So you can finally understand the (un)tapped potential of enterprise blockchain solutions
When it comes to digital disruption, blockchain is all the rage. But riddle me this – have you ever attended a blockchain 101 webinar, understood the concept but failed to paraphrase? Or, attended meetings on ‘blockchain technology’ only to leave the room with more questions? Well, here’s your handy, blockchain basics guide, that’ll decode the fundamentals of enterprise blockchain technology and help you understand if blockchain solutions are suited for your organisation.
The history of blockchain
Back in 2008 the global financial crisis hit; stock markets plunged, banks failed and billions of tax dollars were spent on bailouts that led to an enraged public. Amidst this backdrop, when confidence in governments and centralised institutions hit ground zero, a whitepaper was released by an unknown person with the alias ‘Satoshi Nakamoto termed ‘Bitcoin: A peer to peer electronic cash system’. This was the official debut of the now infamous cryptocurrency, Bitcoin, that was underpinned by blockchain technology. At its core, blockchain is an open, decentralized ledger that records transactions between two parties in a permanent way without needing third-party authentication. This creates an extremely efficient process and one people predict will dramatically reduce the cost of transactions.
But Bitcoin is just one application of blockchain technology. When entrepreneurs understood the power of blockchain, there was a surge of investment and discovery to see how blockchain could impact supply chains, healthcare, insurance, transportation, trade relations, e-commerce, agriculture, voting, and more.
Basic ‘building blocks’ of blockchain technology
Blockchain technology has been advancing the distribution of digital information for over a decade. It is, in itself, a series of unchangeable records of data, each time-stamped and displayed as a shared ledger. The nature of blockchain prevents fraudulent actions from taking place; its crystal clear transparency means that any wrongdoing will be easily caught, hence ensuring that all parties act with integrity. Furthermore, each record of data is linked to all the relevant nodes, which makes it harder for altering to take place– changing any record of data would require all linked records to be changed as well.
‘Blockchain’ is a compound word– here the ‘blocks’ are the records of data, and the ‘chains’ are the links each record has with each other. It’s a democratising technology, in that it makes everyone equally accountable and equally in control (at least in the case of public blockchains– but more on that later).
Key attributes of blockchain technology
Blockchain is based on a decentralised system – meaning that resources are allocated to individual nodes, rather than a central source. This means processes that utilise blockchain are more efficient and reliable, nodes cannot be altered without detection, and that all peers are equal. It has revolutionised the internet in the past decade and has long-term ramifications in different industries.
Blockchain technology utilises hashing to create a clear record of events, effectively linking each ‘block’ of data together. Hashing is to take an input, pass it through a function, and return an output. Each output is then used as the next input, creating a chain that can be easily traced. Any attempts to alter a single block breaks this chain hence can be easily detected and reversed. The alternative is to alter every block of data and to change the respective address for each block to match the previous one. This is virtually impossible, as it would take unprecedented amounts of time and computer processing power.
In order to be considered a true blockchain, there are several requirements. Firstly, a ledger must be append-only. Each block is linked to the last, through the use of hashing, and the previous data should not be altered. Secondly, every involved party should have a copy of the ledger (here, each party is called a node), and each node must engage in a peer-to-peer2 manner. Finally, there must be a consensus mechanism– essentially ensuring that all involved parties agree on the validity of the data and transactions taking place.
The three main types of blockchain technology
There are three main types of blockchain– public, private, and consortium. Each are unique in their own ways and have different suited purposes.
Public blockchains are permissionless, meaning that permission is not necessary to join and interact with it. Anyone can read and write on the blockchain, as everyone has equal access. In a public blockchain, nobody is the owner, and the participants are not known. As such, the transaction speed is comparatively slower than other types of blockchain.
Private blockchains are permissioned, so permission is required to access them. Only invited users can read the data, and of them only approved participants can write data. There is a single owner, which is different from public and consortium blockchains, and participants are known. Furthermore, the transaction speed is comparatively fast in a private blockchain, due to the reduced load. Enterprises seek to benefit from this type of blockchain.
Consortium blockchains are a sort of in-between for public and private blockchains, combining different aspects of both. Like private blockchains, they are not permissionless, meaning that permission is necessary to join and interact with the blockchain. The visibility of the blockchain is flexible– it can be made accessible by anyone, limited to the invited users, or even just whoever is considered an owner. Only approved participants can write data, like in a private blockchain, In the case of a consortium blockchain, there are multiple entities to assume ownership, which is a feature unique to consortium blockchains. The participants are also known, and the transaction speed is fast.
What are the advantages of blockchain technology?
Blockchain technology holds many advantages over other technologies. The entire model is predicated on transparency, meaning that every involved party of the transaction has access to the common documentation. This allows for consensus to be reached quickly and means that updates must be approved by every party involved. This highlights the authenticity of the data– since it is near impossible to alter/delete any old data in the chain, users can rest assured that what they see on the blockchain is accurate. Furthermore, it also ensures that all parties act honorably. The transparency of the system means that no parties can act fraudulently, as the transparent model holds each and every member accountable.
In blockchain, each transaction is encrypted and appended upon approval, and all data is stored in multiple computers. Hence, hacking into the blockchain is tedious and almost impossible, not to mention extremely expensive. Since data is stored and backed up in multiple computers, it cannot be lost. Any available data can be easily retrieved in a short amount of time, mitigating the risk of data loss.
The combined transparency and immutability of data make them easily traceable. This is especially important when dealing with e-commerce, and other industries involving long-distance transactions. Every exchange of goods is recorded, hence the process can easily be checked for authenticity, and fraud can be prevented. The traceability of goods and data is further useful as the current location can be easily monitored, to a highly accurate degree.
Increased efficiency, speed, and connectivity
Another reason that blockchain is becoming more widely used in industries worldwide is the efficiency it introduces to global trade processes. The use of blockchain technology eliminates the need for a middleman, as interactions are directly conducted between the buyer and seller. By removing third party mediation, tedious documentation, and overall manpower required, the process is made more efficient, saving on time and money.
This efficiency also comes about from increased speed. By incorporating smart contracts1, the trade process is much faster on blockchain than in person. This also prevents fraud from taking place, or any party reneging on their word. Furthermore, the increased speed benefits all parties involved– more trades can be carried out in less time, allowing for greater productivity and quicker deliveries.
Using blockchain also increases communication between parties, through the use of a decentralised system. This means that the data is available to all shared members on the network, hence there is no wasting time or other resources in sharing data amongst the involved parties. This also helps prevent any misunderstandings due to a lack of communication, effectively streamlining the process that it is used for.
Potential for enterprise blockchain solutions
In the decade since its creation, blockchain technology has proven to show great potential for the future, especially with its applications in different industries. Already exhibiting rapid growth, it is showing promise in fields such as digital stock trading, decentralised patient health records, digitally recorded property assets and transfer of ownership, peer-to-peer2 payments, international money transfers, and cross-border transactions. The scope to digitise any industry is disruptive.
Blockchain brings about increased efficiency, accountability, security, and transparency to any and all processes worldwide. Going forward, it is certain to advance industries on a global scale by revolutionising the digital distribution of data. So, if you’re in an industry that is ripe for digital transformation, it’s about time to get on board the blockchain wagon.
Smart Contracts1: Smart contracts are transaction protocols that execute automatically, as predetermined terms between buyer and seller are written directly into the code.
Peer-to-peer2: A peer-to-peer network is one where participants can interact with each other directly, without the need for a centralised server. In trade, that means that buyers and sellers can do business without involving an intermediary trader, which is achieved through blockchain.