Lesson Learning Objectives : What is Blockchain ? Importance of Blockchain in modern industries ? This lesson address these important topics in a simple and efficient way, to allow the participant understand the first basic core concepts of Blockchains
Blockchain – A shared ledger
"Blockchain is a shared, immutable ledger that facilitates the recording of transactions and the tracking of assets. " - M. Gupta - Blockchain FD 2E
Blockchain technology was created as a cost effective , reliable and secure system for conducting and recording digital transactions. It can be used to track physical assets such as cash, gold or the title of a house. As well as non physical assets such as Intellectual property, copyrights and patents to name just a few.
Record keeping is important in the business model for exchanging goods and services as it tracks the flow of resources going in and out of an organization. These records are often called ledgers and it is this practice that has lead to the global business networks we know today. Fosters national and international trade which is an important factor in the raising of living standards by providing employment and enabling consumers to enjoy a greater variety of goods.
With the improvements of telephone communication and the internet these exchanges on the business network have became more complex and inefficient. Whether it is the exchange of money between two parties, documenting goods through a supply chain or executing instantaneous contractual agreements. Blockchain technology can be applied to save costs and increase efficiency.
[Pepsico found a 28% increase in efficiency in costs of viewed impressions on advertising when applying blockchain technology]
In the traditional business model, each member of the network records their own ledger in regards to their dealings with other members on the network. Keeping individual ledgers can be costly as usually third parties are employed to perform these services and they can be slow in executing these agreements. Inefficiencies due to the duplication of effort required to maintain numerous ledgers is one of the areas a shared ledger can improve efficency.
Due to the centralization of these legacy systems, they are also vulnerable to problems should the central system (for example, a bank) be compromised due to fraud, cyber attacks or a simple mistake. The entire business network is affected due to this one central point of failure.
Blockchain is a single ledger that has a set of business processes shared across all the members of the network. Meaning that each member on the network has an up to date copy of the ledger (governance rules depending). One of the most important properties of a blockchain for business are privacy functions which ensure only the individuals privy to certain information are able to view it whilst still maintaining all the information for auditing at a later date. As blocks are timestamped and kept in order one person cannot alter or tamper the ledger without the alteration being recorded on the blockchain for all participants to see, thus ensuring transparency.
Digital ledgers can be released as open source software and be decentralized known as permission less blockchains. This allows anyone running the software to connect to the network. Blockchains can also be implemented as closed systems for a particular purpose usually within organization or industry. These are known as permissioned blockchains and are more typical for business based solutions where all participants on the network are known.
Now that we understand what a blockchain is and why they are important we will learn how they work in the next lesson.