Blockchain has become a buzzword over the years especially with the introduction of cryptocurrency. But, what exactly is blockchain? Well blockchain refers to a collection of records, used to document transactions that take place over time and is stored in a database-like structure. Blockchain has become a way to record and distribute information stored digitally that cannot be modified in any way. Blockchain forms the foundation of cryptocurrency, which has become increasingly popular over the years. Cryptocurrency is a form of digital currency that can be used to perform online transactions. Through using blockchain, cryptocurrency transactions are protected using complex encryption algorithms, thus preventing fraudulent behaviour and ensuring transparency. Some popular cryptocurrencies built on blockchain include Bitcoin, Litecoin and Ethereum.
Unlike traditional databases, blockchain is a type of database that stores information in groups as opposed to tables. These groups are referred to as blocks with specific storage capacities. Once a block is filled, it is linked together to a previously filled block. As soon as a block is linked to the chain it is permanently added to the timeline with a timestamp, transactional data and a cryptographic hash. This timeline is irreversible and configured in a decentralized way. Due to the manner in which blockchain is stored, it allows for transactional records to be stored in a legitimate, permanent way where all involved parties are able to view the blockchain in its true form. Blockchain is in essence, an open distributed ledger.
Let’s take a look at how it works for a transaction that takes place between different parties, for example, the transferral of cryptocurrency. A new transaction occurs and is transmitted to a network of peer to peer computers, otherwise known as nodes. These nodes can be scattered across the world and are used to validate a transaction before it is clustered into a block and linked to previously created blocks. The long chain of blocks, which represents the transaction history, is permanent and no alterations can be made to it. The transaction is then said to be complete. Each node in the blockchain possesses a full transaction history, therefore if one node had to produce an error or be tampered with, the other nodes would reference each other to determine which node is the source of the error. None of the nodes are able to alter the blockchain that it stores, thus making the transaction history permanent.
Not only can blockchain be used for cryptocurrency transactions, it can also be used in legal agreements as well as product inventory management. Blockchain can automate administrative tasks associated with preparing legal contracts, streamlining transactional work and simplifying the transferral of information between relevant parties, allowing for transparency. It can also be used to manage product inventories in suppliers, warehouses, distribution centers and retailers by connecting each partner to a network where every transaction that has taken place is permanently recorded. Blockchain can be used to manage inventory more effectively in warehouses and distribution centers through forecasting the appropriate supply to meet demand, leading to potential improvements in revenue and profitability with less risk on your inventory costs. It can be used to create transparency between manufacturers allowing them to trace back recalls to its appropriate suppliers and provide the involved parties with oversight into consumer level demand.
Some of the benefits to blockchain include increased efficiency in transactional processes that take place in a business, as well as increased security using encryption. This also ensures that transactions cannot be altered, preventing fraud and ensuring a legitimate audit trail. Regardless of the industry you are in, it can provide your organization with transparency and decentralize transactional processes in your business. You can easily integrate blockchain into your business using your favorite cloud platform provider’s managed blockchain services offered by AWS, GCP and Azure.