Revolutionizing the Traditional Business Network – With traditional methods for recording transactions and tracking assets, participants on a network keep their own ledgers and other records, as shown in the picture on the left in Figure 1-1.
This traditional method can be expensive, partially because it involves intermediaries that charge fees for their services. It’s clearly inefficient due to delays in executing agreements and the duplication of effort required to maintain numerous ledgers.
It’s also vulnerable because if a central system (for example, a bank) is compromised, due to fraud, cyberattack, or a simple mistake, the entire business network is affected. The picture on the right in Figure 1-1 represents business networks that use blockchain.
The blockchain architecture gives participants the ability to share a ledger that is updated, through peer-to-peer replication, every time a transaction occurs.
Peerto-peer replication means that each participant (node) in the network acts as both a publisher and a subscriber. Each node can receive or send transactions to other nodes, and the data is synchronized across the network as it is transferred.
The blockchain network is economical and efficient, because it eliminates duplication of effort and reduces the need for intermediaries. It’s also less vulnerable because it uses consensus models to validate information.
Transactions are secure, authenticated, and verifiable. The participants in both transaction systems are the same. What has changed is that the transaction record is now shared and available to all parties.
A blockchain network has the following key characteristics:
» Consensus: For a transaction to be valid, all participants must agree on its validity. (See Chapter 2 for more about consensus mechanisms.)
» Provenance: Participants know where the asset came from and how its ownership has changed over time.
» Immutability: No participant can tamper with a transaction after it’s been recorded to the ledger. If a transaction is in error, a new transaction must be used to reverse the error, and both transactions are then visible.
» Finality: A single, shared ledger provides one place to go to determine the ownership of an asset or the completion of a transaction.
Exploring a blockchain application
Car companies make leasing a vehicle look easy, but in reality, it can be quite complicated. A significant challenge faced by today’s car leasing networks is that even though the physical supply chain is usually integrated, the supporting systems are often fragmented.
Each party within the network maintains its own ledger, which can take days or weeks to synchronize (see Figure 1-2). FIGURE 1-1: Business networks before and after blockchain.
By using a shared ledger on a blockchain network, every participant can access, monitor, and analyze the state of the vehicle irrespective of where it is within its life cycle (see Figure 1-3).
With blockchain, network participants can interact as follows: 1. The government regulator creates and populates the registration for the new vehicle on the blockchain and transfers the ownership of the vehicle to the manufacturer.
FIGURE 1-2: Tracking vehicle ownership without blockchain. FIGURE 1-3: Tracking vehicle ownership with blockchain.
2. The manufacturer adds the make, model, and vehicle identification number to the vehicle template within the parameters allowed by the smart contract (a digital agreement or set of rules that govern a transaction — see Chapter 2 for details).
3. The dealer can see the new stock availability, and ownership of the vehicle can be transferred from the manufacturer to the dealership after a smart contract is executed to validate the sale.
4. The leasing company can see the dealer’s inventory. Ownership of the vehicle can be transferred from the dealer to the leasing company after a smart contract is executed to validate the transfer.
5. The lessee can see the cars available for lease and complete any form required to execute the lease agreement.
6. The leasing process continues between various lessees and the leasing company until the leasing company is ready to retire the vehicle.
At this point, ownership of the asset is transferred to the scrap merchant, who, according to another smart contract, has permission to dispose of the vehicle