Blockchain. That “mysterious” technology behind the cryptocurrency revolution. It is the driving force behind cryptocurrencies, because it provides an immutable ledger of all of those digital currency transactions.
And as cryptos, at least the top few, become more mainstream method of personal investment and a rising payment method for goods and services around the globe, traditional financial institutions are scrambling. They are looking to see how they can incorporate blockchain technology to generate the “trustless” banking that cryptos offer.
The promise of blockchain
Clearly, blockchain holds great promise within a number of niches, and there is plenty of exploration, along with pilot programs, to measure its suitability – many with good results.
But, to be realistic, there are also downsides to blockchain and the crypto markets it supports. Blockchain is not a “magic pill” for every industry keen to capitalize on this technology.
What’s working so far
Because blockchain provides an immutable record, consider just some of the niches in which it holds great promise:
The public sector: There are some key issues that blockchain can resolve, specifically in the area of identification – for voting, for travel, for citizenship records, etc. When all of this information can be recorded and stored in a blockchain, individuals will no longer have to keep track of their paper documents. They will simply have an access code to their records and thus seamless methods of performing all of their activities.
Insurance: Fraud is a huge issue in the insurance industry. When claims, payments and other documentation can be recorded and stored in immutable ways, lots of fraud can be eliminated, with savings for both companies and consumers.
Healthcare: Full patient records, with access granted only to those who are given permission, provide permanent histories for patients and providers. Better healthcare for all is the result.
Removing the middleman in transactions: When contracts can occur directly between two individuals or companies/organizations, the potential for fraud goes down, not to mention the reduced costs. Take freelancers as an example. There are real trust issues on the part of both companies who hire them and the freelancers who do the work. They must rely on the “good faith” in one another or on the middleman who takes his fee. Companies like Moonlighting are now popping that provide a platform for freelancers and the companies/individuals who hire them. Freelancers have a single place to store their profiles; employers have a place to provide reviews and recommendations; blockchain integration allows for smart contracts and more rapid payments; and members of the public are jumping on the opportunity to invest in them.
Travel industry: It is estimated that fraud costs the airline industry alone between $2.4 and 4.8 billion each year. When traveler financial and identity information can be recorded and stored in a blockchain environment, manual checking, confirmation and incorrect denials of service can be significantly reduced. Everyone wins.
Supply chain: How many companies produce and/or receive goods from other companies around the globe? Millions. One of the issues plaguing the fulfillment of contracts for the sale and purchase of goods, has been the tracking of those goods from point of purchase to delivery. In a blockchain environment, purchase contracts, invoices and, more importantly, the full tracking of goods from the time it leaves the supplier to the point of delivery can be immutably tracked.
This provides just a sampling of the promise of blockchain technology uses across different sectors. There is much more to come.
What’s not working with blockchain
As with any new and developing phenomenon, there are certainly bad actors – those who take advantage of a promising thing and exploit it for fraudulent gain.
This is certainly true for the cryptocurrency/blockchain sector. The worst is probably fraudulent ICOs. An ICO (initial coin offering) is the startup’s new way to raise funds from non-institutional investors (a.k.a. anyone on the Internet). Everyone is invited to chip in and purchase crypto tokens issued by the startup. The branded cryptocurrency investor’s purchase could be exchanged to goods/services post-launch or sold to someone else for a profit. Usually, there is a white paper that fully explains the crypto to potential investors, and then asks those potentials to put up money to launch the crypto.
The problem here is that there are numerous fake ICOs at any given time. They are “launched” by scammers who will take investment money and run. Investors are left holding worthless digital tokens that no one ever meant to be “real” in the first place.
There are some telltale signs that newbie investors should look for – copied white papers, anonymous or unknown team members, lack of compelling reasons for the crypto launch and, usually, a rush to get the investment phase completed.
Some recent examples of fraudulent ICOs include the following
- Confido – $375,000 of investor money was taken without an ICO launch
- Benebit – this one was worse. Scammers got away with about $2.7 million
- Centra – the worst yet – absconded with $32 million investment dollars.
So, all is not “rosy” in the crypto/blockchain movement.
It’s time to divorce cryptocurrencies and blockchain, at least in our minds. They do not need to be intimately connected. Cryptos use blockchain technology. But that technology has a far wider reach in terms of benefit than just through digital currencies. It can positively impact all sectors of our local, national and global economies, and that is where the real future of this technology lies.