Blockchain is an emerging, disruptive technology that is changing how industries like banking and financial institutions handle and safeguard transactions. With the rapid proliferation of digital transactions through mobile devices as well as e-commerce platforms. The dynamic changes in the business landscape and architecture coupled with an uptick in online frauds have pushed the adoption of the technologies like blockchain across numerous industries including fintech, healthcare, global shipping, and the real estate sector. Blockchain represents a paradigm shift in how corporations work and empower their customers. The technology provides enhanced protection and privacy, greater transaction transparency, decentralised operations, and a lower margin of errors.
What is blockchain?
Blockchain is a distributed ledger technology that is almost impossible to hack, change or cheat. It is a digital system that records transactions across an entire network of computer systems. Data is stored across thousands of servers globally and users are allowed to view all the entries on the network in real-time. In a blockchain, each block contains numerous transactions with a unique proof of work attached to it on top of proof of work from previous blocks. This creates a chain effect which makes any alterations extremely difficult. Each transaction recorded in the block has an immutable cryptographic signature called a hash. To corrupt a blockchain, hackers would have to change every block in the chain across multiple distributed systems.
During the 2008 financial crisis, public trust in traditional banking institutions dipped to an all-time low. Software and tech enthusiasts saw this as an opportunity to create alternate financial systems outside the purview of traditional financial systems. This ushered in the creation of Bitcoin, a cryptocurrency that operated on a peer-to-peer cash structure. Bitcoin functioned on cryptographic rules which included hash, time-stamping, consensus mechanisms, and asymmetric encryption. Since all transactions on the blockchain were time-stamped and sequentially chained in blocks to form digital ledgers, tempering with data became almost infeasible.
Blockchain technology has outgrown beyond the confines of cryptocurrency and today, it is replacing traditional computational and data storage infrastructure. Blockchains like Bitcoin and Ethereum are growing in popularity, as such, they are adding more blocks to the chain and thereby amplifying the security of the entire ledger. The technology is driving greater transparency across the entire digital ecosystem and accelerating digital transformation.
What are the key features of blockchain?
- Better efficiency and lower cost– Blockchain is a faster and efficient technology to transfer assets and/or data. Since all entries validated and time-stamped, it reduces the time between initiating a trade and receiving the asset. Also, due to its decentralised infrastructure, it reduces the dependency on intermediaries and the cost associated with it. On top of that, there is less interaction needed when it comes to validating a transaction, further removing the need to spend money.
- Greater transparency– The decentralised framework of blockchain improves transparency in transactions. As a peer-to-peer network, every transaction in the chain must be agreed upon by all the participants involved. An agreement is reached through a majority consensus. Once the majority consensus is reached to validate a transaction, all duplicate entries are eliminated. In a blockchain, the blocks cannot be changed without simultaneously overwriting all of the thousands of copies used by the participants at any single time. This results in asset safety and reliability. While transactions are public, participants’ identities are protected by pseudonyms. The consensus algorithm of blockchain makes the decision-making process more democratic and transparent.
- Better security– As a decentralised system, blockchain offers better security than traditional banking systems. The use of encryption also offers an added layer of protection. The ledger is distributed through thousands of computers and therefore it’s tediously hard for cybercriminals to hack the ledger. Every information on the blockchain is hashed cryptographically i.e. all the blocks in the ledger come with a unique hash of its own and contain the hash of the previous block too. Tampering with the data will require changing all the hash IDs of all the blocks. This cryptography ensures the safety of the entire network and makes it impossible to hack.
- Immutability– The immutability property of blockchain is one of the key features of this disruptive technology. It is a permanent, unalterable network. Every node on the system contains a copy of the digital ledger and to add a transaction, every node must be first validated. When the majority consensus agrees that the transaction is valid, only then it is added to the node. This chain reaction makes the distributed ledger transparent, resilient, and incorruptible.
How can blockchain help companies to engage better with their customers?
The technological evolution had enhanced data collection and ad targeting methodologies. Vast amounts of data are being mined through data collection technologies, enabling brands to easily track, collect, and analyze consumer data. With growing cybersecurity concerns, blockchain has the ability to alleviate consumer concerns regarding online transactions. Online shopping and e-commerce businesses rely heavily on internet banking. These businesses have access to the personal details of customers such as home addresses and credit card numbers. Protection of this sensitive information is a major factor that impacts customer trust and loyalty. The emergence of blockchain technology has enormous potential to ensure a high level of security for both brands and consumers. Blockchain can provide companies with greater visibility over customer profiles, touchpoints, purchase patterns, payment history, and promotion responses and enable them to craft more attractive, valuable, and customized loyalty programs and personalized recommendations. It has the power to enhance the entire marketing and sales funnel as well as create business value for organizations.
With blockchain technology, organisations can innovate their business models by removing intermediaries in the ecosystem and enhancing operational efficiency. Companies like Coca-Cola are deploying blockchain to create a secured registry for their global workforce to root out forced labor from their company. The secure registry allows the company to identify, employ and track workers who genuinely want to be part of the organization, thereby facilitating transparency in the hiring process and wage distribution.
The digitalization of payments and supply chains means that organizations are transforming legacy systems to become safer digital infrastructures. This would require upscaling the workforce with digital skills and deploying enterprise-wide automation. Real-time tracking of transactions ensures the security of all payments, minimizes delays, cuts extra expenses, and reduces employees’ failures in the entire supply chain. The use of blockchain technology in vulnerable sectors like healthcare and financial services is securing the data distribution and preventing exposure of critical data. Such preventive and proactive measures are crucial building blocks of consumer loyalty. The instant accessibility of data over the distributed network ensures that relevant departments have access to important customer data at all times and thereby are better able to solve customer-related issues or queries. Blockchain is fostering customer-centric innovation to support business growth and prosperity.
Business models are transforming at breakneck speed thanks to disruptive technologies like blockchain. Customer journeys are more complex than ever. These technologies are beneficial to organizations as they help them understand how to efficiently spur internal processes and capture new opportunities. The superior computational power of blockchain technology has the potential to revolutionize how companies handle and secure data on a large scale.