Most of you have heard about blockchain. It is the technology that underlies bitcoins and other crypto currencies. And if you are up-to-date with the news, you would have heard about the wild swings in the value of bitcoin, how it hit a high of US$19,783.21 towards the end of 2017, then came crashing down to US$6,200 in February 2018. Recently it crashed down to below $8000. Its volatility caused severe losses for many and this has perhaps inspired fear in those who are not familiar with it.
Blockchain and Crypto Currencies
But what is blockchain? A blockchain, as its name implies is built on blocks of transactions. Each block is a record of transaction validated by later blocks and constitute a distributed ledger spread across peers in a network. The significant feature of a block is that it is a decentralized permanent record of transactions which are verifiable, secure, anonymous and transparent. Validation of these transaction is one aspect of bitcoin mining. Other than bitcoin, there are other crypto currencies such as Zcash, Ethereum, Litecoin, Bitcoin Cash and so on. As of the time of writing, there are more than 1658 types of crypto currencies, and each crypto is launched with an ICO (Initial Coin Offering). An ICO is by the way, an excellent way of crowdfunding.
You may have traded in bitcoin or some other cryptos. If you have, you probably have noticed that the value goes up and down very much like that of commodities in respond to supply and demand. And like commodities, if you misread the economic indicators, you might have lost quite some money.
With this simple introduction, let us now plunge into how can your business make use of this technology other than for trading. Already leading businesses in many industries have reaped significant business benefits because of greater transparency, enhanced security, improved traceability, increased efficiency and speed of transactions, thereby achieving great cost reduction.
Using Crypto Currencies
Here are the ways you can make use of blockchain or cryptos in your business; they are primarily to do with crypto as currencies and as a permanent and irreversible record of transactions.
As a means of payment using crypto such as bitcoin is banking but without the banks As currency, bitcoin or any other crypto allows you to do your banking essentially bypassing the bank with all their myriad of fees as well as free from political influence. Although crypto is distributed and transparent it is nonetheless secure and more importantly private and anonymous. Only appropriate person(s) with the appropriate digital key(s) can access it. And you can convert your crypto, bitcoin or any other crypto into gift cards or hard currencies at crypto exchanges.
The crypto Ethereum is particularly interesting. By design Ethereum allows you to run an operation such as a program on it. A smart contract is one such program. A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the transaction if the specified condition is true. Thus in a sales contract, the condition is the delivery of a product whereupon the payment is executed when accessed, and so on. Smart contracts allow the performance of credible transactions without third parties such as banks or paperwork. These transactions are trackable and irreversible. When the performance specified in the contract is fulfilled, a product is delivered, matured or otherwise meet the condition specified, the person with the key can access the payment thereof.
Such payment arrangements are particularly useful if transaction takes place across borders, or in the management of a supply chain for instance. Or if it takes time to mature as in insurance contract when payment is due when a specific condition occurs.
Another implementation of blockchain is using it for storage purposes. Records stored in this way are permanent and unalterable as well as fully private and anonymous because of the encryption. And the encryption of the private keys is much longer and therefore much more safer. Indeed, IT companies do make blockchain their business model by selling secure storage to those that need it. This is secure storage indeed.
For other businesses, blockchain can be used to store your records, all kinds of records such as in medical records in healthcare, wills, marriage certificates, in fact almost anything and everything. It is secure and permanent and cannot be wiped completely off by hard disk failure or whatever as the ledger is distributed. Only those authorized can have access for appropriate purposes. Thus your financial records or medical records such as private data, credit card numbers and other private information and cannot be hacked or stolen because of the properties of blockchain.
Yes, you do read of bitcoin or crypto currency exchanges being hacked. What is stolen are the various digital wallets and their respective private keys, and that’s how hackers can steal your money. Hence there is a case for more secure exchanges that provide the means for you to convert your crypto to cash. Blockchain is not called the ‘trust protocol’ for nothing.
Tokenize your business
The buzzword today as far as blockchain is concerned is to tokenize your business, and this would be the way to go implementing blockchain. For a business, tokens are essentially an internal currency that can serve many functions. Their value can be tied to an existing crypto such as Ethereum that defines their underlying value.
Such an internal currency can serve many purposes. The most likely use of tokens would be for incentive schemes between the business and its stakeholders especially staff and customers.
Think of loyalty points and rewards privileges especially the accumulation of airline miles. These have the characteristics of tokens. They can actually be exchanged for physical products and in some instances such as airmiles, they can be traded, gifted and purchased. The difference between these and blockchain is that these are not permanent. A server failure or hack can erase all these data and there are always issues to do with cyber security.
With blockchain tokens are permanent and cannot be erased because of its distributed characteristics. It’s also secure and its encryption means that without the private keys, it is completely private and anonymous. On top of that, depending on the crypto to which it is tied to, it can escalate or drop in value as well, a secondary value apart from its token value.
Blockchain and Financial Systems
The bigger challenge and opportunity is to tokenize financial transactions. Unfortunately, for this to happen, the legal and regulatory frameworks have to be updated to allow for this to happen. Quite a number of countries has indicated acceptance of cryptos, and more have signalled their intention. But only a handful of countries have started to evolve their legal and regulatory framework to accommodate for the tokenization of financial services. No more lost financial data, credit card numbers and so on, it is encrypted and secure. There’s an exciting future going forwards with blockchain technology.
I have in this article, outline some of the possibilities that are available to you when you start to implement blockchain into your business. What I have here is only a sketchy outline. If this interests you, you should explore it and consult the appropriate fintech professional. The vast future ahead awaits you and beckons you.