Why Smart Contracts Are One of Blockchain’s Most Promising Assets

Along with the Internet of Things and artificial intelligence, blockchain represents one of the three technology megatrends of 2018. Based on the heavy focus that many presenters put on the technology at the Consumer Electronics Show in January 2018 to the World Economic Forum’s decision to establish a council exploring its potential, interest in blockchain’s versatility continues to grow in both the business community and the general population on a daily basis. While there are many ways that blockchain can be implemented across industries, one of its most universally useful features is its ability to tender immutable smart contracts.

Blockchain-based smart contracts are automated programs that execute a series of actions based on conditions outlined in agreements between multiple parties. The real-world benefit of smart contracts for the general population is that they have the ability to significantly simplify processes that people conduct every day in business, reducing the amount of time that individuals spend completing transactions, reducing costs, and doing away with unnecessary intermediaries in the process. While they exist in a form outside of the blockchain, integrating them with the decentralized ledger technology endows them with a strength that far surpasses that of a smart contract in any other form.

While blockchain is beneficial to smart contracts in that it vastly improves their security (and therefore their efficiency), the partnership between these two technologies presents what is arguably blockchain’s best opportunity to transition from a tool that is primarily beneficial to financial institutions into one that can benefit a company in any industry. As an example, the following use cases for blockchain-based smart contracts demonstrate the potential for this combination to disrupt conventional business practices and establish new operational models that increase efficiency, reduce risk, and help companies embrace the digital age.

Health Care

Blockchain-based smart contracts could be the answer to some of the most pressing issues facing members of the health care community, such as comprehensive patient care. Through smart contracts, medical records can be quickly and easily transferred between providers, which would allow medical professionals to secure a more complete picture of each patient’s health. Additionally, it could create an avenue for thoroughly tracking patients’ health via IoT-connected devices. This could also inspire better personal care in patients by generating rewards when their IoT-connected health devices indicate that they have reached a milestone as outlined in the smart contract.

Energy

Smart contracts could revolutionize the way that people pay for power through peer-to-peer energy systems. Using a smart contract, individuals equipped to generate power (for example, through solar panels) could store energy not used to power their homes and sell it directly to those who need the utility. Smart contracts could be set up through a protocol in which power is sent directly from suppliers’ energy stores to consumers without the need for an intermediary.

Voting

Through blockchain, smart contracts could even secure the way that votes are legitimized and tallied in political elections, a topic that has been hotly debated over the last two years. Voters could authenticate their identity through the blockchain, then cast their votes. A smart contract between each individual voter would then ensure that the vote could not be undone. No further votes linked to an individual’s identity could be cast, ensuring the legitimacy of “one person, one vote.”

In a digital business economy that considers speed and accuracy to be the most valuable currency, blockchain and smart contracts are a winning combination.

Cryptocurrency and the Importance of Self-Regulatory Policies

The year 2017 was a significant one for cryptocurrency. The most famous of these currencies, Bitcoin, progressively continued to break its all-time high in value throughout the year, with many in the industry speculating that it is on track to break the $20,000 mark, up from just under $1,000 this past January. In June, cryptocurrencies as a whole reached $100 billion in total market capitalization—a feat it accomplished over the course of nine years—only to top $500 billion about six months later.

To say that it was a banner year for cryptocurrency would be an understatement, and the digital currency shows no sign of slowing down in 2018. However, in spite of the burgeoning interest in cryptocurrency as an investment and its demonstrable success, it remains unregulated, which has sparked growing concern among many familiar with the industry.

On one hand, the simple fact that cryptocurrencies have been allowed to flourish in an unregulated environment has played a definitive part in their growth. Currently, there are over 1,100 cryptocurrencies for people to trade in within financial markets globally. However, since the total market value of all digital currencies recently surpassed that of JP Morgan in size, many believe that regulation within this sector is necessary to keep investors safe and prevent the failure of a market that is growing with each passing day.

While some argue that the regulation of cryptocurrencies will prevent them from serving their intended purpose, the case for regulation is strong. A lack of regulation enables a degree of systemic risk and opens the market up for exploitation, ultimately weakening the cryptocurrency market as a whole and causing many who invest in it to lose large sums of money.

One group leading the charge to introduce regulatory initiatives to the cryptocurrency market is the ICO Governance Foundation (IGF), a decentralized global group and Swiss foundation. The purpose of the IGF is to create an international body that performs self-regulatory processes for ICOs within a wide range of decentralized capital markets around the world. The group develops best practices and standards in line with those established by national organizations such as the SEC and China Securities Regulatory Commission (CSRC), among others, and works with the foremost blockchain companies to create a market where ICOs work fairly for investors.

The IGF recently came one step closer to attaining its vision, as it recently formed an alliance with several other organizations in the technology industry to act as an international regulatory body that evaluates the quality of ICOs. In conjunction with the blockchain group Waves Platform, open software platform Ethereum, and the global auditing services firm Deloitte, the IGF will work to provide tax and accounting, reporting, legal, identity verification, and due diligence services to companies holding ICOs and other firms related to the blockchain industry. The group, which will be based in Switzerland, will focus on developing guidelines for those undertaking ICO projects as a way to establish the industry’s professionalism and create a strong foundation for it to function and thrive into the future.

How Blockchain Is Relevant to the Future of Telcos

At the end of last year, Deloitte published an article that detailed the outlook for the telecommunications industry in 2017. In the piece, the author outlined those areas in which he saw an opportunity for growth, provided advice to businesses wanting to develop within the industry, and made note of sweeping, big-picture trends that he considered to be the most likely advancements within the sector.

What the article did not mention, however, was the potential impact of a subtle, yet revolutionary technology that many experts agree will change the way that companies across almost every sector conduct business. That technology is blockchain, a distributed ledger system that allows firms to conduct transactions and facilitate processes with a greater degree of transparency, efficiency, and security than ever before. In the near future, the telecommunications industry may provide services to customers more effectively and with a greater focus on the protection of personal data—an important quality in a digital age in which the general population continues to grow more concerned with institutions’ ability to keep their sensitive information private.

In order to understand what makes this possible, one must first understand the concept of blockchain technology itself. Originally established as a platform for the cryptocurrency Bitcoin by Satoshi Nakamoto in 2009, blockchain is a distributed ledger that facilitates the transfer of data through a shared database. While transactions on the blockchain are publicly viewable for the purposes of preventing tampering through public accountability and self-certification, the identity and specifics of all transactions made within the blockchain remain anonymous. Blockchain employs the use of encryption and algorithms to document transactions, while offering users more speed, efficiency, transparency, trust, and security than any other technology previously known.

While blockchain offers numerous benefits, there are legal aspects of the technology that have yet to be formally evaluated. Governments have yet to create laws or legal standards that outline regulations to keep the technology in check, nor have they established protocols or consequences in regards to how companies will be dealt with in the event that blockchain fails. While the United Kingdom has elected to operate with a “hands-off” approach to regulating blockchain, it allows companies in industries such as finance to test and innovate within a “regulatory sandbox.” Moreover, the United States have taken greater steps toward regulating blockchain.

Regardless of the country in which a telecom company operates, executives should approach blockchain from a standpoint of cautious optimism, keeping in mind that certain legal issues have the potential to arise as the technology becomes a larger part of the business world. Smart contracts, for example, have the potential to revolutionize the way that firms in many industries conduct business, and yet they must be evaluated for both efficiency and any potential flaws before they are adopted as part of a routine mode of operation. Smart contracts at their core are fixed and do not take into consideration the nuances between the parties, which may impact the strong, trusting partnership between two firms.

In addition, it is important to note the sweeping, positive changes that the technology has the potential to create within the telecommunications sector. One of the most important things that blockchain can do for telecom companies is to streamline internal functions and facilitate the creation of new products. Additionally, blockchain has the potential to open up streams of revenue for telcos in the form of new services, such as mobile wallets and 5G service. Other services that blockchain could enable include the provision of international mobile wallets and the creation of smart cities that operate on a large network of devices connected by IoT.

Many major telcos have already embraced blockchain, and are poised for further investment. In the last two years, firms such as Sprint, Verizon, Orange Silicon Valley, and NTT DOCOMO Ventures have involved themselves in this budding sector through activities such as investing in blockhain startups and launching their own blockchain initiatives. Some have filed patents for technology that will further the industry’s growth, such as Verizon and its patent for a blockchain that stores digital content passcodes.

4 Areas That Can Benefit from Blockchain Technology

Blockchain is one of the most exciting business topics of the year. Beyond its origins as a platform for cryptocurrency, the distributed ledger technology has earned recognition and praise from major corporations in a wide range of industries. A November 2017 Bloomberg article even confirmed that powerful banking magnates such as Goldman Sachs and JPMorgan have found the technology to be highly efficient and reliable for undertaking services such as equity swaps.

Although the banking and finance sectors are a natural match for technology originally designed to facilitate the transfer of cryptocurrency, they are far from the only areas poised to gain from all that blockchain has to offer. Following are four other areas that are also likely to benefit significantly from blockchain technology:

1. Government

In many countries, government processes are well-known for being long, muddled, and marked by the potential for corruption. However, blockchain may hold the key to significant improvements. One major benefit of blockchain is its ability to transform historically paper-based processes into a digital format, which could range from registering land to collecting taxes. The identity verification processes made possible through blockchain could expedite these transactions, along with many others. Countries such as Estonia and Dubai have already taken steps to using blockchain within their operations for the benefit of their citizens. Specifically, the government of Dubai is planning to move all of its documents to the blockchain within the next two years.

2. Voting

Another aspect of blockchain that could positively impact government operations is its potential to allow citizens of modernized countries to cast votes in political elections. In light of the accusations of voter fraud that have surfaced in the United States in the last year, blockchain may play a crucial role in maintaining the integrity of voting systems in the United States and beyond. Voter registration, identity verification, and electronic vote counting can all be conducted and confirmed through blockchain, which could prevent the rigging of election results. Startups such as Follow My Vote, based out of Virginia, have already begun a movement designed to help introduce US citizens to blockchain-based online voting.

3. Charity

While many people find joy in the spirit of giving, they also do not like the idea that their donations may not be going directly to the people or causes that they intend to help. The rise in popularity of rating sites for nonprofits such as Charity Navigator are a testament to this idea. Blockchain provides the technology for donors to track the money that they contribute to charitable causes and ensure that it ends up in the hands of those who will use it for the cause for which it was intended. Through blockchain-based charitable initiatives that rely on cryptocurrency, such as BitGive, those who donate funds can closely monitor where their money is going after it has changed hands through a distributed ledger.

4. Retail

Buyers and sellers in the marketplace could both benefit from the reduced fees associated with retail purchases made through blockchain — the technology cuts out the intermediary between two parties, allowing buyers to purchase directly from sellers without the need for a private third party, such as a bank. In addition, it holds the potential to create value-add services, such as rewards points in the form of digital tokens that can be used at any retailer that also uses blockchain-based technology. For retailers, blockchain helps to efficiently collect and store customer data, and it creates personalized rewards programs designed to motivate customers to return.

How Blockchain Could Boost Adoption of Clean Energy

Blockchain technology has evolved from its initial application as a platform for cryptocurrency exchange to a tool to facilitate smart contracts in every area of business. As a result, many are enthusiastic about the positive transformation that it has the potential to create in the modern world. Although the energy sector has been slow to adopt new technologies, the possible benefits of integrating blockchain into the industry could lead the general population to reduce the use of fossil fuels in favor of more affordable, efficient, clean energy.

One blockchain concept within the energy sector that could reduce reliance on fossil fuels is peer-to-peer energy trading. The decentralized nature of blockchain technology hints at a future in which energy producers interact directly with consumers. This model is in stark opposition to the current energy model, in which the consumer and the energy-producing business are separated by a multi-tiered system of intermediaries. When these middlemen are removed from the process, energy transaction costs could significantly decline while efficiency levels increase. In this model, the use of renewable energy technologies, like solar panels or Distributed Energy Grids (DERs), would allow private citizens to generate power, which they can then sell directly to other people living nearby via the blockchain, rather than back to the electricity grid, as in the current model.

Although the number of solar power installations in the United States doubled last year, the number of homes equipped with the technology is still a fraction of that of the rest of the country. Encouraging the public to invest in the adoption of this clean, efficient form of energy is a challenge in the battle to reduce reliance on unsustainable fossil fuels. However, blockchain technology may help to provide some incentive. An investment in solar or other renewable energy would cover one’s own cost of power while also offering consumer-producers the ability to receive immediate payment from those whom they supply through the blockchain. The transparency, affordability, and ease of use that blockchain offers could inspire a significant number of consumers to become consumer-producers, creating a decentralized, clean energy market that appeals to both private citizens and major investors.

Blockchain energy projects in this vein are already well underway. For example, through the Brooklyn Microgrid, a project which began in 2016, five buildings in the New York City borough were equipped with rooftop photovoltaic systems to power themselves. Any leftover energy that is not used by the buildings is sold directly to five nearby households connected to the participating buildings through the existing power grid, with the transaction stored and managed through blockchain technology. The ultimate goal of the project is to create a local cooperative organization that operates the program, with the collective group acting as the organization’s shareholders. Similar projects have been begun abroad, including Vattenfall: Powerpeers in the Netherlands, Slock.it in Germany, and Oneup, also based in the Netherlands. Although these kinds of peer-to-peer energy projects have a long way to go before they become routine, their growth has continued. Overall, blockchain demonstrates the potential to decrease dependence on fossil fuels and increase reliance on renewable energy.

What Determines the Value of Cryptocurrency?

In September 2017, the value of Bitcoin reached an all-time high, surpassing $5,000 according to the CoinDesk Index or, by Bloomberg’s slightly more modest estimates, reaching $4,921. As Bitcoin, which is often regarded as the “reserve currency” of the cryptocurrency sector, continues to hover near this record-setting valuation, the cryptocurrency market at large boasts an all-time-high capitalization of more than $170 billion.

Like any form of currency, cryptocurrencies derive their value from universal agreement regarding their worth. However, since cryptocurrencies are digital assets untethered to a central government, financial institution, or physical commodity, the matter of their value is often a topic of inquiry and skepticism.

Despite concerns over their illusory value, the monetary worth of cryptocurrencies is closely tied to the basic economic principles that govern not only monetary systems, but product-based economies as a whole. Cryptocurrencies derive value from their utility and scarcity. The anonymity, security, efficiency, and decentralized nature of blockchain-based currencies make them attractive as both a method of payment and an investment vehicle. Since the public enjoys the ability to pay for an ever-growing number of goods and services using cryptocurrencies, value investors use this information to speculate on the currencies’ future value by comparing them to similar physical asset classes. For example, Bitcoin enthusiasts commonly reference the market capitalization of gold to determine the relative value of Bitcoin. This type of speculation can further influence a cryptocurrency’s value.

Despite their increasing popularity, cryptocurrencies exist in finite numbers. For example, Bitcoin carries a maximum capacity of 21 million units, and as of March 2017, there were 16.2 million Bitcoins in circulation. The usefulness and limited nature of cryptocurrencies have fueled cycles of supply and demand, while their transferability and fungibility enable them to exist as tradeable assets.

While the success of any currency depends on public trust, it is particularly important for those currencies that are not backed by a physical commodity, such as fiat and cryptocurrencies. Public confidence in the value and stability of a cryptocurrency is necessary for it to retain its purchasing power and to enable the decentralized system of governance facilitated by the blockchain to continue to be successful. Therefore, negative media coverage, security breaches, and market-related shifts in public opinion can impact the value of cryptocurrencies. While cryptocurrencies exist outside of national legislative boundaries, some degree of governmental trust is also necessary if they are to remain a legitimate monetary system. Regulatory hurdles will not only damage public perception, but hamper a cryptocurrency’s successful operation in a given jurisdiction. On the other hand, governmental support can send a cryptocurrency’s value soaring to new heights. In April 2017, Bitcoin significantly increased in price after both Russia and Japan moved to legalize it. Moreover, the price of Ethereum surged after it was acknowledged as a form of payment by multiple Asian governments.

The technical infrastructure underpinning a given cryptocurrency can also influence its value, as it plays a role in determining a currency's upkeep costs and rate of adoption. Cryptocurrencies supported by more complex blockchains, such as the large proof-of-work blockchain used by Bitcoin, can present energy requirements equivalent to that of a small nation. And while cybersecurity is a top priority for both emerging and established cryptocurrencies, more secure blockchains require more intensive mining processes which, in turn, lead to higher energy costs.

How Blockchain Could Change the Music Industry

While digital currencies have yet to achieve mainstream use, blockchain—the technology that supports all cryptocurrency exchanges—has continued to gain renown in recent years. The use of blockchain technology has expanded considerably since it was first introduced by its anonymous creator, Satoshi Nakamoto, and according to a recent article on Forbes.com, it is expected to have a significant impact on the work of professionals beyond the financial sector, including those within the music industry.    

Currently, a majority of musical artists must cooperate with large groups of intermediaries in order to secure payment for their work, resulting in a system in which the musician is the party who performs all of the initial labor, but is the last person to see the profits from his or her efforts. Blockchain may be the solution that finally allows artists to upend this process through the use of smart contracts, a technology that uses algorithms to set pre-established rules in motion when a given transaction is verified. These smart contracts would allow consumers to securely pay musicians directly for their music without the need for a middleman.   

The ability to circumvent the middleman in music sales would not only help boost the compensation that musicians receive for their own work, but it would solve a number of frustrating problems that artists face through the existing profit model. For example, the industry struggles to maintain an up-to-date, easily accessible database of copyright information, making it difficult for music professionals to keep track of who owns the rights to recordings and songs. Since blockchain technology functions as both a network and database, artists who store copyright information on the blockchain in the form of a cryptographic digital fingerprint would make their music’s data available to every person who accesses the network. This would allow all music professionals to view copyright information the moment that a song or recording is uploaded to the blockchain, providing more clarity about ownership rights.