Blockchain technology is usually associated with Bitcoin and dozens of other cryptocurrencies. However, not that many people know that it has grown far beyond its original application as a decentralized ledger designed to be utilized for digital currency transactions.
In today’s world, blockchain is shaping industries through its innovative use of smart contracts and tokenization, allowing businesses to do things in more reliable ways and to implement projects that would not have been possible before.
In the digital age, this technology, despite its slow adoption, has been used in many key areas, from logistics to real estate and crypto casinos. Its ability to improve reliability and transparency is incredible.
This comes at a cost, which isn’t always affordable to the businesses that might want to make use of blockchain technology, which is one of the main reasons for its slow adoption. But in terms of its functionality, it is undeniably powerful.
The Fundamentals of Smart Contracts and Tokenized Economies
Smart contracts, put simply, are self-executing agreements. They are coded onto a blockchain and automatically reinforce the terms of a contract when the set of predefined conditions is met. In turn, this eliminates the need for intermediaries and trust.
The system is built to be fully reliable and provably fair. This can drastically reduce transaction costs and also increase the level of confidence on the part of clients, who no longer need to worry about potential scams or system errors that might result in an unfair outcome.
Take the example of a supplier and a customer who buys a good or service from him. A blockchain system can be built to enable the release of payments as soon as the goods are delivered and verified, using a smart contract. The entire process is automated and enforceable under the agreed, predefined conditions.
This naturally creates transparency, efficiency, and trust because the system isn’t playing political games, nor does it try to do anything shady. It is implemented to function exactly as intended and can be shown to do what it promises.
Tokenization refers to the process of converting real-world assets or rights into digital tokens that can be used on a blockchain. In other words, the blockchain has its own representation of what constitutes value, which means that the value from outside the system must be translated into the value from inside the system.
You sell one dollar and buy 1 token (or 100, depending on the exchange rate), and then use that token to make transactions inside the system. Tokenization enables fractional ownership in a manner that’s similar to company shares.
Together, smart contracts and tokenization enable the creation of new economic models, better known as tokenized economies, in which physical and digital assets are part of a blockchain ecosystem.
Utilizing Blockchain Technology
Blockchain technology has been used to some extent and can be used even more to create innovative solutions in many industries.
In logistics and supply management, for example, it can be used to eliminate inefficiencies, the lack of transparency, and fraud. A company that uses blockchain technology can more easily trace every product and transaction. It can quickly spot fake products that pretend to be what they aren’t. This is particularly valuable when it comes to expensive fashion products.
Companies like IBM have utilized blockchain technology to enable food suppliers to trace products in real-time, improving safety and reducing waste by identifying contamination sources very quickly.
In real estate, tokenization allows small investors to participate in high-value markets by purchasing a small number of tokens that codify the value of a particular property.
In live casino gaming, blockchain technology allows companies to demonstrate to their clients that the method of offering certain prizes is fair, and that the system will not attempt to scam anyone. It also gives clients the chance to place bets using cryptocurrencies, expanding their number of options in any given scenario.
Luxury brands can use blockchain technology to create collections of valuable items and keep track of each item in that collection, thus eliminating any trust issues when, at a later date, a collector might want to sell one of his watch sets to a different buyer.
The possibilities are numerous and it’s only a matter of time before blockchain technology starts to be utilized more broadly. With Bitcoin gradually increasing in popularity and price, the world is guaranteed to learn more and more about this type of technology and eventually adopt it en masse.