You will have no doubt heard the word ‘blockchain’ mentioned dozens of times over the past 18 months or so.
Put succinctly, it is a decentralised, digital ledger that verifies and records transactions between two parties and can be accessed by everyone.
This is the technology that powers digital currencies such as Bitcoin and Ethereum.
It all sounds great in theory, but what are its real-life applications?
At the moment, the biggest envisaged use for blockchain is within the finance industry, and, naturally, most of the ‘bulge bracket’ investment banks are at least exploring ways to use the technology.
Although banks have embraced the digital revolution with online banking and developing their own mobile apps, cross-border transactions, which should be relatively simple, are still processed in a slow and complex way.
That’s because the finance industry uses highly-secured private databases.
The use of blockchain would allow institutions to create direct links between each other and to use a shared ledger for transactions, contracts and important documents.
Put simply, banks will be able to formalise and secure digital relationships between themselves in ways they could not before.
Auditing and accounting
By its very definition as a distributed database, the implications for auditing and accounting are also profound.
Regulators might also welcome the introduction of blockchain into the industry. Rather than having to trawl through companies’ databases, they would have open access to a clear and transparent set of records.
Banks might also find it easier to comply with regulations as well.
At the moment, every time they authorise a transaction of more than a certain value (typically US$10,000), they must report it to anti-money laundering authorities.
Rather than having to employ a team of people to sift through the transactions, blockchains can be coded to automatically refer any flagged deals.
It’s important to remember that because blockchain is essentially a virtual, public ledger, it can instantly record any type of transaction – be that traditional currency, bitcoin or barter transaction.
Blockchain’s uses aren’t limited to finance: its open, unchangeable records mean it can, in theory, be applied to many industries.
The food sector is one of those dipping its toes in the blockchain waters.
The technology is being developed as a track-and-trace solution, allowing customers and retailers to keep a verified ‘eye’ on what is in their food and where it came from.
It could also help to identify a specific batch of faulty goods should they be recalled.
A study by US retail giant Wal-Mart and IBM found that it took several days to track a package of mangos from farm to store, whereas with a blockchain solution it was traced in seconds.
Those same ideas can be applied to most of the retail industry, including clothes and cannabis, with the latter aligning itself closely with blockchain, particularly in the US and Canada.
Making elections secure
Another interesting potential use is in elections, where blockchain could possibly be used to prevent voter fraud.
The technology has the ability to provide an ‘unhackable’ electronic vote-counting system, which can secure polling registration, confirm the user’s identity and make sure votes can’t be tampered with once submitted.
In the same way that it acts as public ledger for financial transactions and cryptocurrencies, it can also create a permanent and public ledger for elections, which can only be good news for democracy.
There are already a couple of start-ups operating in this field, including Follow My Vote.
Betting and gambling online
The gambling industry could also benefit from getting on the blockchain bandwagon.
Several reports have shown that the technology can help casino operators and bookmakers verify a punter’s identity, flag problematic transaction and track pay-outs.
Money laundering and tax evasion would also be more easily identifiable with a trustworthy, open ledger.