Blockchain Technology explained

Blockchain is a hot topic around the world these days, yet, thanks to techy presentations and complex definitions of the concept, many of us are left scratching our heads, wondering whether everyone else has started to speak a different language. One of the main reasons for this is the jargon that so often goes hand in hand with new technology. But if we look past the jargon, and accept that we’ll never understand the definition of ‘crypto-economics’ no matter how hard we try, the concept of blockchain is a brilliant one. When you do have your ‘Aha!’ moment, the world will never seem the same to you again. This blockchain guide is designed to give you a simple introduction to one of the most transformational and misunderstood technologies of our time.

What is blockchain?

Currently, most people in the world, across virtually every industry and sector, use a middleman such as a bank to transfer money or make a transaction. But blockchain allows consumers and suppliers to connect directly, removing this need for a third party altogether. Blockchain provides a database, or store of transactions, or ‘blocks’ that everyone on the network can see. It is decentralised which means that it is not owned by a bank or company. It is sometimes termed a digital ledger, which simply means a digital record of financial transactions.  This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded. Blockchain is essentially just that – a chain of blocks. This process is summarised in the Figure 1:

 

Figure 1: How a blockchain works. Source: Financial Times

Why is it so revolutionary?

Blockchain technology can work for almost every type of transaction involving value, including money, goods, and property. This means that its potential uses are almost limitless: from collecting taxes to enabling migrants to send money back to family in countries where banking is difficult.

Blockchain could also help to reduce fraud because every transaction would be recorded and distributed on a public database for anyone to see.

How does it work in practice?

Let’s say that the suppliers of a particular product were using blockchain. How would this work?

The supplier would collect transactions to a client and put them into a single block.

A block generally contains four pieces of information:

  • a reference to the previous block,
  • a summary of the transaction,
  • a time stamp,
  • and Proof of Work that went into creating the secure block.

The blocks are strung together into a chain that does not allow for any inconsistencies. Both you and the client have full sight of where the product came from, and traceability of its every step.

By  confirming the transactions that are entered into the chain, the entire system is effectively self-regulated and fully secure. Blocks generally need numerous independent confirmations, and the equations in the database are intended to be hard to crack. Finally, what’s to stop someone from simply going back and editing existing blocks? Each block is securely hashed—meaning it is rendered into gibberish and nearly impossible to invert or undo. Therefore, information included in the chain, such as the timestamps, cannot be tampered with at a later date. Once it’s in the blockchain, it’s there forever.

What’s the future of blockchain?

This is unclear, it relies on social interaction as well as data capture and as explained above updated and advanced hardware.

However, it is common knowledge that the UN are considering the use of blockchain in funding its development projects and the nine major banks (including JP Morgan and Goldman Sachs) recently joined a partnership to develop blockchain technologies. Many major companies are beginning to realise that the blockchain system could be a powerful tool for efficiency and transparency.

With a system as versatile and secure as the blockchain, there may be many more unexpected innovations and uses in the coming months, and years, to look out for. From our point of view, blockchain could completely change the way that products and money move through supply chains. The main benefit of this is the increased transparency and reduced risk of unauthorised third parties or false information entering your supply chains. This could give you more control over your indirect social and environmental impacts.

 

Responsible Solutions can help you profit from a cleaner corporate conscience. Contact us to discuss how we can support your business:

Phone: 01509 320 100

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