November 16, 2017 | Written by: Jen Clark
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This guide is for anyone who has ever nodded politely at the mention of blockchain, while secretly breaking into a cold sweat and praying for a change of subject. I hear you, my friend. Here to help is a no-nonsense, no-jargon explanation of what blockchain entails and what you might use it for.
Blockchain in a nutshell
Before we start, here’s a spiel for you to memorize and regurgitate to the adulation of your friends:
“A blockchain is a highly secure way of recording transactions and contractual agreements. It’s a tamper-resistant, digital ledger, visible to all the individuals, companies, service providers or other parties involved in a business transaction.”
Got it? Good. You now know more than most people. So, let’s take some time to go a little deeper.
Blockchain 101: the basics
The first thing you need to know is this: ‘blockchain’ = ‘digital ledger’.
Once upon a time, a shop owner might record individual transactions in a paper ledger, using one line for each new record. A blockchain uses the same principle, but instead of lines in a ledger, each transaction is recorded digitally in a ‘block’, and linked to records of other transactions to form a chain.
Of course, recording individual transactions doesn’t pose much of a challenge. But what if you want to track multiple transactions, between companies or even across international borders? For example, what if you want to see and manage each step in a supply chain for dairy goods, from farm to table?
If each company or individual involved (the farmer, the processing plant, shipping company, customs official, buyer, to name just a few) keeps their own records, tracking the progress of a multi transaction agreement becomes very difficult. With blockchain, instead of these multiple records, there’s just one, and it’s accessible to everyone who needs it.
Generally, a blockchain ledger is used in three ways; to:
- Record exchange of money;
- Document the way goods move through a supply chain;
- Create and store contractual agreements.
The easiest way to understand it is to look at an example, so let’s take an imaginary supply chain as our jumping off point. We’ll imagine the journey a perishable foodstuff (say milk) takes from farm to consumer. It’s something like this:
- The dairy farm: milking and initial storage;
- Processing: transportation to a dairy processor for testing, pasteurizing and packaging;
- Transportation: shipping in refrigerated trucks to retailers like supermarkets or convenience stores;
- Retail: storage in a refrigerated display unit;
- Consumption: customer purchase and consumption.
Already, there are any number of intermediaries involved in this supply chain, each with their own record of their part in the transaction. If the milk is being shipped abroad, the list grows even longer to include entities like customs officials and port authorities.
The difficulty with a supply chain like this one is that there isn’t a single, synchronized record of the transaction from beginning to end. And this is why we need blockchain. Blockchain is a single, synchronized, immutable record of every transaction, visible to everyone in the supply chain.
The blockchain ledger records the sequence of transactions from the beginning to the end of the supply chain. This means you can easily trace the path from the dairy farm to the consumer with super transparency and security.
Three features of blockchain: Distributed, Permissioned, and Secure
Blockchain’s three main selling points are that it is:
Let’s break it down. ‘Distributed’ means that the record is shared, and cannot be controlled by any single person.
As the record is ‘Permissioned’, each participant has secure access to the record. No new record can be added without the say-so of the other participants, and no individual record (‘block’) can be deleted, period. Even a systems administrator can’t make changes to an existing block.
This makes the blockchain ‘Secure’, because records are safe from manipulation. What you get is an indisputable, audited record of information, for which all parties are accountable.
What are the advantages?
In a nutshell, blockchain is a streamlining genius. It’s a faff eliminator extraordinaire. Blockchain will:
- Speed up all kinds of processes
- Lower transaction costs by cutting out the middle man
- Provide trust and security
Now that you’re happy with the basics, you might like to explore blockchain further. Keep an eye on the blog for next week’s cheat sheet to blockchain and the IoT, which will explain how the two technologies interlink.
In the meantime, you might find these resources useful: