Blockchain was once a niche technology, developed to support the Bitcoin cryptocurrency.
But its uses and popularity have grown rapidly in the years following its creation in 2008 by a developer working under the pseudonym Satoshi Nakamoto.
Blockchain’s ability to instantly create secure and traceable transactions makes it one of the most talked-about emerging technologies, and its potential is vast.
Here are some of the ways it promises to make a change to business operations.
For most people, blockchain is a word that’s synonymous with Bitcoin – by far the most well-known cryptocurrency. So it’s no surprise that there’s a role for blockchain where payments are concerned. Appreciating what that role entails can also help throw some light on to how the technology works.
At the moment when you make a payment, whether by card or via a device, that payment will pass through the systems of around four organizations. Obviously, there’s your bank account and that of the party the payment needs to get to. But there are usually two payment processing intermediaries involved too. Each step involves a cost – a fee payable. They’re tiny sums individually but they add up.
When you make a blockchain-enabled payment, the end-to-end trail becomes far simpler
Blockchain is a distributed ledger. It doesn’t reside solely on the computer network of any one organization but can be accessed by all who need to. Consequently, when you make a blockchain-enabled payment, the end-to-end trail becomes far simpler. You don’t need different processing steps to verify identity or analyse the transaction. The start and end points are the only ones that are needed. At one fell swoop, unnecessary links are cut out of the chain along with their associated costs. That’s a potentially huge cumulative saving for the merchant side of the payment equation, as they are the ones generally stung by the largest payment processing fees.
At its heart, a contract is a simple organism. An offer is made to supply a product or service, the price and associated terms are accepted and there it is – a contract. However, in their execution contracts can very quickly morph into complicated creations with multiple layers of dependency and many links in the chain that connects parties.
Think about all the steps in the process of buying and selling a house. Identities need to be verified, as does ownership of the property – or properties – being sold. There may be stipulations around the removal or retention of certain fixtures and fittings, from curtains to refrigerators and more. Then, once the contracts are exchanged a date is set for completion – the transfer of money between all parties, handing over keys and the painful process of moving.
Funds are simultaneously transferred and legal ownership records are updated, all instant and automatic.
A smart contract is a piece of software code with contractual terms and conditions hardwired into it: when X happens, automatically respond by doing Y. Connected to blockchain ledgers it can track every element of a contract and its related transaction points. Identity, ownership and legality are established automatically. Funds are simultaneously transferred and legal ownership records are updated, all instant and automatic.
It’s not unlike an escrow service, in which a neutral third party holds money to be released on the completion of a purchase. The key difference is that it removes the need for manual input – “I have received the goods, please release the money” – and streamlines the end-to-end process.
Peer-to-peer Energy Trading
Drive through any town in Europe and the US and at some point you’ll encounter domestic electricity generation - roof-top solar panels being the most common and most visible example. Blockchain can turn these green households into the cottage industry of the future.
Households will be able to trade their energy surplus with the rest of their community
It could mean the end of the use-it-or-lose-it nature of home-generated electricity, as households will be able to trade their energy surplus with the rest of their community. Blockchain will be the backbone of local energy markets such as this, facilitating the transactions by seamlessly capturing the full audit trail of production, use and payment.
The UK’s National Grid estimates that by 2050 65% of the country’s electricity generation capacity will come from local sources. This will be driven by a number of factors, including rising energy prices, the increasing affordability of hardware such as solar panels, and a growing interest in the use of renewables. Fostering and enabling the local energy ecosystem will require a change to the way electricity is stored and distributed.
Currently, the power grids of most developed countries are not set up to handle a high volume of suppliers inputting modest amounts of energy. In addition to infrastructure considerations, the ability to trade directly – peer-to-peer – will be of critical importance to markets’ sustainability.
Rapid Switching Between Energy Suppliers
If you’ve ever endured a loss of internet connectivity at work you’ll know how important it is to business. So what would happen in a blackout? Without electricity, nothing could get done. It’s not only fundamental to operations, it is a considerable part of most organisations’ cost base. For anyone involved in manufacturing, or other energy-intensive activity, those costs are substantial.
In most developed economies, the ability to switch energy supplier is not a new concept; there are plenty of comparison websites that help consumers do just that. Businesses too can – and do – switch provider to secure better deals. But it’s not always a straightforward process. Unlike home energy, there’s more to switching than price alone. Commitments regarding supply interruption or the availability of an account manager to discuss your needs should they change may also be important.
Gathering information regarding your business’s energy consumption, location, identity confirmation, then matching your needs to alternative suppliers is time-consuming and a drain on resources. Getting the switch in place can then take several weeks. If you want to switch frequently to stay on the best tariffs the amount of time spent on admin as well as waiting can be off-putting.
Blockchain can automate the process of searching out the best prices.
Blockchain can circumvent many of these steps and automate the process of searching out the best prices. Furthermore, it can make the switch to a new supplier happen in near-real- time, again and again. In an environment where small decreases in unit cost can be amplified into large-scale savings, this is a development that could deliver significant financial benefits.
Tracing the Supply Chain
In 1776, in his seminal work The Wealth of Nations, the economist and philosopher Adam Smith outlined the importance of breaking production down into a step-by-step process – the division of labour. It increased efficiency, boosted productivity and opened the door to huge cost savings. It was nothing short of revolutionary.
Nearly 250 years later, the idea of the production line has been taken further than Smith could ever have imagined. Manufacturing supply chains now span the globe, with components from multiple countries often coming together to create a finished item. There are similar extended supply chains in the food sector too, with ingredients sourced from all over the world before being combined in one central location.
With components being manufactured and shipped from many thousands of miles away, there can be problems ascertaining whether or not quality assurance procedures have been followed or whether something is what it claims to be or is being misrepresented. Even when there is no actual cause for concern, managing supply chain scrutiny is an expensive undertaking.
Blockchain is traceable, transparent and tamper-proof.
The core elements of a robust and reliable supply chain are apparent in the blockchain too. It’s traceable, transparent and tamper-proof. The origin of everything from animal feed to sheet-steel can be recorded so that asset can be tracked on its entire journey from initialisation to final sale.