Today, every organization is just about inundated with information, much of which is managed and exchanged digitally. This information is then stored in databases. These are systems in which data is digitally organized, linked to each other and stored on one (or more) server(s).
Since its inception in the 1960s, database systems have developed enormously, and the functionalities and use have also increased enormously. For example, relational databases (1980s) made it possible to control the quality and completeness of data in an efficient and flexible way. Today it is the most natural thing in the world to have all your data in the cloud , and there are already self-driving databases that, based on machine learning techniques, automate all kinds of routine management tasks, such as performing backups and updates. .
Despite the fact that in many cases a database offers an excellent solution for managing information, these sometimes also have enormous obstacles. The challenges facing many parties today require openness and cooperation. Confidence in the quality of the data and the ability to actually exchange data between different systems are of fundamental importance for this. Trust, or rather the lack of it, is perhaps the most important stumbling block in data sharing. However, actually being able to share data from one database to another is an enormous challenge that involves a lot of time, money and effort, but which organizations still struggle with every day.
Blockchain: a system for trust.
The advent of blockchain technology is facilitating a radical change in how data is organized and stored. And thus also how we have organized certain parts of our society, such as relying on banks to handle financial transactions. With the first application of blockchain technology (Bitcoin), it became possible to transfer value completely trusted and directly from person A to person B, without the need for an intermediary. How can and does that work?
A blockchain is basically a special kind of database, which is both distributed and decentralized. This means that the database is stored in different physical locations and is managed by different parties instead of by one central party. This results in all parties working together in one system and jointly conducting administration in one place. In this way, every party has the same copy of reality at all times.
The name ‘blockchain’ suggests how the information is stored, namely chronologically in ‘blocks’ that are ‘chained’ together by means of hashes , unique identification codes. Each block is provided with such a unique code, the unique code of the previous block, a timestamp, and the transaction information. However, a new block is only added to the chain when it meets the requirements of that specific blockchain solution. And when this transaction is added to the blockchain, it is ‘non-mutable’, in other words: can no longer be modified or deleted.
Blockchains come in different shapes and sizes
In general, a distinction is made between two types of blockchain solutions: public blockchains and private blockchains. However, it is good to realize that this is a spectrum on which many different types and sizes can be found. So there is not one, or one type, of blockchain. With a public blockchain, in principle, anyone with a computer and internet connection can participate anonymously. You will then receive a username on the platform, but it is unknown who the natural person is behind that username. This makes legal action extremely difficult or even impossible. To ensure that transactions are executed in a valid way and that every participant has exactly the same copy, (sometimes very energy-intensive ) consensus mechanisms are used, such as Proof-of Work or Proof-of-Stake .
While public blockchains are often ‘open’, private blockchains are intended for a closed group of users. In practice, these blockchains are often smaller, but that is not necessary. In theory, you could have every recognized global citizen participate in a private blockchain. This is because only identified and authorized users can participate in a private blockchain, while normally everyone can join anonymously with a public blockchain. Because the natural identity of participants is known, there is less or no need for complicated mechanisms to validate a transaction. This makes private blockchains scalable and applicable for all kinds of business applications. And this is also what we see in the market: by far the most of the blockchain applications used by organizations work with permissions and are on the spectrum with a private rather than a public blockchain.
Private blockchains optimize business processes
Private blockchains have a number of features that solve the shortcomings of traditional databases. Trust is inherent in the system due to the transparency, traceability, security and non-mutability of the stored information. Because of these properties, and because all users are known and validated, a private blockchain, in contrast to a public blockchain, is a very reliable technology for both internal business operations and external collaborations. All kinds of business processes can be organized and executed efficiently and effectively. In addition, private blockchains offer a technical possibility to link relatively easily with various databases to exchange information. By using smart contracts and smart rules , data can be retrieved from another database and automatically included in the correct format in your own system.
A blockchain is therefore a special kind of database of transactions, in which every participating party in the process has the same copy. Every step or action in a business process is a transaction that, after validation, is logged and replicated across all users involved. Because every party involved now works together in the same system, the process can be set up completely differently. For example, a producer and his supplier both now have real-time insights and can decide to create one invoice only once a month in which everything is already checked against each other.
The possibilities of private blockchains are extensively covered in our training courses . In this blog (Blockchain and Process Management) you can read more about how private blockchains can be applied in organizations.