The big buzz in disruptive technology for the last few years has been Bitcoin. This new currency holds the promise of lower transaction fees, easy person-to-person payments and even anonymity in the payments space.
But the real quantum shift, from a technology perspective, is blockchain. Blockchain is the underlying technology that allows Bitcoin to exist. While some people are still struggling to grasp the potential of blockchain, others have wholeheartedly embraced what the technology could mean for businesses, both large and small.
A blockchain primer
At its core, blockchain is a ledger, like the ones we all used to use to keep track of our checking accounts. But it goes beyond financial transactions. Instead, and to separate it in your mind from Bitcoin, think of it more as a digital means of record keeping — a way of tracking things, including but not limited to money.
It also isn't stored in one place. Instead, it's a shared ledger – a set of records distributed across a network, be that a private network or the internet.
These are the four key reasons blockchain is better than all the other tools for record keeping that we've developed over thousands of years.
Append-only: Blockchain records are immutable, meaning that the records are append-only. You can't go back and change a record once it's part of the ledger – and neither can anyone else.
Verification: Because all the ledger participants must agree on what is recorded, there is a consensus on what it contains.
Privacy: Transactions are secure and verifiable, and authenticated without the need for exchanges of identity. The identity of the parties is already recorded as part of the chain.
Asset origination: The provenance of any asset – be it food, parts or money – can be traced back along the chain to its point of origin.
3 ways modern businesses can use blockchain
Because of its flexibility, security and distributed nature, blockchain is becoming the base technology for a vast array of business applications.
1. Supply chain
Companies that rely on a supply chain usually know two points along the route – where the item starts, and where it ends up. But the middle is a mystery. How was it transported? Who handled it? What were the conditions?
With blockchain, the entire supply chain becomes transparent. All data – who a shipment was handed off to, when and where, shipping costs, and so on – are stored in the chain. Organizations can now know exactly where their shipments have been and even, as more and more companies leverage IoT devices on their orders, the environmental conditions during shipping.
Food safety is another area where blockchain has made inroads in the supply chain. Walmart recently announced that it's testing blockchain technology to track food from farm to store. This gives the company increased visibility into the shipping conditions of the product and allows it to rapidly track down any problems.
2. Smart contracts
The concept of a smart contract isn't new. The term was coined in the early 1990s, and it refers to self-executing contracts. What's exciting about blockchain is it makes smart contracts secure and accessible to businesses across the globe.
For example, let's say you're going to rent someone your vacation home for a week. Traditionally you'd deal with the headaches of finding a renter, giving them keys, getting payment, verifying payment and so forth. Or you'd find a third party to handle the rental management for you, at a cost.
Blockchain removes the middleman, and much of the back-and-forth. With a smart contract, you agree with the renter on the fee. They place payment into the chain, and you put in an electronic keycode to unlock the front door of the property. On the agreed date and time, payment is released to you, and the keycode is released to the renter.
Rentals are just one example. Think of a contract that can be kept and secured in a blockchain, such as for insurance or maintenance.
3. Easy, cheap and fast international payments
Cross-border payments are a challenge regardless of your business size. Whether you are trying to take international orders, receive payments from an international client or pay international workers, cross-border payments can be slow and costly.
Because of the distributed and secure nature of blockchain, however, payroll to employees overseas and payments for goods from distant buyers and partners becomes easier and faster. Companies like Bitwage and Etch are making it possible to pay international employees in Bitcoin in real time. You can expect these forms of payment to leap forward as more heavy hitters get on board – like American Express, which recently announced real-time B2B cross-border payments backed by blockchain technology.