Blockchain technology has been around for more than a decade and is a distributed database or ledger that is shared among the nodes of a computer network. One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in blocks that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previous block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled. This data structure inherently makes an irreversible timeline of data when implemented in a decentralised nature.
Initially connected exclusively to facilitating Bitcoin transactions, in recent years there has been much discussion about its potential away from cryptocurrency, but adoption has not been as widespread as some predicted it would be.
“There have been a lot of discussions around how blockchain can solve supply chain frictions, the tokenisation of financial market infrastructure, government incentive schemes or either collecting taxes or paying out Covid support loans using a token that’s born or minted on a blockchain. These cases all make sense and there are lots of positives regarding them,” says Ian Taylor, KPMG’s Head of Digital Assets.
Bitcoin was originally designed as a peer-to-peer payments system that’s trustless, which means that there’s no third party, such as a bank, that provides the rails to facilitate the transactions.
“We’ve started to see many merchants, both in e-commerce and physical stores, accept payment in stablecoin [a type of cryptocurrency that is pegged to another currency or commodity],” says Taylor. “It’s much cheaper than credit cards and your liquidity is not wrapped up over the weekend because the settlement is almost instantaneous, depending on the type of blockchain it is.
“Pretty much anything can be tokenised. Essentially, think of a derivative that represents something else that lives on a blockchain. Then think of the benefits that blockchain gives, such as 24-hour 365-days-a-year access, improved transaction speeds and, if it’s on a public blockchain, it’s open source, so we don’t need back-office reconciliations and siloed systems.”
Ross Thompson, Accountancy and Finance Lecturer from Arden University, says that blockchain has the potential to infiltrate a variety of industries outside banking and finance, from the property market to higher education institutions. “The transparency and speed of blockchain can make property transactions – which often include copious amounts of paperwork, possible fraud, and errors in public records – more efficient, safer and easier.”
Developers are looking to blockchain to help alleviate the security and scalability concerns associated with the Internet of Things (IoT). “IoT devices often suffer from security vulnerabilities that make them an easy target for cyber criminals to attack. Blockchain can provide an interoperable chain that has a more robust level of encryption, making it virtually impossible for cybercriminals to overwrite existing data records,” says Thompson.
With blockchain allowing records to be kept on multiple computers, data security is enhanced, meaning data losses from theft, fires and catastrophes are greatly reduced. It is also virtually impossible to delete or tamper with the records once they have been implemented, reducing the chances of fraud.
“Blockchain promotes transparency and trust with participants being able to have relatively unfettered access to their records, cutting time and effort made on endless to-ing and fro-ing. It also removes the need for intermediaries with it being a true peer-to-peer system,” says Thompson. “This, again, can reduce costs and access delays.”
Thompson says that the biggest hurdle to adoption is still the relative newness of blockchain, and the shortage of skills needed to develop and use it.
“With it not being widely adopted by businesses, there is also a lot of apprehension around it. What doesn’t help is that blockchains require broad adoption to work effectively, and an entire system overhaul. If neither the accessibility nor trust and knowledge around the technology isn’t yet there, it will be difficult for businesses to successfully embrace it.”
The lack of trust among blockchain users is also a concern, he explains. While organisations may start trusting the security of blockchain once the technology is widely accepted and used, blockchain users may not fully trust other parties on the blockchain network.
It also requires due diligence, even though the system is designed to remove human interaction from the process, says Marc Jones, Partner, Commercial Litigation, Fraud and Securities Litigation at Stewarts law firm. “Anyone using blockchain technology who is not in a position to do their own due diligence – and few people are – has to trust that the software will do what it is supposed to do.”
While there has never been a successful hack of the Bitcoin blockchain, there have been high-profile hacks of some of the most reputable blockchains, most recently Solana. This comes back to trusting the people behind the software. A distinction should be made between bespoke, permissioned blockchain solutions and open-source blockchains, Jones explains.
“In the former case, a business that employs a blockchain solution – and many do in areas such as financial services, insurance, international trade, renewable energy, sport sponsorship and many more – can look to the developers they employed to create their blockchain (or their insurers) if things go wrong,” he says.
“In the latter case, such as Bitcoin, users who lack the technical expertise must simply trust that the software works. It’s in this area that regulation will have to fill the gap left by blind trust.”
David Mahdi, an expert in identity-first security and digital trust in the blockchain, and CSO and CISO Advisor at cybersecurity firm Sectigo, warns that blockchains are still susceptible to cyber attacks such as phishing.
“On the blockchain, this is known as ‘ice phishing’, a technique that doesn’t involve stealing one’s private keys, but rather entails tricking a user into signing a transaction that delegates approval of the user’s tokens to the attacker,” he explains.
It is not enough to watch out for simple messages with the typical giveaways of crude spelling and wording, he says – context, content and sender must all be considered, particularly if financial transactions on the blockchain are involved. “Another attack variety sees bad actors impersonate wallet software to steal private keys directly, making it even more important to truly verify who and what you are communicating with online.”
For businesses to use blockchain technology in the most optimal way, there needs to be transparency, says Thompson. Platforms such as TradeLens (a global logistics network) and IBM Blockchain do this by showcasing what can happen when peers and competitors work together to develop solutions to common challenges.
“Businesses have also found greater trust in private blockchains, where there are no unknown users to avoid,” Thompson comments.
He argues that blockchain has the potential to transform most industries. “Let’s take the automotive sector, for example. The immutable aspect of blockchain could potentially make selling used cars a lot safer and more secure. It could list the previous MOTs, services and owners on the blockchain for all relevant parties to see. The logging of information on one system is more authentic, too, and gives the buyer trust and confidence in the vehicle’s provenance when making a purchase.
“When looking to insure your new car, blockchain could also speed up the authority checks for policies, cutting costs, removing the need for a middle man and reducing the chances of fraud.”
The expansion of blockchain applications in both public and private domains is set to increase due to complementary advancements in technologies such as artificial intelligence, machine learning and smart contracts. This opens up the potential for blockchain applications in areas such as manufacturing, farming and design, says Thompson.
“It could feasibly be used to provide the scaffold for IoT, although connecting disparate assets, machinery and equipment presents interoperability challenges.”
When blockchain was first introduced, some of the key benefits highlighted were its ability to provide all parties with transparency on transactions, and the improved validity and accuracy of data as a result of its consensus mechanism.
This can foster confidence, explains Esther Mallowah, Head of Tech Policy for ICAEW, but widespread adoption will be influenced by society’s views on blockchain’s social and environmental impact, particularly considering the current climate concerns.
“There is an interesting tension here – on one hand, blockchain can enable societal benefits such as improving access to financial services and supporting sustainability initiatives by tracking carbon emissions and providing supply chain transparency. On the other, its own carbon footprint and impact on the environment can be of concern for many,” she says.
The consensus mechanisms that help provide confidence in blockchain (particularly the proof-of-work consensus used by large blockchains such as the Bitcoin blockchain) can be energy intensive. In an age where the environmental impact of business activities is under increasing scrutiny, some businesses may be hesitant to adopt blockchain.
“For widespread adoption, the energy problem must be tackled,” says Mallowah. “With ongoing work to adopt less energy-intensive consensus mechanisms such as ‘proof of stake’, as the Ethereum blockchain is looking to do, we may be getting closer to more environmentally friendly blockchain implementations, which can help drive further adoption.”
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