Introduction
A blockchain is defined as a decentralized, distributed, and public digital ledger typically used in recording various transactions across many different computers and are linked using cryptography. Blockchains were invented as the first digital currency to combat the problem of double spending, which eliminated the need to bring in of a central server or any other trusted authority. They are considered as a payment rail type. Although blockchains are adversely associated with the bitcoin cryptocurrency, bitcoin is an example of the blockchain application. Some advantages of blockchain include greater transparency, enhanced security and traceability, reduced costs, automated smart contracts, and increased efficiency and speed. On the flipside, some of the disadvantages include complexity, scalability, and they use excessive energy. Moreover, blockchain entries are neither immutable nor permanent and require constant proof of work. In the modern world today, blockchains are applied in finance, supply chain, art, and healthcare.
Advantages of Blockchains
One of the major benefits of blockchains is increased speed and efficiency. When using the trading processes, human error is inevitable due to the burdensome paperwork involved. Additionally, the process is time-consuming and often requires a third-party mediation to complete some of the transactions. Blockchains streamline these business transactions by making them automatic, which means that they are completed faster and more efficiently (Treleaven, Gendal Brown, & Yang, 2017). A single digital ledger shared by the recipients performs record-keeping functions. Consequently, all the individuals involved share and access the same information leading to increased trust without involving intermediaries. The result of this is quicker clearing and settlements (Treleaven, Gendal Brown, & Yang, 2017). Similarly, blockchains reduce costs. The sole purpose of the existence of most businesses is profitability while reducing costs. With the blockchain technology, third parties and intermediaries who guarantee the safety and security of transactions leading to an increase the expenditures are eliminated (Niranjanamurthy, Nithya, & Jagannatha, 2018). All the stakeholders have access to a single immutable version of data, and this means as a business person, one does not have to review all the documentation (Niranjanamurthy, Nithya, & Jagannatha, 2018). Greater transparency is also another advantage of blockchain technology. Unlike in the past where every individual received their copy of the transaction, all network participants share the same documentation that can only be updated through a consensus and hence everyone has to agree on it (Niranjanamurthy, Nithya, & Jagannatha, 2018). Changing the records would require the collusion of the entire network and altering all subsequent records. Subsequently, the data is always transparent, accurate, and consistent.
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Blockchains are secure. Prior to any record of transactions, an agreement must take place. Once it is approved, it gets encrypted and linked to other previous transactions. The information is then stored across an array of a network of computers instead of a single server (Treleaven, Gendal Brown, & Yang, 2017). For this reason, the information is safe from hackers who may try to compromise the data. In the business world, protecting of vital information about companies is crucial, and this technology determines and monitors how critical data is shared to prevent fraud and unauthorized activities (Treleaven, Gendal Brown, & Yang, 2017). Different consensus protocols are needed to permit entry, and this further removes the risk of duplicate entry (Pilkington, 2016). Blockchains improve traceability. When a business entity deals with products that are traded through sophisticated supply chains, it becomes difficult to trace the goods back to the origin. This means that if the goods are defective, it will be hard to get compensation from the original seller. Blockchain technology, however, allows recording of transactions leading to an audit trail showing the origin of an asset and all the stops it made to the final destination (Treleaven, Gendal Brown, & Yang, 2017). This contributes to the verification of the authenticity of assets preventing fraud. For many businesses, the formation of a contract is inevitable since most of the activities revolve around collaboration. A smart contract, therefore, is a computer code that contains a set of rules and regulations under which the parties agree to interact (Pilkington, 2016). When using blockchains, the contact is automatically enforced when the pre-establish standards are met. The code facilitates, verifies, and executes the performance of the agreement or contract (Pilkington, 2016). It is a form of decentralized automation where deposited assets are redistributed among all the participants of the contract.
Problems Associated with Blockchains
Blockchains are not distributed computing systems. Considering the complexity of the technology, one might think they perform complicated distributed complications (Memon, Hussain, Bajwa & Ikhlas, 2018). However, this assumption is incorrect. All the nodes that maintain a blockchain across the world do the same thing (Memon et al., 2018). Most of the work is left to the computers. For instance, the computers verify the transactions, record them into a blockchain, and store the entire history. Scalability remains one of the blockchains major weakness. Bitcoin, for example, is the most successful blockchain implementation based on the number of users (Memon et al., 2018). However, the application's sluggish speed in processing of transactions bars it from increasing the number of users. Compared to other applications such as visa which processes thousands of transactions to millions of customers every second, blockchains are not scalable. Another disadvantage is the anonymous character of the blockchain. Although one of the benefits is openness where all the authorized personnel access everything, extreme transparency is harmful to the business but beneficial to logistics and supply chain (Memon et al., 2018). For example, when a bank transfers payment to a recipient, some of the information like the paying company's balances and payment patterns is revealed. Consequently, malicious hackers may pose as part of the stakeholders and use the information for fraudulent activities like illegally transferring funds. Too much information exposes the business to such dangers. In the same way, blockchains breed complexity. The main raison d'être for blockchains is decentralization (Memon et al., 2018). The technology nevertheless has limitations, especially to the existing centralized structures and processes.
It is, therefore, recommended that entrepreneurs should combine both centralized and decentralized systems before gearing towards a common decentralized approach. This creates some complications. A blockchain only has pointers to records held in conventional sidechains and databases. Adding an external link, to one of the databases complicates the process (Crosby, Pattanayak, Verma, & Kalyanaraman, 2016). At times, blockchains are inefficient. To begin with, the technology stores the details of all the transactions, which at times, especially in the bitcoin cases, can exceed 100GB of data (Crosby et al., 2016). In addition, the data replicates across all the participating nodes, which are inconvenient for storage. One has to download data, and for the cases of cryptocurrency, payments cannot be made before the download and verification process is finished which often takes several days (Crosby et al., 2016). The only other option would be not to save data on every network which would destroy the foundation of blockchains and require the clients to trust the servers (Crosby et al., 2016). As the transactions proceed to the next levels, the size of the data also grows. An important point to note also is that the lifespan of a blockchain is limited, and thus, it becomes ineffective. Arguably, the application is, to some extent, rendered ineffective because it stores too much data, and yet it lasts for a short time, which is uneconomical to any individual or business.
How Blockchain is Used in the World Today
Blockchains are designed to resist modification of data and are hence applied in the finance and banking sector. Transfer of finances from the central bank to other financial institutions and clearing houses may take several days and may be exposed to some risks such as credit and exchange rate risks (Treleaven, Gendal Brown& Yang, 2017). For this reason, bitcoin technology is recommended as it makes these transfers visible. The technology also comes in handy when making cross border payments. Most international transactions go through several banks before completion, which exposes them to a wide variety of uncertainties such as additional expenses and whether the payment will reach the final destination in full (Treleaven, Gendal Brown& Yang, 2017). These risks are eliminated by using blockchains as it smoothens the entire process. In the same way, the blockchain technology is applied in supply chain management today. In the modern world, all the links related to the creation and distribution of goods are complex. Depending on the type of product, the supply chain spans up to a hundred stages with numerous individuals and companies involved, particularly for global suppliers. The business entities thus use blockchains to keep track of the inventory and cash flow (Wattenhofer, 2017). An example is Walmart, one of the world's leading retailers that sources for pork in China. Walmart uses the blockchain network to record where all the meat comes from, how it is processed, stored, and sold. This eases the otherwise cumbersome paperwork and improves efficiency. Complementary to this are several supply chain start-ups like cloud logistics, which not only provides blockchain-enabled solutions but also reduce costs.
In the world of art, blockchain technology applies through the transactions of buying art and other valuables. Since time immemorial, one of the significant problems in the art industry is the authenticity of the artwork and collectibles. For this reason, an art-trading platform was developed to eliminate the problem. The technology entails developing robust protocols to connect the physical piece of art to its digital blockchain using an internet-based electronic tag for identification and tracking (Wattenhofer, 2017). In line with that, an artificial intelligence program was created that analyzes high definition images of the artwork. The program discerns and separates the real from the fake art based on color resolution and brightness, aspects that are not detectable through the human eye (Wattenhofer, 2017). A combination of the technology and blockchain transforms the art-trading platform into a single interface. The results of this are that artists get paid for their work through the royalty system which means that old the art grows; the artist's estate can benefit from the payment years after they are gone (Wattenhofer, 2017). In healthcare, blockchain technology is used in patient data management. Medical records have always been scattered in several files, which makes it impossible to trace, and most of the times, the files contain vital information like a patient's medical history. Blockchain's transparency advantage avails all the information to the users. What this means is that the doctors can keep track of all the ailment and treatment. On the other hand, blockchains improve relief efforts in healthcare. During a crisis, relief services are unable to collaborate effectively since the centrally manage systems of most relief organizations are split between multiple agencies. A blockchain-based system, when implemented, allows addition and tracking of data through a live feed (Memon et al., 2018). This enables the provision of a live feed of the available agencies' relief efforts, which saves effort, time, and money. Lastly, in healthcare, blockchains secure and control transactions by simplifying the management of claims and revenue cycle. The hospitals are thus able to improve the collection of payments, manage claims, and minimize denials and underpayments.
Conclusion
Conclusively, blockchains assist in the recording of transactions and linking them using cryptography. To businesses around the world, the application came to replace the cumbersome traditional methods of transacting with numerous advantages as follows. First and foremost, blockchain technology improves the speed and efficiency of transactions due to lessened paperwork, which also reduces human error. In addition, the application streamlines business operations by enhancing transparency, where all the stakeholders have access to data and have to agree for a change to be executed unanimously. Blockchains strengthen security and improve traceability by trailing the origin and the path that assets follow up to the final destination. On the contrary, blockchains have low scalability, are open to fraud due to extreme transparency, have a limited lifespan, and are inefficient at times due to the storage of large amounts of unnecessary data. Moreover, they are not distributed computing systems in that the computers carry out all the transactions while all the nodes carry out the same function. Some of the areas blockchains are used are finance, supply chain, art, and healthcare. In finance, they come in handy in clearing and settlement transactions as well as cross border payments, while in supply chain management, cloud logistics provide solutions and reduce costs. In hospitals, blockchains are applied in improving relief efforts and keeping track of patient records while in art, it is used in the royalty system.
References
Crosby, M., Pattanayak, P., Verma, S., & Kalyanaraman, V. (2016). Blockchain Technology: Beyond bitcoin. Applied Innovation , 2 (6-10), 71.
Memon, M., Hussain, S. S., Bajwa, U. A., & Ikhlas, A. (2018). Blockchain Beyond Bitcoin: Blockchain Technology Challenges and Real-World Applications. 2018 International Conference on Computing, Electronics & Communications Engineering (iCCECE) .
Niranjanamurthy, M., Nithya, B. N., & Jagannatha, S. (2018). Analysis of Blockchain technology: pros, cons and SWOT. Cluster Computing .
Pilkington, M. (2016). 11 Blockchain Technology: Principles and Applications. Research Handbook on Digital Transformations , 225 .
Treleaven, P., Gendal Brown, R., & Yang, D. (2017). Blockchain Technology in Finance. Computer , 50 (9), 14-17.
Wattenhofer, R. (2017). Distributed Ledger Technology: The Science of the Blockchain . CreateSpace Independent Publishing Platform.
