Blockchain

Blockchain is essentially a database technology with attributes that, taken alone, are not unique to it, but which collectively produce a technological breakthrough in how digital information is stored, verified and exchanged.

When the technology hit the scene in 2009 with the release of its first application, the Bitcoin cryptocurrency, blockchain had a Wild West feel akin to the early days of PC hackers, making the technology seem risky and unproven for business use. That began to change about five years ago when a burgeoning open source community began developing complete enterprise platforms, including the programmable blockchain, Ethereum. Expectations for enterprise blockchain were sky-high to begin with, but the reality fell far short of the hype, and business blockchain projects were few and far between.

In the past two years, as household brands like IBM, Walmart and Visa have proudly touted successful blockchain deployments, blockchain is getting a second chance at relevance in the enterprise. IT heavyweights including Amazon Web Services (AWS), IBM, Oracle and SAP have gotten behind it in a big way. Is blockchain ready for success in the enterprise? "I would say we're still in the early stages," said Martha Bennett, vice president and principal analyst at Forrester Research. "I do have examples of where real processes are running in real operational environments and there is no fallback option." She named an interbank reconciliation application in Italy as an example. But caution is warranted. Using blockchain for business applications will not be easy. Its technical underpinnings and their practical implications are difficult to grasp. That's true even for tech-savvy business leaders with a working knowledge of, say, ERP or e-commerce. For starters, blockchain is laden with concepts like consensus algorithms, hashing, distributed ledgers and bitcoin mining. These obscure-sounding terms aren't just under-the-hood details that only techies need to understand. They are the very thing that determines whether blockchain is worth considering at all, which applications it's best suited for, and the cheapest, most effective ways to implement it.

The key is to have an accurate picture of what blockchain really does and doesn't do; the effects of its various deployment options, especially its network architectures; and where the heavy black lines are between blockchain and possibly better alternatives. That's the only way to get value from blockchain and avoid wasting money on spectacular failures.
This overview is a good start. Be sure to click on the links throughout the blockchain guide for details about blockchain technology and implementation.

How does blockchain work?

Most of blockchain's key attributes come from being a type of distributed ledger technology (DLT). Ledgers have been used for centuries to record financial transactions, in recent decades in digitized form in ERP and other business software. In contrast to those centralized approaches, DLTs distribute copies of the ledger to the nodes on a blockchain network, making each one responsible for recording new transactions and participating in a consensus mechanism to agree on updates to the ledger.
Blockchain's unique data format is another differentiator and what makes it a particular kind of DLT. Traditional databases store data in rows, columns and files, while blockchain stores it in blocks that are linked together and protected by cryptography. The data block and transaction-verification mechanisms make it nearly mathematically impossible to hack a blockchain to change data or disrupt transactions. There's no central authority for malicious actors to target, no one player who can take data private or change the rules without agreement, or whose failure can bring the whole network down. The multiple copies provide data redundancy and transparency.
That's how blockchain achieves what's known as immutability: The ledger is permanent and tamperproof and can therefore be trusted. Trust is another key attribute of most forms of blockchain. In human interaction, trust means you don't have to take extra steps to check if the information presented is true, such as asking an authority figure to validate it, or only interacting with like-minded people you believe to be trustworthy. Similarly, you can trust that the information in a blockchain is accurate - most of the time.
As with pretty much every major computer technology, the picture with blockchain is complicated. Blockchain isn't always uncrackable. Its security and privacy levels, not to mention usefulness, depend heavily on whether the blockchain runs on a public or private network. And widely available blockchain alternatives provide some of its benefits, such as data security and storage, with less technical risk and cost.

Why is blockchain important for business?

Investing in enterprise blockchain will likely become essential simply for competitive reasons. Just as corporations paid serious mind to breakthroughs like the PC revolution of the 70s and 80s and the mid-90s boom in the World Wide Web, knowing their competitors were taking advantage of these innovations, many experts believe blockchain will command the same attention. Indeed, FOMO -- fear of missing out -- is probably the biggest motivation behind the new wave of interest in blockchain business applications.
But as you'll learn in the sections below, herd mentality is not the only thing driving blockchain. The technology shows real potential today to reduce IT costs, expand B2B and B2C networks, enable new products and build wealth. Moreover, blockchain's business value is expected to increase as enterprise implementations proliferate and are refined.

How can blockchain benefit businesses?

Enterprise blockchain really comes into its own in processes that involve multiple parties, all of which need access to the same data, but each has slightly different or out-of-date information, "and an enormous amount of time is spent reconciling data," Bennett said.
Because blockchain removes middlemen and mostly automates processes that often take time and effort, it has the potential to save businesses IT and labor costs, speed up e-commerce and finance and enable new lines of business. It can also help businesses expand their customer bases, reach them more efficiently, and expand the universe of suppliers and partners.
Blockchain benefits primarily derive from the trust it fosters, its built-in privacy, security and data integrity and its transparency.
Trust makes it possible to do business with unknown parties, thereby expanding markets and potentially the demand for products and services, which in turn can boost profits.
Being able to trust the accuracy of the data and believe that the system itself is essentially impermeable, and that in most cases privacy is assured, can reduce fraud, eliminate data leaks and, like trust, bring in more customers and partners. It can also cut data management costs, boost data accuracy and facilitate auditing.
The transparency of blockchains has benefits in supply chain management, visibility and traceability. Blockchain is already making it easier and more affordable to extend supply chain transparency to the smallest suppliers, such as coffee growers, tuna fishing operations and miners, while shoring up trust in information about product provenance as the goods move through the supply chain to consumers.
Other blockchain benefits to enterprises include the following:

• Tokenization, which makes more asset classes tradeable online, from digital art to carbon credits to industrial machinery
• Innovation, when blockchain's special qualities are applied to old problems like verifying academic credentials
• Decentralization, which is helpful when businesses must interact as peers but no one wants responsibility for maintaining the system, as in supply chains and research communities.