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First, a little background is in order. What a distributed ledger is A distributed ledger is a type of database that is shared, replicated, and synchronized among the members of a decentralized network.
The distributed ledger records the transactions, such as the exchange of assets or data, among the participants in the network. Participants in the network govern and agree by consensus on the updates to the records in the ledger.
No central authority or third-party mediator, such as a financial institution or clearinghouse, is involved. Every record in the distributed ledger has a timestamp and unique cryptographic signature, thus making the ledger an auditable, immutable history of all transactions in the network.
Assets can be tangible and physical, such as cars, homes, or strawberries, or intangible and virtual, such as deeds, patents, and stock certificates. Asset ownership and transfers are the transactions that create value in a business network.
Transactions typically involve various participants like buyers, sellers, and intermediaries such as banks, auditors, or notaries whose business agreements and contracts are recorded in ledgers. A business typically uses multiple ledgers to keep track of asset ownership and asset transfers between participants in its various lines of businesses.
A typical ledger looks something like this: Problems with current business ledgers Current business ledgers in use today are deficient in many ways. They are inefficient, costly, and subject to misuse and tampering. Lack of transparency, as well as susceptibility to corruption and fraud, lead to disputes.
Having to resolve disputes and possibly reverse transactions or provide insurance for transactions is costly. These risks and uncertainties contribute to missed business opportunities.
At best, the ability to make a fully informed decision is delayed while differing copies of the ledgers are reconciled. Our Blockchain Ibm introduction really breaks it down.
Ibm introduction blockchain is a tamper-evident, shared digital ledger that records transactions in a public or private peer-to-peer network. Distributed to all member nodes in the network, the ledger permanently records, in a sequential chain of cryptographic hash-linked blocks, the history of asset exchanges that take place between the peers in the network.
All the confirmed and validated transaction blocks are linked and chained from the beginning of the chain to the most current block, hence the name blockchain.
The blockchain thus acts as a single source of truth, and members in a blockchain network can view only those transactions that are relevant to them.
How blockchain networks work Test your blockchain knowledge! At the end of the free, self-paced course, take a quiz, get a badge, and start planning useful blockchain applications for your business network. Instead of relying on a third party, such as a financial institution, to mediate transactions, member nodes in a blockchain network use a consensus protocol to agree on ledger content, and cryptographic hashes and digital signatures to ensure the integrity of transactions.
Consensus ensures that the shared ledgers are exact copies, and lowers the risk of fraudulent transactions, because tampering would have to occur across many places at exactly the same time. Cryptographic hashes, such as the SHA computational algorithm, ensure that any alteration to transaction input — even the most minuscule change — results in a different hash value being computed, which indicates potentially compromised transaction input.
Digital signatures ensure that transactions originated from senders signed with private keys and not imposters. The decentralized peer-to-peer blockchain network prevents any single participant or group of participants from controlling the underlying infrastructure or undermining the entire system.
Participants in the network are all equal, adhering to the same protocols. They can be individuals, state actors, organizations, or a combination of all these types of participants.
At its core, the system records the chronological order of transactions with all nodes agreeing to the validity of transactions using the chosen consensus model. The result is transactions that cannot be altered or reversed, unless the change is agreed to by all members in the network in a subsequent transaction.
Business benefits of blockchain In legacy business networks, all participants maintain their own ledgers with duplication and discrepancies that result in disputes, increased settlement times, and the need for intermediaries with their associated overhead costs.
However, by using blockchain-based shared ledgers, where transactions cannot be altered once validated by consensus and written to the ledger, businesses can save time and costs while reducing risks.
Blockchain consensus mechanisms provide the benefits of a consolidated, consistent dataset with reduced errors, near-real-time reference data, and the flexibility for participants to change the descriptions of the assets they own.
Because no one participating member owns the source of origin for information contained in the shared ledger, blockchain technologies lead to increased trust and integrity in the flow of transaction information among the participating members. Immutability mechanisms of blockchain technologies lead to lowered cost of audit and regulatory compliance with improved transparency.
And because contracts being executed on business networks using blockchain technologies are automated and final, businesses benefit from increased speed of execution, reduced costs, and less risk, all of which enables businesses to build new revenue streams to interact with clients.
Blockchain use case Blockchain was first introduced to the market as the technology underpinning Bitcoin exchangesbut its practical uses in the world of business extend far beyond cryptocurrency transactions. For example, in finance, blockchain networks allow securities trades to be settled in minutes rather than days.Run algorithms and experiments on IBM’s quantum processor via IBM Cloud.
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