In 2013, blockchain came into the limelight as Bitcoin’s less-sensational partner. However, as the underlying technology, blockchain is anticipated to have near-boundless potential that will be as influential a disruptor as the internet was.
What is blockchain?
Blockchain is a digital database that stores chronologically ordered records called blocks. Blocks are public and are distributed to all users, who are known as nodes.
Imagine a database of monetary transactions between users. When a user requests a transaction, it is transmitted to the blockchain’s network of nodes, where the network validates it, based on previous transactions stored in the blockchain. If valid, the transaction will then be assigned to a block and the block is added to the blockchain. Since the blocks are distributed, nodes can check others’ transactions for validity, thus maintaining a more secure network. The idea is to eliminate risks associated with centralized data storage with a longer, larger, and more distributed system. This kind of system makes it harder to isolate each order to execute fraudulent transactions..
Where is it useful?
The financial services sector was the first to generate widespread enthusiasm for this fast-developing technology. In the last three years, 50 financial services giants, such as Visa, Deloitte, and Western Union have invested in Bitcoin and blockchain technology. IBM predicted that 15% of world’s banks will use blockchain by this year, with that number rising to 66% by 2021.
Now other major industries across the board — including government, healthcare, retail, and supply chain — are considering blockchain-based approaches to reinvent processes and infrastructures. This then begs the question: in what ways is blockchain advantageous to various industries?
Industry use-cases
- Removal of the middleman
- Whether between individuals or organizations or some combination of both, payments require middlemen, such as banks, to be involved in the payment flow as a point of established trust. However, intermediaries increase friction and related costs, especially with international payment transactions. Blockchain can remove the need for trusted intermediaries because it relies on a peer-to-peer system to confirm transaction validity based on distributed verification and trust.
- Utilizing this technology, banks can transfer assets across borders in real time, and at the same time, monitor for fraud. Transferring funds creates intermediary fees of up to $20 billion, so the blockchain as a valuable digital transfer hub prevents excess overhead, saves banks billions, and ultimately provides more economical service for consumers.
- A more connected IoT
- With IoT devices linked to blockchain technology, a centralized hub to mediate communication between devices is no longer be necessary. Rather, the devices can act autonomously and communicate with each other to complete a chain reaction of tasks or even update software.
- In the shipping industry, there is a costly problem with fraudulent shipping documents that result in cargo theft and illegal smuggling. Smart property such as sensor devices can be installed in shipping containers to collect and share the status of shipments in real-time to ensure timely processes and report deviant actions. And all that is captured and recorded securely using blockchain.
- Improved efficiency in contracts execution
- A smart contract is code that executes contractual logic determined by the parties involved in the arrangement and acts as an autonomous third party within contract terms. This capability improves efficiency and transparency in executing any type of digital agreement, reducing excessive manual contact and monitoring.
- The manufacturing industry pays a “trust tax,” the expensive and time-consuming process of establishing trust between transactional partners through constant audits and inspections of processes. Blockchain enables product memory: this means that physical products can log information pertaining to ownership and movement along the supply chain. The trust tax is eliminated because unalterable product tracking features generate data available to all parties. To legitimize trust, that information can be traced. Additionally, this shaves off some time and resources needed in executing contracts.
What are the challenges to overcome?
Even with these innovative features, blockchain technology comes with some notable challenges that must be addressed.
- Processing latency: Blockchain depends on the network of nodes to verify transactions as valid. The time required for this averages 8 minutes. Presently, if transaction verifications are slow, Blockchain’s innovation is not a big enough incentive for adoption.
- Lack of regulatory oversight: In the distributed, peer-to-peer system, there seems to be no room for a governing organization. Laws and regulations are catching up slowly, leaving the question of how systems will function without legally-managed standards.
- Technical skills gap: In any organization, new technology can ignite confusion for those in the learning process. Employees who cannot keep up with the radically different technology can commit security-threatening actions and slow down business operations.
- Incompatibility with existing IT systems: This radical technology demands crucial changes to existing systems and high capital costs when making the shift.
- Control, security, and privacy: Blockchain may be made up of advanced cryptographic hashes, but shared transaction ledgers still can leak information and threaten confidentiality.
With the level of investment, technical development, and enthusiasm growing each year, blockchain appears to be a promising technology for a variety of industries. As the potential and usability develops, business leaders should keep an eye out for more ways this and other new technologies could stay competitive and enhance business efficiency. As for Citrix, we should also keep a finger on the pulse of this technology. The rippling effect of blockchain within the IT environment could entirely up-end the way IT is managed.
Follow Jiun Hong (that’s me!) on Twitter.
Follow Citrix Solutions for Financial Services and Insurance on Twitter.
