Credit: Much has been discussed regarding the potential of bitcoin and cryptocurrency as an investment asset in the media and among industry experts. Regarding this subject, perhaps Stavros Lambouris, CEO at HYCM Europe, said it in a nutshell,
“While cryptocurrency is becoming validated as a valuable asset, the intrinsic value of any cryptocurrency is nearly impossible to determine in the present state of the market. Considering this, cryptocurrency trades and investments re highly speculative and should be treated as such.”
While the verdict is still out on bitcoin and other cryptocurrencies, blockchain, the technology behind the cryptocurrency, seems to have emerged as one example of the unexpected fruits of cryptocurrency as it offers an affordable solution to both small-to-medium enterprises (SMEs) and large organizations as well.
What is Blockchain?
Blockchain was invented by a person or a group of people under the pseudonym Satoshi Nakamoto in 2008 for use as bitcoin’s public transaction ledger. It has since evolved beyond bitcoin as the tech community is finding other potential uses.
One benefit of the blockchain technology is that it allows all users to look at all transactions simultaneously and in real-time, yet no single user controls it. In addition, records are kept permanently, and since transactions are not stored in any single location, it is very difficult if not impossible to hack.
Blockchain is open-source which means companies may customize different blockchains for various business requirements. Many of the existing blockchain ledgers are copies of older technologies, like Bitcoin and Ethereum, with some new features added in.
The most publicized application of the blockchain technology is as a low-cost alternative to processing payment transactions. In fact, Stellar Lumens (XLM) blockchain is now live on IBM’s platform to improvise cross-border payments. Nevertheless, there are two more areas where blockchain, if implemented properly, could provide business solutions to many organizations.
Supply Chain Management
One area this new technology has shown a lot of promise is Supply Chain Management (SCM). It is the ultimate solution for the SCM professionals to have the capability to trace goods from end to end in one system thus improving supply chain efficiency, transparency and most importantly cutting cost. It also empowers the entire chain to be more responsive to clients and any unscheduled disasters and events.
Food industry is one of the first to move forward with implementing blockchain technology. Big Blue IBM announced in August last year a blockchain collaboration with food giants like Nesle, Unilive, and Walmart in an effort to reduce food fraud and food contamination in the supply chain. Michigan State University estimated food fraud costs the industry as much as $40 billion a year. Bloomberg reports a Rabobank analysis expects blockchain will “lower transaction costs for food companies, improve efficiency and create new business opportunities.”
Asset and Portfolio Ledger
Another idea is to make tamper-proof public databases costing a lot less than a conventional database. Financial-services firms are contemplating using blockchains as a record of asset ownership replacing a series of internal ledgers. Switzerland’s Credit Suisse Group and Dutch-based ING Groep have just successfully implemented blockchain technology in a securities lending deal worth 25 million euro ($30.6 million). Santander Bank estimates that blockchains could save banks up to $20 billion a year by 2022.
Limitations of Blockchain
However, blockchain, like any other computer systems and applications, has its limitations.
In order for the SCM adaptation to work, all parties that handle the goods have to be linked to the blockchain. Broad participation up and down the entire chain is one hurdle implementing the technology.
Another challenge is in capacity, that is, the amount of information that can be processed by blockchain is limited. Bloomberg reported that messaging app developer Kik Interactive ran into problems in just six month after launching on Ethereum. Kik wanted to run its app entirely using the Ethereum blockchain. But it turned out Kik’s hot new online game CryptoKitties has clogged up the Ethrereum system leading to slower transaction times for all users of the blockchain. CryptoKitties lets users breed, buy and sell digital cats and is one of the first blockbuster applications to emerge for ethereum. Kik is now shifting some of its business onto a different digital ledger, and also building its own custom blockchain.
The Takeaway
The takeaway of all this is blockchain is not a cure-all magic bullet. While blockchain has become the buzz word among investors, just remember not all blockchains are created equal as each comes with its own inherent limitations towards a broad consumer and business adoption.
There are hundreds of different digital ledgers already exist, and new ones appear almost daily, but none solve every problem. Blockchain technology, while with lots of potential, is still in its infancy. Considerable research and programming work will need to be invested to provide proof-of-concept evidence-based blockchain solutions.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
