When talking about Blockchain technology people often think about cryptocurrencies like Bitcoin and Ethereum. While these digital currencies (based on blockchain technology) have undoubtedly made headlines, there’s a transformative force lying beneath the surface – one that extends far beyond the world of finance and has the potential to revolutionize multiple industries. Welcome to the world of blockchain where trust is decentralized, transparency is the standard, and innovation knows no boundaries. In this blog, we will explain to you what blockchain technology is, and explore the new possibilities which will potentially reshape the way we interact with the digital world.
A Blockchain is a digital database or ledger that is distributed among the nodes of a peer-to-peer network. This sounds a bit technical, so let’s break the definition into some smaller parts. A Blockchain can be seen as an unbreakable chain of blocks. A block is a place on the blockchain where data is stored. So in the case of cryptocurrencies, the data stored in a block are transactions. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Since every block contains a cryptographic hash of all the transactions it holds, as well as the hash of the previous block. This forms an unbreakable chain of blocks that guarantees the immutability of the ledger. The nodes described in the definition are devices, usually a computer, that participates in a blockchain network. These nodes operate in a decentralized peer-to-peer network. The special thing about blockchain is that the blocks must be approved by a majority of the participants. And participants will be rewarded for this. That’s why the chain never ends.
Advantages of Blockchain technology
Blockchain has an unlimited number of potential use cases, that’s why we will shortly name some of the advantages, and then dive into the industries that are currently implementing this technology.
Most Blockchains are open-source, allowing anyone to view and suggest changes and suggest changes to the code, fostering transparency and community-driven updates based on majority consensus.
Certain blockchains provide traceability benefits, by allowing transparent and immutable tracking of transactions or information, enhancing accountability and reducing the risk of fraud.
Perhaps the most profound facet of blockchain and cryptocurrency is the ability for anyone, regardless of ethnicity, gender, location, or cultural background to use it. Blockchain serves as a great opportunity to provide access to the financial system to the circa 1.3 billion adults whothat do not have bank accounts, or any means of storing their money or wealth according to the World Bank.
Since blockchain establishes an immutable transaction record, this will prevent fraud and unauthorized access. While its decentralized nature, spreading data across a computer network significantly enhances resistance to hacking compared to traditional centralized systems.
There are different kinds of blockchain, and transactions recorded on the blockchain are encrypted. A private blockchain can ensure that sensitive information remains secure and encrypted.
Blockchain avoids centralizing information and removes the need for a centralized third party (like a bank or government). Instead, like briefly described before, it distributes the blockchain across a network of computers, ensuring that when a new block is added, every computer updates its blockchain. This decentralized approach not only enhances security by making tampering more challenging but also increases cost efficiencies and speeds up transfers compared to traditional central databases.
With all the benefits of blockchain technology, it’s almost hard to pinpoint scenarios where this technology wouldn’t be more viable than traditional systems. From enhancing transparency and ownership verification to ensuring authenticity and improving efficiency, blockchain offers a versatile solution that can be adapted across many different industries.
Tokenization Of Real-WorldReal World Assets – Gucci, Dior, and Louis Vuitton
A prime example of the use case of blockchain technology is the tokenization of real-world assets. Asset tokenization is the process of representing real-world assets as digital tokens on a blockchain. Some tangible examples of this would be tokenizing houses, luxury goods, and rare collectables—essentially any good or product that is a high-value or high-involvement purchase. Major luxury brands such as Gucci, Dior, and Louis Vuitton have embraced the tokenization of their products to combat counterfeiting. They use blockchain to provide proof of authenticity for their premium items, reassuring consumers about the authenticity of their purchases. This not only safeguards against counterfeit products but also enhances trust in the secondary market for these high-value items. Consumers can leverage this blockchain-based system to verify the origin and ownership history of expensive objects, contributing to increased confidence and increasing the reputation of these brands. This application is not limited to luxury goods but can streamline the authenticity and transfer of assets in any industry. Other examples include tokenizing gold to increase its liquidity, tokenizing real estate to fractionalize the asset, tokenizing intellectual property to ensure fair compensation, and much, much more. Furthermore, it has the potential to democratize investing by making investing in illiquid markets possible in a liquid way, with lower entry levels. Tokenizing real-world real-world assets has really emerged as a strong use case use-case for blockchain technology in the past year with many organizations in the blockchain industry developing solutions to enable the process. It’s highly recommended to do a deep dive into the tokenizing real-world real-world assets narrative as it is such a multi-faceted application across such a range of different industries.
Supply Chain – Tony’s Chocolonely BeanTracker
Supply chain management stands out as a business process that can greatly benefit from adopting blockchain technology. While at first glance, traditional systems may seem like they cause no issues, a closer look reveals potential shortcomings in the current technological infrastructure. Traditional systems, often centralized, heavily rely on the trust of consumers to accept the centralized entity to accurately reflect the information within the supply chain. All the information from the supply chain, ranging from the product’s origin to details about its transportation and journey, is stored within a centralized system that can only be visible and manipulated by the company itself. This applies to all supply chains, from consumer goods to renewable energy and government operations, and leaves room for potential misconduct and other fraudulent behaviour.
A perfect example of this is the chocolate industry, where time and time again, there have been instances where major corporations have taken advantage of centralized trust and deceived consumers by engaging in deceptive practices related to the sourcing and production of chocolate. Amsterdam-based Tony’s Chocolonely has been at the forefront of recognizing the need for change in this industry and identified that this issue could be effectively addressed through blockchain technology. In 2018, Tony’s Chocolonely piloted an integration into their Beantracker platform, which digitally logs and monitors the entire journey of cocoa beans from origin to bar using blockchain technology. After a successful pilot, Tony’s Chocolonely determined that “There is important potential in blockchain technology for traceability worth investigating, we anticipate it will take another three to five years for it to become business operations viable.” Overall, blockchain technology stands as a highly effective means to ensure the maximum traceability of any supply chain.
Decentralized Finance – Breaking Down The Barriers To Financial Inclusion
One of the first use cases use-cases that got true recognition was decentralized finance protocols. DeFi, as it’s commonly known, refers to a financial system built on blockchain technology that aims to recreate and improve traditional financial services without relying on centralized authorities. DeFi allows users to earn yield by lending their cryptocurrencies to the protocol, where borrowers can then access these funds. The yield generated in DeFi platforms often comes from various sources and differs per DeFi protocol. Often these projects generate yield through differing combinations of liquidity provisions, transaction fees, staking and user lending & borrowing. That being said, the DeFi scene is ever-evolving and a hotbed of innovative approaches to yield generation is constantly emerging. These protocols are built using smart contracts, self-executing agreements with the terms of the loan directly written into code. This allows for self-executing transactions without the need for a middleman. This not only reduces costs but also minimizes the risk of fraud or manipulation. Additionally, the decentralized and borderless nature of DeFi opens up financial opportunities to a global audience and enables anyone with an internet connection to participate in yield generation products. As the DeFi ecosystem continues to evolve, it has the benefit of democratizing finance and providing financial services to unbanked and underserved populations around the world. While being one of the first narratives where blockchain technology is viable, there still is so much application outside of finance.
Many, Many More Use-Cases…
In the ever-evolving landscape of blockchain technology, the applications extend far beyond what we’ve explored. Any set of data that requires transparency, security, and decentralization can find a home in blockchain. The adoption rate is soaring, with just over 80% of the top 100 public companies actively involved with blockchain technology in some capacity. This widespread acceptance from the biggest companies is not a mere trend; it showcases blockchain’s fundamental impact. The potential is vast, and the ongoing developments in institutional adoption are a testament to its growing significance. As more industries recognize the need for an immutable, secure and transparent ledger for their data, blockchain technology truly emerges as a net beneficial integration to many of these industries.
Written by: Max van de Watering & Lars Huntjens
Students Blockchain Association Netherlands