The term blockchain has become popular in recent years, but unlike other buzzwords, its popularity has not been accompanied by a widespread understanding of what it actually means. We talk about blockchain naturally, about chains of blocks, about cryptocurrencies… but do we really know what we are referring to? Below, we’ll try to explain it—not only to understand this trend, but also to explore its potential and the opportunities it can create for a company linked to Industry 4.0.

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Explaining Blockchain

The term refers to a “chain of blocks,” that is, a structure in which information and data are grouped into sets. Each set contains information related to the sets that precede it. This information is encrypted, so it can only be edited by modifying the subsequent blocks. In this way, blockchain can serve as a non-relational public database, making it a secure and irrefutable record of information.

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How Blockchain Works

Trust in the system comes from the ability of all members to participate in its construction. The blockchain is a massive record store, in which all records are linked and encrypted. There is one fundamental requirement: each operation must be verified and validated by a large number of users. Thus, every block recorded in this system is validated and verified in advance by many users.

For a financial transaction between accounts, the process works like this:

1. A user withdraws an amount to give to another user.
2. A notification is created for other users, who do not know the identities of the two users involved.
3. All users on the network check that the sender has sufficient funds for the transaction.
4. If the check is successful, all users record the transaction.
5. The transaction is completed and enters as a block in the chain.
6. As more transactions are created, the block fills until it can hold no more.
7. Users perform complex calculations to validate the block.
8. The user who completes the calculation notifies others to verify the validation.
9. If correct, everyone adds the block to the full chain.
10. Once a block is permanently recorded in the chain, it cannot be modified without altering all linked blocks—which in turn would require validation by the majority of users.

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What Blockchain is Used For

Blockchain’s ability to provide irrefutable and encrypted information has enabled, for example, the creation of digital money or cryptocurrencies. The integrity of the data allows consensus among all users participating in the network, without the need for a central authority to guarantee it.

This technology is used to store data in a growing, orderly manner over time, without the possibility of modification or review. As mentioned earlier, it provides a high level of trust. Blockchain can be used to store, transmit, and verify data.

Although it is primarily used in finance, blockchain can be applied to:

• Cryptocurrencies or virtual currencies
• Database systems
• Financial transactions (remittances, payments, loans…)
• Agreements or contracts
• Secure records (votes, auctions, forums…)
• Cloud storage
• Digital identity
• And more (many companies are experimenting with blockchain for their business operations)

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Benefits of Blockchain

The main benefit of blockchain is security. While fraudulent alterations are not completely eliminated, the chain of linked blocks prevents the entire system from being compromised. Since it is, in a sense, monitored by a large number of users, global modification is virtually impossible.

The direct benefit of this security is trust. The complete chain of blocks creates a trusted environment recognized by all users because they are part of it. As a result, the stored information closely approximates what we could call “the truth.”

Another positive feature is the elimination of intermediaries, with the potential cost savings this entails. Information management is fully decentralized and does not require a supervising entity. For example, there is no need for a bank, since all blockchain connections effectively act as one.

Blockchain also allows full traceability of transactions. The system protects the privacy of all users, while the information in the linked blocks, timestamps, and transaction details are publicly visible.