What is Blockchain Technology? How It Works and Why It Matters

In today's digital era, businesses are constantly seeking innovative solutions to stay ahead of the curve. There emerged an innovative technology that has garnered significant attention and promises to revolutionize various spheres of business and it is blockchain.

But what is blockchain technology and how does it work? 

More importantly, why should businesses use blockchain technology? 

In this blog post, we'll explore the fundamentals of blockchain architecture, its inner workings, and why it's becoming a crucial element for B2B operations. 

What is blockchain technology and how does it work?

So we going to explain what is blockchain technology and how does it work? Blockchain was created with the idea of information protection in its heart. It represents a distributed virtual database where transaction data is recorded into a special digital register or ledger. 

Every record or so-called block is joined with the preceding one employing a cryptographic identifier. It creates a line of linked blocks where information is tightly interconnected by hash algorithms. Such an approach preserves the data as they are from the moment of recording as it is not possible to change one block of information without affecting the others in the chain.

The right to update the ledger with the new data is rendered to data-receiving units, usually, computers, gathered into a network, whether public or private. 

That is why the data hub is characterized as decentralized, not managed by one control unit. Transactions that are permanently recorded into a chain of blocks are unchangeable and pellucid, enabling the exchange of anything valuable, be it material items or intangible assets.

Types of Blockchain

What are the different types of blockchain? As blockchain technology continues to evolve, different models have emerged to cater to diverse needs and preferences. 

Each model offers distinct features and benefits suited for specific use cases, here are different blockchain example: 

Public Blockchain​

Public blockchains are permissionless networks that operate in a decentralized manner. No single entity controls the network, and anyone with internet access can participate. Participants remain pseudonymous, identified by cryptographic addresses. The consensus mechanism, often proof of work (PoW) or proof of stake (PoS), validates transactions and secures the network. Bitcoin and Ethereum are prominent examples of public blockchains.

Key Features:

• Decentralization: No central authority governs the network.
• Open Participation: Anyone can join and participate in the network.
• Transparency: All transactions are visible to all participants.
• Anonymity: Users' identities are pseudonymous.

Private Blockchain​ 

Private blockchains are permissioned networks where access and operations are controlled by a single organization or entity. These networks are often used by enterprises and government agencies that prioritize privacy, security, and centralized control over their blockchain activities. Participants must be authenticated and authorized to join the network, and data visibility and transaction permissions are restricted to authorized parties only.

Key Features:

• Centralized Control: Managed by a single entity or organization.
• Permissioned Access: Participants are authenticated and authorized.
• Data Privacy: Restricted visibility of data to authorized participants.
• Efficiency: Generally faster and more efficient due to centralized governance.

Consortium Blockchain

Consortium blockchains, also known as federated blockchains, are semi-decentralized networks governed by a consortium or a group of organizations. These networks combine the benefits of decentralization with a degree of centralized control. Consortium members jointly operate the blockchain, set the rules, validate transactions, and decide on governance protocols. This model is often adopted in industries where multiple entities collaborate while retaining some control over the network.

Key Features:

• Joint Governance: Operated and governed by a consortium of organizations.
• Shared Authority: Consortium members collectively manage the blockchain.
• Efficiency and Privacy: Higher efficiency compared to public blockchains, with controlled access and privacy features.

Hybrid Blockchain

Hybrid blockchains blend elements of both public and private blockchains to cater to diverse use cases. These networks offer selective transparency, where certain parts of the blockchain are private and accessible only to authorized participants, while other parts remain transparent and accessible to the public. Hybrid blockchains provide flexibility for organizations that require both the security of private blockchains and the transparency and auditability of public blockchains.

Key Features:

• Selective Transparency: Parts of the blockchain are public, while others are private.
• Flexibility: Tailored to specific needs, balancing privacy and transparency.
• Security and Auditability: Ensures data integrity and audit trails for regulatory compliance.

What are the features of blockchain technology?

Many companies now offer custom blockchain solutions for those who want to improve their business processes via blockchain and experience its unique features that quickly conquered many industries and spread over the boundaries of cryptocurrency handling:

Blockchain technology is characterized by several key features that distinguish it from traditional databases and systems, and this will give you and idea on how blockchain works. 

Here are the fundamental features of blockchain technology:

• Decentralization: Blockchain operates on a decentralized network of computers (nodes) where no single entity has control over the entire system. This decentralized nature enhances security and resilience by eliminating single points of failure.  An RPC node provider plays a crucial role in this ecosystem by enabling users and developers to interact with blockchain networks. By offering remote access to blockchain nodes, RPC node provider allows for efficient querying and transaction broadcasting without the need for individuals to run their own full nodes, further supporting decentralization.
• Transparency: Transactions recorded on a blockchain are visible to all participants in the network. This transparency is achieved through the distributed ledger, which allows anyone to view the entire history of transactions.
• Immutability: Once data is recorded on a blockchain, it cannot be altered or deleted. Each block contains a cryptographic hash of the previous block, creating a chain of blocks that are linked together. This feature ensures the integrity and trustworthiness of the data.
• Security: Blockchain uses advanced cryptographic techniques to secure transactions and control access to data. Consensus mechanisms, such as proof of work (PoW) or proof of stake (PoS), ensure that transactions are valid and secure before being added to the blockchain.
• Trustless Environment: Blockchain enables trustless transactions, meaning parties can transact directly with each other without needing to trust a third party or intermediary. The integrity of transactions is maintained through consensus mechanisms and cryptographic verification.
• Efficiency and Speed: Blockchain technology streamlines processes by automating and digitizing transactions, reducing the need for manual verification and reconciliation. This can lead to faster transaction times and improved efficiency compared to traditional systems.
• Smart Contracts: Blockchain platforms like Ethereum support smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. Smart contracts automatically enforce and execute agreements when predefined conditions are met, further automating processes.
• Permissioned Access (in private/enterprise blockchains): Private or enterprise blockchains restrict access to authorized participants only. This feature allows organizations to maintain control over their data and govern who can read, write, and validate transactions on the blockchain.
• Scalability: Blockchain technology is evolving to address scalability challenges, aiming to support a larger number of transactions per second (TPS) and handle increased network activity without compromising performance or decentralization.
• Integration with Existing Systems: Blockchain can integrate with existing IT systems and applications through APIs (Application Programming Interfaces) and other integration methods, enabling seamless adoption and interoperability.

These features collectively contribute to blockchain's potential to revolutionize various industries by providing secure, transparent, and efficient solutions for data management, transaction processing, and decentralized applications.

Why Is Blockchain Important?

 Blockchain is a groundbreaking technology because it helps reduce security risks, eliminate fraud, and promote transparency on a large scale.

A Deep Dive into Its Revolutionary Process

Challenges of Blockchain Technology

 Blockchain technology is challenging, though it is often hailed for its security and transparency. These hurdles must be addressed to realize its full potential in mainstream applications. Below are some of the significant obstacles blockchain faces today.

Blockchain networks, as they gain popularity and usage, encounter bottlenecks in processing transactions efficiently and cost-effectively. This issue is not just a technical one, but it has real-world implications. For instance, Bitcoin can handle only about 7 transactions per second (TPS), while Ethereum processes around 15 TPS. In contrast, Visa processes approximately 1,700 TPS on average, with the capability to handle up to 24,000 TPS. This disparity highlights the current limitations of blockchain technology in supporting high-throughput volumes, leading to network congestion and increased transaction fees. During peak periods, such as the 2017 crypto boom, Bitcoin transaction fees soared to over $55 per transaction, rendering it impractical for everyday use.

Benefits of Blockchain for B2B Customers

Understanding what is blockchain technology and how does it work is just the beginning. Let's delve into why it matters for B2B customers:

Enhancing Supply Chain Management

Blockchain's pellucidness and traceability are revolutionizing supply chains. Companies can track products from origin to destination, safeguarding authenticity and reducing swindle. For instance, IBM's Food Trust blockchain provides end-to-end traceability for food products, improving safety and minimizing waste. 

Streamlining Financial Transactions​ 

Blockchain enables faster, cheaper, and more secure financial operations. Smart contracts automatize and enforce agreements, decreasing the need for mediators and minimizing faults. According to a Deloitte study, 73% of financial executives believe that blockchain will create a significant competitive advantage in the financial industry.

Improving Data Security​ 

 With data breaches becoming increasingly common, blockchain offers a robust solution for data security. Its cryptographic nature ensures that data is tamper-proof and only accessible to authorized parties. In healthcare, for example, blockchain can secure patient records, providing controlled access to authorized personnel.

Facilitating Smart Contracts​ 

Smart contracts are self-performing contracts with conditions directly integrated into code. They automatically enforce and execute agreements, not requiring any mediators or manual authorization steps and ensuring compliance. This is particularly beneficial in industries like real estate, where smart contracts can automate operations with property.

 Enhancing Transparency and Accountability​

 Blockchain's transparency ensures that all parties have access to the same information, minimizing disputes and enhancing trust. This is especially valuable in industries like manufacturing, where transparency in the production process can ensure quality and compliance.

Real-World Examples of Blockchain in B2B​

Maersk and IBM's TradeLens​

Development and Implementation:

Maersk, a global leader in container shipping, and IBM, a pioneer in blockchain technology, collaborated to create TradeLens, a blockchain-based platform designed to enhance the efficiency and transparency of the shipping industry. The initiative started in 2018 to transform the complex logistics of global trade.

TradeLens leverages Hyperledger Fabric, an open-source blockchain framework, to provide a secure and immutable ledger of transactions. IBM uses blockchain development services for supply chain, including shippers, port operators, customs authorities, and freight forwarders. Each participant can access a single shared view of transactions, improving coordination and reducing errors.

Impact:

• Enhanced Transparency: TradeLens provides end-to-end visibility of shipments from the moment a container is packed until it reaches its final destination. This transparency helps reduce delays and disputes.
• Increased Efficiency: The platform automates and digitizes workflows, reducing the need for physical documents and manual processes. This streamlines operations and cuts down on administrative overhead.
• Improved Security: Blockchain's immutable nature ensures that transaction records cannot be altered, providing a reliable and secure audit trail. This enhances trust among all parties involved.
• Accelerated Shipping Process: TradeLens can significantly speed up the shipment process by eliminating the inefficiencies associated with paper-based processes, reducing the time goods spend in transit and at ports.

Walmart's Food Safety Solution

Development and Implementation:

One of the largest retail chains globally, Walmart adopted blockchain technology to address food safety and traceability issues. In collaboration with IBM, Walmart developed a food safety solution built on the IBM Food Trust blockchain.

Practically, the solution empowers Walmart to meticulously track the journey of food products from farm to store. Each product is endowed with a unique identifier, and its origin, processing, and distribution details are securely recorded on the blockchain. This wealth of information is readily accessible by simply scanning a product with a smartphone or any other device.

Impact:

1. With the adoption of blockchain, the time required to trace the origin of a food product has been dramatically reduced from days or weeks to mere seconds. This swift traceability is a game-changer in the face of a foodborne illness outbreak, enabling prompt identification and removal of contaminated products from the shelves.
2. Enhanced Food Safety: By ensuring that all parties involved in the supply chain adhere to strict standards and recording their compliance on the blockchain, Walmart can guarantee higher food safety and quality.
3. Increased Consumer Trust: Consumers gain confidence in the safety and quality of the products they purchase, knowing that the entire supply chain is transparent and accountable.
4. Operational Efficiency: Blockchain reduces the administrative burden of tracking and verifying the provenance of food products, leading to cost savings and improved efficiency.

J.P. Morgan's Quorum

Development and Implementation:

J.P. Morgan, a leading global financial services firm, developed Quorum, an enterprise-focused blockchain platform based on the Ethereum protocol. Quorum was designed to meet the specific needs of financial institutions by providing a permissioned blockchain network that enhances transaction speed, security, and privacy.

Quorum boasts unique enhancements to the Ethereum codebase, including private transactions, high throughput, and robust consensus mechanisms. It's a platform that supports both public and private smart contracts, offering a versatile range of financial applications.

Impact:

1. Enhanced Transaction Speed: Quorum's optimized consensus mechanisms significantly increase transaction throughput, enabling financial institutions to process transactions more quickly and efficiently.
2. Improved Security and Privacy: Quorum ensures that sensitive financial data remains confidential and secure by allowing private transactions and controlling access through permissions.
3. Regulatory Compliance: Quorum's design is a testament to its commitment to facilitating compliance with regulatory requirements. It does so by providing transparent and auditable transaction records, a particularly crucial feature for financial institutions operating in heavily regulated environments.
4. Interoperability and Innovation: Quorum supports the development of decentralized applications (DApps) and smart contracts, fostering innovation in financial services. Its compatibility with the Ethereum ecosystem enables interoperability with other blockchain solutions.

These three initiatives leverage blockchain technology to demonstrate how traditional industries can overcome longstanding inefficiencies and security challenges, paving the way for more transparent, efficient, and secure operations. 

Tips for B2B Customers Considering Blockchain

Implementing blockchain technology requires careful planning and consideration. Here are vital tips to help businesses effectively integrate blockchain solutions:

Not every business problem requires blockchain technology. Begin by assessing whether blockchain is appropriate for your specific use case. Blockchain is best suited for scenarios where transparency, immutability, and decentralization are critical. For example, supply chain management, where tracking the origin and journey of goods is crucial for transparency and trust among stakeholders, is a prime candidate for blockchain implementation.

Selecting the right blockchain platform is essential. Public blockchains, like Ethereum or Bitcoin, offer transparency and openness, making them suitable for applications where public verification is crucial, such as decentralized finance (DeFi). On the other hand, private or permissioned blockchains, such as Hyperledger Fabric or Quorum, provide more control over access and data privacy, making them ideal for enterprise applications where confidentiality is paramount, like in financial services or healthcare.

Ensure your chosen blockchain solution seamlessly integrates with existing systems and other blockchain networks. Interoperability facilitates data sharing and enhances the overall efficiency of your business operations. For instance, interoperable blockchain platforms allow different organizations within a supply chain to share data while maintaining privacy and integrity securely.

Due to their decentralized and immutable nature, blockchain networks are attractive targets for cyber threats. Invest in robust security measures, such as encryption, multi-factor authentication, and regular security audits, to protect your blockchain from malicious attacks. For example, in 2021, the Poly Network hack resulted in over $600 million worth of cryptocurrencies being stolen, highlighting the importance of stringent security protocols in blockchain networks.

Begin by implementing blockchain technology on a small scale to pilot its feasibility and demonstrate its benefits before scaling across your organization. Starting small lets you identify potential challenges early on, refine your blockchain strategy, and build stakeholder confidence. For instance, Walmart initially piloted its blockchain-based food traceability solution in collaboration with IBM to track the journey of mangoes and pork in China, proving its effectiveness before expanding to other products and regions.

By following these tips—assessing the need, choosing the suitable blockchain, focusing on interoperability, prioritizing security, and starting small—businesses can leverage blockchain technology strategically to solve complex problems, enhance operational efficiency, and drive innovation. 

Wrapping up 

Blockchain technology is transforming the way businesses operate, offering unparalleled transparency, security, and efficacy. By embracing the clue of what is blockchain technique and how it works, B2B customers can harness its potential to enhance their operations, build trust, and gain a competitive edge. As the technology continues to evolve, staying informed and proactive will be key to leveraging blockchain's full potential.

Incorporate blockchain into your business strategy today, and be part of the revolution that's shaping the future of commerce.