What is blockchain? And how does it work? (infographic)


What’s all the fuss about? It’s a word that was rarely used, or even heard, in the supply chain not so long ago. But now it is very common to hear about blockchain. Additionally, it is often used in the context of being a necessary and integral part of any digital supply chain strategy.

Most companies do not yet have a blockchain strategy. More importantly, most people don’t even know what it is. How can you have a strategy for something if you don’t know what it is? So, as with everything, let’s start at the beginning.

What exactly is blockchain?

What is blockchain?

The term “blockchain” was first coined by Satoshi Nakamoto in 2008 as a name for the electronic ledger to be used to support the cryptocurrency Bitcoin. It is not known if Nakamoto is an individual or a group of people.

My favorite definition is the simplest:

It’s a digital ledger… period!

This framework should give you the most basic understanding you need. And given this simple definition, it is possible to understand that although it was originally associated with Bitcoin, it is actually applicable in any transaction-based environment. And that’s why it’s such a powerful technology.

That being said, there are many more detailed definitions of blockchain.

Here are a few:

  • “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions, but virtually anything of value.”
    Don & Alex Tapscott, Authors Blockchain Revolution (2016)
  • Simply put, it can be described as a pure append transaction book. This means that the ledger can be written with new information, but the previous information stored in blocks cannot be edited, adjusted or changed.

Blockchains are ledgers of transactions. … distributed, digital, consensus-driven, decentralized

Source: https://www.forbes.com/sites/forbesagencycouncil/2018/04/05/what-is-blockchain-and-what-can-businesses-benefit-from-it/#573e4fe9675f

  • A blockchain is a growing list of records, called blocks, that are linked using cryptography. It is an open, distributed ledger that can efficiently and traceably and permanently record transactions between two parties. It is a decentralized, distributed, and public digital ledger used to record transactions across many computers, so the record cannot be changed retrospectively without changing all subsequent blocks and the consensus of the network.

(Source: Wikipedia https://en.wikipedia.org/wiki/Blockchain

  • To start, here is the simplest explanation with no metaphors or hyperbole. In cryptocurrency language, a block is a record of new transactions (it could mean the location of the cryptocurrency, or medical data, or even voting records). Once each block is complete, it is added to the chain, creating a chain of blocks: a blockchain.

Source: https://lifehacker.com/what-is-blockchain-1822094625

  • First and foremost, it is a public electronic ledger that can be openly shared by disparate users, creating an immutable record of their transactions, each time-stamped and linked to the previous one. Each digital record or transaction in the thread is called a block (hence the name) and allows either an open or a controlled group of users to participate in the electronic ledger. Each block is associated with a specific participant.

Blockchain can only be updated by consensus between the participants of the system, and when new data is entered, it can never be deleted. It contains a true and verifiable record of every single transaction ever made in the system.

In layman’s terms, blockchain is an electronic ledger that can be written once and appended many.

Source: https://www.computerworld.com/article/3191077/security/what-is-blockchain-the-most-disruptive-tech-in-decades.html

Why is it called Blockchain?

As mentioned above, blockchain is an electronic transaction record. These records or transactions, each time-stamped and tied to a user, are called blocks. Each block is created chronologically and is linked to the previous block. All blocks together form a chain that shows the progress of transactions. Hence the term “blockchain”.

“Each digital record or transaction in the electronic ledger is called a block. When a block is complete, it creates a unique security code that connects it to the next block.” Source: https://www.computerworld.com/article/3191077/security/what-is-blockchain-the-most-disruptive -tech-in-decades.html

How does it work?

For example, the analogy I like best to describe how a blockchain works involves either a spreadsheet, contract, word document or powerpoint presentation. If you are currently working on one of these documents, only one person can work on a given document at a time. You can make changes, save them, and then forward them to someone else, who in turn can make and save their own changes. Only one person can see the latest version and make changes at a time.

In the environment of an open, distributed, shared ledger, everyone can see the latest version of the document at the same time. All changes can be seen by everyone at the same time. The latest revision of the document is visible to all and can be approved. And previous revisions are saved and linked to the latest version.

The infographics below provide a visual representation of the different steps involved in completing a transaction. Most importantly, the transaction doesn’t have to involve just cryptocurrency. The transaction can be the transfer of ANY type of information or document. This is the power of blockchain technology!

How Blockchain works -> Blockchain + Analytics: Enable Smart IOT” width=”500″ height=”340″ data-lazy-src=”https://i.pinimg.com/564x/63/ef/8c/63ef8cc22d0a2037ed2ef97f69f555ae.jpg”/><noscript><img decoding=
Blockchains are digitally recorded ledgers stored in packets called blocks, which are then distributed across a network of computers and servers.  As transactions are made, they are periodically consolidated into a new

Source: https://enterprise.microsoft.com/en-us/industries/banking-and-capital-markets/lining-up-around-the-block/

Why is it so important for companies and supply chains?

While blockchain is a technology that has been developed in recent years to support Bitcoin, it has been recognized that this technology is actually applicable across many different industries.

That’s because the attributes of this technology (a shared, distributed, and decentralized transaction-based ledger) are attractive for electronically recording and tracking all transaction-based activities in any industry in real-time.


Source: https://www.computerworld.com/article/3191077/security/what-is-blockchain-the-most-disruptive-tech-in-decades.html

In the supply chain, the need for electronic connectivity is central to any strategy now and in the future. Material suppliers, manufacturers, distributors, shippers, carriers, logistics companies and customers all want to know where goods are in the supply chain. This knowledge is needed to inform planning, decision making, financial analysis, customer commitments and more.

For example, “The world’s largest container shipping operator, Maersk, announced in March 2017 that it was using a blockchain-based ledger to manage and track the paper trail of tens of millions of shipping containers by digitizing the supply chain. And Maersk has now partnered with IBM on a new blockchain-based electronic shipping platform. It is expected to be operational later in 2018.”

Blockchain technology can facilitate this digital tracking and management of all aspects of any supply chain efficiently and effectively. There are many trends in technology investing, from cloud stocks to social media. Unsurprisingly, blockchain is one of these new growing sectors.

This is why blockchain is so important to understand!

Originally published September 4, 2018.

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