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Blockchain and Distributed Ledger Technology

Blockchain – aka “distributed ledger technology” – has the potential to transform how businesses transact in every industry. It’s near the top of
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?

Blockchain explained from an

enterprise perspective

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.

What is blockchain technology?

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.

Watch the 3-minute overview video

How does blockchain work?

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.

What is distributed ledger technology?

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.

What are smart contracts?

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.
 

Public, consortium, or private?

There are four main ways to establish blockchain systems: public, consortium, semi-private, and private.
 
Consortium blockchains and semi-private blockchains (aka “permissioned blockchains”) have the most promise for the majority of enterprises. Because the consensus process is carried out by trusted actors, maintaining a shared ledger is simpler and faster – and businesses can maintain privacy.

Public blockchains:
Anyone can read a public blockchain, send transactions to it, or participate in the consensus process. Every single transaction is public, and users can remain anonymous. Bitcoin is the original public blockchain. Ethereum is another prominent example.

Consortium blockchains:
In a consortium blockchain, the consensus process is controlled by a pre-selected group – a group of financial institutions, for example. The right to read the blockchain and submit transactions to it may be public or restricted to participants. An example of a consortium blockchain is the Hyperledger implementation.
 
Semi-private blockchains:
Semi-private blockchains are run by a single company that grants access to any user who satisfies pre-established criteria. There are no discriminatory barriers to access, and in some cases these blockchains can be completely open. Semi-private blockchains show promise for business to business (B2B) use cases as well as government applications.

Private blockchains:
Fully private blockchains are controlled by a single organization. The organization determines who can read it, submit transactions to it, and participate in the consensus process. However, these private ledgers are missing a key blockchain ingredient: decentralization. As a result, they are better suited to organizations exploring blockchain implementation (i.e. for use as a sandbox or testing environment), but not for actual production.

Blockchain as a service (BaaS)

Blockchain as a service lets companies experiment with distributed ledger technology in the cloud. By eliminating the need for a large upfront capital investment, BaaS is perhaps the easiest, lowest-risk gateway to enterprise blockchain adoption. You can use BaaS to:      

  • Experiment and play with the blockchain to see how it could benefit your business      
  • Use open standards to create consortia-based and private blockchain networks      
  • Prototype, test, and build customized blockchain applications and smart contracts

Blockchain is the first native digital medium for value, just as the internet was the first native digital medium for information.- Harvard Business Review
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10%

of global GDP will be stored in blockchain by 2027 [1]

 

 

00:20

for a blockchain-assisted international money transfer [2]

 

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The benefits of blockchain

There’s no doubt that blockchains and distributed ledgers will be game-changers. Here are some of the expected benefits:
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Fewer Intermediaries

Blockchain is a true peer-to-peer platform that will reduce the need for some types of third-party intermediaries like banks, lawyers, and brokers.

Faster Processes

Blockchain can speed up process execution in multi-party scenarios – and allow for faster transactions that aren’t limited by office hours.

Transparency

Information in blockchains is viewable by all participants and cannot be altered. This will reduce risk and fraud, and create trust.

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ROI

Distributed ledgers will provide quick ROI by helping businesses create leaner, more efficient, and more profitable processes.

Security

The distributed and encrypted nature of blockchain mean it will be difficult to hack. This shows promise for business and IoT security.

Automation

Blockchain is programmable – which will make it possible to automatically trigger actions, events, and payments once conditions are met.

 

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Blockchain in industries and


lines of business

Blockchain shows promise in many different industries and lines of business. Here’s a spotlight on four key areas: blockchain in the supply chain, public sector, energy utilities, and financial services.

Blockchain use cases @ BlockShow

Explore the blockchain use cases and business models discussed at BlockShow Europe 2017, Europe’s biggest blockchain conference to date. The panelists showcased use cases that go beyond banking – to supply chain management, content distribution, intellectual property, and fine art.

How do I know if blockchain

can help me?

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:

  • Based on processes with multiple participants and distributed information?
  • Providing services to trading parties such as middlemen or intermediaries?
  • Augmenting or reselling something originally created somewhere else?
  • Substantially relying on ledgers or payments?
  • Based on the assumption that others need you because they don’t know or trust their counterparty?

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.

Learn about next steps

How we are bringing blockchain


to the 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.

Read the article: SAP launches SAP Cloud Platform Blockchain Service

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Co-innovation today

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.

Supply chain network

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.

Cross-border transfer

Last summer, Canada’s ATB Financial transferred $1,000 to a German bank in 20 seconds – rather than the customary two to six business days. Learn about the high-speed cross-border payment.
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Explore some of the latest resources from SAP blockchain experts

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How blockchain is reshaping business

Once in a blue moon, a new technology comes along with the potential to disrupt not just one, but all industries. Blockchain is one of these technologies. Discover which industries have the most to gain from blockchain implementation, and why the pioneers might not be who you think.

Read the article

The age of blockchain transactions

The proliferation of devices – like smartphones, wearables, IoT devices, and in-store beacons – is creating more digital transactions from more sources, and traditional transaction processing systems can’t keep up. Find out why many analysts believe blockchain ledgers are the answer.

Making the next moves with blockchain

Many established companies are waiting for the perfect justification before exploring blockchain, but they might miss out in the meantime. Learn about blockchain uses that are worth investigating now – and see how some businesses are already experimenting with the technology.

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