Blockchain: Revolutionary Data Technology

A blockchain is a decentrally organized database that continually registers information and stores it in data blocks. These have a block number. Cryptographic algorithms chain them to each other. Consequently, no one can retroactively modify or delete an established block. This is especially beneficial for digital currencies, known as cryptocurrencies:

Blockchains are managed by a network of individual computers. If someone wants to make a new entry, such as post a cryptocurrency unit, it has to be checked and validated by a specific number of network nodes. Only then can an entry be made in a new block. This creates trust in the validity of the transactions without the need for a central institution, such as a bank.

In 2009, Bitcoin was the first known application of blockchain technology. The idea was to create a digital currency that could be traded reliably via a distributed network without the need for an intermediary, such as a bank. A universal, open ledger exists so that no one can chalk up and spend any given number of Bitcoin units they choose. This is the Bitcoin blockchain that contains all account balances and transactions.

Everyone can participate in the network and validate current transactions and contribute to block generation. Since regular updating of the data chain depends on the actions of the individual participants and the available computing power, the participants receive Bitcoins as remuneration. This is also the only way to obtain a cryptocurrency unit without buying it from another participant.

The value of a Bitcoin is calculated from the work required by a computer to keep the network running – this is known as mining.  Bitcoin mining is now carried out by large server farms, which does, however, entail high energy costs. According to a study by Cambridge University, Bitcoin mining currently consumes around as much energy as the whole of Switzerland.

The idea of this decentralized and hence innovative currency spread rapidly. Cryptocurrencies promise unlimited, fast monetary transactions that are not and do not have to be controlled by central banks and countries. The software behind this is open source. This means that the information needed to create your own blockchains is freely available. However, the result of this is that, within a short time, hundreds of new cryptocurrencies have been created, such as Ethereum, Litecoin, Monero, and Ripple. Each has its own advantages and areas of use. In parallel to this, an entire crypto economy with exchanges, mining companies, analysts, and other financial service providers has also evolved. At the same time, there are also disadvantages, such as extremely volatile prices compared to statutory currencies in individual countries.

As well as payment services, other areas also benefit from blockchain technology, such as logistics, the automotive industry, and finance. The focus here is on efficient supply chains, autonomous driving, and faster and secure claim settlement.

Major corporations in almost every industry are currently investing in the development of blockchain technologies. The applications are as different as the demands of the individual companies. Logistics processes, such as inventories, supply chains, and audits, are carried out on the decentralized data chains more reliably, faster, cheaper and, above all, more transparently.

Examples:

• Transparency in refrigeration chains: Perishable goods are given an ID that is signed off on at every handover. In combination with motion, location, and temperature sensors, all the relevant data is stored on the blockchain. That allows the route taken by the product and whether the refrigeration chain has been interrupted to be checked in real time.
• Transparency with service providers: A reputation system can be set up via a blockchain to ensure the reliability of intermediaries and carriers, for instance. If there are any deficits or irregularities, business partners can view these via shared ledgers and take appropriate action. A shared ledger is a decentralized technology that documents transactions.

In other words, blockchains in logistics ensure fewer obstacles in supply chains and hence greater efficiency.

Developments in the electricity market face major challenges. The growing Internet of Things (IoT) and the increasing number of electric vehicles raise the demand for electricity and efficient load balancing.

To satisfy this demand, old, centralized power grids must be replaced by smart grids. These are infrastructures equipped with software and sensors (smart meters) that measure electricity data in real time and automatically reroute as required. As a result, smaller generators of electricity from renewable energies can make their surplus available to a decentralized grid and be paid for it. It is blockchains that enable such complex energy transactions to be implemented and managed efficiently in the first place.

It would be hard to find a better management structure for distributed charging of electric vehicles than the blockchain. With the logged flow of electricity owners of charging stations could make their electricity available to other vehicles and, by doing so, fund their infrastructure and vehicles.

Autonomous vehicles need information to be processed instantly so that they can respond to their environment in real time. Central data processing that first routes the environmental data to a server and then back to the vehicle would be too slow.

By contrast, in a decentralized blockchain network all participating vehicles and IoT sensors on the road would communicate with each other directly. This would have the advantage that vehicles not only reach their destination by the fastest route but also know where other vehicles are. This would optimize traffic flows and largely prevent traffic congestion, improving road safety.

Blockchains would also expand possibilities in the area of car sharing. The technology could enable owners of connected, autonomous vehicles not only to transport themselves but also other passengers. Instead of parking the car in the garage, this model offers a simple source of income for the owners, and fewer people would need their own cars and driver’s licenses.

Insurance companies assume that their customers pay their premiums regularly. Customers, on the other hand, expect their insurance company to settle their claims as quickly as possible. All of this entails considerable administrative effort. Blockchains are able to simplify these processes by entering complex insurance algorithms in smart contracts. Instead of calculating each case individually, smart contracts automate complex claim settlements. That saves time and money for both the insurance companies and the customers. If all insurance companies were able to access the blockchain, this would also make scams, such as double settlements, impossible.

With the exception of the Internet, there has never been a technology that has been adapted by global players as quickly as the blockchain. Decentralized networks have the potential to fundamentally change industry and the economy. They give the players the opportunity to lower their costs, increase efficiency, and create more transparency. In addition, applications such as smart energy grids and routing can make a big contribution to the energy transition. Used properly and responsibly by companies, blockchains are a true revolution that can benefit society and the environment.

Last update: May 2020