Blockchain Explained: How Blockchain Works?

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Blockchain – The Next of Everything!!!

With modernization in lifestyle and evolution of technology, its acceptance in day to day life and business has increased never before. If Artificial Intelligence (AI) and Internet of Things (IoT) are buzzwords of last decade, then the upcoming decade is of “Blockchain Technology” for sure. It is a revolutionary technology which is operating most popular cryptocurrency namely “Bitcoin” – It is first successful application of Blockchain came into existence in the year of 2009 by Satoshi Nakamoto. The Economist described the Blockchain as the most important advancement in recordkeeping since the inception of double-entry bookkeeping system in 1494.

Blockchain is a data structure that holds the transaction records with security, transparency and decentralization. It is a chain of immutable blocks and not controlled by a single authority. It is an append-only and distributed ledger technology that is operated by a peer-to-peer network mechanism that records and validates data by retroactively referencing a list of previous records using hash functions.

Blockchain’s usage is not limited to Bitcoin only, but it is used in other applications as well. Ethereum, a framework that is considered the 2.0 of blockchain, is regularly leveraged for its ability to create smart contracts — a digital contract that’s highly programmable and self-executes provided set terms and conditions have been met, thus resulting in a transaction.Besides blockchains ability to automate transactions and verify information, we can safely define as valid (without the need for centralized approval), blockchain also has the ability to integrate into other technologies and software, which provides the biggest selling factor to its value.

All the confirmed and validated transaction blocks are linked and chained from the beginning of the chain to the most current block, hence the name blockchain. The blockchain thus acts as a single source of truth, and members in a blockchain network can view only those transactions that are relevant to them.

How Blockchain Works?

1. A blockchain is a chain of blocks that contain data or information.
2. Each block in a blockchain network stores some information along with the hash of its previous block A hash is a unique mathematical code which belongs to a specific block. If the information inside the block is modified, the hash of the block will be subject to modification too. The connection of blocks through unique hash keys is what makes blockchain secure.
3. While transactions take place on a blockchain, there are nodes on the network that validate these transactions. In Bitcoin blockchain, these nodes are called as miners and they use the concept of proof-of-work in order to process and validate transactions on the network. In order for a transaction to be valid, each block must refer to the hash of its preceding block. The transaction will take place only and only if the hash is correct. If a hacker tried to attack the network and change information of any specific block, the hash attached to the block will also get modified.
4. The breach will be detected, as the modified hash will not match with the original one. This ensures that the Blockchain is unalterable as if any change which is made to the chain of blocks will be reflected throughout the entire network and will be detected easily.

Types of Blockchains

Public Blockchain is a permissionless ledger and can be accessed by any and everyone. Anyone with access to the internet is eligible to download and access it. Moreover, one can also check the overall history of the blockchain along with making any transactions through it. Public blockchains usually reward their network participants for performing the mining process and maintaining the immutability of the ledger. i.e. Bitcoin Blockchain. Public blockchains allow communities worldwide to exchange information openly and securely. However, an obvious disadvantage of this type of blockchain is that it can be compromised if the rules around it are not executed strictly. Moreover, the rules decided and applied initially have very little scope of modification in the later stages.

Private Blockchain is the one which is shared only among the trusted participants. The overall control of the network is in the hands of the owners. Moreover, the rules of a private blockchain can be changed according to different levels of permissions, exposure, number of members, authorization, etc. Private blockchains can run independently or can be integrated with other blockchains too. These are usually used by enterprises and organizations. Therefore, the level of trust required amongst the participants is higher in private blockchains.

Blockchain Features -The following features make the revolutionary technology of blockchain stand out and helps in achieving Supply Chain Goals.

Peer-to-Peer Network: Blockchain uses P2P protocol which allows all the network participants to hold an identical copy of transactions, enabling approval through a machine consensus. For example, if you wish to make any transaction from one part of the world to another, you can do that with blockchain all by yourself within a few seconds. Moreover, any interruptions or extra charges will not be deducted in the transfer.

Tamper-Proof: Blockchains are considered tamper-proof as any change in even one single block can be detected and addressed smoothly. There are two key ways of detecting tampering namely, hashes and blocks. As described earlier, each hash function associated with a block is unique. You can consider it as a fingerprint of a block. Any change in the data will lead to a change in the hash function. Since the hash function of one block is linked to next block, in order for a hacker to make any changes, he/she will have to change hashes of all the blocks after that block which is quite difficult to do.

Immutable & Secure — Because blockchain is appended only, this means data recorded on a ledger cannot be erased, changed or falsified once it’s entered. This prevents unresolved disputes between trust-less parties and makes data secure so that it cannot be easily tampered with.

Live Tracking & Provenience of Assets — Improve product tractability & provenance throughout the extended supply chain with Blockchain, information from the blockchain-based supply chain is secure, reliable and inclusive.

Decentralized — Blockchain is self-regulated and doesn’t rely on a central point of governance. Enterprises can rely on trust-less interactions knowing validation is required before finalizing various business transactions.

Automated — Because consensus mechanisms are self-governed, and smart contracts follow the same principle, blockchain itself is capable of automating transactions that take place within supply chain processes.

Easy Integration with other Technologies — Another notable feature of blockchain that appeals to supply chain enterprise systems is the ability to integrate into existing technologies. Blockchain as a working pair with technologies such as AI, Big Data, IoT devices, etc. can be enhanced which optimizes the operations required to complete processes through automation and securely storing retrievable data.

Applications of Blockchain in Supply Chain

a. Global retailer Walmart uses blockchain to track sales of pork in China. Its system lets the company see where each piece of meat comes from, each processing and storage step in the supply chain, and the products’ sell-by date. In the event of a product recall, the company can also see which batches are affected and who bought them.

b. Maersk’s use of blockchain is demonstrating that the administrative costs of shipping flowers from East Africa to the Netherlands can be drastically reduced.

c. In international trade, blockchain is making it possible to process paperwork, transfer ownership, and pay sellers and freight carriers in a matter of minutes. Wine is traced from the Napa Valley to China.

d. Diamonds are monitored from South African mines to retails store shelves in order to eliminate the scourge of blood diamonds.

e. Health care providers verify that pharmaceuticals have been kept at the proper temperatures throughout the shipping process.

f. Automotive Suppliers Payment – Tomcar, Australia is using Blockchain for payment purpose to its suppliers located worldwide through Bitcoin. It leads to cost-saving by eliminating third party, reducing transaction time, no banking channel required etc.]

g. Electric Power Micro-grids - Smart contracts are being used to redistribute excess power from solar panels. The Transactive Grid is an application running on blockchain to monitor and redistribute energy in a neighbourhood micro-grid. The program automates the buying and selling of green energy to save costs and pollution. The process uses the Ethereum blockchain platform, designed specifically for building and executing smart contracts.

h. RFID tags for cartons or pallets store information on delivery location and date. Logistics partners run applications to look for these tags and bid for a delivery contract. The partner offering optimal price and service gets the business. A smart contract then tracks the status and final delivery performance.

i. Blockchain and Internet of Things - Smart contracts to manage rentals of driverless cars. A smart contract could check for rental payments. If there has been no payment or the rental agreement reaches the end of its term, the smart contract could lock the car and tell it to drive itself back to the hire company’s premises.

Summary

Blockchain is a new disruptive paradigm for many technologies that require a single source of truth. Whether it be Hyperledger, Ethereum, or another blockchain technology, all implementations require proper levels of processing, storage, networking, and security to work optimally. Blockchain can transform supply chains, industries, and ecosystems. Interestingly, even organisations like banks, that would appear to be losing out to the new technology, can see opportunities to exploit it in the streamlining of their operations.

Structured supply chain transformation is coming as a result of Industry 4.0 technologies including the Internet Of Things (IoT), Artificial Intelligence (AI), 3D printing and Augmented and Virtual Reality (AR/VR). Importantly, Blockchain is another emerging technology that ties together all of these pieces and makes possible the digital transformation of entire ecosystems.

Blockchain is becoming a standard in the business world, and it supports different players as they rethink enterprises, ecosystems, and economies. Leading companies use blockchain to build trust, transparency, and data synchronization across ecosystems — and to create new business models.

Thus, Blockchain will be next of Everything – whatever field it be.

Author:

Chirag Kalaria, Purchase Professional, AMUL (GCMMF)