In the world of increasing transactions between different parties, we need a fast, reliable and secure way to record transactions between businesses. In this blog we’ll go through what is Blockchain technology and how can we use Blockchain for Business. Businesses also need to maintain contracts between parties in a business ecosystem. These contracts are part of the blockchain. To know more about contracts and how to build them you can check the build smart contracts using DAML.
What is blockchain Technology ?
Blockchain, also known as Distributed Ledger Technology, makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.
There are three main properties of blockchain which lead to its widespread popularity:
- Decentralisation : Information stored in blockchain is decentralised. Meaning the information is not stored on a single entity but is stored on different nodes which are part of the blockchain network.
- Transparency : blockchain is transparent. Now being transparent can be misunderstood easily but in the context of the blockchain it means that all copies of transactions are distributed in the blockchain network while maintaining privacy. When a transaction is recorded the parties involved are secured by encryption.
- Immutable : This is a very important concept of blockchain. This means that once the transaction is recorded in a blockchain network it cannot be changed. A new modified transaction can be recorded but there is no way to tamper with the old recorded transactions.
The biggest and most popular application of blockchain technology today is bitcoin. For those who are unfamiliar with bitcoin, well it is a digital currency which is used and distributed electronically. Bitcoin is decentralized and no single entity or person owns it. Its principles are what made bitcoin popular. But is it the only application ? A technology so great needs to be explored and used to make the digital world better.
So now that we know the basis of blockchain technology, let’s see how it can be used by businesses.
Business context of Blockchain
Now that we know some basics of blockchain technology the question arises that how can blockchain help us in growing our businesses and where can we use blockchain in our current business processes ?
Imagine a big production factory which makes a product milkshake. Now for making milkshakes you need to have ingredients which are supplied by different factories. Now not going into a detailed recipe let’s just imagine we need milk, sugar and flavour as ingredients and all these there ingredients are supplied by three different factories.
Let’s see some of the places where blockchain can be applied
- Business Networks :In a business network Multiple businesses are related to each other. Company A may depend on Company B for raw materials. Company A and Company B may depend upon Bank A for transactions. Participants in this are customers, suppliers, banks and partners. All these parties are part of multiple transactions related to each other and to make these transactions more secure and reliable blockchain can be used.
- Markets : These are the central to this process: Public markets like auctions and private markets like supply chains. Both types of market are heavily in need of secure and reliable way making transactions so that their business flow can work smoothly.
Before we dive deep into blockchain for business we need to be familiar with some terms and their meanings for our better understanding of the concept.
Anything which can be owned and have some value is called an asset. Types of asset :
- Tangible : these are the types of assets which can be touched or felt or have some physical presence. Eg: House
- Intangible : these are opposite of tangible meaning we cannot see these assets like mortgage or rights to listen to someone’s music. Intangible assets can be subdivided in Financial(eg: Bond ) and Intellectual property (eg: patents) and Digital (eg: user data)
Cash is also an asset but it has a property of anonymity. We cannot prove the cash is ours other than that it is in our wallets.
Ledgers, Transactions and Contracts
- Ledgers : It is a log of all the Transaction. it shows the changes in ownership of assets.
- Transactions : It is an asset transfer between participants. Eg: Matt gives the car to Dave.
- Contract : it is the condition for the contract to occur. Contracts make sure that both the parties have fulfilled their conditions. It saves legal costs etc.
In both Ledgers and contracts the parties have their vested interest. But how do we know that the condition fulfilled by party one is recorded correctly by party two or that all the transactions are recorded correctly? This is the problem with ledgers and contracts. It’s the way the other party may see things and this may seem a small problem but this misunderstanding can lead to big problems.
This problem is solved by Blockchain by allowing transactions and business flow to be shared among the participants of the business process. It is a shared replicated ledger with smart contracts.
In simple words blockchain is a ledger which is shared between the participants of the business network so the same transactions are recorded by all the parties. It is replicated. Meaning all participants will have copies of the ledger.
Smart contracts are digital contracts which define the business rules for the transactions.
Conventional methods would consist of different records for different transactions which are spread across different places. There is no way to make sure all transactions in this method are in sync.
Blockchain as a solution
This image shows the blockchain implementation. All these parties will have a shared, replicated and permissioned ledger with :
- Consensus : All participants will agree that each transaction is valid.
- Provenance : It means that parties will know the history of the asset. Eg: how ownership has changed over time.
- Immutability : It means no party can tamper with the transaction.
- Finality : Once transaction has occurred. It cannot be reversed.
All Blockchains have an aim to provide irrefutable proof that a set of transactions have occurred between participants.
Requirements of blockchain for business :
- Asset : participants will decide which assets to share.
- Identity : it is important when in business use of Blockchain like user KYC. In crypto Blockchain anonymity is kept but it is not so on the business side. It also prevents money laundering. Make sure that transactions are viewed by certified participants.
- Endorsement : business needs to keep transactions confidential. In business Blockchain transactions are endorsed by small subsets of participants such as those affected by the transactions.
Well this is just a quick guide to give you all a brief about Blockchain and how can it help us and other businesses grow. Use cases are not limited to those discussed in this blog. There are a vast number of use cases for Blockchain which we may explore in future.