The verification and validation of a basic business transactions should be simple. Given the importance of transactions in a business setting and the frequency at which they occur, organizations in all industries need a secure and transparent means to validate transactions. In a highly technological society, the methods of verification can change quickly, but the underlying concerns remain the same. Blockchain can address these basic business needs, but how can it ensure transactional efficiency, without risking the exposure of sensitive business data?
Double Entry Bookkeeping and Blockchain Accounting
Modern accounting is based on double entry bookkeeping. This method gets its name because you enter all transactions twice. For every credit transaction, there is an equal debit transaction. The goal of double entry bookkeeping is to enter financial transaction records so that when reports are ran, the company’s assets are equal to their liabilities, plus the owners’ equity (net worth). Double entry bookkeeping is a costly and time-consuming exercise. Blockchain technology opens the doors for dramatic disruption to this inefficient process, lowering operational costs and eliminating double entry bookkeeping.
Keeping separate records based on transactions creates operational inefficiencies. Blockchain introduces the improved solution of writing transactions directly to a blockchain to create a shared ledger system. A shared ledger system using blockchain makes it possible to easily validate transactions with a single source of truth. A general ledger records transactions relating to a company’s assets, liabilities, equity, revenue, and expenses.
One approach to validating blockchain transactions is recording a hash of the transaction. That hash represents the transaction in the form of a digital fingerprint. It can be used to validate transactions, while being resistant to change. Anyone can participate in public blockchain networks, like Bitcoin and Ethereum, making it easy to share data. However, this openness of information raises data privacy concerns. The more secure, transparent, and efficient solution to these transaction verification pitfalls reside in a hybrid blockchain model.
Validity is Built in with Dragonchain
Dragonchain’s architecture uses a hybrid blockchain model, providing users with a spectrum of trust. Level 2 Nodes validate Level 1 transactions without having to see specific details from said transaction. They store the transaction’s hash in form, signature, and required data elements. Level 2 nodes are hosted by the Dragonchain user community and provide a compute service without provisioning or managing servers. Designed for scalability, Level 2 nodes only require payment for the nodes that are validated. If Level 1 could be compared to other blockchain systems, where data can be trusted by the team that owns it, Level 2 is where checks for block and individual transaction validity occur.