What are the applications of Blockchain?

What are the applications of Blockchain?

Monday, 4 february 2019 | Brenda Rodríguez López

In the dawn of the Fourth Industrial Revolution, technology advances relentlessly: Big Data, machine learning, drones, robotics, the Internet of Things, Cloud Computing,... Undoubtedly, this commitment to innovation will have a great impact on the future of humanity. Many experts agree in pointing out that, among all these advances, Blockchain may play a fundamental role. As the Internet revolutionized the world of communication in the past, the development of Blockchain promises to produce quite a change, particularly, for the financial world. Where does the transformational force of Blockchain lie? Why is this technology so significant for the finance sector? How is the business world starting to apply this technology?

 

A few days ago, The CEU IAM Business School offered a masterclass on Blockchain and its application in the financial field which was carried out by María Concepción de Monteverde, a Blockchain Director at Banco Santander. In it, the Blockchain expert clarified some doubts about this technology which is still little known. Why is Blockchain so important for the financial world? What does Blockchain mean exactly? How is the business world taking advantage of its arrival? Below, we offer a summary of the main aspects that Monteverde addressed in this enlightening lecture.

What's new in Blockchain?

<<The history of Blockchain is similar to the one of the Internet>>, explained Monteverde. According to this specialist, the transformational power of the chain of blocks is similar to the one that once was experienced by the network of networks. Internet caused a great change to the world of communication, Blockchain aims to do the same, but with value. Monteverde added: <<When you send an email, a song or a document, you are sending a copy. But when we talk about value, we talk about stocks (money, bonds, intellectual property,...), and we really want to send the original ones. We do not want to keep a copy of them. This is what is called the "double spending problem">>. Blockchain offers a solution to this hurdle.

Value means assets, specifically the ownership of assets, and that value lives in ledgers. The Blockchain Director illustrated her explanation with the example of a bank. In this case, value is the money which is found in the banking system. Therefore, the bank becomes an entity of trust. These institutions are responsible for registering how much money each person has. When making a transfer, the value has to pass from one bank to another. In this operation, there are several intermediaries which participate (Compensation Chambers, payment processors...). Each of them has its own ledgers and systems. They do not trust each other so they need a third party which is in charge of making the reconciliations. So, Monteverde asked the following question: <<What would happen if all banks, all the entities of trust, shared the same registry of value? What would happen if all of them shared the same database?>>.

This specialist answered the question herself: <<We would not have to trust each other, we would rely on that database. With Blockchain, the value lives in the community, lives in everyone, because we are all sharing the same ledger. We no longer need to make reconciliations. In addition, this process is automatic and occurs in real time>>. The potential of Blockchain lies in the fact it is a secure, shared and distributed database which is capable of registering the ownership of any type of asset (not only financial), and it can also offer a new way of operating with them. This database makes possible to add transactions, but it cannot erase them, since it is unchangeable.

 

What are the applications of Blockchain?

How can Blockchain be used?

When we talk about the potential of Blockchain, above all we talk about security, since it is a distributed network that uses cryptography and has complete traceability. Thus, the things that have happened before cannot be deleted. In other words, this technology makes possible to guarantee the integrity of data. Besides, it can also be pointed out that it is a technology of rapid implementation, scalable and interoperable (a new participant or a node can easily be added to the network), simplifies the processes in which there are many actors involved, avoids disputes and reconciliations and ensures privacy (it can be adapted so that only the ones who are involved can see it).

In addition, although the most popular application of Blockchain is the bitcoin cryptocurrency, Ethereum brought about an additional innovation: smart contracts. This system is not based on currencies, but on programs. That is, assets can be supplied with behaviors. This new functionality is very useful for companies, especially when it comes to establishing and complying with legal clauses. However, the specialist in Blockchain cleared up an aspect: <<Not all legal clauses can be included>>. Monteverde explained that although the name may get people confuse, they are not smart contracts in the literal sense, but rather are similar and can be of help. Which does not mean we should downplay its importance.

Thanks to these advancements, companies can conceive new businesses which they have never imagined before. For example, the banking sector is a system that is not very flexible, because security always prevails over flexibility, but the chain of blocks represents a great advance. It means a new approach in the sector. However, banks still look at Blockchain with some caution. It must be said that it is a technology which is emerging, so there is not a sound financial legislation yet.

On the other hand, more and more companies and organizations are betting on this technology with determination. The main Blockchain projects that are being developed work on sovereign identity, digital voting, academic records, property registration, micropayments, music and the recharging of electric cars.

This article is just a brief summary of the masterclass carried out by Coty de Monteverde. You can access the complete recording of this event on our Youtube channel and delve into the knowledge of this technology: getting to know how bitcoins work, what the hash functions are, what the work of Blockchain miners consist of and what types of wallets exist and how they work. Our business school teaches different trainings focused on the financial sector. All of them are adapted to this new digital scenario: an Executive Master’s Degree in Finance, an Advanced Program in Fintech and Digital Finance and an Advanced Programme in Digital Economy, FINTECH and Intelligent Society (Online). Ask for further information!