Various applications of blockchain

While it is financial institutions who are spearheading the implementation of distributed ledger technology (DLT), the tech has wide implications for every industry out there. Blockchain may be applied to any transaction involving multiple steps - decentralised networks are pragmatic business tools primarily used to securely maintain transaction records between multiple parties. The intrinsic features of DLT make for a myriad of forward-looking use cases, all conducive to raising the efficiency of various business processes. Barring finance, the burgeoning technology is just as relevant to the sectors of banking, investment, government, healthcare, real-estate, education, cybersecurity, et al. At present, the technology is being tested and embraced by the largest organisations in the world in a bid to propel themselves into the future of record-keeping; a future characterised by transparency and unparalleled trust made possible by immutable ledgers. Enterprises and respective counterparties are able to collect, aggregate and observe shared data with ease by way of a secure and unified database. Blockchain is redesigning conventional business processes and could add up to 1.76$ trillion to the global GDP by 2030 according to PWC. Below is a list of the manifold use cases of this technology.     

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Payments and banking  

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The financial services sector is set to be disrupted the most by the advent of blockchain due to its potential to remodel how we transact and trade. Both public and private blockchains can be utilised in various ways in the world of finance. Distributed ledger technology paves the way for the introduction of new sets of banking services by making transactions cheaper and faster, and logging them into a transparent archive. Users benefit from fast finality and lower capital requirements to trade. Blockchain is vital to abolishing counterparty risks and is instrumental to ushering in an era of inclusive finance.  

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At present, trillions are wasted due to extant supplementary fees and tardy payments. Fees range from 2 to as much as 10 percent of transaction value. Blockchain enables money-transfers with minimal transaction fees in real-time by dispelling the need for sluggish interbank settlements. According to McKinsey, using blockchain in the financial sector could reduce operational costs of retail banks by up to 44%. The use of cryptocurrencies enables organisations to circumvent cumbersome foreign-exchange processes, fluctuating exchange rates and added fees.

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The Interbank Information Network, a massed consortium of banks conceived by JP Morgan Chase to support Ethereum blockchain now comprises over 330 members; HSBC is using the R3 DLT platform for digital asset custody have put $10 billion of paper-based private placement records on R3’s Corda blockchain; the World Bank launched blockchain bonds - the largest banks all appreciate the value of blockchain. Sundry organisations are welcoming payment via cryptocurrencies for their products. Microsoft, Tesla and Starbucks are just some of the names on an extensive list of prominent crypto-friendly enterprises. 

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Trade finance and trade 

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Financial institutions are harnessing the power of blockchain technology to create, manage and monitor debt instruments. Banks use credit reports to underwrite loans. The twisted web of records of loans and securities is impractical from a navigability viewpoint due to an absence of standards across intermediaries; such a system is also expensive to operate. 

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Fast transaction settlements allow financiers to process borrower collateral relatively quicker on the blockchain. Smart contracts automatically prompt payments based on initiated cash flows. They provide for a real-time review of debt service and instant approval of loans. A transparent ledger delivers transparent factoring; swift financing of working capital is facilitated by maintaining invoices on DLT, thereby eliminating unnecessary intermediaries like correspondent banks. Blockchain in consumer banking is also increasing the scope for peer-to-peer and syndicated lending. 

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Factoring is an important instrument for producers to raise working capital. Institutional risks associated with short-term financing are mitigated by blockchain tech. Duplication of data like invoices and bills of lading is made impossible by an immutable single source of truth (SSOT). DLT does away with version control problems and ensures safe delivery of goods. SSOT helps in preventing banks from falling prey to scams due to their inability to fully verify the authenticity of certain documents and transactions, especially those of international origin. DLT enables banks to accurately review agreements and obligate stringent terms of credit. It also automates manual AML verification processes, saving significant money and time. ING, BNY Mellon, BNP Paribas and Goldman Sachs have all invested in a securities finance and repo platform, HQLAx.  

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To learn about the disruptive benefits of using blockchain in trade, click here. 

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Supply Chain management  

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The value of blockchain technology to industries outside the financial realm lies in the transparent and tamper-proof character of distributed ledgers (used as systems of record). All transactions including payments and commodity-transfers within the supply chain are cryptographically recorded and made accessible to all parties in real-time through DLT. Mapping and interlinking data points like intellectual property rights, licenses and product ownership is made simple. By using blockchain technology, users can ascertain which components were used in the manufacturing process of purchased goods, as well as the conditions in which they were transported and stored. Thus, DLT creates trust and fosters collaboration. Eminent organisations like De Beers, Maersk and RMCD are employing distributed ledgers to monitor their supply chains and track the provenance of goods. Commodity traders are backing projects which facilitate post-trade processes in trade like Vakt and OneOffice. Blockchain may be used by corporations to document office operations in the same manner. 

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Extant quality control systems entail multiple verifications involving excessive documentation across various checkpoints. Processes currently in place are not adept for conflict resolution arising from counterfeiting of products, falsification of data, delays in delivery and incorrect storage conditions. Blockchain irons out all the above creases by way of unified ledgers and smart contracts. Smart contracts ensure that the terms of a deal are honoured. They execute automatically upon the fulfilment of preset obligations. Any breaches in delivery standards during transportation and storage such as violation of temperature norms can be registered using IoT sensors, leading to a corresponding adjustment in the price paid by the buyer. Digital signatures are collected from inspectors and customs agents at different points of inspection, assuring the quality of consignments. DLT provides an irrefutable quality-determining framework safeguarding the genuineness of products placed into the stream of commerce. The ability to establish product authenticity is vital to the healthcare sector. Reports indicate that up to 10% of drugs in low and middle income countries are counterfeits and deprive local economies of between $10bn and $200bn a year. 95 fake medical products were identified from 113 countries by Pfizer in 2018. WHO estimates indicate that counterfeit medicaments intended to treat life-threatening diseases account for 1 million deaths annually and 250,000 children die each year from ingesting fake medicines meant to treat pneumonia and malaria alone. 

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Cybersecurity and privacy  

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Blockchain boasts superior reliability in respect of legacy systems. Distributed encryption protects transmitted or stored data from being unlawfully accessed and maintains the integrity of downloads by verifying the sources of origin, thereby removing the possibility of malevolent software infecting users’ devices. DLT safeguards user-confidentiality, remains unaffected by single-point failures such as server crashes or power outages and can withstand DDoS attacks. Blockchain’s aptitude for cybersecurity makes it the ideal framework for running messaging and web-browsing applications. Device-to-device encryption provides high levels of security - unauthorised access of exchanged information is precluded even if data flows through untrusted networks. Emergent blockchain-based internet browsers such as Osiris and Brave assure users safe and secure surfing. 

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Management of identity and credentials

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Digital identification is a quick and convenient means of determining the identities of individuals. DLT enables the unification of various archives into a single, coalesced, all-encompassing ledger. This allows for immediate global access to information from across disparate databases. Personal documents, financial records, academic qualifications, patient histories, employee IDs, et al are made available with the click of a button. This aspect of blockchain-based databases is invaluable to both public and private administration. Governments, healthcare providers, educational  institutions and business enterprises are all turning to blockchain to improve their services. In the case of healthcare providers, instant access to patient information can save lives. Distributed ledgers have proved secure and reliable. In addition, users have full control over the information they share.

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Banks lose $15 billion to $20 billion annually to identity fraud.

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Regulatory compliance

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Regulatory processes are optimised through the automation of KYC, KYB and AML processes. A major benefit of blockchain technology in KYC/AML compliance is that it eliminates the duplication of multiple institutions validating the same set of documents. Monitoring activities are automated by way of smart contracts, unified regulatory reporting protocols and through the use of distributed ledgers as golden records. A unified database of digital identities reduces administrative burdens and speeds up the verification process. It may also prevent identity theft. 

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DLT prevents money laundering activities by tracing the provenance of assets and monitoring suspicious transactions via consensus protocols in addition to KYC verification. 

According to Mcknisey, blockchain-based solutions for customer onboarding can save banks up to $1 billion annually in operating costs and reduce administrative fines by $2 billion to $3 billion. 

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Real estate  

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The most recent substantial innovation in real estate came about thanks to blockchain. Blockchain-based fintech allows for tokenization of non-fungible assets like land and buildings. They facilitate fractional ownership of immovable or indivisible assets, allowing portions of typically illiquid assets to be sold through public offerings. This is absolutely revolutionary in respect of crowdfunding of projects. Tokenization lowers market barriers to investment, creating new opportunities for potential investors. Also, real-estate crowdfunding projects are made safer for investors through DLT by making builders truly accountable. Trust increases participation and therefore, pools of investment.

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Asymmetry of information as regards market investment opportunities is notoriously rife in real estate, delivering an unfair advantage to first movers. Also, many properties are never listed on markets, allowing unscrupulous realtors to take advantage of uninformed sellers. A live, transparent ledger ensures information is equally accessible to all participants. 

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Shares of real estate cannot be bought and sold as seamlessly as other securities that trade on the open market since they require additional approvals involving ample paperwork. DLT helps to reduce time by eliminating intermediaries, reducing paperwork and speeding up transaction speeds. It also reduces transaction speeds.      

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DLTs also make for unforgeable land title registries which aim to  rule out dishonest activities like illegal sale of property. PropertyClub and ManageGo are examples of blockchain-based real-estate service providers. 

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Fundraising 

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Blockchain grants users the ability to tokenize, fragment and sell any real-world asset. Non-fungible tokens (NFTs) popularly used to tokenize digital art, music and videos in order to make them tradeable. They also facilitate fractional ownership of tokenized assets in the market, which may be traded to raise funds.      

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Fundraising via donations : For donors, trustworthiness is the appeal of any charity alongside the delight of doing something good. DLT provides the ability to track donations with thorough accuracy, helping ensure that funds reach intended destinations and subsequently, are not misused. 

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Insurance and taxation 

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Insurance claims often require cross-company verifications of coverage. The deployment of smart contracts can automate insurance claims functions and payouts, leading to a reduction in administrative costs for providers and impediments for claimants. On web3, any article or asset can have an insurance policy, one that is assessed and settled via smart contracts. Further, the scope for insurance fraud through multiple claims is negated. AIG and Standard Chartered are using blockchain technology to devise a multinational insurance policy. 

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In the same manner, blockchain technology may also be used to collect taxes and process income tax returns in a swift and efficient manner.

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Government administration and polls 

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Blockchain technology may be used to carry out honest, graft-free elections. Election results (counting of votes) are often obscure, clarity is difficult to attain. If electronic voting systems log their data onto distributed ledgers, the integrity of voting outcomes is guaranteed. The ability to track cast votes and the immutable character of blockchains prevent electoral fraud. It also enables citizens to vote from abroad in a secure manner. 

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DLT can be fundamental in instituting transparency and accountability within government proceedings. The Roads and Transport Authority government of UAE has launched an overhaul of their legacy systems onto a blockchain. The technology is humanity’s best bet to do away with corruption. 

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Polling via DLT can be used by private corporations for internal decision-making as well. 

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Customer acquisition and retention  

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Frequent and loyal customers are paramount to any for-profit business. It is far more expensive to acquire customers than to retain them. Loyalty-reward programs are a means for companies to stimulate customer engagement and drive satisfaction. At present, the lack of an impartial reward-management system impedes the potentiality of loyalty programmes. Blockchain technology provides for forthright and dependable customer-loyalty programmes through a trusted ledger. 

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Public and private blockchains

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Blockchain networks differ in permissions - they are either public or private. Public blockchain networks typically allow anyone to join (permissionless) and permit users to participate with pseudonimity (user identity is a public key). Public blockchains use miners to validate transactions through consensus mechanisms. 

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On the other hand, access to private blockchains is restricted to a select set of users who are granted identities using certificates. They are permissioned and use identities to achieve consensus (selective endorsement). Such networks typically only allow known candidates to join. They are regulated by a single entity or a designated syndicate of private participants; the transaction ledger is maintained by members with special permissions. Private and permissioned networks can be tightly controlled and are preferred for compliance and regulatory reasons. However, public and permissionless networks can achieve greater decentralisation through a vast distribution of data.

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Conclusion

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The use of DLT assures businesses significant returns by cutting costs and creating efficiencies in processing transactions. It is highly scalable and automates manual tasks such as data aggregation and amendment. Organisations from every industry as well as individuals can leverage this technology for something or the other - its relevance is ubiquitous. The technology is bringing in a slew of new opportunities and its application can transform many existing processes. It is imperative for organisations to seize the chance to stand out amongst competitors by evaluating how distributed ledgers are appropriate for their respective enterprises and subsequently utilising them. The practical applications of DLT are growing constantly and leaders must ensure their businesses can adapt to the industry transformations or run the risk of becoming obsolete. The blockchain revolution is here - be part of it or be left behind!

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