Blockchain

Blockchain

Blockchain

Author: Frank Pretorius, Liqueo Senior Consultant & Blockchain Strategist 

 

The first in a series of articles on Blockchain, its many aspects and its myriad applications.

 

Blockchain. What is it?

Many people think of blockchain as the technology that powers cryptocurrencies such as Bitcoin, Ethereum and others. And they would be correct but only partially.  Whilst this was the original intention, Blockchain offers so much more. But what is Blockchain, why is it called Blockchain and how does it work?

Outside of Blockchain, data is normally held in centralised databases, typically owned a by single entity. It is not easily shared and is unfortunately open to manipulation. Blockchain, on the other hand, stores the data in cryptographically secured blocks which are spread across a network (called nodes). Every block is replicated and verified across the entire network of nodes and every transaction is recorded. Any amendment to the data is made through a subsequent transaction rather than an amendment to the original data, thus ensuring the integrity of - and creating trust in - the data. It’s not that you can’t trust those whom you conduct business with – it’s more that you don’t need to trust other parties when operating on a blockchain network, since it provides cryptographic proof over the transactional data integrity. This trustless environment therefore renders the traditional middleman – such as bank clearing houses and settlement systems, lawyers and even banks themselves - obsolete. As a peer-to-peer network, with the middleman cut out, costs are significantly reduced and execution speed vastly improved. Moving money cross border is now instantaneous with near zero fees.  

Blockchain derives its name from the method of storing data. Transactions are stored in blocks and each block links to the next block in chronological order, essentially creating a chain.  Before a block can be added to a network, the block first needs to be created, generally through the solving of a cryptographical puzzle. This is known as mining. Miners dedicate their computational power using their own systems and, in return for solving the cryptographical puzzle needed for the creation of a new block, these miners are compensated in crypto currency.  Once the block is unlocked, it is shared across the existing network which in turns validates the block and is added to each node on the network.  In contrast to more traditional centralised ledgers, Blockchain is in effect a decentralised, immutable and distributed ledger technology (DLT).

There are three types of blockchain:  Public, Private and Hybrid. 
Transactions on a public blockchain are open to view by everyone. Private blockchain networks are only accessible by a select group of users and hybrid blockchains are those where participants with private access can see all the data and those with public access can see only select transactions. 

A major reason for the effectiveness of blockchain is the emergence of Smart Contracts. “Smart Contracts” is a bit of a misnomer in that a Smart Contract isn’t a contract in the traditional nor legal sense of the word but rather a self-executing code triggered when a set of pre-agreed conditions is met. In other words, they are algorithms that automate the execution of contracts. Take for instance an online auction for NFTs (which will be covered in a future article). With smart contracts in place, only bidders with available funds in their crypto wallets may be allowed to bid – effectively reducing the risk for the seller. The moment the auction closes, the smart contract triggers, the funds change wallets and the NFT changes ownership automatically and instantaneously.

Smart Contracts have become the building blocks of an entire ecosystem of decentralised applications (dApps) and represent a major focus area for blockchain development in general. Smart Contract applications can be applied within financial services in areas like trading, investing, lending, borrowing and derivatives. Smart contracts can also be used for applications in gaming, healthcare, real estate law and the acquisition of both real-world and digital art. 

In 2021 Walmart Canada introduced blockchain to their network of over 70 logistics providers with the aim of reducing invoice challenges and increasing payment speed.  Prior to DL Freight, (Walmart’s name for their logistics blockchain) over 70% of invoices were disputed. Today less than 1% of invoices have discrepancies, and these disputes are easily flagged and quickly resolved. Gone are the days of payments taking weeks or months; carriers are now getting paid on time thanks to blockchain. 

To help summarise this article, here are five basic principles underlying the technology.

 

1. Distributed Database
Accessibility - each entity on a blockchain has access to the entire database and its complete history of transactions
No centralised control - no single or central party controls the data
Intermediary not required as an entity can verify the records of its transaction partners directly.


2. Peer-to-Peer Transmission
No central communication node - communication is on a peer-to-peer basis with each node storing and sharing the information with other nodes.
 


3. Transparency with Pseudonymity
Every transaction and its associated value are visible to anyone with access to the system. Users can choose anonymity or to provide proof of their identity to others. 


 
4. Immutable Records
Once a transaction is entered in the database and the accounts are updated, the records cannot be altered. Only a second transaction (also reflected and not changeable) can correct a position.
 

5. Smart Contract Logic

The digital nature of the ledger means that blockchain transactions can be tied to computational logic and programmed to trigger automatically. 

 

In short

Blockchain should not be seen as disruptive but rather as a foundational technology. It has the very real potential to lay new foundations for our economic and social systems, allowing us to do things never imagined before. But whilst the impact will undoubtedly be enormous, it may take years, even decades for blockchain to work its way into our economic and social fibre.  

Liqueo has dedicated Blockchain strategists ready to assist and guide you and your organisation on the blockchain journey. Blockchain is not a one-size-fits-all solution, in some instances it may not be suitable at all. Each business is unique and Liqueo will help you navigate and decide on what’s best for your firm.


Here at Liqueo, we provide organisations with the skills to implement programmes successfully through our flexible workforce model, tailoring solutions for our clients’ strategic goals. We deliver an exceptional, bespoke service to every client via a dynamic and agile framework. If you are interested in how we can help you implement successful programmes or want more information about Blockchain, contact us.


 

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