The Calm Before the Storm: Real-life Applications of Blockchain

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After the Great Crypto Bull Run of 2017 and the following market crash in 2018, cryptocurrencies have been hardly mentioned in the mainstream media outlets in the past few months. To a casual observer, it may seem that the bubble has burst and brought the crypto industry down along with it. However, the reality is much more boring.

The bear market made Bitcoin and other cryptocurrencies much less attractive for speculative purposes, as it was very hard to follow through with the “buy and hold” strategy with prices tanking throughout the year. 

But for those that expect more out of blockchain products than just “lambos” and “moon shots”, present events can be considered a blessing, as the community is once again more focused on innovative ideas and technological development, rather than on extreme returns and viral marketing campaigns.

Mike Orcutt, writing for the MIT Technology Review, neatly summarized events of the past two years in the world of crypto in a few sentences:

“In 2017, blockchain technology was a revolution that was supposed to disrupt the global financial system. In 2018, it was a disappointment. In 2019, it will start to become mundane, but it will become more useful.”

Blockchain-based Products with Immediate Real-world Applications

Most projects currently underway are gradually exiting the pilot phase of development and entering into the real-world application phase, according to Orcutt.

For example, the US-based multinational retail behemoth, Walmart, announced that by September of this year all suppliers of leafy green vegetables will be required to use blockchain in an effort to improve the tracking of fresh vegetables within Walmart’s enormous distribution network.

The two-year pilot phase of the new system was deemed a success. The use of IBM’s Hyperledger enabled efficient and fast tracking of unfortunate cases of food infections.

Another high-profile pilot crypto project recently ended in one of the largest container ports in the world. IBM supplied the blockchain expertise that was necessary to complete the project. After the trial period ended, one of the operating partners in the endeavor, Pacific International Lines (PIL), stated that the partners were pleased with the results and that the concept is ready to be taken to the next stage.

In the next stage, the scope of the proof of concept (POC) will be widened by including more participants from the different areas of the supply chain logistics network.

IBM is also developing blockchain in a joint venture with Maersk, which controls 17.8% of global container transport, making it the largest container ship and supply vessel operator in the world.

These examples of large multinational corporations working on blockchain-based solutions are just the tip of the iceberg.

Institutionalizing Cryptocurrency Trading

To attract more institutional and retail investors, better custodial and trading solutions are desperately needed. QuadrigaCX’s case is the latest reminder that institutional-grade custodial solutions are a necessity – following the death of the company’s CEO, QuadrigaCX says it is unable to access $190 million worth of clients’ funds held in cold storage.

In the second half of 2018, Intercontinental Exchange (ICE), the parent company of New York Stock Exchange, announced Bakkt, a trading platform aimed at investors and institutions looking to trade and store Bitcoin on a compliant and reputable platform.

Due to the company’s partnership with Starbucks, Bakkt users will eventually be able to spend their digital assets in Starbucks’ physical stores around the world, which could greatly accelerate the adoption of cryptocurrencies, especially among less tech-savvy consumers.

As more large institutional-grade service providers like Fidelity are getting in on the action of providing safe platforms for storing and servicing digital assets, sovereign wealth funds and pension funds managers could very well be convinced of opportunities and potential cryptocurrencies offer in the not so distant future.

Real-world Applications of Smart Contracts 

To put it simply, smart contracts are programs that automatically execute once the before set and agreed upon conditions are met. Once conditions of a smart contract are uploaded onto a blockchain, the contract becomes immutable, so it can’t be tampered with by anyone.

A simple example of a smart contract used in a real-life setting could be the automated payout of flight insurance fees to customers in the event of flight cancellation. In this example, a problem arises as soon as someone is willing to hack the flight information data in order to feed the smart contract with fake data to commit insurance fraud.

To prevent fraudulent activity and ensure that the data a smart contract acts upon is indeed correct and immune to any malevolent interference is a problem that startups such as Chainlink (LINK) are trying to solve by creating a tamper-proof system to securely provide smart contracts with the necessary data.

The rise of smart contracts combined with regulated crypto trading platforms such as Bakkt could be catalysts that will accelerate acceptance of cryptocurrencies among institutional investors. 

Central Bank-issued Digital Currencies

Although Bitcoin first came into existence as an alternative to the centralized financial supply of fiat money, central bankers are seriously eyeing the prospects of using blockchain technology for their own benefit.

The advantages of using digital currencies over paper money for the needs of central banking are mostly two-fold. The first and obvious reason is cost savings. As money is increasingly becoming digitalized anyway, the shift to digital currencies could provide a considerable cost reduction for resources spent on managing and issuing physical banknotes.

The second reason is more profound, especially for the millions of unbanked people around the globe. A central bank-issued asset-backed digital currency would provide access to banking services for those outside of the reach of the traditional banking system and provide the ability for micro-transactions and investment opportunities for those who are currently still unable to access the modern financial infrastructure.

A Look Ahead

Although the first adopters of blockchain technology were ideologically decidedly against centralized control and supervision, it seems inevitable that blockchain will play a significant role in upgrading existing institutional and legal structures, no matter how centralized those systems might be.

Anthony Pompliano, a co-founder of Morgan Creek Digital, discussed the progress that has been made in the last couple of decades his recent post titled “The Three Core Concepts of Crypto”. If we don’t want to be limited by outdated concepts and systems, society will have to upgrade its approach to accounting, contracts, and traditional financial assets with alternatives more suitable for the information age we are living in. 

Fortunately, the technological solutions are already available as digital currencies, smart contracts, and other blockchain-based products are being tested daily and are patiently waiting for worldwide adoption to begin.