This codebase focuses on two implementation of Blockchain
- Ethereum Public Blockchain. Checkout Tutorial
- Hyperledger Fabric Blockchain for Enterprise (Private). Checkout Tutorial
The following diagram illustrates a traditional data-sharing model where different entities, such as customers, merchants, banks, regulators, insurers, and auditors, maintain independent and siloed (System of) Records for their transactions. This approach creates several problems in the absence of a unified system like blockchain or distributed ledger technology (DLT).
Each entity maintains its own record, which may not align with others due to delays, errors, or manipulation. For instance: Customer A Records may not match Merchant A Records for the same transaction. Regulators or auditors may face difficulties verifying the authenticity or consistency of data.
Each party keeps its own version of records, leading to duplication of data. If changes are made, synchronization across systems is inefficient and error-prone.
Reconciliation of data between entities (e.g., between the bank and the merchant or between auditors and regulators) is time-consuming and costly. Additional expenses are incurred for intermediaries to resolve disputes or validate information.
Disparate record-keeping increases the risk of data breaches, fraudulent transactions, and manual errors. Fraudulent actors can exploit the lack of a tamper-proof, unified system.
Cross-verification between entities involves manual intervention or traditional IT systems that are inefficient and slow. Entities cannot respond quickly to disputes or regulatory requirements due to the fragmented data structure.
Regulators face challenges in ensuring compliance as they lack a real-time, holistic view of transactions across entities. Insurers and auditors may require additional documentation and cross-verification, causing delays and inefficiencies.
The traditional model struggles to scale efficiently with an increase in transactions or entities due to the linear growth of complexity.
Before diving deeper into the concept of distributed ledgers, it's essential to understand the distinction between a distributed database and a distributed ledger. The following image illustrates the underlying principles and applications of both, highlighting their unique characteristics and use cases.
Let's revisit our earlier problem statement and examine how these technologies address the challenges. The image below illustrates how blockchain and distributed ledger technology overcome the limitations of traditional siloed and independent record-keeping systems.
By introducing a shared, replicated, and permissioned ledger accessible and trusted by all stakeholders, these innovations provide a transformative solution.
Blockchain operates on a consensus mechanism, ensuring that all participants agree on the validity of transactions before they are added to the ledger. This eliminates the need for manual reconciliation and ensures that all parties share a single source of truth.
Once a transaction is added to the blockchain, it cannot be altered or deleted. This creates an immutable record of all activities. This immutability ensures data integrity and prevents fraud or tampering across stakeholders like banks, merchants, and regulators.
Blockchain enables tracking the history of every transaction from its origin. This transparency ensures accountability and trust among stakeholders. For example, insurers and auditors can verify the authenticity and history of records without relying on intermediary approvals.
Blockchain provides the finality of transactions, meaning once a transaction is recorded, it is considered completed and cannot be reversed without consensus. This finality resolves disputes quickly and improves the efficiency of processes like payments, claims, and audits.
- Shared: All entities (e.g., customers, merchants, banks, regulators, insurers, and auditors) share access to a unified ledger, eliminating data silos.
- Replicated: Data is replicated across all participants, ensuring redundancy and resilience.
- Permissioned: Access is controlled, meaning only authorized parties can view or interact with the data, maintaining privacy and security.
Author: Araf Karsh Hamid. Apache 2.0 License - 2022-24