The term Blockchain is known especially in connection with the crypto-currency Bitcoin. But in other areas, the technology could bring significant benefits – especially when it comes to the rapid conclusion of contracts. A panacea as an omnipotent database Blockchain is rather not.
New technologies are hyped at regular intervals, without which there is supposedly no future. It is all the more important in these times, the rule of thumb that you should never change something in your own company for technology reasons. Instead, the actual benefit must be in the foreground. New technologies can be the means to an end. However, they are by no means an end in themselves or even a panacea.
The most inefficient database in the world
Although Blockchain has been used for crypto-currency Bitcoin for some time now, the popularity of disruptive technology has increased dramatically lately. This is not least because Blockchain is increasingly regarded as audit-proof and unchangeable filing method for all data and information. But some experts see in it only the first evolutionary stage of Blockchain.
“Blockchain is by design the most inefficient database in the world,” says Sascha Hellermann of consulting firm Cocus. Instead, the goal must be to find and develop meaningful and useful use cases that unlock the full potential of Blockchain for each company. Detached Blockchain was even uninteresting and not really new.
“Ultimately, there are two valid use cases,” says Sascha Hellermann. “Once as a basis for crypto currencies like Bitcoin for mobile payment, for example, and once in the field of Smart Contracting.This is the future of technology in Smart Contracting, because it allows automated contracts and payment can be processed via a crypto currency. In the end, Blockchain creates a platform that guarantees the fulfillment of contracts for both known and unknown partners, “says Sascha Hellermann, describing the most important benefits.
The operation of Blockchain
Blockchain will become the key technology in IT in the years to come.
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.
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.
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.
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.
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).
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.
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.
Contracts in real time – manipulation excluded
While Blockchain has already profiled and established itself as the basis for crypto currencies, its use in the field of contracting is still far from widespread. This could change soon. Thanks to Blockchain, contracts and complete administrative tasks can become cheaper, safer and easier to understand – and, above all, faster.
Instead of having to send documents such as orders and order confirmations back and forth, contracts can even be concluded across national borders via Blockchain virtually in real time. Finally, Blockchain is based on a sometimes highly networked peer-to-peer system in which all actions are checked, confirmed and summarized in blocks and linked together. Information in this information chain of blocks (hence the name blockchain) are invariable and thus carved in stone – and thus manipulations are excluded.
Contracts that are documented by blockchain can thus be reconstructed decades later. If new information is added, it will not be exchanged, but added linearly. Since all the information in the network is secured in many different places, it is not possible that they will be lost if there is unintended or deliberately caused data loss at one point.
Three types of blockchain for different needs
Where and how often the data is stored depends on which of the three types of blockchains is used. For private blockchains, everything stays within their own corporate network, which makes this type of application primarily suitable for testing before large-scale projects are addressed.
If the network extends over several parties, such as the complete contract partners of a company, this is called a consortium. It is advisable in this case that the stored information is not accessible to all parties, but protected by passwords as needed. For most companies less interesting are so-called “public blockchain”, in which the data is stored in the worldwide network.
What’s up with Blockchain, Bitcoin and Co.?
Another cryptocurrency based on the blockchain principle. Provides a platform for programmable smart contracts. The “ethers” are regarded by fans as a legitimate successor to the Bitcoins (see also above picture).
Microsoft Azure cloud-built service that allows users to put external data into a blockchain without destroying their security and integrity. As an individualized middleware, cryptlets can also be developed by Azure users themselves – in any programming language – and build the bridge from the blockchain to new business services in the cloud.
Digital money, without coins and bills. Cryptography builds a distributed, secure and decentralized payment system. Does not require banks, but computing power and technical aids such as the blockchain.
A blockchain is a distributed database that maintains an ever-growing list of transaction records. The database is extended chronologically linearly, similar to a chain, at the lower end constantly new elements are added (hence the term “block chain” = “block chain”). If one block is complete, the next one is created. Each block contains a checksum of the previous block.
The blockchain technical model was developed as part of the cryptocurrency Bitcoin – a web-based, decentralized, public accounting system for all Bitcoin transactions ever made.
A globally available decentralized payment system and the name of a digital monetary unit. You do not need a bank to handle Bitcoin payments – everything is done through a peer-to-peer network of computers and the blockchain as the central database.
The open source software validates the entire blockchain and was released in early 2009 by a certain “Satoshi Nakamoto” under the name “Bitcoin”. Bitcoin Core was in C ++ soon to be programmed especially for Windows systems. A little later the porting to GNU / Linux followed. Because the developers are divided, there are now some derivatives of Bitcoin software, including Bitcoin XT, Bitcoin Unlimited or Bitcoin Classic.
The “scalable blockchain database” can manage up to one million writes per second, store petabytes of data, and still have a latency of less than a second – all managed in a decentralized manner and with the highest data integrity. The technical basis is blockchain technology.
Financial term for “distributed account management”. Bitcoin is a completely new technical approach to distributing information about specific assignments. There is no longer a classic account managed centrally at a bank, but “account management” is based on a network of communicating systems.
A computer log that can depict or review contracts or provide technical support for negotiating a contract. Could in future replace the written contract.
The startup R3 CEV builds the blockchain-based “Global Fabric for Finance”. With around 50 financial partners, the largest block chain in the world to be developed – a first test run with eleven banks, including Barclays, Credit Suisse, HSBC, UBS and UniCredit has already been successfully completed. R3CEV has entered into a strategic partnership with Microsoft to develop blockchain infrastructure and technology in the Azure Cloud.
A free software with which every user can develop their own blockchain application.
An open source protocol for a payment network – currently under development. P2P payment method and foreign exchange market in one, based on the cryptocurrency “XRP”. However, ripple users are not set to this one currency, but can use any currency – including euros, dollars or yen, for example.
Africa as a model for Smart Contracting: Land purchase without a notary
While there is still a lot of catching up to do in Africa in terms of IT infrastructures and new trends, some African countries are well ahead of much of the Western world in terms of blockchain and smart contracting. For example, in Ghana, land purchase contracts have already been completed by blockchain. Details like the geo-coordinates stand together with the signature in the blockchain. A notary, who is often several hours away by car in Ghana, no longer needs to be involved. What used to take days or even weeks and brought with it high costs, is done immediately with Blockchain and without much effort.
In view of these advantages, some European companies are now also turning their existing processes and structures over to Blockchain in the medium and long term – although the methods currently used continue to work. “In a few years, however, the companies that rely on smart contracting will have a clear competitive advantage,” says Sascha Hellermann.
As an example, where Blockchain should prove particularly well, Hellermann called industries and companies in which the conclusion and management of contracts are particularly important such as in the energy or travel industry, health care, in telecommunications and in the automotive and in general with Industry 4.0.
“When it comes to inventory management, Blockchain can be an important wheel in the transmission, ensuring that the supply of required goods is guaranteed at all times, fully automated,” says Sascha Hellermann. “In the IoT area, Blockchain also enables the capture and verification of quality assurance data across the entire supply chain – and that unchanging.”
Managing millions of contracts and hotel beds more efficiently – banks are left out
But even with the millions of contracts that energy suppliers or even hotel chains and tour operators conclude with the end customer or even among each other, smart contracting can save many steps and costs. In the end, Blockchain can even help, for example, to make bed allocations faster and easier between parts of a group of companies and, where appropriate, pass them across national borders.
And there’s another advantage: Bitcoin, and especially so-called consortium coins within a blockchain consortium, keeps the banks out. This eliminates the usual fees, which quickly add up to large cost factors. Exchange rates are also eliminated. That should appeal to many companies. The banks are not.
- 1 The operation of Blockchain
- 2 What’s up with Blockchain, Bitcoin and Co.?