When Eastman Kodak, a decidedly old-fashioned camera company, announced in January 2018 that it would be introducing a new blockchain-based cryptocurrency for photographers, the company’s share price popped by almost 120 percent. Long Island Ice Tea Corp., a penny stock, announced that it would be incorporating blockchain technologies into its business plan and exploded by 183 percent. However, it didn’t specify how, exactly, blockchain might improve its tea offerings.

The word blockchain has taken on an almost magical buzz today, but outside of cryptography and cybersecurity circles, nearly no one who uses it has any real idea what it means or what the implications of the technology are. Blockchain may be the new “cloud” of technology buzzwords. But that doesn’t mean it’s not relevant, or that your business won’t benefit from knowing what blockchain technologies are or how to leverage their capabilities.


Cryptocurrencies are the First Incarnation of Blockchain Technology

Unfortunately, the primary way that most mainstream businesses encounter blockchain currently is when they fall victim to ransomware attacks. Ransomware is malware that infects computers and encrypts essential sections of the hard drive, typically documents and databases, with a code known only to the hackers. A message pops up on the machine after the data has been locked away, inviting the owner to pay for the privilege of receiving the password to decrypt their data.

Because most online financial transactions are easily traceable, the ransom typically must be transferred in a specified cryptocurrency (usually BitCoin, but increasingly other exotic denominations). Cryptocurrencies today are built on blockchain technology–cryptographically secured chunks of information that are mutually interdependent and self-validating upon their creation, into which any type of data can be written.

For blockchain-based currencies, this is transaction data–a record of a transfer of value from one anonymous recipient to the next. The heavy cryptography ensures that the money is virtually unhackable (although users are vulnerable to other types of attack, such as social engineering ruses) and also that there can be no debate after the fact over whether or not money changed hands. Once the record enters into the chain, any interested third party can validate the transaction beyond any doubt.

Cryptocurrency advocates adopted this system both because it preserves anonymity and because it requires no adjudication on the part of governmental bodies. The currency has self-contained enforcement, mathematically etched into the bits. Peer-to-peer distribution ensures there are no lost records. Advocates refer to this as a distributed ledger.

Unfortunately, there turn out to be some excellent reasons that most businesses are happy to cede control of currencies to governments. The wild swings of Bitcoin value have not provided a stable platform even for illicit ransom payments, let alone legitimate business transactions. Users show up with what they believe to be an adequate amount of Bitcoin to make a payment only to find the value has depreciated enormously in the past few minutes, leaving them without enough money to complete the transaction.


The Larger Implications of Blockchain

Cryptocurrency is only the first stop on the blockchain bandwagon, however. Although the technology is ideal for anonymous, secure currency transactions, it has broader applications that are just beginning to be explored. Certain types of contracts may be another low-hanging fruit on the blockchain tree, for instance. Using code tied directly into the self-signing, distributed ledger platform, contractual obligations committed to a blockchain could make signing and payment identical to the execution of the responsibility.

If it’s difficult for you to conceptualize this, then think of a stock trade. It’s a type of contract where one entity agrees to purchase shares at a specific value from another body. These arrangements can be simple in essence; when tied in with options, stops, and limits, they can be moderately complex. Today, electronic exchanges allow users to make and execute these contracts almost instantaneously. But the settlement, the actual transfer of funds between parties, can take days. Verifying the funds exist, transferring them through trustworthy channels (brokerages, typically), and arranging for their deposit into banks all takes time and requires a vast apparatus of regulated infrastructure to complete.

Consider a blockchain-based stock exchange, however. Data about funds, prices, and terms can be built directly into the contract. The heavy apparatus required to verify identities and secure funds transfers becomes irrelevant. Although entirely anonymous, both entities wrap all the relevant details about their positions right into the blockchain code. When the deal executes, shares are instantaneously and publicly transferred to the purchaser and funds simultaneously to the seller.

Firms are also exploring blockchain uses in supply chain management, highlighting the potential of the technology to explode in tandem with the Internet of Things. The IoT, a transformative wave of technology adoption that is expected to embed smart devices in the daily lives and operations of individuals and corporations alike, provides a platform for blockchain integration that overlaps with physical performance. IoT devices are already interconnected, semi-autonomous, and multifunctional. Integrating their operating code with blockchain-based instruction could turn some operations into secure, self-executing functions, eliminating entire aspects of tracking and record-keeping.

One seafood company is already using these techniques to create self-generating, error-free records of the journey of fish from catch to sale. IoT smart tags, incorporated into each batch of fish packaged on the trawler, are programmed to annotate the blockchain ledger with the location, type, and other vital information for the batch. The chain is updated as the fish make their way through processing, packaging, and finally to the vendor for sale. That allows buyers to verify without a doubt the provenance and freshness of the fish while eliminating a raft of manual processes previously required for such tracking. With any possible aspects of fraud or deception removed from the process, the cryptographically verified blockchain updates are impervious to corruption or mismanagement.


The Future of Blockchain Technologies

Although there is a lot of potential in blockchain applications, critics point out that many of the possible use cases may not be as beneficial as claimed. They note that many existing processes benefit from a certain amount of flexibility in arrangements, a human ability to make alterations on the fly outside the scope of the imagined operation of a system in reaction to unforeseen difficulties.

Blockchain also carries with it significant computational costs. Cryptography, particularly distributed cryptography, is computationally intensive. Today, this limitation seems likely to sound the death-knell of Bitcoin. The cost of electricity used to verify the chain (“mining” in cryptocurrency parlance) is becoming the significant expense associated with bitcoin investment. At the same time, the necessity of performing those cryptographic functions has put a hard overhead limit on the number of transactions possible per second. Currently, Bitcoin payment processing lags far behind the performance of any other type of payment system.

The code can also be restrictive when neglecting future applications when creating the conditions for the blockchain. One cryptocurrency, for example, Ethereum, was coded without the option of including a decimal point. That has dramatically hindered its utility and workarounds for the issue have been clunky and slow to be adopted. But like any new technology, companies are slowly learning how to avoid the obvious pitfalls for blockchain applications. Although it may not become dominant for decades, or ever, there’s a good chance that your company will be using blockchain in some form within the next few years.