Blockchain

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What Is Blockchain & Should Your Business Use It?

April 30, 2018 - 12:46 pm
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The most ordinary business transaction, the sale of a single product, involves multiple parties along the supply chain. The extraction of raw materials, processing, manufacturing, wholesaling, retailing, deliveries and payments made with each change in custody, all create a flurry of data before the product ends in the consumer’s hand. Each step involves separate participants, each with their own set of records, records that can be lost, corrupted or falsified. Payments are processed through a centralized banking system, and vendors must wait a few days to verify the integrity of payments. Buyers must trust they are getting what they paid for.

Imagine instead, a single ledger holding all relevant transactions with identical copies distributed to multiple servers. Each new transaction would trigger updates in all copies of the ledger, making the new information available to all participants. Rather than trusting a centralized institution to verify transactions, such as a bank, transaction records are stored on multiple servers in a peer-to-peer network where they can be verified by all those involved. Essentially, this is how blockchain works.

 

What is a “block” in a blockchain?

Each “block” contains a grouping of information such as certificates of authenticity, contracts, or financial transaction records. These blocks are chained to previous blocks, time-stamped and locked in place. Once added to a chain, data cannot be changed. You cannot, for example, go back and change the terms of a contract. Any additions to the chain must be authenticated by all participants before it becomes part of the permanent record.

 

The advantages of blockchain

Transparency – Blockchain provides an accurate and immutable audit trail that can be seen by all parties. When you order a case of strawberries for your grocery, you will know where they were grown, what pesticides were used to keep them bug-free and when they were picked, as each transaction involving the produce headed for your store has been locked into the chain.

Security – We rely on intermediaries such as banks, government agencies and centralized cloud-computing servers to verify and track activity. A hack into one of these systems can be crippling. With a blockchain, a hacker must perform the near-impossible task of hacking every computer in the network, and even if this were accomplished, every party to a series of transactions would be notified of the breach.

Efficiency – Transactions are recorded once, and they are immediately verified and available to all participating parties. The elimination of intermediaries makes for faster and cheaper transactions. Processes that sap up resources, such as accounting, invoicing and data management, can be streamlined using this technology. Blockchain allows for the creation of “smart” contracts. Terms of a contract may be automatically executed once an agreed upon condition is met. For example, delivery of goods to a buyer may trigger a transfer of funds to the seller.

 

Blockchain is a developing technology, and companies are just beginning to understand how it can impact the way we conduct business. It has worked for nearly 10 years without any major disruptions as the underpinnings of Bitcoin and other cryptocurrencies. Jumping on board now will give your business an edge over your competition and put you in line to take advantage of emerging applications.

 

 

This article was written by Gillian Burdett for Small Business Pulse