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Blockchain: Digital transformation on the rise

Bitcoin, cryptocurrencies, blockchain. These terms have been on everyone’s lips over the past few years. More than a few of them have become very valuable through an explosive appreciation in value in the past year. That this value has drastically gone down again shows that they are have reached a healthy level again. Instead of a euphoric hype, the theme is slowly but surely maturing.

For me, as an IT consultant, the technology behind these digital currencies is really exciting. But what are the technical secrets of Bitcoin, Ethereum, etc. and how do they work?

Blockchain digitale Transformation auf dem Vormarsch

What is blockchain?

Let me start with a little story: Adriana loves Germany. She came here to study a few years ago and after finishing her studies, she decided to stay. She earns quite a bit of money at her job, so she regularly sends money to her family in Bolivia. But this is anything but simple: Adriana transfers the money with her German bank account. This bank takes the money and sends it on to the Bolivian bank account. Adriana’s family gets the money after this process is complete. The process is not cheap. Banks charge fees and currency conversion fees also reduce the amount. And it takes a long time for the money to arrive in the Bolivian account. As you see, there are a lot of conditions for an international bank transfer. This is where cryptocurrencies come into play. Adriana heard about Bitcoin and became interested. Since then, she no longer uses bank transfers. She sends her family money with this digital currency, and they receive the money as Bitcoin and save on the fees. This is all possible with Bitcoin, the largest blockchain-based cryptocurrency.

Decentralized ledger

Simply put, blockchain is a ledger for bookkeeping. Each transaction and each payment leave a record. The ledger is not at kept somewhere central (bank, state), instead, it’s copied and decentralized on every computer in the entire network. This means that all participants save the same version of this ledger on their computer. Because this ledger is saved on throughout the network, transactions can’t be manipulated. The ledger is transparent and every change is immediately noticed and stopped. This is the great advantage of this technology. Secure transactions are possible without a certified institute fulfilling the role of the representative. Despite this, all participants can rest assured that the data is correct.

Tamper-proof data chains

This decentralized ledger can be imagined as a chain. Each transaction is verified and multiple transactions can be saved in a block. Mathematical solution processes make sure that a full block is encrypted, equipped with a check number and added to the chain. The chain contains a number of individual blocks that each contain transactions. Within this chain, each block refers to its previous one. Through the chaining of blocks, each block’s check digit and the distribution through the entire network, the ledger is protected from manipulation. A small change to on transaction changes all of the following verification numbers. This is immediately recognized and rejected. The whole chain of transactions in blocks that form the ledger is called a blockchain.

Advantages and disadvantages

I have highlighted the advantages of blockchain already somewhat. Corruption and fraud are eliminated because all trust does not have to be put in a central power. Apart from this, there are no additional costs. Instead of processing taking days, direct transactions take place in minutes. Data is available through decentral distribution and protected against manipulation.

Because the technology is quite young, there are also disadvantages. I won’t deny it. Redundant data over an entire network requires a lot of hard drive. Additionally, the data has to be sent via the internet, which is a large burden on the data connection. Because a transaction is decentralized in the entire network and not from a central instance, transactions are normally not very performant. A large disadvantaged often mentioned by critics of the block chain is the electricity use. The mathematical processes use a lot of electricity, which is bad from an economical and an ecological standpoint. The developers of blockchain technology are working on a solution for this.

What role does this play for digital transformations?

The world becoming digital! Entire areas of our lives, of our society and economy are being affected by digitization. The internet, networked devices, autodidactic computers, and exorbitantly growing data volumes – to name just a few. Business processes are more and more often controlled by computers, everyday activities like ordering food or making appointments just take a mouse click. Wait, what am I saying? You don’t even need to move a finger any more – you can just say what you want. The device will understand you and processes your request.

It makes sense that the blockchain stirs up the digital transformation with its innovative character. Decentralized, manipulation-secured transaction management offers potential for new possibilities and ideas. What is important with digitization is that a combination of multiple solutions unleash their full potential. The previously mentioned networked device (IoT) have an enormously innovative character compared to blockchain. Blockchain is secure, a quality that is often lacking in the IoT. Fraud and mistakes can be almost eliminated. Businesses can cooperate more easily over the blockchain, because trust is secured and processes run automatically. Transparency through the blockchain ensures precise tracking and traceability to fix inconsistencies.

The blockchain allows certain business models and ideas to really unfold. Long discussed health acts, for example, could be implemented through this technology. Patient data would be encrypted in the blockchain. Only the patient can allow others access the data. The choppy data at different doctors, health insurance firms and so on will then be a thing of the past. The patient then has full control of their personal, sensitive data. There are many more application scenarios one could come up with from the healthcare branch.

How to deal with blockchain in the digital age?

I like to compare blockchain with the internet in the 90s. Back then, not many people had a clue about the internet. Only a few nerds knew how to use it. But the internet developed with time and became a part of our everyday lives. The most valuable businesses like Alphabet, Facebook, etc. have their entire business in the online area. That’s why I reach for the parallels to blockchain. The internet enabled the digital transformation. The blockchain will develop a similar potency. I’m excited about how the world will look in ten to twenty years. Blockchain will have probably caused a large change.

My concrete recommendation to you, dear reader: get familiar with blockchain now. People who got familiar with the internet twenty years ago have certainly been successful. If you are the manager of a business, a programmer or whoever: get to know skills and think about the options that blockchain might offer you. My prognosis is that you will profit from this in a few years.

Hype or innovation?

Is the technology only a trend or another innovation? This is being widely discussed. I think this is a pioneering technology that will have a large impact on our future. The digital transformation will only reach its full potential through the blockchain.

I hope that you learned something from this brief explanation of the blockchain. If you still have questions, feel free to contact me. My information can be found here:

Dennis Streichert studied IT at the DHBW Mannheim. He is interested in the newest IT trends. At the moment, he sees particular potential in the blockchain. He writes about the development of this technology on his blog He is also an IT consultant for an international software firm.

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