Blockchain

The blocks hold sets of information, as they possess inherent storage capabilities.

Author: Kevin Henderson
Kevin Henderson
Kevin Henderson
Private Equity | Corporate Finance

Kevin is currently the Head of Execution and a Vice President at Ion Pacific, a merchant bank and asset manager based Hong Kong that invests in the technology sector globally. Prior to joining Ion Pacific, Kevin was a Vice President at Accordion Partners, a consulting firm that works with management teams at portfolio companies of leading private equity firms.

Previously, he was an Associate in the Power, Energy, and Infrastructure Investment Banking group at Lazard in New York where he completed numerous M&A transactions and advised corporate clients on a range of financial and strategic issues. Kevin began his career in corporate finance roles at Enbridge Inc. in Canada. During his time at Enbridge Kevin worked across the finance function gaining experience in treasury, corporate planning, and investor relations.

Kevin holds an MBA from Harvard Business School, a Bachelor of Commerce Degree from Queen's University and is a CFA Charterholder.

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Reviewed By: Adin Lykken
Adin Lykken
Adin Lykken
Consulting | Private Equity

Currently, Adin is an associate at Berkshire Partners, an $16B middle-market private equity fund. Prior to joining Berkshire Partners, Adin worked for just over three years at The Boston Consulting Group as an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate.

Adin graduated from Yale University, Magna Cum Claude, with a Bachelor of Arts Degree in Economics.

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Last Updated:October 26, 2023
In This Article

What Is a Blockchain?

Blockchain is a system for storing information. It, in essence, captures data in blocks. Thus, the term "Blockchain."

Blockchain database systems use a distributed network. It is distributed among the various nodes on a network of computers.

One of the fundamental applications other than information storage or tracking is crypto. The database offers a very high level of security without needing a third party.

Also, the structure of the encryption ensures its integrity. For example, such transactions are secured using cryptography, making them very secure and hard to edit. As a result, the system lends itself to a high level of data integrity.

As previously discussed, this system classifies and stores information in data groups. These are blocks.

The blocks hold sets of information, as they possess inherent storage capabilities. When these are filled with information, they become interconnected to form chains. These chains of data make up a database.

The bit of information added to these strings of data creates a compilation. These strings of data combine into chunks. The chain has a timeline of data in chronological order, using timestamps.

A typical application of its structure is the ledger for transactions. The distributed ledger technology is the reason behind the spike in demand for blockchain developers. It allows all the participants on a chain to view all the on-chain data with their access data transactions recorded. On the other hand, crypto uses this system to confirm transactions in the absence of regulatory institutions.

These represent a type of  Distributed Ledger Technology. This keeps the data:

  1. Programmable 
  2. Distributed 
  3. Secured 
  4. Immutable 

This raises controversies in their use of them. Structures develop immutability independently to overcome the lack of regulation, meaning they can't be modified. This makes the data irreversible.

Also, it creates visibility for anyone. They can trust the maintenance and integrity of these records. However, it can rely on online transactions with high electricity costs. 

Mechanism and Principles Of Blockchain

The principles behind this system can be illustrated as follows:

  1. The validated records cannot be manipulated. 
  2. There is validity to the records. 
  3. Each piece of information is individually encrypted. 
  4. It is programmable. The transactions are validated before they are recorded. 
  5. The participants maintain anonymity. 
  6. The information is distributed and has timestamps. The system is run by people who use it. 

How does a transaction get recorded in it?

  1. The operations rest in a shared ledger system. This permits thousands of servers to maintain one ledger. This ledger acts as a single secured and immutable reference.
  2. This system performs user transactions without the need for third-party financial intermediaries. Instead, these transactions require "wallets."
  3. The blockchain wallet is a program that allows one to invest in cryptocurrencies. These maintain a certain amount of security through cryptography techniques.
    Thus, they are protected by public and private keys and give complete control over transactions.
  4. These days, the wallet options allow for creating a unique domain name. Also, the creation of data generates a block for storage. This block denotes the transaction. This is broadcasted over peer-to-peer networks that continue the validation of the transactions.

Benefits Of Blockchain

The technology has many benefits, including:

  1. Immutability
    In conventional databases, the system administrator maintains and controls the data. This system is different. Once entered, it remains unaltered. 
  2. Transparency
    Centralized systems often lack transparency. In this case, it's designed and controlled by all participants. Hence, it's transparent and visible. 
  3. Higher Levels of Availability and Security 
    The system's decentralized nature allows availability and a high level of security. It will enable access to other peers on the network. Additionally, the design of cryptographic algorithms makes them difficult to break and manipulate.

The Algorithmic Structures: 

  1. The algorithms need a consensus to operate due to the need for more regulatory institutions. 
    Therefore, there is a consensus protocol that ensures security and checks users' verifications. This forms the essence of the network. 
  2. The consensus algorithm is a procedural aspect that connects all the peers. These form the blockchain network when they agree on the information in the current state of the distributed ledger. 
  3. They offer reliability and establish trust between peers over distributed computers. Each block added is the only version forming an agreement. This agreement is spread to all nodes of the computer network. 

Attributes and Features Of Blockchain

Its functional attributes make it the main application of cryptocurrency. The storage capacity is used in legal contracts and tracking product inventories. 

This is due to the various fundamental attributes of the system. These are listed below: 

  1. It is secure, transparent, and easily transferable with no transaction cost. 
  2. It has no biological value or existence, making it purely virtual. 
  3. Users or programmers predetermine the total quantity of the currency available. 

a) The Decentralization Feature

Decentralization allows the storage and protection of data across networks. This ensures if data entered on one node is affected, the others are notified.

This ensures security for data in the network and provides transparency.

In this case, the connection is distributed over the nodes that have the relevant blocks. The other nodes provide access and control if damage occurs on one node. 

b) The Transparency Feature 

The distributed network allows permission and access via all the system nodes. This access is by explorers and via individual nodes. 

These nodes carry the information and are updated with the addition of information. The data has been encrypted. This maintains anonymity and bolsters security, as decryption requires keys. 

c) The Question of Security 

Blocks are arranged in a line and act as a timeline. Unfortunately, this implies that the order has to be altered to change the stored information, which is difficult in this case. 

The presence of hash and time stamps ensures the data's integrity. The cost and speed required to hack its process make it futile. 

d) Usage and Applications

  1. Banking and Finance 
  2. Regulatory Compliance and Audit 
  3. Transfer Payments and Supply Chains

Comparative and Evaluative Examination Of Blockchain

Its applications, evolution, and traits can be used to explain key differences between blockchain and other systems. 

Here are several critical differences in detail:  

  1. The significant difference between a conventional database and a blockchain lies in the method of storing information. Unlike other systems, it holds "blocks."
  2. The sets of information in other databases are held in table-like structures. It prefers to store chunks of information in a chain-like linear format made up of blocks. These blocks are interdependent.
  3. Its purpose revolves around storing data without further edits or modifications.
  4. Evolution and Application:
    • The concept was first proposed as a research project in the 1990s. It further evolved into Bitcoin in the 2000s. 
    • Over time, it developed even further. These included multiple forms of cryptocurrencies, decentralized finance, non-fungible tokens, and smart contracts.

Bitcoins are a reflection of the use of blockchains. They have fundamental differences, and bitcoin is an application of such a system.

It records many data points. This ability can be used in the following ways: 

  1. For certain transactions. 
  2. Voting records and the count of electoral votes.
  3. We are tracking inventories for various products.
  4. Identification of states. This implies that conditions use it to ensure data encryption of states' integrity. 
  5. Deeds to homes.
  6. Healthcare and property records. 

It finds a wide application in banking, finance, and functional payments worldwide. However, Bitcoin has fundamental differences from the traditional banking sector. These differences include the following: 

  1. The operational hours. 
  2. The transactional costs and fees. 
  3. The speed of transactions.
  4. The operational laws and regulations for the consumer base. 

Blockchain Case Studies

Its use and applications have a lot of hype and misunderstanding. However, it offers a method of storing information in a secure, transparent, and accessible manner.

  1. Storage for government records: These records include business registrations, marriage certificates, health records, and many more. Examples: South Korea, Estonia, and Dubai. 
  2. The tracking of supply chains: The supply chain application is used to track each distribution step. Examples: Walmart, DeBeers. 
  3. The verification and tracking of ownership for various intellectual property rights. For instance, these include images and music. Kodak is developing one at the moment.  
  4. Digital authentication and verification systems. These have numerous aspects. Some of them are digital authentication and signature systems, distribution of local energy production, frictionless transfers, and charity transparency. 

These face several challenges in implementation: 

  1. It has massive power requirements. The system needs energy for various activities, such as operating, transacting, and sustaining. 
  2. The hype and myths, busted and unbusted, make it rough terrain. The uncertainty around it isn't restricted to the regulation or control aspects. 
  3. The cost of creating a system is relatively high. The complexity and intensity of maintenance for this system are immense. 

Industry forecasts are positive and negative. The pitfalls and optimistic predictions for the industry include the following: 

  1. Human Resource Management: blockchain could streamline the process of looking for suitable candidates and later training them. 
  2. Possible legal issues and tedious work are needed to maintain the system. 
  3. Protection from threats and crimes due to the system's design.

Companies using or planning to use it include:

  1. Walmart
  2. Pfizer
  3. AIG
  4. Siemens
  5. Unilever
  6. IBM

Smart contracts are a type of digital contract. These are created and executed on blockchains but, of course, have predetermined terms and conditions.

The purpose of intelligent contracts is to automate specific actions and notify participants when certain contractual obligations are completed. This ensures the participants can fully control and verify the contract's progress. This eliminates the need for an intermediary and saves time.

What are the Global Perspectives on Adopting Blockchain?

The industry perspectives on the adoption of it can be examined based on 2020 research data. It finds fundamental differences of opinion and few stark similarities.

This section is based on Deloitte's 2020 Global Blockchain Survey, hyperlinked above. 

It offers an innovative integrated solution with countless business uses.

The research included about a thousand and five hundred senior executives. Overall, they showed an acceptance and a fading lack of faith in adopting it. 

The fundamental insights from the research are that:

  1. Life post-COVID demands a digital revolution in various aspects of the economy. It can contribute to this revolution. This includes various aspects of education, digitization, and ecosystem management.  
  2. The centralized peer-to-peer network offers a communal solution to fundamental network governance issues. 
    Yet, its implementation rests on addressing various uncertainties found in pilot cases and improving the design of the test surveys to determine how efficient it would be in action.  
  3. Solving the Manufacturing and the Global chains paradox rests on adopting these in the supply chain ecosystem. 

Real-Life Insights on Applications

It has found a place in numerous aspects of the global economy. To name a few, these include commerce and finance, non-fungible token experiences, infrastructure and scaling, supply chains, and government and identification.

Ground X will join the Korean central bank's digital currency project. The site is a blockchain affiliate of Korea's technology giant, Kakao Corporation. They have developed "Klayten", which is a public system. Klayton is a partner of and compatible with ConsenSys.

It will begin operations with the Central Bank of Korea's (CBDC) architecture for the pilot program. It focuses on the development of the digital currency.

The Bank of Thailand is developing a retail digital currency project. The Bank of Thailand's venture is in the potential of the technology in developing a proof-of-concept prototype. This is for a Central Bank Digital Currency project and the "SCG and Digital Ventures" project.

Hong Kong is exploring new ways of conducting cross-border transactions. The project "Inthanon-Lion Rock" was launched following a memorandum of understanding between the Hong Kong Monetary Authority and the Bank of Thailand in May 2019.

This project focuses on applying a central bank digital currency for cross-border payments. The design and delivery focused on a decentralized system of networks of costs.

Palm NFT Studio creates a New NFT Ecosystem

"Palm" is a new non-fungible token ecosystem. This ecosystem is connected to Ethereum. Palm NFT studio is also working on research and innovation in NFT creation and exchange. 

It features low gas costs, fast transaction finality, and is 99% more energy efficient than the currently used proof of work system.

The Palm NFT Studio is working keenly on the development and commitment of resources toward NFT projects and platforms. These include experiments across various partners in the crypto market: 

  • Uniswap
  • $MEME
  • Nifty
  • Protocol Labs
  • MetaMask
  • Infura

Cervantes is Modernizing Agricultural Operations with the Use of Blockchain

The case study of Covantis shows how supply chain system modernization can be achieved through these solutions. 

Their products, Quorum, Code, and Diligence, enable Covantis to create a global network to efficiently execute agricultural trade operations in bulk. 

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Authored and Researched by Anannya Sahani

Reviewed and Edited by Sara De Meyer | LinkedIn

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