Blockchain has signified the dawn of a new era in the way we store and exchange value. In fact, many consider it to be one of the biggest technology breakthroughs since the advent of the Internet in the early 90s. Blockchain provides a way to transact in a secure, immutable, transparent, and auditable way. However, understanding of the technology varies widely in terms of its potential and application.
A blockchain is a digital distributed ledger of transactions, recorded and replicated in real time across a network. Every transaction must be cryptographically validated via a consensus mechanism before being permanently added as a new “block” at the end of the “chain.” There is no need for a central authority to approve the transaction, which is why blockchain is sometimes referred to as a peer-to-peer trustless mechanism. Implementation of blockchain can be classified into two types: public or permissioned. Public blockchains are open and allow anyone to confirm transactions, whereas permissioned blockchains are only accessible to pre-approved parties.
The uses of blockchain can be broadly classified into three categories:
- Storage of digital records. Blockchain allows unprecedented control of information through secure, auditable, and immutate records of not only transactions, but also digital representations of physical assets.
- Exchange of digital assets. User can issue new assets and transfer ownership in real time without banks, stock exchanges, or payment processors.
- Recording and execution of smart contracts. Self-governing contracts simplify and automate lengthy and inefficient business processes.
Many companies are collaborating with blockchain start-ups, and some large players are even developing their own solutions and filing patents. In addition, most companies are opting to be a part of a consortium, which typically includes industry players, regulators, and governments.
In terms of growth and market potential, most estimates project a robust growth rate for the blockchain market in the next few years. According to one estimate, the global blockchain technology market is expected to grow at a compounded annual growth rate of 62.1 percent between 2015 and 2025 to reach US$16.3 billion.
Several factors—such as lower costs of bandwidth, data storage, and computing, as well as the prevalence of decentralized business models—are driving this growth. Nevertheless, challenges—in the form of low awareness and understanding, lack of standards and best practices, and regulatory and legal uncertainty—need to be ironed out before blockchain can achieve its true potential.
Blockchain as a technology seems too valuable to be ignored. While process efficiencies and better security are key benefits that are being targeted, perhaps the real value lies in the new revenue and solutions that could be enabled by the technology. Indeed, according to a Deloitte survey, 24 percent of executives believe that blockchain can facilitate new business models, and more than two-fifths of the respondents who know blockchain expect it to disrupt their industries.
However, blockchain is certainly not the magic potion for all cost- and efficiency-related issues, and businesses should carefully assess the technology’s applicability and feasibility to different processes. It could take a few years before we see wide commercialization of blockchain platforms and applications. At the same time, it is important to not underestimate the impact of blockchain. Every transaction platform and fabric that we know today will likely be either improved or replaced by a blockchain-based solution.
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This article was written by Deloitte and not by the Quartz editorial team.