First developed a decade ago, blockchain is a sophisticated way of allowing parties to verify transactions online using a digital ledger. Two distinct parties agree to a transaction and the details are encoded in uniquely identifiable data. That block of data is connected to those before and after it to create “an irreversible, immutable chain,” as IBM explains. The blocks are created on a shared system by individuals with access privileges and cannot be deleted or changed.
However, since a blockchain network is decentralized, miners are needed to authenticate the transactions by answering a cryptographic question to correctly identify the sequences associated with the transaction. This effort requires sophisticated hardware and a massive amount of processing power.
The main blockchain application has been in cryptocurrency transactions. The catch, though, is that mass adoption of blockchain hasn’t really happened yet. At a recent Finance Disrupted Conference, Michael Novogratz, CEO of Galaxy Digital Capital Management, suggested the blockchain industry is “in the equivalent of the third grade” in terms of maturity. Simply put, first-generation blockchains are just too new and too slow for many companies and individuals to adopt at this time.
“High costs, unclear returns, and technical difficulties,” have also slowed adoption, per McKinsey.
Blockchain 2.0 on the Horizon
Blockchain 2.0. could make the difference. With blockchain’s distributed ledger technology, information can be shared more easily with built-in counterfeit prevention and regulatory and auditing data readily available.
In blockchain 2.0, cryptocurrency won’t be the only valuable data exchanged. Businesses can agree to smart contracts, which are self-executing, tracking the logic in the terms and conditions of the contract to react and perform actions (such as asset transfers).
Think of a product moving from one location to the next. With blockchain 2.0 technology, that movement will be documented for traceability and transparency in real-time. With smart contracts, trust in product authenticity or delivery time can increase as payment between manufacturer and vendor or vendor and consumer can be held in escrow until the contract is fulfilled.
Blockchain 2.0’s security and speed also come with fewer errors and miscommunications throughout the chain, which can reduce returns and result in reduced environmental impacts. Further, the improved inventory management can lead to lower costs, less paperwork, and more time for people at the business to innovate and improve customer satisfaction.
Blockchain Accessibility
Blockchain companies are no longer only providing the hardware layer, but now also offering blockchain-enabled cryptocurrency applications to make deployment less complex and less expensive. Blockchain as a Service is an option too.
Until recently, the blockchain customer had to build digital ledger platforms to communicate with the development platform and infrastructure; in addition to acquiring and integrating the data, they needed the technology talent to develop ledger software, services, and applications on their own. Now, providers are emerging offering solutions extending into the data and ledger layers of the blockchain stack.
With the simplification of access, blockchain can help reduce costs by taking out the need for a middleman in exchanging information and records. McKinsey expects the long-term applications to include:
- improved fraud management
- supply-chain monitoring
- cross-border payments
- identity verification
- protection of copyrights or intellectual property
The technology is transforming rapidly. You may have mostly missed Blockchain 1.0, but there’s still to get in on Blockchain 2.0’s benefits before we’re talking about Blockchain 3.0.