When we talk about blockchain and the innovations it can provide to organizations looking for ways to put it to use in their enterprise, there is an assumption that our readers already understand what blockchain is. However, we know that blockchain is still a new technology and one that a lot of people may not understand. That's why we wanted to devote this blog to readers who have questions about what blockchain really is but are afraid to ask.
From a top-down perspective, a blockchain is simply a chain of blocks. But what are these blocks and how are they chained together? In simple terms, blocks are like a storage unit where information is stored. Every block stores information that differentiates it from other blocks called a "hash." These hashes are cryptographic codes which algorithms create. It is this cryptographic nature which links these blocks together, making a chain of blocks.
One of the key features of blockchain is its decentralized nature. Essentially, blockchain is a digital ledger of transactions which is duplicated and distributed across the entire blockchain network. Since every block contains a number of transactions, and every time a new transaction occurs on the chain, a record of that transaction is added to every participant's ledger, the database managed by multiple participants is known as Distributed Ledger Technology (or DLT).
This means that if one block in the chain is tampered with, it will be immediately obvious: so if a hacker wants to corrupt a blockchain, they would have to change every single block in the chain—and there could very well be thousands of blocks. This means that blockchain is also an effective security measure for your company's precious data.
Blockchain has become almost synonymous with cryptocurrencies like Bitcoin and Ethereum, but blockchain also found a home in fintech. Currently blockchain has seen remarkable adoption for application and pilot tests in various industries including software sales and services. However, one of blockchain's most promising and exciting applications for blockchain is in smart contracts.
Smart contracts prove that blockchain can be used outside of cryptocurrency. Smart contracts are literally contracts written in the form of code and "if-then" statements. The contracts define the rules and penalties of an agreement like a traditional contract, but they also automate the contract's execution. Smart contracts can be used as a secure voting system, eliminate communication breakdowns in a business' workflow, and help supply chains maintain inventory.
For businesses, blockchain technology has the promise of transactional transparency: the ability to create secure, real-time communication networks with partners, potentially on a global scale, to support supply chains, payment networks, real estate deals, and healthcare data sharing. The most exciting part of smart contracts and blockchain is that not all of the uses for them have been created, not by a long shot. While some of their potential is being explored, there is a lot more that smart contracts can do.