Blockchain Simplified
Blockchain is on its way to become the building block of the technology world. Let's understand how it works! ReadOn.
These days, it’s a constant siren. Blockchain, Blockchain, Blockchain. It’s in the news and in tweets. It’s what they are calling the next big thing.
Blockchain, we’ve been told by experts and the media, will change the world. Its applications will be far reaching, in the domains of healthcare, cyber security, governance, media, logistics, hospitality, education, law, energy, smart cities, etc. Basically, everything. It’s like that magic key that opens the door to new and exciting possibilities, the Alohmora of the real world.
But, what is so crazy, out-of-the-world about Blockchains?
Before we dig in, it’s best to know that even though we utter the terms Blockchain and Bitcoins (BTC) in the same breath, they’re not the same. Blockchain is the dad here, and Bitcoin is its protégé child. And today, we’ll talk about its other kids who are being gradually nurtured to take over the world.
Let’s step into La La Land for a second. In the street corner, Pratibha (our in-house baker) manufactures the tastiest biscuits for the whole town. People see the flourishing counter, but remain unaware of the long back-breaking hours of work around the oven.
Pratibha’s menu has 100 different types of biscuits. All manufactured by her. For these biscuits, she sources fresh ingredients from a 1,000 different suppliers. It’s a tiring job- managing, manufacturing, selling. And it’s never easy.
Here’s a typical process she follows day in and day out.
First, the contracts are signed and the purchase orders are sent out to the suppliers. Then, she tracks all her orders and coordinates the transportation. Sometimes, she needs to return the ingredients if they seem unfresh. The ingredients have to be fresh. That’s the secret to her success.
All of these frequent transactions are tiring and repetitive, and some even lead to disputes. To prove her statement, she needs to pull out different pieces of the transactions that she had recorded in a dozen different systems. All just to understand the exact chain of events and then compare it with the supplier's version of events.
The trouble doesn’t end here.
While baking, she needs to manage her inventory so that all ingredients are optimally used and waste is minimized. Pulling off this entire process, daily, is time consuming and exhausting for Pratibha. Transactions, disputes and biscuits escalate without a warning and put her under a lot of stress.
Then, one fine day, Pranav, her childhood buddy, suggested a solution that promised to do away with all her worries. It was as easy as baking, without the overhead stress.
Here’s a small snip of the new process Pratibha now follows every day.
Pratibha sources strawberries from Mohit. Her contract terms specify that the details of the strawberries, how and when they’re plucked, should all be mentioned on each batch. Her strawberries should be plucked exactly a day before they are shipped, only then, would the payment be approved.
To keep things in check, Pratibha and Mohit now use a digital dashboard to record and view all their transactions and interactions.
They draw a tiny block whenever they transact with each other in any manner. All details get noted in the block.
They keep adding to the blocks with every new development. And both of them see the exact same board. Every new block has the data of the old blocks as well, so that the system becomes robust! If a person were to maliciously change any information they would have to rewrite the past data as well, which the system won’t allow.
So, now when Pratibha places an order for strawberries, the order gets recorded in the board as a block. Mohit accepts the order and it gets recorded as the second block. When Mohit plucks strawberries from the farm to fulfill the order, it again gets recorded as the next block. Once it is shipped, one more block is added. And when the shipment is received and inspected by Pratibha (it is important to check if the strawberries are fresh), another block is added to the chain.
See, it’s now all hassle-free, right?
Both parties have the visibility of what’s going on when and how, and there is no scope of dispute between them. No calling back and forth. No delays. Every data related to the transaction is recorded chronologically in one place.
And that, my folks, is the beauty of Blockchain!
Now, Pratibha has also implemented a Smart Contract system (coding is her side gig and now that she has all that free time). A computer code just runs through the lines of Blockchain to check for her requirement of fresh strawberries. If it is satisfied, the payment based on the agreed price is made for the delivered quantity. Another block of payment is now added and the transaction is closed!
When Pratibha stocks the inventory in her warehouse, she knows exactly which batch was plucked when, and she only uses the most fresh ones.
So, coming out of our make-believe La La Land, do you think Blockchain eliminates the need for other systems? No. You still have to raise a purchase order, record invoices, do an inventory check. What Blockchain does is simplify the management and increase transparency among the concerned parties by bringing all bits and pieces of the story in one place (just like we do :P).
All the related parties can see the transactions so no one can get away with adding an incorrect piece of information. The system does not let anyone change the old blocks either, ensuring that the data is authentic and reliable.
If you look at it, Blockchain is just like a shared diary in which words cannot be erased. Once you understand this, you can use the concept in many different ways. You don’t have to be restricted only to Bitcoins.
“But yaar Bitcoins involve mining and stuff. You did not say anything like that.”
Here is how Bitcoin works. Every unit of Bitcoin has a trail behind it. Who held it first. Who transferred it to whom. Everything. And now that you understand Blockchain, you understand how that functions. But with so many transactions being made, who confirms what gets recorded in the Blockchain is correct? This is where Bitcoin mining steps into the picture. The process of Bitcoin mining is designed around verification of the trail of transactions. A transaction is confirmed only after this trail is verified.
Now, many people need to have access to the previous transactions to verify them. When most of the people agree on a particular chain of blocks (and thus, confirm the transaction to be authentic) they are rewarded with a tiny percentage of bitcoins, thus introducing more bitcoins in the world. However, this process slows down the system, limiting the number of transactions that can be made on any given day.
But, in private applications (like the one Pratibha implemented), only a handful people have access to the Blockchain. They can make rules around the transactions and their verifications. Anyone making false claims can be easily identified, deterring them from resorting to malicious practices. This eliminates the need of mining, making the process super agile.
Now, all of this sounds very fancy and dreamy. Has this been implemented anywhere, yet?
Yes! In fact, it has been implemented by Walmart in India in 2020. Walmart is running a pilot project using Blockchain technology among the shrimp farmers in Andhra Pradesh to ensure traceability.
Why? Every year, there are 600 million cases of diseases caused due to contaminated or unsafe food. Using the traditional method to trace the source can take up a few weeks. With Blockchain, it can be done within seconds, thus empowering the companies to act quicker when a contaminated food-source is identified. Ultimately, helping them save lives.
But, will leaving confidential data of suppliers on the Blockchain, not take away the competitive advantage of the company? Well, the company is not required to reveal everything. The rules of Blockchain for an application can be tweaked as per the agenda, between the stakeholders of the Blockchain.
“Ah! Interesting. So what’s the government doing about implementing this? This sure looks like the next big thing in tech!”
Yes, the government has realised the potential of Blockchain (finally!). It has launched a National Strategy on Blockchain, which we will be covering on Saturday.
Till then, unblock the gyaan chains on Blockchain and ReadOn!
By Aastha, Pratibha and Yavantika
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