NEW YORK – While Fastmarkets begins a series on the use of blockchain in raw materials, we take a look at the basic concepts of a beginner's guide.
What is the blockchain?
Blockchain is a shared and immutable ledger that facilitates the process of recording transactions and monitoring resources. In other words, it is a record of offers and data that can be shared between members of a network and can not be changed.
Wait, so what's Bitcoin?
It's totally different Bitcoin is a digital currency, but uses blockchain technology as its transaction log.
All right. What do you mean to track a resource?
You can track virtually everything. A vehicle, a property, a ship, a banana, author rights, patents, production records, an aluminum ingot.
And the transactions?
You can record anything from moving money between a buyer and seller, sending goods from one place to another.
How does it work?
At its base, the blockchain must collect and sort the data in blocks and then chain the blocks. Once the data is in the chain, it is connected to the block before and after it, creating a chain that can not be changed, not even by a system administrator. The ledger is shared with the nodes on an authorized basis, so only approved parties can see it.
Nodes?
Think of the blockchain as your server computer. A node is basically the essential infrastructure. Blockchain data is stored in blocks on a node. Each node can send or receive data from another node, with data synchronized across the network while it is being moved. When every transaction occurs or a resource is tracked, the details – on which all the nodes must be agreed – are encoded in a block of digital data with a unique identification mark.
So everyone has to be on agreement?
Yes, the blockchain works on a consensus model. All network users related to a particular transaction or resource must agree that the information is valid. They do this through algorithms, which vary from network to network. This means that it is not necessary for a central authority to approve transactions, such as a government or a clearing house; it is decentralized, with checks coming from users' consent.
How do you prevent people from tampering with data?
Through the use of a hash. A hash is a unique string of characters for each block of data. The hash from one block is chained to the next and so on through the chain. Try to change the data in a block and change the hash, preventing it from making matches in the chain. This interruption automatically alerts everyone that the chain has been altered.
What is a smart contract?
An intelligent contract is a computer code that establishes the rules for each transaction, agreed by everyone. It is stored in the blockchain network, available to participants through their databases. If certain conditions are met, certain actions are activated. This helps create trust and is extremely efficient: smart contracts are self-executed, eliminating the need for manual documents and processes.
Why do we need it?
Many processes still rely on paper or e-mail – both can be changed, violated or fraud-free – to transfer data. It is also extremely time-consuming: the time between the transaction and the transaction can be long and manual processes slow things down, making it inefficient. Transparency is limited, information is often inconsistent, processes are slow and mistakes are made. Blockchain saves time, improves security, simplifies processes, improves verification, improves privacy and, once the initial cost of technology is exceeded, reduces costs by reducing intermediaries and self-control through authorized access, among other factors.
What are the problems?
The regulation has yet to recover. It's coming slowly, but it will take time. It is also complicated. Most people do not really understand blockchain, so there's a lot of educational work to do to get people to use it. There is also an associated cost for technology development for all the participants involved in a network, especially for smaller companies that rely on paper-intensive processes or within large companies such as banks or retailers who need to revise their systems.
Andrea Hotter
