Blockchain is a technology for recording and storing information, first introduced by a person or a group of people under the pseudonym Satoshi Nakamoto in 2008. Initially, this technology was developed as a fundamentally new way of working with data that would not be subject to retroactive modification. This principle of operation was necessary to protect the data stored in blockchains. However, on the market, blockchain was presented as a system that allows you to work with cryptocurrencies – the latest invention of digital money with a decentralized deposit guarantee system.
In terms of technology, a blockchain is a list of records, each of which is formed into a block and contains information, a cryptographic hash, about the previous block. In the case of cryptocurrencies, this is the timestamp and transaction data, which is usually represented as a Merkle tree. The timestamp ensures that the previous and current transaction data existed when the block was posted. Without reference to time and information about previous transactions, it is impossible to get into the block hash and create a new block. Each block contains data about the previous block and that, in turn, about the previous block. Therefore, the blocks form a chain, and in such a way that each subsequent block strengthens this chain. Such a system is very reliable and presents the possibility of decentralizing data control. In other words, the chain system ensures that blockchains are resilient to data modifications or retroactive changes since such changes require transformations to all subsequent blocks. In the case of cryptocurrencies like Bitcoin, given that information about each transaction is entered personally by an individual user in a unique, single format, it is impossible to make changes to the data, which guarantees the system stability.
Then, in technological terms, blockchains are operated by a peer-to-peer network that looks like a publicly distributed ledger. Throughout this network, nodes adhere to a single communication protocol, including checking new blocks. When the blockchain was popularized by Satoshi Nakamoto, whose true identity is unknown, it was presented as a public ledger of transactions for bitcoin, a cryptocurrency developed by Stuart Haber, Scott Stornett, and Dave Bayer. Thanks to the blockchain system, the idea of decentralized control was implemented in Bitcoin, providing convenience from a maintenance point of view. Subsequently, many blockchain-based cryptocurrencies and applications similar to bitcoin were created. Therefore blockchain is sometimes considered a system that was used to create cryptocurrencies.
Interestingly, the business uses independent private blockchains developed by programmers using the initial blockchain principle. The emergence of independent private models fits well with the ideology of decentralization, which was probably one of the important motivating factors for the creation of the blockchain system. Proponents and defenders of the system also argue that authorized independent or private systems should be more secure since then there is an element of control in granting permissions to create the system and in its ownership.
It should be added that the blocks of the chain have a certain storage capacity and are closed after filling this capacity, communicating with the next block. All new information from the previous block is compiled into the next block, which remains empty until it is filled with information and stored with information about the previous block. In this way, a stable chain is formed, from which any parts cannot be removed without being noticed.
Benefits of Blockchain Technology for Business
The advantages of the blockchain technology are security, transparency, decentralization, democracy, verifiability. There is a high potential for transforming multiple sectors, depending on the use of certain attributes of the blockchain system. Equally important are the global economic implications of blockchain proliferation, especially, given the huge potential in emerging markets for online commerce and B2B service businesses.
The most critical advantage of blockchain is increased security, as the system protects sensitive transaction data when used as a cryptocurrency platform. A system of records that consistently duplicate each other and the idea of continuity eliminate the possibility of unauthorized actions. Moreover, this system allows anonymizing personal data and preventing access by third parties through the use of permissions. Since the entire blockchain – that is, the entire chain in aggregate is stored on the network of computers of the participants using the service; this minimizes the risk of hacking. Therefore, from a security point of view, the blockchain system is a better alternative to storing all information on multiple servers.
Equally important, the blockchain offers the possibility of greater transparency, because all participants in the chain simultaneously see the overall picture of the records. This creates transparency in the conduct of transactions within the system, including monetary transactions. Moreover, all participants can see the time and date of transactions, which are recorded without the possibility of post-factum changes. Traceability of transactions is another advantage of this distributed computing system.
Control of transactions is carried out through the creation of a journal that keeps records of the nature of transactions at each step of its implementation. Therefore, the blockchain system can become a convenient alternative in industries that require confidentiality, a tool for intellectual property rights protection, and can be applied in industries that are more susceptible to fraud risks, since every financial step in this system is uniquely recorded. Customer access to the system is an additional security factor. Interestingly, if the system is used by private companies to keep track of business transactions, it can be applied to identify problem areas in supply chains, for example, during the transit of goods across borders. Streamlining reporting and moving it from paper to digital is another benefit of blockchain.
Working with data in traditional paper form is associated with errors in reporting. The blockchain system allows documentation storage along with transaction details. Finally, the automation of transactions using smart contracts, that is, special templates, further optimizes and accelerates the reporting process. Smart contracts are also convenient, as they do not require third parties to intervene to verify the fulfillment of the conditions – after all, the contract can be automatically approved only when the specified conditions are met.
The blockchain distributed computing system creates many benefits for industry applications. First, the blockchain system is actively used in supply chains. Blockchain allows for greater trust between supply chain partners, as it provides greater transparency and data security. The introduction of the blockchain system also enables customers and suppliers to resolve supply chain disruptions faster. Equally important, when a food business is involved, the blockchain system helps deliver food faster.
The advantages of the blockchain in the banking and finance industries include faster reporting and documentation processes and increased effectiveness in working with clients. To be more precise, blockchain-based service systems are used in banking, trade, finance, clearing, invoicing, client service, credits, and transactions processing.
At the same time, the benefits of the blockchain in the healthcare industry are ingrained in computing systems that improve the safety of patients’ data. Many Electronic Health Record (EHR) systems utilize the blockchain principle in their work. Moreover, in healthcare, implementing blockchain computing systems allow patients to get access to their data constantly, increasing the service quality and improving patient outcomes. The clients of the healthcare facilities feel more confident regarding their data safety when the blockchain systems are used to process online documentation. Notably, smart decisions and electronic reporting have become a widespread trend in the industry that relies on the blockchain greatly.
Nowadays, healthcare facilities, patients, and researchers benefit from a better exchange of patient health data. The blockchain system is also used in the pharmaceutical industry delivery chain. It is very conveniently introduced to enhance reporting on delivery steps. The advantages include the higher shipment and delivery speed, improved logistics, and targeted client delivery. Blockchain allows the development of shorter pathways between the storehouses, drugstores, and clients due to fewer delivery stages.
Blockchain systems are also actively used in the government-industry, and empower the local and state governments in their everyday work. Often governments have to exchange a lot of data between the government offices, citizens, and other third parties like media and NGOs. Since the blockchain system has a high level of trust among the citizens it has become widespread lately. More importantly, the blockchain system allows increased data control and enhances adherence to the normative regulations in the documentation and daily work decisions.
It is used in managing contracts when cooperating with contractors, and when providing citizen services. Finally, blockchain distributed computing systems are used in the insurance industry. The insuring companies widely use smart contracts that are popular among SMEs. They also benefit from the automatization of the reporting and accounting processes. The paper reporting is replaced with smart online reporting and supported through more options of controllable data exchange, which allows eliminating data fraud and misuse.
In general, blockchain computing systems can be seen as a comprehensive decision used in most industries nowadays. The Healthcare sector, banking and finance, insurance industry, pharmaceutical supply, and food supply chains, all benefit from the increased opportunities for data processing and reporting. Moreover, a blockchain system is more reliable and trustworthy than paper reporting, since it guarantees data safety and prevents data fraud and abuse, which is especially valuable for sensitive data.