Why Blockchain is For Everyone

There is a perception in the media that blockchain technology is for crypto enthusiasts. Perhaps this is because the first generation of blockchain technology has been applied in the finance industry. The first mention of blockchain technology came with the advent of Bitcoin in 2009 where Satoshi Nakamoto released the first white paper detailing how a currency could be recorded on a digital ledger.

As time progresses and blockchain technology continues to develop, we are seeing that blockchain technology is starting to reach into different industries. Of course we have central banks trialling central bank digital currencies, these having the potential to replace national currencies as we know it. However, blockchain doesn’t stop here. We have shipping companies using blockchain technology to record transactions in their supply chains. We also have blockchain technology being used to code self-executing smart contracts. Even more interestingly, some have gone so far as to say that blockchain technology could be used for digital voting at election time.

But how far will these blockchain use cases go? Am I just being optimistic or does blockchain really have the potential to do more? For reasons that I will explain, I think yes.

What is Blockchain Technology and Why is it the 'Next Step'?

Blockchain technology is a digital ledger, meaning it is a digital place to record information and transactions. What makes blockchain unique is that there is no need for a central intermediary to verify or record transactions as they are recorded on the blockchain. Rather, blockchain is trustless in the sense that the parties can record their affairs on the ledger straight away as opposed to having to tell an intermediary to do so. Each new piece of information recorded on the ledger forms its own ‘block’, thus multiple recordings of information is what creates a chain of blocks (i.e. a ‘blockchain’).

You might ask: How do we know if people are telling the truth? This comes down to the technology itself. Each blockchain uses a consensus mechanism to verify whether the transaction is indeed valid. Two common consensus mechanisms are the ‘proof of work’ and the ‘proof of stake’ mechanisms. Both mechanisms involve validator nodes (i.e. parties who are only responsible for verifying transactions on the blockchain) ‘validating’ the transaction in terms of its legitimacy.

So now that you know a little about how blockchain technology works, you may be wondering why it’s the next big thing. Why not just use cloud computing to record transactions? Or, what are the benefits of having a trustless system? I don’t mind going through an intermediary. I don’t see any reason to change.

There are several theoretical and practical reasons as to why cloud computing and centralised technology are problematic. Firstly, by having one point of failure you are creating a giant vulnerability. Cloud computing relies on a central server. Although the server has security systems in place to protect it from hacking, thereby reducing the frequency of it getting hacked, having one central point of failure still lends the system to being fragile. If the server goes down, this could compromise the entire system with disastrous consequences.

In contrast, blockchain is theoretically more difficult to hack because you need to hack multiple parties in order to get the same result. This makes the system more robust. Now, you’d be right to take this statement with a pinch of salt because blockchain networks have been hacked in the past. However, I’d add that blockchain technology is still in its infancy and is therefore still undergoing improvement.

A further theoretical advantage of blockchain technology is that it is more efficient because you don’t need to constantly wait for the approval of a central intermediary to record transactions; you can record information yourself. This saves time and effort. Again, feel free to be sceptical about whether this is practically true as blockchain currently stands. Bitcoin, for example, has been criticised for being inefficient and less scalable because it cannot process large amounts of transactions at the one time. In contrast, centralised payment systems such as Visa and Mastercard can process far more transactions per second and don’t grind to a screeching halt when the network becomes inundated with transactions.

Nevertheless, blockchain technology clearly has its advantages over cloud computing theoretically speaking. In my view, it’ll require far more investment for blockchain technology to improve so it is less hackable and more scalable.

Where Else Can Blockchain Be Used?

Use cases for blockchain technology extend beyond mere payment cases. Smart contracts are an obvious example of this, where parties can program self-executing contracts on the blockchain. If widely adopted, smart contracts will revolutionise the legal industry and how business is conducted more broadly.

Another example: Recording transactions in supply chains. This is not just a speculative use case. Blockchain technology has already been employed by car manufacturing giant Renault to keep track of their supply chains. Previously, the only way for car manufacturers to keep track of matters to do with production and regulatory compliance was to chase paper trails and look items up in databases, both of which proved to be very time-consuming and onerous tasks. More concerningly, this makes it rather difficult for Renault to share information with multiple parties and vice versa. Now that Renault has invested in recording transactions on their blockchain platform “XCEED”, suppliers can readily share information so it is available for all blockchain participants to see.

Blockchain technology has also been used to verify whether resources used to manufacture products have been ethically sourced. For example, company RCS Global specialises in developing and implementing blockchain-based solutions whereby all parties in supply chains record the location of where materials have been sourced. As the world becomes more ethically minded, blockchain technology affords a fantastic opportunity for shareholders and consumers alike to ensure that companies are being ethical and living up to their claims of ethical sourcing.

These are just a handful of use cases for how blockchain can be used in supply chains. Interestingly, use cases for blockchain have also extended to contactless blockchain digital ticketing and ensuring regulatory compliance. You can read about more use cases here.

Final Thoughts

Clearly, blockchain technology has the potential to do more than what its sceptics may claim. Although it has been ubiquitously applied in the financial industry, I am of the view that we will start to see blockchain technology being applied to novel use cases as the technology develops. We’ll also see that technological issues with the technology will start to iron themselves out as companies start improving blockchain technology through continual investment.

Thus, I am of the view that blockchain technology is indeed for everyone. It’s only a matter of time and innovation before it starts to become readily accepted by all.

References

[1] Joe Liebkind, 'How Blockchain Technology Can Prevent Voter Fraud, Investopedia (online, 9th December 2020) <https://www.investopedia.com/news/how-blockchain-technology-can-prevent-voter-fraud/>. 
[2] Kristen Stekzer, 'Driving Auto Supply Chains Forward With Blockchan', IBM (online, 2022) <https://www.ibm.com/case-studies/renault/>.