June 2018
Text by Bhushan Jahagirdar

Image: © Monsit Jangariyawong/123rf.com

Bhushan Jahagirdar is an associate technical writer at TIBCO Software India Pvt. Ltd in Pune, India. He holds a master degree (MCA) from Pune University. He has more than five years of experience in various roles such as development, testing, and technical writing.


bjahagir[at]tibco.com
www.tibco.com


 


 

Understanding blockchain technology

"Blockchain" has become a popular term in recent years, particularly in technical industries. But what is the concept behind it and what are its applications? And could it transform the way that information is developed and managed?

Blockchain is a concept that was invented by a mysterious person going by the pseudonym Satoshi Nakamoto. Even now, nobody really knows who this person is. The concept was first published in his whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” a decade ago, back in 2008.

A blockchain is a digitized, distributed “ledger” that contains unchangeable data in the form of packets or blocks. A ledger is a record of financial transactions, which is used to prepare financial statements for the organization. It includes information of revenues and expenses. Figure 1 shows an example of what a ledger looks like.

Date

Description

Debit

Credit

Balance

Jan. 10, 2018

Journal Page 1

$15,000

 

$15,000

Jan. 20, 2018

Journal Page 1

 

$2,000

$13,000

Feb. 1, 2018

Journal Page 1

$12,000

 

$25,000

Figure 1: A simple ledger or record of financial transactions


Note that for each deposit or withdrawal a new row is added as a complete, valid entry.

For any database that is accessed or influenced by more than one party, so-called "distributed ledgers" are used. A distributed ledger is a type of ledger that is synchronized across a network and is spread across multiple sites, institutions, or geographies.

To clarify the idea, suppose you have a bank account that can be accessed by your partner as well as by you, and both of you have a ledger. Whenever you – or your partner – make any transaction, corresponding entries are made in both ledgers. So the entries in both ledgers are synchronized at all times.

Now imagine if such synchronization is done without the control of a bank; say software is taking care of it with the help of nodes or computers with high configurations connected in the network.

This is the crux of the blockchain technology. The blockchain technology is based on the concept of a distributed ledger. Every participant is in synchronization and can see the same up-to-the-minute copy of the ledger at any given time.

Bitcoin and blockchain

"Bitcoin" and "blockchain" are the two terms that are often used interchangeably. In reality, bitcoin is an application while blockchain is the platform on which the bitcoin application runs. As an analogy, just as iTunes is an application on your iPhone running on the operating system iOS, bitcoin is the application that is running on the blockchain technology.

Bitcoin is a digital currency. It is also known as a cryptocurrency. An encryption mechanism is implemented to regulate the generation and distribution of bitcoins. There are some alternatives to bitcoin, often called altcoins, which also evolved using blockchain technology.

One of these alternative cryptocurrencies is Ethereum. It came into existence only in 2015 and is much faster than bitcoin. It has capability to perform operations in a few seconds as compared with a few minutes in bitcoin. Transaction units in ethereum are called ethers.

Ethereum is also known as programmable money, as it has a built-in programming language called Solidity. You can write smart contracts and decentralized apps (DApps) using Solidity (smart contracts are explained later in this article). DApps is a website with files and databases that are not stored on a centralized server. In this sense, bitcoin and ethereum are not competitors and help users to solve different types of problems.

Blockchain and supply chain management

Now, let’s look at a supply chain as an example to illustrate how blockchain technology works.

In a supply chain, the manufacturer, distributor, wholesaler, and retailer need to be connected to enable transactions between them. But if each of them has a separate system or database to keep track of stock items, their systems might not be in sync, not to mention the additional implementation costs that are incurred by each entity. Also, one of the entities could try to manipulate the database entries for their own benefit. Opting for one centralized database, on the other hand, might allow a smart hacker to get into the system or bring it down altogether.  

Now, suppose blockchain technology is implemented: Each entity can now see the exact same copy of the ledger with information regarding stock items. This mechanism is also more secure as it is very difficult for a hacker to bring down multiple copies of a database.            

If the retailer wants to make a payment to the wholesaler in the form of a bitcoin or any other cryptocurrency, the information about this transaction is stored in the form of a block. The retailer then broadcasts this block to other nodes in the network to verify the transaction. This also confirms the identity of the retailer, which is necessary because there is no bank involved in validating the transaction.

Other nodes in the network then validate the block. Once this is completed, the appropriate number of bitcoins or other cryptocurrency is added to the wallet of the wholesaler and a corresponding entry is added to the ledger. Other ledger copies are automatically updated so that each entity remains in synchronization. Figure 2 illustrates the process.

The overall validation process is not that simple in reality. Various algorithms are in place and many are evolving day by day.


Figure 2: A supply chain process using blockchain technology.

 

Blockchain types

The blockchain system can be broadly categorized into two groups: private blockchains and public blockchains.

  • Private blockchain – As the name suggests, a private blockchain is implemented where all of the participants know each other. This system is often used within a company that is spread across multiple locations or geographies. Transactions happen between trusted parties.
  • Public blockchain – This system is spread hypothetically without a fixed scope or boundary. In this system, you do not need anybody’s permission to add your data to the system.
  • Permissioned vs. permissionless blockchain systems – This determines who can validate transactions. In the case of permissioned blockchain, only one subset of users is authorized to validate any transaction, whereas, in the case of permissionless blockchain, anybody can join and validate the transaction.

Smart contracts

Just like bitcoins, smart contract is another application of blockchain technology. It is used for document validation and notarization. As the name suggests, smart contracts are contracts or agreements that are triggered automatically after certain criteria and specified conditions are fulfilled. These contracts are executed without human interference.

One of the application areas in which smart contracts can be used is renting a house, an apartment or a commercial office space. After all valid documents have been submitted by both the tenant and the house owner, the smart contract is triggered automatically. Money is transferred from the tenant’s cryptocurrency wallet to the owner’s cryptocurrency wallet. When the contract is finished, the security deposit can automatically be transferred from the owner’s wallet to the tenant’s wallet. This brings more transparency to the transaction, which is crucial in big monetary deals.   

Proof of existence

Proof of existence is an online service developed in 2003 by Manuel Araoz and Esteban Ordano. It verifies the existence of documents in the blockchain system based on the timestamp. This concept can be applied to prove ownership in a variety of applications such as legal documents, government documents, property-related documents or land records.

Blockchain in real estate

When buying a house, you usually need to deal with a property broker, a lawyer, and the government before you can close the deal. The overall process requires a huge pile of documents and lots of time, and involves hefty charges for the involved parties.

Now imagine if blockchain technology is in place. There are huge benefits:

  • Transparency in the transactions – Real estate is said to be one of the biggest sectors generating black money. Governments charge their taxes on the basis of the documented price, which might differ from the actual transaction price. Through blockchain and smart contracts, transactions will be "digital only" and the government has access to the actual transaction value.
  • Tamper-proof documents – As records in the blockchain technology are tamper-proof, property buyers are fully aware of the real owner of the land. It is very difficult to sell property based on fake documents. Governments obtain an exact idea of who is holding how much property. Recently, the government of India launched a pilot project implementing blockchain technology in a few Indian states such as Maharashtra, Andhra Pradesh, and Karnataka. This has helped the government to identify "Benami" properties – properties acquired keeping the owner’s identity hidden – and take action against it.
  • No intermediate parties – The need for a broker and a lawyer is eliminated, as documents can be validated automatically and notarized with the help of smart contracts. This can save huge amounts of money and time.
  • Trustworthy data updated in real time – If we can extend the capabilities of the blockchain technology, we can probably display the exact same copy of the property listing on different websites. Any change in one of the websites will lead to an automatic change of the respective property in all the websites where that property is listed.

Blockchain and health care

In our highly health-conscious society, people want their medical data to be stored in safe locations. After all, it is very important and very sensitive data. This thought came to the attention of some hackers, who executed ransomware attacks primarily targeted at medical systems. With blockchain technology, medical data is more secure, as it is replicated at multiple sites. In addition to the storage mechanism, various encryption algorithms are implemented to keep the blockchain safe. Blockchain can also improve the following areas of healthcare:

  • Claim processing – Claim processing is one of the most important steps after any medical treatment. As of now, it is still a time-consuming manual process. If there is a smart contract in place, this process can be made speedy and transparent.
  • Medical history management – Medical records become tamper-proof and secure. Your doctor has access to your data at any given time. Various documents can also be standardized so that they can be shared among various hospitals that you visit.

Blockchain and technical writing

Technical writers play a major role in explaining complex technologies to users in simple language. The blockchain technology has great benefits for technical writing:

  • Document safety: Documents can be stored on a distributed database as they are made more secure by applying cryptographic keys.
  • Intellectual property: In a private blockchain, document ownership is fully disclosed, leaving no room for ownership-related issues. However, if you are using a public blockchain, the content that you have published, for example on a website, receives a timestamp along with a hash key.  This makes it impossible for anybody else to publish the same content: In this case, your website can be regarded as an entry in the ledger, and as blockchain cannot contain duplicate keys, it becomes impossible to publish duplicate content.
  • Royalties: Suppose you are a freelance technical writer and the payment you receive is based on the number of copies sold. After implementing blockchain, you can earn your bitcoins for each copy. The publisher can’t cheat you as the transaction is automated and triggered by set conditions.

You can refer to resources or various guides such as the User’s Guide and Developer Guide on Bitcoin.org.

Conclusion

Blockchain really is a very great and groundbreaking innovation and has often been termed a "paradigm shift". It is a technology that is still evolving. We can all benefit from it as it matures and percolates into our daily lives.