When it first came into popular use a few years ago, the term “the blockchain” seemed like a buzzword that had something to do with Bitcoin, and it wasn’t unreasonable to assume it was some passing fad.
Simply put, the blockchain is a database that can be added to (but never changed or deleted), and copies of the database are stored in many locations. It’s clear by now that the blockchain is here to stay. And, according to many observers, it will impact business in ways we are only just beginning to understand.
There are, of course, skeptics who question the practical value of blockchain technology. Yet there are also many who see a limitless future in which potentially any business transactions will be handled via the blockchain, with no overhead, no friction, no fraud… with few problems at all. Advocates insist the blockchain will be as revolutionary to business, and even to life in general, as the internet itself.
It’s still too early to know just how much impact the blockchain will have, but there are already indications that its impact in financial services will be substantial. It’s already being used in some financial applications, and decentralized finance (or DeFi), which is built on blockchain technology, has surged in both attention and value in the past few years.
Much More Than Cryptocurrency
To the general public, the blockchain is still largely synonymous with cryptocurrency. There is good reason for that, as blockchain technology was first developed in 2008 to serve as the public ledger for Bitcoin. However, the principles of the blockchain are now used in a variety of practical applications in business and government.
Most DeFi projects use the cryptocurrency Ethereum, which can be programmed to handle “smart contracts,” in which contract codes are embedded in code stored in the blockchain.
A tamper-proof shared digital ledger, with contract terms embedded in the code, is an attractive concept. It can be shared, yet members in a networked blockchain can only view transactions relevant to them. When implemented properly, it can serve as a single source of truthful documentation. And smart contracts can mean that, for example, when contract terms are met, a payment is automatically sent.
Part of what ensures security is decentralization. Because the data is stored and replicated in many places, there is no main storage center to attack or hack. Decentralization means transactions can be conducted between two parties using a blockchain without any intermediaries such as banks or brokerages. With transactions being handled via smart contracts, there are no fees to be paid to third parties.
DeFi is a relatively new concept, of course, and tools are still being developed. Thus far there is minimal, if any, regulation. Despite this seeming Wild West aspect, businesses are being built based on DeFi.
Customer Service and The Blockchain
In the utopian vision of the blockchain, the code is the law. In other words, if two parties are adhering to a smart contract, the transaction will happen according to an immutable computer code. But, what if something goes wrong, perhaps human error such as an incorrect input? How will that be resolved? And, with transactions being decentralized, what would the jurisdiction be for any legal dispute?
An example of a customer service dispute in which the blockchain could make a difference would be if a customer inadvertently ordered the wrong item which was then delivered. If the record was kept as an unalterable record on a blockchain, then the company would have a history of the transaction. It would be clear that the customer, not the business, made the error.
The idea of an immutable record of customer history is attractive. But there are obvious obstacles, such as the way data would have to be structured to enable it to be stored in a blockchain. The cost of converting legacy systems could be prohibitive.
Illinois encouraged the use of blockchain technology, and Cook County hired a private contractor to input property information. The goal was to make deed fraud impossible, as buyers or lenders could obtain a certified digital file instead of a traditional paper deed. That’s a practical use case, but it could take a very long time for governments or businesses to begin moving their records to blockchain solutions.
Companies are moving ahead with blockchain applications, including even giants like IBM. Investors are pouring money into companies, including many startups, working with blockchain technology.
In the summer of 2021, the prominent Silicon Valley venture capital firm Andreesen Horowitz launched its third “crypto fund.” Valued at $2.2 billion, the fund will invest in crypto currencies as well as companies making blockchain applications. In a statement announcing the fund, the directors said, “The size of this fund speaks to the size of the opportunity before us: crypto is not only the future of finance but, as with the internet in the early days, is poised to transform all aspects of our lives.”