Author: Sean Williams | June 28, 2018
Blockchain has the potential to be a game-changer
Last year, cryptocurrencies like bitcoin and Ethereum made their presence felt in the investment community. Bitcoin wound up rocketing higher by more than 1,300% in 2017, with Ethereum gaining just shy of 9,400%, in what were some of the most impressive 12-month returns Wall Street has ever witnessed. And at the heart of it all has been the emergence of blockchain technology.
For those of you who might otherwise be unfamiliar, blockchain is the digital, distributed, and decentralized ledger that underlies most cryptocurrencies. In considerably easier-to-understand terms, I’ve previously and succinctly described blockchain as: “a brand-new way of transmitting money without the need for traditional banking networks, as well as a means to store data in a transparent and unalterable way.”
This means that blockchain has currency and non-currency applications for consumers and the business world. Let’s take a look at 10 ways the technology behind bitcoin, which is purely currency-based, and Ethereum, which covers currency and non-currency applications, could change your life.
1. Faster payment processing times
Arguably the most important aspect of blockchain on the currency side of the equation is what it might do for payment processing times. Currently, banks can take up to five business days to validate and settle a payment on their processing networks -- especially those that cross domestic borders. With blockchain-based remittances, validation and settlement could happen almost instantaneously.
In the not-so-distant future, bitcoin plans to introduce a second-layer payment protocol known as the “Lightning Network” atop its existing blockchain to dramatically speed up the validation and settlement process. Currently, it takes a little more than an hour to complete a payment from one party to another. When talking about payments being made across borders, that’s a significant improvement over a multiday wait. In essence, blockchain could be a major improvement in how consumers and businesses move money.
2. Lower transaction fees
Sticking with the currency-related benefits of blockchain, it could also mean a significant reduction in overall transaction fees.
When payments are processed today on traditional banking networks, banks earn the right to take a third-party fee for essentially doing nothing, other than allowing a transaction to occur on their networks. However, there is no bank involvement with blockchain technology, and therefore no transaction fee for banks to pilfer. Some cryptocurrencies, such as Ripple, have transaction fees that equate to small fractions of a penny.
What remains to be seen is where these savings would go. It’s unclear if businesses utilizing blockchain to process their transactions would simply pocket these savings and boost their own profits, or if they’d pass along some or all of these perceived cost-savings to the consumer in the form of lower fees when completing payments, purchases, and other remittances.
3. The safety of decentralization
Both bitcoin- and Ethereum-based networks offer the luxury of decentralization. What’s decentralization, you ask? Rather than keeping the data from all blockchain transactions in a central location or server, they’re instead stored on computers all over the world. The advantage of doing this is to keep a single entity, be it a business or cybercriminal, from being able to gain control over a network.
With regard to hackers, it means keeping a cryptocurrency and its data free from being held hostage. As for businesses, it means no single individual or small consortium of individuals is responsible for the economic and developmental future of a blockchain network. User control is an important aspect of blockchain, and it can go a long way toward protecting your data, identity, and/or money.
4. Supply chain and quality-control monitoring
If you think the currency-based applications for blockchain are exciting, then you’re going to love what it might be able to do in non-currency situations. Among the most exciting non-currency aspects is what blockchain can do for supply chains.
Right now, most tracking and shipping approvals are done through extensive paper trails, which makes locating issues and inefficiencies difficult, and can slow down the overall movement of goods. On the other hand, blockchain offers the ability for businesses to monitor and track the movement of goods in real-time. This should, in theory, allow businesses to more quickly pinpoint inefficiencies and, using Ethereum’s smart contract protocols, design parameters that expedite the approval process to move goods more quickly.
As for consumers, a more transparent supply chain would allow for an inside look at quality-control testing. Imagine buying a new car and being able to see how some of its key components performed in quality-control testing prior to being assembled. With blockchain that becomes possible.
5. Immutable data backup
As noted, not only is blockchain transparent (either as a public network or to select individuals within a business), but it’s also immutable, or unchanging. The beauty of immutability is that it’s impossible to make changes to logged data without someone on the network noticing. This makes data logged on a blockchain especially secure and trustworthy.
Though there are existing cloud systems designed to store enterprise and consumer data, these systems aren’t impervious to cybercriminals or infrastructure issues that take down the network. Cloud providers could look to blockchain to be their immutable data backup.As an even more practical example, Boeing (NYSE: BA) has been tinkering with the idea of using blockchain as an unalterable log of GPS location data for its planes. This would remove any chance of piloting issues should a GPS receiver malfunction or become a victim of spoofing (i.e., receiving false location data, likely from hackers).
6. Improved food safety
It seems that every time we turn around there’s another serious food-safety scare. The recent E. coli outbreak caused by Romaine lettuce wound up killing five people and sickening 197 others. Prior to that, fast-casual restaurant Chipotle Mexican Grill (NYSE: CMG) dealt with a rash of E. coli outbreaks at a handful of its locations. Getting a handle on the root cause of these food safety concerns isn’t always easy; but with blockchain it could be considerably easier.
Since blockchain data in unalterable, and we’ve noted supply chains can be monitored in real-time, or near-real-time, blockchain would allow supermarkets and restaurants the ability to trace the transport of food products from their source to the supermarket. Should a food-borne illness arise, it wouldn’t take nearly as much time with blockchain to track down the culprit. In other words, blockchain could be a dramatic step forward in food safety.
7. More control over medical recordkeeping
It probably goes without saying that the state of the U.S. healthcare system is enough to give anyone a headache. However, blockchain technology could make things a bit easier on patients of the future by doing a better job of safeguarding their medical data and getting it in the proper hands.
Right now, HIPAA laws are designed to provide data privacy for medical patients. In essence, no one is supposed to be able to access your personal medical data without your permission. Unfortunately, HIPAA laws aren’t perfect. And since not all data is being entered digitally, it’s not always secure.
With blockchain, the idea would be that a user would be given a digital key (essentially a digital password) that grants medical personnel access to their medical records. Rather than one doctor having to contact another doctor at a different hospital about a surgery you had five years prior, you could simply enter your digital key that allows your physician, or anyone else you see fit, access to your medical records. By eliminating paper from the equation, it would empower patients to protect their data, and probably make life more efficient for patients and physicians.
8. Keeping tabs on prescription medicines and medical devices
Sticking within the healthcare arena, blockchain also has the ability to better police prescription drugs and medical devices. Again, we’re sort of leaning on the idea that blockchain can be used as a means to track goods in real-time, just as in a supply chain. But the stakes are considerably higher when we’re talking about prescription drugs and devices, especially since counterfeit medicines are a genuine problem.
According to the World Health Organization in 2012, an estimated 10% of all prescription drugs worldwide were believed to be counterfeit, although, to be fair, the rate of counterfeit drugs in developed markets tends to be less than 1%. The real issue of counterfeit medical drugs is found in developing countries, where up to a third of all prescription medicines may be fake. With the ability to track prescription drugs based on their serial and/or batch number via blockchain, it would be almost impossible for fake medicines to infiltrate the system. That would mean patients are receiving the medicine(s) they should be in both developed and developing markets.
9. Managing Internet of Things networks
Continuing with the somewhat common theme of security, blockchain technology could also be pivotal in managing Internet of Things (IoT) networks. The IoT describes the ability of wirelessly connected devices to send and receive data. Examples might include a smart thermostat in your house, such as Nest, which “learn” your temperature preferences in order to save you money, or automobiles with motion-sensor technology that keep you from running into another vehicle or departing your lane.
Companies like Cisco Systems (Nasdaq: CSCO) are currently working on blockchain-based applications that would oversee IoT networks. More specifically, these applications would be responsible for ensuring the trustworthiness of devices connected to a network, as well as constantly evaluating the trustworthiness of devices entering and leaving the network. Keep in mind that due to the ongoing digitization of society, smartphones and smart cars count as IoT devices. By overseeing these networks, blockchain could help ensure that cybercriminals don’t gain access to IoT devices or our data.
10. Digital voting and IDs
Last, but not least, blockchain could completely transform the way we store our digital identities and even vote.
As for the latter, being that blockchain is unalterable, it would remove any chances of hanging chads or errant pen or pencil marks on a ballot causing issues during elections. And since these networks are also transparent to polling officials, it would be easy to see if hackers altered voting data.
Meanwhile, digital IDs could be helpful to developed and developing countries. In the U.S., a digital, blockchain-based ID could streamline the security process in airports. By entering a private key, we could allow transportation security employees access to our personal and/or travel data. As for developing countries, digital IDs could allow folks to secure access to basic banking services, or even to start a business. Simply proving a person’s identity is a challenge to more than 1 billion people worldwide. With blockchain, that challenge could finally be tackled.
Keep in mind that blockchain isn’t perfect
As you’ve seen, there are many ways the technology underlying bitcoin and Ethereum could change your life for the better. But you should also understand that if this change is to occur, it’s not going to happen overnight or come easy.
One of the more prominent issues with blockchain technology is what I like to call the proof-of-concept conundrum. In recent years, businesses have run numerous successful demos and small-scale projects involving blockchain technology. However, none have been willing to commit to blockchain in the real-world without any parameters or training wheels, so to speak. Enterprises won’t commit because blockchain has yet to demonstrate its ability to scale in the real world; yet it can’t demonstrate its ability to scale until businesses give it a chance. This Catch-22 will take time to work itself out.
Secondly, despite being all about decentralization and security, blockchain networks haven’t proven impervious to hackers. Since the beginning of the year, an estimated $1.1 billion worth of cryptocurrency has been stolen by hackers, according to an analysis by Carbon Black. In other words, there are still kinks to be worked out in protecting consumers’ and business’s assets -- and until they’re worked out, it’s unlikely that blockchain will be adopted on a broad scale.
Integration concerns shouldn’t be overlooked, either. While some industries would clearly benefit from blockchain, that isn’t the case with all industries or sectors. Similarly, some industries could require a complete retooling of their infrastructure if switching to blockchain, which would be an expensive and time-consuming process.
My suspicion is that it’s going to take many more years for blockchain to mature. But if consumers, businesses, and investors give this technology time, it’ll have a genuine opportunity to live up to its current hype.
Sean Williams has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has no position in any of the cryptocurrencies mentioned. The Motley Fool has a disclosure policy.