What is blockchain? (Everything You Need to Know in 2021)

What is Blockchain?

A Blockchain is simply a shared and distributed ledger which acts as a database that shares not only the transactional history, but also the transparency, precision and reconciliation features of a financial system.

There are several blockchains for different purposes.

If we talk about a blockchain as a single, pre-allocated ledger, we end up with the one-size-fits-all type of blockchain which is the property-for-property platform of blockchain platforms which have no other structural differences.

Other blockchain types include distributed ledgers such as HyperLedger, Ledger Nano S, Plasma and Plasma Cash, Swarm and Cosmos, public ledgers such as Hyperledger, Ethereum, Stellar and Bitcoin blockchain, and hybrid distributed ledger such as IBM Blockchain Cloud Service.

While most companies take blockchain as a potential panacea, this technology is mainly about improving business processes rather than eliminating them. Every business still relies on paper and trust as the essential elements of business today.

Blockchain technology is bringing transparency and trust to transactions and processes and allowing processes and transactions to be recorded, shared and synchronized.

For example, a factory produces batches of products by being part of a supply chain. It records its products using several paper tracking documents and utilizes multiple check points of entry and exit to ensure the products move safely and securely through the network of supply chains.

Each batch will need to pass through all the prior checks of the company it is part of, including an insurance company which wants to insure the product, and the insurance company will send its own documentation to each company involved in the supply chain.

The insurance company will then also need to verify the insurance policy covering the product, and if the insurance company approves the insurance policy, the insurance company will also issue receipts to all the organizations involved in the production of the product, including the insurance company.

After production, the product will need to be stored, prepared and packaged, requiring trusted documentation for each step in the supply chain. This includes receipts and documentation, insurance policies, shipping documentation, warranty information and others, which are then distributed to each person in the supply chain, in a decentralized fashion and managed by the members of the supply chain and the insurance company, rather than one central point of authority.

Businesses could record their transactions and document changes to product recipes in a blockchain database that also provides an audit trail of all the recorded transactions in the blockchain.

This will enable organizations to use the blockchain database for security, while maintaining the ownership of the underlying data, which is key for a business. This will also make business processes much easier to automate.

Another possible application of blockchain technology is providing blockchain services to businesses.

In industries such as supply chain logistics, businesses could use blockchain technology to digitally record their transactions, verify transactions and track the execution of contracts.

It will be easier to track and audit transactions within the blockchain and ensure businesses are able to control their assets.

Blockchain has been touted as the solution to countless business problems. While a blockchain database will be more secure, organized and trustworthy, it is important for a business to establish processes that will allow the blockchain database to remain stable, organized, and secure.

The potential risks of blockchain technology

While blockchain technology offers several advantages, a key concern of using blockchain technology is the risk of losing valuable digital assets, which can be difficult to recover.

A risk of losing data in a blockchain database is also a risk that organizations need to be prepared to manage.

Digital assets, which are stored on a blockchain, can be erased by destroying any record in the blockchain. As more transactions are recorded, it is becoming harder to maintain the integrity of the data. However, companies need to address this risk of losing digital assets as digital assets are the key asset that differentiates businesses from other industries.

Smart contracts are also used in the blockchain to record certain transactions, which involve some form of financial reward or payment. When someone writes a smart contract in a blockchain database, it becomes part of a shared ledger.

When this happens, a smart contract is created that has the ability to transfer an asset if the current value of the asset is less than the value of the smart contract.

The value of the contract cannot be changed after it has been written into the blockchain database and it will be activated if any other person adds it to the blockchain.

This is usually a problem with digital assets because if they are being held in the blockchain database, then the value of the assets will be influenced by the outcome of smart contracts. This will cause the value of the digital assets to change and therefore the value of the assets is tied to the smart contract and not necessarily to the business that created the asset.

Digital assets have to be protected as much as possible because it is important to avoid losing digital assets.

If you interested to know detailed pros and cons of blockchain you can read this article Advantages and Disadvantages of Blockchain.

How to keep information safe with blockchain technology

The risk of losing digital assets is significant and digital asset losses are often avoidable. A company should establish processes that will help keep their information safe, even if they don’t implement blockchain technology into their business.

One way of managing information in a business is by using audit trails. A business should establish audit trails for each system they use. This can involve utilizing a distributed ledger system such as the blockchain to update information regarding transactions. It is important to note that a blockchain does not enforce a security protocol for an audit trail. These security protocols are the responsibility of the organization that created the blockchain database.

When implementing a blockchain system into a business, a third party or business organization will have access to the blockchain. A blockchain database can not create copies of any information that belongs to a business. So, when a smart contract is written into the blockchain database, the smart contract is not a copy of the information.

However, the blockchain database can not be deleted or removed without the permission of the parties that created the blockchain database and the smart contract. Therefore, a blockchain database will have a limited lifespan of 100 years, which means that when the database is written, a future system will not be able to change the information from the current database.

Businesses should provide their employees with access to the latest information regarding the blockchain database. This information should be consistent to help ensure that information about the blockchain database is up to date.

Additionally, businesses should monitor and enforce information about the digital assets by using a mechanism that is similar to how banks monitor a transaction. This process allows businesses to review the transactions of digital assets and determine if they are required to report these transactions.

Digital asset losses are not something that businesses should avoid, and the risk is relatively minimal if businesses implement digital asset protection into their business.

How a blockchain business uses digital asset protection

When a business uses blockchain technology in their business it will change the information of digital assets to prevent errors from occurring. In order to protect their digital assets, businesses can use digital asset management systems or simply develop smart contracts that will enforce the rules and regulations that the business wants to protect.

A digital asset management system can be implemented into the business to track the assets that are created. For example, in the world of investment banking, financial analysts create smart contracts that determine how their clients invest their assets. This is an example of a smart contract in the business of investing.

A blockchain system can track assets as they are created. This is a more secure form of digital asset protection because it requires less information to generate digital assets.

Digital asset storage systems will provide storage of digital assets. This will help organizations keep the information of digital assets locked to prevent their information from being lost. This is an example of how a digital asset storage system works.

Digital asset exchanges will provide a place for companies to exchange digital assets that are created.

Financial institutions will provide the digital assets that are created and traded to other businesses. This is an example of how financial institutions work with blockchain systems to provide digital assets.

How should businesses choose a blockchain platform for blockchain?

When talking about the importance of blockchain platforms for blockchain applications, we cannot stop at one single question. This is because we have to distinguish between different platforms.

Each of them is optimized for different use cases.

Therefore, we have to ask ourselves two kinds of questions when considering the matter:

1. What are the key use cases for blockchain platforms?

These include enterprise software platforms for managing inventory, loyalty programs and the software for machine-to-machine payments, such as Samsung Pay.

The list also includes the databases for trading, shipping and record-keeping (Exodus), as well as the social networks (OpenBazaar, Steem, OneNetworks) and governance platforms (Mongolia Blockchain Project).

2. Which platform fits my business requirements best?

This process will involve analysing each platform’s level of scalability, efficiency, robustness, security and transparency to assess which of these are the most suitable for your business requirements.

For example, if you want your transaction ledger to be easy and transparent, then you need a public blockchain. If you need the blockchain to be capable of managing large amounts of transactions on the backbone of which you will create your supply chain and shipping strategy, then you need a private blockchain. The challenge we all have in the blockchain market is to learn more about blockchain technology and select the right one for your businesses.

I hope you enjoyed this Simple Blockchain Explanation.

If you found this content helpful then share this with your friends. and if you have any question or feedback then feel free to comment below.

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