Understanding the blockchain revolution
Blockchain is the next frontier in emerging technology. Smart businesses all across Australia are keen to adopt it – uncovering ways it could save them time and money, and even disrupt their industries. But at the same time, it’s often not fully understood.
So let’s look at what blockchain actually is, and why some are considering it the biggest technological breakthrough since the internet.
So, what is blockchain?
Blockchain can seem complex and overwhelming. And that’s because the technology behind it is pretty advanced. For our purposes, we’re going to keep things simple.
It’s important to know that when we talk about blockchain technology, we’re not talking about one single technology. Blockchain effectively exists as the architecture that empowers users to make transactions on a digital database.
In other words, blockchain is an electronic ledger that can be openly accessed by users. It creates unchangeable records of these transactions, and each record is time-stamped and linked to the one before it.
How is data shared & stored?
The blockchain database is a peer-to-peer network. The network of users, known as nodes, are connected via the internet. They use the network to transfer information directly between each other, without any third party intermediaries getting in the way.
Transactions of information are recorded in a cryptographically secured method, in packets of data—or blocks. Each block is recorded in an electronic database, or ledger, in chronological order.
When the specific transaction associated with the data within that block is finished, the block is completed, and a unique security code (hash) is created that ties the block to the next block in the sequence. As more transactions occur, more blocks are added to the ledger, and an unbreakable chain of information is formed.
The data of these transactions is immediately replicated and distributed across the entire system, between all users connected to the network. This is why blockchain is also known as distributed ledger technology.
The transaction records within these blocks can’t be altered by any external party. They’re permanent, immutable records. The only way this information can be updated is by consensus among the users on the network, and the new data that’s entered cannot be erased.
The data within can only be read by users with access to the specific blockchain network. But to those users, this record is completely transparent, so any party with access to the ledger can see the entire history of transactions.
Why a “decentralised” nature is great for businesses
As the fame of Bitcoin and other digital currencies started increasing, blockchain, the technology behind it started getting noticed by the world. However, it didn’t take long for innovators to realise that the unique decentralised nature of blockchain was something that could translate to other business use cases.
“Decentralisation” describes how the collection of computers or nodes involved in a blockchain are not all under one roof. Instead, each is operated by an individual or group of individuals. Each node has a full record of all data in the blockchain, so no one individual can alter information or delete transactions. This removes any reliance on third party intermediaries.
Because of this, we see a whole host of business benefits. For example:
- New levels of transparency in processes
- More security and less risk of fraud
- Human error is eliminated
- Sensitive data can be safely stored
- Transactions are much faster
- Transactions are cheaper – Accenture reported that blockchain could reduce infrastructure costs for the world’s largest investment banks by 30%
- Parties can interact without knowing or trusting each other
- People can easily launch products on the blockchain
They key benefits of blockchain
Blockchain technology is addressing many of the previous issues of trust and security.
The data contained within each block is stored on computers and servers distributed all over the world, and only people on that network can access that data. For a transaction to be considered as a valid record, all nodes in the network must agree that it’s valid. So for a hacker to take control of a blockchain network, they would need to have control of at least 51% of all the computers within the network, which makes it exceedingly hard to hack.
Because blocks are stored in a linear and chronological pattern, all new blocks are added to the end of the chain. This alone makes it difficult to edit the contents of a block, unless the majority of participants have reached a consensus. Each block contains its own hash (a string of numbers and letters that represents digital information), so whenever information is edited, the hash changes too.
The transparency of blockchain technology means you can see and access data at every point in a transaction. So, for example, a business can track a product within their supply chain right from its raw materials, through the manufacturing process, until it’s delivered to their customer. Whatever transaction is occurring, this means businesses can clearly identify any errors in their processes, and fix them practically in real time.
As blockchain is built on code, businesses can create automated processes that remove the need for manual input, removing any human error, and speeding up processing time. Before this, we relied on central authorities such as banks to verify transactions, which could mean a wait of a few days – and even more for cross-border trades.
Integrity of data
The transparency and traceability of blockchain enables businesses to clearly demonstrate where their products are coming from. It allows transactions to be made safely and securely between users, without any third parties getting in the way. As such, it can effectively eliminate fraud, as every action and process is documented clearly, from start to finish.
What is blockchain used for?
Blockchain technology opens the door to a wide range of use cases that go beyond sending and receiving funds.
Smart contracts act as a coded paper contract, with predefined automated conditions that cause an action to occur when these conditions are met. This speeds up contract processes, and cuts out the need for human intervention.
Cryptocurrencies work as a decentralised, encrypted digital currency, created on a blockchain network. They’re free of external intervention or oversight, with no central authority governing its value. Cryptocurrency can be used to buy and sell, or used to invest, like a traditional asset.
Security token offerings (STO)
The next step up from cryptocurrency, STOs act as a portion of ownership in a resource, asset, object, or company. STOs provide investors with tangible legal contracts and rights, while functioning as real financial products. STOs have the potential to commodify real-life assets, such as art, venture capital funds, and even real estate.
One of the more recent innovations in the blockchain space, non-fungible tokens (NFTs) enable the tokenisation of any asset or collectible – including digital art, real estate and music. NFTs prove digital ownership and can create value in the real world, making their adoption across the world fast.
dApps & blockchain solutions
Businesses can create disruptive decentralised applications and other solutions based on blockchain platforms such as Ethererum. There is a growing number of platforms made for blockchain developers and there’s almost no limit to the type of secure, scalable application businesses can launch on the blockchain.
The types of blockchain technology to know about
There are two main types of blockchain technology: private and public. However, that’s not all there is to it. There are some other variations such as hybrid and consortium blockchain networks. For these purposes, we’re going to focus on public vs private blockchains.
- Public blockchains
The most common type of blockchain network is public. A public blockchain is a distributed ledger system that anyone with the internet can access without permission. It’s also known as “permissionless”. Public blockchains work on a consensus functionality, with a self-governed nature that maintains decentralisation. The most well-known public blockchains are Bitcoin and Litecoin.
Some benefits of public blockchains include:
- They are truly decentralised
- Free of authorities/third parties
- New participants can join and maintain network agility
- All transactions are fully transparent
- Anyone can join, regardless of location, nationality, etc.
- Participants are rewarded using a token system
- Enterprise blockchains
Enterprise Blockchains or otherwise known as Private blockchains are a closed network, usually run by businesses or organisations. They are “permissioned” blockchains, where members have to be invited and approved in order to see transactions or participate in the validation. The owner or operator controls who participates, and is able to override, edit or delete entities as required. Few examples of private blockchains include Hyperledger, Quorum and Corda.
Some benefits of private blockchains are:
- More security via an approvals process
- Suitable for private organisations who want to collaborate without making sensitive data public
- Fewer participants means it’s usually faster for network to reach a consensus
- Can process thousands of transactions per second
What industries are using blockchain?
The number of industries using blockchain is growing all the time, with sector leaders quickly realising the potential and accessibility of blockchain. In this table, we’re going to have a look at some key industries being innovated by technology, but remember that this list isn’t exhaustive. The limits to blockchain are being raised all the time, and almost every industry stands to benefit.
|Food supply||The food industry is at risk of outbreaks like eColi and salmonella. This can make consumers very sick, lead to millions of dollars in damage, and take weeks to locate the source of these outbreaks. Blockchain delivers the ability to track every stage of the food supply chain, from origin to delivery. This could ensure the livelihood of more companies and – more importantly – save lives.|
|Banking & finance||One of the early adopters of blockchain, the finance industry is being revolutionised. Blockchain never sleeps, so transactions can be made quickly any time of the day, with country borders being dissolved. DeFi (decentralised finance) is the next phase of this industry’s development.|
|Healthcare||The secure nature of blockchain means enormous volumes of patient records and other sensitive data can be safely stored. Medical records can be written directly into the blockchain, for peace-of-mind that nothing can be edited or removed.|
|Voting||Blockchain could contribute to a modern voting system. The technology removes the concern of fraud and could boost voter turnout, while eliminating the need for personnel to manually count votes – producing results almost instantly.|
|Government||Government organisations can switch to more sustainable ways of operating. Through automating processes and sharing data in a decentralised way, processes become much more efficient, leaving space for ongoing improvements and the ability to service members of the public easier.|
|Media & entertainment||Key issues in the entertainment industries are theft and plagiarism. Blockchain technology can combat this, bringing transparency to the system and reducing costs associated with inventory management.|
|Real estate||Buying and selling property traditionally comes with copious amounts of paperwork, a lack of transparency, and the risk of fraud and errors. Blockchain speeds up transaction times and minimises costs involved in all real estate processes. This comes with the confidence that records are accurate, verifiable and tamper-proof.|
So, what is blockchain & how can it help you?
It’s the future of digital, and it could revolutionise the way your business works to benefit you and your customers.
Blockchain Australia™ provides end-to-end blockchain solutions to help power your industry. Get in touch with us to discuss how our blockchain solutions can help you take the leap into adopting this exciting technology.