Blockchain is probably a term you’ve heard a lot recently and it’s likely you have seen it being used in conjunction with Bitcoin or other cryptocurrencies. Conceptually, a blockchain is an electronic ledger, which holds a record of transactions carried out between different parties. This ledger resides on a network of connected computers, which means that a copy of the ledger is held on every computer that is part of this network, creating what is called a decentralized network. Decentralizing the data in this manner increases the network’s reliability.
Blockchain technology can be a secure way of storing information because it protects data using encrypted keys that are very difficult to tamper with or manipulate. Private keys encrypt blocks containing transaction data. As new transactions occur, they are added, creating a chain of blocks. Security increases with the length of the blockchain, as information on a block could not be manipulated without disrupting every other subsequent transaction linked to it on the blockchain.
New business models are being created with the help of blockchain technology. For example, Fortacast, a Singapore-based software company is using blockchain technology to help large companies achieve labor savings by automating finance and operations. Business automation relies on blockchain’s data encryption capabilities to enable the secure movement of data between different computer systems. Companies in industries as diverse as banking, healthcare, supply chain, and even government are seeking to adapt this technology to become more agile and efficient. Fortacast CTO, Tom Hughes explains:
“Blockchain technology can be leveraged in many ways to accomplish different business objectives. The non-repudiation benefit alone opens the doors to unlimited possibilities. Because the authentication and authorization of transactions are handled on the distributed network, security and transparency are improved at the same time.”
Blockchain’s technical advantages provide solutions to problems that were previously unsolvable. Some of these advantages include:
Transparency is one of blockchain’s biggest advantages. Because blockchains are decentralized, every transaction that occurs is copied to the blockchain of every computer in the network. If any new changes are made to a block, each computer will verify that transaction through consensus. If the results are not satisfactory, that block is not allowed into the chain and is flagged as having been tampered with. This offers a transparent view of the data, as users are able to verify any changes being made, significantly reducing the risk of alteration.
Better tracing capabilities
This blockchain feature is why governments are taking interest, as it provides the ability to determine the origin of a transaction. During an audit or investigation, a transaction’s trail can reach a dead-end and may be difficult to trace to its source. Blockchain negates that problem by maintaining an unalterable record of each step of a transaction’s journey. This is the non-repudiation benefit that Fortacast CTO Tom Hughes referred to which makes blockchain an attractive technology for governments seeking to reduce money laundering and enforce banking and tax laws.
Greater speedy and efficiency
The sale and purchase of assets, recording of financial transactions, and other record keeping tasks are cumbersome processes requiring staggering amounts of time-consuming paperwork. In order for government and financial records to have integrity, a third-party is often employed as an intermediary to verify the identity of the parties involved, and to witness that the transaction took place. With blockchain, the validation process is automated and can be carried out more cost-effectively. Transactions are stored on a single digital ledger, which means that all users can verify the authenticity of a transaction at any time and without requiring expensive notaries and other human intermediaries.
Having touched upon time and labor savings, blockchain’s ultimate advantage is its ability to reduce transaction cost, which is businesses’ main motivation to embrace this technology. Cost reductions come from the reduction in the number of intermediaries needed to record and validate transactions. Blockchain’s built-in consensus features create trust in the process. Lastly, the use of the single ledger provides transparency that eliminates the need to manually review and reconcile transactions.