A Comprehensive Guide to Blockchain Technology
A Brief History of Blockchain Technology
Blockchain technology was described in 1991 by the research scientist Stuart Haber and W. Scott Stornetta. They wanted to introduce a computationally practical solution for time-stamping digital documents so that they could not be backdated or tampered with. They developed a system using the concept of a cryptographically secured chain of blocks to store the time-stamped records — which later become the backbone for smart contract enabled cryptocurrencies. In 1992, Merkle Trees were incorporated into the design, making blockchain more efficient by allowing several documents to be collected into one block. Merkle Trees are used to create a ‘secured chain of blocks.’ They store a series of data records, and each data records connected to the one before it. The newest record in this chain contains the history of the entire chain. However, this technology went unused, and the patent lapsed in 2004.
In 2004, computer scientist and cryptographic activist Hal Finney introduced a system called Reusable Proof Of Work(RPoW) as a prototype for digital cash. It was a significant early step in the history of cryptocurrencies. The RPoW system worked by receiving a non-exchangeable or a non-fungible Hashcash based proof of work token in return, created an RSA-signed token that could be transferred from person to person. RPoW solved the double-spending problem by keeping the ownership of tokens registered on a trusted server. This server was designed to allow users throughout the world to verify its correctness and integrity in real-time. Double-spending is a potential flaw in a digital cash scheme in which the same single digital token can be spent more than once. Unlike physical cash, a digital token consists of a digital file that can be duplicated or falsified. While RPoW solved the problem of double-spending, it relied on a centralized server to do so.
Further, in 2008, Satoshi Nakamoto conceptualized the theory of distributed blockchains. He improves the design in a unique way to add blocks to the initial chain without requiring them to be signed by trusted parties. The modified trees would contain a secure history of data exchanges, utilizing a peer-to-peer network for timestamping and verifying each exchange. It could be managed autonomously without requiring a central authority. These improvements were so beneficial that they made blockchains as the backbone of cryptocurrencies. Today, the design serves as the public ledger for all transactions in the cryptocurrency space. Nakamoto improved the design in an important way using a Hashcash-like method to timestamp blocks without requiring them to be signed by a trusted party and introducing a difficulty parameter to stabilize rate with which blocks are added to the chain, hence solving the double-spend problem in a decentralized manner. The design was implemented the following year by Nakamoto as a core component of the cryptocurrency bitcoin, where it serves as the public ledger for all transactions on the network.
The first blockchain ledger ever created was for bitcoin, and it set the pattern for others. During its first few years, Blockchain’s application as Bitcoin (a decentralized cryptocurrency) was often described as a covert post–financial crisis protest against the global banking system. Bitcoins were used as an alternative currency by money launderers and illegal “dark web” trading sites such as the “Silk Road” exchanges.
What is Blockchain Technology?
According to EuroMoney, “Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralized database managed by multiple participants is known as Distributed Ledger Technology (DLT). Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash. This means if one block in one chain were changed, it would be immediately apparent it had been tampered with. If hackers wanted to corrupt a blockchain system, they would have to change every block in the chain, across all of the distributed versions of the chain.”
Blockchain essentially does the same thing any banking ledger or any centralized entity does. But it does so while making sure that everyone participating in the network (all stakeholders) is fully aware of what is happening. It is a decentralized digital ledger with no core authority that records transactions across many computers so that every participant can access the history of transactions. One of the most famous examples of blockchain technology at work is Bitcoin, which is a decentralized digital currency or peer-to-peer electronic payment system. Users can anonymously transfer bitcoins without the interference of a third-party authority (like a bank or government).
At its very basic core, a blockchain is a database of information that records the provenance of a digital asset in a way that makes it very difficult to change. It is a digital ledger of transactions and provides an open database of every transaction involving value – this could involve goods, money, property or even election votes. Blockchain is an especially promising and revolutionary technology because it helps reduce risk, stamps out fraud and brings transparency in a scaleable way for myriad uses. Because blockchain verification is handled through algorithms and consensus among multiple computers, the system is presumed immune to tampering, fraud, or political control. It is designed to protect against domination of the network by any single computer or group of computers. Participants are relatively anonymous, identified only by pseudonyms, and every transaction can be relied upon.
For the purpose of understanding blockchain, it is also important to understand decentralization. In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network. A decentralization definition is that it is the process of distributing and dispersing power away from a central point. Most financial and governmental systems in the traditional mainstream world are centralized, meaning they are controlled and managed by a single authority. Decentralization spreads power and information across multiple points. Decentralization advantages can include greater security and diversified control. Decentralized networks strive to reduce the level of trust that participants must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network.
Decentralized networks are made up of computers, also known as nodes, that interact on a direct, peer-to-peer basis, without the need for third parties. Within a decentralized network, information is distributed to every single “node” on the network. Each node has an updated copy of all recorded data. Decentralized networks can also distribute data so that certain private information can be validated without that information being transferred to a third party. Data is validated by using an agreed-upon consensus mechanism, which often involves the other computers on the network checking the validity of the data before it becomes permanently imprinted onto a blockchain. In a decentralized blockchain network, no one has to know or trust anyone else. Each member in the network has a copy of the exact same data in the form of a distributed ledger. If a member’s ledger is altered or corrupted in any way, it will be rejected by the majority of the members in the network.
Fundamentally, decentralized blockchains are not controlled by a central authority, but by the entire network of participants, who establish the rules for participation themselves and can elect to evolve the system according to consensus; this makes them censorship-resistant and inherently more elastic than most other decision-making mechanisms for large groups of people. More importantly, blockchain-supported technologies can potentially facilitate decentralized coordination and alignment of human incentives on a scale that only top-down, command-and-control structures previously could. Decentralization is the process of dispersing functions and power away from a central location or authority.
While blockchain technologies often make use of decentralized networks, a blockchain application itself cannot be categorized simply as being decentralized or not. Rather, decentralization is a sliding scale and should be applied to all aspects of a blockchain application. By decentralizing the management of and access to resources in an application, greater and fairer service can be achieved. Decentralization typically has some tradeoffs such as lower transaction throughput, but ideally, the tradeoffs are worth the improved stability and service levels they produce.
How Does Blockchain Technology Work
If we were to simplify things, we could say that Blockchain is fundamentally a specific type of database. But it differs from a typical database in that blockchains store data in blocks that are then chained together. As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order. Different types of information can be stored on a blockchain but the most common use so far has been as a ledger for transactions. Furthermore, decentralized blockchains are immutable, which means that the data entered is irreversible. The total number of possible bitcoin addresses is 2¹⁶⁰ or 1461501637330902918203684832716283019655932542976. This large number protects the network from possible attacks while allowing anyone to own a wallet.
To be added to the blockchain, each block must contain the answer to a complex mathematical problem created using an irreversible cryptographic hash function. The only way to solve such a mathematical problem is to guess random numbers that, combined with the previous block content, generate a defined result. It could take about a year for a typical computer to guess the right number and solve the mathematical problem. However, due to the large number of computers in the network that are guessing numbers, a block is solved on average every 10 minutes. The node that solves the mathematical problem acquires the right to place the next block on the chain and broadcast it to the network. And what if two nodes solve the problem at the same time and send their blocks to the network simultaneously? In this case, both blocks are broadcast and each node builds on the block that it received first. However, the blockchain system requires each node to build immediately on the longest blockchain available. So if there is ambiguity about which is the last block, as soon as the next block is solved, each node will adopt the longest chain as the only option.
Fig- How blockchain transactions work.
Let’s take an example of Blockchain technology at work in Bitcoin transactions:
If Person A wants to send bitcoins to Person B, he broadcasts a message to the network that says the amount of bitcoin in his account should go down by 5 BTC, and the amount in Person B’s account should increase by the same quantity. Each node in the network will receive the message and apply the requested transaction to its copy of the ledger, updating the account balances.
Since only you should be able to spend your bitcoins, each wallet is protected by a special cryptographic method that uses a unique pair of distinct but connected keys: a private and a public key. Using them both creates a secure digital identity to authenticate the user via digital signatures and to ‘unlock’ the transaction they want to perform.
When Person A wants to send bitcoins, he needs to broadcast a message encrypted with the private key of his wallet. As Person A is the only one who knows the private key necessary to unlock his wallet, he is the only one who can spend his bitcoins. Each node in the network can cross-check that the transaction request is coming from Person A by decrypting the message with the public key of his wallet.
If a message is encrypted with a specific public key, only the owner of the paired private key can decrypt and read the message. The reverse is also true: If you encrypt a message with your private key, only the paired public key can decrypt it. When Person A wants to send bitcoins, he needs to broadcast a message encrypted with the private key of his wallet. As Person A is the only one who knows the private key necessary to unlock his wallet, he is the only one who can spend his bitcoins. Each node in the network can cross-check that the transaction request is coming from Person A by decrypting the message with the public key of his wallet.
When you encrypt a transaction request with your wallet’s private key, you are generating a digital signature used by blockchain computers to verify the source and authenticity of the transaction. The digital signature is a string of text resulting from your transaction request and your private key; therefore, it cannot be used for other transactions. Suppose you change a single character in the transaction request message. In that case, the digital signature will change, so no potential attacker can change your transaction requests or alter the amount of bitcoin you are sending.
To send bitcoin, you need to prove that you own the private key of a specific wallet as you need the key to encrypt your transaction request message. Since you broadcast the message only after it has been encrypted, you never have to reveal your private key.
Once the transaction is agreed between Person A and Person B, it needs to be approved or authorised before adding a block in the chain. For a public blockchain, the decision to add a transaction to the chain is made by consensus. This means that the majority of “nodes” (or computers in the network) must agree that the transaction is valid. The people who own the computers in the network are incentivised to verify transactions through rewards. This process is known as ‘proof of work’. Proof of work requires the people who own the computers in the network to solve a complex mathematical problem to be able to add a block to the chain. Solving the problem is known as mining, and ‘miners’ are usually rewarded for their work in cryptocurrency. But mining isn’t easy. The mathematical problem can only be solved by trial and error and the odds of solving the problem are about 1 in 5.9 trillion. It requires substantial computing power which uses considerable amounts of energy. This means the rewards for undertaking the mining must outweigh the cost of the computers and the electricity cost of running them, as one computer alone would take years to find a solution to the mathematical problem.
A blockchain consists of several layers:
Every chain consists of multiple blocks and each block has three basic elements:
1.) The data in the block.
2.) A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash.
3.) The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small).
When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined.
Miners create new blocks on the chain through a process called mining. To be added to the blockchain, each block must contain the answer to a complex mathematical problem created using an irreversible cryptographic hash function. The only way to solve such a mathematical problem is to guess random numbers that, combined with the previous block content, generate a defined result. It could take about a year for a typical computer to guess the right number and solve the mathematical problem. However, due to the large number of computers in the network that are guessing numbers, a block is solved on average every 10 minutes. The node that solves the mathematical problem acquires the right to place the next block on the chain and broadcast it to the network.
In a blockchain every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn’t easy, especially on large chains. Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the “golden nonce” and their block is added to the chain. Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it’s extremely difficult to manipulate blockchain technology. Think of it as “safety in math” since finding golden nonces requires an enormous amount of time and computing power. Numerous people around the world try to figure out the right hash value to meet a pre-determined condition using computational algorithms. The transaction completes when the predetermined condition is met. To put it more plainly, Blockchain miners attempt to solve a mathematical puzzle, and whoever solves it first gets a reward. When a block is successfully mined, the change is accepted by all of the nodes on the network.
One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning. Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions. Combining public information with a system of checks and balances helps the blockchain maintain the integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology.
As per IBM, “Smart contracts are lines of code that are stored on a blockchain and automatically execute when predetermined terms and conditions are met. At the most basic level, they are programs that run as they’ve been set up to run by the people who developed them. The benefits of smart contracts are most apparent in business collaborations, in which they are typically used to enforce some type of agreement so that all participants can be certain of the outcome without an intermediary’s involvement.” Primarily, smart contracts are defined sets of rules that sit on top of a blockchain database, and that execute only when specific actions occur.
Blockchain-based smart contracts are proposed contracts that can be partially or fully executed or enforced without human interaction. One of the main objectives of a smart contract is automated escrow. A key feature of smart contracts is that they do not need a trusted third party (such as a trustee) to act as an intermediary between contracting entities -the blockchain network executes the contract on its own. This may reduce friction between entities when transferring value and could subsequently open the door to a higher level of transaction automation. An IMF staff discussion reported that smart contracts based on blockchain technology might reduce moral hazards and optimize the use of contracts in general. The uses of smart contracts could be as simple as up-voting a post on a forum, to the more complex such as loan collateralization and futures contracts, to the highly complex such as repayment prioritisation on a structured note.
Industries Blockchain Technology Could Disrupt
As companies use blockchain to drive greater transparency and veracity across the digital information ecosystem, they’re boosting awareness of the technology in sectors ranging from infrastructure to public policy. Here are the industries that Blockchain could potentially disrupt in the future:
Blockchain technologies are connecting global financial systems so they are easily interoperable, efficient, affordable and accessible. They are showing that we can connect financial infrastructure so that no matter where you are in the world, systems and forms of value can interoperate with each other.
Blockchain has the opportunity to disrupt the $5T+ banking industry by disintermediating the key services that banks provide, from payments to clearance and settlement systems. Facilitating payments is highly profitable for banks — cross-border transactions generated $224B in payments revenues in 2019. However, blockchain technology offers a secure and cheap way of sending payments that cuts down on the need for verification from third parties and beats processing times for traditional bank transfers.
It’s no secret that the cross-border payments landscape using traditional rails is fraught with fees, hurdles and delay. Individual senders incur outsized fees for the billions of dollars sent in personal remittances every year. Global businesses choose between bearing an FX cost or passing that cost onto their customers. And all of those involved must wait days or weeks to complete transactions. Part of the problem is that systems are not interoperable. To send money to different corners of the world without blockchain, a whole patchwork has been haphazardly knitted together over the decades to achieve some semblance of financial interoperability between financial institutions, correspondent banks and money transfer operators along the value chain. Connecting these disparate systems, particularly in underserved markets, where the local currency is not globally traded, has created friction that results in long delays and high fees at each link of this chain.
Blockchain technology can solve the problem posed by outdated financial infrastructure. Stellar, a global, public blockchain that is built for interoperability and to further financial access and inclusion, has a network of more than 20 anchors around the world who are integral parts of connecting global financial systems. These anchors are regulated financial institutions, money service businesses, or fintech companies that issue 1:1 backed fiat tokens (also known as stablecoins) and/or provide a fiat on/off-ramp. The goal is to open markets to new remittance and payments corridors, like between Europe and Nigeria, Africa’s largest Sub-Saharan remittance market.
Blockchain technology in cross-border payments can enable secure transfers between an infinite number of bank ledgers. This allows one to bypass banking intermediaries who serve as middlemen to help transfer money from one bank to another. The transaction is secure, quicker, and cheaper and has end-to-end visibility anywhere in the world. The underlying concept of distributed ledger in Blockchain makes it possible for the banks to have a bilateral, visible and immutable transfer of value, adjudicated by the settlement agency.
Stock Trading & Hedge Funds
Blockchain offers huge potential for tracing securities lending, repo and margin financing and monitoring systemic risk. Blockchain can be the answer to interoperability, trust and transparency issues in fragmented market systems. Stock market participants such as traders, brokers, regulators and stock exchange are required to go through a cumbersome process (which takes 3+ days to complete transactions, mainly due to the role of intermediaries, operational trade clearance and regulatory processes).
Blockchain can make stock exchanges much more optimal through automation and decentralisation. It can help reduce huge costs levied on customers in terms of commission while speeding up the process for fast transaction settlements. The technology can have viable use in clearing and settlement, while securely automating the post-trade process, easing paperwork of trade and legal ownership transfer of the security.
Nasdaq, ASX, the New York Stock Exchange, the Tokyo Stock Exchange, the Deutsche Bourse, and India’s Securities Exchange Board, among others, have already either started to use blockchain technology for some of their transactions or have appointed commissions to study the feasibility of using blockchain in the future.
Crowdfunding and Blockchain Technology
In the case of crowdfunding, blockchain technology and the use of cryptocurrencies can make funding processes safer and more transparent. The blockchain technology links all the three involved parties (platforms, backers, and campaigners) together by providing timely information that can be tracked simultaneously by them. By design, it can handle all issues concerning trust and transparency without human interference
However, the intersection of online crowdfunding and blockchain technology could be disruptive. Currently, a crowdfunding platform acts as a third party that sits in between backers and campaigners. This entails that both parties need to trust the third-party platform to handle their money correctly and provide transparency regarding the campaigner’s use of funds. Since blockchain can provide immutable records of all transactions on a campaign, crowdfunding platforms can operate more transparently, assume greater accountability, and improve due diligence.
Over the last few years, multiple dedicated blockchain-based crowdfunding platforms have emerged intending to improve the existing mechanisms involved with crowdfunding. Take the case of GiveTrack, a donation-based crowdfunding platform that leverages Bitcoin and blockchain technology to benefit charitable organizations worldwide by helping them provide transparency and accountability to donors by sharing financial information and direct project results in real-time. Other examples of platforms embracing blockchain technology include charity crowdfunding platforms like BitGive, Whirl, and Utopi.
In India, Varun Sheth, the CEO of Ketto, is also placing his bets on blockchain as the future of crowdfunding. He believes it will bring the cost optics down for platforms by removing the need for intermediaries. In an interview with YourStory, he explained, “Currently, donating is a two-step process: you support an NGO, and the NGO supports a cause. But there are a lot of steps between you and the beneficiary. Blockchain will eliminate the middleman and will help you provide benefits directly to the person you intend to help.”
Fig – A visual representation of how blockchain can track transactions for a crowdfunding campaign
With smart contracts, blockchain technology can also ensure that money is precisely used the way campaigners promise to use it.
Smart contracts can be best used in crowdfunding by requiring campaigners to provide provable milestones as contingencies for giving. Under such an agreement, the smart contracts would release funds only once campaigners can achieve a particular milestone that they promised. A smart contract can be programmed to keep on hold all or part of the received funds to a campaign until it fulfills certain milestones programmed into the contract.
Let’s consider a simple example. Suppose an NGO wants to raise money for flood relief on a crowdfunding platform. They promise donors that they would use the funds to distribute 10,000 packets of food to the people most affected by the flood. This is where a smart contract can be coded into the cryptocurrency that, in turn, enforces certain milestones on the NGO before it can receive all the funding. For example, the smart contract could enforce a conditionality wherein only 10% of funding is available to the NGO in the beginning. If the NGO uses the available bitcoins to buy 1,000 food packets, then a further 40% of the funds would be released. If they fail to fulfill this milestone, the funds would be automatically refunded to the donors.
Due to its scalability, processing power, contract-enforcing potential, and indelible record-keeping qualities, blockchain-powered crowdfunding can transform how online crowdfunding works by solving problems of information asymmetry and helping donors make informed decisions regarding their investment in a campaign. Several start-ups have emerged to dabble in decentralized, distributed ledger-based crowdfunding such as WHIRL and AidCoin to make the process of crowdfunding more secure and transparent by formalizing digital relationships between the contributor and campaigner. However, it remains to be seen whether the more established and larger crowdfunding platforms begin to look at blockchain to solve the problems that the industry currently faces.
For those making charitable donations, blockchain provides the ability to precisely track where your donations are going, when they arrived, and whose hands they ended up in. From there, blockchain, powered by smart contracts, can deliver the accountability and transparency to address the perennial complaints around charitable donations — including the organizational inefficiency (or even financial misconduct) that can prevent money from reaching those it was meant for.
Accounting, Loans & Credit
Accountants work with a spread of documents — from tax forms to bank statements to spreadsheets — containing extensive personal or organizational information. Layering in blockchain technology could make it easier to keep track of this sensitive data as it is processed by accounting firms. Data tracking enabled by blockchain technology may also help to automate certain accounting services using AI, which could reduce human error and instances of fraud. Big Four accounting firms are already jumping on board: KPMG has invested in programs and projects to research and share information about blockchain; PwC has created an auditing service for cryptocurrency assets; Deloitte has developed blockchain-based software; while EY’s Blockchain Analyzer can help auditors to accurately vet digital assets.
Blockchain technology offers a cheaper, more efficient, and more secure way of making personal loans to a broader pool of consumers. With a cryptographically secure, decentralized registry of historical payments, consumers could apply for loans based on a global credit score.
The process of credit evaluation and loan approval is filled with administrative lag and third parties like credit agencies. Getting a student loan, a mortgage or consolidating debt can still be fraught with inefficiency. There’s no view of an overall credit score for an individual or entity. And tasks like data entry into multiple systems and manual data aggregation are also common problems.
The introduction of blockchain technology is primed to solve some of these problems. And, while it’s not yet there, it is already driving significant change and will be vital in the future. Blockchain can manage, approve and log any transaction instantaneously. The technology directly contrasts today’s slow, often manual authentication, verification and data-sharing workflows that lenders rely on. Blockchain technology further opens the door for peer-to-peer loans and complex, programmed loans that can approximate a mortgage or syndicated loan structure, powered by smart contracts. Blockchain offers unprecedented stakeholder visibility into the entire lifespan of a transaction within a bank’s operations — it reduces the need for expensive and time-consuming third-party verifications along the way. Further, blockchain provides the ability to put the user in the center of the lending equation, giving them access control over their sensitive data.
Blockchain for Insurance
Blockchains can enable new insurance practices to build better products and markets. Insurance companies operate in a highly competitive environment in which both retail and corporate customers expect the best value for money and a superior online experience. Blockchain technology represents an occasion for positive change and growth in the insurance industry. With Ethereum’s smart contracts and decentralized applications, insurance can be conducted over blockchain accounts, introducing more automation and tamper-proof audit trails. Notably, the low cost of smart contracts and their transactions means that many products can be rendered more competitive for penetration of underinsured markets in the developing world.
Blockchain can be applied throughout the insurance industry and across many lines of business, including: Registries of high-value items and warranties, Know-your-customer (KYC) and anti-money laundering (AML) procedures, Parametric (index-based) products, Reinsurance practices, Claims handling Distribution methods, and Peer-to-peer (P2P) models. The added security and ability to establish trust between entities are two reasons why Blockchain technology can help solve the interoperability problem better than today’s existing technologies in the insurance domain. Furthermore, electronic health records securely stored on a smart contract could be the foundation for integrating a wide variety of wellness-related behaviours into the insurer/client dynamic.
Blockchain for Ride-Hailing
Ride-hailing apps like Uber and Lyft represent the opposite of decentralization since they essentially operate as dispatching hubs and use algorithms to control their fleets of drivers (and dictate what they charge). Blockchain could inject new options into that dynamic: with a distributed ledger, drivers and riders could create a more user-driven, value-oriented marketplace.
Blockchain-based identification can enable straightforward passenger and driver identity authentication. It is due to the availability of immutable data on a shared network. Users can remain confident about the identity of people using ride-sharing services. Blockchain aims to curb identity fraud by supplying secure encryption keys for protection against future attacks and misuse of records.
Blockchain enabled smart contracts will also go a long way in ensuring trust between the drivers and passengers. Most of us have experienced the dreaded Uber cancellation fee that comes through no fault of our own. Uber charges a $2.40, non-refundable booking fee, plus a $5–$10 cancellation fee for not showing up on time to the vehicle’s location. By basing payment on predetermined conditions and installing them in a smart contract, drivers will get paid only when they have delivered a rider to their destination. If a rider cancels, the contract could release a small portion of the funds to the driver to account for their time in lieu of an arbitrary cancellation fee. It’s a more logical system that cuts both ways instead of only against the rider.
One blockchain-based ridesharing app enabling smart contracts is Drife. The startup currently operates in Bangalore and is planning to launch in more cities across India. The app works through a system of “personalized smart contracts” between drivers and riders, where drivers stake Drife’s DRF token to be chosen for rides. Instead of paying a fee on every fare, Drife drivers pay an annual fee to use the app. Other ride-hailing apps like DACSEE, Didi Chixung, RideCoin, Arcade City, and Chasyr are also leveraging the power of blockchain to improve their ride-hailing services.
Blockchain in Airlines, Aerospace & Defense
According to Accenture, 61% of aerospace and defence companies are working with blockchain or distributed ledger solutions. Blockchain technology has the potential to streamline parts inventory and authentication, personnel certification tracking, and more.
With its ability to manage and share data and facilitate digital transactions, blockchain promises to resolve current issues of trust, security, control, and transparency in a complex ecosystem of industry players. Although the technology is still fairly young, airlines are already exploring applications that improve overall performance. Four areas show exceptional promise: customer-related activities; maintenance, repair, and overhaul (MRO); ground operations; and revenue accounting.
The ability to create smart contracts—electronic agreements that self-execute according to predefined rules—is generating strong interest in the airline industry. A wide range of transactions can be set up this way, including billing among airlines, billing between travel agents and airlines, determining loyalty settlements, purchasing travel insurance, and paying airport and authority taxes, fees, and charges.
Additionally, the storage of smart tickets on a blockchain could help mitigate or completely eliminate the effects of the chaos that accompanies the crash of an airline’s or entire airport’s centralized ticketing database. Such asset tokenization will also evolve the booking system by eliminating the need for alternate forms of identification. We can conclude that the blockchain infrastructure for the aviation industry will be a game-changer!
Blockchain in Healthcare
Healthcare institutions suffer from an inability to securely share data across platforms. Better data collaboration between providers could ultimately mean more accurate diagnoses, more effective treatments, and more cost cost-effective care. Use of blockchain technology could allow hospitals, payers, and other parties in the healthcare value chain to share access to their networks without compromising data security and integrity.
Blockchains in healthcare can be envisaged in five primary areas:
- Managing electronic medical record (EMR) data
- Protection of healthcare data
- Personal health record data management
- Point-of-care genomics management
- Electronic health records data management
Other Domains where Blockchain can prove disruptive:
Retail & CPG Agriculture & mining Education, Communication, & Information Services, Cloud computing and storage, Photography, Publishing, Art, Gaming, Music, and IP.
Market Outlook for Blockchain Technology
The global blockchain market size is expected to grow from USD 3.0 billion in 2020 to USD 39.7 billion by 2025, at an impressive Compound Annual Growth Rate (CAGR) of 67.3% during 2020–2025. The increasing need for simplifying the business processes and need for supply chain management applications integrated with the blockchain technology will drive the overall blockchain market.
The SMEs segment is projected to grow at a higher CAGR during the forecast period, due to the need for streamlining the business processes cost-effectively across SMEs. The adoption of the blockchain technology is currently in the experimentation phase in most SMEs; however, the adoption rate in the SME segment is expected to increase significantly in the coming years, owing to the low infrastructure costs and transparency.
The banking and financial services application area is expected to hold the largest market size in the blockchain market during the forecast period. The banking and financial services application area has realized the significance of the blockchain technology which helps secure transactions for customers. The blockchain technology in the banking and financial services is expected to experience rapid growth worldwide, due to various factors, such as high compatibility with the financial services industry ecosystem, rising cryptocurrencies and Initial Coin Offerings (ICOs), rapid transactions, and reduced total cost of ownership.
Fig- Funding volume of companies against various categories
Among regions, North America holds the largest market size in the blockchain market during the forecast period North America is projected to hold the largest market size in the blockchain market. Early adoption of blockchain technologies by the organizations in the region and the emergence of several blockchain technology providers will contribute to the overall share of the market. Businesses in North America have recognized the potential of blockchain technology in delivering enhanced customer experiences; hence, they have started adopting the technology to develop business applications.
Major vendors in the global blockchain market include IBM (US), AWS (US), Microsoft (US), SAP (Germany), Intel (US), Oracle (US), Bitfury (Netherlands), Cegeka (Netherlands), Earthport (UK), Guardtime (US), Digital Asset Holdings (US), Chain (US), Huawei (China), BlockCypher (US), Symbiont (US), BigchainDB (Germany), Applied Blockchain (UK), RecordsKeeper (Gibraltar), BlockPoint (US), Auxesis Group (India), BTL Group (Canada), Blockchain Foundry (UK), AlphaPoint (US), NTT Data (Japan), Factom (US), SpinSys (US), ConsenSys (US), Infosys (India), iXLedger (UK), and Stratis (UK).
Fig- Blockchain VC funding volumes across countries
Among Blockchain startups, Binance, the world’s largest crypto exchange, emerges at the top with funding volumes of $1.1 billion at the end of 2020. Binance is followed by Coinbase (another crypto exchange) which has raised over $539 million in various funding rounds. Another blockchain service Bakkt, an asset, financial Management, and trading software company, has managed to secure over $483 million through VC funding. Bitmain Technologies, a mining company is the fourth largest funded Blockchain company, having raised over $450 million by the end of 2020.
Fig- VC funding in global blockchain companies
All in all, Blockchain in the future will revolutionize business processes in many industries, but its adoption requires time and efforts. Nevertheless, in the near future, we can expect that governments will finally accept blockchain benefits and begin to use it for improving financial and public services. While looking to the far future of blockchain is extremely exciting, new innovations are constantly entering the market promising bigger and bolder uses of the technology. Blockchain tech has the potential to drive major changes and create new opportunities across industries – from banking and cybersecurity to intellectual property and healthcare. And while not everyone agrees on what role blockchain should play in the future, one thing is certain, the future will be decentralized.
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