blockchain

You are probably aware that there are a lot of highly technical aspects to blockchain and we will not be discussing these here.

What we will be doing is explaining what blockchain is so that you have the right amount of knowledge to consider how it can help you in your business.

What is the Blockchain and how does it work?

So, what exactly is blockchain? In the simplest of terms blockchain is a digital record of who owns what that is updated continuously. With blockchain there are individual blocks of data that are encrypted and these are all joined together. Hence the name “blockchain”.

These data blocks can contain different types of information such as the owner of an asset, the date and time of transactions, the monetary amounts involved and a lot more. Every block is encrypted using cryptography which is where the name “cryptocurrencies” emanates from.

Imagine an everyday deal between two parties. There will be information about the deal that needs to be confirmed and all of this is stored in an individual block. A block can include a lot of different records about a deal or transaction which is part of the initial design of the blockchain.

A blockchain network will store details of many transactions conducted and each transaction has its own unique block. There could be millions of individual blocks in a blockchain and they are all linked together in a secure way.

In a cryptocurrency transaction there will be two parties that we will call party 1 and party 2. With a blockchain there will be records of these two people and the different coins that they own. So, if party 1 wants to sell some of their crypto coins to party 2, there are digital signatures in the individual blocks that require verification.

The job of the blockchain network is to check all of the details of the proposed transaction to ensure that everything is valid. There are computer nodes which perform these checks. If the nodes validate the transaction, then records are added to the blockchain.

All Blocks are Unique

Every individual block in a blockchain is totally unique and has a special code identifier known as a “hash”. As all of the blocks are connected together, the unique code will also include the hash of the block that previously connected to it. Everything is done in order and the hashes are used to link all of the blocks together properly.

There is a complex mathematical function used to create each individual hash. Using this function, a unique string of characters, including numbers and letters, is generated to create the unique hash.

A blockchain network uses a uniform hash system so it doesn’t matter how large or small an individual block is the hash codes used will always be the same length. There is a database used with a blockchain and this is distributed across a network of computers. It is designed so that no single computer has the same information stored on it.

Blockchain networks continuously check block information to ensure that every single copy of the database is fully up to date. There is no margin for error with a blockchain network. Records on a blockchain are immutable.

This means that they cannot be easily changed. Any changes made by the legitimate owners will change the database and create new hash codes.

Blockchain is very difficult to Hack

It is extremely difficult to hack a blockchain. Very experienced hackers have tried and failed. A hacker would need to recalculate hashes for the blockchain so that they can hack it and this is almost impossible as the original has used will always remain. This has a knock-on effect to all of the blocks connected together.

To even stand a chance of hacking a blockchain you would need to use vast amounts of computing power. This would be very expensive and would take a great deal of time to do as well. Are you beginning to see the possibilities here?

Most conventional transactions are based on client server setups. This means that there is one central server (computer) that holds all of the important information and other computers (clients) connect to it to make the transactions.

The problem with client server technology is that it is a lot easier to hack. Companies and organizations that deploy the latest cutting-edge security methods have fallen foul of experienced hackers. Records are not immutable and if someone knows what they are doing they can change them without being noticed.

Blockchain is Decentralized

There are no centralized authorities controlling any of the cryptocurrencies which is why they appeal to so many people. Any user of a blockchain can have access to the same information as another user.

The blockchain platform is very appealing because it provides total transparency.Unlike with client server applications, there is not a central database involved with blockchain. It is a lot easier for a hacker to gain access to a central database and cause havoc. With blockchain, the information is spread over several different computers.

As blockchain is decentralized there is no requirement for a trusted third party to verify the transactions that take place. Users of a blockchain network are anonymous and you may think that this can cause trust issues. How do you know if some users are untrustworthy and will try to game the system?

The way that blockchain overcomes this trust problem is by testing all new computers that want to join the network. A new computer has to pass a consensus test which is a way to prove their trustworthiness. One of these is through the use of mining.

Blockchain Mining

New users of a blockchain have to prove their credibility and they can do this by solving a complex mathematical puzzle when they want to add a new block to the network. This process is called “mining” and requires a great deal of computational power to solve the required puzzles. You may have heard of Bitcoin mining or Ethereum mining.

In order to mine these crypto coins you need a powerful computer rig to solve the complex puzzles. This is a way of verifying blockchain transactions and successful miners are rewarded with crypto coins.

Proof of Stake

Another way that a computer can prove trustworthiness on a blockchain is through proof of stake. To achieve this, tokens are purchased which allows a new computer to access the blockchain.

The fact that a new user has spent money to purchase tokens provides a high degree of proof that they can be trusted. You can purchase cryptocurrencies such as Bitcoin in exchange for fiat currencies such as the US dollar

How Blockchain Can Benefit Your Business

As small businesses seek better and more efficient ways to serve their clients, blockchain can be especially useful as a way to conduct transactions and even to raise capital.

The cost to incorporate this technology is far less than you might assume.

Many small business owners think that only large companies have the money to afford expensive designers to develop such advanced technology.

The truth is, Entrepreneur writer Drew Giventer says, vendors have emerged who “provide blockchain-based technology, not only for Wall Street, but for Main Street as well.”

And blockchain technology isn’t just for digital-first or online-only businesses. Bakeries, gyms, nail salons, restaurants, and other small businesses that rely on a physical space in the real world can get started using blockchain today.

Let’s take a look at some of the ways blockchain technology can benefit entrepreneurs who want to take their business to the next level.

The first thing your business can do to adopt blockchain is simply to begin accepting cryptocurrency as a method of payment.

“What signals more of a commitment to blockchain,” asks Giventer, “than allowing customers to pay with bitcoin or other cryptocurrencies?”

Some larger e-commerce companies like Expedia and Overstock accept bitcoin. And this option is also open to online stores through platforms like Shopify, too.

This platform offers several advantages to small businesses, as the transaction fees are low and fast, and there are no chargebacks.

Of course, traditional merchants just aren’t set up to accept cryptocurrencies, so rolling out this plan will require a lot of planning and testing.

You’ll need to evaluate and spend money on a digital wallet, a merchant gateway, or a combination of services needed to accept cryptocurrency from your customers.

However, the benefits of accepting cryptocurrencies will outweigh these costs in the long run.

First, your customers can see that you’re willing to expand your services, and that’s something that will bring in new business.

Cryptocurrencies also allow you to directly deal with your customers. That will reduce transaction costs as you won’t be paying a third party for those any longer.

Another big advantage is that payments will be permanent and irreversible.

This will leave your customers with no choice but to contact your business directly if they want a refund—and that will end the problem of chargebacks, where customers purchase services or goods, then cancel the payment on their credit card, leaving the business in the hole.

Blockchain technology is particularly recognized for its applications and platforms which aid money transfers and payment transactions. Your business can utilize this to transfer funds securely without heavy costs.

For example, you could transfer money to employees anywhere in the world without worrying about using an expensive intermediary.

What about a situation where you want to properly document transactions with several parties involved?

You might be able to use some of the new business applications for Distributed Ledger Technology (DLT) that are being investigated currently.

You could have an accounts audit trail, ties in a supply chain, or steps to the execution of a deal. Ethereum, created in 2015, is an easy way to make special “distributed applications” or Dapps.

Another variation, called permission ledgers, blends the advantages of a blockchain with business security. You might not realize when an underlying device begins using DLT, but you can see certain changes:

Reduced instability in supply chains:

With many small businesses, shipping and logistics activities can be a resource-eating, admin-heavy mechanism.

And with each supply chain partner, the work is multiplied. DLTs can make some of these activities easier and far more secure.

Unbreakable agreements:

Businesses deal with contracts of all sorts on a daily basis, and signing those contracts means placing your confidence in a piece of paper.

The difference with a blockchain is that it’s digital and cannot be changed or tampered with.

Smart contracts also don’t require a lawyer to negotiate the agreement, saving you time and money. So long as the conditions of the contract are met, the value transfer will happen without fail.

Safer data storage at a reasonable price:

Blockchain allows users to store data in a safer digital form for a fair price. The stored data can be encrypted so that only those with a crypto key can access it.

And how about data storage? “Blockchain storage applications,” says Giventer, “allow users, including small businesses, to store data in a safe way, and at a reasonable price, without compromising data security or overspending.”

Businesses and personal users spend more than $20 billion every year on cloud storage. Imagine saving that money instead of throwing it into the cloud.

Businesses can also use blockchain for smart contracts, which are self-verifying and self-enforcing contracts between the business and the client.

The contract is stored within a blockchain ledger and is recorded in a way that cannot be changed or manipulated.

Some examples of smart contracts include commercial leases, agreements with suppliers or vendors, and employee contracts.

A smart contract offers your small business a level of protection it would otherwise not be able to afford. You’ll be eliminating the middleman (usually an attorney) with a smart contract, and that will save you a ton of money.

“Global blockchain platform Ethereum,” Giventer notes, “was the first to introduce smart contracts to the cryptocommunity, and is considered one of the more advanced platforms for coding and processing of smart contracts.”

Blockchain technology can give your small business an alternative method of raising capital through Initial Token Offerings (ITOs) or Initial Coin Offerings (ICOs). These are a virtual form of investment created with blockchain technology.

Your company can “issue” tokens or coins by using a platform like Ethereum to create and record the distribution of these tokens as a form of investment in your company.

As an alternative to banks, lenders, private equity clubs, and even crowdfunding, ITOs are available for exchange where they can be freely traded. ITOs are comparable to equity or revenue share in a typical company.

Interested investors can buy into your offering and receive new blockchain-based tokens from your company. These may have some use with the product or service your company offers, or it may simply represent a stake in your project.

“The growing loyalty of token investors,” says Giventer, “has made ITOs much more popular over the years, and a viable capital-raising alternative for businesses of all sizes.”

The ITOs can be bought and traded on the open market, where “a new realm of liquidity is made available to the general public.”

A small business can also grow its brand and product awareness by giving customers a small reward in cryptocurrency. This is known as a bounty campaign.

How it works is that your company issues blockchain-based tokens that have some utility. Perhaps they can be exchanged for some of your products or services in the future.

You then initiate a bounty program on a specialized forum or platform, and, as a result, anyone can join the bounty, promote your company, and get paid in tokens for doing simple online tasks.

If you’re in the business of verifying any sort of transaction, investigate how blockchains could impact your company. Think about the threat of clearing and settling stock trades and you’ll see that the disruption to many back-office functions and other services could be substantial.

If you belong to some sort of supply chain, your partners may want you to start digitally tracking your processes, especially if you supply a larger corporation.

Start thinking about where you fit into your customer’s supply chain and how you might be asked to participate in a blockchain.

If you supply anything to consumers or other businesses, think how valuable it might be to be able to track your products back to their sources.

Imagine how much a fishmonger might be able to charge if he or she could reliably prove their products were harvested using sustainable methods.

“In supply chain logistics,” says Gillian Ellas, “the combination of blockchain, smart contracts, and the Internet of Things will allow companies to track shipments and make payments when certain conditions are met (i.e. a product is delivered).”

An example is Maersk, the world’s largest shipping company. They began testing blockchain to track their cargo in conjunction with Dutch customs, the US Department of Homeland Security, and the companies sending the goods.

Smaller companies could easily utilize the same technology.

“Imagine a grocery store where inventories are getting low,” Ellas says. “Smart containers holding the goods could be programmed to inform a wholesaler that they need to be restocked.

The wholesaler would contact a trucking company to pick up the goods and deliver them to the retailer. Each step would be recorded and payments made via a blockchain because all would be verified.”

Here are some tips on making progress with blockchain technology:

Do your homework.

While blockchain has a lot of promise, there are also drawbacks you need to be aware of. Thus, you should know as much as possible before you jump on the bandwagon.

Blockchain for Dummies (which is a free pdf) and The Business Blockchain books are great places to get started.

Ask why.

Before you spend the time learning a new blockchain system, make sure you’re adding the tech for the right reasons.

In general, your reason should be to save time and money or otherwise make your business life easier and faster.

Start small.

Pick one app and get used to it before you go all in and sign up for everything out there. This will allow you to concentrate your efforts and get used to just one system instead of trying to do it all at once.

Final Words

Companies are always getting bombarded with “hot new tech” that’s going to change their game.

Some of this technology ends up being useful, but some of it ends up wasting a lot of time, energy, and resources. Deciding which tech will work with your business can feel like a full-time job.

Blockchain has been touted as one of those technologies that’s going to solve all your problems. You might even have heard it praised as a solution to any number of business problems, both large and small.

However, it’s also been vilified—and it remains a mystery to many business owners.

But in the end, there are some realistic practical applications for small to medium business owners. You just need to do your research and decide which ones will work best for your situation.

Despite all the potential, Ellas says we’re still in the early days of blockchain technology. Three key issues need to be resolved before it goes mainstream:

Energy Use: verifying the transactions to add to a blockchain is energy-intensive because it takes a lot of computer power to perform all those calculations, solving equations by trial and error.

Some technology firms are working on ways to keep the security high but lower the energy cost.

Processing Speed: the massive number of computations also slows the processing speed. Researchers are now working on ways to simplify calculations and increase the number of transactions performed.

Interoperability Across Blockchains: the many blockchains (public and private) currently don’t “talk” to one another much. The next generation of blockchain technology may correct this problem.

“Blockchain,” says Tanvir Zafar of B2C, “is a fast-moving train that has bitcoin as its backbone.”

Many businesses have already incorporated blockchain into their working scheme and are recording exponential growth.

From contracts and secure transactions to digital exchange and smart contracts, blockchain has a lot to offer the small business owner.

The main advantage of incorporating blockchain into your small or medium business is the savings of time and money it can afford you.

Although there are numerous benefits of incorporating blockchain, you should do your research and figure out which blockchain application best suits your business.

You’re getting in on the ground floor here, and if you pick the right platform, you can only go up!

Introduction

The technology behind cryptocurrencies like Bitcoin could revolutionize the way business is conducted.

This technology is called blockchain—and it’s the backbone technology of Bitcoin and other cryptocurrencies.

Blockchains have mostly been used to underpin cryptocurrencies, but there are many other possible uses emerging.

In fact, this powerful technology can add new layers of speed, security and can even lower costs associated with payment processing, but that’s only scratching the surface.

In this special report, we’ll take a closer look at some of the ways blockchain could be integrated into your current business, or help you launch a new one.Let’s begin!

Blockchain 101

Before we consider the different ways blockchain can help your business, it’s important you understand exactly what blockchain really is.

“Simply put,” says BDC senior economist Gillian Ellas, “blockchain is a continuously updated digital record of who holds what.”

Records of each transaction—the date and time, dollar value of the transaction, and the participants involved—are all encrypted into a “block” that is linked to other blocks, forming that blockchain.

So, you first have information, like a deal between people, which is then added to other records to make a block. The final product is all the blocks linked together in one long “chain.”

Let’s look at it more simply, with examples.

Suppose Mr. A is selling three coins to Mrs. B for $75. The computer record will list all these details, including digital signatures from both Mr. A and Mrs. B. The record is then checked by the computer network.

The computers in that network (called “nodes”) check the details of the transaction record to ensure that it’s valid.

Records that are accepted by the nodes are added to a block. Each block also contains a unique code called a hash, as well as the hash of the previous block in the chain.

These hash codes allow the blocks to be linked together in order on the chain.

This hash code is created by a mathematical function that takes digital information and creates a string of letters and numbers from it.

No matter what size the original file may be, a hash function will always generate a code that is the same length as all the other codes.

For example, a tweet message is far shorter than a novel like The Lord of the Rings, yet they both would have a hash code of the same length.

A blockchain database is shared across a network of computers, so no one computer contains the information. That network is constantly checking the information to ensure that all the copies of the database are correct.

Once a record has been added to the blockchain, it’s very hard to change it. Any changes to the record will generate a new hash code.

So, if someone decided to edit The Lord of the Rings and removed a single comma, the resulting edit would have a whole new hash code.

This is why it’s so hard to hack a blockchain. The blockchain will still have the original hash code embedded in it, so for a hacker to restore the chain, he or she would have to recalculate that—and the next hash code, and the next, and so on.

Recalculating all those hash codes would take a hacker an enormous amount of computing power (not to mention the time).

One of the reasons cryptocurrencies are so fascinating is that there’s no central authority controlling the blockchain. Each person in a blockchain has the capability to access the same information. This provides transparency and continual reconciliation.

And, since the blockchain exists on many different computers without a centralized version of the information, there’s no central database a hacker can attack.

This means you no longer need a trusted third party to verify your information and process your transactions. You do, however, need some way to trust the other parties.

Members of a blockchain are anonymous and there’s no real way to tell if they’re trustworthy or not. To resolve this issue, blockchains set tests for the computers who try to join the network. These tests are called consensus models.

The consensus model tests require a computer to “prove” themselves in one of two ways.

Proof of work requires a computer to “work” an increasingly difficult computational puzzle in order to add a block to the chain.

This process, which is called mining, takes a lot of computer power. In return for this work, members may receive rewards like tokens or bitcoins.

With proof of stake, on the other hand, participants buy tokens that allow them to join the network. The more tokens they have, the more they can mine.

Real-World Examples

The financial services industry is one of the areas beginning to utilize blockchain technology to save on cost and develop new services.

Financial institutions have been investing in blockchains to simplify their record-keeping for payments and other transactions.

One recent example is the Australian stock market, which announced they’d be using blockchain to settle transactions. “This technology,” says Gillian Ellas, “will be used to record shareholdings and manage the clearing and settlement of equity transactions.”

Another financial example is a company called Abra, a money transfer platform that lets people working abroad send money home in 54 different currencies.

The money transfers are fast and cheaper than a traditional service like Western Union, which charges an average of 7% of the amount of money sent, according to the World Bank.

A third blockchain project involves the World Wildlife Fund and three other companies that are working together to sustainably source tuna in the Pacific Ocean.

These companies are ConsenSys, a blockchain company, TraSeable, an information technology firm, and SeaQuest Fiji, a tuna fishing and processing company.

The four together are utilizing blockchain to track where, when, and how the tuna are caught and sold.

Blockchains are also the basis for cryptocurrencies like Bitcoin and Ethereum, which can be bought and traded like traditional assets. And recording trades on a blockchain offers a way to check the history of a product.

An additional example would be jewelry companies, which hope to assure customers that their diamonds are not from a place where their purchase might finance war.

“Several major companies are investing in blockchain,” says Ellas, “including Microsoft, IBM (with more than 400 blockchain projects around the world), Unilever, and Toyota.”

Blockchain could also be useful in property records. Storing land records on a blockchain might cut way down on costly title research and insurance, and in politically unstable areas, it could prove ownership.

The healthcare field is another area where blockchain records would prove useful. Your medical history could be securely stored and controlled by you rather than by your doctor.

Finally, blockchain technology could create tamper-proof election returns. The advantages of this should be fairly obvious, especially in the United States.