While the blockchain was first introduced for use with bitcoin, this distributed ledger system has many other uses. Technologists, developers, market observers and futurists have all speculated on the blockchain's potential applications.
Many have seemingly been swept up in the hype surrounding this distributed ledger system, but others have provided a more sober view of the blockchain. For example, Forrester Research analyst Martha Bennett warned in late 2017 that blockchain enthusiasts would need to be patient if they want to see legitimate transformation materialise.
Bennett wrote that when she was asked to provide a one-sentence forecast for what blockchain will do in 2018, she stated: "The visionaries will forge ahead, those hoping for immediate industry and process transformation will give up." Her forecast was essentially that companies will evaluate many blockchain projects through the lens of what business benefits they will provide, which will inevitably result in some of these projects getting reduced in scope or eliminated altogether.
Jerry Cuomo, who is vice president of Blockchain Technologies for IBM Cloud and holds the title of IBM Fellow, offered a more optimistic stance. He asserted that governments will start giving blockchain technologies a closer look in 2018.
"IBM believes that 2018 will be the year blockchain becomes an accepted and appreciated innovation for government, a year when the global public sector begins to look closely at this technology, and citizens begin to see its effects on the issues that impact them," he said. "Governments are already testing blockchain as a way to replace current voting systems. More ambitiously, it could formalize identity for every human on the planet, regardless of their residency status or whether or not they have a paper birth certificate."
While just how transformative blockchain really is remains to be seen, there are several potential applications of this innovative technology worth noting.
Asset Management - Processing Trades
Several kinds of entities—brokers, settlement managers and custodians, among others—are involved in processing the trades that take place within the wealth management industry. Because these varying entities each keep their own records, there is significant room for error. By using the blockchain, all of these processes could be recorded on a distributed ledger. This could potentially reduce the chance of making mistakes and also eliminate intermediaries, in turn reducing the expenses associated with processing trades.
Blockchain And The Internet of Things
As more and more devices connect to the internet, joining the network known as the Internet of Things (IOT), there is significant potential to generate progress at the level of the individual, their home and place of residence (town, city, etc.).
With all these devices accessing the internet, great strain could be placed on the centralised security systems frequently used by enterprises. This could create a significant opportunity for the blockchain. Due to its decentralised nature, a security system based on this distributed ledger system could hold far greater potential for scaling than a centralised system.
Smart contracts are applications that execute specific contractual agreements based on if-then scenarios, and they have been singled out as potentially driving innovation in a wide range of industries. These contracts, which can be set up and executed using the blockchain, were originally proposed by Nick Szabo, a computer scientist and legal scholar.
Once the required conditions for these contracts are met, the contractual agreements are executed automatically—a characteristic that can eliminate third parties. Further, smart contracts help see to it that all parties in the contract are familiar with the terms. Technologists and industry participants have envisioned wide-ranging uses for smart contracts, including applications involving trade finance and clinical trials.
One area that technologists have identified as potentially benefiting from the blockchain is the government. IBM claimed in early 2017 that many governments have been seeking to establish transparency in an effort to cultivate greater trust, and that blockchain may be helpful in achieving this desired end.
The IBM Institute for Business Value commissioned a survey in early 2017 that gathered input from 200 government leaders in 16 countries. A small percentage of government organisations polled (14%) expected to have blockchain projects up and running in 2017, and the survey labeled these organisations "trailblazers."
These trailblazers revealed that they were largely focused on using blockchain to transform four key business areas: regulatory compliance, contract management, citizen services and identity management.
While the IBM survey pointed out the four aforementioned areas, technologists and industry participants have singled out other facets of government that could benefit significantly from leveraging the blockchain.
Both Republicans and Democrats voiced their concerns about the nation's voting system, and the Green Party actually legally challenged the election results gathered in Pennsylvania, Michigan and Wisconsin.
By using a distributed ledger system, voters could rest assured that the votes they cast would be protected through encryption. Further, as long as they could access the distributed ledger, they would be able to verify who they voted for.
Several companies have started working on ways to leverage the blockchain to offer secure voting,. Among them is Follow My Vote, which ensures that every vote is recorded once and logged on the blockchain, and BitCongress, whose system ensures that each user has one vote that is immutable (meaning it cannot be changed after it is cast).
The blockchain could be used to generate better health care outcomes by enabling superior data management. Health care practitioners could potentially provide more accurate diagnoses through improved sharing of patient data. By using private keys, health care professionals could ensure that they comply with HIPAA laws.
Storing these records in the blockchain would make them more secure, as hacking into one block and changing its information would do nothing without altering every other block in the chain.
Another way that blockchain technology could positively impact health care is by making the data included in provider directories more accurate. In April 2018, Synaptic Health Alliance, a consortium of health care companies interested in exploring how blockchain technology can help address their industry challenges, announced its first pilot project that focused on this very matter.
As of late 2018, individual insurers in the U.S. have their own provider directories, and maintaining these records costs industry participants an estimated USD$2.1 billion per year. To address this situation, the pilot project will look into using blockchain technology to share this data across different industry organisations. Specifically, the project will explore how such an approach could lower expenses, make data more accurate, improve administration and provide better access to care.
Blockchain tech may be in a great position to deliver some of these benefits. This distributed ledger updates all copies in near-real time and boasts a high level of security, which could help organisations reduce operational costs, according to Quest Diagnostics Chief Information Officer Lidia Fonseca.
The Legal Profession
Blockchain could potentially revolutionise the legal industry as this particular sector increasingly digitises its records. Industry participants have started working on applications that would record all proof that a certain legal event took place on the blockchain.
By putting this information on the distributed ledger, the risk of human error could be lowered and costs could be reduced. Doing so could affect legal events such as the sale of a home or a divorce proceeding.
The Music Industry
The blockchain could potentially change the music industry through its decentralised, immutable nature. It's well documented that many music artists and the record companies they work with have struggled with piracy and people downloading their work for free, and the blockchain could provide a medium whereby musicians could publish their songs along with metadata that identifies them. Because this metadata would be immutable, it would provide a means of the rightful musicians getting paid for their work.
The blockchain could also help create a more direct relationship between musicians and their consumers by providing a system where they could contact each other without going through a record company or some other medium.
Finally, the blockchain could make it easier for musicians to monetise their creations. Digital currencies like bitcoin and ether can be used for micropayments, so consumers could use units of these digital assets to pay for songs. Through the use of smart contracts, musicians could offer on-demand music via the blockchain.
The blockchain could be used to manage identity information in a more secure fashion, according to some industry participants. The hack of consumer credit reporting agency Equifax, which took place in 2017, illustrated the risks associated with holding the identity information of millions of people in centralised databases.
Some advocates of the blockchain have claimed that recording this information on the distributed ledger system would provide greater control over important personal data. Technologists could potentially leverage the blockchain to digitise many different forms of identification, including birth certificates, passports and death certificates. These documents can prove very important, but mismanagement is widespread. A perfect example is how frequently some documents—driver's licenses, for example—are forged.
Blockchain has drawn visibility as a technology that could disrupt the capital markets by allowing all market participants to harness the same information. Technologists from banks, fintech startups and companies that provide market infrastructure have all been working together to create a blockchain technology for this specific purpose.
However, these industry participants face several difficulties that could prevent them from achieving their goals. The right solutions could be very complex and take significant time to create.
Central Bank Payment Systems
The payment systems that central banks use for transferring money could improve significantly by leveraging the blockchain, according to a report produced by the Monetary Authority of Singapore (MAS) and The Association of Banks in Singapore (ABS). The report, which was based on the results of a prototype payment system, illustrated that harnessing the blockchain could deliver several benefits including immutability, security and real-time processing. The system could also bolster liquidity and preserve privacy.
Clearing And Settlement
Another area where the blockchain could bolster efficiency is clearing and settlement, where Santander has estimated the distributed ledger could save the financial services industry US$20 billion per year. This could provide customers with lower fees for both sending money and making investments.
In addition to delivering notable cost savings, the blockchain could potentially make clearing and settlement far more timely. For example, the blockchain could reduce the time needed for someone to sell a stock and receive the money in their account from three days to almost instantaneous.
The blockchain could be used for a wide range of applications in the energy industry, according to a report produced by PwC. Industry participants could potentially leverage this digital ledger for billing and metering. Additionally, they could leverage the blockchain for asset management, documenting ownership, emission allowances and origin guarantees.
The blockchain has also been making it easier for energy industry participants to execute transactions. Smart contracts could enable automatic transactions involving the smallest amounts of energy.
"The prospect of being able to track particular electrons via a blockchain as they move onto or off the energy grid has captured the imagination of many companies," stated Daniel Sieck, an associate for U.S. law firm Pepper Hamilton's Corporate and Securities Practice Group.
Fraud is a serious problem that causes organisations to lose billions every year. The blockchain is decentralised and immutable, and private versions of this distributed ledger system can be permissioned. This means that a central entity—for example, a network administrator—has some control over the network.
Because the blockchain is decentralised, individuals looking to perpetrate fraud have no specific point of vulnerability where they can do so. And because this distributed ledger is immutable, it is far more difficult to create counterfeit goods, for example.
While many blockchains are permissionless—such as those used for digital currencies—some blockchains are permissioned. Those can be highly beneficial because the organisations using such distributed ledgers can control who can and cannot use them.
Blockchain could help disrupt the insurance industry by providing several benefits including lower costs and reduced fraud. A report published by Deloitte predicted that the two biggest areas that could benefit are underwriting and claims processing.
For underwriting, the report noted that the blockchain could help enhance risk assessment, cut costs and improve client onboarding. It also stated that blockchain technology could improve claims processing to automate claims submissions, provide a better customer experience and cut down on fraud.
Further, some blockchain advocates have emphasized that the distributed ledger system could improve transparency by having the network verify claims placed on the blockchain.
Media companies have started leveraging blockchain technology. Because of new technology created by Comcast, companies can purchase advertisements that will be displayed on both over-the-top and broadcast television. An application named Publiq, which was announced in July 2017, has given writers the ability to share their digital content through the blockchain and receive immediate compensation.
While these improvements may seem compelling, the blockchain could potentially generate numerous other benefits for digital media, including reduced advertisement fraud and new opportunities for monetisation on social media platforms.
The blockchain could be used for a wide range of payments, including interbank transactions and payments taking place between organisations and their clients. Harnessing the blockchain could help eliminate the many intermediaries that exist currently. This could potentially reduce costs and also expedite transactions.
It is worth noting that while the blockchain could make promising improvements to the payments system, its capacity for handling transactions could prove a significant limitation.
We can potentially obtain far greater insight into the global supply chain by using the blockchain. By recording information on the various components used to produce goods and displaying this data on a digital ledger, we could produce a smarter system. Institutions that choose to invest in such technology could get a leg up on their competition by having superior information.
Supply Chain Management
While the blockchain can help keep users informed by providing superior data, it can be used to help provide other benefits such as better inventory management, reduced errors and lower costs. Companies such as Factom and Skuchain have begun developing technologies that harness the blockchain for this purpose.
Stock Exchange Operations
Several stock exchanges have started exploring ways they could harness distributed ledger technology to improve their operations. These processes are very complex, and as such, they could benefit significantly from greater efficiency. Exchanges in America, Singapore, Australia and Switzerland have all begun looking into ways they can use the blockchain to simplify the process of settling transactions.
The potential cost savings could be significant, as an Oliver Wyman report stated the following:
"IT and operations expenditure in capital markets is currently close to US$100-150 billion per year among banks. On top of that, post-trade and securities servicing fees are in the region of US$100 billion. Significant capital and liquidity costs are also incurred because of current delays and inefficiencies within market operations."
Fortunately, some exchanges have made viable progress. On 11 November 2018, for example, Singapore's stock exchange and its central bank (the Monetary Authority of Singapore) announced a prototype of a product that leveraged blockchain technology for tasks such as payment, delivery and settlement of assets.
Australia's stock exchange also made some headway, announcing that it had plans to replace its main clearing and settlement platform in mid-2021. The exchange revealed that it had been testing technology produced by a U.S.-based firm named Digital Asset.
The blockchain has many potential applications, a number of which have been outlined above. As companies and government organisations continue to leverage the blockchain, they may very well find new applications for this distributed ledger system.