This article explains the basics of blockchain technology and uses a guide to explain what to consider when deciding on or against Blockchain.

The block chain is one in the years to key technology in IT are. Despite some disadvantages, such as the immense power consumption , advantages such as the high level of manipulation and reliability prevail. This article introduces the technology behind the blockchain . After illustrating the process of a blockchain , advantages and disadvantages of the technique are discussed. Finally, a guide is provided to help you decide if a blockchain is really the best solution for your problem.

What is Blockchain?

Blockchain is a database for storing data, information and documents. This allows transactions and complicated processes to be carried out, verified and automated. Blockchain makes the processes more transparent, cheaper and safer. Furthermore, the technology is considered extremely secure because the financial burden of manipulation is disproportionate to the benefit. Applications are found in almost all areas , for example in the financial and insurance industries , the energy sector, industry 4.0, the pharmaceutical industry and the Internet of Things ( Internet of Things , IoT ), especially in the supply chain ( Supply Chain).

Blockchain is composed of two terms. The term “block” stands for the transactions that are stored together and “chain” (German: chain) for the fact that the data is appended to previous links and thus the block chain continues to grow linearly. The formation of the block and its encryption are called mining (German: digging). There are several miners in competition with each other. In the case of the Bitcoin blockchain, the miner must solve a difficult, mathematical puzzle to get the move. Whoever has the solution first will be accepted as a miner. The miner receives a financial reward in the form of a cryptocurrency like Bitcoin for his performance.

The blockchain is realized through a decentralized peer-to-peer network. In this network, the transactions are verified, validated and summarized in blocks. The blocks are then linked together. Thus, the method is based on a chained block structure that grows linearly. The data is stored multiple times in this network to cope with a failure of one or more nodes. The data once in the blockchain are immutable and can no longer be manipulated and deleted.

How Blockchain works

The sequence of a blockchain action consists of the following seven steps:

The operation of Blockchain

block Chain

Blockchain will become the key technology in IT in the years to come.

1. Transaction

The transaction is the basic element of the blockchain. Two parties exchange information with each other. This may be the transfer of money or assets, the conclusion of a contract, a medical record or a document that has been stored digitally. Transactions work in principle like sending emails.

2.Verification

The verification verifies that a party has the appropriate rights for the transaction. The check is instantaneous or it is written to a queue which will later check. At this point, nodes, ie computers or servers in the network, are integrated and the transaction is verified.

3.Structure

The transactions are grouped into blocks, which are encrypted with a hash function as a bit number. The blocks can be uniquely identified by assigning the hash value. A block contains a header, a reference to the previous block and a group of transactions. The sequence of linked hashes creates a secure and independent chain.

4.Validation

Before the blocks are generated, the information must be validated. The most widely used concept for validating open source blockchains is the “proof of work” principle. As a rule, this method represents the solution of a difficult mathematical task by the user or his computer.

5.Blockchain Mining

The term mining comes from the mining industry and means the “mining”. In this process, the block is generated and hashed. To get to the train, the miners have to solve a mathematical puzzle. Whoever has the solution first, will be accepted as a miner. The miner receives for his work a Honroar in the form of crypto currency (Bitcoin).

6.The chain

After the blocks have been validated and the miner has done his work, the copies of the blocks in the network are distributed to the nodes. Each node attaches the block to the chain in a steady and unmanipulatable manner.

7.Defense

When a dishonest miner tries to change a block in the chain, the hash values ​​of the block and subsequent blocks are also changed. The other nodes will recognize this manipulation and exclude the block from the main chain.

What are the advantages and disadvantages of Blockchain?

A blockchain is a database with two elementary properties. On the one hand, it can be regarded as tamper-proof due to a very complex encryption process, the so-called hash function. Second, many copies of the database are distributed throughout the network, requiring more than half of all instances to be changed to successfully fake a database entry. With today’s computing technology billions of dollars would have to be invested to manipulate only a single entry in the blockchain. This is completely uneconomical and ultimately leads to the high security against manipulation of the blockchain.

An important consideration is the decentralized nature of Blockchain. If the server fails in a classic database, the database can no longer be used. If a part of the nodes of the block chain fails, the remaining participating nodes can continue to be used.

It is also important that the data is stored permanently and audit-proof. This does not offer the classic cloud technology. First, the public servers could be destroyed by natural disasters or similar occurrences. Clouds are often the target of hacker attacks, which can hardly be prevented. In the event that the cloud provider goes bankrupt, all sensitive data is lost or no longer accessible.

Another advantage is that the blockchain does not require much infrastructure. Blockchains can also be created in countries such as Africa or Asia banking transactions, without a bank must exist as a central entity. Also a kind of land register and birth register, which does not exist in all countries, could be represented over a block chain.

In addition, there are further advantages in using the blockchain. This provides the opportunity to collect, analyze and evaluate large amounts of data across companies. The overall infrastructure costs are reduced, and traceability helps identify vulnerabilities in supply chains and business processes. Company-internal reports can also be increased in their effectiveness.

Like any technology, the blockchain has its drawbacks, but overall the benefits outweigh the benefits. These include low individual scalability, low data throughput, limited storage space and authorization management. Without a fast network access, the blockchain can not be implemented. Sometimes it is not trivial to integrate the blockchain into existing IT infrastructures.

Another serious disadvantage of the Bitcoin blockchain is its great hunger for energy, which comes from the proof-of-work algorithm (see Mining). If half of the world’s population, which does not currently have its own account, would one day use blockchain technology, it would consume more power than it would produce today. Even if only ten percent of the world’s population rely on blockchain technology, it would require 22.9 percent of global electricity production.

Do I need a blockchain?

Before implementing a blockchain, it is important to check carefully whether this technique is the right choice. The following guide is intended for decision-making:

(1) First, the problem to be solved must be identified. Which are the possible pain sites? What are the current solutions and what is missing?

(2) Now it has to be checked if this problem really needs a blockchain. In many cases, a single central database may be more efficient than a blockchain implementation. It makes sense to carry out a cost-benefit analysis and a risk assessment. Furthermore, it has to be examined whether external partners have to be involved in the implementation. Another question is whether new risks arise from the implementation. As a result of the analysis, it is determined whether, considering the risks, it is better to implement a classic, central, relational database.

(3) If the decision for a blockchain fails, various features of the blockchain technology must be defined and identified. The following questions now arise:

  • Does the user want a public, private or consortium blockchain?
  • What are the access policies and is there a node hierarchy?
  • Do nodes need to be anonymous on the network?
  • If they need to be anonymous, should they be auditable in certain cases?
  • Should private and confidential transactions be allowed?
  • What should be the strength of encryption technology and security?
  • Which consensus procedure is used?
  • Should only the hash values ​​of the transaction be written to the blockchain instead of full data?
  • Who are the validators and what kind of validation logic will be implemented?
  • Does the solution require multiple blockchains that interact with each other?

(4) Once one has an idea of ​​the type of blockchain that is supposed to solve the problem, consideration needs to be given to which implementation one wants to set up the project. Implementations that are available are for example Bitcoin, Ethereum, Ripple, Hyperledger or Faizod Vooledger.

(5) After deciding on an implementation, it must be considered which components of the framework can be adopted and which parts need to be rewritten or configured. At this point, clients and customers should be able to make an appropriate estimate of the resources needed to achieve good production quality. Now also a second cost-benefit analysis has to be carried out.

(6) When the blockchain is implemented, a “proof of concept” is to be implemented in the course and the system is to be installed on a test basis on an internal network, a simulation environment or a commercial cloud such as IBM Bluemix or Microsoft Azure .

(7) Finally, possible problems during the proof of concept scaling, such as performance issues, latency, memory, disk space and operating system, must be estimated.

(8) Now you can start!

Summary and Outlook

Blockchain is a new, innovative database technology in which atomic units-the transactions-are collected, bundled, verified, validated, encrypted, and distributed across a network. The result is a tamper-proof and fail-safe database. Not every IT problem can be solved with a blockchain. This article therefore describes a guide that can be used to find solutions for or against a blockchain implementation. The future will tell if the blockchain and its immense, potential upheavals will actually prevail.