Blockchains have been around for some time now, but have not been used to their full potential yet. Let’s take a look at the different types of blockchains, how they help enterprises, and their benefits and drawbacks.
The simple definition of a blockchain is, “A decentralised database containing sequential, cryptographically linked blocks of digitally signed asset transactions, governed by a consensus model.”
Blockchain technology is a peer-to-peer networked database governed by a set of rules. Blockchains represent a shift away from traditional trust agents and a move towards transparency. As technological building blocks, they permit applications from a broad band of industries to take advantage of sharing, tracking, and auditing digital assets.
Blockchain is a disruptive technology because of its ability to digitise, decentralise, secure and incentivize the validation of transactions. It has the potential to improve security, processes and systems in the financial and government services, as well as in every domain where accurate, tamper-proof record-keeping is essential.
A wide range of industries are evaluating this technology to determine what strategic differentiators could exist for their businesses if they leverage it. These include FinTech, healthcare, aviation, global logistics and shipping, transportation, music, manufacturing, security, media, identity, automotive, land use and government.
Industry adoption of blockchain platforms
As per Globenewswire, by 2024, the global blockchain market is expected to be worth over US$ 20 billion.
The use and adoption of blockchain technology is expanding at a rapid pace all over the world. According to Forbes, the Republic of Georgia plans to use blockchain technology to validate property-related government transactions. Countries like Sweden and the Honduras are also developing similar blockchain based systems, for enabling secured e-governance.
Gartner projects that blockchain’s business value will grow to US$ 176 billion by 2025.
Recently, the Dubai government announced that they would put all their land registry records on blockchain. Dubai Land Department (DLD), in fact, claims to be the first such government department anywhere in the world to adopt blockchain for such high-level tasks.
The European Union’s commercial research group, the European Innovation Council (EIC), has launched a programme to grant 2.7 billion euros to 1000 projects for developing systems and solutions using blockchain technology.
Key characteristics of blockchain technology
Every transaction that records and stores is not labelled as blockchain. The following are the main characteristics of blockchain.
- Digital: Digitises all the information, thus eliminating the need for manual documentation.
Distributed: Blockchain distributes control among all peers in the transaction chain, creating a shared infrastructure within an enterprise system. Participants independently validate information without a centralised authority. There is no single point of failure because of this. Even if one node fails, the remaining nodes continue to operate, ensuring no disruption.
- Immutable: All transactions in the blockchain are immutable. Encryption is done for every transaction covering time, date, participants and hash of the previous block.
- Chronology: Each block acts like a repository that stores information pertaining to a transaction and links to the previous block in the same transaction. These connected blocks form a chronological chain providing a trail of the underlying transaction.
- Consensus based: A transaction on blockchain is executed only if all the parties on the network unanimously approve it. Also, consensus based rules can be altered to suit various circumstances.
- Digital signature: Blockchain enables exchange of transactional values using unique digital signatures that rely on public keys. Public keys are decryption code known to everyone on the network. Private keys are codes known only to the owner to create proof of ownership. This is very critical in avoiding fraud in records management.
- Consistent: Blockchain data is complete, consistent, timely, accurate, and widely available.
- Persistence: Invalid transactions are not admitted. It is nearly impossible to delete or roll back transactions once they are included in the blockchain. Cryptographically, the blocks created are sealed in the chain. It is impossible to delete, edit or copy already created blocks and put them on the network. This ensures a high level of robustness and trust.
- Anonymity: Each user can interact with the blockchain with a generated address, which does not reveal the real identity of the user.
Security features of blockchain
Blockchain helps in recording the transactions of any digital assets exchanged between two unknown parties. The security aspects it supports are critical in ensuring transparency, confidentiality, and protection against fraud. The following are the high-level security features of the blockchain.
Ledger: Ledger records every transaction in the blockchain. It is a chain of blocks, and information in the block is immutable. The distribution of ledger is done for all the participating nodes.
Chain of blocks: Blockchain is a chain of blocks. Each block has the hash value of the previous block and this forms a chain. Correction to data in a block (say n) will change the hash value and will not validate the hash stored in the next block (n+1). This is a chain reaction that affects the overall chain. Therefore, this increases the protection of sensitive data or information.
Confidentiality: Blockchain provides confidentiality by enabling users of a ledger to see authorised transactions only.
Transparency: Blockchain shares the ledger with all nodes and uses consensus algorithms to reach a consensus among them. Consensus algorithms also ensure the ordering and execution of transactions.
Cryptology: Cryptology enables secure transactions and makes blockchain immutable by using hash based algorithms, which produce a fixed hash based on the content of the block.
Smart contracts: Smart contract is a computer code running on top of a blockchain. It contains a set of rules under which the parties agree to interact with each other. If the predefined rules are fulfilled, then the agreement is automatically executed. No contract will execute without the network consensus.
Blockchain reference architecture
Figure 1 shows the logical application architecture of a blockchain system with its key components and layers. While there exist many standard logical architectures for the blockchain, the detailed blockchain logical reference architecture shown here is based on my practical experience across various domains and technologies.
The various layers for an enterprise application are classified as:
- Access layer
- Channel layer
- Customer experience layer
- Consumer layer
- Business and information services layer
- Information management and analytics service layer
- Blockchain services layer
- Enterprise integration layer
- Enterprise systems layer
- Distributed ledger stacks
- Security, and identity and access management layer
- Application and infrastructure management
Access layer: Various stakeholders, both internal and external, are part of this layer. They are the primary users of the systems.
Channel layer: Stakeholders use channels to interact with enterprises. They engage with various departments or business units of the enterprise over multiple channels, both physical and digital.
Customer experience layer: This layer is a collection of presentation components and services. It also constitutes the critical systems that are in use by enterprises and business units to engage stakeholders.
Consumer layer: The consumer layer is a gateway for channels and aggregates functionalities through composition and orchestration, mediation, and routing.
Its key capabilities are:
API gateway: A single point of entry for consumers to access back-end services. The service composition and orchestration is based on customer journey and context. This capability is provided by API management platforms.
State management: Manages state and transition. Control logic is decoupled from the user interface and managed at the consumer end.
Business and information services layer: This layer is designed using ‘smart architecture’ principles, which provide cross-channel capabilities.
Information management and analytics services layer: This layer focuses on data ingestion, processing, complex event processing and real-time analytics and insights. A basic service system provides fundamental data services, which include data access, data processing, data fusion, data storage, identity resolution, geographic information service, user management, and inventory management.
Blockchain services layer: This layer acts as a gateway for reaching out to the blockchain infrastructure. It consists of various services related to identity management, key management, cryptography, machine learning (ML) and business intelligence (BI). Identity, key, and cryptographic services are critical for data integrity. BI and ML are used for analysis and reporting purposes.
Enterprise integration layer: This layer is a key enabler as it provides mediation, transformation, protocol and routing capabilities, and acts as a gateway to integrate with core enterprise systems. It also provides aggregation and broker communications. The enterprise integration and presentation layers are responsible for the integration of the blockchain infrastructure with the enterprise application stack.
Enterprise systems layer: The enterprise systems layer represents a collection of enterprise back office core systems and applications that house business data.
Distributed ledger stack: This layer consists of the core distributed ledger technology stack. Blockchain building, transaction execution and consensus happen in this layer. The components in this stack might vary with the distributed ledger product chosen. However, the common sub-components will be consensus algorithms, data storage, transactions management and other relevant services.
Security identity and access management: This meso-layer handles single sign-on, authentication, encryption, and authorisation capabilities.
IT application and infrastructure management: This meso-layer illustrates the advantages of Infrastructure-as-a-Service and Platform-as-a-Service, which require large computing capabilities.
|Access||Open read/write||Permissioned read and/or write|
|Security||Proof of work Proof of stake Other consensus mechanisms||Pre-approved participants|
|Asset||Native asset||Any asset|
|Run||Anyone can run BTC/LTC full node||Anyone can’t run a full node|
|Transaction||Anyone can make transactions||Anyone can’t make transactions|
|Audit||Anyone can review/audit the blockchain||Anyone can’t review/audit the blockchain|
|Participants||Permissionless (Anonymous)||Permissioned (Identified, trusted)|
|Consensus||Proof of work, Proof of stake||Voting or multi-party consensus algorithm|
|Transaction approval frequency||Long (10 minutes or more)||Short (100x msec)|
Types of blockchains
Blockchains are classified as public, private or hybrid depending on the nature of the application. Public and private blockchains have many similarities as well as differences in their functionality.
Public blockchain: This blockchain is completely open to the public, which means anyone will be able to join the network as a participant. A public blockchain typically uses a mechanism to incentivize participating parties, which encourages a growing number of participants in the network. A public blockchain is open for everyone to read, send transactions and participate in the consensus process. The most prominent examples of public blockchain are Bitcoin and Ethereum.
A public blockchain is open source and no one is in charge. There is no access or rights management done for a public blockchain and anyone can be a part of the consensus process. Because of this, anyone at any given point of time can join or leave/read/write/audit the public blockchain ecosystem, and the network will still be trustless.
Private blockchain: Private blockchain is an absolute opposite of public blockchain. The access to a private blockchain is limited to the parties involved in the creation of that network, or those granted access to it by the parties who created it. The internal mechanics of a private blockchain can vary — from existing participants serving as administrators who decide on the inclusion of future entrants to simple observers. But the public cannot access the private blockchain.
In private blockchains, the owner of the blockchain is a single entity or an enterprise, which can override/delete commands on a blockchain if needed.
Hybrid/federated blockchain: This blockchain should be able to connect the public blockchain, which is open to every single person in the world, with a private blockchain, which runs in a fully permissioned environment, thus limiting the access to available information.
Conducting business over a decentralised hybrid blockchain reduces transaction costs, eliminates data redundancy, and speeds up transaction times.
Benefits and drawbacks of blockchain
- Transaction histories are becoming more transparent using blockchain technology
Blockchain is more secure than other record-keeping systems
- Elimination of error handling through real-time tracking of transactions with no double spending
- Improved traceability
- Trusted record-keeping
- Increased efficiency and speed, reduction of settlement time to mere seconds by removing intermediaries
- Reduction of cost and complexity; material cost reduction through the elimination of expensive proprietary infrastructure
- Full automation of transactional processes — from payment through settlement
Blockchain is not recommended for:
- High performance (millisecond) transactions
- Small organisations (no business network)
- Database replacement
- A messaging solution
- Transaction processing replacement
Table 2 lists the features of various open source blockchain products with respect to critical blockchain characteristics.
|Characteristic||Open source product||Features|
|Public blockchain||Ethereum, Ripple, Litecoin, etc||Permissionless blockchain; participants are anonymous; requires mining|
|Private blockchain||Hyperledger projects, Exonum, OpenChain, MultiChain||Permissioned blockchain; identity of the participants is known before; no need for mining|
|Federated blockchain (Consortium)||R3, EWF, etc||
Group of companies or individuals coming together to make decisions for the best benefit of the whole network; such groups are also called consortiums or a federated blockchain
|Smart contracts in general programming languages||Hyperledger, Ethereum||Ethereum does not directly support Java; it does so with the help of a Web3j framework|
|No mining and native cryptocurrency||Hyperledger, Corda, Openchain||
Typically, public blockchains require mining (as part of proof of work) to add a block to the chain; miners are rewarded using native cryptocurrency
|Pluggable consensus algorithms||Hyperledger, Corda, Openchain||Support for pluggable consensus used for different applications|
|Pluggable ordering service||Hyperledger||Support for pluggable ordering service used for different applications.|
|Pluggable membership service||Hyperledger||Support for pluggable membership used for onboarding new users onto the network|
Summing up, blockchain provides better security while carrying out transactions of any value. This unique and universal technology helps to streamline and automate nearly all customer services and legal contracts, while increasing the transparency and effectiveness of enterprises. However, a lot still needs to be done to apply blockchain technology across various business units.
Disclaimer: The views expressed in this article are that of the author and his employer does not subscribe to the substance, veracity or truthfulness of the said opinion.