Understanding definition, function of Blockchain

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Kudzai M. Mubaiwa
Blockchain is a new technology that is fascinating many around the world. By definition, it is a digital ledger in which transactions made in Bitcoin or any other cryptocurrency are recorded — first chronologically, and also publicly.

It therefore provides a decentralised database (the digital ledger) of transactions that everyone on the network can see, basically a chain of computers that must all approve an exchange or transaction before it can be verified and recorded.

A living example is when X wants to send money to Y. The transaction is represented online as a “block” and this block is broadcast to every party in the network.

Those present in the network approve the transaction is valid, and thus the block can be added onto the chain — which provides a transparent and indelible record of transactions. The money can then move from X to Y.

The technology works for many types of transactions that involve value — such as money, goods and property. As such, there are many use cases for it as it works very well to reduce fraud.

In theory, anyone with internet access should be able to use it. The top issues blockchain solves are those of double spending and trust. Before any transaction can go through, all involved parties in the chain must approve, and they have the access to do so. It provides the certainty that the present holder of value is the only one, without duplication — and everyone else knows it.

Blockchain essentially allows you to trace transactions backwards; it is decentralised and is a distributed ledger.

Compare this to the typical and opposite centralised ledger — exemplified by a bank. When one uses a debit card for a purchase in a shop, they swipe first.

The merchant sends a bill to your bank immediately for the amount to be paid, your bank verifies that it is you who indeed made the purchase.

Thereafter they send the money to the merchant, and make a record of this in their ledger. Banks keep records of all transactions made by their customers, and their ledgers go all the way back to the first transaction made upon opening an account. You can get a copy of it through a bank statement, view it online but you cannot make any kind of change to the ledger which is kept, maintained and regulated by the bank.

They have complete control and can make changes without you. Hackers may access the bank’s ledger and make changes. If the bank used a distributed ledger, every member would have a copy of the same as far back as the opening of the bank.

Each member would tell other members whenever they transacted and everyone would verify the transaction and add it to the ledger — and each added record would be a block.

No central authority could manipulate the record, and in the case of hackers invading, the other ledgers could quite easily verify and reject manipulation.

The system is thus secure. To change a single block would require changing every block that follows it. Verification would fail as the other copies of the chain would reveal the tampering.

The technology lets us verify transactions without running the risk of a centralised ledger. Blockchain may be necessary when you want to be sure about the reliability of data, and when you’re dealing with multiple parties.

In these situations, data is being passed around and shared, but you need to be sure it’s accurate — in fact, you want every party involved to be confident in this. This presents several use cases in different sectors of small business.

Most applications of blockchain in small business will be for those in the services sector, particularly so those require identity assurance — online banking and trading, digital form signing, process automation, and e-commerce. Based on public key cryptography, blockchain offers digital signatures that ensure irrefutable identities. Only the correct private key can validate an identity and this is valuable for the sector.

We already discussed the benefit of blockchain in supply chain management, which is the manufacturing sector. From the definition one can see that there is great utility as the nature of the sector requires many players coming together to form a final product and the technology can help police quality and efficiency.

Similarly, blockchain has so far been most useful in the agriculture sector in terms of understanding the source and journey of produce. This is important for both farmers and consumers: it allows farmers to negotiate better prices throughout the supply chain, while giving consumers’ confidence in the knowledge of exactly where produce they buy comes from, a vital aspect when considering the growing lack of trust in the sourcing of produce sold in markets.

The online tourism sector can also derive some benefits from blockchain — it can be leveraged to provide broader access to the global consumer, and open up the domestic travel industry to new participants and innovative start-ups into the ecosystem — thus delivering value to the nation in terms of higher and faster visitor conversion.

Even in the construction sector, which brings together large teams to design and shape the built environment openness to collaboration and new ideas is increasing across the industry.

This momentum could be leveraged to bring the use of blockchain technology to the fore to record value exchange and enable smart contracts.

Applying blockchain technology to healthcare records promises improved data security, and better access for healthcare professionals and patients’ alike, and greater transparency for healthcare transactions.

The entertainment industry is looking to blockchain technology to secure digital rights for music and other media, with the potential to recapture income lost to piracy.

The mining industry plays a key role in the global economy, with metals and minerals being a key ingredient for the manufacturing, industrial and consumer goods sectors. The diamond business has been one of the first to embrace blockchain technology wholeheartedly.

The journey of a diamond, from when it’s mined, sorted and sold, to when it is mounted and displayed at a trusted retailer allows so much opportunity to exchange a valid diamond for something of different provenance, like a blood or conflict diamond. Using the blockchain, each step of the production process can be verified, guaranteeing the legitimacy of a diamond.

Yet another angle to consider for all sectors is the internet of things, the connectivity offered between human beings that improve the agility, collaboration, and knowledge sharing in an organization.

With internet of things (IoT) business owners can set up offices wherever they like, hire employees remotely, make their operations more secure, and ultimately generate more revenues.

While the above applications of blockchain to the sectors sound promising, a business would need to prepare well before adopting it in the business model.

There is investment required to understand the technology, recruiting relevant staff, contacting suppliers, holding conversations with industry peers, and analysing the scalability of existing infrastructure.

The rewards will hopefully be evident as you will future proof your business.

 Feedback:Twitter @kumub, Email kudzi@investorsaint.co.zw

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