By Justin Biel(opens in new tab), trends editor at Grow Wire
⏰ 6-minute read
This article is part of a series on blockchain and its business applications. Stay tuned for more:
Part 1: You’re reading it!
Part 2 (upcoming): Which businesses use blockchain right now?
Part 3 (upcoming): How do I tell whether blockchain can solve my business problem?
Part 4 (upcoming): Where is blockchain headed, in terms of its business applications?
Part 5 (upcoming): Which industries are getting overhauled via new blockchain companies?
The future of blockchain is one of the most widely debated topics in technology today. Proponents of blockchain claim the technology will reinvent our world for the better, offering new applications that will impact every industry and serve as the catalyst for Web 3.0.
Still, blockchain remains a mystery for many, both in terms of its founding story and ultimate impact on the future of business, government and our world.
In this series, we’ll investigate the technology’s adoption across major industries. In this first article, we explain what blockchain is, where it came from and how you might use the technology to enhance your business.
The mysterious origin of blockchain
The origin story of blockchain is a mystery that started in 2009 when a person, or persons, named Satoshi Nakamoto published a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System(opens in new tab)." Nakamoto's proposal for a self-regulated, decentralized currency marked the creation of Bitcoin in January 2009.
The white paper Nakamoto released also debuted a new, transformative technology: blockchain(opens in new tab), which supported and regulated the Bitcoin currency system.
What is a blockchain?
"The technology at the heart of Bitcoin and other virtual currencies, blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way," technology researchers Marco Iansiti and Karim R. Lakhani wrote in the Harvard Business Review(opens in new tab).
It's called a blockchain because "blocks" of digital information are stacked together in this public ledger, creating a "chain" of verifiable, unalterable data.
Each block in the chain stores different kinds of digital information -- like the purchase or transfer of Bitcoin -- and includes data such as the date, time and value of transactions. The block also records the parties involved in the transaction and distinguishes individual blocks with a sequence called a "hash" that acts as a digital fingerprint. Each block can record thousands of transactions.
The critical thing to understand is that applications for blockchain go way beyond Bitcoin and cryptocurrency. A blockchain can store any data or record any transaction between two parties.
"The information recorded on a blockchain can take on any form, whether it be denoting a transfer of money, ownership, a transaction, someone's identity, an agreement between two parties or even how much electricity a lightbulb has used," notes Lisk Academy(opens in new tab), which provides educational resources about blockchain.
Also referred to as distributed ledger technology (DLT), blockchain is an entirely new way to document data on the internet, which is why some have referred to it as Web 3.0(opens in new tab).
At its simplest, blockchain is a highly secure method of documenting data on the internet.
The 5 traits of a blockchain
According to Iansiti and Lakhani, there are five fundamental principles underlying blockchain technology, summarized below.
1. Distributed database
Everyone on a given blockchain has access to the database -- no single party controls the data. Anyone can verify transaction records without an intermediary.
2. Peer-to-peer transmission
In a blockchain, all communication is peer-to-peer, vs. processed through a central node. Individual nodes store and share information with all users on the network.
3. Transparency with pseudonymity
Transactions recorded via blockchain are visible to all in a given system, and users are tracked with alphanumeric addresses. Users can provide proof of their identity or remain anonymous.
4. Irreversibility of records
Transactions entered in blockchain cannot be altered, because they are linked to every previous transaction in the chain and secured through cryptography.
5. Computational logic
Blockchain transactions can employ computational logic, which means that rules can be set to trigger transactions between nodes.
The blockchain hype
There is a rising interest in blockchain, displayed by a surge of government programs using the technology, as well as rapid adoption and investment from the global business community.
Here is a list of key players exploring applications for blockchain, as well as some jaw-dropping statistics around current blockchain adoption and investment:
Upon its establishment in 2017, the World Economic Forum's Center for the Fourth Industrial Revolution identified blockchain and DLT as one of its six critical areas of focus(opens in new tab).
Forty central banks around the world are currently or soon will be exploring the potential for central bank digital currency, which “could replace traditional money,” per a 2019 report from the Bank for International Settlements(opens in new tab).
Fifty of some of the world’s largest public companies are exploring blockchain technology(opens in new tab), including Facebook, Tencent, Berkshire Hathaway and Walmart.
As of August 2019, CoinMarketCap shows the total market cap of all digital currency(opens in new tab) at over $275 billion.
A Statista report(opens in new tab) predicted that worldwide spending on blockchain technology would grow from $1.5 billion in 2018 to an estimated $11.7 billion by 2022.
Blockchain's applications are primed to extend far beyond currency, affecting dozens of industries.
Industries poised to change via blockchain
Businesspeople across the world are assessing the potential for blockchain applications to benefit their industries. According to Forbes(opens in new tab), 10 major industries are particularly well-positioned to utilize DLT. See them below, along with the benefits blockchain might bring to their landscapes.
1. Banking – an opportunity for more secure recordkeeping and increased transaction speed
2. Healthcare – the option to store and retrieve all patient information in a single system
3. Politics – secure voting registries(opens in new tab) that cannot be altered by miscounts, hackers or other third parties
4. Real estate – smart contracts to execute home sales, eliminate escrow payments and reduce transaction time and agent fees
5. Law – more reliability in storing, accessing and verifying legal documentation
6. Security – increased digital security with decentralized, cloud-based data storage.
7. Government – reduction of bureaucratic red tape, speedy funding thanks to blockchain-based smart contracts that deploy funds upon met conditions and streamlined acceptance and payment of benefits like welfare, unemployment and disability
8. Rentals and ridesharing – the creation of a true peer-to-peer rental and sharing system without the need for middlemen like Airbnb and Uber
9. Nonprofit and aid – increased transparency for donors, smart contracts to release project funds and greater reputation management systems
10. Education – secure student records, which a variety of educational institutions could immediately access and share
Want to learn more? CB Insights highlighted another 55 industries that blockchain could transform(opens in new tab).
Can blockchain benefit your business?
Blockchain is not a cure-all for your business. Rather than blindly adopting the technology, you must determine if it has the capabilities to accomplish your project goals.
The World Economic Forum developed a white paper(opens in new tab) that lays out 11 questions leaders should ask to determine whether blockchain is the right solution for a specific business problem. It suggests queries like:
Are you trying to remove intermediaries or brokers from the equation?
Are you storing digital assets that need to be verified by a trusted party?
Can you create permanent records of the digital asset?
If you answered yes to those questions, blockchain might be worth investigating further for your business. If you answered no, then blockchain is not the right fit.
As a businessperson in 2019, merely knowing blockchain exists is not enough. Businesspeople must become educated about blockchain, both its benefits and constraints. The World Economic Forum's white paper, “Blockchain Beyond the Hype: A Practical Framework for Business Leaders(opens in new tab),” is an excellent place to start.
The bottom line
Blockchain and DLT are innovative tools businesses can use to solve problems. However, blockchain is only relevant if its capabilities address the particular problem at hand.
Later in this series, we’ll explore how legacy companies are integrating blockchain into their business models and build a framework for diagnosing whether the technology could solve your particular business problem. We’ll also learn about the brand-new businesses that have cropped up thanks to blockchain and hear from experts on the predicted future of the technology.
Stay tuned: You’ll learn more about blockchain in upcoming articles.
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