The blockchain technology was first popularized by bitcoin. However, blockchain applications have now moved beyond cryptocurrencies. The future is bright with countless companies, startups, and developers working on a wide range of blockchain solutions. Blockchain’s ability to distribute processing while ensuring the veracity of transactions may allow companies to process data far more efficiently. This, in turn, can affect a wide range of industries.
So how does the blockchain technology work? Essentially, a blockchain is a giant ledger that records and verifies every transaction. With bitcoin, every transaction is public, although the specific identity of a person behind a transaction is kept anonymous.
Blockchain gets its name from the blocks of information added to the distributed ledger (the chain) based on certain criteria. To augment the chain, each block must be verified in accordance with the consensus algorithm adopted within the chain. With bitcoin, it is done by miners—people who dedicate enormous computational powers to solve a cryptographic puzzle and get a chance to add the next block.
One of the most obvious applications for blockchain outside of bitcoin is in payment processing. A public ledger that can track and verify transactions without a centralized server may be useful for companies that must process multiple transactions and/or payments.
Consider that Visa alone processes roughly 150 million transactions per day. It’s a resource-intensive undertaking, and unfortunately, credit card fraud remains common. Visa and MasterCard are working on blockchain applications that will mitigate these challenges and risks.
Visa has already launched B2B Connect, a blockchain-based platform for business-to-business transfers. International payments can take as long as five business days to process and verify. Visa’s B2B Connect may enable near-real-time B2B transactions.
There are many other blockchain uses within payment processing. JP Morgan’s Quorum facilitates interbank payments, while Citi is working with NASDAQ to offer another cross-border payment solution. Several banks have pooled their money together to fund R3, a joint effort to develop banking-specific blockchain solutions.
Financial service adviser Greenwich Associates has previously projected investments from Wall Street and financial institutions would top $1 billion per year. Banking behemoth Santander estimates that financial institutions could save as much as $20 billion by investing in blockchain.
Yet as promising as blockchain is for banking and finance, there are numerous other opportunities.
Bitcoin’s public ledger is both transparent and anonymous. Every transaction is recorded and displayed, yet the identity of those conducting the transactions remains anonymous. This transparency yet anonymity could prove to be useful for a huge range of industries.
Consider medical records. The information contained in medical records must be kept confidential in accordance with various legal authorities (such as HIPAA in the US). Complex confidentiality and reporting requirements make healthcare a proverbial minefield. However, blockchain’s inbuilt advantages regarding confidentiality and user access may alleviate these burdens.
Currently, medical records are a major hangup for healthcare providers. In fact, 89% of hospitals are now equipped with electronic records, yet these systems were not designed with sharing in mind. In fact, some estimates show that 75% of medical communications are still conducted via fax machine. This means documents must be printed, scanned, and then printed again. As a result, medical information systems struggle to keep up with the time-sensitive nature of many medical procedures.
Security is one of the primary concerns with medical records. For example, during the notorious Anthem medical breach, 37.5 million records were stolen, which resulted in lawsuits with a total cost of $115 million.
Writing for the MIT Review, Mike Orcutt states that “technologists and health-care professionals across the globe see the blockchain technology as a way to streamline the sharing of medical records in a secure way, protect sensitive data from hackers, and give patients more control over their information.”
Orcutt also notes that a custom healthcare-specific blockchain that can deal with the many nuances and regulations of the industry must be built. In its current form, blockchain may not be ready for such a specific, high-value application.
So who’s going to be the first to develop a medical-records-centric blockchain? Only time will tell, but researchers at MIT built a successful prototype based on Ethereum, a cryptocurrency. The prototype, MedRec, can automatically manage access and editing permissions, work with a variety of databases, and facilitate both sharing and auditability.
A cross-hospital blockchain solution like this one will allow easy and secure access to patient data with a personal token—this adheres to both HIPAA and data sharing aspects of current solutions.
Although it’s not required, a medical blockchain may include miners, who, in this case, will be medical researchers and doctors. MedRec’s creators may incentivize them to mine information blocks by offering them anonymized aggregate data in exchange.
One interesting aspect about blockchain is its ability to get rid of intermediaries. With cryptocurrencies, you don’t need a centralized bank. With medical records, you don’t need a complicated system and staff coordinating messages between medical facilities. Now, let’s apply this to contracts.
Under the traditional model, businesses and individuals need to rely on lawyers to both draw up the contracts, and to ensure that everyone is getting their ‘just desserts.’ For example, if an artist were to set up a royalty contract, a lawyer would need to ensure that she is receiving the proper royalties.
As blockchain moves beyond bitcoin, coders and lawyers have realized that the platform could be used to build self-executing or smart contracts. Essentially, the contract itself is converted into code and then distributed among the computers running a blockchain.
As conditions are met and payments are made, blockchain can record and verify the transactions. By now, this is still performed with the help of a trusted mediator. For a transaction to become verified, the contract should be signed by two of the three parties (usually, the buyer and the mediator).
A smart contract can also have stipulations, such as integrated punishments for late payments. If a payment is not made on time, the smart contract would automatically be updated to reflect the penalty. Likewise, if a service/product is not delivered or rendered, a refund or penalty could be implemented.
Blockchain is often thought of in terms of digital assets. However, it may prove useful for physical assets as well. For example, Chronicled uses blockchain to track physical assets throughout supply chains. Given how many physical objects are currently in motion across global supply chains, blockchain may make it easier to track and monitor shipments and assets.
With Chronicled, physical assets are given a digital ID. Chronicled’s system uses smart contracts and physical asset tracking, all through a blockchain. This allows companies to not only track goods, but also manage payments, transactions, delivery schedules, and other activities. When combined with shipping tracking, Chronicled’s system can even be used to verify the authenticity of the products being delivered.
Chronicled claims that their system reduces human error. Instead of assuming that everyone in the supply chain is doing everything correctly, Chronicled tracks and records who is doing what. According to the company, this can eliminate grave threats.
When the internet first emerged, Bill Gates thought that it’d be little more than a fad. Obviously, Gates was proven wrong. That just goes to show how difficult the future is to predict. Even titans sometimes fail to understand their own industry.
Speaking about blockchain, the industry titans mostly remain optimistic. They predict it to change the way the financial world operates, to replace third-party trust and even to disrupt the governments.
I think that governments are going to get disrupted by the blockchain. I think in the same way that the internet forced everyone to evolve, the blockchain is going to change the game again.
Only time will tell whether these great expectations will come true. Blockchain has just rolled over the peak of Gartner’s Hype Cycle, which means that the technology will probably experience its ‘Dark Ages’ soon, a period of disappointment and mistrust.
However, Gartner believes that blockchain will make it through the Trough of Disillusionment and finally reach its Plateau of Productivity in 5–10 years.
Stay tuned to our blog to follow the development of the blockchain technology and get insights into the way it transforms banking, financial services, healthcare, and other industries.