A decentralized ledger system designed for recording, tracking, and
time-stamping authentic transactions across a peer-to-peer network
of computers, blockchain technology has fully emerged from its
cocoon with Bitcoin and beyond. Blockchain’s extensive capabilities
go well beyond cryptocurrencies, Bitcoin being its primary
application.
Although cryptocurrency is still the most well-known use for the
technology, many of blockchain’s biggest opportunities exist outside
of finance. While blockchain can be applied to any form of
cryptocurrency, its applications for non-cryptocurrency uses span
many industries. Blockchain provides transparency, security, and
efficiency in supply chain management, insurance, and even
healthcare. It offers a distributed record of transactions that
cannot be tampered with and an unprecedented level of trust and
certainty for the data it manages. As we look into something other
than a cryptocurrency wallet, blockchain technology could
fundamentally change things in industries that are diverse in
finance, asset management, cultural goods, energy markets, and
identity management. We might very well be reaching the end of a
world where we either accept someone else’s version of the truth or
where arguing who is right is a waste of time.
Blockchain is a shared, digital ledger on which transactions are recorded across multiple, geographically dispersed computers (also known as ‘nodes’). Each block is basically a batch of pending transactions attached to a time-stamped link to a previous block in a series. Together, they make an immutable, chronological chain of ownership.
The key features of blockchain technology are:
The technology harnesses cryptographic techniques to provide a
consensus-based platform on which trust can be established among the
participants in a network. Any new transaction is validated by a
majority of the many simultaneous validating nodes, and, once
validated, the transaction is recorded on the blockchain. Any
subsequent modification or manipulation of the blockchain would
require the consensus of the majority of those same validating
nodes, which is highly unlikely.
Moreover, it also uses public-key cryptography to identify the
participants and for communications security. The blockchain nodes
use cryptographic key pairs, each made by a public key (used to
encrypt and verify) and a private key (used to decrypt and sign).
The cryptographic security keeps participant’s actions secure by
ensuring that only authorized participants have access to the
blockchain and can exchange blockchain transactions.
The non-cryptocurrency applications of blockchain, however, go far beyond finance. In sectors as diverse as supply chain management and healthcare, blockchain-based technology employs its core features to enhance efficiency, security and trust. These applications draw widespread attention to blockchain’s potential to disrupt conventional processes and foster innovation beyond cryptocurrencies.
We are seeing new use cases for blockchain rapidly emerge, with some more conventional and some more futuristic. The integration of blockchain with the Internet of Things (IoT) is one area with a potentially huge impact, with blockchain causing ripples into existing smart systems. Decentralized Finance (DeFi) and developments in identity management are other areas that are moving forward at pace, with interest surging. All of these innovations hold the promise of more security, more efficiency, and more transparency for the individual and organization alike, and the potential to replace more centralized approaches to many processes with decentralized alternatives.
Integration with the Internet of Things (IoT) could also turbocharge blockchain’s value, digitizing every last thing we touch and possibly enhancing its existing security promise. Blockchain, for instance, could secure IoT networks with cryptographic models that guarantee the authenticity and confidentiality of data sent through them. IoT networks could also benefit from blockchain’s decentralized nature, shedding single points of failure and avoiding known vulnerabilities in the IoT security model.
Decentralized Finance – or DeFi – is a prime example of an application of blockchain technology that promises to transform large swathes of our existing economy. Digitized, decentralized financial products and services can achieve many of the goals of the banking sector without the need for traditional intermediaries. Using intelligent contracts, for instance, people can lend money directly to each other at interest. As a ‘lender’ to the network, people can provide any amount of ‘bits’ that need to be lent, while ‘borrowers’ provide collateral, say, in the form of any crypto coins in their possession and borrow funds from you – all carried out automatically.
These issues are addressed in part by blockchain-based identity management solutions. Self-sovereignty For example, existing self-sovereign identity solutions encourage users to control their own identities instead of being beholden to a centralized identity provider. Individuals can store their identity-related credentials securely on-chain, furnishing credentials selectively and efficiently without revealing their personal details. A KYC process can ensue if both parties are satisfied, which then becomes a one-off activity with ongoing use after the authentication process is complete. As any subsequent party in this loop won’t have to revert to a centralized database to identify identical attributes and information, the process will be more efficient.y.
Examples of such problems include scalability bottlenecks, regulatory compliance, environmental concerns associated with mining, and interoperability. Finding solutions to these challenges is vital to make blockchain ecosystems more efficient and sustainable. Regulatory hurdles and the desire for interoperability between different platforms are further important issues to consider.
Scalability is currently a major bottleneck for blockchain, caused in large part by scaling the network’s size and transaction load. Blockchain’s transaction-centric consensus mechanism introduces one significant bottleneck: while each node in the blockchain network does process and validate each transaction individually, as transaction each and every transaction since all transactions in the block are made permanent. Scaling and reaching mass growth to a point where legitimate transaction time might become measured in hours or days due to transaction load if no improvements are designed. As a result, inherent design solutions such as sharding, layer two solutions, and consensus algorithm optimizations promote scalability and transaction throughput.
Meaningful regulatory and operational issues, such as keeping up with constantly evolving regulations and compliance requirements, present significant challenges that blockchain technology needs to address. Blockchain technology has applications across multiple industries, and meeting diverse regulatory requirements while maintaining legal compliance will be one crucial aspect of blockchain mainstream adoption in the years to come. For example, protecting personal and corporate data privacy, customer/client protections, and ensuring compliance with AML compliance regulations all raise immediate concerns for blockchain projects and will require close collaboration with the relevant regulatory bodies and law stations to ensure the appropriate development of regulatory frameworks that balance innovation objectives and fostering a relevant blockchain environment while minimizing legal risk.
The amount of energy used by blockchain mining operations, especially those with proof-of-work (PoW) blockchain consensus mechanisms, has called into question the environmental sustainability of cryptocurrencies and the carbon footprints of mining cryptocurrencies. Mining cryptocurrencies takes a massive computing power that takes up electricity, thus leading to increased carbon emissions and environmental damages. Sustainability is one of the pressing topics in environmentalism. Due to the high energy consumption of mining, many blockchain projects are exploring new consensus mechanisms, such as proof-of-stake (PoS) and low-energy consumption consensus algorithms, to reduce the environmental damage to the earth by reducing the amount of energy used in blockchain operations.
Other major challenges preventing blockchain from fully realizing its decentralized potential are interoperability and standardization, which are also crucial challenges facing blockchain technology. In fact, the absence of common standards and lack of interoperability between blockchain platforms and blockchain applications prevents blockchain networks from seamlessly interacting and sharing information. The complexity of integrating blockchain into our existing internet infrastructure due to fragmentation in the blockchain ecosystem is another obstacle to adoption. Developing common standards, protocols, and cross-chain interoperability solutions appears to be the need of the hour so that blockchain networks from different ecosystems can interact in a seamless way with a view to harness its potential for unlocking valuable opportunities.
We considered some of the many non-cryptocurrency blockchain applications, and how this new technology can resolve significant challenges in managing supply chains, improving healthcare and voting systems, and spur innovation in next-generation cybersecurity. We observed the compelling risk and reward tradeoffs that blockchain offers in identifying and preventing counterfeiting. We also discussed the competitive intellectual advantage it brings to enterprises. The journey is not over yet. As we leave this topic, we will reaffirm our entourage’s commitment to venturing together to discover new blockchain applications and innovations that will continue to have a widespread and socially positive impact.
