Part 5: Blockchain-Technology – From a centralized to a decentralized System Architecture
In my last article, I had addressed Application areas of Artificial Intelligence tomorrow in order for you to better understand and classify the technical developments in the context of digitization and digitalization. Next step is to focus the Blockchain-Technology – an important technological progress that will change our world.
With this article you will get answers to the following questions:
- Blockchain-Technology – What is it?
- Blockchain-Technology – How does it work?
- Blockchain-Technology – What does it mean? (Consequences)
- Blockchain-Technology – Relevance to the question of “How to Dominate your Market”
1. Blockchain-Technology – What is it?
Although the term blockchain is being picked up more and more by the media, there are only a few board members and business owners who really know what’s behind it. Mostly, the term is associated with cryptocurrencies and then takes a back seat, because the discussion of whether a new digital currency is going to prevail seems to be more interesting. But answering the question as to whether and, if so, which cryptocurrency will prevail, is not the relevant one. You need to look at the underlying technology, the opportunities which come up with this technology and what exactly this means for the market of the future – the blockchain technology.
First, let me explain in simple terms what that is:
While centralized networks are used today to transmit information, data, and transactions, Blockchain technology transmits them through a network of independent computers from people like you and me scattered around the world – a so-called decentralized network.
Let’s take an example to illustrate this:
If you send a message to a friend today, then this message goes first to a server, e.g. What’s App. There, the message is saved and goes in the next step to the recipient. Thus, the server used automatically has your data. In this case, a central network is used for the data transmission.
New innovative technologies, however, allow the message is not sent to a central server, but to a network of independent computers. In this case, the message is split up and each computer takes over a share of the work. In this way, nobody can access the complete message, so the message arrives safely at the recipient. It is a decentralized network that is used. And the technology behind this system is called blockchain.
This illustrated example of message delivery is equally applicable to the transmission of information and the execution of transactions such as money transfers via centralized versus decentralized networks.
2. Blockchain-Technology – How does it work?
To illustrate how the system works, let’s take a financial transaction as an example:
If you want to transfer money today, a centralized network will be used where a trusted third party, e.g. a bank, is needed. This third party must first identify and verify the participants. Only then will the transaction be executed and stored in an in-house cash book for traceability. That costs time and money.
The principle of blockchain technology must be presented in several steps to make it plausible:
Let’s assume that several people want to transfer money using blockchain. In contrast to the in-house cash book an open cash book is used, which everyone can see. This means that every transaction that is made is recorded in this cash book. Thus, if A transfers money to B, it is registered there, just as when person B transfers money to person C, etc. This concept of open cash book is thus a chain of transactions that can be viewed by each participant in the network. Based on the knowledge from the open cash book, it is then possible to allow or reject transactions. So, if someone wants to transfer a sum of money that he doesn’t have, the other participants in the network would know, reject the transaction and not save it in the cash book.
But an open cash book alone is not enough, otherwise we would have a centralized network that would be used again. Therefore, there is not only a single open cash book, but each participant of the network can run his own cash book. This creates a decentralized network, which ultimately makes the central open cash book superfluous and unnecessary.
But somehow it has to be ensured that all decentralized cash books are in sync. And this is ensured by the use of so-called miners. Miners are a type of exam unit that compete with other miners. They each have two tasks: First, the miner checks, based on their cash book entries, whether the transaction is valid by looking to see if the person wishing to make a transfer also has the money. Second, he must find a key code to link the unvalidated transaction with his cash book. To find the right key randomly, a computing power is required. Figuratively, you could say that the miner is trying until one of the keys fits.
The miner, who first finds the right key, enters it with the transaction in his own cash book and is rewarded with a small amount. He also provides the key to the network. Now all other miners also enter this transaction in their cash books, because it makes no sense for them to continue to search for a key, because they wouldn’t get paid for it. Instead, they would rather search again for the next transaction, which has not yet been assigned a key, which is why there is again the possibility that they can earn money from it. This principle therefore ensures that the cash books are all synchronized and the network remains running.
In summary, there are three key aspects that make up the blockchain technology:
- There is a public cash book that everyone can see and in which all transactions are linked as a chain,
- this cash book is not centrally held and controlled by one authority, but distributed decentrally across the network,
- the miners organize and secure the transaction in the cash book and receive a small amount of money for this.
3. Blockchain-Technology – What does it mean? (Consequences)
Thus, Blockchain-Technology offers some unbeatable advantages:
- Decentralization and cryptical procedures ensure a high level of security. And the more network participants, the more secure the system becomes against cyber attacks.
- This infrastructure provides the ability to send financial assets and sensitive data without being reliant on a middleman.
- The transactions stored in the blockchain cannot easily be changed.
- The system is transparent, as all transactions and data can be tracked.
4. Blockchain-Technology – Relevance to the question of “How to Dominate Your Market”
If you understand the principle of blockchain, then it quickly becomes clear that this technology offers incredible opportunities for the future, as its capabilities are almost limitless. So it does not matter if and if so which cryptocurrency prevails. In contrast, the technology used in the background is relevant. This technology or one in more advanced form will prevail. So it makes sense to look at it today and think about which products and business ideas, regardless of the industry, can be developed. With a corresponding idea and strategy, this technology, especially in combination with other technological advances such as artificial intelligence, opens the way to market leadership.
Today you have again received important information about new technologies that enable you now slowly to bring together the first puzzle pieces on digitization, digitalization, and digital transformation.
These examples show how important it is for you, as a board member or business owner, to be deeply involved with these topics. Because only those who understand the connections between digitization, digitalization and digital transformation today and who are able to transfer the findings to their business are among the winners of the future.
Therefore, start today and check how fit you are with the terms on this topic. With the Digi-Check you can easily find out what you already know and where you still have a lack of information. And if you belong to the first ones you’ll also get the opportunity for a free 30 minutes online coaching session with me on top to talk about your results and your next steps.
So take your chance and do the test now: Click here for the Digi-Check!
Do you want to get more insights from Yasemin about digitization, digitalization, and digital transformation? Next Part is coming soon – so stay tuned. It is worth it!