Blockchain technology, over more than a decade of its existence, has traveled from being a disruptive force to a foundational beam setting up the infrastructures in various industries and sectors. Any process that has the potential to be decentralized can benefit from using blockchain. Blockchain technology was introduced to the world in the 1990s as a method of transferring information from one address to another securely.
What started out as a means to seamlessly exchange data related to transactions in an anonymous and safe way has now found multiple applications across a range of industries. Blockchains might have truly started out as the backbone to crypto-based payment systems, but they have found use cases in healthcare, supply chain management, education, and more.
Blockchain refers to a distributed digital ledger over a network of computers called nodes. It can also be called a peer-to-peer network where network participants engage directly without the involvement of a third party or a central authority. Cryptocurrencies like Bitcoin, Litecoin, Bitcoin Cash, Ripple, etc., have proved that blockchain advantages can be best utilized in faster payment processing, including other multiple use cases. Let’s discuss.
Blockchain in Payment Systems
Blockchain has established itself as a very useful technology in today’s time. It can facilitate faster payment processing since it is a new and improved way to build databases. It is also a very secure network where the information is genuine, and one cannot enter a blockchain or retrieve its data without the consent of other users. This is possible due to how a blockchain network is laid out in the form of “layers.” The database itself is not stored on one server but in the form of multiple copies of itself on the devices of network participants, called blockchain nodes.
Now that we have some background about blockchain, let’s answer the question – what are the benefits of blockchain?
What are the Benefits of Blockchain?
A decentralized and immutable ledger that facilitates the process of recording transactions and tracking assets – the very structure of blockchain makes it incredibly useful in the modern-day world. One of the most important benefits of blockchain is its role in payment processing. Allow us to break down the five primary benefits of blockchain:
|1. Fewer Intermediaries|
|2. Greater Safety|
|3. High Speed|
|4. Low Cost|
|7. Individual Control of Data|
1. Fewer Intermediaries
Blockchains involve peer-to-peer transactions, and the trades are verified by an entire distributed network of nodes, not just one central entity. Thus, blockchains don’t require the presence of intermediaries or third parties to carry out a financial transaction, and there is no central authority figure in place to control your transactions. This renders the various financial processes a lot more efficient.
Blockchain networks can confirm a transaction’s integrity, which allows the process to become smoother since it does not require further intermediaries. Buyers and sellers can make a direct transfer of funds via a peer-to-peer payment system, as mentioned above, laid out with the blockchain as the infrastructural layer. Deploying blockchain in payments processing would save the transaction data on a secure server or, should we say, multiple servers ( or nodes) in the blockchain network. While traditional transfer methods with intermediaries could be meddled with, blockchain technology allows the data to be accurate and authentic, which is just another perk of having decentralized interactions with fewer intermediaries involved.
2. Greater Safety
You must have heard that blockchain technology offers greater safety regarding payment systems. Here is why:
- The quicker transfer through blockchain provides lesser time for hackers to intervene with payments
- Instead of a centralized authority figure watching over the transactions and the recording processes, a distributed network of nodes is in charge of verifying the authenticity of transactions and adding them to the ledger. This removes a central point of failure.
- Blockchains are immutable, so every entry in the blockchain’s journal after verification becomes an irrefutable part of the history of the ledger. The data recorded on a blockchain is almost impossible for a hacker to meddle with.
- For a hacker to carry out an attack on a blockchain, they usually have to convince 50% or more of the nodes in the network to partake in the attack. This is virtually impossible, and so blockchains provide the maximized safety to traders.
- Blockchain networks use two security keys: an open (public) key available to each user and a private key used exclusively by the parties involved in the transaction. The private key is required to initialize transactions and can only be used once, so even if a hacker steals it, they cannot make any further transactions.
3. High Speed
Benefits of blockchain also include the high speed of transactions. Blockchains allow for faster, peer to peer processing of transactions, especially compared to traditional cross border payment systems. While a usual cross border payment might take you days, on a blockchain, both domestic and cross border transactions are processed with equal speed.
Now, the speed of transactions might vary from blockchain to blockchain. While the slower Bitcoin blockchain performs transactions across borders in a matter of a few minutes, a faster Lightning Network transaction can be completed in a few thousandths of a second. Blockchain’s faster payment processing completely puts traditional transfer systems out of the race, which take up to 5 days completion time for international transactions.
4. Low Cost
Benefits of blockchain also include much lower transaction costs. As mentioned earlier, blockchain transactions render the presence of central authorities, intermediaries, and any kind of third parties unnecessary. This is why the costs involved in a blockchain transaction are also lower. What’s more, a blockchain charges the same amount for a transaction whether it’s a domestic one or an international one. This also allows you to make cross border transactions at very low costs.
Since blockchain-based payment systems require fewer intermediaries, commission costs get deducted from the transaction fees. Generally, the transition to the blockchain reduces transaction costs to 0.001-0.1 of their original size. Using cryptocurrencies for money transfers can make the price of a transaction even lower. While the conversion costs of cryptocurrencies to fiat currency would be added, the size of these costs is bound to decrease as the market for crypto grows larger.
Blockchain transactions allow the users to participate in them anonymously or pseudonymously, and still maintain the integrity of all trades. Blockchain networks are, for the most part, open-source software that leaves no room for “back doors” or personal or business data recording and transmission functions. Moreover, no third parties verify or manage the transactions, allowing the blockchain ecosystem to be completely anonymous. This makes up the list of blockchain advantages as a payment processor.
As a user, you will not want your information to be changed or hampered with, in any form by any other user. This is what immutability is all about when it comes to the benefits of blockchain. It simply means that once a node enters the transaction information into the blockchain, there is no way that it can be tempered with or changed. There is a permanent record of this transaction on the blockchain. It is date stamped as well as time stamped for future references.
In contrast to the paper based system which has multiple chances of error and data hampering, blockchain provides a system that can be used to trace information back to the owners. Sweden is reaping the benefits of this very feature currently. They are using a blockchain-based system when it comes to land registry. This helps them record land ownership easily and have a permanent and unaltered database for all the real estate in the country.
Therefore, immutability is one of the benefits of blockchain that allows for increased reliability.
7. Individual Control of Data
The current internet has a lot of people worrying about the privacy and control of their data. With big companies having a monopoly over user data, and in some cases even exploiting it, the concerns certainly have a solid base. Keeping that in mind, one of the benefits of blockchain is definitely that it provides total control to the users. Users can choose to maintain anonymity while making transactions, and while the transaction data is visible to anyone on a public blockchain, it can not be tampered with by any authority figures or central control towers.
So, the blockchain technology inherently protects the data that has been added by the users. Blockchain is therefore one of the most reliable systems for sharing and storing data, and the decentralized nature allows the users to have complete control over their personal and financial information.
You might have heard of digital tokens and NFTs or non fungible tokens. These are another one of the benefits of blockchain technology. Tokenization is the process of converting various real world or virtual assets like real estate, artwork, gold or even music recordings into digital tokens. These tokens are then recorded on a blockchain and can be shared via the blockchain network.
People are selling the right to own these digital tokens on the blockchain. This has monetary benefits for the users, and especially tokenizing real-world assets allows for them to gain a lot more exposure and reach out to a wider group of investors.
The concept of metaverse also relies on this process. Metaverse essentially aims to bridge the gap between the virtual and real worlds. For this, tokenization of real-world assets based upon blockchain is quite important. Therefore, overall tokenization is definitely one of the biggest benefits of blockchain.
There is a wide scope for innovation opened up by blockchain technology. People are doing their research in multiple fields associated with the blockchain. They are relying on the various benefits of blockchain technology and coming up with solutions for specific industries as well. What’s more, several technologies are being combined with blockchain for enhanced advantages; such technologies include AI, IoT, and a lot more.
Blockchain has encouraged innovation in the following areas, among many others:
- We have all heard instances of people lying on their resume and taking a much sought after job. Later such people get fired and the companies have to bear a lot of loss because of it. Implementing blockchain in the creation of resumes can be helpful in such cases. A person’s achievements and qualifications can be uploaded automatically on their profile on the blockchain, which can make for a trusted resume.
- Logistics is another example where blockchain can prove to be helpful. The technology can help in keeping a track of shipments from the place of their origin to the end user.
How do the Industries Benefit From Blockchain?
Blockchain came about as a supporting mechanism for Bitcoin back in 2009, but it has since taken on a life of its own. Let’s go through the various ways other industries reap the benefits of blockchain.
1. Supply Chains and Food Chain
Blockchain networks help provide end-to-end visibility, streamline the process, and resolve issues faster, making supply chains stronger and facilitating better business relationships. Blockchain usage in food chains can also help deal with issues in safety and freshness quicker to reduce waste. Food can be traced back to its source efficiently with blockchain technology.
2. Banking and Financial Industry
In light of our discussion about blockchain as a payment method above, it is clear that blockchain technology can help streamline financial processes. By removing friction and delays, blockchain helps increase operational efficiency in financial processes such as global trade, clearing, settlement, consumer banking, etc.
According to data by the US government, data breaches within healthcare spiked in 2022. Integrating blockchain technology could improve patient data security and help streamline the process by making sharing records across healthcare providers easier. Due to the advantages of blockchain, the control over access would belong to the patient, making it safer.
The pharmaceutical industry can also enjoy the benefits of blockchain. As with supply chains, blockchains can easily track and record pharmaceutical products through the production and distribution stages. This would mean that products could be traced back to pharmacies or retailers, preventing the threat of counterfeiting.
It comes as no surprise that bureaucratic processes worldwide are riddled with problems. Blockchain can help governments make processes for citizens easier by enabling the secure sharing of information. Using the immutable audit trail in blockchain can aid regulatory compliance, contract management, citizen services, and much more.
Insurance companies can also reap the benefits of blockchain technology. They can use smart contracts to automate manual processes such as underwriting and claims settlement, which would be time-confusing and costly otherwise. Moreover, as stated earlier, blockchain’s quicker data exchanges also prevent risk, attacks, and fraud at the hands of hackers.
Hopefully, this article helped answer your question of ‘what are the benefits of blockchain?’. Blockchain is, without a doubt, one of the most exciting technologies in the modern day. It has the potential to revolutionize many industries, and its uses are only bound to grow as developers worldwide continue to experiment and innovate.
Frequently Asked Questions (FAQs)
1. What are the Three Major Benefits of Blockchain?
Now that we have learnt a lot about the benefits of blockchain, we can say that immutability is one of the biggest advantages. Blockchain allows for the data recorded on the distributed ledger to be tamper-proof, so better safety measures are in place. What’s more, blockchain is also transparent, so all participants can have access to the data recorded for verification and future references. This further adds to the security of blockchains. Finally, blockchain renders the presence of a central authority unnecessary as the transactions are carried out peer to peer and there’s no seal of approval required from an authority figure. The decentralization gives power back to the users.
2. What is the Main Purpose of Blockchain?
The main purpose of blockchain technology was initially to build a platform that provided a distributed method of sharing information with one another. Now the motto of blockchain and its uses depends upon the company or the person using it. Mainly, blockchain serves to promote decentralization and a user-friendly way of sharing data and conducting finances, all in a cost-efficient manner.
3. What are the Benefits of Blockchain in Global Trade?
In terms of global trade, there are several benefits of blockchain. Traceability makes the whole trading process simpler and easier to handle. You can easily trace your transactions and even find out whether the payment was executed on time or not. Cost reduction and decentralization are also two other benefits of blockchain in global trade. There is no requirement for any third party or central authority to verify transactions. This reduces the cost of trading and thus benefits the whole global trading system.
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Last Updated on October 17, 2023