Ultimately, these qualities combine to create a self auditing public record which can be used as a tool by people and organizations all over the world to conduct their day to day business. Use cases for the blockchain are plentiful, and new ideas are popping up every day. At a basic level blockchains features trustless mechanisms for money and data transfer, traceability and the chronological ordering of data. Digital identities can be created to represent data on the chain and provide proof of exactly when a piece of data was created, its history as well as the ability to prove ownership of data.
Data Verification: Immutability of the blockchain allows for the creation of robust audit trails of the data hosted on the chain. Searchability is improved as the blockchain can act as a common database for relevant records or even carry pointers to externally hosted data. Many industries still rely on physical documents to verify data, which is a manual process that is very time consuming and prone to loss of information and errors. Using blockchain technology can speed the digital evolution of industries that are still heavily reliant on outdated manual verification practices, and can improve the efficiency and integrity of virtually any process involving data validation.
Smart Contracts: Other use cases include smart contracts, which are self-executing applications with the terms and conditions of an agreement written directly into code. The rules and penalties coded into a smart contract do not require the services of a middleman as obligations self-execute automatically. Smart contracts are great for setting up automated agreements for exchanging different forms of value without conflict or interference from third parties.
Tokens: Token protocols make it possible to create assets or tokens that are hosted on the blockchain. Tokens can represent anything from equity in a company, to ownership of property, tickets for an event, or even coupons at a grocery store. Tokens are also great for business ventures seeking investors through crowdfunding or initial coin offerings.
Distributed Autonomous Corporations: Token protocols also make it possible for distributed autonomous corporations to be created, which are organizations or companies that use the blockchain for administration and governance. A distributed autonomous corporation can organize itself in a number of ways, including allowing token holders’ decision making power over the business through voting rights, and the ability to receive company profits through dividend distributions.
It goes without saying that blockchains have the potential to become competitors to traditional state sponsored paper fiat money in the form of cryptocurrencies. The first blockchain, Bitcoin, for example was originally invented by Satoshi Nakamoto as a replacement for fiat money, a peer-to-peer electronic cash system. It is believed by many that cryptocurrency can, in time, challenge existing financial institutions like central banks, which are responsible for managing monetary policy in various countries.
Where a central bank manages the supply of money in a centralized fashion with decisions being made by a core group of bankers, blockchains instead have strict coded rules about how new supply is introduced into the economy, how much and over how long a period of time. This makes distribution of new supply in cryptocurrencies more controlled and predictable and not subject to the changing opinions of central bankers.
Each blockchain can have its own separate rules regarding inflation of the supply and those rules can only be changed if a majority of network validators around the world agree to upgrade to the new rules, which prevents sudden changes from happening and helps maintain trust and stability in the system. In addition to controlled and predictable inflation, the blockchain also has a number of other benefits when being used as money:
Irreversible: Transactions are irreversible, which prevents chargeback fraud as seen with credit cards. Transactions also cannot be denied by the network itself.
Transparency: All transactions are transparent and easily viewable on the internet using tools like block explorers. This allows verification of data.
Pseudonymity: As long as a user's personal identity is not linked to the address they transact with, transactions will remain pseudonymous.
International Payments: Cross-border trade is faster because payments avoid the delays associated with traditional methods.
Identity Protection: Merchants with poor security measures are at risk of losing credit card information to hackers, but with blockchains vital payment information no longer needs to be stored by merchants.
Convenience: There is no need to carry around a bulky wallet. With cryptocurrency your money can easily be transacted with by downloading various wallet apps on your phone.
Ease of Access: For those in developing countries who may not have access to traditional banking systems, cryptocurrencies can provide greater access to the rest of the world economy because all that is needed is a phone and an internet connection.
No Counterparty Risk: There are no third parties such as banks to rely on in order to transact with your money. Due to the direct person-to-person nature of blockchains, you can cut through any middlemen and send your payments directly where they need to go.
Independent Control: The automatic nature of transactions from one user to another offers independence from banks and an increased level of control over funds, essentially allowing you to become your own bank.