Why Do We Need Blockchain?
Why Do We Need Blockchain?
Look at an example implemented using traditional systems leveraging a database plus an app and how the same use case implemented with blockchain differs.
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Many times in our business conversations, I have come across this question:
“Why do we need to implement this business functionality using Blockchain? Why can’t we implement this using a database and a web application?”
Anyone who's eager to jump onto the blockchain bandwagon has probably asked the same question. In this post, we take a look at an example implemented using traditional systems leveraging a database plus an application and how the same use case implemented with blockchain changes the equation.
Business Scenario Implemented Using the Database
Let’s consider the supply chain use case where multiple parties like manufacturers, logistics, wholesalers, distributors, and retailers are involved. The movement of a product through the supply chain is tracked individually by the respective parties.
Each party will have their own database and an application for capturing transactions and the movement of the product through the chain. The problems with this approach are:
- Multiple sources of truth: At any point of time, all the databases may not have the same data, as it depends on the organizational process involved in updating the database or the delay in propagating the data across all the parties.
- Human error: The data in one or more of the databases may not sync up due to human error or application issues. This would lead to a dispute between parties, resulting in increased cycle time for resolving the conflict.
- Fraudulence: This provides the possibility for parties to modify their database for business benefits and claim that their data is true.
- Reliance on intermediaries: Depending on brokers or agents increases manufacturing costs and increases inefficiencies.
- Vulnerability: Due to the involvement of intermediaries and multiple copies of data, the manufacturer is unable to control fake products being introduced into the chain or genuine products distributed into the black market.
- Lack of customer focus: The customer finds it extremely difficult to identify whether the product is genuine.
Business Scenario Implemented Using Blockchain
The same use case implemented using blockchain will involve all parties collectively tracking the movement of the product through the supply chain.
Each party can have their own application, but there will be a single data store called a distributed ledger.
- A single shared data store, which is tamper-evident as it is protected using cryptographic techniques.
- All parties will have the same copy of this ledger.
- All parties must give consensus before a new transaction is added to the shared ledger.
- Transactions recorded on the ledger can never be altered.
Benefits of the ledger-based approach are:
- Single source of truth: At any point in time, all the parties will refer to the same data due to a single shared ledger.
- Early detection of human error: Since all parties need to give consensus, any human or application errors will be caught early in the chain.
- Security: Treachery by any of the parties will be immediately identified by comparing the ledger copies of the other parties.
- Disintermediation: Elimination of intermediaries is one of the biggest benefits of the blockchain. It enables the manufacturers to reduce the overall cost and facilitates to connect the manufacturer directly with the customer.
- Safety: The manufacturer can ensure that the quality of their products is not comprised.
- Customer centric supply chain: Since blockchain provides the opportunity to connect the manufacturer directly with the customer; the manufacturer is able to provide a better customer experience.
- Regulatory compliance: Blockchain improves regulatory compliance through transparent audits.
The above use case clearly illustrates the need for blockchain in business. The value of blockchain can be easily witnessed for business problems involving transactions between multiple parties.
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