A misconception of the blockchain is that it is solely used for the creation and exchange of cryptocurrency. However, small businesses can leverage blockchain technology to positively impact their bottom line. Let’s take a closer look at what blockchain is, and at six ways it can benefit small businesses.
What is the Blockchain?
The blockchain is a decentralized ledger that records, verifies, and enforces the transactions of small businesses. It can be used for accepting customer payments, payroll, cloud storage, contractual agreements, and more.
How does the blockchain work? When a transaction is made, a single block on a chain is created. These blocks are then secured as blocks (transactions) and added to the chain, which continues to grow. Transactions are verified by 3rd parties (miners) to make sure they are valid and correct. It is essentially a way to cut out the middleman of centralized ledgers presently used today.
The three main processes of blockchain transactions are:
- Transaction Creation: When a transaction like a customer payment is made, the transaction is recorded across several decentralized ledgers.
- Transaction Verification: Once the transaction is created and recorded, the multiple ledgers the transaction was recorded on are verified. The secure nature of the verification process requires a minimum of 51 percent match across all ledgers.
- Transaction Enforcement: After verification, the terms of the transaction are enforced. This could be a hold of funds until the agreed terms of the contract are met.
The process may seem detailed, but creation, record, verification, and enforcement take place in real-time. This is the draw for small businesses. Having the ability to streamline various businesses dealings can save small businesses time and money.
1. Money Transfers and Payment Processing
The most common use of blockchain technology is the ability for small businesses to send and receive payments. These payments are done using popular cryptocurrencies like Bitcoins. Small businesses that accept cryptocurrency can transfer funds faster and more securely. These nearly instant transfers can be done globally and for very small transaction fees.
The reason for the instantaneous and cost-effective cryptocurrency transfers is due to the absence of middleman financial institutions. Payments and money transfers using cryptocurrency are becoming increasingly common for small businesses in the global marketplace. For instance, Bitwage aims to combine payroll processes with blockchain technology, raising over $750,000 in funding for the innovative venture.
2. Enforcing Smart Contracts
Smart contracts are used on the blockchain as part of the decentralized approach to global business. These smart contracts can be essential to small businesses, since they decrease fraud and other contractual problems.
But what are smart contracts exactly? Well, smart contracts are automated computer programs that can ensure terms of any contract are met. This can save small businesses exponential amounts of time, legal fees, and more.
Smart contracts also allow small businesses to sidestep financial institution regulations for transactions. These contracts are unbreakable and more secure than any traditional contracts currently drafted and enforced.
Slock is an example of smart contract use. This IoT company allows customers to rent from bicycles to apartments using cryptocurrency Ethereum. The blockchain contract puts a smart lock in place until both parties agree to the terms of the smart contract.
3. More Secure Cloud Storage
The blockchain can also be used by small businesses to develop more secure cloud storage, faster and more affordable.
One company with blockchain cloud storage in place is Storj. Shawn Wilkinson, Storj founder told VentureBeat, “Considering the world spends $22 billion+ on cloud storage alone, this could open a revenue stream for average users, while significantly reducing the cost to store data for companies and personal users.”
4. Digital Identity Verification
Fraud and data theft is a very big issue for global companies. The money lost due to fraud alone is estimated to cost industries $18.5 billion per year. Fraud and data theft issues are also a concern for small businesses.
Blockchain technology serves up a better way to verify and manage digital identities. The current identity verification processes involve password-based systems that collect data and then secure them on not so secure systems. When identity is managed and verified on the blockchain, unique digital signatures are developed using a public key cryptography.
Blockchain identity verification can be used for IDs, passports, birth certificates, account logins, and more. This extra layer of security can help small businesses secure private data in a unique and nearly impenetrable way.
5. Blockchain Loyalty Programs and Gift Cards
The blockchain can also be a small businesses asset when it comes to marketing initiatives. Loyalty programs and gift cards for customers can be securely created without middlemen by using the verification processes blockchain technology boasts.
For example, your small business can leverage blockchain technology for loyalty programs and gift cards. When a customer engages for a reward they are issued a digital gift card that can be traded on the decentralized ledger of the blockchain.
6. Digital Notary Services
Small businesses often need notary services to get things done. However, these instances can be costly and very time-consuming. Blockchain technology can ensure businesses have a notary service that is more efficient, secure and cost-effective.
Notary services on the blockchain can provide:
A digital fingerprint or timestamp of a document that is secure, recorded and verified on the blockchain
The private and public key used on the blockchain is proof of ownership for a document
Notary services are also verified independently using a third party who holds the private key for the document.
How Will Blockchain Technology Improve Your Small Business?
There are a variety of ways blockchain technology can improve your small business. From a more secure way to track and manage data to enforcing contractual agreements via smart contracts, the blockchain has a lot to offer.
Blockchain technology is faster and more cost effective as well, cutting out the cost of having financial institutions serving as middlemen. What blockchain benefit is best for your small business?
Guest post courtesy of Nick Rojas. Nick combines 20 years of experience working with and consulting for small to medium business and a passion for journalism to help readers grow. He writes about technology, marketing, and social media for the aspiring entrepreneur. When Nick is not sharing his expertise, he can be found spending time at the beach with his dog Presto.