Blockchain Technologies gained a real foothold in our society today. Over the past several years, blockchain industry and cryptocurrency have made their way into the mainstream, going from the early days and early adopters of Bitcoin to the mainstream news press headlines. Along the way, blockchain technology has threatened to disrupt several industries and drive new waves of innovation around the globe.
Cryptocurrency related conferences are popping up across the world to educate and inform people about this radical movement in technology. The cryptocurrency economy has fueled a new asset class and caused loads of investors to speculate on new tokenized businesses. The world of ICOs has drawn significant attention from international regulators everywhere and represents a new funding model based on the recent crowdfunding method.
There are still many who doubt how far digital currencies can go, and there’s plenty of others who are vehemently opposed to a tokenized economy and digital currency. But most people who start to understand the abilities of blockchain technology are waking up to realize the incredible benefits it can bring to various aspects of society, business and industry.
What started with Bitcoin and Satoshi Nakamoto 10 years ago has ballooned into a cryptocurrency market that’s worth over $300 billion, with hundreds of new startups entering the space. Blockchain technology is fueling innovation, and a multitude of businesses stand to gain from its benefits.
Blockchain Technology Overview
Blockchain technology isn’t the newest concept around. There have been a few attempts to leverage a decentralized model to record monetary transactions and store information reliably. However, nothing caught on until Bitcoin currency hit the scene in 2009.
The earliest adopters who were introduced to Bitcoin and the idea of blockchain technology 10 years ago saw an opportunity to circumvent the traditional system, which relies on centralized third-parties (banks, governments, institutions) to conduct financial transactions. There is a swath of people (not all of them criminals) who would rather have their financial transactions not controlled by the traditional financial system in place, but instead trust a decentralized network to confirm and verify transactions on behalf of the transacting parties.
This is where blockchain technology comes into play and creates immense value. We’ve touched on the merits of blockchain technology before, but it calls for a recap to drive home its position to impact a variety of businesses and industries. So how do blockchain networks operate and function?
There are a few key players in the equation of a blockchain based transaction: the sender, the receiver, the supporting network (or miners), and the blockchain ledger itself. The core concept is the decentralized, distributed ledger of information.
So a typical blockchain transaction works like this: the sender has one Bitcoin they want to send to the receiving party. Each wallet or address has a public key and a private key; the public key is the address used to send Bitcoin, while the private key controls access to the wallet to send Bitcoin.
So in our example, the sender uses their private key to access their Bitcoin wallet. Then they use the receiver’s public key to send the one Bitcoin. Once the transaction is established, all aspects need to be confirmed before the Bitcoin is sent from one address to the other; the network needs to verify that the sender has the Bitcoin to send.
In a typical financial transaction, the bank is the network that verifies the sender’s and receiver’s account balances. In a blockchain network, a decentralized network of nodes, or bitcoin miners, perform this function. Each node or computer participant in the Bitcoin network is often called bitcoin miners because they mine the data to confirm transactions on the blockchain network.
To confirm a transaction, the bitcoin miners compute difficult mathematical computations to verify the sender’s account balance. Many miners compete to confirm transactions because they are rewarded when they add a new block of transactional data to the blockchain. This creates the circular feedback loop where each party is incentivized to maintain an accurate ledger of information.
In the end, this new decentralized model is disrupting traditional methods and displacing the need for big bureaucratic institutions to monitor transactional information. And blockchain technology has come a long way since the inception of Bitcoin. Hundreds of other cryptocurrencies have popped up to solve other issues with transactional data, or even to improve upon the Bitcoin protocol to make the technology more sustainable and likely for mass adoption.
Many new businesses and startups are taking advantage of the blockchain tech movement, and entrepreneurs are realizing the vast opportunity in the emerging space. The blockchain community is at an interesting point in its development, facing many hurdles in its path, but seeing incredible potential as it continues to progress further down the road.
Blockchain Businesses and Startups
So where do we stand today? Where is blockchain currently at on its road of progression into our everyday lives? How is it impacting businesses and the way consumers and merchants interact, or how companies communicate with each other, or how governments interact with citizens?
Blockchain technology seems to be in an interesting state of limbo for the moment. A lot of us got to experience the last boom and bust cycle first hand. For some, it was the first time they experienced staggering losses on their investments. Others were reminiscent of the dot-com bubble and are soured towards cryptocurrencies.
But the major underlying trend is the wide recognition from financial institutions, governments, and big business that blockchain technology is going to transform our normal way of life. There is a new wave of institutional investors and managed capital that is chomping at the bit to add cryptocurrencies to their portfolios. With a current market cap for the cryptocurrency economy of over $300 billion, we could see prices rise significantly if institutional money starts to pile in to invest in blockchain technology.
One ramification we’ve seen from the crypto boom is the rise of new blockchain based startups rapidly entering the scene. Many are using a now traditional Initial Coin Offering (ICO) method to raise funds to build an initial community of users and bring their product to fruition. ICOs have become to crypto investors what an IPO is to traditional stock traders. It represents the first public opportunity to buy a stake of the company’s success.
The ICO trend led to many speculative investments in cryptocurrency plays and has caused most of the backlash from international regulators looking to protect people from scam investment opportunities. The next activity that the crypto communities are eagerly anticipating is a clear direction concerning regulation. Financial regulators like the Securities and Exchange Commission (SEC) have deemed all cryptocurrencies to be securities, which severely hinders the potential for tokens that aren’t meant to serve as securities for the company. Other regulators only add to the overall confusion by classifying cryptocurrencies as different types of assets and creating a multitude of hurdles to jump through to stay in compliance.
Regulators are trying to take action, and in some cases, states in the U.S. have stepped up and taken the decision into their own hands. Wyoming is the most recent state to make waves with the passing of their Utility Token Bill, deeming cryptocurrencies to be utility tokens and not subject to securities law if they meet certain criteria.
Once regulation becomes more clear-cut, and there is less confusion, uncertainty and risk in participating in the blockchain revolution, billions in institutional funds are expected to flood into the blockchain industry, for purchasing crypto assets and investing in strategic startups, technologies and protocols to integrate blockchain into business practices.
Industries Benefiting from Blockchain
A multitude of businesses and industries are exploring blockchain technology as a new digital solution for a variety of business activities. The decentralized nature of the blockchain ledger allows it to become applicable to a wide range of functions, and a transformative technology for many industries.
Here are a few use cases that demonstrate how blockchain technology can have a significant impact on the way we conduct business, and create a more reliable and efficient global economy.
Bitcoin exemplifies the potential for blockchain technology and cryptocurrencies to benefit the financial industry. Eliminating the need for a bank or payment processor to send money from one party to another, and from one end of the world to another, is a significant game changer.
One of the most prominent use cases for blockchain technology in the financial world is simply exchanging money across borders. Many obstacles exist to prevent or hinder parties from sending money across a border, as banks and governments want to maintain control over financial matters. Banks and processors charge hefty fees for international transfers, and governments get involved in making sure they are monitoring money flows in and out of their jurisdiction, often in the name of anti-money laundering.
However, many people find themselves away from home to find work in a healthier economy. Folk from developing nations often seek better employment opportunities in first world countries like the United States or European Union. Because of their family’s living situation back home, they send part of their paychecks back to their family to help them survive and have a better life.
Under the traditional methods, this type of transaction is often impractical, because money transfer exchanges charge huge fees and the time it takes to process can be significant.
However, sending Bitcoin from the United States to Guatemala takes only minutes and costs a fraction of the fees charged by major financial players like Western Union.
On top of that, plenty of cryptocurrencies have come about to improve the Bitcoin protocol and make transactions faster and cheaper. The Lightning Network and SegWit are two technologies that are being applied to blockchain data to increase speed and lower costs.
This also has major implications on the banking sector. Banks have value because they are a trusted source to store and borrow money. Many people would rather have their money in a bank account rather than cash under their mattress because the bank is the most reliable way to maintain an accurate balance of your monetary situation and finances. Banks hold the account ledger that determines balances for each account. When money is transferred from one account to another, the bank takes away from the sending account, and debits the receiving account, updating the balances on its master account ledger.
The blockchain ledger represents a transparent way to host a banking account ledger. The account balance and information for each associated wallet or address is publicly available on the blockchain, and each participant has access to the updated version of the ledger. Furthermore, because of the mining system in place to confirm transactions, it’s incredibly difficult to forge a fraudulent transaction.
Because each block is tied to the previous block, thus denoting the chain of blocks, it would require an override of the entire blockchain network to alter block information to execute fraudulent transactions. In effect, this creates a fantastic way to transparently record and update account balances for finances and banking purposes.
Major banks recognize the impact and benefit of blockchain, and many are implementing the technology into their operations. About half of the publicly traded Chinese banks reportedly started deploying blockchain applications over the course of 2017. Japan has been a significant proponent of blockchain technology, and their biggest bank is implementing blockchain payments beginning in 2020.
In the U.S., Bank of America is reportedly exploring and building blockchain protocols and applications to improve their business operations. After the recent wave of negative comments from major financial institutions like JP Morgan Chase, these big banking and financial businesses are quickly changing their tune and recognizing the incredible impact blockchain has in store for the future.
Moving past the applications for blockchain technology in finance and banking, there are immediate needs across the supply chain. With the globally integrated economies we rely on for everyday things, supply chains have become more complex and sophisticated, and a perfect application for blockchain technology.
Consider the highly regulated olive oil industry, which sports a wide range of global stakeholders and is notorious for counterfeit or contaminated product. Like many other supply chains, the olive oil industry has numerous transactions throughout the chain as products shift hands from growers to production mills to bottlers and packaging facilities, before finally making it to wholesalers for global distribution.
This whole system requires up to five quality checks along the way as the olive oil product crosses different countries and jurisdictions, but it’s still estimated that 70% of the olive oil sold in the United States is fraudulent. Strict storage and logistics requirements placed on participants across the supply chain make it difficult to comply with the regulations and contribute to the lack of product quality in the industry.
To start, storing the olives properly is crucial prior to being processed at the production mill, so growers and millers need to ensure that the product is maintained and dwell times are reduced. This means monitoring temperature, hygiene and processing times at the processing phase, as well as during product quality audits at the packaging facilities, shipping docks and distribution centers.
One of the primary risks for companies along their supply chain is product recalls, and that’s a frequent occurrence with the olive oil industry. As all supply chains are becoming globally integrated and data flows are becoming more intertwined, blockchain technology is enabling companies, and importantly supply chain stakeholders, to more efficiently and easily execute transactions and ensure product quality through every step of the supply chain.
There are several main groups of stakeholders in the typical global supply chain process: upstream producers and suppliers, export and import authorities, shipping and logistics, and finally distribution and retail channels. As products and goods trade hands throughout the chain, transactional data needs to be recorded and approved. This is often a manual process, as raw materials are used in manufacturing plants, regulatory authorities approve goods moving in and out of their country, documentation is created providing origin and destination of the product, and distributors and retailers sell products to consumers.
Bringing the supply chain to the blockchain companies enables all of the transactional data to be stored in a distributed ledger that anyone along the supply chain can access and review. Supply chain stakeholders can leverage the blockchain to keep documents and data in smart contracts, so agreements are executed and approved once prior requirements are met, leading to more reliability and trust throughout the supply chain. Plant managers can access the information to confirm what is related to the container of product sitting in their facility, or regulatory authorities can examine who is in possession of the product at any particular time, and logistics providers can check to see what the next steps are for the product along the chain.
Blockchain technology is a significant enabler for the supply chain and is leading to more efficiency, transparency, and reliability for global trade partners.
The cannabis space is a perfect example of a market that is desperate for blockchain technology to help its development and maturation as an industry. Currently, businesses in the cannabis industry struggle on multiple fronts.
In launching a business into the cannabis space, entrepreneurs are limited on their access to capital. Because cannabis is federally illegal in the United States, and many other jurisdictions around the world, the sector struggles to secure proper financing to build a healthy business. Once up and running, many cannabis businesses still can’t get access to essential banking services and must rely on a cash business to operate and function.
This goes back to the notion that it’s better to have your capital in a secure place, rather than as cash under the mattress. However, with banking restrictions, cannabis businesses have to do just that: accept cash payment and find the best way to store the cash securely, away from the risk of theft, which is common among the cash business of cannabis.
Cryptocurrency is one solution to the problem for cannabis businesses. If they aren’t able to accept credit card payments, cryptocurrency payments are not a bad alternative. Dash is one blockchain based cryptocurrency that could be an interesting application to the cannabis markets. They have a partnership with Alt Thirty Six, which could give them the inside track to being an accepting digital payment method for cannabis dispensaries and other related products.
Potcoin is another cryptocurrency that’s geared towards providing banking services to the cannabis industry using blockchain technology. For businesses, the benefit here is that transactions can be done in seconds, and cost much less than fees charged by major credit card merchants. GreenMed takes it one step further and enables customers to order cannabis products online. Their blockchain based network uses cryptocurrency trading that allows secure orders through their app using the GreenMed tokens, along with a map of legal dispensaries throughout California.
Past the financing hurdles, the cannabis industry is fighting product quality concerns from people that say there is no standardization in the industry, and that consumers have no idea what they are consuming. This concept takes us back to the notion of blockchain in the supply chain. Cannabis businesses want to be able to track cannabis products from seed to sale, and furthermore to consumption by the user.
To support the credibility of the cannabis supply chain, and help legitimize the industry, several blockchain applications are addressing issues with inventory management, product tracking and transactional data. For example, Budbo is used to track assets through the network via GPS, to monitor all products and other assets entering and leaving a business’ environment. The purpose is to store seed to sale information on the blockchain, so all participants and customers have access to the same data to prevent fraud along the supply chain. Paragon is another seed to sale technology leveraging the blockchain to track products as they go from harvesting to a specific retail location. Consumers can ensure their product is reliable and that each step along the chain was followed from production to sale.
When it comes to inventory management and payment processing, Tokes provides a blockchain solution so businesses can manage their consumer transactions as well as those in other business to business scenarios. This helps supply chain stakeholders keep track of product details like strain type, harvesting time, lab testing information, packaging details, etc. Furthermore, the point of sale solution with the Tokes platform gives cannabis businesses another option for processing payment and transactions with customers.
Blockchain technology is applicable on a variety of levels for cannabis businesses. The two industries seem to be a perfect fit, as both have communities that are motivated by a culture focused on privacy and decentralization. Applying blockchain to the cannabis industry is a fascinating use case for the technology because there is so much opportunity to build the industry around tokenized applications.
The real estate industry presents another type of business where blockchain applications can potentially solve several issues and provide industry players with a considerable benefit over the traditional ways of conducting business and operations. Real estate transactions are notorious for involving a ton of data being exchanged between several parties: local government, brokers, realtors, banks and buyers. One major aspect is how smart contracts benefit real estate transactions.
Smart contracts are enabling buyers to purchase property quicker and easier than ever before, eliminating the need to involve third parties along the way. Land records to prove ownership of land is traditionally manual paper-based documents that prove unreliable in our digital age. Using blockchain’s decentralized ledger to store these records ensures their validity, increases transparency and reduces the risk of fraudulent activity.
One huge area of benefit for the real estate industry is in escrow services. This is a classic example of where the blockchain’s use of smart contracts is a critical part of removing the need for a trusted third party to act on behalf of each party. What happens when someone wants to buy a house, they put their payment up, and it’s held in escrow while all agreed upon conditions are reviewed and confirmed before payment is released to the seller and property rights are released to the buyer.
Under the traditional system, agents and third parties handle the escrow service and charge fees for their processing of the transaction. However, smart contracts can facilitate the entire escrow service on behalf of both buyer and seller. Once the buyer and seller agree to terms – i.e., buyer pays $100,000 for the house and seller says it’s in outstanding condition – the agreement data is added to the blockchain as a smart contract. With smart contracts, when all conditions are met, the agreement is executed. So in this case, once it’s verified that the house is in outstanding condition, the payment is released, and property rights are given to the purchaser.
Finally, another major area where blockchain adoption is greatly benefiting businesses is in the e-commerce sector. Amazon has led the charge over the past decade in bringing consumerism online and changing the way most people shop today. Brick and mortars are struggling, along with the shopping mall industry, as many retailers are moving their operations online to compete in a highly competitive environment.
Credit card companies and processors have stood to benefit from the shift towards online consumerism. Digital payments have sparked a booming industry, one where virtual currencies using blockchain are primed to take over. As more and more companies launch e-commerce operations, some are taking it one step further and accepting cryptocurrency as a form of payment.
This started a few years ago when the blockchain community saw Bitcoin as the new wave of payment methods. Several companies took the leap and began accepting Bitcoin payments on their online platforms. Those companies saw a remarkable increase in the value of their Bitcoin holdings, granted they held onto their Bitcoin payments and didn’t convert back to fiat. Now, hundreds of online retailers have incorporated Bitcoin, and other cryptocurrency payments, including Overstock, Expedia, PayPal, Shopify, Square, Microsoft, Virgin Galactic, the Dallas Mavericks basketball team, and even Elon Musk’s Teslas can be bought with Bitcoin.
E-commerce retailers are seeing the numerous benefits to implementing blockchain based payments into their system.
- Innovative: Consumers see cryptocurrency payments as a sign of innovation and a company keeping up with cutting-edge technology. This can lead to attracting new customers who prefer to pay with crypto.
- Publicity: There is a lot of hype and buzz about applications of blockchain technology and cryptocurrencies. Many companies have taken advantage of the great press opportunities that come with announcing crypto payments on their online platform.
- Fraud: Cryptocurrency payments effectively eliminate the risk of chargeback fraud, as charges cannot be reversed on the blockchain. The blockchain’s supporting network of miners or other methods of decentralized verification ensure that transactions are valid and confirmed before processing payment.
- Fees: Blockchain related fees are typically a fraction of the cost of traditional transactional fees, especially the 2-4% that’s usually charged by the credit card companies.
- Appreciation: Again, so far the companies that have accepted cryptocurrency payments have stood to gain from the rising tide and appreciation of the cryptocurrency markets. Even though the markets experience wild volatility at times, there has been an overall increase in prices and values for cryptocurrencies over the past few years.
Blockchain is becoming a real game changer in the business world. As economies become globalized, and supply chains become tightly intertwined, and transactions become increasingly complex, there is a great need for blockchain technology. As you review the industries mentioned above, and you start to think about different industries and companies that have similar issues, you start to realize the overall impact blockchain can have on the global economy.
Having a transparent, distributed, tamper-proof ledger of stored data enables a wide range of different functions and application, of which we’ve probably once scratched the surface. It will be interesting to see how these industries as a whole, and businesses as an individual, incorporate blockchain into their daily activities, and which ones adopt the technology quicker than others.
At the moment, we are seeing a lot of movement to implement blockchain technology in the banking and finance sectors, in the e-commerce world for faster and cheaper payments, across supply chains to ensure product quality and reliability, and even seeping into the real estate markets to ensure agreements are properly processed and confirmed. As the cannabis industry continues to mature, and entrepreneurs keep entering the space, blockchain applications will take hold and provide some of the same benefits mentioned above.
Stay tuned as we continue to explore the practical application and business use cases for blockchain technology as it makes its way into our daily lives.