Blockchain is the buzzword of the day for businesses. But as company managers figure out what blockchain is, that doesn't mean they understand what it does.
Blockchain can solve a lot of problems, including security and record keeping. But something far more appealing to many is how it can cut costs.
Finance and insurance
Much has been made of how blockchain will cut costs in the financial industry. The primary way it will do this is by replacing legacy systems and record-keeping infrastructure and reducing IT costs.
Blockchain will also reduce the need for payment intermediaries – stock exchanges, payment networks, money transfer services – of which 45 percent suffer economic crime every year, according to PwC.
Blockchain can also cut costs in these ways:
- Claims management – Fraud is a significant problem in the insurance world, and blockchain can track whether a claim has been paid, preventing multiple payouts for the same event and reporting suspicious behavior.
- Smart contracts – This digitally signed agreement would initiate an action based on predefined conditions. For example, one company is creating flight insurance policies that pay out automatically if a flight is canceled.
Fraud is a challenge in many industries. A report from Foreign Affairs says $455 billion of the world's healthcare spending each year is lost to fraud and corruption, often as money changes hands on its way to those in need. Blockchain's non-central ledger could reduce or eliminate such fraud, providing a public picture of what money has been collected and where it is supposed to go.
The pharmaceutical industry is no stranger to fraud, which is why pharmacies have been reluctant to let go of paper. Blockchain could streamline and digitize the prescription process, making it nearly impossible for people to alter the doctor's orders and get more pills than necessary.
Environmental and manufacturing waste
Blockchain may have a future in cutting waste of other types, such as product and environmental waste. A few companies are starting to use blockchain to track food from its source to the shelf, ensuring that products' claims of being fair trade or locally sourced are accurate.
Blockchain apps could also help companies manage and monitor their own supply chains, identifying gaps and inefficiencies, streamlining a process now burdened by contract negotiation, payment disputes and endless email exchanges.
A study published by Cognizant Reports found that three-quarters of manufacturers who responded to the survey expect blockchain to be critical to the business going forward, especially in the area of supply chains. As the report explains, suppliers could issue smart contracts with product details, and manufacturers could search the blockchain for product contracts that meet their criteria. The transaction would be executed over blockchain, as well as a smart contract with the carrier that delivers the product.
Some argue the potential cost savings of blockchain are exaggerated. By using blockchain solutions, companies will incur costs such as higher electricity bills and data storage, and many will continue to use mainframes to manage this new technology, according to a Forbes piece. The author criticized reports indicating companies might save as much as 70 percent in various operating costs.
While we agree those figures sound too good to be true, blockchain can and will change the way all industries do business, saving both time and money while improving security and reliability in many of our daily processes. The result is a better system, one with dividends far greater than the investment, especially as more companies move forward with this technology.