This blog-post is the second part of an ongoing series, based on our report Blockchain 2020: A Practical Guide to Blockchain Solutions for the Pharmaceutical Supply Chain. In the first article, we have had a look at the current challenges supply chains are facing and raised the question if blockchain might be the long-awaited solution to solve these problems. In this post, we will have a look at the characteristics of blockchain, how it is different from existing technologies, and why this matters.
The full report can be downloaded here.
WHAT IS BLOCKCHAIN?
Blockchain is most well known as the technology behind the digital cryptocurrency ‘Bitcoin’ and is commonly used as an umbrella term for a whole suite of Distributed Ledger Technologies (DLTs) that can be programmed to record and track anything of value such as money, medical records or land titles.
Data in a Blockchain gets stored in batches called blocks. These blocks are linked together chronologically and form a metaphorical chain of blocks—hence the name blockchain. If someone wants to change data, they do not change the block but, rather, add a new block to the end of the chain containing the information of which change occurred at a specific point in time. It is a non-destructive way of tracking changes over time.
The second property of blockchain is its unique security mechanism.
Regular databases store data on a single server, maintained by a centralised authority that manages access and verifies entries. This structure relies on the trust of a single person and is, therefore, prone to failure, manipulation or corruption. A blockchain network is a distributed system; that means, that the database and its content is split over several computers. Since there is no centralised authority to manage access or verify entries, the blockchain network needs a system to ensure that all participants converge towards one single version of the database. This way of reaching consensus in a decentralised network is called consensus protocol and describes a set of steps that need to happen before a block gets added to the chain.
First, the network protocol conducts a mathematical competition between all computers. The problem takes a lot of computing power to solve but only a little to verify that it had been correctly solved—this is called proof-of-work. The computer that solves the puzzle first, adds the solution into the block with all other data and transmits the block to the network. The other computers then individually evaluate the solution in the block and vote if it should be added to the chain—if correct, the block gets added to the chain and timestamped with a unique identifier that references the block before him. The huge computational power needed to add a block combined with the interchaining of data via timestamps is what makes blockchain so secure.
If someone would want to manipulate a block he would need to redo all the proof-of-work for the block as well as all subsequent blocks in the chain and, finally, control more than 51% of all computers in the network to agree on the new version of the database. In most cases, the cost of needed processing power would be more than the economic benefit of changing the data; therefore, blockchain is generally regarded as immutable and safe.
“Bitcoin, the oldest and biggest blockchain network, is processing several billion USD of value a day and is operating since 2009 without a single faulty transaction and without being hacked.” 
This brings us to the last characteristic of blockchain: trust.
Trust completely changes the way we can interact with data; usually, we rely on trusted intermediaries such as banks or lawyers to keep our private information confidential, act on our behalf and verify the counterparty. These intermediaries build trust but in turn increase friction, costs, and reduce transparency. Blockchain enables us to trust in the process data that has been created, it enables us to directly interact with it and, therefore, eliminates the need for an intermediary.
In the next article, we will have look at the different types of blockchains, what smart contracts are, and what the unique value proposition of blockchain means for supply chain management.
 Andreas M. Antonopoulos, Mastering Bitcoin (Sebastianopol: O’Reilly Inc., 2017).