What is a blockchain?
A blockchain is a digital ledger in which transactions made in cryptocurrency are recorded chronologically and publicly. Blockchains are immutable, and the transactions taking place on a blockchain are irreversible.*
In its crudest form, a blockchain is a computer program that is written, then uploaded to a server, and then accessed by other users, who become nodes to the network, or additional servers. The blockchain data will then be stored on each participating node, and each node will be updated with each subsequent transaction.
The general purpose of becoming a node is so that the user can “mine” the cryptocurrency. Mining is the verifying--processing and adding records-- of transactions to the blockchain. Mining requires the solution of a complex math problem, solveable by computers. As a reward, the computer receives a unit of crypto. However, the reward serves a dual purpose as the computers that mine also serve as verification nodes, which allow transactions to be processed and recorded on the blockchain. Therefore, the incentive to verify the transaction is the reward of the unit(s) of crypto.
The more computers that participate, makes the network more secure and increasingly less vulnerable to an attack from the outside because there is not one entry point for all data to be altered. Unlike some big businesses, who have been subject to compromise because of their centrally located storage, blockchain provides for decentralized, secure storage of these transactions.
Think of it as a massive spreadsheet, with hundreds of identical copies spread across the world. All the transactions that occur are publicly viewable and pseudonymous—meaning the transaction data is partially anonymous. there is no individual identifying data, just an account number and the amount that was transferred in the transaction. This means, On the spreadsheet, you will see an account number where the asset is transferred from, how much of the asset was transferred, the account it was transferred to, and the date and time of the transfer.
Crypto is only one function of blockchain technology, much like email is only one function of the internet. So what is the value of blockchain? Blockchain technology provides transparency, security, and reduced costs, and it has many functions that can help businesses and government thrive.
There are several other advantages for businesses to use blockchain technology:
1. Access to Capital.
As a business start-up, it can be very difficult to raise startup capital, or to receive a loan from a bank or venture capitalist. Irrespective of a business' location, blockchain technology can help startups raise funds through an initial coin offering (ICO) or a security token offering (STO). Either way, you have a much larger audience through which to gain funding.
2. Supply Chain Verification
Blockchain can be used to track the movement of goods, their origin, their quality, etc. This provides a new level of transparency to business ecosystems by simplifying traditionally bulky processes such as ownership transfer, quality assurance and payments. If an irregularity is detected somewhere along the supply chain, your blockchain system can direct you straight to the point of origin. This makes it significantly easier for businesses to carry out any responsive action. For example, consider the food industry, where tracking the origination of the food product, the batch information, etc., is crucial for food safety and quality assurance. In fact, there is already a blockchain alliance between Walmart, Dole, and IBM for this exact purpose: it's called The Food Trust.
Additionally, recording transactions through blockchain virtually eliminates human error and protects the data from tampering efforts. In addition to the guaranteed accuracy of your records, the verification process will also leave a traceable audit trail.
3. Automated Legal Agreements
As an attorney, it may be unsettling to know a digital ledger is my competition, but that doesn't change the fact that blockchain technology can automate certain contracts and contractual obligations. Many transactions based in contracts can slow down business growth, as each party to the transaction has their own respective lawyers to review the contract, and then each party has to execute their end of the contract, and the next leg of the contract wont be executed until their is proof that the other obligations are satisfied, etc. The smart contracts element of blockchain allows for agreements to be automatically validated, signed and enforced, and the next steps triggered without human intervention, ultimately saving time and money.
So there you have it. If you are a business looking to incorporate blockchain, or just have questions, please feel free to contact me or comment below!
*subject to a 51% attack