Furthermore, Bitcoin and cryptocurrencies are also known as “disintermediated” assets, meaning that transactions are enabled without the need for or dependence on third parties and intermediaries, such as banks. Since there are no intermediaries that need to be trusted to carry out a transaction, the Bitcoin blockchain as well as any other blockchain is said to be trustless.
The transaction carried out on the blockchain, however, must be validated, which means that it must be ensured that the value has not already been spent once, and must be registered in the system. The type of validation mechanism – or “consensus mechanism” as it is called in the blockchain community – used on the Bitcoin Blockchain is called Proof-of-Work (PoW). The first reusable Proof-of-Work system (RPoW) was developed by Hal Finney in 2004, the same person who was involved in the first Bitcoin transaction by Satoshi Nakamoto.
Proof-of-work is not the only existing type of consensus mechanism, though. Other blockchains use different consensus mechanisms such as Proof-of-Stake (PoS), Proof of Coverage, Proof of Activity, Proof of Burn, Proof of Capacity, Proof of Elapsed Time, or Proof of Authority. The main difference between these validation methods is the scale and speed at which transactions can be executed.
Since the inception of the Bitcoin blockchain, many different types of blockchains have developed. The Bitcoin blockchain is public, open, permissionless, and decentralized. However, there are also blockchains on the other end of the spectrum that are private, closed, permissioned, and centralized. Best known for this type of blockchain is IBM’s Hyperledger.
Types of Blockchains
1. Public or Private
When we talk about public or private blockchain, it’s really about who can write data to that blockchain.
- Public: anyone or a very large audience can create a new record.
- Private: only a small audience (selected stakeholders) can create new records.
2. Open or Closed
When we talk about closed and open blockchains, it’s really about who can read data from that blockchain.
- Open: Anyone or an extremely large audience can consume or read the ledger data.
- Closed: solutions or platforms only allow very small populations or groups to use that ledger data.
3. Permissioned or Permissionless
When we talk about permissionless and permissioned blockchains, we differentiate whether approval is required to join the network and view transactions (activities) on the network or not, i.e. degree of transparency of the network.
- Permissionless: Does not require user approval to use the network, i.e. generally public blockchains. All data is shown and shared with everyone, all the time.
- Permissioned: Requires user approval to use the network, i.e. private blockchains generally used for enterprise purposes. Data is not shown or shared with anyone at any time.
IBM’s Hyperledger is a ready-to-use out of the box solution for businesses who wish to have all the perks and benefits of a blockchain without the additional operational hassle of development and technical maintenance. This type of business solution is now commonly known in the industry as Blockchain-as-a-Service (BaaS).
There are numerous interesting blockchain use cases for enterprises. Among the most prominent are:
- the automation of transactions as well as manual and time-consuming processes like the clearing of securities or the settlement and payment of insurance claims,
- linking together broader elements of an organization such as joining the back-office with the rest of the organization via real-time reporting for action, and
- the management of assets in three specific ways: tracking, tracing, and provenance.
Service providers such as IBM, AWS, Google, and Microsoft have therefore integrated blockchain into their range of cloud-based products and services. Businesses can now capitalize on the blockchain while letting the service provider manage tasks and activities related to the underlying system’s infrastructure.
Instead of setting up, managing the nodes, and maintaining the back-end operations of the blockchain infrastructure, businesses delegate this responsibility to the service provider for a fee. In return, they get access to a blockchain infrastructure ready to deploy and integrate into their processes and value chain. Business can develop their own blockchain applications without writing the source code from scratch.
BaaS follows the same logic as any other cloud-based as-a-Service solution and thus offers the same benefits:
- Fast implementation: Cloud-based solutions require short integration times as they are immediately ready for use.
- Scalability: Easily and quickly scale up or down cloud capacity according to operation and storage needs.
- Cost Savings: The subscription-based model allows to plan costs as well as avoid or reduce licensing fees as well as administration and infrastructure costs
- Low Maintenance: The software provider takes care of software updates, regular upgrades, security patches, and new features.
- Anytime/anywhere productivity: Users can work with SaaS apps on any device with a browser and an internet connection.
- Security: Sensitive or critical information is kept safe from cyber-attacks, insider threats, and accidental exposure.
- Customer Support: Dedicated customer support from the provider
In contrast to the Bitcoin blockchain, enterprise solutions are centralized and permissioned which means that they are administered by a central authority, which also holds the power to alter past transactions if necessary and allow or restrict access to the network.
Benefits of running a blockchain in your organization
Since the distributed nature of the blockchain allows nodes to interact with each other, its primary role is to serve as a uniting layer between points of the network and thus allow greater connectivity among areas that previously did not exist. This not only enables information to be accessed and move more easily between points of the network but also creates momentum for further growth of the network. As a result, data silos collapse, and otherwise compartmentalized information now becomes distributed. This leads to a new degree of transparency between stakeholders in an organization, where rigidly kept data can now be easily used for analysis or any business-related tasks.
Since the blockchain is a distributed peer-to-peer network and an asset-exchange mechanism, there are two major fields of application for blockchain: asset management, visibility, and data protection. Assets can be defined as digital native assets, such as invoice numbers, IT-service tickets, or the information that describes the state of a physical asset.
Transactions can be automated with “smart contracts,” which are computerized transaction protocols holding contractual conditions encoded into their algorithm. Once the pre-specified conditions are met, smart contracts automatically trigger transactions or processes without human intervention or reliance on third parties to verify that terms of a contract have been met.
Smart contracts thus allow increased efficiency and speed by automating time-consuming, manual, and repetitive tasks and processes prone to human error. As a result, blockchain allows organizations to cut costs by streamlining processes.
If you have any questions on the blockchain or would like to know how your organization can benefit from the technology, please contact Adrian Kisliuk at Detecon.