March 8, 2018

Blockchain and SAP: The Blockchain Technology

The Blockchain Technology

In the world of finance the following terms have become common place and there is a lot of buzz around the same – Cryptocurrency, Blockchain, Bitcoin, Bitcoin Cash, and Ethereum. But what do they mean? And why is cryptocurrency suddenly so hot?

As society became increasingly digital, financial services providers started looking for ways and means to offer customers the same services to which they’re accustomed, but in a more efficient, secure, and cost effective way.

Enter blockchain technology.

The origins of blockchain are a bit nebulous. A person or group of people known by the pseudonym Satoshi Nakomoto invented and released the tech in 2009 as a way to digitally and anonymously send payments between two parties without needing a third party to verify the transaction. It was initially designed to facilitate, authorize, and log the transfer of bitcoins and other cryptocurrencies.

How does the blockchain technology work?

Blockchain tech is  easy to understand at its core. Essentially, it is a shared database populated with entries that must be confirmed and encrypted. Think of it as a kind of highly encrypted and verified shared Google Document, in which each entry in the sheet depends on a logical relationship to all its predecessors. Blockchain tech offers a way to securely and efficiently create a tamper-proof log of sensitive activity (anything from international money transfers to shareholder records). This shared database which records all transactions is called the Distributed Ledger.

Blockchain ledgers can include land titles, loans, identities, logistics manifests – almost anything of value. The technology is still new, but the potential impact it can have on business is exciting, and immense.

Blockchain’s conceptual framework and underlying code is useful for a variety of financial processes because of the potential it has to give companies a secure, digital alternative to banking processes that are typically bureaucratic, time-consuming, paper-heavy, and expensive.

Types of Blockchain networks

Consortium Blockchains

In a consortium blockchain, the consensus process is controlled by a pre-selected group – a group of corporations, for example. The right to read the blockchain and submit transactions to it may be public or restricted to participants. Consortium blockchains are considered to be “permissioned blockchains” and are best suited for use in business.

Semi Private Blockchains

Semi-private blockchains are run by a single company that grants access to any user who satisfies pre-established criteria. Although not truly decentralized, this type of permissioned blockchain is appealing for business-to-business use cases and government applications.

Private Blockchains

Private blockchains are controlled by a single organization that determines who can read it, submit transactions to it, and participate in the consensus process. Since they are 100% centralized, private blockchains are useful as sandbox environments, but not for actual production.

Public Blockchains

Anyone can read a public blockchain, send transactions to it, or participate in the consensus process. They are considered to be “permissionless.” Every transaction is public, and users can remain anonymous. Bitcoin and Ethereum are prominent examples of public blockchains.

Business benefits of blockchain technology

Utilizing this new financial platform can bring many business benefits, but most are centered on delivering one or more of six competencies:

Efficiency

As transactions are completed directly between the relevant parties with no intermediary and with digitized information, settling the transaction can be quick. Added to this is the ability to operate ‘smart contracts’ which automatically trigger commercial actions based on satisfying the criteria laid out in the contract. This can dramatically streamline processes and in doing so, remove time and cost from transacting.

Auditability

As each transaction is recorded sequentially and indefinitely, it provides an indelible audit trail for the life of an asset even between parties. This is especially important if source data is essential in verifying an assets authenticity.

Traceability

Tracking goods forwards in a supply chain can be advantageous when seeking to trace where components are currently residing. Information relating to the component can then relayed to or from the new owner for possible action. This is an example of traceability as an advantage in the blockchain technology.

Transparency

Lack of commercial transparency can sometimes lead to delays in commerce and a breakdown in relations. By providing details of transactions against the commercial construct, further trust can be enlisted within the process and so provide a more stable relationship based on transparency rather than negotiation.

Security

As each transaction is verified within the network using independently verified complex cryptography, the authenticity of the information can be assured. Assured information is one of the fundamental keys to unlocking the benefits of the Internet of Things (IoT), which is a closed loop cyber autonomous process linking assets to actions. A version of this is currently being used in the defense Industry for verification of instructions and protection of IP.

Feedback

With full traceability throughout the lifecycle of an asset, the asset designers and manufacturers can accommodate through-life asset management into their products to make them more effective. This can allow for information returning from shipping, installation, maintenance and decommissioning.

How SAP is adopting the blockchain technology

At SAP, blockchain is perceived as a promising way to simplify complex multi-party processes and create trust among participants. SAP is using it’s expertise in 25 industries and across all lines of business to actively explore blockchain technology, and help the customer capitalize on its potential. SAP Leonardo, which is SAP’S revolutionary digital innovation system, includes some early-stage blockchain capabilities, and integrates them with other breakthrough technologies – such as the IoT and machine learning.

SAP Cloud Platform Blockchain service

Embedded in the SAP Cloud Platform, SAP’s blockchain-as-a-service (BaaS) pilot is giving registered customers an easy way to experiment with the technology. By eliminating the need for a large upfront capital investment, BaaS is perhaps the lowest-risk gateway to enterprise blockchain adoption.

Blockchain and IOT co-innovation

SAP is co-innovating with their customers and partners to explore high-value blockchain functionality for some of their existing products. They are currently investigating new capabilities for multiple solutions across theirIoT and supply chain portfolio, including: SAP Asset Intelligence Network, SAP Distributed Manufacturing, SAP Transportation Management, and SAP Global Track and Trace.

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