Blockchain enables direct transfers of digital value or tokens between two counterparts and decentralized record-keeping, removing the need for an intermediary or central authority who controls the ledger. This can translate into lower costs, better scalability and faster time to market. 

All network members have a full copy of the distributed ledger (which can be encrypted). Changes can only be made when consensus is established and they are propagated across the entire network in real-time. This feature, combined with the lack of a central authority or limited involvement of a central authority, has the potential to reduce fraud and eliminate reconciliation costs.

Blockchain enables programming pre-agreed conditions that are automatically executed once certain conditions hold. This is referred to as “smart contracts”, for example invoices that pay themselves when a shipment arrives or share certificates which automatically send owners dividends or cash-for-work programs that pay beneficiaries out once the contracted work is completed. Smart contracts can be done in traditional centralized ledger systems as well, but the design of centralized ledger systems requires such actions to be implemented only after the concerned parties have agreed to the underlying transaction as recorded in the central system, which in some contexts can take upwards of a day. In contrast, in a Blockchain, the counterparties by definition agree the moment the transaction is completed, as both have the same record of the transaction. Also, the result of the execution of the “smart contract” itself will take additional time to propagate and be reconciled in a traditional ledger system. 

Blockchain can provide an immutable and verifiable audit trail of transactions of any digital or physical asset. While in most cases, immutability is desirable, it can create problems related to recourse mechanisms if the system fails. Immutability of the ledger, however, does not mean that a countervailing transaction to annul a disputed transaction cannot be created. This is in line with how dispute resolution works, for example in payment card systems. The original record would, however, in this case still remain. Two MIT researchers have recently filed a patent for a cryptographic solution that would allow an administrator to ‘unlock’ units in a blockchain and edit them, though this is highly controversial as immutability is seen as one of the core advantages of the first blockchain.

Blockchain offers the potential of increasing speed and lowering inefficiencies by removing or reducing frictions in transactions or in clearing and settlement processes by removing intermediaries and automating processes.

Blockchain offers the potential for significant cost reductions due to removing the need for reconciliation as Blockchain-based systems by definition contain the “shared truth” and hence there is no need to reconcile one version of “truth” with that of one’s counterparties. Additional sources of cost reduction could be lower infrastructure costs for maintaining a Blockchain, as well as reductions in frictions and fraud. 

Blockchain has the potential to provide a more resilient system than traditional centralized databases and offer better protection against different types of cyber attacks because of its distributed nature, which removes the single point of attack.