• Blockchain technology – why its uses go far beyond cryptoassets

Blockchain technology – why its uses go far beyond cryptoassets

23 September 2022

Original content provided by BDO United Kingdom.

While blockchain technology has been around for the last 13 years, it is still considered emerging and experimental in business terms.

As blockchain is immutable by design, and is engineered to independently verify transactions by leveraging consensus protocols, the benefits of using the technology are most apparent within decentralised autonomous organisations – ie where ownership, governance, and encoded rules are not controlled or influenced by a central “government”. The consensus mechanisms vary, depending on the blockchain and token being used. However, all protocols aim to deliver fault-tolerant systems by guaranteeing that all network participants agree on a single version of the historical chain.

While blockchains themselves are generally simple implementations of distributed databases, the challenges around performance, security, throughput, decentralisation, and consensus mechanism are significant and challenging to overcome. Even though you may well need to undertake an R&D project to implement a blockchain-based solution, the benefits of doing so can be considerable.  

Beyond cryptos

Most people associate blockchain technology with cryptocurrencies, but that is just one of many use-cases for this revolutionary technology. Thanks to the cryptography inherent within blockchain, it offers new solutions in a wide range of scenarios to remove reliance on manual processes and governance dictated typically by a group of executives. The immutable and codified rules allow for novel technological applications in many sectors, including:

Financial services – tracking most forms of financial transactions to give an accessible audit trail to all parties. While administration of cryptocurrencies is the most obvious use of blockchain to date, it can also be used in identity verification, to hold and transfer performance information such as ESG data, support stock trades, spread betting, insurance and debt factoring products – almost all forms of financial service offering could benefit. 

Food Safety – the most obvious application is within the food space, especially with respect to transporting raw fish, such as sushi. Fish caught in Japan are transported across complicated routes to the intended destination before preparation occurs. Fish can take weeks to reach their destination, and should the fish be exposed to temperatures above -18 Celsius, for a sustained period, it will be unsafe to eat. Blockchain technology can help with this, as it can provide reliable, immutable, records of temperature and source of origin.

Environmental and Social – Similarly, blockchain can be deployed in the fight for sustainability. Identifying the true source of origin for natural resources such as wood, diamonds, and palm oil has been a challenge for decades. However, if microchips or QR codes are used to record the source and transport history of any material, and that data is immutably recorded on the blockchain, purchasers are able to verify provenance easily and cheaply.

Anti-Counterfeiting – the few solutions currently available to aid in the prevention of counterfeit goods are easy to copy or tamper with - fake copies of brand-name luxury goods are common. Combining ‘internet of things’ technology or anti-counterfeiting codes and labelling with blockchain can overcome the current limitations. All parties, in the lifecycle of the product, would be able to verify the legitimacy of the elements that make up the final product, whilst stamping out piracy of items. Not only will this prove the source of the items, but also ensure product revenues are sustained, for authentic manufacturers, in the long term.

How BDO can help

R&D tax credits offer valuable financial support to companies developing new blockchain applications to improve their business and, as it is often possible to patent elements of solutions containing blockchain technology, there may also be potential to claim Patent Box tax relief on income arising from services dependent on the solution. For help and advice on the tax reliefs available to help fund your blockchain project, please get in touch with Claire McGuigan or Karen Doherty.