The recording of interactions between businesses has become increasingly complicated as we expand into a globalised 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 cousins. Although blockchain is the fundamental network that Bitcoin is run and transacted on, it’s only one example of how a blockchain network can be set up to deliver a customised solution.
While blockchain technology has become much more publicly recognisable through hyped media coverage of start-up successes and rag-to-riches stories, most of us still need help when it comes to the real question: what exactly is blockchain?
A description of the mechanics of blockchain by the experts can be about as complex as you could imagine, but it doesn’t have to be.
In simple terms, the blockchain is, as the name suggests, a chain of blocks connected through different transacting parties. Each block is essentially a sum of all the transactions being processed at that link in the chain. The link itself is called a ‘node’. Each node can send and receive transactions to any of the other nodes, and the associated data gets synchronised as it is transferred to maintain consensus among everyone in the network.
This enables a single source of truth for the data; a tamper-evident, collective digital ledger that records transactions through a peer-to-peer basis. In cases where a higher degree of confidentiality is required, blockchain can support networks with different levels of clearance for each node.
To maintain a chronological sequence, each block makes reference to the block immediately prior, which simultaneously ensures that they cannot be falsified. 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’ (or “hash”) of the block. This makes any attempt to create fakes, easily identifiable.
The ledger, which is distributed to and accessible by any participant in the network, is the most important aspect of blockchain technology. It allows anyone and everyone to view the entire history of every transaction ever completed, maintaining an irrefutable system of checks and balances.
Any change to the ledger requires consensus from all parties within the network. This means that no single individual can control the flow of information in the network, and any attempt to do so is easily detected.
The best part about blockchain networks is that they can be customised for any situation where transactions need to be managed across a number of participants. In a global supply chain, where there are potentially many different stakeholders, a blockchain network is capable of providing a transparent, verifiable and efficient system of processing and recording these interactions.
Although some of the more widely-known blockchains, such as Bitcoin, are run on the basis of anonymity, this does not have to be the case for business-oriented networks, where each participant can be required to create a proven identity.
If we can push past the ‘get rich quick’ mentally that accompanied Bitcoin’s mainstream popularity, we can begin to wrap our heads around how a specialised blockchain can offer solutions to the inconsistencies, obscurities, and fraudulent activities that currently exist in some parts of the global supply chain.
The next post in our blockchain series will uncover some examples of industries and applications where this technology could offer a solution to systems-wide problems and inefficiencies.
Still feeling a little in the dark? Try watching this great video from Wired where an expert explains blockchain technology to five different audiences across a wide spectrum of ages, with varying comprehension of economics.