- Transparency, security and traceability are some of the favourable features of blockchain technology.
- Smart contracts also play an important role in the advantages of blockchain.
Before analysing the benefits of blockchain technology, let’s briefly review what it is.
What is blockchain?
Blockchain can be defined as a system for storing information in blocks, which are groups of information marked with a timestamp and a digital fingerprint of the previous block, called a hash.
These blocks are linked together to form a chain, hence the name.
One of the main characteristics is that if any data is modified in any of the blocks, the hash corresponding to that block would no longer be related to the rest of the chain.
What are smart contracts?
Since we will mention smart contracts in the subsequent breakdown of the benefits of blockchain, we can define them as computer applications for developing automated and self-executing actions.
An execution that is carried out when predefined conditions are met without the need for intermediaries.
What are the advantages of blockchain?
Telefónica Tech points to a series of benefits in the use of blockchain technology:
Transparency and traceability
All transactions are carried out in a visible manner, recorded with the date and time, and accessible to those participating in the network, thus facilitating audits and generating trust. This allows the complete history of files to be traced.
This ability to consult the complete history of a transaction effectively eliminates the possibility of fraud.
This traceability is particularly useful in supply chains, as it allows not only the origin but also the handling of products to be verified.
This tracking can be highly relevant in certain sectors where users or customers want to know, for example, the standards in various areas such as compliance with environmental requirements or the safeguarding of human rights.
Indirectly linked to transparency, we find that the consensus required to validate each transaction also fosters trust.
Security
The fact that the information is not stored in a single location, but is encrypted in a network of devices working in unison, increases the level of security.
This is because any potential attacks would have to compromise all the computers in the network in order to alter the availability of the information or its functioning.
Cryptography is another feature that makes blockchain secure, protecting transactions through advanced mathematical algorithms, cryptographic hashes and digital signatures.
Immutability
Related to security is also the ability to record information in a way that is not only unalterable but also permanent, which is guaranteed by the registration date we mentioned in the section on transparency.
This guarantees the integrity of the information and makes it impossible for agents, whether internal or external, to modify it.
Speed
Smart contracts serve to automate workflows and decision-making with pre-established execution conditions, as explained above.
This, combined with the fact that they are executed automatically and in real time, means an increase in the speed of processes.
Efficiency
Another benefit of smart contracts is the automation of transactions and streamlining of processes, which leads to improved efficiency.
In many sectors, such as finance, this increase in efficiency is accompanied by a reduction in costs.
