The Blockchain technology was launched through the paper titled Bitcoin, in 2008, as an amalgamation of public key cryptography, cryptographic hash functions, and proof-of-work consensus protocol. Technically, Blockchain is a digital ledger of records that are gathered in clumps of data called blocks and these blocks are connected with other blocks, eventually forming a chain - a Blockchain.
The data stored inside the chain are distributed across networks, thus, accessible to all and not alterable by any entity. Blockchain specializes in delivering following functions:
- Authenticating and verifying the records: It provides an encrypted and fully secure environment by incorporating the functionality of immutable storage and digital signatures. It facilitates storing of different data types and creation of public-private key pairs.
- Management of Smart/ Crypto Assets: Blockchain helps in managing the transactions, exchanges, issuance, and escrow etc.
- Smart contracts: Blockchain helps in automating the work using smart contracts. Smart contracts are pre-defined computer code of agreement residing in the environment of a distributed database of the Blockchain network and it gets automatically triggered in case of occurrence of an event.
Development of a Blockchain Solution
The process involved in the development of an effective Blockchain solution is:
Identification of desirable use-case: First step is the identification of use-case which suits and caters to the need of business. In other words, identification of the problem and then its definition is required. It must be ensured that Blockchain plays a bigger role in solving the problem, as on several occasions, the concept of a single and centralized database is efficient enough to address the problem. It is also important to explore the risks involved in its implementation and the factors that will be impacted by it.
Some ideal Blockchain use-cases are:
- Banking sector: Blockchain in the banking industry can automate the tedious processes and at the same time increase the trust and transparency in its domain. The use-cases may include KYC, syndication of loans, a registry of assets, peer-to-peer payments, cross-border payments, and trade finance etc.
- Other financial sectors: Incorporation of Blockchain is a kind of a blessing in the financial industry. It addresses almost every issue and cut the time and effort involved in managing the business environment drastically. Few good use-cases in this field can be the asset-backed cryptocurrency, transaction gateway, depository receipts, corporate finance bookkeeping, settlement and clearance, fund portfolio management, securities trading, and settlement.
- Government sector: Blockchain technology has the capability to address a wide range of governmental related issues viz-a-viz use cases related to voting, authentication, and verification of data, public distribution, contract and identity management and Land Registry etc.
- Insurance sector: Insurance industry sees the revolutionary change in its archaic working model with the incorporation of Blockchain technology. The feature of the smart-contract has further expedited the tardy claim settlement process. Its use cases may include agent details Registry, verified and authentic policy records, fraud Repository, Risk Management, Reinsurance etc.
Selection of a suitable Consensus Mechanism: As per the selected use case the consensus mechanism must be chosen. Initially, Blockchain, on which bitcoin is based, made use of Proof of Work (PoW) as a consensus mechanism. Today, the scenario has changed. Now there are many distributed ledger systems offering various consensus mechanism. For example, Proof of Stake, Deposit based Consensus, Proof of Elapsed Time, Federated Consensus, Delegated Proof of Stake, Federated Byzantine Agreement etc.
Selection of Blockchain platform: Various Blockchain platforms are available nowadays which are free and open source. But the selection of the platform must be based on the chosen consensus mechanism, as in step 2. Some of the popular platforms are Ethereum, Hyperledger Fabric, Openchain, Multichain, Quorum, BigChainDB, Chain core, Credits, Hyperledger Iroha, Elements Blockchain Platform. It is also important to assess whether a public (like Bitcoin) or permission (like Trade Finance) Blockchain platform is required based on the requirements of data privacy & confidentiality, user identity etc.
Nodes Designing: It is critically important to decide that where the nodes will run on i.e. on cloud, on-premise or on both network.
Designing of the Blockchain instance: Meticulously planned configuration is required for the Blockchain platforms and it is very important, as some parameter cannot be tweaked with or changed at run-time. For example, parameters for which planned configuration required are Key Formats, Address Formats, Permissions, Hand-shaking, Block Signatures, Key Management, Atomic Exchanges, and Multi-Signatures etc.
Development of APIs: There are various Blockchain platforms that have built-in APIs and while some come without APIs. Some APIs are required for:
a) Performing audit related functions
b) Generation of addresses and key pairs
c) Data storage and retrieval
d) Authentication of data using digital signatures and hashes
e) Smart contracts
Integration of Future Technologies: The functioning and power of the Blockchain solution can be tremendously enhanced by the integration of trend-changing technologies such as the Internet of Things, Artificial Intelligence, Cloud, Data Analytics, Machine Learning etc. depending on the use case.