What is blockchain technology?

Blockchain fundamentals

Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, a car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.

The need for blockchain

You can gain a deeper understanding of blockchain by exploring the context in which it was developed: the need for an efficient, cost-effective, reliable, and secure system for conducting and recording financial transactions.

The shortcomings of current transaction systems

Throughout history, instruments of trust, such as minted coins, paper money, letters of credit, and banking systems, have emerged to facilitate the exchange of value and protect buyers and sellers. Important innovations (for example, telephone lines, credit card systems, the Internet, and mobile technologies) have improved the convenience, speed, and efficiency of transactions while shrinking — and sometimes virtually eliminating — the distance between buyers and sellers. 

In spite of this, many business transactions remain inefficient, expensive, and vulnerable, suffering from the following limitations:

• Cash is useful only in local transactions and in relatively small amounts.
• The time between transaction and settlement can be long.
• Duplication of effort and the need for third-party validation and/or the presence of intermediaries add to inefficiencies.
• Fraud, cyberattacks, and even simple mistakes add to the cost and complexity of doing business, exposing all participants in the network to risk if a central system — such as a bank — is compromised.
• Credit card organizations are walled gardens with a high price of entry. Merchants must pay the high costs of onboarding, which often involves considerable paperwork and a time-consuming vetting process.
• Half of the world’s people don’t have access to bank accounts, requiring them to develop parallel payment systems to conduct transactions.
• Limited transparency and inconsistent information hinder the efficient movement of goods in the shipping industry.

Transaction volumes worldwide are growing exponentially and will surely magnify the complexities, vulnerabilities, inefficiencies, and costs of current transaction systems. The growth of ecommerce, online banking, and in-app purchases, coupled with the increasing mobility of people around the world, have fueled the growth of transaction volumes. And transaction volumes have exploded with the rise of Internet of Things (IoT) — autonomous objects, such as refrigerators that buy groceries when supplies are running low and cars that deliver themselves to your door, stopping for fuel along the way.

To address these challenges and others, the world needs faster payment networks that provide mechanisms to establish trust, require no specialized equipment, have no chargebacks or monthly fees, and offer a collective bookkeeping solution for ensuring transparency and trust.

Bitcoin is an unregulated, digital currency. Bitcoin uses blockchain technology as its transaction ledger.

This video illustrates the distinction between the two.

The IBM Blockchain Platform is powered by Hyperledger technology.

This blockchain solution can help turn any developer into a blockchain developer.

Visit the Hyperledger web site for details.

Smart contracts are an integral part of blockchain technology. They automatically execute transactions and record information onto the ledger without human intervention.

Conditions of smart contracts are mutually agreed on by network members. They’re a key component for establishing trust and efficiency between parties.

Smart contracts eliminate essentially all the paperwork, streamlining the entire process and saving time and money.

To help you learn more about smart contracts, Nigel Gopie, PhD, the IBM Food Trust Global Marketing Leader - IBM Blockchain, has written a blog post that explains smart contracts in more detail.

Blockchain enables businesses to rethink the way they work.

In the diamond industry, for example, each party can access:

• High-resolution photos
• Immutable payment records
• Certificates of authenticity and more.

IBM Blockchain Platform software is optimized to deploy on Red Hat® OpenShift®, Red Hat’s state-of-the-art enterprise Kubernetes platform.

This means you have more flexibility when choosing where to deploy your blockchain network components, whether on-premises, in public clouds, or in hybrid cloud architectures.

For a more detailed look at how a blockchain network operates and how you can use it, read the Introduction to distributed ledgers.

→ Learn more from the blockchain tutorial on developerWorks.

Explore the capabilities of the IBM Blockchain Platform - the only fully integrated enterprise-ready blockchain platform designed to help you accelerate the development, governance and operation of a multi-institution business network.

→ Register to download the IBM Blockchain Platform white paper.

Get the details on Hyperledger Fabric and discover what’s unique  about it, why it matters to business networks, and how to start using it.

→ Visit the Hyperledger page on developerWorks.

The quick-start guide for developers explains how to build a kick-starter blockchain network and start coding with the IBM Blockchain Platform Starter Plan.

→ View the quick start guide for developers.