Five Things To Know About Blockchain And Manufacturing

Blockchain technology has the potential to transform business operations in the manufacturing industry by improving efficiency, transparency and proof of authenticity. BakerHostetler's Technology in Manufacturing team has prepared this introduction to some key concepts that make blockchain a transformative technology, specific blockchain applications for manufacturing, and critical issues to consider before designing and implementing a blockchain solution.

1 What is blockchain technology? How does it work?

Blockchain is a decentralized distributed ledger. A standard ledger system requires that the central agent be trusted: If a bank verifies an electronic funds transfer, for example, that transfer is deemed to have been made even if one party or the other contends that it was not. A decentralized ledger is a database that is synchronized across a peer-to-peer network of computers. The ledger permanently records changes to the database using cryptographic hash-linked "blocks." When a transaction occurs, a block is added to the ledger, forming a sequential chain with previous transactions - thus the name blockchain. Each block contains data from the previous block, so each transaction can be validated by computers and viewed and affirmed by consensus among the participants in the network. No single party controls the data or the information. Every party can verify the records on the ledger directly, without reliance on any central authority.

Blockchains can be either public/permissionless or private/permissioned. Anyone can join and participate in a public blockchain. The network typically has an incentivizing mechanism to encourage more participants to join the network. Bitcoin is one of the largest public blockchain networks.

A private/permissioned network, which is generally the choice of business consortia, requires an invitation. A permissioned network places restrictions on who is allowed to participate in the network and the type(s) of transactions that can be made.

2 What are the advantages of blockchain?

Blockchain technology offers greater efficiency, transparency and security than centralized, trust-based systems and processes. Centralized systems can be slow and expensive. While blockchain transactions are not instantaneous, they usually take several minutes rather than several days for standard bank transactions. Every transaction on the blockchain is visible to anyone in the computer system. Each user (known as a node) on the...