What are the features of blockchain
Blockchain's buzz makes it sound like a panacea. Our supply-chain experts evaluate its real potential. Another day, another new technology to consider. This time it's blockchain, the technology that was created to support bitcoin transactions. According to its cheerleaders, especially in the financial sector, blockchain technology has the potential to turbocharge the effectiveness and profitability of most if not all businesses—or even upend business as we know it. In fact, say these early adopters, businesses that ignore blockchain technology do so at their peril.
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What is Decentralization in Blockchain?
Blockchain is often discussed as if it is one single technology. But it is really a combination of several distinct features — decentralisation, distribution, cryptography, and automation — which are combined in different ways by different platforms. Some of these features may have benefits, while others may be unnecessary or even unhelpful — depending on the specific application. In this post, I consider whether and how these features may have different potential applications in financial services.
Blockchain will only be truly useful in settings where one of more of these features solves a problem that existing technologies cannot. It has often been argued that the greater disruptive potential lies in blockchain technology, rather than Bitcoin or the many other crypto-assets which have followed in its wake. But a decade on, most of the activity around blockchain technology still appears to be about exploring its potential , rather than concrete examples of its deployment.
A blockchain is a type of distributed ledger which enables an agreed record of transactions or other data to be maintained and replicated across multiple participants, without the need for any central authority operating the system. The technology was first introduced with the invention of Bitcoin in ; this was ground-breaking as it demonstrated an entirely new way of thinking about the structures that underpin financial services, which had previously been based around trusted centralised intermediaries.
By adapting this technology for a range of purposes, a whole industry has emerged developing platforms inspired by some of the core features of the Bitcoin blockchain, but adapting these to suit different scenarios. But they generally all involve some degree of distribution — leading to the use of the broader term distributed ledger technology DLT. DLT is not one single technology. It has become an umbrella term for a wide range of things. Each of these takes a different approach, and as a result may be more or less suited to any particular application.
Most DLT platforms generally include some degree of four common features :. Each of these features has their own benefits and challenges, making them more or less suited to different scenarios. For example, many of the efficiency and scalability challenges which come from computationally-intensive mining processes , are only really applicable if you choose a fully decentralised and permissionless approach. DLT platforms vary in the way they implement these features.
It is usually necessary to dig a little deeper into the design choices, and to consider when each of these features might be useful. There will be many scenarios where decentralisation is not needed at all, for example where there is a natural central party, or a small group of trusted parties. This is more likely in scenarios that cross boundaries national boundaries, or boundaries between industries or for applications which are providing a shared utility.
One promising area is cross border payments where there is often no single trusted central party, and where existing solutions can be slow and costly. Or trade finance where the flows of goods and funds are separated by time, space and jurisdiction; DLT could provide a unified record which is quick and easy to verify, and encourage standardisation.
Distribution of data can enable every participant to refer to the same record a single version of the truth , and could have benefits in simplifying complex reconciliation processes.
But full data distribution, where all participants maintain their own identical copies of the same ledger, is unlikely to be desirable in many financial services applications, given the obvious data privacy and security challenges this presents. In domestic financial services, where trusted intermediaries often already exist, much of the potential benefit of DLT could come from the use of cryptography and the automation of smart contracts.
Many of the DLT platforms being developed for financial services therefore limit the amount of decentralisation and distribution, leading to platforms that are relatively centralised, but which still benefit from automation and the use of cryptography. Of course, technology alone DLT or otherwise will not automatically remove all the existing frictions in any process; many of these frictions will go beyond a question of technology.
So, do all of these features need to come as a package? But if you want the automation benefits of smart contracts, do you really need to decentralise control, or distribute data, at all? Why not just deploy smart contract functionality on a centralised ledger? Where the features of decentralisation and distribution are not needed, a natural avenue for future developments may be centralised systems ie systems that are controlled and governed by a single entity , which make use of smart contract functionality, or the immutability features of cryptography, while removing the need for decentralisation or distribution.
Alternatively, finding scenarios where the decentralisation or distribution features are truly beneficial will be key to whether the technology will eventually live up to some of its original, more transformative , potential. Otherwise it risks remaining as a solution in search of a problem. Your email address will not be published. This site uses Akismet to reduce spam. Learn how your comment data is processed. Search for:. Simon Scorer June 19th, Unpicking the components of blockchain and their possible applications 0 comments 1 shares Estimated reading time: 5 minutes.
Most DLT platforms generally include some degree of four common features : Decentralisation of control — who is directly involved in the process of maintaining and updating the ledger? In some systems this includes anyone, with all participants free to play an equal part in validating transactions and maintaining a ledger. But the distinction is also more nuanced than just permissioned vs permissionless systems. There are some significant variations among permissioned systems — some allow all verified participants to participate equally, while others may include a specific subset of participants who have the right and responsibility to perform specific processes — eg validating transactions, or ordering blocks.
In some cases certain key functions may even be performed under the control of a single, central entity. Distribution of data — how is data shared and accessed? The original platforms involved copies of an identical ledger being stored by every participant. Whereas, in the interests of privacy, many DLT platforms being developed for financial services will involve each participant only storing data relating to their own transactions, meaning that no-one has a complete view of all transaction details.
The use of cryptography — including public-key cryptography for the signing of transactions to verify that someone submitting a transaction is entitled to do so. A range of cryptographic techniques are also sometimes used in consensus processes, for the chaining of blocks, and to hide data that needs to be kept private. Figure 1. Potential uses, benefits and challenges of blockchain features What are the potential applications of DLT?
Uncoupling the features of DLT So, do all of these features need to come as a package? The post gives the views of its author, not necessarily those of the Bank of England or its policy committees, nor the position of LSE Business Review or the London School of Economics. Print Friendly. About the author Simon Scorer. Leave a Reply Cancel reply Your email address will not be published. Related Posts LSE alumni. Apps like Tinder commodify the intangible November 1st, 1.
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The Future Of Blockchain In Healthcare
For supply-chain organisations launching new blockchain projects, one of the most fraught considerations typically is whether to use a public or private ledger, and with what permission models. In and , the World Economic Forum dove deeply into the evolving discussion on whether public or private blockchains are typically best suited for the supply chain industry. Key findings of this body of research include:. Being aware of the pros and cons of blockchain and understanding where its features really help to solve a problem will help to prevent the new technology from becoming merely an expensive version of a centralised database. These seven questions are typically important in deciding which blockchain structure to use for a particular project.
Properties of Blockchain
By Estevao Costa - October 19, Commonly associated with cryptocurrencies, numerous industries are starting to move their payments and transaction needs to the blockchain. Blockchain is so versatile that besides recording financial transactions, it can store medical records, conclude binding agreements, track the flow of goods, store personal credit records, track the provenance of artwork, and even verify payments through a supply chain Source: Appinventiv. Blockchain started as the technology behind Bitcoin and has since grown into a promising mitigation technology for cybersecurity. Blockchain is a data structure, or distributed ledger technology DLT , that records transactions between multiple computers, ensuring more security, transparency, and decentralization for user and company operations Source: Hackernoon. The blocks of data are interconnected, forming a chain of records controlled by no single authority and open to any and every member of the blockchain. Thus, the chances of fraudulent activity or duplication of transactions are eliminated without the need of a third party. The blockchain secures each transaction with a digital signature that proves its authenticity. Any industry can use blockchain. This is because any digital asset or transaction can be inserted into the blockchain.
Implementation of Blockchain
Lesson 2 of 25 By Rahul Venugopal. But did you know almost all cryptocurrencies were born from the same concept? Nearly all cryptocurrencies are based on blockchain technology. Also referred to as the shared ledger, given its distributed nature, blockchain is considered one of the most secure digital technologies.
THE IMPORTANCE OF BLOCKCHAIN
This article belongs to the Glossary of decentralised technosocial systems , a special section of Internet Policy Review. Blockchain-based technologies can be understood as a distributed network of computers, ideally organised in a decentralised way, mutually agreeing on a common state while tolerating failures incl. In recent years, blockchain -based technologies have attracted the interest of a wide variety of actors and stimulated a large amount of academic research. The topic is increasingly part of academic and public debates. Unfortunately, there is neither a formal definition nor a common understanding of what blockchain-based technologies means, that is, what properties and technical features the term implies. Therefore, a good understanding of the term blockchain is needed to design, develop, and manage such technologies effectively, especially also for researchers and society concerned with the intention to use and their actual usage.
Blockchain Technology: An introduction
Ashutosh Kumar May 10, 0. Blockchain, at its most basic level, is a way to store data. Data has been and can be stored in many ways, starting from as simple as writing it in a book to getting a little more modern and technical with storing data in file systems that then kind of went to storing data in databases. I mean, the databases came within multiple types like relational non-relational, etc and then blockchain is another way to store data, which has some very nice properties. So, first property is that it guarantees immutability. What that means is that if you have stored data on the blockchain it is guaranteed that data cannot be changed later. This is very important when you want to trust something or when you want to make something more trustable.
The ICT research on the innovative technology of blockchain, about which we have already discussed in this article , is now experiencing its best period thanks to bitcoins and more. Nevertheless, there is still a lot of general confusion about the importance of blockchain and net neutrality, and the situation is complicated by the existence of words such as c ryptocurrencies, bitcoins, smart contracts and so on. In fact, the digital revolution of blockchain is only at the beginning and has many applications as well as many potentials yet to be explored. For this reason, we decided to write an article that simply explains how blockchain represents a safe and reliable system and illustrates why, among the new technologies, it offers promising opportunities that bring benefits to different types of business.
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin , for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party. One key difference between a typical database and a blockchain is how the data is structured.
In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity individual, organization, or group thereof to a distributed network. Decentralized networks strive to reduce the level of trust that participants must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network. Decentralization is not a new concept. When building a technology solution, three primary network architectures are typically considered: centralized, distributed, and decentralized. While blockchain technologies often make use of decentralized networks, a blockchain application itself cannot be categorized simply as being decentralized or not. Rather, decentralization is a sliding scale and should be applied to all aspects of a blockchain application. By decentralizing the management of and access to resources in an application, greater and fairer service can be achieved.
It is easy for newcomers to mix up cryptocurrencies and blockchain. Although the first blockchain Bitcoin is a cryptocurrency, it does not necessarily mean all blockchains are or will be necessarily used as payment networks. Blockchain technology has unique properties without which we would not be able to guarantee such a high level of transparency, decentralization and immutability. If you do not understand yet some of the concepts do not worry, we will explain them to you step by step.
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