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How does blockchain work? What are its uses in business?

Published on August 30, 2022
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Blockchain is a chain of data blocks

Blockchain technology is not just about bitcoins and cryptocurrencies, far from it! Its use is gaining ground in many sectors, whether to secure transactions, validate contracts, guarantee ownership of an asset or the traceability of an operation. Blockchain specialist and ORSYS trainer, Tarek Kamoun* reveals its workings and potential to you.

Blockchain technology has too often been wrongly associated with the roller coaster of the cryptocurrency market which still makes headlines today. Furthermore, today everyone has heard at least once about NFT, Web3 and metaverse. So many recent concepts behind which the same technology is hidden: blockchain.

Consequence of such media cacophony: business and IT decision-makers do not see very clearly about this technology and even less about its potential for transformation in their sector. To remedy this, it is necessary to understand its origins and fundamentals, its evolution, and finally ask the right questions: what exactly is blockchain? What are its professional uses? Is this useful for my business?

Blockchain, how does it work?

First, let's just define what blockchain is. Blockchain is a decentralized database that allows information to be stored and transmitted transparently and securely. The information (transactions, property titles, contracts, etc.) is contained in blocks of data protected by encryption which prevents them from being modified once they have been recorded in the database.

Blockchain, creator of trust

Currently, to store and exchange valuable information, we go through intermediaries in whom we place our trust: people, companies, banks, governments, etc. But going through these intermediaries does not avoid the errors, administrative burdens, additional costs, possible conflicts of interest, or even in the worst case corruption. Not to mention that the decisions made by these intermediaries are not always in our interest.

This is where blockchain technology comes in. She creates digital trust between different parties so that they can store and exchange information which has value in a secure way and without intermediaries.

How does this technology work?

To understand it, we must review its essential characteristics:

  • Blockchain is a decentralized and transparent technology

We must see the blockchain as a large register of information (or a large database) shared by members of the same network. They all have the same copy of the information and can all read, write and approve the entries.

We are therefore the opposite of the traditional centralized model of the web where players manage platforms according to a client-server model. Now, anyone in the world with a server (or computer) can join the network to contribute to its decentralization.

Difference between a client-server architecture and a decentralized architecture like blockchain
  • Blockchain is a secure and immutable technology

Each member of the network can issue at any time a request to modify the register (called a transaction) which is digitally signed (by the member itself using its public cryptographic key) and timestamped. Subsequently, the approved transactions are grouped into blocks which are themselves time-stamped and digitally chained together in chronological order (hence the name blockchain...). The blockchain is therefore unfalsifiable and unalterable, which makes it possible to consult all the transactions that have occurred in the blockchain since its creation.

How a transaction works on the blockchain

The advantages and disadvantages of blockchain
 

Using blockchain has many advantages:

  • Enhanced data security : once information is recorded on a blockchain, it becomes in practice unfalsifiable.
  • Traceability and transparency : the blockchain creates a complete audit trail since its creation and can be consulted by everyone.
  • Productivity and efficiency gains : blockchain eliminates or reduces the need for intermediaries who were in charge of information exchanges.

But like any technology, it also has certain disadvantages:

  • Complexity and lack of skills: the technology remains complex and recent. Consequences: skills are still scarce and blockchain-based applications are expensive to develop and maintain.
  • Lack of performance: It is quite easy to understand that a decentralized technology can hardly compete with a centralized technology in terms of the number of transactions per second, which can compromise certain applications with demanding needs.
  • Complex user experience: asymmetric cryptography which allows a member of the network to sign its transactions provides increased security to the network, but in return, users who lose their private keys lose access to their user account on the blockchain.

Blockchain developments

Blockchain is inherently open to everyone: anyone can join the network and contribute. We then talk about public blockchain. But over the years the concept of private blockchains or permitted. Unlike public blockchains, they require permissions to join the network and contribute (read or write).

Furthermore, over the last decade, this trust-creating machine has acquired two capabilities that have exploded its use cases:

  • Power create cryptoassets (also called tokens or tokens). These are either digital representations of real-world assets (e.g. a ticket, a loyalty point, a title deed, etc.), or new creations of digital assets such as a cryptocurrency or an NFT (non-fungible token, non-fungible token), a unique object that is not interchangeable, such as a work of digital art (photography, painting, etc.).
  • Power create smart contracts. These are contracts whose execution is done automatically according to the conditions defined in advance and recorded in a blockchain. These cryptoassets follow conditional logic such as “if this condition is verified, then this cryptoasset exchange is executed”.

We must now see blockchain as a technology that makes it easy to create all types of cryptoassets.

These cryptoassets can be exchanged by users through digital wallets (called wallets) and manipulated by smart contracts.

They obviously inherit the essential characteristics of the blockchain (decentralization/sharing, transparency, immutability).

Blockchain, what applications in business?

Once we have gone through the explanation of this technology, we understand that it goes beyond the highly publicized use case of cryptocurrencies and that its potential for businesses is indeed there. We can classify its professional applications into three main families:

Guarantee the authenticity of the information

Any industry or sector needing to prove the authenticity and ownership of information can benefit from the immutability of blockchain which creates an indelible record. We can cite examples for managing the authenticity of diplomas such as BCdiploma in France or even blockchain initiatives undertaken by certain countries encountering problems of fraud with land titles.

Improve traceability and operational efficiency

Any industry or sector needing to ensure better traceability of its assets. This concerns the manufacturing industries, transportation and supply chain industries. Blockchain makes it possible to track how often and by how many parties an asset is modified or changes hands. This also makes it possible to avoid conflicts linked to the reconciliation of divergent information between the different parties involved in the same asset.

We can cite examples of major players in food distribution such as Carrefour which give their consumers access to the entire production chain of products on the shelves, through a simple QR code attached to several products (chicken, eggs, etc.). . Or luxury leaders like LVMH, Prada and Cartier who have joined forces to create a blockchain platform intended to enable better traceability of their products and give the customer, thanks to a digital certificate, direct access to the product's history purchased – from its design to its distribution – and its certificates of authenticity.

The creation of new markets based on cryptoassets (tokens)

Any industry or sector needing to revitalize a decentralized value exchange ecosystem or create a new one can take advantage of the digital capabilities of cryptoassets and smart contracts:

  • Create new markets based on digital assets formed from real assets. We can cite the example of RealT which allows you to purchase digital tokens representing shares of real estate, receive rental income and vote on decisions relating to the property. Or the example of Société Générale which issued financial instruments and debt securities in the form of digital tokens on the blockchain to improve their liquidity. And, of course, you cannot have missed the phenomenon of NFTs, these certificates of digital ownership of digital content (image, music, video, etc.) and which are shaking up the world of digital art .
  • Remove middlemen through new platforms and decentralized economies. For example, decentralized financial services such as credit or insurance, decentralized “Airbnb-like” for housing, decentralized car rental, marketplaces for goods and services… more transparent, equitable and democratic.

Is this useful for my business?

However, in reality, few blockchain projects are actually seeing the light of day in companies. It is necessary to awaken decision-makers to the potential of blockchain in order not to miss this technological shift. Here are three fundamental questions to ask yourself to know whether you should consider blockchain in your environment. If you answer yes to one, you know what you have to do:

  1. For your business, is there value in guaranteeing the immutability of data?
  2. Is your company facing a data reconciliation problem causing friction between several stakeholders?
  3. Since value is not just monetary, is there a value exchange network to create, secure or streamline (e.g. provide liquidity) between several stakeholders?

Finally, don't forget that like any innovative technology, blockchain allows you to communicate about the innovative potential of a company: having a blockchain project within your walls is innovative and allows you to discover the technology and make it your own. and prepare for wider use.

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