Blockchain

Blockchain is one of the major tech stories of the past decade. Everyone seems to be talking about it—but beneath the surface chatter there’s not always a clear understanding of what blockchain is or how it works. Despite its reputation for impenetrability, the basic idea behind blockchain is pretty simple.
Blockchain is a technology that enables the secure sharing of information. Data, obviously, is stored in a database. Transactions are recorded in an account book called a ledger. A blockchain is a type of distributed database or ledger—one of today’s top tech trends—which means the power to update a blockchain is distributed between the nodes, or participants, of a public or private computer network. This is known as distributed ledger technology, or DLT. Nodes are incentivized with digital tokens or currency to make updates to blockchains.
Blockchain technology is an advanced database mechanism that allows transparent information sharing within a business network. A blockchain database stores data in blocks that are linked together in a chain. The data is chronologically consistent because you cannot delete or modify the chain without consensus from the network.While underlying blockchain mechanisms are complex, we give a brief overview in the following steps. Blockchain software can automate most of these steps:

Step 1 – Record the transaction

A blockchain transaction shows the movement of physical or digital assets from one party to another in the blockchain network. It is recorded as a data block and can include details like these:

• Who was involved in the transaction?
• What happened during the transaction?
• When did the transaction occur?
• Where did the transaction occur?
• Why did the transaction occur?
• How much of the asset was exchanged?
• How many pre-conditions were met during the transaction?

Step 2 – Gain consensus

Most participants on the distributed blockchain network must agree that the recorded transaction is valid. Depending on the type of network, rules of agreement can vary but are typically established at the start of the network.

Step 3 – Link the blocks

Once the participants have reached a consensus, transactions on the blockchain are written into blocks equivalent to the pages of a ledger book. Along with the transactions, a cryptographic hash is also appended to the new block. The hash acts as a chain that links the blocks together. If the contents of the block are intentionally or unintentionally modified, the hash value changes, providing a way to detect data tampering. 
Thus, the blocks and chains link securely, and you cannot edit them. Each additional block strengthens the verification of the previous block and therefore the entire blockchain. This is like stacking wooden blocks to make a tower. You can only stack blocks on top, and if you remove a block from the middle of the tower, the whole tower breaks.

Step 4 – Share the ledger

The system distributes the latest copy of the central ledger to all participants.
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How can businesses benefit from blockchain?

Research suggests that blockchain and DLTs could create new opportunities for businesses by decreasing risk and reducing compliance costs, creating more cost-efficient transactions, driving automated and secure contract fulfillment, and increasing network transparency. Let’s break it down further:

• Reducedof risk and lower compliance costs. Banks rely on “know your customer” (KYC) processes to bring customers on board and retain them. But many existing KYC processes are outdated and drive costs as much as $500 million per year, per bank. A new DLT system might require once-per-customer KYC verification, driving efficiency gains, cost reduction, and improved transparency and customer experience.

• Cost-efficient transactions. Digitizing records and issuing them on a universal ledger can help save significant time and costs. In a letter-of-credit deal, for example, two companies opted for a paperless solution and used blockchain to trade nearly $100,000 worth of butter and cheese. By doing so, a process that previously took up to ten days was reduced to less than four hours—from issuing to approving the letter of credit.

• Automated and secure contract fulfillment. Smart contracts are sets of instructions coded into tokens issued on a blockchain that can self-execute under specific conditions. These can enable automated fulfillment of contracts. For example, one retailer wanted to streamline its supply-chain-management efforts, so it began recording all processes and actions, from vendor to customer, and coding them into smart contracts on a blockchain. This effort not only made it easier to trace the provenance of food for safer consumption but also required less human effort and improved the ability to track lost products.

To learn more about blockchain, its underlying technology, and use cases, here are some important definitions.

Decentralized trust:

• The key reason that organizations use blockchain technology, instead of other data stores, is to provide a guarantee of data integrity without relying on a central authority. This is called decentralized trust through reliable data.

Blockchain blocks:

• The name blockchain comes from the fact that the data is stored in blocks, and each block is connected to the previous block, making up a chainlike structure. With blockchain technology, you can only add (append) new blocks to a blockchain. You can’t modify or delete any block after it gets added to the blockchain.

Consensus algorithms:

• Algorithms that enforce the rules within a blockchain system. Once the participating parties set up rules for the blockchain, the consensus algorithm ensures that those rules are followed.

Blockchain nodes:

• Blockchain blocks of data are stored on nodes—the storage units that keep the data in sync or up to date. Any node can quickly determine if any block has changed since it was added. When a new, full node joins the blockchain network, it downloads a copy of all the blocks currently on the chain. After the new node synchronizes with the other nodes and has the latest blockchain version, it can receive any new blocks, just like other nodes.

Blockchain technology offers a way for parties who do not know or trust each other to reach consensus on a common digital history. A common digital history is important because digital assets and transactions can easily be faked and/or duplicated. Blockchain technology provides a solution without using a trusted intermediary by operating an electronic decentralized, sometimes referred to as a distributed, public ledger to record transactions and assets in a business network. Anything of value, whether or not it is tangible, can be tracked and traded on a blockchain network. It is a literal block and chain format, as digital blocks of information are secured and held together by chains of code and data. It serves as the foundation for various cryptocurrencies, such as Bitcoin and Ethereum, and provides a decentralized ledger of information across a collection of computer networks.
As blockchain continues to envelop a larger segment of our corporate and financial sectors, it will be imperative that the networks operating the blockchain maintain the security of those using it, and do not become susceptible to hacking. This security, for the time being, continues to serve as one of blockchain’s largest selling points. Blockchain helps prevent (but does not eliminate) hacking, because the information contained on the blockchain is not stored in one main place, but instead spread across thousands of computers. For example, when you make a bank transaction, one central location holds and maintains your account information, and, upon each attempted transaction, such location confirms that you have sufficient funds in your account. On the blockchain, this ledger is distributed widely to every user, who can all confirm and update the ledger upon each attempted or completed transaction. “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value,” said Don & Alex Tapscott, authors of Blockchain Revolution.
In conclusion, blockchain’s future is brimming with potential. It’s ushering in a decentralized era, transforming how we manage and transact digital assets. As research and blockchain adoption progress, the technology promises to redefine numerous sectors in our digital age.