Top 10 benefits of blockchain technology for business
Dec 14, 2022
Blockchain's unique characteristics address many business issues. Here are 10 important benefits of blockchain and examples of the industries that are taking advantage of them.
The 2009 launch of Bitcoin moved blockchain from theoretical to real-world use, demonstrating that this digital distributed ledger technology actually 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 fast, secure way among entities -- without any one entity having to take responsibility for safeguarding 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," explained Ayman Omar, an associate professor in American University's Department of Information Technology & Analytics and a research fellow at the Kogod Cybersecurity Governance Center.
In fact, blockchain and its characteristics can provide multiple advantages to businesses -- whether they're using a public blockchain network or opting for private or permissioned blockchain-based applications.
Experts identify the following as the top blockchain benefits:
1. Trust
Blockchain creates trust between different entities where trust is either nonexistent or unproven. As a result, these entities are willing to engage in business dealings that involve transactions or data sharing that they may not have otherwise done or would have required an intermediary to do so. The enablement of trust is one blockchain's most cited benefits. Its value is evident in early blockchain use cases that facilitated transactions among entities that didn't have direct relationships yet still had to share data or payments. Bitcoin and cryptocurrencies in general are quintessential examples of how blockchain enables trust between participants who don't know each other.
2. Decentralized structure
Blockchain really proves its value when there's no central actor who enables trust, explained Daniel Field, head of blockchain at UST, a global provider of digital technology and services. So, in addition to enabling trust when participants lack trust because they're unknown to each other, blockchain enables sharing of data within an ecosystem of businesses where no single entity is exclusively in charge. Supply chain is a case in point: Multiple businesses -- from suppliers and transportation companies to producers, distributors and retailers -- want or need information from others in that chain, yet no one is in charge of facilitating all that information sharing. Blockchain, with its decentralized nature, solves for that dilemma.
3. Improved security and privacy
The security of blockchain-enabled systems is another leading benefit of this emerging technology. The enhanced security offered by blockchain stems from how the technology actually works: Blockchain creates an unalterable record of transactions with end-to-end encryption, which shuts out fraud and unauthorized activity. Additionally, data on the blockchain is stored across a network of computers, making it nearly impossible to hack (unlike conventional computer systems that store data together in servers). Furthermore, blockchain can address privacy concerns better than traditional computer systems by anonymizing data and requiring permissions to limit access.
4. Reduced costs
Blockchain's nature also can cut costs for organizations. It creates efficiencies in processing transactions. It also reduces manual tasks such as aggregating and amending data, as well as easing reporting and auditing processes. Experts pointed to the savings that financial institutions see when using blockchain, explaining that blockchain's ability to streamline clearing and settlement translate directly into process cost savings. More broadly, blockchain helps businesses cut costs by eliminating middlemen -- vendors and third-party providers -- that have traditionally provided the processing that blockchain can do.
5. Speed
By eliminating intermediaries, as well as replacing remaining manual processes in transactions, blockchain can handle transactions significantly faster than conventional methods. In some cases, blockchain can handle a transaction in seconds or less. However, times can vary; how quickly a blockchain-based system can process transactions depends on multiple factors, such as how large each block of data is and network traffic. Still, experts have concluded that blockchain typically beats other processes and technologies in terms of speed. In one of the most prominent applications of blockchain, Walmart used the technology to trace the source of sliced mangoes in seconds -- a process that had previously taken seven days.
6. Visibility and traceability
Walmart's use of blockchain isn't just about speed; it's also about the ability to trace the origin of those mangoes and other products. This allows retailers like Walmart to better manage inventory, respond to problems or questions and confirm the histories of its merchandise. If a particular farm has to recall its produce due to contamination, a retailer using blockchain can identify and remove the produce that comes from that particular farm while leaving its remaining produce for sale. According to experts, blockchain can help track the origins of a variety of items, such as medicines to confirm they're legitimate instead of counterfeit and organic items to confirm they're indeed organic.
7. Immutability
Immutability simply means that transactions, once recorded on the blockchain, can't be changed or deleted. On the blockchain, all transactions are timestamped and date-stamped, so there's a permanent record. As such, blockchain can be used to track information over time, enabling a secure, reliable audit of information. (That's in contrast to error-prone paper-based filing and legacy computer systems that could be corrupted or retired.) Omar pointed to Sweden's use of blockchain to digitize real estate transactions to keep track of property titles even as they change hands as an example of this benefit's potential.
8. Individual control of data
Blockchain enables an unprecedented amount of individual control over one's own digital data, experts said. "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," said Michela Menting, a research director at ABI Research. Individuals and individual organizations can decide what pieces of their digital data they want to share and with whom and for how long, with limits enforced by blockchain-enabled smart contracts.
9. Tokenization
Tokenization is the process where the value of an asset (whether a physical or digital one) is converted into a digital token that is then recorded on and then shared via blockchain. Tokenization has caught on with digital art and other virtual assets, but tokenization has broader applications that could smooth business transactions, said Joe Davey, director of technology at global consulting firm West Monroe. Utilities, for example, could use tokenization to trade carbon emission allowances under carbon cap programs.
10. Innovation
Leaders across multiple industries are exploring and implementing blockchain-based systems to solve intractable problems and improve longstanding cumbersome practices. Field cited the use of blockchain to verify the information on job applicants' resumes as an example of such innovation. Studies consistently have shown that a strong percentage of people falsify their resumes, leaving 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 the blockchain that can then be accessed by authorized hiring managers helps solve for both issues -- getting to the truth and getting to the truth quickly and efficiently.
Examples of industries that benefit from using blockchain
Blockchain's benefits span industry sectors, but some sectors and enterprises are better suited to this technology than others. Businesses that are decentralized by definition, have multiple parties that need access to the same data and need a better way to ensure that data has not been tampered with are piloting programs or brought test cases to full production. The following are a few examples of industries benefiting from blockchain.
Financial institutions -- and their customers -- are seeing faster and less-costly clearing and settlement.
Healthcare entities are finding that blockchain can ensure the security of patient records and to maintain patient privacy while also enabling the ability to share a patient's data only as the patient allows.
Nonprofits and government agencies have adopted smart contracts and other blockchain-based applications to create immutable records that enforce stipulated terms.
Disadvantages and challenges to bear in mind
Early implementations of blockchain have exposed some of the technology's disadvantages and challenges as well, experts cautioned.
1. To start, blockchain-based applications require everyone within the process ecosystem to use the system. That in turn requires everyone to make the investments in the technology implementations and process changes that go along with the move to the new blockchain-based application. Moreover, experts noted that many companies don't believe blockchain can yet deliver high enough returns to justify the cost of replacing existing systems at this point.
2. Additionally, many blockchain-based solutions need support from other systems and processes to verify that the data being added on the blockchain is accurate. Consider, for example, the use of blockchain for supply chain management. Companies could use such systems to verify suppliers have paid any applicable taxes. But if they're relying on suppliers to confirm that without any external confirmation, then the value of that blockchain solution is weakened.
3. These enterprise uses of blockchain often require some central control -- despite the technology's decentralized nature. "There is still a question about who will address breaches in trust and protocols," Menting said.
"That's the biggest weakness in blockchain today," Menting said. "It [assumes] all the parties involved adhere to standards, but someone could lie. So there needs to be checks to confirm information. There needs to be some mechanism behind the information to confirm it."
Fujitsu's Rice Exchange was created to trade rice, ensuring data regarding sources, prices, insurance, shipping, and settlement are recorded on the ledger. Anyone involved can look at any data and find accurate information regarding the entire process because it cannot be changed. All data is entered and secured automatically by the platform—it will eventually provide tracking information for rice shipping containers as it is shipped to its final destination.
Source: https://www.techtarget.com/searchcio/feature/Top-10-benefits-of-blockchain-technology-for-business