The Irish Management Institute looks at how blockchain can be used to transform the operations of businesses in a wide variety of sectors.
It is estimated that spending by organisations on blockchain projects will exceed $1bn in 2017, which will make it one of the fastest-developing digital technologies of all time.
It is receiving much attention due to its potential to disrupt and transform industry sectors. Blockchain has implications for multiple industry sectors, including technology, financial services and healthcare.
In financial services, institutions such as the Bank of England, Citibank, State Street and the NASDAQ are exploring its business potential. In healthcare, the technology has the potential to address issues regarding access, security, scalability and privacy of electronic medical records, as well as enabling extensive healthcare research.
Understanding is key
Over the last few months, there have been a number of notable blockchain ‘proof of concept’ initiatives.
For example, on New Year’s Eve, NASDAQ enabled the first-ever private securities issuance on their new blockchain technology platform, NASDAQ Linq. It is purported that it holds the potential for 99pc reduced settlement time and risk exposure in capital markets.
Yet, among the broader business community, there remains a lack of understanding of the fundamental concepts of blockchain, an issue that needs to be addressed if organisations are to benefit from its disruptive capabilities and develop transformative use cases.
Blockchain is a distributed ledger – a continuously growing list of records that are hardened against tampering and revision. Fundamentally, it can be seen as a peer-to-peer infrastructure where nodes in the network coordinate to play a vital role in processing transactions.
Bitcoin is the most widely-known application that operates on blockchain, with the technology being used as the public ledger of transactions for cryptocurrencies. However, it is in domains beyond cryptocurrencies that the most disruptive and transformative use cases are emerging.
A blockchain implementation consists of two parts: transactions and blocks.
Transactions comprise the actual data to be stored in the blockchain. Participants create a transaction using the system, e.g. when someone initiates sending of cryptocurrency to another person.
Blocks are records that confirm when and in what sequence certain transactions became journaled as a part of the blockchain ledger. These blocks are created by parties known as “miners” that use software designed specifically to create blocks.
There are two key players in the network that play a role in executing blockchain events: miners or masternodes, which have the ability to create and process transactions, and name nodes, which can store data within a chain.
So, miners create the blocks that confirm and incorporate transactions into the blockchain.
Advantages of using blockchain
- Transparency and resilience: Every node has a complete or partial copy of the blockchain, which avoids the need to have a centralised database. This decentralised approach removes single point failure for transactions, potentially facilitating greater resilience and transparency.
- Double spend solution: Cryptocurrencies use various time-stamping schemes, such as proof-of-work, to avoid the need for a trusted third party to timestamp transactions added to the blockchain. This avoids anyone easily double-spending the currency and the need for a third party intermediary to validate business transactions. This can serve to reduce transaction costs and realise significant cost savings while enhancing transparency.
- Other advantages include:
- The ability for a large number of nodes to converge on a single consensus of the most up-to-date version of a record.
- The ability for any node that creates a transaction to, after a certain period of time, determine with a reasonable level of certainty whether the transaction is valid and became final (i.e. that there were no conflicting transactions confirmed elsewhere in the blockchain that would make the transaction invalid, such as the same currency units, aka, “double-spend”).
- An automated form of resolution that ensures that conflicting transactions (such as two or more attempts to spend the same balance in different places) never become part of the confirmed record set.
Disruption and transformation
There are still many issues to be overcome before blockchain is widely adopted. Issues pertaining to network design, scalability and business models need to be addressed. There is no one-size-fits-all solution.
However, in addition to the areas being widely discussed in relation to blockchain, including payments (cryptocurrency), fraud (Everledger) and trading (NASDAQ), some other domains where blockchain technology can be applied in driving business innovation include:
- Auditing: With a single set of transparent records, blockchain has the ability to fundamentally change auditing processes worldwide.
- Insurance: A single set of transparent records, for example relating to building certification, fire safety, engineers reports etc could potentially transform the insurance industry.
- Business records: A single set of searchable records pertaining to company directorships, asset ownership, property transactions and judgements has the potential to completely transform practices within the banking and legal professions.
- Healthcare:Smart health systems, with functionality to include admittance and validation of patient’s identity. Other potential use cases could include a universal ledger for medical research.
Blockchain presents numerous business opportunities for organisations to innovate, disrupt and transform industry sectors. However, they need to act now to ensure that they are leading the digital transformation within their sectors.
Dr Philip O’Reilly
Dr Philip O’Reilly is a senior lecturer at University College Cork and is the programme director for the MSC in Digital Business with the Irish Management Institute.
This article originally appeared in ‘The Sunday Business Post’.
Blocks photo via Shutterstock