Last year, virtual currencies burst onto the scene and delivered returns that no investors had ever seen before – at least within a 12-month period. From beginning to end, cryptocurrency valuations soared by almost $600 billion, which worked out to a better than 3,300% increase in value. By comparison, the stock market averages a 7% annual return, inclusive of dividend reinvestment and when adjusted for inflation. In other words, virtual currencies knocked the socks off every other asset class.
While numerous factors, including a weaker dollar, aided in the ascent of cryptocurrencies in 2017, the rise of blockchain technology was far and away the primary catalyst.
Blockchain technology, in a nutshell
What’s blockchain technology? The simple definition is that it creates a digital, distributed, and decentralized ledger that logs transactions and data in a transparent and immutable (i.e., unchanging) manner, without the need for a financial institution to act as an intermediary. In other words, it’s an entirely new way of processing transactions that does not require the use of existing banking networks.
Why would we want to move beyond the existing banking networks? Primarily, it’s the result of perceived flaws in the system. For example, when banks act as third-parties during a transaction, they extract transaction fees in the process. Additionally, remittances can take quite some time to validate and settle under the current system. If money is sent overseas, it can take up to five business days for the transaction to be validated and settle, which is viewed as far too much of an inconvenience to consumers and enterprise clients.
Thus enters blockchain. The three keys to blockchain are decentralization, simplicity, and speed. As a decentralized network — one where data is stored on computers all over the globe, as opposed to in a central hub — blockchain ensures that no single entity will ever be able to gain majority control and cripple a platform. Next, it simplifies things by making remittances about just a sender and receiver of funds. Without those bank fees, transaction expenses should drop. Lastly, because transactions are validated 24 hours a day, seven days a week, they can be settled very fast — in some instances, in real time.
Three of the most enterprising blockchain projects
While blockchain gained its fame in the financial realm, the technology could be used as the foundation for game-changing applications in a wide array of other arenas. Indeed, the most exciting blockchain projects being developed now don’t involve digital currencies. Recognizing that the technology’s potential is limited only by the imagination of developers, here are three of the most ambitious blockchain projects currently underway.
1. Creating a registry to support the rights of workers
Arguably the most exciting project might be one currently under development by beverage giant Coca-Cola (NYSE:KO), the U.S. State Department, and a handful of partners. They aim to create a registry for sugar supply-chain workers in foreign countries to ensure that employers are honoring their scope of work contracts. By 2020, Coca-Cola will provide data on child labor, forced labor, and land rights from 28 country-level studies; the State Department will bring its labor expertise to the table; and the other partners – Emercoin and Bitfury Group – will build the blockchain-based registry.
At the heart of this project is the idea of the smart contract — a series of protocols designed to verify, facilitate, or enforce the negotiation of a contract. Rather than workers agreeing to work terms on paper, which could be altered, or through word-of-mouth promises, these contracts, which could include length of work, pay, and the scope of work to be performed, would be stored on a transparent and secure blockchain registry. The theory is that this would induce employers to better honor their contracts with their employees.
Given that there are almost 25 million people worldwide working in forced-labor situations (per the International Labor Organization) and that the food and beverage industry where Coca-Cola operates is seen to be among the largest users of forced labor, this project could be a big deal.
On the one hand, a blockchain registry can’t force employers to honor their contracts with workers. However, it would create a system that could ultimately compel employers to be fairer with their workers.
2. Creating digital IDs to assist those who might otherwise struggle to verify their identity
In mid-February, software giant Microsoft (NASDAQ:MSFT) announced, via a blog post, its intention to use blockchain to develop decentralized IDs within its Authenticator app, which is already being used by millions of people. (An authenticator is simply a token or code that’s used as an additional layer of security for a returning user or device.)
Why decentralized IDs? Simple: More than 1 billion people worldwide are unable to prove their identity. This makes it extremely difficult for them to gain access to basic banking services, to start businesses, to travel, to receive health insurance, or perhaps to even be treated fairly by an employer. Providing individuals with a means to store ID information on an immutable blockchain, and giving them access through a digital key, would put every person in control of their own digital identity and give them a way to verify their identity whenever necessary.
Furthermore, the digital ID initiative laid out by Microsoft could allow developers to customize applications and services that would require less of a person’s information to be reviewed before allowing access to an app.
Admittedly, Microsoft is just getting started on this monster project, so it’s going to be some time before it has any major progress to report. But if it can successfully incorporate a blockchain-based ID into its Authenticator app, and find a means to get the people who struggle to verify their identity connected, this idea has a chance to be game-changing.
3. A data-sharing marketplace
Even cryptocurrency developers are getting in on the action. While there are no shortage of intriguing blockchain projects from the creators of virtual currencies, one that stands as being particularly ambitious is the Data Marketplace from IOTA.
In November, the IOTA Foundation announced that it had launched a beta version of what it coined the Data Marketplace — a place to share or sell unused data. While we have marketplaces online where we can buy and sell goods, this same market construct had not really existed for intangibles like ideas and data. What IOTA released in late November aims to remedy that with a system that allows unused data to find a home and be useful. Best of all, there are no transaction fees on the IOTA platform, removing one of the biggest barriers to the use of blockchain.
Additionally, the Data Marketplace will be a means for interconnected wireless devices, better known as the Internet of Things (IoT), to trade storage, electricity, sensor data, and even analytics. As we develop more machines capable of making decisions based on smart contract protocols, the Data Marketplace could, in theory, become instrumental to the IoT operating at its peak efficiency.
Understandably, this project is still very early in its testing process. IOTA has more than 35 participants offering feedback, but it hit a few speedbumps shortly after its beta launch with transactions taking a very long time to be validated. For now, consider it an intriguing work-in-progress.