It’s not unreasonable to believe that blockchain is primarily a mechanism to support cryptocurrencies. For sure, crypto coins and crypto tokens represent a big proportion of their current use. It’s also important to acknowledge that it’s often these cryptos that power the new innovation that blockchain is enabling. For example, the Ethereum blockchain uses its own cryptocurrency, Ether, as a mechanism for user fees that power everything from games to managing digital assets.
After Bitcoin was launched in 2009, blockchain technology began to be recognized as a platform for a wide range of uses beyond cryptocurrency. As the technology has matured, and in order to support new, complex implementations, a large blockchain ecosystem has emerged. Until now, I’ve only discussed blockchains that are permissionless and public. These open architectures allow anyone to participate. Since it’s decentralized and without authority, there’s no approval process. Everyone can join a permissionless blockchain. For proponents of the technology, this is a central strength. That said, there’s now a sizable market for blockchain uses where approval for participation is required and access levels and roles are controlled. These are called permissioned or private blockchains and are often used within and between private enterprises.
A popular private blockchain is called Hyperledger. Sure, it’s counter-intuitive, because the spirit and value of blockchain represent the opposite of these needs. However, the value of certain aspects of blockchain, such as immutability, where only transactions are written and never deleted, is being applied in a private blockchain context. Another example, such as a document workflow process between enterprises that must be kept confidential, might be considered a candidate for a private blockchain.
Blockchain technology has many qualities, such as processing efficiencies, lower costs for transactions, transparency, traceability, which is being able to analyze the entire history of records, and a high degree of security and integrity. These qualities lend themselves to supporting a wide range of industries and applications.
The financial sector is continuing to see the steady adoption of blockchain technology in support of its services and innovation efforts. But in fairness, while real production solutions do exist, a large number of financial applications have existed in an experimental model. That’s changing now. And it’s anticipated that in the next few years, many of these experiments will convert to production systems.
We’re also beginning to see the emergence of an entire financial ecosystem based solely on blockchain technology, called decentralized finance, or DeFi. DeFi startups offer a range of popular services, from lending to insurance, and also have the potential to be highly disruptive. With so many cryptos or altcoins, an ecosystem of organizations and services to enable more people to buy and sell cryptos has emerged. Called exchanges, these services are the equivalent of a blockchain banking system that supports capabilities such as the storage of cryptos, user keys to be specific, currency conversion from altcoin to altcoin, and also from crypto to fiat currency and vice versa. And also market analytics. Some traditional banks are now beginning to offer similar services. Recently, a specific type of crypto token, a non-fungible token, or NFT, has been used to support a new ecosystem for people who want to collect and trade in digital assets.
It has also created a growing platform for digital artists to market and auction their products. Similar to the popularity of items such as physical baseball cards, collectors can buy and sell digital images, videos, and other unique digital assets. Between the years 2017 and 2020, the NFT market grew by over 700%. And by early 2021, was worth well over $300 million.
Blockchain technology benefits are also demonstrated in other areas, such as support for supply chain management, identity management, and the authentication of a wide range of credentials, such as degrees, certificates, and licenses. Each of these areas is generating new providers, and enabling opportunities for existing vendors to diversify into servicing emerging requirements. What’s clear is that blockchain is now creating opportunities across the economy in surprising ways. Its growing maturity and adoption are building credibility and ensuring that it becomes an important tool in the array of technologies ready to support our future needs.