Blockchain and Distributed Ledger Technology
Gartner’s Hype Cycle and it’s on all major lists of technology trends to watch. So, what is blockchain exactly? How does it work? And how is SAP approaching blockchain for business?
Every business is based on transactions. But these transactions are often routed through third-party intermediaries like banks, lawyers, and brokers – which can make processing time-consuming and expensive. Blockchain technology has the potential to reduce the role of middlemen, dramatically speeding up multi-participant transactions and lowering costs, while ensuring all parties are protected. People, businesses, machines, and algorithms would be free to transact and communicate with one another in a frictionless way. This is the promise of blockchain.
But the blockchain revolution is not here quite yet. There are barriers to adoption (like governance and organizational issues) and the technology is still being explored and validated. Although some industries have started experimenting with blockchain and distributed ledgers, mainstream adoption might still be a few years away. Nevertheless, the potential impact this technology can have on the business world is exciting – and immense.
The simplest blockchain definition? A reliable record of who owns what, and who transacts what. But there’s much more to it than that.
Blockchain is based on distributed ledger technology, which records data (transactions, files, or information) across a peer-to-peer network. Every participant can see the data and verify (or reject) it using consensus algorithms. Approved data is entered into the ledger as a collection of “blocks”, stored in a chronological “chain”, and secured through cryptography.
Although it was originally created as the underlying technology for trading the digital currency Bitcoin, blockchain’s potential reaches far beyond cryptocurrency. Blockchains can include land titles, loans, intellectual property, identities, votes – almost anything of value.
Since transactions (blocks) are chronologically linked, they cannot be altered without breaking the entire chain of transactions in a network. This chain is replicated and synchronized on every computer that uses the network (instead of being centrally stored) – which creates an immutable system of record, built-in transparency, and trust among participants.
By establishing an added level of trust and security to traditional models, blockchain gives participants the opportunity to transact more directly with each other, reducing the need for some types of intermediaries, like banks. The result is streamlined, more transparent payments and contracting processes.
A distributed ledger replicates and distributes data (transactions, files, or information) across multiple sites, countries, or institutions – without centralized administration or control.
The technology allows each party in the network to access and own an identical copy of the record – and any changes or additions are propagated and reflected on all copies. Because the record has witnesses and isn’t centrally stored, security breaches are more difficult. One example of digital ledger technology in action is blockchain.
Blockchains are inherently digital, and therefore programmable – so participants can set up rules to automatically trigger actions, events, and payments once conditions are met. This will pave the way for smart contracts: self-executing agreements made by multiple parties.
For example, smart contracts have the potential to use real-world information from GPS, RFID, or IoT devices to trigger supply chain workflows, events, or actions – such as payments or asset transfers.
Smart contracts are in early development stages and the technology (and best practices) are still being defined. Enterprise grade features around code, contract lifecycles, maintenance, and scalability have the potential to offer cost effectiveness and efficiencies once available.
Certain sectors will be heavily impacted by blockchain and distributed ledger technology in the near future. Forward-looking companies are already getting ahead of the curve – putting others at risk of being left behind. To find out if you should be exploring use cases, ask yourself, is your business:
If you answered “yes” to any of these questions, you likely can’t afford to not look into blockchain and its potential implications for your enterprise.
At SAP, we see blockchain as a promising way to simplify complex multi-party processes and create trust among participants. We’re using our expertise in 25 industries and across all lines of business to actively explore blockchain technology and help you capitalize on its potential. Thanks to SAP Leonardo Blockchain and the SAP Cloud Platform, our customers will be able to redefine their businesses by tapping into blockchain services (BaaS), extending their applications, or building new ones.
Co-innovate with us on blockchain. Find out how your company can take advantage of the distributed ledger technology – and help us define and design future blockchain capabilities across SAP applications.
Learn how we’re building blockchain capabilities into SAP Ariba’s cloud applications and business network – to bring new value to global supply chains via transparent asset provenance and movement.