The Blockchain technology will revolutionize systems of record. Bitcoin changed the game and became one of the first permanent, decentralized, global, ledgers of records. But industry leaders and entrepreneurs haven’t fully understood the implications of these developments.
The nature of Blockchain technology is unique because of the concept of a trustworthy record. The power of cryptography can change how digital relationships work and remove the need for a transactional authority.
So what are some of the applications of Blockchain technology and how will it transform our society?
As a system to record Digital identity
Transactions via cryptographic keys allow the parties involved to have ownership rights. These transactions are known as push transactions and require parties to own private keys of digital assets. This allows a new and secure way to manage identity in the digital world and prevent users from sharing vulnerable personal information. Blockchain can essentially revolutionize our existing view of digital identity.
Blockchain based transactions require authentication via a digital token. These tokens essentially bind the physical and digital world. In fields such as supply chain management, intellectual property, anti-counterfeiting and fraud detection, the digital token proves to be very useful.
Inter-organizational data management
Blockchain technology is changing the way information is gathered and collected. It is a process of managing a system of record, compared to the traditional process of maintaining a database.
The blockchain technology has three aspects, the cryptographic key, the blockchain network and transaction authorization. Governments have an interest in all three features for various reasons. Firstly, there are the ownership rights surrounding cryptographic key possession, revocation, generation, replacement and loss. Secondly, Governments will have an interest in controlling who can act as part of the blockchain network. And thirdly, Governments want to regulate and authorize transactions. In fact, this regulatory compliance aspect is the biggest business opportunity for blockchain developers.
For financial institutions:
Blockchain technology created a unique, digital property. While anything digital like files, music and movies could be copied, blockchain went on to create digital code that cannot be copied. This led to the development of colored coins that can act as stock in a company. Accounting and auditing firms will also have some interesting implications since Blockchain databases are built from their own transaction history. Banks will also benefit from this, as it will make things a lot easier for them to track and report large financial transactions.
For audit trails:
Security has been a huge problem for financial institutions and their clients. While banks can afford to spend billions of dollars to keep information secure, businesses are not always able to keep up. They get hacked revealing sensitive financial information. With Blockchain technology, whoever has accessed the information will automatically create a record, allowing parties with permission to readily see the information of miscreants.
As a platform
For smart contracting:
Smart contracts seek to use information and documents stored in blockchains to support complex legal agreements. There are many different consortiums that are developing their own platform to support smart contracting. Large brands and insurance companies are investing in many of these startups. Ethereum is a special platform that is trying to develop a new type of smart contracting. By applying business logic on blockchain, transactions of any complexity can be coded, and authorized by the network running the code. Ethereum’s primary objective is to be the platform for smart contracts, comprising programs controlling blockchain assets, executed by a blockchain protocol and run on the Ethereum network.
Since unique keys will be needed to to express ownership rights, tokenization and the ownership of tokens will represent a stock, a physical item or any other type of asset. This would change the way we trade and the rules that govern how these instruments should be transacted by a blockchain protocol.
For streamlining of clearing and settlement
Blockchain technology will change the way we trade by making it more efficient. Traditionally a ‘T+3’ trade is a trade followed by three days before the trade is settled. However, with blockchain technology, trade is a settlement, therefore the equation becomes T+0.
For automation of regulatory compliance:
Automation in regulatory compliance ties in with how Governments regulate blockchains. The best feature of blockchain technology is that it can be calibrated to do multiple things such as permit transactions or report transactions of a certain type according to an exact rule set. This is particularly useful for authorities such as banks because they could automate regulatory reporting or transaction authorization.
The future is ready
Blockchain is a game changer and industry leaders are playing with a plethora of ideas. No one is sure what the end game would look like, but a lot of it is pointing towards a safer and secure way of maintaining records, transactions and digital identity.