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Basics of Blockchain

Depending upon the blockchain, parties may be able to view previous ledger entries and record new entries, although most blockchain networks have complex rules for adding new records, or "blocks," to the chain of records. The blocks and their contents are protected by cryptography, which ensures that previous transactions within the network cannot be altered. In this way, blockchain technology allows for a trusted transaction network without relying on a central authority. It is for this reason that cryptocurrencies are considered "decentralized." While blockchain is most famous for its role in facilitating cryptocurrency popularity since 2009, there are also many other non-cryptocurrency uses. Indeed, some blockchain proponents believe that the technology could far outpace cryptocurrencies themselves in terms of its overall impact, and that the real potential of blockchain is only just now being discovered. As such, it's likely that financial advisors and many others in the investing world will encounter blockchain technology much more in the years to come, whether it is linked with a specific cryptocurrency or if it's being utilized in any number of other advancements.

Traditionally, the transfer of value has been both expensive and slow, especially for payments taking place across international borders. One reason for this is that when multiple currencies are involved, the transfer process typically requires the participation of various banks in multiple locations before the intended recipient can collect their money. There are existing services that help speed this process, but these tend to be quite expensive. Blockchain technology has the potential to provide a much faster and cheaper alternative to traditional cross-border payment methods. Indeed, while typical money remittance costs might be as high as 20% of the transfer amount, blockchain may allow for costs at just a fraction of that, as well as guaranteed and real-time transaction processing speeds. There are hurdles to be passed, including regulations in different parts of the world and security concerns.

Smart Contracts

Smart contracts are often seen as a highly powerful application of blockchain technology. These computer programs, while not smart or even contracts, can initiate and automate the required actions written into an actual contract. When certain conditions are met, smart contracts execute the actions they are programmed to perform. For proponents of smart contracts, these tools provide a more secure, more automated alternative to trusting that another party will fulfill their obligations. The potential applications of smart contract technology are essentially limitless and could extend to almost any field of business in which contract law would normally apply. Of course, while highly touted, smart contracts are not a magical substitute for old-fashioned diligence. In fact, the case of the Decentralized Autonomous Organization (DAO) is a cautionary tale and a warning to investors not to assume that smart contracts are any better than the information and organization that a user puts into them. Nonetheless, smart contracts remain one of the most exciting ways that blockchain technology has already extended beyond the cryptocurrency space and into the broader business world.

Identity Management

One of the most problematic results of the Internet age has been identity security. As diligent as many individuals and organizations are in maintaining their online identities and securing private information, nefarious actors are always looking to steal and profit from these digital items. Blockchain technology has already demonstrated the potential to transform the way that online identity management takes place. Blockchain offers a tremendous level of security, thanks to independent verification processes that take place throughout member computers on a blockchain network. In digital currency cases, this verification is used to validate transactions before they are added to the chain. This mechanism could just as easily be applied to other types of verification procedures, including identity verification and other applications. The applications for blockchain and identity management are wide-ranging. For instance, blockchain could potentially be used to aid in maintaining voter information and ensuring the proper functioning of the electoral process. It could also be used to securely and efficiently transfer user data across platforms and systems. Additionally, it could act as a way to maintain and protect real estate ownership records, titles, and more.

Who are the players in this new ecosystem?

In the blockchain ecosystem, looking past all the hype-driven headlines, there is an exciting new cast of innovators and founders. Through our surveys and engagements, Deloitte is seeing an increasing number of less-tenured entrepreneurs frequently pairing up with industry veterans to start new organizations. These emerging disruptors are approaching blockchain differently from legacy organizations. Disruptors are not thinking incrementally about change, rather they are fundamentally changing how business is being conducted across all industry sectors around the world. Legacy organizations, on the other hand, are evaluating blockchain technology and eager to adapt, albeit more slowly given the natural constraints of large enterprises.