It seems that nothing can stop the rise of cryptocurrencies in the past couple of years. After the big slump of 2018-2019, they are once again under the spotlight as the most coveted asset type on the globe.
With that said, this institutional interest in Bitcoin and cryptocurrencies cannot be signed off uniquely to hype. The crypto ecosystem has untapped potential in the business environment, and the current trend of companies investing in the blockchain technology should only accelerate in the future.
This is due to the multiple benefits that blockchain technology brings to the business world. Before we delve into more detail of these advantages, let’s have a quick overview of the tech and why its integration might be inevitable for businesses going forward.
What is blockchain
The blockchain is a decentralized and distributed ledger of records, where transactions of value can be recorded following a consensus from multiple computers.
This technology was first made popular by Bitcoin, the original cryptocurrency. The Bitcoin network uses blockchain technology to provide a digital peer-to-peer system for exchanging value over the internet, without the need of an intermediary.
Transactions on a blockchain ledger are verified from millions of computers using different consensus mechanisms and are organized in blocks, which are chained together through cryptography.
This makes the ledger:
● Permissionless – anyone with an internet connection can participate.
● Secure – no one can alter the ledger without the other computers taking notice. This makes it resistant to fraud and modification.
● Trustless – as the transactions function strictly peer-to-peer, there’s no need for a trusted third party. This increases trust between parties and lowers cost. This also means that no one can shut down the blockchain.
● Pseudonymous – participants in the network are represented only by their blockchain address. Identity details aren’t shared or needed to participate in the network.
● Transparent – the ledger is accessible anytime by anyone. All transactions are public and can be verified by all interested parties, increasing trust even further.
With that said, blockchain, as introduced by Bitcoin, was limited to transferring digital currencies over the internet. As simple as it was revolutionary, this concept lacked some use cases.
That’s where smart contracts come into play. They were first implemented by the Ethereum blockchain, which remains the most popular smart contract blockchain to this day.
Smart contracts are a natural evolution of blockchain technology. Instead of transferring digital coins, these self-executing apps allow us to transfer anything of value over the internet.
Smart contracts have many applications, one of which is being able to create alternative cryptocurrencies using the ERC-20 protocol. Thanks to this technology, the price of ethereum exploded back in 2017, leading the entire cryptocurrency market in a crazy bull run.
Furthermore, smart contracts allow for the implementation of non-fungible tokens (NFTs), which can be used to tokenize anything of value including art, real estate, insurance contracts, real-life commodities etc.
Tokenization and business on the blockchain
Tokenization has a wide array of advantages regarding the business environment. For instance, it allows for:
● Increased liquidity – companies can tokenize their illiquid assets such as real estate and get cash loans using smart contracts on decentralized lending platforms. This is especially advantageous for businesses that wish to veer away from their dependence on banks.
● Fair and inclusive market – as we previously mentioned, blockchains are both permissionless and global. This allows their users to interact no matter where they are in the world, providing a real open economy for everyone. Moreover, participants can interact directly with one another, providing a fairer price for the producer, without the need for expensive intermediaries.
● Proof of ownership – NFTs provide a universal template to proving ownership thanks to the immutability and transparency of blockchain technology.
● Increased traceability – once recorded on the blockchain, products can be traced from raw material to finished product. Equally, they can be traced from the producer to the final consumer, with every intermediary step meticulously recorded on the public ledger. This way, the consumer knows exactly where their products come from. Furthermore, the entire supply chain process can be easily scanned and pain points improved for better efficiency and lower costs.
All in all, the cryptocurrency ecosystem has proven to be extremely beneficial to the business environment over the years. Today, institutional investors are finally accepting the blockchain as a financial and economic tool and are becoming increasingly interested in investing in them.
Today, businesses see cryptocurrencies as more than just a flexible and appreciating store of value. Instead, they are beginning to understand that they can make almost every business process more efficient and cost-effective.
As such, we are bound to see the trend of blockchain in business accelerate in the upcoming years, eventually bringing it to mainstream levels.