So, by now, you’ve probably heard of Blockchain… and read articles about it but still don’t get it. Right? The problem is that articles out there are very technical in nature, which is not of much help when you want to understand “the most important concept since the internet” (not my words!). The use cases and potential applications of Blockchain technology are endless.
And here is where I am to help. I am looking to explain Blockchain from a business perspective. Every sales person is taught to pitch with a structure… the need/challenges, the value proposition and the benefits. That will be the focus of this post. I also believe that the best way to explain and concept is to use real use cases to explain the concept. That’s what I will do. At a high level, I will discuss the following in the series
- The challenges addressed by Blockchain
- How does it work?
- Real life use cases
- Irish start ups applying Blockchain technology
- The challenges facing Blockchain
Articulating the Business Case & the Blockchain Value Proposition
This long form blog post on Blockchain is for business professionals – light on technical information and heavy on the value offered.
What problem does Blockchain address you ask? Use the following checklist as a framework to identify use cases for Blockchain. Is there an exchange of information or money that
- Trust: Needs to be verified/authenticated with strict controls
- Needs to be secure
- Takes too long to process
- Incurs a high cost to transact
- Needs detailed audit trails
If yes, blockchain can help. Let’s take an example, transferring money abroad.
- Trust? The bank needs to be able to validate/trust that the customer exists, has sufficient funds and complies with Anti Money Laundering requirements. More importantly, the bank needs to demonstrate compliance to regulators to establish trust.
- Security? Yes, I think this need is obvious.
- Speed? Yes. Typically foreign transfers take 2-3 days to process. Customers want instant transfers. The delay is usually due to a delay in the transfer of information or the requirement for an intermediary to validate.
- Costs? Yes, banks charge a high fee due to the requirement to validate and authorize transactions, exchange fees etc.
- Audit Trail? Yes. An obvious requirement for accounting and compliance reasons.
Lets take another use case, Supply Chain Management – Beef. The main benefit of Blockchain in this use case is that a company can ensure tractability of all beef so as to protect a company’s brand.
- Trust? Arc-Net recently highlighted some of the scandals in the food industry at our last event. Stores can trust that the beef they source is of high quality. Customers can trust that the beef they are eating is grass fed.
- Security? Confidential business documents, transfer of shipping documents or orders and confirmations are secure with detailed audit trails.
- Speed? Companies need to be able to quickly verify the source of beef quickly. When the horse meat scandal broke out in 2012, it took stores weeks to trace where beef was sourced and where failures arose. Blockchain enables companies to instantly verify the source.
- Costs? A shared database means less administrative work, which lowers transaction costs and improves efficiency. There is also the cost of potential costs of food contamination that can be prevented.
- Audit Trail? Maintain full audit trail of important information. For example, sources, the ingredients added and even the temperature at which goods have been stored. This is important for regulatory & quality assurance purposes.
The Advantages of Blockchain & Key Phrases
In order to remember the benefits offered by Blockchain, remember the following phrases.
- Don’t put all your eggs in one basket
- History cannot be rewritten
- Cut out the middle man
- Strength in numbers
- Trust is the glue of life
1. Don’t put all your eggs in one basket – Decentralized Storage of Information
Traditional Databases – Risk of Centralized Control
In traditional databases, all information is stored in one source. Because it is stored in one location, it is easier for a hacker to alter information. As a result, extra steps have to be taken to reconcile information so that parties can trust that it is correct.
Blockchain – Don’t put all your eggs in one basket
In a blockchain, information is stored, connected and verified across multiple computers thereby making it more secure. No one centralized person has the ability to delete,edit or validate information. Let’s say for example, a hacker wants to hack a Blockchain containing 500 computers. He or she would have to hack all 500 computers simultaneously and it’s secret code (cryptography) which is claimed to be impossible in a well designed blockchain.
This results in better Security.
2. History cannot be rewritten
In a Blockchain system, it is not possible to edit or delete past records of information. Once information is recorded, it is permanently stored and cannot be altered. It is linked to other records in a chain & stored across different computers (nodes).
This makes it difficult to tamper with a single record because a hacker would need to change all other records linked to it as well to avoid detection.It is claimed that a well designed Blockchain is impossible to hack the entire network as it would require significant computer power.
This results in better security and transparency.
3. Cut out the Middle Man
Have you ever tried to send money abroad to a foreign bank account? The transaction takes days and you incur large fees, right? This is because information is stored across two different databases owned by two different institutions. Banks employ a third party intermediary (the middle man) to verify that both parties are correct and the person has sufficient funds to carry out the transaction.
What if we could use technology to cut out this middle man?
If multiple parties are on one decentralized Blockchain, they can instantly carry out transactions directly without the need for a middle man. The computers on the Blockchain use a special code called cryptography to solve very complicated puzzles so as to verify transactions. In our example for foreign transactions, transactions will not need to be verified by a third party. Blockchain technology is able to instantly verify and authorize these transactions by achieving a consensus. I will explain how this process works in more detail in future posts.
This results in improved processing speed.
4. Strength in Numbers
In a traditional centralized system, one party controls and authorizes the entry of data which increases the risk of fraud/error.
In a blockchain, multiple computers on the network use the special code (cryptography) to authorize the transaction. It must be authorized by all computers or else it’s flagged. This provides greater assurance that the record is authorized and correct.
5. Trust is the Glue of Life
Blockchain will provide greater transparency and security between parties who are doing business together. There will no longer be a need for a parties to extra resources to reconcile or check that information is correct. Parties will “trust” the blockchain. This will generate significant efficiencies in doing business.
Blockchain Solution For The Homeless Crisis
Ireland is facing a homeless crisis with 2017 being the worst on record to date. Dublin City Council is expected to allocate 142 million Euros to the homeless crisis budget in 2018. This article outlines how blockchain can be used to reduce the homeless crisis in Ireland by providing better access to assistance programs, reducing the cost of administration and providing detailed audit trails to reduce fraud.
1. Digital Identities provide instant access to Assistance
The administration involved in authenticating claimants is a significant cost for charities and the state. It also delays access to essential resources for those who need it most.For example, delays can occur due to difficulties in getting hold of documentation like birth certs, ID’s and bank statements. The waiting times for certain benefits in Ireland can range between 1 to 40 weeks.
How Blockchain Will Help:
Blockchain would provide digital identities for citizens which would enable claimants to instantly prove that they qualify. In addition, they would instantly receive the assistance they are entitled to. Read how an Irish Company AID Tech offers blockchain solutions to help United Nations and European Commission with refugee problems by providing digital identities to those who need it most.
2. Reducing Admin Costs & Ensuring Accountability
Governments have to balance providing assistance to the those who need it whilst controlling costs. Research has found that the average percentage of losses due to fraud is 6.5% and can be as high as 27.15% which means those who need it lose out. Controls are required to reduce the threat of fraud.
How Blockchain Will Help: Blockchain would enable the government and charities to reduce the admin resources required to authenticate and track spending. Transactions could be approved instantly on the Blockchain without the approval of administration staff. Detailed audit trails would provide agencies with real time views of where funds are being allocated and provide more data to support better strategy.
3. The Digital Wallet
There is significant administration involved in processing social welfare payments and food stamps. It is very difficult for charities and the government to track how people spend their benefits.
How Blockchain Will Help: Blockchain would enable claimants to carry digital wallets. These wallets would enable instant access to funds on real time. No more waiting in lines or processing times. A claimant could use this digital wallet to buy important supplies in stores or books for children whilst the government could ensure that these funds are being spent appropriately.
4. Create a Donor Network & Make More Efficient use of funds
A significant amount of donations are consumed by administration costs. In addition, donors cannot track where their donation is spent. This can discourage donors from making contributions. Imagine you could see that your donation enabled a kid buy books for their education? You would be more likely to donate, right?
How Blockchain Will Help:
Blockchain would enable donors to donate money from an app and trace where their donations are being spent in real time. Donors would be able to see how much of their funds are used to feed a family, buy books or access accommodation. Blockchain would reduce admin costs so as to make more efficient use of these donations and to ensure they are being used appropriately.
Other Countries are already engaging similar projects
I realize that there are many factors that contribute to the problem of homelessness and that blockchain on it’s own will not eradicate homelessness. Blockchain however will
- Ensure those who are entitled to benefits get timely access to those benefits
- Make more efficient use of donations and investments by reducing admin costs
- Improve accountability to reduce fraud and wasteful use of funds
- Encourage citizens in Ireland to donate funds through real time metrics
Check out these amazing Irish companies leading the Blockchain transformation.