Blockchain: You’ve no doubt heard the name. Are you still wondering exactly what it is and why it matters? Some say Blockchain is the biggest development in Tech since the Internet. Blockchain is associated with Bitcoin and other cryptocurrencies, but it is much more. Blockchain is going to be big and it is very investable.
So, what is it?
Blockchain is a decentralized digital ledger that securely records an increasing list of transactions across connected computer servers that cannot be altered without mutual allowance. It is a digital mechanism that securely stores records with supreme accuracy. A series of records are called blocks.
If you think about it, for most traditional transactions, each participant records their own version of the truth. Data and records are vulnerable to error, fraud as well as general inefficiencies. People and companies often rely on third parties to minimize the risks. Blockchain eliminates the ambiguity. With Blockchain, mutually agreed upon transactions are added to a unique cryptographic code within a digital block. A chain of digital blocks is created for multiple transactions. It becomes a digital asset base, which can be shared across a network on multiple sites for multiple institutions across geographies. It is only visible and accessible to those participating parties in a secure and permissioned location. It should thrive in this growing global economy with electronic commerce. It’s no wonder digital cryptocurrency hype erupted. There is no question that a need for a universal digital currency is here. There is very much a question whether Bitcoin will ultimately be the chosen one.
Born in the Blockchain is what are called “smart contracts”, which are comprised of digital codes attached to transactions executed under mutually agreed upon circumstances. The goal of the smart contract is to eliminate the ability to tamper records and provide verification of enforcement. IBM’s Global Financing unit claims it has reduced time spent on transaction disputes by 75%. A growing Blockchain lowers transaction costs, speeds up the transaction process and provides enhanced security and confidence. Blockchain provides clear end-to-end visibility from invoice to payment.
Shippers like UPS and FedEx are already using Blockchain. UPS delivered over 750 Million packages during the holidays. They claim that over 100 Million are tracked daily as to see their whereabouts. With packages delivered by foot, on the road, in the air and overseas, logistics is a sharply structured, complex business. Blockchain enhances the ability to track transactions from purchase to delivery and everything in between. An overly simplified way to think about it is how Domino’s Pizza allows you to track your pizza for online purchases. You pick the size and toppings and customize to your liking. You see the price and agree to pay. The system tells you a target arrival time, who is making it, when it goes in the oven, when it’s out, when it’s leaving the restaurant, the name of the driver and updated arrival time. The whole process is tracked with digital records to ensure that what you paid for is what you got. The system will remember you too for future orders.
Intel and IBM are founding members of what’s called Hyperledger Fabric technology, which is an open source of Blockchains. Banks and credit card companies have embraced Blockchain to enhance the safety and accuracy of payments and money transfers. Pleasanton based WorkDay has embraced Blockchain technology for its Human Resources software to verify colleges, degrees, and previous employment status for employers. The point is, Blockchains can be used in so many ways and it emphasizes accuracy, authenticity, security and efficiency.
Deloitte projects that 10% of Global GDP will be built on applications within the Blockchain by 2025. That would translate to $12 Trillion, which is the same size as China’s total gross domestic product. For another perspective, that would be more than all of the transactions processed through MasterCard last year and 6-times all of the global e-commerce last year. It’s big. It’s complicated. It’s investable. And it’s really just getting started.
Have a nice weekend. We’ll be back, dark and early on Monday.