That the blockchain technology underpins Bitcoin and other crypto-currencies cannot be over emphasized. The blockchain is indeed an integral part of any decentralized digital coin.
Yet this technology has possibilities that extend beyond digital currencies and many people are only starting to appreciate this now.
There is no doubt, this is a fairly complex topic (the blockchain technology) that is not easy grasp but here we try to simplify it by examining the many ways it can be used.
What is the blockchain?
Blockchain technology is loosely defined as a growing list of records, called blocks, which are linked using cryptography. Cryptography itself is the art of writing or solving programming codes.
Each block on the chain contains a cryptographic hash of the previous block, a timestamp, and transaction data.
By design, the blockchain is resistant to any unauthorized modification of the data. Data can be altered provided there is consensus to any such change. As a consequence, the blockchain brings trusts between parties, a role currently entrusted to intermediaries like lawyers, central banks, Escrow, regulatory authorities etc.
In addition, the elimination of intermediaries naturally comes with the added perk of reduced operational costs and that is one big plus for this technology.
Blockchain gives transacting parties greater control and this is what makes the technology a hit with individuals who do not want third parties snooping around their private lives.
Still many might find this explanation vague and rather difficult to grasp, so we attempt to simplify this further by using an example of Cassava SmarTech’s Ecocash, a popular mobile money application.
How an application brought trust between club members
A few years ago, a new function was added to the Ecocash mobile money transfer platform, the Ecocash Savings Club. This service allows a group of people to create a cash pool where all members contribute agreed amounts over a particular period.
Prior to the introduction of this application, it had been a tradition of many women to organize savings groups. Savings club have been around for the many years and are responsible
However, the unique advantage of the Ecocash savings club over a traditional savings clubs is the transparency it comes with. With a traditional club, one member is chosen to collect on behalf of all members and often this is where problems are often experienced. For starters, it has happened that some members will fail to contribute the agreed amounts on time or will only contribute a fraction of the agreed amount. This often destabilizes the operations of the club causes discord between members.
The essence of savings clubs is to enable members to borrow small loans from the pooled savings. Ordinarily club members would not get such loans from conventional banks because they may not have the collateral needed. The savings club acts as their bank.
However, if one or more members fail to honour their commitment to contribute fully, this prejudices other fully paid up members, and often that is how such savings clubs collapse.
How a technology engenders trust
Now the Ecocash Savings Club uses a technology that allows members to overcome this trust challenge. To illustrate, each time a member contributes to the group’s Ecocash account, a message is simultaneously sent to all group members, informing them that member X has contributed the agreed amount.
That way, it is easy for all members to track the progress of deposits into the pool and more importantly, if all members are adhering to set deadlines.
With respect to traditional clubs—which are supposedly based on trust—the second major problem concerns the abuse of members’ funds by the group’s trusted treasurer or any other member who has access.
A person appointed to safeguard the funds prior to their distribution, may be tempted to use the money for personal gain and return this just in time before the next member is due to collect.
Often, this breach of trust is uncovered when the untrustworthy treasurer fails to remit the full amount to a member scheduled to receive the funds. This happens even as all members are up to date with their contributions.
Ecocash Savings’ Club application solves the problem by using the same technology to inform members if funds have been withdrawn and the identity of the member making the withdrawal. As an extra safety feature, the technology requires two members to authorize a withdrawal, with one making the request and the other one approving.
On top of that, all members will get a message that a certain amount of the groups’ funds have been withdrawn and the name of the beneficiary!
Therefore, this Ecocash savings club application enhances transparency as well as protection members’ funds from potential abuse. Any member attempting to subvert the club rules will be identified quickly and be ejected.
The blockchain enables trustless platforms
The Blockchain technology that underpins Bitcoin has many elements similar to this Ecocash Savings’ Club application. In fact, the blockchain is much better in many ways.
The Blockchain technology eliminates intermediaries because it applies a peer to peer technology in a revolutionary way. Having such a technology means there are no costs of paying the treasurer, his administration expenses, travel expenses and perhaps more significantly, the risk of abuse or fraud is avoided. The Blockchain eliminates inefficiencies that until now appeared improbable to do without.
The Blockchain can and is changing established industries in significant ways and there is no industry better placed to benefit from the deployment of this technology than the insurance industry.
For the insurance industry, the Blockchain technology might just help to nip the problem of insurance fraud in the bud. Zimbabwe’s Insurance and Pensions Commission (IPEC) has correctly observed that one of the common problems in this industry is that sometimes policyholders pay unnecessarily more than they should because they insure the same asset with more than one insurer.
Those doing this deliberately hope to profit from such mischief while those doing it ignorantly do so because they do not understand how insurance works.
It should be noted that it is a form of insurance fraud to insure the same asset with more than one insurer with the intention of claiming compensation from all of them.
This issue of multiple policies is common with funeral policies where each sibling puts their parents on individual funeral covers when the same parents already have their own funeral policies. According to the law, insurance companies can only honour one policy and the rest will not be paid.
However, the Blockchain can potentially put a stop to this before it even becomes a bigger problem. If all insurance players use one Blockchain for the entire industry or alternatively, if there is interoperability between different Blockchains that insurance companies choose to deploy, then possible cases of double will be flagged quickly.
In that sense, the Blockchain technology helps to reduce cases of fraudulent claims while helping families save money by avoiding double insurance.
So instead of forcing family members to sit down and plan for the death of parents, a subject that may be considered taboo, Blockchain technology does the discussion on their behalf!
Trials of the blockchain vindicating the technology
To date, a number of sandbox firms have demonstrated that the Blockchain can be used with regulated payments and e-money services to allow the deployment of smart contracts to execute transactions automatically.
A regulatory sandbox firm tested a fully automated, the blockchain-based flight delay insurance product. When a flight was delayed, the system would automatically trigger a pay-out in cryptocurrency or in fiat currency.
The Blockchain is real, insurance companies and indeed all industries can benefit if they choose this technology.