Blockchain – the cash book for digital transactions

The crypto-currency bitcoin is inconceivable without blockchain. But the technology for secure, direct transactions in the internet can do more than that. The blockchain principle can also be applied to buying and selling houses, cars or shares, and therefore to every kind of contract. IBM is one of the pioneers of this technology.

Blockchain has great potential. This is probably why the technology has also made it into the new german federal government’s coalition agreement. The CDU/CSU and SPD grand coalition wants to use tax payers’ money to promote it in the future, along with other digital sectors such as artificial intelligence, robotics or quantum computing.

What makes blockchain so special?

A blockchain is a decentralised database: storage for digital transactions and assets shared across many computers and constantly extended by new transaction datasets. Transactions are grouped together in blocks which form a chain (hence “blockchain”). Once a block is complete, the next one is generated. Essentially, you can imagine the blockchain as a kind of cash book: as soon as a data transaction takes place between a sender and a receiver, the cash book is extended by a new record.

Secure, decentralised and neutral

The special feature: this cashbook is not controlled by a central authority, but instead is shared by computers all over the world. There is an identical copy of all transactions on every computer. Each new transaction is noted in all these cash books and authenticated by the computers on which the cash books are stored. Only then is the transaction valid. Of course, this proof-of-work procedure takes up a lot of computing power, but in return it also makes the blockchain entries almost impossible to tamper with.

The information cannot be changed and is stored so it can be viewed by every authorised person. Everything is transparent, manipulations are impossible as a matter of principle. Each participant has the same access rights and possibilities. No person, company or authority has power over the decentralised database. Since the data in the blockchain cannot be changed, you always know when, why and how a new item in the cash book was recorded. That means digital ownership rights can be determined without doubt. The original dataset and its copies can be clearly differentiated from each other.

Many potential applications

So blockchain is more than just the basis for crypto-currencies such as bitcoin. For example, this technology can be used to digitalise land registries. What’s more, users can enter into contracts directly and online without intermediaries like notaries, such as when buying a flat or a house, for example, because the digital identity in the decentralised database can be determined unequivocally and in a legally watertight way. And we could vote digitally. It also offers huge potential for cross-industry networking and optimising processes.

For example, banks could use blockchain to further digitalise, simplify and accelerate foreign payments for imports and exports. You will no longer need to wait for customs documentation from abroad, working instead with tamper-proof digital papers. Processes can also be automated and secured in supply chains. The supply chain is transparent and the delivered parts are documented.

IBM is forging ahead

IBM is one of the pioneers of blockchain. The company is supporting the technology directly in its mainframe systems. With the IBM Blockchain Platform, the company offers programming tools based on Hyperledger, an open source initiative for promoting cross-sector blockchain technologies. Using the integrated IBM platform, customers and developers can build networks for complex applications, including cross-border payments, supply chains and digital identification.

To drive blockchain forward, IBM is also working with global partners such as banks (e.g. Bank of Montreal, Caixa Bank, Commerzbank, UBS), the London Stock Exchange, the Beijing Institute of Technology and Maersk, the world’s largest container shipping company.