What is Blockchain?
Blockchain has emerged as the next big disruptor in enterprise business processes, with potential to transform transaction processes in many industries, especially
- financial services,
- trade finance,
- healthcare and
- manufacturing supply-chain management.
Modernized inter-enterprise systems will increasingly use some variety of Distributed Ledger Technology as a key platform foundation.
Distributed Ledger Technology (DLT)
DLT was invented for the digital cryptocurrency Bitcoin, conceived as a frictionless alternative to fiat money and bank credit to enable payments without intermediaries, regulation or the need to trust or even know counterparties. Beyond cryptocurrency, DLT can securely manage almost any kind of business transaction among globally distributed users without a central administrator.
As a tamper-proof ledger, Blockchain is potentially revolutionary for trade finance and supply chain management, especially transaction processes that cross multiple monetary and legal jurisdictions. Once a block of data is recorded on the ledger, it is nearly impossible to change or remove. As concerns grow about protecting transactions against fraud, theft and cyberattacks, blockchain algorithms and distributed data architecture offer built-in transaction security, reducing the need for security operations administration and associated overhead costs.
Blockchain is much more than a substitute for currency. "Smart Contracts"* managed through a shared software database are applicable to virtually any business process. The Hyperledger open-source platform uses container technology to enable smart contracts implemented via "chaincode" that allow network members to create and manage assets involved in business transactions as well as the transactions themselves.
*Smart Contracts
- Computer programs that facilitate, verify or enforce the negotiation, execution or performance of a business agreement.
- Can directly emulate the logic of regular contractual clauses; execution of the computer code will execute the agreed-to clauses.
- Assumed to be the core application for widespread adoption of Distributed Ledgers.
- Many contractual clauses can be made partially or fully self-executing, self-enforcing, self-settling, or some combination of these.
- Can act as a standalone blockchain use case, but are more compelling if embedded within complex business processes, for example, trade finance.
- A major challenge will be to provide a compelling user interface for definition, negotiation and testing.
The Blockchain data structure creates and shares a digital transactions ledger. Anyone granted access may add encrypted data to the ledger without going through a central authority. Network participants ("nodes") use algorithms to evaluate and verify proposed transactions. If a "consensus" of nodes validates a transaction as matching the Blockchain's history, it is approved and a new block added to the chain.
Different configurations use different consensus mechanisms, depending on network type and size as well as the specific use case. Bitcoin, for example, is public and "permissionless," that is, anyone can contribute to the ledger. In contrast, enterprises are more likely to deploy private or "permissioned" Blockchains, where the networks only include known participants.