Top 10 Benefits of Blockchain Technology for Business

The 2009 launch of Bitcoin moved blockchain from theoretical to real-world use, proving that this digital distributed ledger technology works. Since then, organizations have been testing how they too can make blockchain work for them.

Big-name companies, government agencies, and nonprofit entities are using blockchain to improve existing processes and enable new business models.

The value of blockchain stems from its ability to share data in a secure way between entities, without any entity having to accept responsibility for securing the data or facilitating the transactions.

“It’s a ledger of transactions that have unique characteristics, and those characteristics help address problems in our systems and processes,” said Ayman Omar, an associate professor in American University’s Department of Information Technology and Analytics and a research associate at the Kogod Cybersecurity Governance Center. .

In fact, blockchain and its features can offer numerous benefits to businesses, whether they use a public blockchain network or opt for private or permissioned blockchain-based applications.

Experts identify the following as the main blockchain benefits:

1. Trust

Blockchain creates trust between different entities where trust either does not exist or is unproven. As a result, these entities are willing to engage in business transactions that involve transactions or data sharing that they might not otherwise have done or would have required an intermediary.

Enabling trust is one blockchain’s most cited benefits. Its value is evident in early blockchain use cases that facilitated transactions between entities that did not have direct relationships but still needed to share data or payments. Bitcoin and cryptocurrencies in general are typical examples of how blockchain enables trust between participants who do not know each other.

2. Decentralized structure

Blockchain proves its value when there is no central actor enabling trust, says Daniel Field, director of innovation and global head of blockchain at UST, a provider of digital technology and services. In addition to enabling trust among participants who are unknown to each other, blockchain enables data sharing within an ecosystem of businesses where no single entity is solely in control.

Supply chain is an example. Multiple businesses — from suppliers and transportation companies to producers, distributors and retailers — want or need information from others in the chain, but no one is in charge of facilitating all that information sharing. Blockchain, with its decentralized nature, solves that dilemma.

3. Improved security and privacy

The security of blockchain-enabled systems is another leading advantage of the technology. Blockchain creates an immutable record of transactions with end-to-end encryption to exclude fraud and unauthorized activity. In addition, data on the blockchain is stored across a network of computers, making it nearly impossible to hack, unlike conventional systems that store one copy of the data on servers. Furthermore, proponents say that blockchain can better address privacy concerns than traditional systems by anonymizing data and, in some cases, requiring consent to restrict access.

4. Reduced costs

Blockchain’s inherent design can also cut costs for organizations. This brings certain efficiencies to transaction processing, reduces manual tasks such as merging and modifying data, and facilitates reporting and auditing processes.

Experts like Field have pointed to the savings financial institutions see when using blockchain, explaining that blockchain’s ability to streamline clearing and settlement translates directly into cost savings. More broadly, blockchain helps businesses cut costs by cutting out middlemen — suppliers and third-party providers — who have traditionally handled the processing that blockchain can do. However, some experts claim that blockchain is more expensive than most alternatives, mainly due to the significant investment in computing resources it requires.

5. Speed

By eliminating intermediaries and replacing many of the manual processes of transactions, blockchain can handle transactions significantly faster than some conventional methods. However, times can vary, and how quickly a blockchain-based system can process transactions depends on several factors, such as network traffic, the size of each block of data, and the speed of the process used to achieve consensus.

Some experts have concluded that blockchain is faster than other processes and technologies when all the steps – including the manuals – are taken into account. For example, in one of the most prominent applications of blockchain, Walmart used the technology to track the source of sliced ​​mangoes in seconds—a process that previously took seven days.

However, for processes that are already mostly or fully digitized, blockchain is often slower than conventional financial and data processing systems, according to many experts.

6. Visibility and traceability

Walmart’s use of blockchain isn’t just about speed. It is also about the ability to trace the origin of mangoes and other products. Blockchain visibility and traceability applications also help retailers manage inventory, respond to problems or questions, and confirm the origin of merchandise.

If a farm recalls its products due to contamination, a retailer can use blockchain to identify and remove the products. According to experts, blockchain can help trace the origin of a variety of items, such as medicine to confirm that it is legitimate and not counterfeit, as well as organic items to confirm that they are organic.

7. Immutability

Immutability simply means that transactions, once recorded on a blockchain, cannot be changed or deleted. All transactions are time and date stamped, so there is a permanent record that can be used to track information over time, enabling secure, reliable auditing of information. Paper-based filing and older computer systems, on the other hand, are error-prone, and they can be more easily damaged or retired.

Omar pointed to Sweden’s use of blockchain to digitize property transactions to keep track of property titles even as they change hands as an example of the benefit of immutability. On the other hand, some observers see immutability as a disadvantage if, for example, someone wants to remove harmful or inaccurate information.

8. Individual control of data

Blockchain gives individuals unprecedented control over their digital data. “In a world where data is a very valuable commodity, the technology inherently protects the data that belongs to you, while allowing you to control it,” says Michela Menting, senior research director at ABI Research. Individuals and organizations can decide which pieces of their digital data they want to share and with whom and for how long, with limits enforced by blockchain-based smart contracts.

9. Tokenization

Tokenization is the process by which the value of a physical or digital asset is converted into a digital token that is then recorded and shared on a blockchain. Tokenization has caught on with digital art and other virtual assets, but it has broader applications that can smooth business transactions, said Joe Davey, a partner at technology consulting firm West Monroe. For example, utilities could use tokenization to trade carbon emission allowances under carbon cap-and-trade programs.

10. Innovation

Leaders across many industries are exploring and implementing blockchain-based systems to solve intractable problems and streamline cumbersome practices. Field cited the use of blockchain to verify the information on job applicants’ resumes as an example.

The prevalence of resume fraud leaves hiring managers with the time-consuming task of manually verifying the information. But pilot programs that allow participating universities to put data about their graduates and their awarded degrees on a blockchain that can then be accessed by authorized hiring managers help solve both problems, getting the truth and getting it quickly and efficiently .

Examples of industries that benefit from the use of blockchain

Blockchain’s benefits span industry sectors, but some sectors and businesses are better suited to the technology than others. Businesses that are decentralized, have multiple parties needing access to the same data, and need a better way to ensure data hasn’t been tampered with have launched or brought blockchain applications to full production. The following are some examples of industries that benefit from blockchain:

Financial institutions. Their customers see faster and cheaper clearing and settlement. Health care organizations. Blockchain can secure patient records and maintain patient privacy while enabling the sharing of patient data. Nonprofit organizations and government agencies. Smart contracts and other blockchain applications help nonprofits create immutable records that enforce set terms.

Disadvantages and challenges

Early implementation of blockchain also exposed some of the technology’s drawbacks and challenges, experts warned.

Blockchain-based applications typically require everyone in a process ecosystem to use blockchain and not some other way to perform digital transactions. Everyone needs to invest in the technology and process changes needed to do business on a particular blockchain. Experts noted that many companies do not believe that blockchain can produce high enough returns to justify the cost of replacing existing systems.

Many blockchain systems require support from other systems and processes to verify the accuracy of the data being added. For example, consider using blockchain for supply chain management. Companies can use such systems to verify that suppliers have paid all applicable taxes. But if they rely on providers to confirm that without external confirmation, the value of the blockchain application is weakened because the immutable data on it can be wrong.

“This is the biggest weakness in blockchain today,” Menting said. “It [assumes] all the parties involved adhere to standards, but someone can lie. So there must be checks to confirm information. There must be some mechanism behind the information to confirm it.”

Enterprise uses of blockchain often require some degree of central control despite the technology’s generally decentralized nature. “There is still a question about who will address breaches in trust and protocols,” Menting said.

‘Not a short-term technology’

Given these caveats, business and IT leaders should carefully consider their blockchain investments, according to experts.

They emphasized that blockchain’s true value comes when it is used in areas where a conventional database will not work and central control and trust are not present.

“If there is a high level of trust, there is no problem for blockchain to solve. But the more you have [a] lack of visibility or a potential for corruption, that’s where you have bigger use cases. This is where blockchain becomes a solution,” Omar said.

He said blockchain-based applications also benefit from being paired with artificial intelligence, machine learning or another decision-making layer.

Yet experts still believe blockchain will bring disruption and business transformation, even if the revolution won’t happen anytime soon.

“It’s important to understand that there’s been a lot of hype around blockchain. And while it’s revolutionary in theory, it’s not going to transform society today,” Menting said. “Maybe it will 10 to 20 years from now, but it’s not a short-term technology.”