Every business is thinking, talking, and onto digital transformation, and we know how its time has arrived when we witness even traditional manufacturing industries, say, like the diamond industry, is keeping with the times and digitized operations – their stones are being traced right from the diamond mines up till the time it is bought by consumers. It helps identify conflict diamonds and other frauds that might creep into the system. Digitization helps organizations to be better equipped to track their products through complex networks of supply chain.
Blockchain technology was introduced in 2008 as part of the proposal of bitcoin, a virtual currency that does not need a central authority to issue currency. Blockchain functions as an open, shared ledger which records transactions between parties in complete transparent, instantaneous, and verifiable ways. Changes entered into one copy simultaneously gets updated in all the other copies, with no need for intercessors at any point in time. It works as a sole version of truth for various users across nations and communities. Governments and nations are built by contracts and records, and transactions are the backbone of our economic systems, and we have a steadfast technology in blockchain to regulate and establish advanced administrative control as we keep up with digital transformation. The technology could be the answer to the near gridlocks faced by organizations and financial systems in maintaining and coordinating transactions while maintaining scrupulous functioning. It would bring unprecedented standards to various systems bringing rigor and discipline into trading and other cross border activities.
The technology’s architecture is open and shared; volunteers across the globe maintains its core software. Blocks get created which contains the entire sequence of previous transactions, and miners with massive computing powers compete to validate the block. Each block is contained in a secure and synchronized ledger and is time stamped with a digital block seal. The technology is particularly resilient to hacking because it demands having to go through all the blocks previously used, and across computers spread throughout the world. It avoids disparate ledger systems vulnerable to errors and misinterpretation, reduces cost of transactions and eliminates problems of reconciling transactions across ledgers. In a traditional scenario, for e.g. the banking sector, they charge anywhere between 10 to 20% to send money to another country, whereas with blockchain, these service charges are entirely done away with, and trust is established by clever codes! Let’s take another example – a stock transaction executed within seconds online takes perhaps as long as a week for the settlement; for the stock ownership transfer. This is because the parties are working with different ledgers and establishing that an asset is owned and eligible to be transferred takes time, it does not happen automatically. The system calls for intermediaries to act as guarantors of assets, and the transaction record has to move from one organization to the other for the ledgers to be updated individually.
Blockchain would impact our economic system and create a whole new foundation for the society once the technology is completely adopted. All contracts and data would be stored digitally, available to users across shared databases with the advantage of it being entirely tamper proof. The technology brings forth a system with improved security and data portability. It enables smart contracts, change and transfer of ownership, transactions in real-time, and for funds to be released to the seller as soon as the transfer is completed.
There are companies governed completely by blockchain; all of its operations like corporate governance, investments, payments and so on are all done through code. DAO (Decentralized Autonomous Org) is one such company. These companies have their operations functioning thru a series of contracts in motion by a software that sits on blockchain technology. In such organizations, anyone can join, participate, raise funds… The transformation brought by the technology is truly revolutionary to say the least, there is no Board of Directors or Chairman or CEO who rules, it is the code that rules! The Wall Street Journal has called the DAO one of the best capitalized fin-tech startups due to the $100 million it has raised so far.
Let’s take the example of autonomous cars as they are becoming a reality and a part of IoT, we would want it to be completely tamper proof, right? This is where a technology like blockchain again becomes a powerful tool, its distributed ledger can be used to monitor a vehicle’s operating system and its multiple sensors that go to make an autonomous car. It’s configuration can be checked for tampering. In the entertainment industry, ‘music making’ has bit into the technology, as removing middlemen makes it more viable for artists. It’s song tracking, digital registration, data back to artists increases earnings for artists.
The technology needs to be adopted by everyone in the chain, coordinating the ecosystem – governments, consumers, legal organizations, etc., and that by itself would be a drawn out process. It’s success will of course be dependent on its business use cases, the higher the number and collaboration among the diverse businesses across the ecosystem, the higher its value as a technology. Even as bitcoin transactions were expected to do around $ 92 billion, global payments were expected to be $411 trillion. Some of the big names in the financial sector like NYSE, Bank of America, Standard Chartered are in the process of testing the technology to replace manual transactions in foreign exchange, trade finance, etc. The Bank of Canada is testing CAD coin as its digital currency for interbank transfers. Nasdaq is working with a blockchain infrastructure provider for processing and validating their financial transactions. The technology needs to be adopted by everybody in the chain, calling for governments, consumers and organizations to implement it.
There are several blockchain applications currently, for eg. ‘smart contracts’. The application automates transfer of currency and payments once negotiated conditions between parties are met. It can transfer payment to a supplier once the committed delivery is completed. Deliveries are tracked and payments triggered in the most efficient and fastest manner. Adopting the technology would eventually do away with many third party bodies our society currently holds as intermediaries of trust – like bankers, lawyers and so on. Currently companies are using the technology in relatively small packages, as single-use applications that minimize risk. Tech experts suggest one way of adopting the technology is to introduce virtual currency into the payment mechanism. It will result in Finance and Accounting, sales and marketing and other functions subsequently build blockchain capability. Amazon, Microsoft and even some startups provide blockchain services, which makes testing single use applications within organizations easy as they struggle to reconcile multiple internal databases.
Blockchain will reshape economies and reward tremendous value once the technology is completely adopted. And it would call for new expertise in skillsets, jobs and software. It has the capability to penetrate and resolve deep rooted societal and economic problems like money laundering, among others. If the technology scales up to the tremendous volumes of trade and can handle the massive updates that would be required, we can store more and more value on it. What is needed then would be a more even and conscientious response from the regulators as the higher the value stored in these vaults of the technology, it becomes more attractive for the hackers.
With IoT, AR and more and more technologies integrating into our smart phones, we will have to collectively depend more on a technology like blockchain to serve as a strong and cohesive source of support. Blockchain is believed to be the biggest invention after the internet. The technology implies honor in its very design and is democratic by nature. And like all the techno futurists of today, the technology prescribes to the concept of the algorithm being better than any system built by humans through its sheer efficiency and effectiveness.