Dear Doctor Digital, I feel like a blockhead, but what are blockchains, I can’t get my head around them, please make it simple for me and explain how my small business might use one?
Doctor Digital Says:
For the longest time I just liked to drop ‘blockchain’ into a conversation involving anything remotely technical or innovative, as I suspected that, like me, most people didn’t have a clue what they were or how they worked, and thus wouldn’t engage on the subject.
Blockchain as an idea emerged from cryptocurrency, the most common brand of which is Bitcoin. It is the blockchain technology behind Bitcoin that allows the transactions to happen outside of a regulated banking system with full transparency. Pretty soon, people realised that the blockchains could be applied to transactions other than currency, because they were an indisputable record of transaction that also protected user privacy.
So what is a blockchain exactly? Spoiler alert – blockchains are complex to explain, but here goes. Effectively a blockchain is a decentralised, public, peer-to-peer register where transactions between two users belonging to the same network are recorded and stored in a secure, verifiable and permanent way. The data being exchanged – whether currency or anything else, is saved inside cryptographic blocks, connected to each other in an information hierarchy.
This creates an endless chain of data blocks - hence the name blockchain - that allows users to trace and verify all the transactions as each one is time-stamped and coded in an inexpensive and efficient way. To change any of those transaction records, there has to be consensus by the whole network, which makes security of the highest order.
For those that don’t want to die wondering, a cryptographic block is basically a way of encoding the transactions through a cryptograph so the information can’t be altered, and in blockchain each cryptograph is done in blocks. What is removed using the blockchain model is a powerful institution in the middle such as banks or regulators which in theory distributes and democratizes the exchange of information and resources without having to reveal a person’s identity, protecting their privacy.
The blockchain has great potential beyond simply currency exchange. It makes available a huge amount of data immediately and safely, reducing expenses by reducing operational risks of errors and reconciliations and simplifying the information transmission system. One of the clear applications here is in voting, and being able to encrypt and verify votes digitally without tampering. There are also opportunities in manufacturing and managing supply chain components and inventory across a distributed network of suppliers and regions.
In the consumer field, blockchain can be used in the energy and food and beverage sectors. In these fields, blockchain can protect consumers while also providing efficiency for producers and intermediaries because it helps to trace the origin of raw materials, transfer ownership in a digital way and communicate to all players along the supply chain critical information about the product and all its elements.
How will this impact my small business you ask? Good question. There are some that say blockchain in time will be more important than the internet. Time will tell on that score, but even if you aren’t on the blockchain bandwagon yet, I suspect blockchain will be embedded in how we do business on every level in much the same way as artificial intelligence (AI) has gone from sci-fi to low fi.
Some of the areas that blockchain is ripe for, for small business, are similar to how it is used in big networks – transactions of currency, payroll and other transactions where traceability and transparency with privacy is paramount. Similarly in smart contract and notary exchanges where documents need to be safe and indisputably verifiable. Digital identity protection is a massive area for growth where transactions can be safely undertaken using blockchain identity authentication, wiping out billions of dollars of fraud.
Distributed cloud storage offers massive growth ops for unlimited space with reduced cost using blockchain in a model similar to AirBnB where your unused hard drive space can be rented out securely. For businesses where provenance and ethical/clean sourcing are paramount to brand value, blockchain will help businesses to prove their supply chains and suppliers have met consumer standards. Gift card and loyalty programs can be securely managed through blockchain and reduce the use of plastic cards to boot, and of course that monster data landscape of the Internet of Things or IoT will rely on blockchain technologies as more and more sensing devices are managed by massive distributed networks.
Blockchain has come out from behind Bitcoin as a true game changer in privacy, traceability and efficient transactions. It’s early days for it to be mainstreamed, but watch this space, as there is a lot of consumer innovation being created by excited entrepreneurs right now in this space, that will in no time trickle down to your Tasmanian small business. In the meantime, you will have the upper hand at the next BBQ small talk session.