Blockchain Applications

Diego Schurch | August 29, 2022

Introduction

The last 3 years have helped us become more familiar with blockchain with cryptocurrencies rising in popularity as an investment. Although popular, blockchain is still an abstract concept and it is very common to think of it only as a speculative tool, but its applications go beyond that.

Blockchain was initially developed with the intention of supporting a cryptocurrency, but its potential has been expanded thanks to the use of Smart Contracts and the possibility of executing programs within these. Blockchain promises to be the third revolution on the web, taking the use of software to places where it was not possible before. In this blog, we will see some blockchain applications and the revolution that it can create in multiple domains.

Blockchain in a nutshell.

Blockchain

Let's review about some blockchain concepts. Blockchain can be described as a ledger. This ledger keeps a record of each of the operations and transactions that are carried out on the network. As an example, if a user Diana has 10 tokens and if she wishes to transact those, we can validate using this ledger if she has the necessary tokens to perform the action. The magic of this ledger (Blockchain) is that it is distributed in a computer network, that means that each computer maintains an exact copy of the ledger, and every time an operation/transaction is carried out, it is written and distributed throughout the network. This makes it decentralized, meaning that no one entity has complete control over it.

In order to write to the blockchain, it is necessary to carry out a proof of work, also known as PoW. The goal of the PoW is to make writing difficult, to discourage and hinder unwanted behavior, such as a user trying to write more tokens to their account. It is this part that the famous miners come into play. They compete with each other, and the first one to make the PoW writes a new page in the ledger (A Block in the blockchain) and receives a reward that is usually paid as tokens. There are other methods of validating new ledger entries beyond PoW, but those are for a future blog.

Smart Contracts

Another important element are the smart contracts, which are programs that can be executed to write to the blockchain. Their importance lies in their ability to perform actions on the blockchain in reaction to certain events. For example, when user Diana transfers 10 tokens to user Diego as a payment for his NFT, the smart contract will take Diego's NFT and transfer its ownership to Diana. These help two parties agree on certain transactions and their applications are usually similar to those of the contracts we are used to, hence their name.

Non-Fungible Tokens

Blockchain started with the use of fungible tokens, but through the network evolution, non-fungible tokens were created. A fungible is an asset that is not unique. An example of a fungible token is 1 bitcoin, this bitcoin has the same value as another bitcoin, and price variations affect them equally. On the other hand, a non-fungible token is unique, it still has a value, but this is unique to the object. An example is a work of art, it has a value, but it does not necessarily have the same value as other works of art since, although they belong to the same category, they are different.

Soulbound tokens

Soulbound tokens are a new paradigm that can potentially impact the future of Web3. The aforementioned fungible tokens and non-fungible tokens are exchangeable. As an example, a user can exchange his/her cryptocurrencies of a certain type for others of a different type, he/she can buy an NFT (which is a non-fungible token) using these same tokens, and the owner of the NFT could auction it. Users can do whatever they want with their tokens, but there are certain scenarios where these actions are not desired. The most important characteristic of Souldbound tokens is that, once they have an owner, they can no longer be exchanged. An example of this would be a certificate. To obtain one, you would usually go through a certification process, and once obtained, it would not be transferable. A certificate could be represented by a Soulbound token, which would be assigned to users who passed the certification.

Applications

As already mentioned, Blockchain-based cryptocurrencies are currently popular as an investment, but by expanding their functionalities with smart contracts and creating new paradigms, their applications go beyond just that. Making use of these 3 elements mentioned (fungible, non-fungible, and Souldbound tokens), exciting new innovations can be created.

Art

Art is one of the areas that has received the greatest attention, as artists now have the ability to create NFTs to grant property titles to their works and thus can transact their creations. The NFT is the property title, so, using these tokens, artists can create physical or digital works and sell the NFTs.

Although it can also apply to physical arts, it is in digital arts where its greatest impact is being seen. Before blockchain it was very difficult for digital artists to monetize their works, but now with the help of NFTs this is changing. Currently, there are still certain problems to overcome, but more and more artists are making use of these.

Governments

Its main use lies in the transparency that blockchain creates as a decentralized system. An example would be the management of records of public resources such as land/water/taxes/grants. Likewise, smart contracts can be used to automate bureaucratic processes, such as the transfer of resources from one administration to another.

Government applications have possibly the greatest potential, but as is common, governments are generally the slowest in applying technology to its processes. Hopefully with the adoption of blockchain in other areas, we might see progress.

Education

Souldbound tokens have the perfect use casein education. They can be used to award university degrees as well as create a standard to regularize the delivery of degrees regardless of the university. Also, as the network is global, these titles could have worldwide validity, as long as delivery standards are created. It could also be possible to develop completely autonomous training software, where the user would validate their knowledge and obtain a souldbound token as a certificate.

Currently, there are some institutions that are beginning to leverage this technology.

Environment

. Organizations (private and public) can leverage blockchain to record their operations and open those records for analysis of auditors. Regulatory entities can analyze the impact of these operations againstpre- established environmental care criteria. Finally, third parties could corroborate the information since it would be accessible through the blockchain.

Although blockchain can be a part of climate change action plan by making processes clearer, currently the computing capacity required by the network is a problem. It is estimated that the energy consumption by bitcoin is equal to the entire requirement of Argentina. The Ethereum blockchain is developing an alternative to PoW to address this problem.

Society

Every day we use different types of credentials and identifications, which are unique to each person, and many of these could be replaced and digitized in the blockchain. In the future, we could replace birth certificates, identity cards, driver's licenses, passports, among others, with souldbound tokens, all automated and with the necessary transparency that blockchain offers.

Another case is to digitize property titles, which requires a notary to endorse the agreement between all stakeholders. Smart contracts could be developed that transfer ownership of the asset to the beneficiary once all required conditions are met. It is worth mentioning that smart contracts are usually public, so both parties could analyze the "clauses of the contract".

Conclusion

Mentioned applications are just some examples of the potential that blockchain holds. The philosophy behind blockchain, ergo the decentralization and democratization of the network, is shooting for a revolution with great benefits to users. In a few years, we will witness the birth of decentralized organizations, directed through rules codified in smart contracts through the blockchain.

About Encora

Fast-growing tech companies partner with Encora to outsource product development and drive growth. Contact us to learn more about our software engineering capabilities.

Insight Content

Categories

Share this Post

Featured Insights

Fill Out Later