As a certified consultant, I have a lot of conversations with companies about projects and applications where they think they want to create and/or use this technology they’ve heard so much about, but few seem to adequately understand why or how they should use it. The first thing to understand is that a is really nothing more than a very slow database with some unique features. As such, many projects that I am approached with can actually better be implemented using existing Oracle, SQL, etc. database technology and traditional payment methods. Let’s review some of the applications that can benefit from or must be implemented using (distributed ) technology.
Payments
Perhaps the most well known application is — the “killer app” of technology. While accepting payments has its advantages, merely setting up a platform that takes crypto instead of fiat (i.e., USD) is not all that innovative or revolutionary. In fact, in many applications it is pointless to make your exchange their fiat for crypto, send you their crypto, only for you to convert the crypto back to fiat to pay the bills and suppliers. If most don’t already have crypto or the business doesn’t pay its bills in crypto, the exchange fees and volatility make it difficult to realize a financial advantage to accepting versus fiat except in a few cases:
Micro payments: If the payments are a few dollars or less, it might make sense to accept payments in due to low transaction costs (typically less than ten cents) per transaction. Credit card processing fees could typically run $.25 per transaction plus 2–4%, so as you can see the savings could be significant when processing large volumes of $1–3 transactions. Percentage-wise, we’re looking at 5% or less on a $2 transaction compared to ~15–17% with credit cards.
Instant, automatic, frequent, or as-you-go payments: With the use of smart contracts, systems can be designed to pay for services on an hourly, daily, weekly, or longer basis, or on a per-use basis. Some applications I’ve discussed are systems where a consumer pre-loads a crypto and pays his power bill on a daily basis, a pay-per-view video streaming service, or a smart dispenser that can reorder inventory when supply gets depleted. Smart contracts can even monitor balances to shut off service delivery if the user does not have enough funds in their account. The as-you-go payment system is a big advantage to companies who no longer have to wait for a complete billing cycle or a traditional billing process which can cause companies (such as a power utility) to have to finance 30–60 days or more of service charges for every customer (and that assumes they pay on time).
Large and International payments: With bank wire fees ranging from $20–100 (and probably higher), and with the scrutiny that banks now give to bank wires, and with ACH and bank wires taking hours or days to complete, sending payments with crypto provides a significant advantage in cost and time when millions of dollars of can be transferred in just a few minutes for a few dollars or less.
Trustless Transactions
and smart contracts are perfect for applications that allow two parties to conduct business with each other without having to trust or even know anything about the counterparty. An example of this application is a decentralized exchange which is essentially an escrow contract. Both parties can be assured that the transaction (trade) will be executed as intended with no counterparty risk and with no middle man (although the smart contract might take a small fee).
Portability/Ownership
Portability and ownership applications are applications where the users want to have absolute ownership of their points/ and/or they need to be able to use and exchange them outside of the originating platform. The best example of this application would be a rewards program where a company wants its users to own and control their rewards points or . A example would be a version of an airline miles reward program where the miles have value outside of the airline’s platform and/or the airline wants the users to be in full control of their miles so users can pool, trade, exchange, or use their miles as they like. I am not aware of any airlines that don’t want to retain full control and ownership of their miles/points, but if airlines didn’t care about being able to suspend accounts or expire the miles after a certain duration and they didn’t care what happened to the miles after they were awarded and if they wanted to encourage a miles/points ecosystem outside of their own platform, would be the way to go. Personally, it’s hard to imagine an airline actually doing this because they make too much money by ensuring that miles expire and by making them difficult or expensive to actually use (such as fees for gifting or transferring miles) and by making them almost impossible to sell. If a company needs to retain any kind of control whatsoever, then a private database application is a better way to go.
Consortium applications
A consortium application would be a data system wherein a group of businesses want to jointly create and operate a system without trusting the other participants. An example of this application would be an airline baggage tracking system. In such a system, any airline could use the system track bags but no one airline would have any extra power or control over the use of the system. Information would be freely available to all participants so a bag in this system could easily be transferred from airline to airline without a hitch.
Transparency applications
A transparency application is an application where transparency (with trust) is paramount to the operation and you want the general public to have visibility into transactions on a trusted system. For example, if you were operating a charity, with a public any interested party could feasibly audit all of the transactions of the charity to see how funds were being used. Note that the same could be done with a private system, but users would not have any reassurance if data was manipulated or changed like they would if all transactions were recorded on the or (or other public) . A voting system would be another such application.
Private blockchains
Note that private blockchains (such as Hyperledger) do not really deliver in any of the areas discussed above. I believe that the application of private blockchains is limited to cases where the native features of (i.e., the processing and handling of data records) make for an easier implementation in compared to a traditional database from a developer’s perspective.
I’m sure there may be some applications or exceptions, but these categories account for the majority of blockhain’s biggest strengths. Remember, there’s no point in using a different technology if it can’t make the overall process cheaper or faster. Feel free to contact me to discuss this further or for consulting on your business or project. You can find me on Linked In
Published at Sat, 23 Feb 2019 00:08:50 +0000
