A real hype has developed around blockchain technology. Outside the world of IT, very few people really know what the term means. People often think of blockchain as a synonym for the digital currency bitcoin, or associate it purely with banking. Although this is true to some extent, it is far from being the whole story. To use railway terms, we could describe blockchain as the rail and bitcoin as a train.
Bitcoin was developed in 2009 as a digital payment instrument based on the principles of cryptography (encryption), which is why it is sometimes referred to as a “cryptocurrency”. Bitcoin transfers are processed online by a network of computers, without the need for a central settlement agent such as a bank. Bitcoin proofs of ownership are stored in a personal digital “wallet”. However, because there is no central controlling entity, additional security mechanisms are needed. These log the bitcoin transactions in encrypted form, while displaying the result transparently to all participants.
And this is where blockchain comes in. It could be described as a kind of journal – a web-based, decentralised, public accounting system that logs all bitcoin transactions ever made. This decentralised database is extended linearly and chronologically like a chain to which new elements are added on a continuous basis, hence the name “blockchain”. Each block contains the unmodifiable check sum of the previous block. The special feature of blockchain is that every computer in the network also manages a 1:1 copy of the complete data chain, which means that any changes are immediately visible to all participants.
Much more than just bitcoin
By now, blockchain has become more than merely the foundation for cryptography-based currencies. The guiding principles – the auditability of all transactions and the prevention of manipulation – can be adapted for other business areas. Blockchain can serve as a basis for developing new applications and establishing completely new ecosystems. It may be possible in the future, for example, to use blockchain to execute and verify transactions by and between companies, private individuals, public institutions or even machines in near real time. The range of potential applications is enormous, from depicting an entire supply chain, to automating accounting processes, to concluding contracts between machines and objects. The big plus point: as in the case of bitcoin, no intermediaries or intermediate institutions are necessary, which means that business processes can be optimised, costs reduced and the risk of fraud minimised. Therefore, it is safe to say that blockchain represents a technological revolution that will radically change existing business models.
A basis for new services
It is not surprising that DB Systel is actively promoting blockchain as a basis for new services and optimised processes within the Group’s Value IT Plus programme. DB Systel’s cross-business-unit blockchain project team is working together with mentor Volker Ledig, CIO of DB Energie on potential use cases and the initial implementation. The potential applications of blockchain for DB business units range from seamless documentation in freight transport to representing passengers using a digital identity. First and foremost, using blockchain increases efficiency by reducing the number of coordination loops – saving time and money.
The blockchain team is developing a variety of solutions, the most advanced of which is the “smart contract” – a contract that contains embedded program code. The advantages of smart contracts are clear: they represent binding contracts that are concluded and archived autonomously in the blockchain. The code they contain is basically executable program code in the form of an if-then condition: as soon as an event occurs that is directly linked to the content of a contract, this triggers the corresponding operation. A broker is no longer necessary to confirm the validity of the contract. In addition, the execution of these smart contracts can be tracked in real time. Any entry made at any time can be tracked permanently and cannot be deleted or changed. Smart contracts that ensure their own implementation are clearly just the start of something big.
A matter of trust
The DB Systel blockchain team is working with customers to develop prototypes, pilots and products. Blockchain solution and value propositions are being established alongside customer projects. New collaborations and partnerships are also being concluded, e.g. with the blockchain centre at the Frankfurt School of Finance & Management, to promote further development. However, to embed blockchain technology within and beyond the Group, it is not enough to develop good services. One of the key tasks is to explain the complex technology, develop problem-solving scenarios and establish confidence. Volker Ledig likes to compare it to the use of smartphones.
We all use smartphones to communicate without really understanding how they work. We still trust the mobile technology, even though we are not fully convinced that our data and conversations are secure.
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In fact, the security of information in the blockchain is one of its greatest advantages. Data is encrypted and every transaction is carried out transparently for all users involved in the process. It is no longer possible to falsify or even delete data. These arguments that should convince both the Group and its partners.
The future has begun
The Hochschule Mittweida university of applied science is very impressed with DB Systel’s blockchain activities: the DB Systel project team co-founded the new blockchain competence centre based at the university and a representative from the team co-signed the certificate of incorporation. DB Systel is working with the university to design the curriculum and lectures are planned. This collaboration offers great potential for DB Systel, mainly because it gives it an opportunity to present itself to students as an innovative company, thereby increasing its chances of securing promising young talent.
Important blockchain terms
A collection of transactions that all have the same time stamp is known as a block. Each block also contains a reference to the last valid preceding block. This is how the “blockchain” develops.
A blockchain is a database whose integrity (protection against subsequent manipulation) is ensured by storing the hash value (check sum) of the previous data record in the block that follows, that is, through cryptographic concatenation. Blockchain can help improve/simplify transaction security in distributed systems when compared with central systems.
Bitcoin (a type of “digital coin”) is a virtual cryptocurrency that is managed decentrally in a computer network using its own software. The system is based on a decentralised database managed jointly by all participants in which all transactions are recorded in a blockchain. In contrast to conventional bank transactions, a central settlement agent is not necessary.
Bitcoins are transferred between participants in transactions. For users, this works almost exactly like a bank transfer.
Smart contracts are digital operations that, once they have been verified, execute themselves between two parties over the blockchain without the need for an intermediary.
Each blockchain consists of a multitude of networked computers or clients, each of which is known as a node. Each node stores the entire blockchain, verifies each transaction and, provided verification is successful, forwards the transaction.
In IT, decentralisation means that the protocol, a giant database, is not located on one server or at one company, but is distributed across many computers. Each participant has the same access rights and options.
The parties participate in a blockchain-based solution and follow the rules of the blockchain in question.
The transparency of the blockchain, i.e. of the journal or database, arises from the fact that the journal is continuously monitored and verified by a network.