Everybody seems to talk about blockchains these days. Probably the most popular and known usage of them are Bitcoins. But what exactly is a blockchain? This article will try to explain this to you in a very simple and basic way!
To put it into a nutshell a blockchain is a chain of various data, whichs row is unchangeable.
The start of any blockchain is a block of data. This block gets a label/a name in order to be precisely classifiable. This label is also called “hash”. Every hash is precisely matched to the data block, that you added to the block. This process of adding a hash to a data block is done by a so called miner. What a miner exactly does will be explained later on.
As the second data block is added to the chain it receives a hash too. Moreover the name of the previous block is always mentioned in the metadata of each new block. This is how the row of them in the chain is predetermined.
As every block is labelled with its own hash as well as the hash of the previous blog there is a predetermined row of the blockchain. Once the block is written this row is locked and not possible to be reseted.
Mining is the execution of mathematical calculations using computer hardware to confirm transactions and thereby increase security. The miners simultaneously create blocks and insert data into a mathematical calculation. This process takes about 10 mins. Many Miners calculate the same block at the same time. If a Miner has finished the block, it will be sent to the remaining Miners. After checking and confirming the block, it gets sent back to the Miner, who sent it in the first place.
This gives each participant in the network the same information and prerequisites to participate in the system and to add new information. Therefore, the calculation of this block is done and the Miners can start with the next one.
Each participant in the network assumes that the longest chain around is the correct one because it has the most computational power flowing into it meaning that it is the most calculated on chain. Since the longest chain is always chosen, it is practically impossible for you to delete transfers that have been made from the log to for example enrich yourself.
When it comes to private blockchains, mutual trust can be expected as the participants are consciously selected (for example a company) and the blockchain is not accessible to the public online. Therefore, the opinion of the majority is assumed. The input data is passed through a selected “Leader”, which forwards the data to the other participants. They check the data and confirm it if correct by sending it back to the Leader.
The blockchain principle is multi deployable. It can be used in the food production, for example the individual production steps can be documented and as a consequence they are more transparent and traceable. This can ensure the greatest possible credibility of the supply and value chain. Of course, we must look at the pros and cons of such a technology. With blockchains we can:
- Protect large amounts of data with encryption and access management
- Collect and analyze data company-wide.
- Verify transactions by a global network.
- Make transactions irreversible.
- Avoid unnecessary costs for the IT infrastructure.
- Reduce costs for internal and external financial transactions, financial reporting and administration.
- Automatically detect vulnerabilities in supply chains, payments, and other business processes.
On the other side we must not forget that there are many problems too:
- The anonymity can be used by scammers.
- Hacks and manipulation can still occur.
- Transactions are irreversible: data is stored for ever in the blockchain.
- People can lose their jobs, e.g. if there is no need for intermediaries such as banks, lawyers etc.
- Limits on storage space.
- Who has the authorization?
- Difficult to integrate with the existing legacy of the company.
It may not be exactly clear where and how to use blockchains yet, but clearly this technology has a lot of potential to be used in loads of different contexts.
A text by Kathrin Briem, Lina Moharram, Michele Galjamov