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The Blockchain as a Driver of Decentralized Business Models

What is the blockchain anyway and how does the system work in practice?

Blockchain Easily Explained
15.09.2020
Blockchain
Digital Transformation

Cooperate more cheaply, quickly and securely through automation and the inclusion of multiple parties. This is what the blockchain promises and is thus driving decentralized business and service models. But what is the blockchain anyway and how does the system on which it is based work in practice?

What Is Blockchain?

The blockchain is a form of decentralized peer-to-peer communication in which computers are connected to each other on an equal footing in a network. In a long chain of data blocks, this enables the very fast, decentralized storage and encryption of transaction data. The main advantage is that data records can be exchanged via the system within a very short time and in a way that can be verified by all participants. Processes are accelerated, and the costs of transactions are greatly reduced.


In an article in the weekly newspaper Die Zeit, the Italian philosophy professor Maurizio Ferraris explained the basic principle behind this in a vivid way using the ancient principle of the so-called notched stick: In this technique, two sticks are placed next to each other and carved crosswise, "with each notch corresponding to a debt. The creditor takes one stick, the debtor the other. The creditor will not be able to add a notch and the debtor will not be able to eliminate one, since comparing the two sticks would immediately reveal the forgery." (Source in German) In this respect, he said, the blockchain is nothing more than a global notch extended to countless computers.

Why the Name Blockchain?

As with the principle of the blockchain described above, in the blockchain (in German "Blockkette") the individual blocks are strung together one after the other and cryptographically linked. The resulting chain is immutable. Each block consists of certain information (header, ID, time value, hash value as well as the reference to the hash value of the preceding block). The hash value gives each block a kind of digital fingerprint that uniquely identifies it and also links it immutably to its neighboring blocks.

What Makes Blockchain So Secure?

The validation and storage of transaction data is decentralized across the network, so there is no dependence on just one server. The transaction data is distributed chronologically, transparently, tamper-proof and encrypted on each node of the network. Cryptographic encryption is used to link the data blocks together along a long chain. This encryption and chaining of information makes transactions immutable, traceable, and virtually tamper-proof. To stay with the Ferraris example: Instead of the notch, i.e., the bars, a large number of hard disks are used - the always possible comparison prevents the addition or deletion of so-called blocks (i.e., in the figurative sense, the notches).

What Are the Benefits of Blockchain Technology?

For perfect collaboration across the entire value chain, processes, data and information should always be available, trustworthy and traceable. The decentralization and transparency of blockchain technology therefore brings some advantages for new business models:

  • Time savings - Blockchain technology enables efficient and automated processes. For example, to speed up transactions, smart contracts can be stored in the blockchain and executed automatically.
  • Cost reduction - Direct peer-to-peer interaction minimizes transaction costs for participants within a blockchain.
    Security - Because information resides on a network of computers rather than a single server, the risk of failure or cyberattack is reduced.
  • Traceability - The immutable transaction data makes it possible to verify the authenticity of products or assets and prevent fraud. As a result, companies can not only detect vulnerabilities in branching supply chains, but also trace items back to their origin and producers.
  • Transparency - All transactions can be tracked by all participants, so all members of a closed network can be sure they are receiving accurate and timely data.

Use Cases for the Blockchain

The blockchain has its origins in the cryptocurrency Bitcoin, in which monetary values can be transferred without a central banking instance. However, the blockchain's ability to store transaction data quickly, cheaply and very securely, as described above, not only provides the basis for digital currencies, but also offers a wide range of possible applications for this technology in industry: whether in the energy industry, trade or the media sector - the blockchain has the potential to bring about change in many areas and offers completely new approaches to solutions for a wide range of tasks.


In the energy industry, for example, cost-intensive market communication standards such as supplier switching can be replaced in energy operations. In logistics, it is possible to track value flows of containers in cross-service provider processes or to trace quality in critical cold chain processes (track'n'trace). In the food trade, cross-market proofs of origin can be made possible in order to coordinate direct and indirect recall actions more quickly. The processes of business models in the media sector - for example, video on demand - are easier to implement. For example, small-scale billing for digital content such as music, video or articles can also be handled more easily.


In the energy industry, for example, cost-intensive market communication standards such as supplier switching can be replaced in energy operations. In logistics, it is possible to track value flows of containers in cross-service provider processes or to trace quality in critical cold chain processes (track'n'trace). In the food trade, cross-market proofs of origin can be made possible in order to coordinate direct and indirect recall actions more quickly. The processes of business models in the media sector - for example, video on demand - are easier to implement. For example, small-scale billing for digital content such as music, video or articles can also be handled more easily. 
 

All these examples are certainly only the tip of the iceberg and only give a first impression of the enormous potential that the blockchain holds. And this, although we are actually only talking about a "digital notch".

Blockchain & Smart Contracts

In der Blockchain-Technologie scheint nichts unmöglich – Schlagwörter wie Bitcoin, Ethereum und Smart Contracts schwirren aktuell durchs Netz. Wir stellen nun die Frage, was so smart an Verträgen auf Basis der Blockchain ist.

Written by

MA_Martin_Weitzel_Cloud
Martin Weitzel
Expert for innovation topics