Blockchain development - A simple guide on how to implement blockchain into your business. Ever since the introduction of cryptocurrency, blockchain platforms have been transforming the way digital money is distributed throughout the economy.
Financial investments in blockchain are getting bigger and it’s just the beginning. If you’re trying to figure out how blockchain can deliver value to an industry, this is the right place where you can find all the information on blockchain development.
Blockchain technology is an emerging technology that has experienced rising popularity in the last few years. According to Gartner, blockchain will generate an annual business value of over $175 billion by 2025 and rise to over $3 trillion by 2030. From banking to insurance, blockchain is replacing every underlying technology to cut down intermediary costs by 40% - 80%.
This guide is created to help global innovators, business leaders, solution experts and developers begin their own blockchain journey. Here, we’ll walk you through the basics of blockchain, ways to implement it in your business, and what are the different processes involved in blockchain development.
What is blockchain?
Blockchain refers to an expanding collection of records. These records are called blocks, and each block has a cryptographic hash function that connects it with the block that comes before it. Blockchain databases are open, distributed ledgers that are usually managed by a peer-to-peer network. The very first block in a blockchain is called the genesis block.
Each block in a blockchain comprises of three main components:
1. Cryptographic hash
In a blockchain network, the information stored in the blocks is cryptographically linked by means of a cryptographic hash or timestamp of the preceding block.
2. Peer-to-peer network
Blockchain operates on a P2P network that stores an exact copy of the shared distributed ledger. Blockchain helps us carry out transactions without the need for an intermediary party. The shared distributed ledger manages an expanding list of secure and tamper-proof transaction records.
3. Consensus mechanism
The consensus mechanism is the governing principle that is used to achieve an agreement between the two parties involved in a transaction within a P2P network.
The four different types of consensus mechanism algorithms are:
- Proof of work - It is one of the most commonly used consensus algorithms. Here the work done by each participant node should meet a specific standard to acquire the right to initiate new transactions within the blockchain. For example, both Bitcoin and Litecoin works based on this principle.
- Proof of stake - Here the authority to maintain a distributed ledger is assigned to a participant node based on the number of crypto tokens held by it. For example, both Peercoin and Ethereum cryptocurrency tokens function based on proof of stake.
- Proof of space - Proof of space functions based on the reserved memory space of the contributing nodes in the network. The authority to manage the shared distributed ledger is given to the contributing node that has allocated the most space. For example, Burstcoin cryptocurrency token works based on this consensus algorithm.
- Proof of authority - It is used in both private and public blockchain networks. Every transaction initiated between the blocks is validated by means of a validator account. Validation is an automated process and doesn’t require constant monitoring. However, for that to happen the operating computer (authority node) needs to properly maintained. Proof of authority is most commonly used in networks that work based on trust.
How does blockchain work?
Once new data is stored in a block, it is added to the chain of blocks. The data stored in a block cannot be replicated, updated, or deleted. Incorporating blockchain in business improves transparency, ensures accountability and eliminates third-party involvement.
For a block to be added to the chain of blocks, four conditions must be satisfied:
- Firstly, a transaction needs to be initiated.
- Secondly, the initiated transaction must be a verified one.
- Thirdly, the verified transaction needs to be stored in a block.
- Fourthly, the block must be given a unique identification code or cryptographic hash.
An easy way to understand blockchain is to consider the case of a Google document. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the document are being recorded in real-time, making changes completely transparent.
Why you should adopt blockchain technology in your business?
There are many advantages to implementing blockchain technology. To a large extent, it can help improve operational efficiency and productivity levels. The main benefits associated with this technology are:
- Decentralization: Instead of relying on a single trusted entity, trust is spread across multiple or all participants, depending on the agreed-upon consensus algorithm.
- Immutability: Once data is committed to the blockchain and a sufficient number of participants have agreed on this state, the information is stored permanently and immutably.
- Security: Blockchain is considered to be a highly secure system due to its digital signature and encryption. The system is specially designed to be secure, convenient, and tamper-proof.
- Fraud control: A system that is based on data stored in a number of places is immune to hackers; it’s not that easy to get access to it, and if so, any piece of information can be easily recovered
- Transparency: Banks, as well as the clients, are immediately notified about the completion of transactions, which is both convenient and trustworthy.
- Speed: Transactions are processed way faster than usual as there is no need to include payment systems, which reduces the cost and increases the processing speed.
Some of the practical applications of blockchain technology
Blockchain is an industry-agnostic technology. The potential use of blockchain technology goes beyond cryptocurrencies. From a transparent food supply chain to decentralized identity management of people, blockchain is simplifying business complexity to gain better trust, traceability, and improved collaboration. New research helps enterprises understand the need for blockchain adoption through a suitable blockchain model or framework that shapes their business use case. Studies by Gartner show that blockchain technology will govern the movement and tracking of $2 trillion goods and services across international borders annually by 2023.
Here are some of the practical applications of blockchain technology:
1. Financial services - As you all know traditional finance systems are complex, vulnerable to system hacks, and annoyingly slow. Every transaction initiated by traditional systems requires the need for an intermediary to process the transaction. Compared to such systems, blockchain-based transactions happen at a much lesser time and is fully transparent. Recent research carried out by CryptoCoinsNews shows that blockchain adoption in banks will save $27 billion on cross-border settlement transactions annually by 2030. The few major areas in financial services where blockchain technology can create an impact are trade finance, insurance claim processing, cross-border payments, capital markets, money laundering protection, P2P transactions, regulatory compliance and audit.
2. Cryptocurrency - A cryptocurrency is a form of digital asset that functions as a medium of exchange. A shared distributed ledger that is cryptographically encrypted stores the ownership records of the individual coins. It is not governed by a central authority. This helps to greatly reduce the risk and transaction costs involved. Cryptocurrency initially began as a form of digital money, but its industry use cases extend from low-cost money transfer to tokenized fundraising for startups. Some of the commonly used cryptocurrencies are Bitcoin, Litecoin, Peercoin, etc.
3. Healthcare - The outbreak of the COVID-19 pandemic has made us realize that the existing healthcare systems are still inadequate. But, blockchain technology can help us over these challenges. From secure health record management to medical staff credentialing and drug traceability to fraudulent activity detection in clinical trials, blockchain revolutionizes the way the healthcare data is managed by both patients and healthcare providers. As per the report by BIS Research, the global spending of the healthcare industry will reach $5.61 billion by 2025. This will automatically save up to $100-$150 billion in costs per year by preventing data loss, fraudulent activities, and the production of counterfeit products.
4. Smart contracts - A smart contract is a form of digital agreement that helps you to exchange digital currencies, shares, land properties, or anything value-added between two or more parties in an agreeable and transparent manner without the use of an intermediary service. For example, consider a scenario where you are trying to buy a building using a smart contract. Wherein you agree to pay 20% of the building cost before the transfer of ownership and the rest would be paid after the building ownership is transferred at the agreed date. Then each party would initially send their own part of the deal to be put into the smart contract, which will initially hold the money paid and will automatically exchange the money to the other party as soon as the ownership documents are sent on the agreed date. If the ownership documents are not transferred on the agreed date, then the contract becomes void and the money will be refunded. This helps us eliminate third-party costs involved.
5. Supply chain - A supply chain network primarily comprises production plants, inventory warehouses, suppliers, distributors, third-party logistics providers, retailers and end consumers. So when we think about the supply chain, we need to visualize the entire supply chain from an end-to-end perspective. Adopting blockchain technology in supply chain operations helps us deliver better transparency into the origin of consumer goods or products right from raw materials gathering to end consumption, improved traceability of consumer goods or finished products during delivery, and better trademarking of consumer goods or finished products. Reports by Forbes show that the global food industry is moving into the rapid adoption of blockchain technology to accurately track the source and safety of food during the farm to the user journey.
6. Government - The majority of the government administrative systems all around the globe are still governed by the age-old 19th century centralized and hierarchical governance models. These outdated systems are no longer able to keep up with the speed of the modern digital world we live in. This is why adoption of blockchain technology in government models can help us keep both citizens and government data secure, build trust in government systems, streamline operations, minimize fraudulent activities, authenticate voters in elections, prevent corruption and wastage of resources. Since blockchain-powered governance models are not controlled by a centralized authority, it significantly reduces the chances of failure.
7. Media & entertainment - Even though blockchain technology is still in its early stages, its applications in the media and entertainment industry is too big to be ignored. For any content distributor, managing both digital content rights and royalty payments between intermediaries using the existing digital ecosystems would be difficult. But, blockchain technology can help us bring traceability into intellectual digital content, prevent piracy of content, reduce restrictions on paid content access across boundaries, introduce royalty payments using smart contracts, and monetization of digital content through P2P micro-payments.
8. Retail - In a competitive environment, simply providing a personalized customer experience across shopping channels doesn’t always attract recurring customers. To do that, you need to gain their trust by providing them with what they desire. For instance, when a customer initiates a purchase, he/she is always worried about the proper tracking of the product, delivery date of the product or condition of the product at the time of delivery. This is due to the lack of trust in the supply chain transparency. But, what if you can earn their trust by proving that you can be trusted by guaranteeing the product authenticity, provenance and quality standards? With real-time product tracking, supply chain providers are always updated with the accurate location of the product in mere seconds. This will automatically serve as the basis for product authenticity among the users within the retail supply chain network.
9. Real estate - The commercial real estate industry makes up for a major share of the global asset transactions. Unlike traditional real estate systems, the present ones are much more secure and transparent due to the presence of independent networks. The proper use of blockchain technology in real estate enables us to tokenize real-time assets, reduce operations costs, efficiently manage ownerships of a pool of assets, discover alternative market opportunities, better management of financial instruments, reliable asset portfolio management and also help us to take timely investment decisions. One of the major advantages of using blockchain in real estate is that it could be used to greatly improve the land registry process. Here, every land transaction is carried out directly between the buyer and the owner of the land. So, there are no intermediaries or real estate brokers involved which in-turn reduces the chances of fraud. Since the land records are maintained on a secure distributed ledger it cannot be easily tampered with.
10. Travel - Despite automation, many processes associated with the travel industry are still complex and time-consuming. Blockchain solutions can help improve the agility and speed required between disparate systems in the travel value chain. From tracking luggage and identification services to secure and traceable payments, blockchain solutions can transform a number of aspects of the travel industry.
To know more about the applications of blockchain technology, this article would be a better guide for you:
When to use Blockchain for your Startup or existing Platform?
In order to decide whether it would be a good idea to implement blockchain technology in your business, there are a few questions that you must ask yourself:
1. Are you looking to decentralize your operations?
Sometimes businesses need to rely on third parties to facilitate transactions and handle certain authorizations. However, depending on a third party can lead to concerns in security and transparency. If you would like to decentralize your operations, blockchain technology would be an ideal solution for you. Not only does it minimize costs, but it will reduce delays and single points of failure as well.
2. Is trust a key aspect of your business?
Trust is extremely important for most businesses. However, some organizations rely on it more than others. For example, banks depend on the trust of their customers to a very large extent. Such businesses need to create a trustless environment for their stakeholders. Blockchain can help implement such an environment due to its transparent nature. It involves a secure ledger that is accessible to all. This creates a just and fair system.
3. How fast do your transactions need to take place?
If your transactions need to occur at extremely high speeds, then blockchain isn’t the right fit for you. This technology focuses more on the security of the transaction rather than the speed.
4. Do you need to store a lot of data?
If you don’t have a lot of data involved in your business, then a blockchain solution wouldn’t be very beneficial for you. However, if you have a lot of data that needs to be stored, blockchain technology can help you streamline this data and store it in a single, dynamic ledger.
5. Does your information keep changing?
If your information is dynamic, then a blockchain solution will be ideal for you. Making changes to transactional data on paper is very time-consuming. Blockchain solutions allow multiple parties to write their own entries into an incorruptible system.
Blockchain development process
Now let us help you understand what are the different steps involved in a blockchain development process.
First, you will need to analyze your business operations and finalize on the requirements for your blockchain solution. Make sure that the blockchain solution will be able to add significant value to your business. Conduct thorough market research to find out more information about the technology and its applications, so that you will be able to zero in on the best approach to take while developing a technology road-map.
In this stage, you should decide on an approach to your blockchain requirement:
1. Blockchain platform development - With this approach, you build from scratch an entirely new blockchain model or tokenization system. This could be even done by modifying a similar model existing in the industry. Moreover, other blockchain developers will eventually use this system as the core operating model in their blockchain project if it fits their use case. A few examples of such blockchain platforms are Bitcoin, Ripple, Hyperledger, etc.
2. Blockchain-based software development - In this approach, you build a blockchain model based on a pre-existing model or tokenization systems such as Hyperledger, Ethereum, etc. A few examples of such blockchain-based software development solutions are Accucerts and CoinFactory. Accucerts is a blockchain-based certification platform built to bring traceability into the educational and corporate certification processes in order to prove its provenance. CoinFactory is a secure, scalable and fully functional utility and security token issuance platform that supports token issuance through four different blockchain platforms like Ethereum, EOS, Stellar and Tezos.
3. Customized blockchain development - In this approach, you build a blockchain protocol or solution that can be integrated with any existing blockchain solutions. Most of the applications built using the Bitcoin blockchain platform works based on this plug and play blockchain model such as the Bitcoin Miner, Bitcoin Wallet, etc.
Keep this in mind: The choice you make in this stage entirely depends on the business goal you wish to achieve through this blockchain project, the scope of work and the type of problem for which the blockchain solution is built.
Decide on a blockchain platform
There are a number of different blockchain platforms that can be used during the development of your project. While trying to decide on the most suitable platform for your project, you will have to consider factors like developer availability, speed of transactions, granular security, adoption rate, scalability needs, etc. Some of the popular blockchain platforms include Ethereum, Ripple, EOS, Hyperledger, etc.
Visual and technical design
Once you’ve completed the first two steps, it is time to design the solution and outline its functionalities, technical specifications and user stories. This is where you will decide on the technology architecture and the UI/UX design of the application.
Blockchain development & deployment
This is the most important step in the process. A blockchain application is usually built under various versions. Once the developers have the pre-alpha version ready, they need to put it through extensive testing to fix any bugs or errors that may occur.
Costs associated with blockchain development
The cost of a blockchain project can vary depending on your requirements. A complex project will require higher levels of expertise and human resources, leading to greater costs. Other factors that affect costing include the type of blockchain solution, project management tools, the people involved in the project and third-party tool subscription costs.
While looking for developers, you have three main options:
- The cheapest and most risky option would be to hire freelancers.
- If you want more control over your project, you could go with a more expensive option and onboard an in-house team.
- Hiring a blockchain development company offers an ideal middle ground between these two options as it doesn’t involve much risk or high expenses.
To get a deeper insight into this topic, this article would be of great help: