blockchain technology

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What is

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, 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.

Business runs on information. The faster information is received and the more accurate it is, the better. Blockchain is ideal for delivering that information because it provides immediate, shared, and observable information that is stored on an immutable ledger that only permissioned network members can access. A blockchain network can track orders, payments, accounts, production and much more. And because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, and new efficiencies and opportunities.

Key elements of a blockchain

Distributed ledger technology
All network participants have access to the distributed ledger and its immutable record of transactions. With this shared ledger, transactions are recorded only once, eliminating the duplication of effort that’s typical of traditional business networks.

Immutable records
No participant can change or tamper with a transaction after it’s been recorded to the shared ledger. If a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible.

Smart contracts
To speed transactions, a set of rules that are called a smart contract is stored on the blockchain and run automatically. A smart contract defines conditions for corporate bond transfers, include terms for travel insurance to be paid and much more.

smart contract

Smart contracts are digital contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met.

Smart contracts are typically used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when predetermined conditions are met.

Smart contracts work by following simple “if/when…then…” statements that are written into code on a blockchain. A network of computers executes the actions when predetermined conditions are met and verified.
These actions might include releasing funds to the appropriate parties, registering a vehicle, sending notifications or issuing a ticket. The blockchain is then updated when the transaction is completed. That means the transaction cannot be changed, and only parties who have been granted permission can see the results.
Within a smart contract, there can be as many stipulations as needed to satisfy the participants that the task will be completed satisfactorily. To establish the terms, participants must determine how transactions and their data are represented on the blockchain, agree on the “if/when...then…” rules that govern those transactions, explore all possible exceptions and define a framework for resolving disputes.
Then, the smart contract can be programmed by a developer–although increasingly, organizations that use blockchain for business provide templates, web interfaces and other online tools to simplify structuring smart contracts.

Benefits of smart contracts

Speed, efficiency and accuracy
Once a condition is met, the contract is executed immediately. Because smart contracts are digital and automated, there’s no paperwork to process and no time spent reconciling errors that often result from manually completing documents.

Trust and transparency
Because there’s no third party involved, and because encrypted records of transactions are shared across participants, there’s no need to question whether information has been altered for personal benefit.

Security
Blockchain transaction records are encrypted, which makes them hard to hack. Moreover, because each record is connected to the previous and subsequent records on a distributed ledger, hackers have to alter the entire chain to change a single record.

Savings
Smart contracts remove the need for intermediaries to handle transactions and, by extension, their associated time delays and fees.

Applications of smart contracts

Safeguarding the efficacy of medications
Sonoco and IBM are working to reduce issues in the transport of lifesaving medications by increasing supply chain transparency. Powered by IBM Blockchain® Transparent Supply, Pharma Portal is a blockchain-based platform that tracks temperature-controlled pharmaceuticals through the supply chain to provide trusted, reliable and accurate data across multiple parties.

Making international trade faster and more efficient
By joining we.trade, the trade finance network convened by IBM Blockchain, businesses are creating an ecosystem of trust for global trade. As a blockchain-based platform, we.trade uses standardized rules and simplified trading options to reduce friction and risk while easing the trading process and expanding trade opportunities for participating companies and banks.

Increasing trust in retailer-supplier relationships
The Home Depot uses smart contracts on blockchain to quickly resolve disputes with vendors. Through real-time communication and increased visibility into the supply chain, they are building stronger relationships with suppliers, resulting in more time for critical work and innovation.

How blockchain works

As each transaction occurs, it is recorded as a “block” of data
Those transactions show the movement of an asset that can be tangible (a product) or intangible (intellectual). The data block can record the information of your choice: who, what, when, where, how much. It can even record the condition, such as the temperature of a food shipment.

Each block is connected to the ones before and after it
These blocks form a chain of data as an asset moves from place to place or ownership changes hands. The blocks confirm the exact time and sequence of transactions, and the blocks link securely together to prevent any block from being altered or a block being inserted between two existing blocks.

Transactions are blocked together in an irreversible chain: a blockchain
Each additional block strengthens the verification of the previous block and hence the entire blockchain. Rendering the blockchain tamper-evident, delivering the key strength of immutability. Removing the possibility of tampering by a malicious actor, and builds a ledger of transactions you and other network members can trust.

Benefits of blockchain

What needs to change: Operations often waste effort on duplicate record keeping and third-party validations. Record-keeping systems can be vulnerable to fraud and cyberattacks. Limited transparency can slow data verification. And with the arrival of IoT, transaction volumes have exploded. All of this slows business, drains the bottom line, and means that we need a better way. Enter blockchain.

Greater trust
With blockchain, as a member of a members-only network, you can rest assured that you are receiving accurate and timely data. And that your confidential blockchain records are shared only with network members to whom you granted access.

Greater security
Consensus on data accuracy is required from all network members, and all validated transactions are immutable because they are recorded permanently. No one, not even a system administrator, can delete a transaction.

More efficiencies
With a distributed ledger that is shared among members of a network, time-wasting record reconciliations are eliminated. And to speed transactions, a set of rules that are called a smart contract can be stored on the blockchain and run automatically.

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 the substantial computational power that is required, little or no privacy for transactions, and weak security. These are important considerations for enterprise use cases of blockchain.

Private blockchain networks
A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network. However, one organization governs the network, controlling who is allowed to participate, run 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.

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 permissioned. This places restrictions on who is allowed to participate in the network and in what transactions. Participants need to obtain an invitation or permission to join.

Consortium blockchains
Multiple organizations can share the responsibilities of maintaining a blockchain. These preselected organizations determine who 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.

Blockchain networks can differ in who can participate and who has access to the data. Networks are typically labeled as either public or private, which describes who is allowed to participate, and permissioned or permissionless, which describes how participants gain access to the network.
Public and private blockchains
Public blockchain networks typically allow anyone to join and for participants to remain anonymous. A public blockchain uses internet-connected computers to validate transactions and achieve consensus. Bitcoin is probably the most well-known example of a public blockchain, and it achieves consensus through "bitcoin mining."
Computers on the bitcoin network, or “miners,” try to solve a complex cryptographic problem to create proof of work and thereby validate the transaction. Outside of public keys, there are few identity and access controls in this type of network.
Private blockchains use identity to confirm membership and access privileges and typically permit only known organizations to join. Together, the organizations form a private, members-only "business network." A private blockchain in a permissioned network achieves consensus through a process called "selective endorsement," where known users verify the transactions. Only members with special access and permissions can maintain the transaction ledger. This network type requires more identity and access controls.
When building a blockchain application, it’s critical to assess which type of network best suits your business goals. Private and permissioned networks can be tightly controlled and preferable for compliance and regulatory reasons. However, public and permissionless networks can achieve greater decentralization and distribution.

Public blockchains are public, and anyone can join them and validate transactions.

Private blockchains are restricted and usually limited to business networks. A single entity, or consortium, controls membership.

Permissionless blockchains have no restrictions on processors.

Permissioned blockchains are limited to a select set of users who are granted identities by using certificates.

Blockchain security

Blockchain security is a comprehensive risk management system for a blockchain network. It uses cybersecurity frameworks, assurance services and best practices to reduce risks against attacks and fraud.

Basic blockchain security

Blockchain technology produces a structure of data with inherent security qualities. It's based on principles of cryptography, decentralization and consensus, which ensure trust in transactions. In most blockchains or distributed ledger technologies (DLT), the data is structured into blocks and each block contains a transaction or bundle of transactions.

Each new block connects to all the blocks before it in a cryptographic chain in such a way that it's nearly impossible to tamper with. All transactions within the blocks are validated and agreed upon by a consensus mechanism, ensuring that each transaction is true and correct.

Blockchain technology enables decentralization through the participation of members across a distributed network. There is no single point of failure and a single user cannot change the record of transactions. However, blockchain technologies differ in some critical security aspects.

Blockchain for industries

Supply chain
Healthcare
Government
Retail
Media and Advertising
Oil and gas
Telecommunications
Manufacturing
Insurance
Financial services
Travel and transportation