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Blockchain

Why use blockchain technology?

Understand the main reasons why an organisation might want to use blockchain technology, and whether it's a good choice for you

Over the past few years, as cryptocurrency has matured and its benefits have become more widely understood, billions of dollars have been spent researching blockchain technology in an attempt to fully utilise its potential and understand whether or not it’s appropriate in different scenarios. In the last quarter of 2017 alone, Initial Coin Offerings (ICOs) raised over $3bn in capital for blockchain projects. Large multinational corporations, rising startups, academic institutions, and government agencies are currently investigating the applicability of blockchain to a myriad of industries and problems.

In this article, we’ll look at the main reasons why an organisation might want to use blockchain technology, including:

  • Security and redundancy
  • Immutability and trust
  • Cost reduction
  • Accuracy

What is blockchain?

We’ve discussed exactly what blockchain is in a separate article, but let’s quickly go over our definition here. A blockchain consists of a decentralised, trusted ledger of transactions which occur within a network. This network is made up of independently owned nodes that use a cryptographic protocol to validate the transactions taking place.

The protocol rewards accuracy in a way that ensures the data entered into the ledger cannot be wrong or subject to changes. It is immutable, secure, and fully transparent.

Security and redundancy

Every organisation in the world values security, none more so than those who deal invaluable assets like private or highly sensitive information. If you’re looking to collect, store, and manage essential data that will change over time, then blockchain is potentially your best option.

For hackers attempting to access private information, a blockchain is an ultimate deterrent. A successful hacker would have to infiltrate countless servers and tamper with all of their records to get access to the information they’re after. The logistical implications of such an attack mean that the costs far outweigh the potential benefits of a hacking attempt.

Fully decentralised and replicated across thousands of nodes, blockchains are virtually unhackable. This technological feature has attracted the attention and investment of powerful organisations in banking, insurance, and legal services industries.

Immutability and trust

Another defining feature of blockchain technology is the immutability of the data it contains. In simpler terms, once the data is recorded and validated by the whole network, it can no longer be changed.

The strength of data immutability in blockchain is thanks to the synergy of three technologies: cryptographic keys; a shared, distributed ledger; and validation protocol. This means that records kept on a blockchain can be considered reliable and trustworthy on their own. No central bank or regulatory agency needs to stand by them.

Unlike people, data can be trusted. For organisations that deal in trust, this feature alone justifies a move into blockchain.

Cost reduction

Businesses employ a variety of software programs and databases, which can sometimes be a problem even within a single company.

For example, if each department has its own database, the organisation may face a delay in the flow of information to management, which in turn means management may not have the most up-to-date information they need to make quick decisions which could affect profits.

When you factor in suppliers, customers, and regulatory bodies, the transaction costs of reconciling information across a company can start to add up. Organisations can lose a lot of money in these clunky exchanges.

With enough successful implementations across interdependent businesses, blockchain can vastly reduce transaction costs, increasing profits for investors. This explains why a lot of institutional money is flowing towards blockchain.

Accuracy

The world has evolved to a stage where we rely purely on data. Businesses, large and small, as well as other organisations, recognise the huge importance of reliable, accurate data.

As previously stated, humans are unreliable compared with technology. In terms of data collection, storage, and validation, to compare a human against a blockchain would be cruel.

Blockchains run a protocol that rewards the accuracy of the information they contain. They also keep a historical record of all these entries (transactions) and can be trusted to operate with dynamic data at speeds organisations simply haven’t seen before.

So why use blockchain technology?

It could be argued that the astounding investment in blockchain technology by governments, businesses, and academia is driven partially by wishful thinking generated by the meteoric rise of cryptocurrencies in late 2017, but the truth is that there are numerous recognisable benefits this technology brings to the table, and established institutions across the public and private sectors seem to favour this view.

In the same way that people didn’t fully understand what possibilities the internet provided upon its inception (and some will argue that’s still the case), the full extent of what improvements blockchain can bring is still unclear. However, even in its relative infancy, blockchain provides a number of key benefits to organisations willing to embrace it.

Stay on top of the latest developments in the blockchain world with Coin Rivet.

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