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It’s important for senior-level executives to understand the relationship between bitcoin and Blockchain and, more importantly, Blockchain’s potential to simplify the way we process transactions. Blockchain is the technology behind bitcoin, but it has many other uses. Blockchain is a distributed ledger technology that allows any participant in a given business network to see the system of record.
Chae An, VP and CTO Financial Services at IBM discussed some of the features of Blockchain to members of FEI’s Committee on Finance & IT, or CFIT:
- Blockchain is a shared ledger. All transactions are recorded across a network. Recorded transactions cannot be changed, but they can be appended. All transactions are shared among participants, and all participants have their own copy through replication. Transactions are permissioned, so that participants see only those transactions that they are authorized to see.
- Blockchain is a smart contract. Business rules implied by the contract are embedded in the Blockchain and executed with the transaction, encoded in programming language. Blockchain is legally valid as well as transaction valid.
- While the ledger is shared, participants require privacy. Transactions are authenticated, but identify is not linked to a given transaction. Transactions are secure, authenticated and verifiable. Cryptography is central to this process.
- Consensus is the process by which transactions are verified. All parties agree to a network verified transaction and who is authorized to append that transaction.
An described three important benefits of Blockchain:
- Blockchain saves time. Transaction time is reduced from days to near instantaneous.
- Blockchain removes costs, such as overhead and the cost of intermediaries.
- Blockchain reduces the risks of tampering, fraud and cyber crime.
An provided several use cases as examples of Blockchain, including a consensus use case on shared routing codes. When competitors or collaborators in a business network need to share reference data, such as bank routing codes, each member of the network maintains their own codes and forwards changes to a central authority for collection and distribution. With Blockchain, participants in the network maintain and update their own codes, and Blockchain creates a single view of the entire database. The resulting benefits include a consolidated and consistent dataset, which reduces errors, and near real-time visibility of reference data.