing will be faster, more efficient and secure with blockchain and the industry should see a reduction in auditing complexity.
The immutability of ledger data will help cyber-security. The validity of data is largely guaranteed because there is no single point of failure and blockchain provides end-to-end encryption and privacy. Sensors within an internet of things network may also be better protected.
It will also provide the energy sector with micro-transactions between participants in a local peer-to-peer energy grid. Users and suppliers of solar energy within a geographic area could, for example, trade with each other and sell surplus energy back to the national grid.
As a global food supplier, New Zealand must embrace blockchain to help trace its food. Efforts in France, for example, allow the tracking of individual chickens in a national supermarket chain. A major producer of turkeys is doing the same in the US. Consumers want to know where their food comes from and are willing to pay a premium for that knowledge.
In the insurance industry, the costs of claims processing and contract efficiency are low-hanging fruit for blockchain. Disputes could be reduced with the transparency of shared data. And the legal profession should rethink smart contracts to help determine the validity of wills and inheritances, for instance.
Smart contracts on the blockchain will also help protect media rights, royalty payments and broader copyright infringement and a smart contract will boost transparency in the real estate industry and the release of funds. The travel industry will improve its passenger identification, boarding, passport, payment and other documentation by digitising it all.
The government too can locate uses for blockchain, such as with record management, reducing the risk of voter and tax fraud, improving the accountability of officials and securing citizen identity management. Education and healthcare are equally prime candidates for improving qualified access to immutable records of an individual’s qualifications and medical history.
The volatility of bitcoin prices will continue to dominate the headlines but keep your eye on the powerful underlying capabilities and potential of the blockchain.