Imagine tracking the supply chain for fair-trade coffee beans from the slopes of Uganda to your favorite coffee shop. Or closing a multi-million-dollar real estate transaction with the click of a button rather than signing a mountain of paperwork. How is this possible? The answer lies in blockchain.
Blockchain has the potential to revolutionize the way we conduct transactions. Retaining and securely sharing information is one of the primary blockchain uses, but it can also eliminate friction from many types of transactions, reducing the time to close deals while lowering costs. Goldman Sachs sees the potential for blockchain to minimize the cost of everyday operations, reported Business Insider.
Basically, blockchain is a database with security superpowers — but can it live up to the hype?
How Does Blockchain Work?
Rather than using a centralized record keeping system, transaction data is spread across every computer connected to a network. Each deal must be approved by most of the parties on the network, and then the information is updated at the same time.
How does blockchain work differently than a database? When approved, each transaction is “sealed,” cryptographically speaking, into a new block and attached to the chain of existing blocks. Every member of the blockchain knows the transfer has taken place and accepts the legitimacy of the transaction, Forbes reported.
Forbes also noted that individuals and organizations can exchange information, including money, without the need for a trusted third party such as a bank, broker or government agency. Additionally, contracts can be automatically executed using a “smart contract,” which manages agreements between two parties without the need for an independent arbitrator.
Transactions using blockchain technology create an incorruptible distributed ledger. Every party to the blockchain has access to the same information at the same time, and it cannot be altered.
Disruptive Blockchain Uses
Blockchain is poised to disrupt a number of industries, including real estate and finance. Intermediaries such as escrow services, notaries and title companies could be replaced with a string of digits. By using a smart contract, money can be held in escrow until specific conditions are met.
Buyers and sellers could complete property transfers without moving closing papers to the county recorder’s office; the transaction could be recorded instantly. Capturing information about a property such as title history, occupancy and insurance records also makes the information accessible and verifiable, explained Industry Week.
In fact, blockchain could reduce or even eliminate the need for title insurance in real estate transactions. Mortgage lenders usually require title insurance to protect their interests in case of a problem with the property’s ownership chain. Locking information about a property into blockchain could reduce errors and manual title searches, thus lowering insurance premiums, Forbes explained.
Blockchain could help the little guy as well, making it easier for small businesses to access credit by eliminating the need for audits to qualify for financing. Blockchain-secured transactions could mean instant, secure payments, replacing wire transfers that take three days, Forbes reported.
Improving the Customer Experience
Some companies are using blockchain to provide their customers with more transparency. In Denver, the Coda Coffee Co. offers what it calls “the world’s first blockchain-traded coffee.” Using a QR code, customers can access the information for each batch of coffee, looking at the date and location for each step in production — from picking beans on the coffee bush through washing, drying, milling, export and roasting all the way to store shelves. Starbucks is piloting a similar effort to track coffee from farms in Costa Rica and Rwanda. Agricultural giant Cargill is also testing blockchain uses to trace turkeys from farm to store, the Wall Street Journal reported.
Dangers of Blockchain Uses
The very thing that makes blockchain so attractive also creates potential dangers. With untraceable transactions, criminals and terrorists can exchange money and information undetected. Hackers could permanently embed malware, spreading havoc across connected computers. However, every digital deal leaves fingerprints that can be tracked, eventually leading law enforcement to the perpetrators. The U.S. Senate has asked the Department of Defense to study the dark side of blockchain and potential threats to national security.
The Future of Transactions
Implementing blockchain uses on a widespread basis could disrupt some industries and create new demands for recordkeeping and decentralized operations. Individuals could upload their personal information, eliminating digital identity theft. In most cases, blockchain should operate behind the scenes. All consumers and business users will know is that tasks like banking buying a home, writing contracts and tracking supply chains are quicker, less expensive and more secure.