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To those of us who are interested in learning about Artificial Intelligence (AI), how the internet is structured, and the basics of programming, we may think we have an advantage, but there is so much effort and knowledge being put into creating these mechanisms, that even the original creators don't know the true potential or implications. We read a lot of hype about Artificial Intelligence (AI), Robotic Process Automation (RPA), 5G, or the Internet of Things (IoT) as the next new, big gamechanger, but alongside that is another concept called the blockchain. The name is not very descriptive or intuitive, so there is no wonder many do not really know what it is and why in recent years, it has gained significant appeal worldwide.

What is Blockchain Technology?

Before going into detail about the blockchain, it might be easier to start by clarifying what it is not. Many people are likely to associate the meaning of blockchain with Bitcoin. In reality, Blockchain is a wholly new and separate technology. Bitcoin is, in fact, only one of the products of its potential. The blockchain’s distinctive way of recording and transferring information finds much broader applications beyond cryptocurrencies.

In a very simplistic way, we could say that the blockchain is a method to organize a series of events to guarantee the integrity of data in order to make it easy for a group of people or companies to agree on it. In other words, as the name implies, the blockchain is a sequence of blocks chained together and distributed among the users. According to Kendall Little, a New York-based journalist covering personal finance for NextAdvisor, “A blockchain is a type of distributed ledger. Distributed ledger technology (DLT) allows record-keeping across multiple computers, known as “nodes.” Any blockchain user can be a node, but it takes a lot of computer power to operate. Nodes verify, approve, and store data within the ledger. This is different from traditional record-keeping methods, which store data in a central place, such as a computer server. A blockchain organizes information added to the ledger into blocks or groups of data.

Each block can only hold a certain amount of information, so new blocks are continually added to the ledger, forming a chain.” (https://time.com/nextadvisor/investing/cryptocurrency/what-is-blockchain/). There are different types of blockchain. Permissionless blockchains are part of the public blockchain, in where no permission is required to join and interact with. On the other hand, a permissioned blockchain is private. It is closed, and only those authorized by the network administrator can join.

Key features

The key features of blockchain technology–immutability, security, and transparency–have added significant value to several sectors. While we cannot define blockchain as a cost-cutting technology, undoubtedly, its adoption has the potential to bring efficiency gains. Although blockchain’s adoption is not immune from challenges, including investment, education, and data standardization, there are several advantages it can bring to a project, including reduced operational risks, increased quality process, a higher level of transparency, and simplification of revision activities. In fact, blockchain applications allow the full visibility of transactions and the execution of shared rules on the ledger for the automatic matching of information. This applies especially in a setting where multiple organizations operate in the same industry, for example, in use cases developed by a consortium where a group of peers, leveraging a common governance, collaborate to define rules and the technology development.

Use cases

In light of its characteristics, it is not surprising that the blockchain has great appeal in the financial sector. Many of these applications–for example, Bitcoin or cryptocurrencies in general–tend to solve key business challenges, such as matching the quantity of money or assets exchanged with what the records state and identifying discrepancies. As an example, the Italian banking sector has successfully pioneered the use of blockchain/Distributed Ledger Technology (DLT) with a new application, Spunta Banca DLT, for straight-through processing of interbank reconciliation. As we learn from the technical provider R3 in its use case about the Spunta project published on their website (https://www.r3.com/wp-content/uploads/2020/04/Spunta_Corda_CS_R3_Digital_2020-copy-1.pdf), “Historically, the reconciliation process for interbank transactions in Italy, known as spunta in Italian, has been notoriously complex. With multiple parties involved, the task of identifying and addressing inconsistencies has historically been hampered by a lack of standardization, the use of piecemeal and fragmented communication methods, and no “single version of the truth.”

As a result, resolving mismatches in transactions has been a labor-intensive and time-consuming process. For decades, these shortcomings have meant that the need to reconcile transactions with other banks has been a significant headache for financial institutions in Italy and Europe. These issues made the spunta process an ideal candidate for automation through blockchain technology to automatically detect non-matching transactions using a shared algorithm, standardize both the process and the single communication channel, and provide a comprehensive view of the transactions among the interested parties.” However, leading industry players are exploring solutions for a variety of other sectors besides finance. One interesting case is the IBM Food Trust, a consortium of growers, processors, wholesalers, distributors, manufacturers, retailers, and other stakeholders in the food chain. This platform enhances transparency and accountability for each step of the food supply, connecting users through a permissioned, permanent, and shared record of food provenance, processing data, and shipping details.

Blockchain is complex and technical, as we have seen above, but clearly has the potential to truly transform the way we do business. However, the design and launch of a blockchain/DLT project require a broad view of aspects that impact the planning and the development of the new application. It is an exciting and relevant subject that I hope our school will soon introduce to its students. Understanding and mastering the fundamentals of this technology will be key both for those like myself who are genuinely interested in this and other new technologies and those who will need a foundation to ready them for higher education and work in the future.

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