Blockchain, when and why to use it in business processes


Distributed Ledger Technology (DLT), whose Block chain The protocol is part of, represents one of the technological scenarios that has the greatest and most interesting potential and is considered “disruptive” by many, as it can revolutionize ecosystems, services, processes, transactions and modes of relationship. But let’s see why.

It is an innovative technology based on the concept of distributed consensus in the validation of the exchange and negotiation of transactions and on a immutable record of these transactions, through the use of mathematical functions, advanced cryptographic algorithms and some applications related to game theory.

It’s the social and economic context which spontaneously evolves towards more innovative and egalitarian economic models, by exploiting the technology of distributed registers which allows disintermediation in financial systems.

Blockchain can have an impact all transactions related to assets, information and documents by overhauling the concepts of trust and ownership compared to a traditional transaction where validation is managed by a central third-party entity or system considered trustworthy. The distributed certification and trust Mechanism inherent in the blockchain can take place thanks to the following three main characteristics:

  • a decentralized peer-to-peer system: The network consists of a configuration with peer nodes belonging to independent parties, and each node locally maintains a complete and updated copy of the blockchain registry;
  • electronic subscription of each transaction by a unique signature associated with the user at the origin of the transaction;
  • a consensus mechanism, which creates trust between nodes that directly participate in the consensus algorithm, performing verification and confirmation activities of user-initiated transactions.

However, it should be noted that blockchain is a young technology, on which concrete and rewarding projects are being launched. Experiments, research and especially improvements in terms of speed and scalability, level of protection of personal data and cost of transactions are also underway in order to mitigate some of its limits.

Blockchain: how it works and its value

But how, in concrete terms, does the blockchain work? Each node of the network is connected to a subject, and the process of consensus and validation of a transaction provides, in a “pure” blockchain, equality of power and influence by participating nodes.

Transactions on the network are initiated by users who use their own private signing key to authenticate transactions and who know the recipient’s address; transaction data is stored in closely related information blocks, hence the name blockchain. Each block contains the hash reference of previous block, to ensure a stable correlation between the blocks. Once each node recognizes the transaction as valid, it offers the block to the rest of the network and the adopted consensus algorithm allows a majority decision on which block will be added to the distributed electronic ledger queue.

An information block created and saved on the channel cannot be edited. The requirements to ensure that it cannot be changed are guaranteed by hash binding between blocks and by creation timestamp blocks themselves.

Generally, a blockchain integrates a digital token in the transaction as a medium or medium of exchange that transfers a right from a sender to one or more recipients, transferred on the basis of cryptographic evidence. Tokens can be versatile in that they can numerically represent many types of assets transferred, cryptocurrencies, fiat currencies and financial securities to physical assets like real estate, vehicles and works of art, to name a few.

Thus, the generalized reliability of a transaction via the blockchain makes it possible to guarantee:

  • its integrity over time making it impossible to falsify the data because the information has not been modified;
  • its distributed replication, avoiding the risk of data loss;
  • identification of the subjects forming part of the transaction;
  • the attestation of consent to the transaction by numerous witnesses (equal nodes).

The different blockchain scenarios: Public or private, without permission or with permission

A blockchain can be structured from two different paradigms: we can have Public (without authorization) or private blockchains (allowed). What differentiates the two paradigms is the different model of accountability and control.

The distinction is based on access permissions on who can read and / or send transactions to a blockchain and participate in the validation process. In a public blockchain, anyone can access and participate in transactions, while in a private blockchain only selected parties can access and make changes.

Private or authorized blockchain networks are often used by industrial consortia which, due to privacy, regulatory or system performance issues, restrict access to the blockchain to the only organizations that have been admitted to the network. Authorized blockchains can more easily develop security and authentication capabilities, which are essential parts of managing digital assets on a distributed network.

Electronic integrity and date certainty

By transferring the data of a service, a process, a transaction or the hash of a document on a blockchain, it is possible to guarantee the integrity and a certain date to the dataset or document.

Article 8-ter paragraph 1 of Legislative Decree no. 135/2018, the said Simplification decree 2019, which was converted into law no. 12 of 11 February 2019, defined “technologies based on distributed registers” as technologies and information protocols that use a shared, distributed, replicable, simultaneously accessible, architecturally decentralized register on a cryptographic basis, in order to allow recording, validating, updating, and storing both plain text and other cryptographically protected data verifiable by each participant, which cannot be altered or modified.

In addition, paragraph 3 established that the storage of a computer document by the use of technologies based on the distributed ledger produces the legal effects of the electronic time validation referred to in article 41 of EU regulation n ° 910/2014 (known as eIDAS).

For example, a typical case of concrete and implementable application is the use of blockchain for hashes of records of a database, since computer records of databases, in a commercial context, must legally guarantee that they are genuine and have not been altered.

Uses and applications of blockchain

The characteristic of intrinsic disintermediation and the crystallization of the traceability of the transferred asset are among the most innovative requirements of blockchain technology, which has and have increasing impacts on the evolution of social and organizational models, as well as positive impacts in terms of technological process innovation. Service providers can interface with the blockchain to provide advanced functionality to users, such as API integration services.

The financial sector Currently has the largest number of blockchain applications, as security and privacy of transactions are key requirements.

The blockchain makes it possible to follow when and by whom a particular change was made, this is why blockchain technology is spreading in all scenarios where it is necessary to ensure the traceability and authenticity of a product or service, as the agrifood supply chain.

In addition, another popular application is that of notarization or crystallization of data on blockchain, which ensures the association of a certain date.

Another application on which various concrete projects and initiatives have focused is that of smart contracts, i.e. the automatic activation, based on distributed ledger software technologies, of contracts between individuals upon the occurrence of certain predefined events or conditions by two or more parties.

Smart contracts meet the requirement of a written form after computer identification of the parties involved, through a process that has the requirements established by the Agency for Digital Italy with the Guidelines, which to date, however, have not yet been published, an aspect that has blocked the production of these initiatives.

In conclusion, many sectors have launched initiatives and projects in order to harness the potential of blockchain and its open source features. The growth of these initiatives will be increasingly relevant, but it is important to arrive at the definition and sharing of a cross-industry standard of distributed registers.

For wider adoption by businesses, this will require a definition of other regulatory and legal requirements in order to ensure the responsibility of each entity (node) of the network.

The main areas of application

The Ministry of Economic Development’s national strategic plan has identified several sectors that will benefit the most from the adoption and application of Blockchain / DLT technologies. They are:

  • Industry and manufacturing (Industry 4.0)
  • Agribusiness
  • Made in italy
  • Critical infrastructures
  • Energy networks
  • Incentive behavior in line with the SDGs (Sustainable Development Goals)
  • Constructions of buildings
  • Protection of intellectual property
  • Advanced tertiary sector and cooperative models
  • FinTech and digital payments

In a press release dated February 1, 2018, the European Commission inaugurated the Observatory and the EU Blockchain Forum with the support of the European Parliament, with the aim of highlighting the most important developments in this technology, promoting the European players involved and strengthening European engagement with the different players involved in the blockchain industry.

In the statement, the European Commission said:

Blockchain technologies, which store blocks of information distributed over the network, are considered a major breakthrough, as they bring high levels of traceability and security in online economic transactions. They are expected to impact digital services and transform business models across a wide range of areas, such as healthcare, insurance, finance, energy, logistics, intellectual property rights management or government services. .

Technologies like blockchain can help us reduce costs while improving trust, traceability and security. They have enormous potential for securing social and economic transactions carried out online, as they offer protection against possible attacks and eliminate the need for intermediaries.

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