Cryptocurrencies and Blockchain technology may go hand in hand, but that doesn’t mean that is all that Blockchain is good for. A Blockchain is just a tool, and it can be used for other tasks such as real-time processing payments, managing large paper trails, increasing supply chain efficiency, exchanging important information, and eliminating fraud all while improving overall efficiency by cutting out the middleman.
The Basics of Blockchain
Blockchain technology is a distributed set of data that relies on cryptography to verify and secure the information contained within it. Each data piece is called a block, so the entire set of data is referred to as a Blockchain.
One of the main benefits of Blockchain technology is the fact that it does not rely on a central database to store data. Instead, each person involved in the Blockchain holds a copy of the data. This allows each party to individually verify that the information in each block is accurate. Verification is done using hash functions and cryptography.
Hash functions are the part of the Blockchains algorithm used to add new information to the Blockchain. Any information that is added to one copy of the Blockchain in question is added to all copies so that other parties can verify it.
However, as a security measure, individuals can only verify new information on the Blockchain if they already have a copy of it. Information that is already on the Blockchain can only be verified by other individuals on the same chain with the same hash information.
When someone wants to add information to the Blockchain, they need to use a key that verifies their identity. That way only authorized individuals can alter the Blockchain.
Blockchains are decentralized, cryptographically secure ledgers. Each new block on a Blockchain references the previous block (so it can be verified) and contains a record of any data that has been added or changed since the last block.
The Difference Between Public Blockchains and Private Blockchains
Though anyone can access cryptocurrency Blockchains, this is not the case for all Blockchains. Private Blockchains define who can participate, with participants either needing to be approved by the person who set up the Blockchain or through a set of pre-established rules.
Private Blockchains are useful for businesses because they can control who does, and who does not, have access to private or sensitive information.
Secure Payments in Real Time
Blockchain technology allows actions to be completed as soon as conditions are met. For example, say a company wants to order some materials from your company. First, you set up a Blockchain that both companies can access and your customer orders their materials. The Blockchain would verify that an action was completed (in this case that the materials had been delivered) and initiate an action (pay your company for the materials) all in real time.
Cut Out the Middleman
Wire transfers can take up to three days since the bank needs time to verify that the funds are available. Since you already verified the identity of the other company when you set up the Blockchain they know the transfer will be secure, so instead of waiting around for the bank to verify everything and then send you the funds you can eliminate the middleman and receive payment as soon as the delivery is confirmed.
Supply Chain Efficiency
One of the most promising ways Blockchain technology can be used for supply chain management. A Blockchain allows vendors and customers to communicate efficiently. It also allows both parties to see what inventory is currently available in the vendor’s warehouse and track orders as they move through the supply chain.
Vendors can also benefit from automatic ordering. Imagine if your company owned a factory that could automatically order supplies whenever they were about to run out. Delays would go down, and productivity would increase.
Manage Large Paper Trails and Exchange Important Information
Even in the digital age companies rely on paper trails. Blockchains allow each step in the paper trail to be added to the chain as a new block and verify that all conditions have been met before all parties can proceed. This cuts down on delays, decreased the likelihood of miscommunications, and streamlines the entire process by ensuring that all parties are always on the same page.
Blockchains also ensure that you and the other companies you do business with can exchange vital information in real time, increasing productivity and reducing headaches.
Since the Blockchain is irreversible (information that has been put on it cannot be removed from previous blocks, only updated in future blocks), all parties can rest assured that the chances of fraud being committed are essentially nonexistent. A properly set up Blockchain does not allow for previously approved blocks to be altered, so the record never changes. If something needs to be amended or expanded upon all authorized parties may do so in new blocks, but the information recorded in previous blocks cannot be altered or erased.
Before you call your IT department and set up your own Blockchain, there are a few downsides you should consider. First, all parties on the Blockchain can view all of the content on the Blockchain.
That means that if you have an agreed upon rate for one client but a different rate for another both clients will be able to see both rates unless you set them up on two separate Blockchains. Also, since all users can see all other users all of your clients will be able to see who all of your other clients are.
Blockchains are founded on transparency, so that means that you need to be careful about how much personally identifiable information is stored on your Blockchain. You will need to make sure your Blockchain is structured in such a way that it can be compliant with privacy legislation such as GDPR.
It is also nearly impossible to correct errors on the Blockchain once it has been approved. Since the record is unable to be altered the only way to correct a mistake is to make a note of it in future blocks.
Blockchain technology is a very useful tool that can be used for a variety of applications beyond cryptocurrencies. However, it also has a few downsides that need to be taken into account when you are deciding whether or not your business could benefit from the implementation of Blockchain technology.