Blockchain technology is a “natural” for the financial industry. When vast numbers of transactions are date and time-stamped, recorded and stored in global ledgers, there are the obvious benefits of security, transparency, privacy, and fraud reduction.
It was inevitable that other sectors would begin to see the value of blockchain, and, while still a new technology, “players” in various industries are launching and piloting blockchain innovations. We are now seeing the use of blockchain, in limited capacities, in energy, insurance, travel, manufacturing, education, healthcare, real estate, and even governments. Blockchain holds a lot of promise, and the possibilities seem to be almost endless.
Initial Adoptions are Limited
No sector has jumped wholeheartedly into the blockchain, and that is probably a good thing. As exciting and promising as this technology is, and despite its obvious benefits, there are certainly challenges in its implementation. Before businesses, governments and other major industries adopt full-scale blockchain technology, it is wise to look at both the benefits and challenges.
The Benefits of Blockchain
Both public and private sectors can reap many benefits from blockchain.
- Blockchain Provides Transparency
Because all transactions or data is placed in blocks, verified by many, attempts to alter any of these would be almost impossible. Consider just a few applications of blockchain in which transparency is critical.
- Voter registrations, once identity requirements are met, would be entered into blocks, preventing several issues – voter fraud, mistaken purging of registrants from voter rolls, and no more need for voters to present their documents at polling places. Already, Estonia is piloting voter registration via blockchain, as well as the management of other documents and records in its healthcare system.
- In the United States, the state of Delaware is a preferred site for incorporation, because current laws are the least bureaucratic. Because of the numbers, Delaware is experimenting with blockchain for corporate registrations.
- Patents, copyrights, and intellectual property rights can be entered into blocks, providing verification of true ownership.
- Contracts – Reduction of Cost, Errors, and Disputes
Contracts are currently “paper-heavy,” involve third parties, and, in the case of dispute, costly legal action. Blockchain has the potential to eliminate all of these issues. When contracts are entered into, they are recorded and stored in blocks. And because they are date and time stamped, there is a permanent record of exactly when this occurred. Amendments to contracts can certainly be added in new blocks, but all parties would have to agree and verify.
A contract sitting in a block thus becomes evidence in any legal dispute, and this eliminates much of the need for lawyers and courts, not to mention fraud. The implications for business, real estate, energy, legal settlements, and both domestic and international trade are obvious.
While the recognition of the legal status of contracts stored via blockchain is not widespread, there are some local and state laws that now recognize them as binding.
- Prevention of Fraud and Hacking
Typical businesses, large and small, lose an average of 5% of their annual revenue to fraud. The blockchain is a distributed, or shared, ledger, and records/data are immutable. Attempts to commit fraud, once records are entered, is close to impossible. And for any change to occur in those records, all involved parties have to agree and enter those changes in a newer block. For the insurance industry alone, the implications are huge.
Another sector that must be acutely aware of hacking is that of healthcare. Privacy of health records is mandated by law, and providers can suffer severe consequences when there is a breach of their systems. But if all records are stored via blockchain technology, with permission granted through key codes, breaches can be virtually eliminated.
International travel is another area subject to criminal activity. In one year alone (2014-15), over 13,000 passports of UK citizens were lost or stolen. Add to that the inconvenience that travelers, in general, have in presenting their documents at every entry and exit point, and it is obvious that blockchain could eliminate a lot of travel issues.
While not as serious as that of some other sectors, educational records, such as transcripts and degrees, when entered into the blockchain, provide an immutable record or students’ credentials. Permission can then be granted to those who need to see them, such as potential employers or certification entities.
There are obviously additional benefits, but these three make blockchain most attractive to public and private enterprises.
The Challenges
And yet, as with anything new, there are hurdles and challenges to overcome. Here are a few of the most significant.
- It’s New
There is definitely a “learning curve” that many have not yet begun. Governments, business owners/executives, and other organizational entities just do not have any understanding of blockchain. If they have heard of it at all, they connect it to cryptocurrencies which they also see as mysterious and unconventional. Eventually, as blockchain becomes more mainstream, leaders in all sectors will become educated and more accepting. This will be an evolution over time, not a rapid event.
- Lack of Compatibility
Currently, there are public blockchains which use consistent technology. However, there are a growing number of private blockchains too, and these are using proprietary technology. Suppose, for example, that two large insurance companies are adjusting and settling a claim. If their technologies are incompatible, blockchain will be no solution. Some form of standardization will be inevitable but may be slow in coming.
- Lack of Government Interventions
Here is a typical situation. A contract in one legal jurisdiction is entered into a blockchain. When there is an attempt to enforce that contract in another jurisdiction that does not recognize blockchain as evidentiary, parties to a contract must rely on paper backups. This defeats the entire purpose of the blockchain. Ultimately, as blockchain becomes mainstream, the national government will have to get involved to provide legal validity to blockchain documents and data.
- Change is Hard and Slow
People are used to paper; they are used to in-house databases. Accepting blockchain technology feels somehow like they are losing control. Acceptance will take time and probably mean that small pilots will need to be implemented until a work culture becomes comfortable with the technology.
- Security
At a conceptual level, blockchain technology is far more secure than traditional methods of securing documents and data. The problem comes with humans are given permission to access blocks. Typically, they are provided key codes to use. They are responsible for the security of those key codes, and storing them on their own devices is an open invitation to cybercriminals. There are solutions of course, but it only takes on an irresponsible employee.
In the End
Blockchain technology is here to stay, and it promises to be perhaps the most important disruptor of virtually every sector of the economy. The promise of increased trust in transactions, the immutability of stored information, documents, and data, and greater efficiency and security are just too attractive. As for the challenges? They are all surmountable with time.