In recent years, blockchain has been adulated by the experts and the innovation-driven businesses alike, as the technology that has the potential to change the world. The uses of blockchain extend far beyond the digital currencies like Bitcoin, Ripple and Litecoin among others.
For centuries, banks have used traditional ledgers to maintain databases of account transactions, and governments have used them to keep records of land ownership.
There is a central authority – the bank or government office – which manages changes to the record of transactions, so they can identify who owns what, at any given time.
Blockchain offers the same record-keeping functionality but without a centralised architecture.
Before elaborating further, let’s understand the meaning of distributed ledger, as blockchains are one form of distributed ledger technology.
Distributed ledger, also known as distributed ledger technology or DLT, in its simplest form, is a database held and updated independently by each participant (or node) in a large network. Records are not communicated to various nodes by a central authority but are instead independently constructed and held by every node. That is, every single node on the network processes every transaction, coming to its own conclusions and then voting on those conclusions to make certain that the majority agree with the conclusions.
Once there is this consensus, the distributed ledger has been updated, and all nodes maintain their own identical copy of the ledger. All the information on it is securely and accurately stored using cryptography and can be accessed using keys and cryptographic signatures.
While destroying or corrupting a traditional ledger requires an attack on the middleman, doing so with a blockchain requires an attack on every copy of the ledger simultaneously, this feature makes blockchain very safe, secure and trustworthy technology as there can be no ‘fake ledger’ because all users have their own genuine version to check against.
Blockchain allows consumers and suppliers to connect directly, removing the need for a third party.
Therefore, trust and control in blockchain based transactions are not centralised, but decentralised and transparent.
International Conference on Information Systems (2018) defines blockchain as
“a decentralized database containing sequential, cryptographically linked blocks of digitally signed asset transactions, governed by a consensus model.”
There are three principal technologies that combine to create a blockchain.
These technologies are
1) private key cryptography
2) a distributed network with a shared ledger, and
3) an incentive to service the network’s transactions, record-keeping and security.
You can learn how these technologies work together to secure digital relationships by clicking this link.
Key characteristics of a Blockchain
Immutable
A blockchain is a permanent record of transactions. Once a block is added, it cannot be altered. This creates trust in the transaction record.
No participant in the blockchain network can modify a transaction after it has been recorded.
With blockchain, we can prove to our stakeholders that the information we use has not been tampered with, and at the same time transforming the audit process into an efficient and cost-effective procedure.
Decentralized
A blockchain is digitally distributed across a number of computers and stored in a file that can be accessed and copied by all users and participants of a peer-to-peer network. This eliminates the need of the central authorities, such as banks and government.
Consensus Driven
Each block on the blockchain is verified independently via a Consensus models which provide rules for validating a block, and participants often use their computers to authenticate and verify each new block- to ensure that the same transaction does not occur more than once.
In Bitcoin, this is known as the mining process.
Consensus can be achieved via Proof of Work (PoW) algorithm or Proof of Stake (PoS)algorithm.
Provenance
Provenance means “the place of origin or earliest known history of something.”
In a blockchain transaction, each activity is tracked, recorded, and fully traceable from its origin to their point of destination. Data provenance systems track changes that are made to data, where data originates and moves to, and who makes changes to it over time.
This historical record of information can then be trusted for data validation and audit purposes.
For example manufacturing of heavy industries such as machine tools, shipbuilding, aircraft industry, automobile industry etc. involves procurement of a large number of equipment, parts and materials. Due to this complex process, in some cases, it is difficult to know the origin of the substandard materials which makes its supply chain cumbersome and time-consuming.
But with blockchain tracing of a piece of equipment from its place of origin takes only a few seconds instead of days.
Frank Yiannas, Walmart’s Vice President of Food Safety, explains how Walmart can track food products through its supply chain using IBM Food Trust built on the IBM Blockchain Platform.
“Fighting the counterfeit industry
Counterfeit goods share is up to 7% of the global trade, which is a major concern for supply chain stakeholders and their customers.
To combat counterfeiting, physical goods can be fitted with tamper-proof RFID tags, holograms, and QR codes that get scanned through each stage of the supply chain. This information is then recorded on a blockchain, providing stakeholders with a transparent, secure, and highly accurate audit trail.
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