What is blockchain

Blockchain is a chained data structure that combines blocks of data chronologically in a specific order, storing a record of all transactions since the birth of the system. Data on the blockchain is jointly maintained and stored by the nodes of the whole network. Meanwhile, cryptography ensures that the block data cannot be tampered with and forged. So blockchain is essentially a distributed shared database. Block chain allows any number of nodes in the system to generate associated data blocks (i.e. blocks, blocks) through cryptography. Each data block contains all the data of information exchange in the system within a certain period of time, and combines the data blocks into a chain data structure in accordance with the chronological order.

Blockchain is an innovative application model of distributed data storage, point-to-point transmission, consensus mechanism, encryption algorithm and other computer technologies in the Internet era. It is an information technology solution to solve the problem of trust and reduce the cost of trust. The application of blockchain technology can outlaw the traditional trust intermediary, subverted the old centralized model that has existed for thousands of years, and solve the trust problem between strangers without the need for the centralized trust intermediary, greatly reducing the cost of trust.

Noun explanation

  • Decentralized: Compared with centralized, Decentralized is one of the typical characteristics of blockchain, corresponding to the English word “Decentralized”, a complete representation of which is the mode of computing with distributed computer resources without the centralized server (cluster).
  • Consensus mechanism: a mathematical algorithm for establishing trust and gaining rights between different nodes in a blockchain system.
  • Distributed database: A database that can be shared across multiple sites, different geographic locations, or a network of multiple organizations.

Block + chain = history + verification

The block structure has two very important characteristics:

The bulk of each block contains the hash of the transaction information of the previous block, thus forming a chain from genesis block to the current block;

Transactions on each block body record all value exchange activities occurring after the creation of the previous block and before the creation of the block;

In most cases, a new block is successfully created and added to the chain, and the data record for that block cannot be changed or altered.

The characteristics of blockchain

  • decentralized

The distributed structure of blockchain allows data to be recorded and stored not on a centralized computer or mainframe, but on every node involved in data transactions. To this end, blockchain systems employ open source, decentralized protocols to ensure complete recording and storage of data. Blockchain builds a set of protocol mechanisms that allow each node in the network to participate in the recording of data, but also to participate in the verification of the results recorded by other nodes. The data is written to a block only when most or all of the nodes in the network have confirmed the correctness of the record. In the distributed structure of the blockchain network system, all the data in the whole network system will be updated and stored by the network nodes participating in the recording in real time. Therefore, even if some nodes are attacked or destroyed, it will not affect the data update and storage of the system.

  • unforgeable

The principle of blockchain recording requires all participating nodes to jointly verify the correctness of transaction records. Since all nodes record every transaction in the entire network, if information recorded by one node does not match that of another node, the other nodes will not recognize the record and the record will not be written to the block.

  • Do not tamper with

It is almost impossible to change a block and the trading information within it. If this block is changed, then every subsequent block will be changed. So someone trying to tamper with the data would have to simultaneously hack into at least 51% of the nodes participating in the global record and tamper with the data. Technically, it’s almost impossible.

  • Mathematical encryption

Each transaction requires a valid signature to be stored in the block. Only a valid digital key can generate a valid signature. Keys come in pairs and consist of a private key and a public key. The public key is public, and the private key is visible and used only by the owner to sign transactions and prove digital identity.

How can blockchain solve the pain points of supply chain finance

Supply chain finance is a comprehensive financial product and service provided to upstream and downstream enterprises of the supply chain based on core customers and on the premise of real trade background. It uses self-compensatory trade financing to close capital flow or control property rights through professional means such as accounts receivable pledge registration and third-party supervision.

Supply chain is the foundation of supply chain finance. Supply chain involves information flow, capital flow, logistics and business flow, which is naturally a multi-subject and multi-collaborative business model. In this case, trade financing will first encounter many problems of authenticity, such as the authenticity of transactions and documents, which need to be confirmed by multiple parties and cost a lot of manpower and material resources. Secondly, it is difficult to interconnect with multiple entities involved. For example, the supply chain management system, enterprise resource management system and even financial system used by each entity are different, which leads to difficult docking. Even if connected, it will be difficult to share information because of the inconsistency of data format and data dictionary.

There are also some industry pain points in SUPPLY chain finance:

  • First, as mentioned above, there are many information islands in the supply chain, and the incommunication of information among enterprises restricts the verification of a lot of financing information.
  • Second, the credit of the core enterprise cannot be effectively transmitted. According to the contract law, the core enterprise signs a contract with the tier 1 supplier, but when the tier 1 supplier signs a contract with the tier 2 supplier, the core enterprise is not involved, and the credit of the relevant core enterprise cannot be transmitted to the multi-level supplier.
  • Third, banks lack credible data on smes. Under the existing bank risk control system, smes cannot prove the existence of trade relations and it is difficult to obtain bank funds. Banks, by contrast, cannot penetrate the supply chain to acquire customers and lend money;
  • Fourth, financing is difficult and expensive. In the current prevailing credit sales market, suppliers in the upstream of the supply chain often have a large capital gap, but without the endorsement of core enterprises, they are difficult to obtain high-quality loans from banks.
  • Fifth, settlement is not automatic. At present, many contractual settlement is not completed automatically, and there are more uncertain factors when multi-stage supplier settlement is involved.

Therefore, supply chain finance needs data penetration and information sharing. By integrating capital flow, information flow, logistics and business flow, it can improve the authenticity of information, transmittability of credit and high efficiency of financing. Based on block chain, supply chain finance links all relevant parties to a platform through block chain technology, confirms the right data storage through multi-party accounting, realizes the horizontal sharing of data, and then realizes the trust transmission of core enterprises. Based on the constraints of property law, electronic contract law and electronic signature law, the core enterprise credit line can improve the financing efficiency of small and medium-sized enterprises, reduce the financing cost of small and micro enterprises, and accelerate the realization of inclusive finance.

What are the advantages of introducing blockchain?

  • First, to solve the problem of information island, multiple stakeholders can set rules in advance, speed up data exchange and information sharing;
  • Second, according to the property law, electronic contract law, electronic signature law, etc., the accounts receivable certificate of core enterprises can be transformed into transferable and financeable certificate of confirmation through block chain, so that the credit of core enterprises can be transmitted along the credible trade link. Based on mutual confirmation of rights, the whole voucher can be derived from a variety of operations such as splitting and tracing.
  • Third, provide reliable trade data. For example, provide online well-structured and complete records of basic contracts, documents and payments under the framework of blockchain to enhance information transparency and achieve penetrable supervision.
  • Fourth, reduce capital costs and increase efficiency. After the credit transmission of core enterprises, smes can use the credit line of core enterprises to reduce financing costs and improve financing efficiency;
  • Fifth, realize intelligent settlement of contracts. Automatic settlement based on smart contract reduces manual intervention, reduces operational risks and guarantees the security of payment collection.

In a word, from the perspective of the whole information flow, the former information island has become the information of the whole chain, and the traditional core enterprise can only cover tier one suppliers, but now it can cover multi-level suppliers. Based on encrypted data transaction approval and deposit certificate transaction real proof, based on Shared book trust transfer and intelligent contracts, contract execution, to form the receivable closed control, transmission regulation, all data through new ecological chain, mainly to micro, small and medium enterprises to solve the problem of “financing difficulties, financing expensive”.

Blockchain application case – Big buy steel mesh solution

The Blockworm Baas (Blockchain as a Service) platform built by Yiqi Cloud Service is a cloud platform providing blockchain services, which can help users quickly build blockchain infrastructure and connect business data. Relying on data on blockchain, Yiqi Cloud services provides financial services to small and medium-sized enterprises up and down the supply chain. The platform adopts block chain multi-chain structure. B2B platform, suppliers, purchasers, storage institutions and logistics institutions serve as data entry nodes to store information flow, business flow and logistics data in the supply chain on block chain. First of all, blockchain improves the efficiency of transaction collaboration by opening up the information systems of all participants and providing a trusted collaboration environment. Secondly, multiple participants cooperate based on the transaction itself to jointly witness the transaction process and guarantee the authenticity of the transaction. Finally, financial institutions, as credit and capital providers, based on credible data sources, use data analysis and other means to grant credit and make loans for enterprises. It simplifies the financing process, improves the financing efficiency and reduces the financing cost. The following is a case of business data recording using blockchain on the Blockworm platform of STEEL B2B e-commerce enterprises. The transaction of all parties is recorded from the moment the order is generated, including the key nodes in the process of warehousing and logistics. The data is stored in the transaction chain. The whole transaction can be traced and cross-verified according to the information of all parties to prevent false transactions and ensure the authenticity of the transaction.



Figure 1. Key nodes in the whole transaction process are recorded on the transaction chain

The specific process is:

  1. Information about the new orders of Dameang is recorded on the blockchain;
  2. Buy steel greatly changed the order status to waiting for delivery;
  3. When the third party warehouse finds the order to be delivered on the chain, it will carry out the operation of goods being delivered and mark the order status as being delivered;
  4. The third-party logistics company that undertakes the transportation of goods starts to deliver the goods and updates the order status to in transit;
  5. The downstream buyer receives the goods and marks the order status as received.

Accounts receivable and bills generated in all transactions can be used as financing targets and registered in the asset chain to form digital assets. This process is called asset digitization. These digital assets are essentially the creditor’s rights of enterprises in the supply chain. Asset chain records the financing process of all assets. Part of the process can be automated by smart contracts on the chain, saving labor costs.



Figure 2. Financing chain records the process of generating financing assets

Meanwhile, in the transaction chain, digital assets can be split and purchased from upstream suppliers as creditor’s rights (or capital). In this way, relying on the credit of core enterprises, they can be transmitted to the whole supply chain to enhance the credit of smes in the supply chain.



Figure 3. Financing assets can be moved along the chain

Integration figure (1) – (3), finally will turn into a more chain model (FIG. (4)), first of all, the truth of assets provided by the trading chain chain is among assets, the need for financing the assets can be registered to the chain, the chain of financial institutions based on assets, for the integrity of the assets, assessing risk, targeted financial services.



Figure 4. Multi-chain structure. Transaction chain adds credit to financing assets on the asset chain

Creditease Institute of Technology

Author: Yu Mingyang