The recording of interactions between businesses has become increasingly complicated as we have expanded into a global society. Blockchain has the power to provide a comprehensive, auditable and customisable network for these interactions. This technology extends far beyond Bitcoin and its cryptocurrency kin. To expand on the Bitcoin example: blockchain is the fundamental network which Bitcoin is run and transacted on. This is only one example of how a blockchain network can be set up to deliver a customised solution: in this case an anonymous, open, peer-to-peer currency which aims to transcend the traditional, regulated banking industry.
The example from the video above of the progress of a diamond from mine to market provides context for a look at how blockchain can be employed. At each stage in the transfer of a diamond, information can be attached to the blockchain record to ensure and assure validity. This may be photos, quality assurance documents, fair trade accreditations or any other relevant piece of data. A logistics company might add the port at which the diamond arrived, batch numbers, shipping information and the handover documents when it reaches its destination. When it reaches the next permissioned party (node) they can review all the information attached to the blockchain record to ensure the diamond that has arrived is the correct one and it matches all attached data.
A description of the mechanics of blockchain can be just about as complex as you could imagine. As a quick explanation, the blockchain is, as the name suggests, a chain of blocks through different transacting parties. Each block is essentially a sum of all the transactions being processed at that link in the chain, the link being called a node. Each node can send and receive transactions to other nodes and the data associated with these transactions is synchronised as it is transferred to maintain consensus. The single source of truth for the data is enabled by the blockchain; a tamper-evident, shared digital ledger that records transactions in a peer-to-peer network. In cases where a degree of confidentiality is required, blockchain can support networks with different ‘clearance’ levels for each node.
To maintain a chronological sequence, each block refers to the block prior which also ensures that they cannot be faked. This is done by naming the blocks based off the data contained within them so that if even one tiny piece is changed, so too would the ‘name’ (called the “hash”) of the block and therefore would be easily identified as false. Both the diamond industry mentioned above and the food industry, which we will uncover in our next blog, provide excellent examples of how a specialised blockchain can solve many of the problems of inconsistency, obscurity and fraud in a global supply chain.
The distributed ledger, accessible by any participant in the network, is the most important part of blockchain technology. Due to this, any party can view the transactions which have occurred, setting up an irrefutable system of checks and balances for all stakeholders. No one party can control the flow of information in the network and any attempt to do so can be easily picked up. Any change to the ledger requires consensus from all parties who are part of that network so information is not able to be manipulated. Although current popular ‘blockchains’ such as Bitcoin are run on anonymity (and the complex maths behind it means it can be both anonymous and trusted), this does not have to be true for business-oriented networks where each participant can create a proven identity.
The best part about blockchain networks is that they can be customised for any situation in which transactions need to be managed across a range of involved parties. In a global supply chain where there are potentially many different stakeholders, a blockchain network would provide a transparent, verifiable and efficient system of processing and recording these interactions.
The next blog in our blockchain series will get hands on with an example from the food industry of how a solutions-focussed blockchain grounded in design thinking can solve systems-wide problems and inefficiencies in a business context.