Technologies have been evolving to automate human tasks. From robotics in factories and homes to machine learning-enabled personal assistant. Every technological innovation tries to mimic human behavior or to minimize the human efforts involved in mundane routine tasks. Blockchain is such a technology that has the power to offer solutions to problems considered as the bane of human interaction. Trust!
Incorporating a layer of trust within the business will transform the way business is run and could also make certain elements in the processes redundant like mediators and other intermediaries.
The 4 cornerstone features of Blockchain that afford this trust layer making blockchain implementation useful to improving business.
- Shared ledger
This is the foundation of blockchain technology. Shared ledger is the basis on which the blockchain tech functions.
What is a shared ledger?
Shared ledger is a record of transactions, that is shared across the participants (distributed/replicated).
Participants are the stakeholders or parties involved. When one party transacts with another, the rest of the parties will authorize or authenticate the transaction. This shared ledger system goes a long way in enabling transparency of business processes. Once the transaction is authenticated, it is then encrypted and then recorded by creating a hash function for that data block. Subsequent transactions will be added in this similar fashion to the previous block, thus creating a chain of blocks – Blockchain. With the chain of data blocks, traceability issues are resolved as well. This removes the redundancy of multiple verifications of data,
This distributed or shared ledger can be permissioned as well, in order to control the visibility of details to all the parties. Transactions relevant to certain parties keeping in line with their role in the business can be made visible to them.
Data once recorded cannot be changed, deleted or moved without getting the consensus form the involved parties in the network. Even if changes need to made to a particular data block, it would be through the creation of a new data block, which reflects the changes. This maintains the transparency of the network.
Blockchain primarily started as a permissionless Public network where any anonymous person or entity could become a part of the network. This leads to a larger decentralized network but affords only security through public validation and encryption.
Permission-based private blockchains within a larger business, affords a higher level of security, as the identity of each stakeholder is known. Private permissioned blockchain allows for more centralized authority, this translates that few top-level stakeholders will have complete authority and they will choose to provide permission to certain stakeholders within the network limited visibility of details, based on their business roles. Security is increased in the permission-based blockchain.
Within the network, when a ledger record is made, a transaction is made, it has to be authorized or authenticated to ensure that it complies with the business needs. This process is called consensus.Verification or consensus has to come from all parties in the network. And each of them is notified of any change in the ledger recordings. Consensus helps in the functioning of the distributed network.
- Smart Contracts
Smart contracts are self-executable contracts, that are embedded within the blockchain network. These are codes written in the programming language. Basically, if certain prerequisites are met, then the smart contract will execute itself and complete the necessary instructions within it. These are rules of play.
Smart contracts are codes and once the code is embedded within blockchain it cannot be altered. This encourages and demonstrates trust between the stakeholders. Smart contracts can automate certain processes (for example automatic provision of services/automatic payment for these services based on current needs) and make processes faster (processing payments for goods and services, validating insurance data, etc.).
These 4 main cornerstones help in building trust within businesses and this is the reason for the rapid implementation of blockchain.