Blockchain: Is it a game changer?

Introduction  

Blockchain can be described as a distributed ledger with a record of transactions. It is a shared information database that allows public storing of information and is easily accessible. The entries or transactions made in blockchain remain secure and cannot be modified.  

It is a decentralized system which stores blocks of information that remain identical across the network. Each block includes a timestamp that records the transactions and provides a strong proof of the transactions made. The technology allows distribution of digital information without being copied.

In blockchain, the control does not belong to any single entity and this helps in protecting it from failure. Users cannot delete or modify any record and a transaction cannot take place without validation from other authorized members.

Background

Blockchain was developed in 2008 by an entity known as Satoshi Nakamoto. The technology was initially devised for Bitcoin, a digital currency to enable transactions without the involvement of banks. With the success of bitcoin, the technology was then extended to other applications such as stock trading and health care. At present there are many other blockchain-enabled cryptocurrencies such as Ethereum, Litecoin and Ripple.

Why Blockchain?  

Blockchain users can stay in control of the data and business transactions. Data is reliable due to accuracy, consistency, transparency and timeliness. The peer-to-peer transactional nature in blockchain eliminates the need for third parties which results in substantial savings in terms of overhead costs.

It also facilitates audit of user accounts and provides heightened security to protect the system from fraud and hacking.

The hacking instances that were reported in blockchain were due to discrepancies in its implementation by companies and not due to vulnerabilities in the technology.  

Blockchain can support the digital transformation of enterprises in terms of automation, smart contracts, and process digitization.

What is the flipside?

Blockchain is a complex concept and the lack of scale increases its implementation costs. There is lag in performance due to aspects such as verification of signature, redundancy and agreement mechanisms. Transactions can be complete only when all the concerned parties update their respective ledgers which may take many hours.

While the irreversible nature of blockchain transactions builds credibility, it also creates problems as it eliminates the scope for course correction. For instance, mistakes made during a transaction cannot be corrected and this may result in potential losses for the users when it involves transactions such as stock trading.

The value of cryptocurrencies is mostly speculative in nature and is largely driven by major news events and investor sentiment.

Where is it used?

Blockchain has many applications and is adopted by various sectors such as banking and shipping. In the shipping industry, blockchain technology can enable better utilization of assets and help in forecasting volumes.

Companies have started using technology for managing the supply chain. It helps to track the entire chain of activities right from sourcing materials to distribution of finished products. 

Blockchain can add value to the education system by making the online data channel transparent and secure. It also helps in verifying the authenticity of shared records independently and privately. Student records can be secured and data can be shared between consenting parties or member institutions.

Intellectual property rights can also be protected using this technology. For instance artists and authors can have their works registered to a blockchain which serves as an evidence of their ownership.

In areas such as property rights and land tenure, ownership and legality often become an issue. While physical records may be modified or get lost, blockchain can serve as a valid referral system offering a clear picture regarding land registrations and ownership rights.

Conclusion

While blockchain technology is yet to be widely adopted, it will continue to gain traction given its applications in automotive and retail sectors in managing the supply chain.

The Indian banking sector too is betting big on the technology which is evident from recent developments such as the State Bank of India announcing plans to launch blockchain-enabled smart contracts.

Due to changing regulatory and business environment, there could be governance issues related to cryptocurrencies such as Bitcoin and Ethereum. This could prompt businesses to adopt private blockchain solutions.

The transparent nature of blockchain technology makes it beneficial for businesses as prices and terms are visible and verifiable.