Blockchain - more than just Bitcoin

The general public first became aware of blockchain in the course of the cryptocurrency Bitcoin. But it is only one area in which this innovative concept plays to its strengths. Nils Middelberg, Head of Strategy & Marketing at the top itservices AG, provides answers on the technology, benefits and application areas of Blockchain:

Why is the current bitcoin market booming so much and what does the brand new blockchain technology have to do with it?

Bitcoin is a cryptocurrency whose value recently surpassed the 10,000 franc mark. The value has increased fivefold since the beginning of the year. Investors with the right nose are thus likely to have reaped high profits. This brings media exposure and leads to increased interest, even among the masses.

The technical infrastructure, the basic framework so to speak, of such a digital currency is the blockchain. The clever combination of well-known concepts such as asymmetric encryption, P2P network and proof of work has created an innovative form of transaction execution and documentation with enormous potential. In my opinion, this is the much more interesting novelty.

What is a blockchain and how does it work?

 Put simply, the blockchain is a database and functions more or less like a digital cash book. In analogy to a page in the cash book that contains information about a specific transaction, in the blockchain it is a digital block that contains this information. When a block is full, the next block is appended. A chain of blocks is formed, hence "blockchain."

There is no longer an intermediary between the contracting parties. Instead, an image of the entire transaction history is stored on each fully-fledged user PC and can be viewed by anyone at any time. In other words, there is complete transparency. Without blockchain as the implementing technology, the digital currency system would therefore not function in the form it does. As a result, it is the blockchain technology that makes the cryptocurrency Bitcoin work.

What are the advantages of blockchain technology compared to other databases?

The infrastructure of a blockchain offers a very high level of security, so that various information can be sent without hesitation and without an intermediate instance. Each transaction here is secured by a private key and a second public key. Each new transaction, i.e. each new block, is assigned a key taking into account the previous entries and their keys. The more blocks chained together, the more secure the blockchain is.

However, blockchain can also be used to map complex contractual modalities in the form of so-called "smart" contracts. Smart contracts offer a high degree of legal certainty and at the same time allow contracts to be concluded independently of third parties. This ensures that the clauses defined by the contracting parties are stored in a forgery-proof manner in the long term and that the contract clauses are executed immediately and automatically when the contractually agreed conditions occur. As a digital counterpart to conventional contracts, smart contracts thus offer advantages particularly where digital goods of any kind are traded.

In what areas, besides finance, is blockchain technology applicable?

Looking at current press releases, it quickly becomes clear that blockchain technology will provide a breath of fresh air in many areas. Particularly in the automotive sector, large corporations such as BMW, Daimler and Toyota have recently presented ideas that offer enormous optimization potential, for example for their supply chains. Among other things, automation can. Automation can reduce administrative costs, solve problems more effectively and efficiently, or develop innovative peer-to-peer products.

In the Insurance segment, Zurich, Allianz, Aegon and Munich Re together with Swiss Re, founded a blockchain-based project last year with the Insurance Industry Initiative B3i. The goal is to further optimize work processes in order to improve customer support and thus develop faster, more useful and secure services for customers.

Together with its customers, SAP SE is currently devoting itself to the application field of production and logistics processes. Here, work is being done on solutions that can control the life cycle of products and entire plants. Blockchain technology will be used to document which changes were made, when spare parts were replaced, or when the last service was performed.

In finance, however, it's not just digital currencies that are making a difference. More and more banks and financial institutions are also researching and developing the potential of blockchains beyond currencies. In a pilot project, Commerzbank together with KfW Bankengruppe and MEAG, for example, recently demonstrated that securities transactions can be executed in real time via blockchain technology, from issuance to trading. A similar capital market process has also already been successfully implemented by Landesbank Baden-Württemberg and Daimler.

Source: top itservices AG, personnel service provider for IT & Engineering