Episode 1: Defining Blockchain

Blockchain is the new kid on the block. Most of us have heard about it but very few understand. I intend to write a series of blog on Blockchain and its use in the area of Supply Chain. I would like to start with the basics of Blockchain for all my readers to be with me.

What is a blockchain?

Blockchain is a chain of recording of a chronological events in an tamperproof, immutable and encrypted way through a distributed ledger. 

There are three main concepts that you would need to understand to understand the concept of blockchain in detail:-

1.      Encryption

2.      Chain of recordings

3.      Distributed Ledger

Lets take these one by one:

Encryption:- Blockchain takes blocks of information and encrypt the whole information into an encrypted code, also known as “hash”. The most common encrypting technique used by blockchains is known as SHA256, SHA stands for “Secure Hash Algorithm”. The interesting thing about this algorithm is that it generates an hash for any given information. Now it will generate exact same hash everytime if exact same information is given to it, but it will give a complely different hash, when even an fullstop, or a space is added in the information.

For example, if I write my name is “VAIBHAV AGRAWAL”, the hash generated will be different than if I write my name as “Vaibhav Agrawal”.

So if u get into contract with someone , its easy to check if the contract that u are signing is exact replica of wat u had approved earlier, and not tinkered with.

The link to SHA256 is given below, in case if u want to play with the same.

https://passwordsgenerator.net/sha256-hash-generator/

Chain of recordings:- As name suggests, Block chain is the chain of the blocks of information. Every block of information has a mention of the hash of pervious block.

For example, taking the above example forward, if someone has to amend the contract, or if any correction needs to be made in contract, a new block of information is generated, which has a mention of the pervious hash, and a new hash is generated with new information.

Lets say that the above contract was for a property, which Mr X has bought from Mr. Anonymous. He did a contact and put the same on block chain. Now he has sold the property to My Y. This needs a new contract to be made between Mr X and Mr Y. Now this new contract has new hash generated, which is linked to the old hash. Say after some time Mr Y sells this property to Mr Z. Now its simple for Mr Z to verify that the property originally belonged to Mr Anonymous, then came to Mr X, and then to Mr Y, just be checking the trails of the hashes. If someone tampers with the contract in between, a entirely new hash will get generated, which is not linked to any older hash, and hence the link will be broken and Mr Z will understand that the contract is tampered with.

Distributed Ledger:-  Ledger is a place where all the transactions are recorded. In a simple example, your bank account statement is. But your bank statement is something called “Centralized Ledger”. The onus of maintaining all the records of the transaction depends on the bank. God forbid if bank makes a mistake of fraud, it gets difficult to prove and get corrected. That is precisely the issue with the centralized Ledger methodology. “You need to have trust on the person/institution who managed the centralized ledger”.

 This issue can be solved using “Distributed Ledger”. Lets understand it by an example. Lets say that in a small village, there are only finite no of people. Now for every transaction to happen, the two people between whom this transaction is happening has to call everyone in the village. Now the transaction happens in front of everyone in the village, and everyone takes a note of that in their notebook ( ledger ). Obviously, now if one of the party wants to make false claim on the transaction that happened, it has to go and change everyone’s notebook, which is highly difficult.

In case of blockchain this is done through computers, every transaction is updated in “n” number of computers authenticated by anonymous approvers ( also known as miners). So if anyone has to change the details of transaction in one computer, he has to change the same in all the computers which will be impossible to do due to encryption and tagging as explained earlier.

Because of these above three properties, blockchains are considered as immutable, tamper-proof, provenance, trustworthy ( as there is no nee of trust to a central system).

 In my next few blogs I would cover:-

Episode 2 : Types of Blockchains

Episode 3: Components of Blockchain

Episode 4: Platforms of Blockchain and how to choose whats best for you?

Episode 5: Use Cases of Blockchain in Supply Chain

Episode 6 : Smart contracts and its usage