What is the blockchain?

Although the process of digital transformation has been going on for decades, it has only been addressed in the general public in recent years. One term, or the technology behind it, has given the go-ahead for this media attention like no other: the “blockchain”. But there is more to it than just a highly interesting system for data storage.

At the same time, however, this technology has long been seen as incomprehensible to laymen and emblematic of decoupling the world of information technology from reality. In particular, the connection to cryptocurrencies, especially the original Bitcoin, contributed to this: the reputation of opacity and use for criminal machinations attached to these currencies partly transferred to the idea of the blockchain itself.

In the meantime, most of these prejudices have fortunately dissipated. And the myth that the concept of blockchain is particularly difficult to understand is also wrong. Here is the proof:

Definition Blockchain

A blockchain, as the name suggests, is a chain of blocks. Each of these blocks contains a record and can therefore be used to store information. Exactly what the respective content is does not really matter, as long as the reference to the previous block is correct. Only those who correctly “quote” the last block by a special hash code and thus prove their authority may attach a new element.

However, instead of being able to add, modify or delete data at will, as with other storage systems, you can only attach a new block. This can contain new information accordingly, but it is not possible to edit or delete existing blocks directly.

If I want to delete a value stored in Block X, for example, I have no choice but to add a new block that contains the information “Value in Block X no longer applies”. Since a blockchain is usually stored not in a central location, but in different locations and all changes are traceable in the form of a block, the technology is extremely safe against forgery attempts.

Definition of digitization

Digitalization is, quite soberly speaking, simply the transfer of formerly analogue processes to digital ones. Even if we are currently increasingly encountering these and similar terms, this is a very old and simple process, because almost every form of digitization is rewarded with efficiency increases, cost reductions and new, previously unknown possibilities. No wonder we humans have always been very interested in her.

Due to the accelerating technical progress and the mutual support (new technologies enable new technologies …) digitalization has gained so much speed in recent years that it has now penetrated into all areas of our lives and is indispensable from there. This digital transformation is a technological, socio-cultural, economic and intellectual process that brings with it gigantic upheavals.

For companies in particular, the digital transformation creates unprecedented opportunities – but it also lurks with considerable dangers, especially if it is ignored.

Possible applications for companies

Cryptocurrencies are undoubtedly among the most well-known areas of application. These are now hundreds of purely digital currencies that represent very different values, including real goods: anyone who buys a “bananacoin” whose value is linked to the export price of one kilo of bananas can actually exchange them for one kilo of bananas.

Other currencies represent abstract concepts, such as computing power. At least since the success of modern cloud computing systems, it is clear that there is a huge market for computing operations. So why don’t these values represent as a cryptocurrency?

However, the ever-increasing number of these units (almost) all share the use of blockchain technology. This storage system is the technical basis for Bitcoin and Co.

The following application examples all have in common that they only represent theoretical concepts or are in their infancy at best. However, the reason for the extremely slow implementation is not the technical difficulty, but social and economic rejection: banks steadfastly refuse to hand over their central position of power in the financial market to a jointly managed, free blockchain and do their utmost to torpedo such efforts. Companies reject the systems that would give end-users more insight into production methods because they do not want to be seen in the cards. Nation-states and their gigantic administrative apparatuses do not want to digitize proof of identity, because they themselves would become largely superfluous…

Supply Chain Management

On the way from raw material to factory to dealer to customer, a lot can go wrong. Suddenly, the previously eager customer stands with a fake designer product or a restaurant has received spoiled food. Blockchain use can avoid this – or at least track all the steps that led to it.

For this purpose, products are recorded in a blockchain. Work steps, transport, etc. are also attached to this chain until the manufacturing process is completed. Once the goods have finally arrived at the customer (whether private or company), all steps taken so far can be traced.

Since the system is de facto tamper-proof, inconsistencies would become obvious directly. And since the next station along the chain does not want to be responsible for any damage, problems would also be reported directly. This provides greater security for all parties involved by the verifiability of the supply chain.

Such systems have long been possible with a manageable technical effort thanks to handheld scanners, QR codes, tracking chips, etc.

Legal certainty for documents

Due to the anti-counterfeiting security and the proof of all interactions stored in the individual blocks, all kinds of important information in a blockchain are generally ideally kept. A particularly worthwhile example is ownership certificates, which must be kept securely and accessible.

Notaries are an analogous attempt to protect these documents from forgery, alteration, etc. Even if this is almost always successful, the current concept remains slow and not completely secure. In the digital version, on the other hand, the data can be called up in seconds and reliably examined for tampering by checking the hash code.

Another area of application is identity cards/identity certificates: the digital identification, as it is carried out today, for example, by the video identification procedure, is still unsafe and flawed. Skilled counterfeiters can outwit such systems by means of image processing technology or fake IDs, and thus regularly cause considerable damage.

With blockchain-based identification, on the other hand, new customers can identify themselves unambiguously and securely and thus register for a new bank account or verify their age in no time before they are allowed to visit relevant websites. Because this data is encrypted, unwanted access is excluded: the owner must provide the appropriate permission before a person or company can access it.

But the possibilities do not end here: even elections can be handled completely digitally if a citizen can verify his identity perfectly. Especially in the context of the Covid-19 pandemic, the need to avoid such procedures in order to avoid crowds (elections, examinations at schools and universities, visits by lawyers, therapists and all other appointments that take place privately…) is evident.

For example, hiring a new employee in pandemic times could be completely contactless, as important data would be transmitted digitally and could be clearly verified by the blockchain.

Intellectual property

When it comes to the question of who has the rights to a particular idea, invention, artistic work, etc., the timing is always decisive: Who had the idea first? Who composed the song first? Who invented this product first? Who wrote this text first? Capturing intellectual property in a blockchain would clarify these questions once and for all.

Here again, the properties of counterfeiting security and traceability mentioned several times come into play: Whoever first entered the respective work in the database is the intellectual owner and can exercise his rights accordingly. This would enable millions of artists around the world to prevent or punish abuse swork. German companies could effectively combat Far Eastern plagiarism of their products and revolutionize the patent system in general.

However, the basis of the concept is a broadest possible, ideally worldwide user base. Insular solutions of individual states are likely to have only a limited effect.

Accounting and Finance

Due to its structure of the blocks that build on each other, the blockchain concept bears some resemblance to classic double accounting. The use for the same is therefore obvious and brings with it some advantages, including the significantly lower software costs for blockchain-based applications.

By being comprehensible, manipulations can be de facto ruled out, and human error would also be easy to understand and easily rectify. The expenditure on financial auditing would also be shortened many times and at the same time more precise and safer.

By means of sometimes very abstract concepts, which would go beyond the scope of this article, the technology can also be used to detect values that cannot be quantified or hardly quantifiable, such as data, at least approximate. This allows the viewing space of controlling to be extended to areas of a company that were considered too inaccurate or comprehensive in the past.

4. Real examples of use

While the application possibilities described above are often still far from being implemented, blockchain technology is already being used in numerous companies and authorities around the world.

In general, a blockchain is always useful when data is stored securely, comprehensible and access is simply possible.

In asset management, art galleries already use blockchain-based databases to prove the authenticity of a work of art.

Financial apps allow investors to continuously track their assets and provide security against hacker attacks and other manipulations by their blockchain-based architecture.

Blockchain-based cryptocurrencies already allow international money transfers at a fraction of the usual prices. Senders and receivers do not have to own cryptocurrencies for this purpose: they conduct their business as usual in dollars, euros and co. and do not notice anything about the processes going on in the background.

Land registry entries for pastureland in Kenya and Ghana are recorded and stored via blockchain. The project of the two states started successfully and is to be further expanded.

Conclusion

Blockchain technology offers some interesting use cases and has the potential to optimize numerous business and everyday processes. However, due to the often dubious reputation of cryptocurrencies and the connection of them in the minds of the general public as well as the image of high complexity, the possibilities of blockchain often remain untapped.

However, the success of the system is constantly expanding into new areas and is gradually rethinking. Companies are therefore well advised to dismiss their reservations about the technology, or at least to check carefully whether these facts or gut feeling are based.