What is blockchain technology?
Blockchain is a shared, immutable ledger
for recording transactions, tracking assets and building trust
Discover why businesses worldwide are adopting Blockchain.
Let's see what is blockchain technology?
Blockchain is a shared, immutable ledger for recording transactions, tracking assets and building trust. Discover why businesses worldwide are adopting it.
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, a car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
The need for blockchain
You can gain a deeper understanding of blockchain by exploring the context in which it was developed: the need for an efficient, cost-effective, reliable, and secure system for conducting and recording financial transactions.
The shortcomings of current transaction systems
Throughout history, instruments of trust, such as minted coins, paper money, letters of credit, and banking systems, have emerged to facilitate the exchange of value and protect buyers and sellers. Important innovations (for example, telephone lines, credit card systems, the Internet, and mobile technologies) have improved the convenience, speed, and efficiency of transactions while shrinking — and sometimes virtually eliminating — the distance between buyers and sellers.
In spite of this, many business transactions remain inefficient, expensive, and vulnerable, suffering from the following limitations:
- Cash is useful only in local transactions and in relatively small amounts.
- The time between transaction and settlement can be long.
- Duplication of effort and the need for third-party validation and/or the presence of intermediaries add to inefficiencies.
- Fraud, cyberattacks, and even simple mistakes add to the cost and complexity of doing business, exposing all participants in the network to risk if a central system — such as a bank — is compromised.
- Credit card organizations are walled gardens with a high price of entry. Merchants must pay the high costs of onboarding, which often involves considerable paperwork and a time-consuming vetting process.
- Half of the world’s people don’t have access to bank accounts, requiring them to develop parallel payment systems to conduct transactions.
- Limited transparency and inconsistent information hinder the efficient movement of goods in the shipping industry.
Transaction volumes worldwide are growing exponentially and will surely magnify the complexities, vulnerabilities, inefficiencies, and costs of current transaction systems. The growth of ecommerce, online banking, and in-app purchases, coupled with the increasing mobility of people around the world, have fueled the growth of transaction volumes. And transaction volumes have exploded with the rise of Internet of Things (IoT) — autonomous objects, such as refrigerators that buy groceries when supplies are running low and cars that deliver themselves to your door, stopping for fuel along the way.
To address these challenges and others, the world needs faster payment networks that provide mechanisms to establish trust, require no specialized equipment, have no chargebacks or monthly fees, and offer a collective bookkeeping solution for ensuring transparency and trust.
Key elements of a blockchain
Types of blockchain networks
There are several ways to build a blockchain network. They can be public, private, permissioned, or built by a consortium.
Public blockchain networks
A public blockchain is one that anyone can join and participate in, such as Bitcoin. Drawbacks might include substantial computational power required, little or no privacy for transactions, and weak security. These are important considerations for enterprise use cases of blockchain.
Permissioned blockchain networks
Businesses who set up a private blockchain, will generally set up a permissioned blockchain network. It is important to note that public blockchain networks can also be a permissioned. This places restrictions on who is allowed to participate in the network, and only in certain transactions. Participants need to obtain an invitation or permission to join.
Private blockchain networks
A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network, with the significant difference that one organization governs the network. That organization controls who is allowed to participate in the network, execute a consensus protocol and maintain the shared ledger. Depending on the use case, this can significantly boost trust and confidence between participants. A private blockchain can be run behind a corporate firewall and even be hosted on-premises.
Multiple organizations can share the responsibilities of maintaining a blockchain. These pre-selected organizations determine who may submit transactions or access the data. A consortium blockchain is ideal for business when all participants need to be permissioned and have a shared responsibility for the blockchain.
What’s the difference between blockchain and bitcoin?
Bitcoin is an unregulated, digital currency. Bitcoin uses blockchain technology as its transaction ledger.
This video illustrates the distinction between the two.
What are smart contracts?
Smart contracts are an integral part of blockchain technology. They automatically execute transactions and record information onto the ledger without human intervention.
Conditions of smart contracts are mutually agreed on by network members. They’re a key component for establishing trust and efficiency between parties.
Smart contracts eliminate essentially all the paperwork, streamlining the entire process and saving time and money.
How can blockchain impact an entire industry?
Blockchain enables businesses to rethink the way they work.
In the diamond industry, for example, each party can access:
- High-resolution photos
- Immutable payment records
- Certificates of authenticity and more.