The digital commerce industry has taken many leaps over the last few decades, with major advances in transactional services such as e-commerce and escrow. However, most industries have relied on hefty fees from banks, centralized processing and long wait times for money to move. PayPal was a great bridge to solving this, until the creation of digital currencies.
The digital currency industry started with the invention of Bitcoin, which is based on B-Money and HashCash. Bitcoin was created to be a secure model that protects merchants against double-spending attacks by requiring large amounts of computing power to verify transaction-level data. Because a transaction is just a movement of data from one place to the next, securing it with a proof-of-work protocol (e.g. HashCash) allows major benefits to upstream and downstream businesses.
“Smart contracts” are perhaps one of the most noteworthy benefits of digital currency. Smart contracts can be understood in greater detail when one learns exactly how a blockchain works. A blockchain is a distributed worldwide database that cannot be altered once data is written. This database allows for the secure exchange of data ownership, which can be anything from currency units, to titles, to deeds on houses.
What is a Blockchain?
Blockchains are a relatively new technology first implemented in 2009 by a coder named Satoshi Nakamoto. Essentially, a blockchain is an unchangeable ledger of events recorded as transactions and ordered by time. Every transaction is therefore fully auditable. This means that there is always a link between transactions to combat any double-spend attempts (spending the same dollar twice).
One of the most notable features of blockchains is that they allow any individual to have control over their own money without the need for third-party services (e.g. banks, transfer services, card processors). It also breaks down the barriers of transferring internationally and drastically reduces fees compared to other methods of international wire transfers. When you swipe your debit card, you are authorizing the total amount in the transaction to be moved from your bank account to the merchant’s bank. This process usually takes three to five business days and requires hefty fees depending on how many middlemen it must go through to get to its destination. With Bitcoin, this process can take (on the slower side) over an hour, giving both the merchant and user a quicker settlement, without relying on central services or authorities to do the transfer.
What Are Smart Contracts?
If you are a procurement professional, you rely on making decisions quickly. The quality of your decisions is based on the quality of your data. This is where smart contracts come into play. For example, for companies that provide services, smart contracts are able to register new clients automatically once a payment is sent. This is possible because a blockchain simply transfers the ownership of data.
When data is able to move freely in a transparent way, processing can be done on it as well. A smart contract is executable code in a transactional environment, such as a blockchain. It is capable of executing code on a distributed network, which allows the simple streamlining of business services. Take the example of an e-commerce company requiring to stock up on merchandise once their supply becomes low. The company would be required to contact upstream supply chains to have the product manufactured, while the manufacturer would need to coordinate the required supplies to have it created. On the upstream side, the supply chain requires coordination with each business on each level. This can become a tedious process that increases the number of middlemen every step of the way, which ultimately means an increase in the cost to manufacture.
If a business sells a product to a client, it requires this product to be manufactured at a given pace to keep up with the demand of sales. They would have their own supply chain and manufacturer (many in some cases). If the sale of products is all done with smart contracts, this would mean users send their token to the business’s contract when requesting a certain product. This contract would automatically keep track of these sales and the inventory available.
This business and their manufacturer could also create another smart contract on the manufacturing side that would “talk” to the sales contract. This means that if inventory was ever running low, the sales contract could automatically contact the manufacturer contract and request more product to be produced based on a set of rules and, if validated, could send the required payment automatically from the sales contract. This means that downstream providers and even upstream providers could be very closely automated, saving the companies enormous amounts of money while making it run with unparalleled efficiency.
Why Would I Want to Get Involved in Blockchain?
The answer is simple. Blockchain technology improves the quality of business and cuts out middlemen, giving more of your profit directly to your business. It is comparable to the invention of the internet, which changed everything about business through the decades that followed. If you position yourself wisely in the beginning stages of this technological revolution, you position yourself for a success that could compare to the success seen by leaders of the internet, such as Amazon, eBay, Google, and Facebook. Is it risky? Yes, the unknown is always a risk, but those that find prosperity are the ones that are willing to dive into it. They are the ones that forge pieces of the future through their business, research and inspiration when they discover something that can truly change the world.
About the Author:
Colin Cantrell is the creator of Nexus, a peer-to-peer network designed to provide technology aimed at solving some of the most difficult challenges of the future, including financial technology, quantum-resistant cryptography, distributed computing and public, transparent ledgers. He is a hardware and software expert, inventor, composer, musician, philanthropist and entrepreneur. He enjoys the study of physics, philosophy, history and cryptography and hopes to apply his knowledge to make a positive change in the world.
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