We hear a lot about Blockchain these days, but how many people know what it's really about? In an attempt to make this definition as simple as possible, blockchain automates trust. It’s a software architecture that allows non-trusting parties to record transactions without requiring a trusted governing authority. In other words, it does away with middlemen. That directly affects banking, insurance, and distribution, as well as any industry that previously relied on a trusted third party.
There are many benefits of blockchain technology. The primary one is its ability to disintermediate. It allows non-trusting parties to record transactions without the need for a trusted governing authority. This makes many administrative and compliance-based job functions unnecessary, streamlining operations and increasing efficiency. Blockchain saves money. By making administrative and compliance-based job functions unnecessary, it eliminates salaries and reduces expenses.
At the time of this writing, the three leading use cases for blockchain protocol are (1) supply chain management, (2) digital identity, and (3) digital payments. The first two are only beginning to deploy in real-world applications, but the third has been used ever since Bitcoin launched in 2009. Many more will emerge as creative businesses attempt to exploit this new technology for competitive advantage.
Supply chain applications allow all the stakeholders to a transaction to approve (or deny) orders in the form of smart contracts.
These contracts stipulate all the if-then permutations of a transaction, requiring nobody to manually execute the contract. It all executes itself. That allows transaction participants to eliminate order entry, order tracking, project management, audit, and compliance functions from their payroll. The blockchain contains all the details automatically and can be easily audited at any time.
Supply chain management is the most promising early use case for blockchain protocol. And since each participant to a transaction would maintain a “node” on the network, all participants will be swept into the blockchain paradigm as soon as the first major player deploys. If Microsoft, for example, deployed blockchain, they would sweep in the entire Fortune 500 cohort in a single step.
Digital identity is a second use case that is showing promise.
Accenture and Microsoft recently collaborated on the ID2020 project, providing proof of identity through a blockchain-based biometric database for undocumented refugees. This utility, or something similar to it, could be used to consolidate medical records or open financial accounts. Sooner or later, a large-scale blockchain-based identity ledger will gain broad market adoption, and it will thereafter become the standard for identity verification.
Digital payments are a third use case for blockchain-based cryptocurrencies.
Digital payments are a third use case for blockchain-based cryptocurrencies. Of course, Bitcoin has been facilitating digital payments ever since it was launched in 2009, but there are many other applications that are only beginning to be developed. Some hotels, for example, are introducing specific tokens for use on their properties, allowing them to avoid credit card charges while tracking all of the purchasing activity of their guests.
Other commercial ecosystems like movie theaters, retail chains, service providers (like Uber, for example), and theme parks may introduce their own tokens in the future. It’s also feasible that such tokens may eventually partner with each other or merge entirely to expand their utility within customers’ lives. Over time, one token or another may become so popular that it becomes accepted tender in other environments as well.
The ultimate measure of long-term success for cryptocurrencies is broad market adoption for regular commercial purchases by regular citizens. So far, very few people are using Bitcoin to buy a cup of coffee or a pair of boots, but that will likely change down the road. It’s impossible to guess which cryptocurrency will hit that inflection point first, but one will undoubtedly get there soon.
Patrick Schwerdtfeger is a business futurist who specializes in technology trends including big data, artificial intelligence, and blockchain. He is an award-winning author and full-time professional speaker, and has spoke at hundreds of conferences all around the world. His new book is Anarchy, Inc: Profiting in a Decentralized World with Artificial Intelligence and Blockchain. www.patrickschwerdtfeger.com