What could blockchain mean for your business?

The recent bitcoin craze gave rise to a new buzzword: “blockchain.” Blockchain was actually developed a decade ago to enable digital currency transactions, but the technology has potential that goes far beyond this original purpose. Some analysts believe it could eventually reshape how global financial transactions take place, how records are stored, how supply chains are managed, and more.

Though it remains to be seen how far-reaching of an impact blockchain will have, understanding the basics can help you prepare for what’s to come — including changes that may affect your company. Read on for answers to common blockchain questions.

Q: What is blockchain?

A: Blockchain is a decentralized, digital ledger of transactions or data stored across a global network of computers. Anyone with access to the blockchain — for example, a bitcoin trader, or someone using a blockchain-based service — can view the transaction record and see updates as they happen. Data is verified via cryptography and stored in batches called “blocks.” Each block links to the preceding block, creating a chain; each block is also time-stamped, creating a permanent record.

Because everyone with access to the blockchain has a copy of this record, no third party is needed to authenticate the transactions. The direct, peer-to-peer nature of blockchain and the verifiable record it provides make the technology potentially transformative.

Q: Blockchain sounds a little like cloud storage. How is it different?

A: Data stored in “the cloud” is housed on servers that the storage provider owns. Even if the provider has servers worldwide, the data is still under the provider’s control. Data stored in a blockchain is not controlled by any one entity or person. It is accessible to anyone with access to the blockchain, not just the cloud storage client.

Q: How could blockchain change the way financial transactions are conducted?

A: By eliminating the need for a “middle man,” blockchain has the potential to streamline many types of transactions. Currently, most financial exchanges — from paying vendors to trading stocks to financing international trade — require a chain of intermediaries to oversee, verify, and authorize the transaction. Each intermediary step takes time, adds to the cost of the transaction, and introduces the possibility of human error.

Transactions conducted and viewed directly on the blockchain could eliminate many of these intermediaries. Since the blockchain is distributed across many networks, there’s no central point for cybercriminals to target, which may help to make it more secure than a centralized database.

Q: What are some other potential uses for blockchain?

A: Among the most promising potential uses is in the creation and execution of self-executing contracts, known as “smart” contracts. The terms of these contracts would be written into the blockchain and programmed to execute automatically once the terms are met. For example, a contract between a business and a vendor would be written as code into the blockchain. Once the business receives the vendor’s goods, the vendor would be paid without human intervention.

Other areas of potential use include human resources — job applicants’ employment histories could someday be verified by searching blockchain records. In retail or e-commerce, sales transactions could one day be processed without the need for payment processing services. Some blockchain enthusiasts envision a whole range of tasks that now depend either on an intermediary or on a reliable data record as being transformed by blockchain.

Q: When could we see these applications on a wider scale?

A: Some blockchain-based applications — including food supply-chain traceability and online identity management — have already been introduced, though are currently offered mainly to large enterprises. Certain global trade finance transactions and title transfers have also been done using blockchain technology, though as of now, these have been one-off incidents, rather than more substantial trends.

As potentially transformative as blockchain technology is, there are still many unknowns. For example, some analysts point to potential challenges in determining how to regulate blockchain transactions, since existing regulatory frameworks may not apply. Whether blockchain reshapes certain areas, but not others, or has a broader or more limited impact remains to be seen.