In this guide, we'll discuss what the Hyperledger project is, including the Hyperledger Fabric private blockchain and industrial applications of the project.
First, let’s clarify what Hyperledger is not.
It is not a company–it is an open-source umbrella project, meaning it’s an association of institutions that work together formally to coordinate activities or pool resources.
It’s also not a cryptocurrency—instead, it’s a project to support the collaborative development of blockchain-based distributed ledgers.
As we'll discuss in this article, these blockchain-based distributed ledgers have some incredibly exciting non-currency and commercial use cases. This article is based on notes from this Hyperledger Crash Course and is organized as follows:
- What is Hyperledger?
- What is Hyperledger Fabric?
- Industrial Applications of Hyperledger Fabric
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What is Hyperledger?
As described in their 2016 announcement, Hyperledger is a collaborative, cross-industry open standard for distributed ledgers that allows businesses to more securely and cost-effectively exchange value with each other by streamlining business processes.
Since distributed ledgers are peer-to-peer in nature, this type of transparent, decentralized collaboration makes it ideal for application in finance, manufacturing, insurance, and the Internet of Things.
Before we get further into the Hyperledger project, first let’s review a few blockchain-related definitions.
Distributed Ledger
A distributed ledger is any database that is shared amongst a group of peers rather than stored in one central location. The traditional way of maintaining ledgers would be for each party to show one side of the transaction
For example, two banks that are transacting with each other would show -$100 for the sender, and +$100 for the receiving institution.
In a distributed ledger, however, both banks would have a copy of the same database, and both copies of the database would be updated simultaneously.
What you’re left with is a system of record that allows different entities to trust each other and clearly track goods and services as they change hands.
Distributed ledgers can be any type of database that is shared across multiple entities, meaning it doesn’t necessarily have to do with a blockchain.
Blockchain
A blockchain is a type of distributed ledger.
Blockchains use a data structure in which blocks of record are chained together in chronological order using cryptographic hashes.
As blockchain is governed by cryptography and it is append-only–meaning records cannot be deleted or changed once added to the database.
This immutability can be limiting in some ways, but the benefit is that it ensures that no data can be tampered with once added to the ledger, which is extremely useful when dealing with data from multiple entities.
Public vs. Private Blockchains
So what makes public blockchains like Bitcoin and Ethereum different from private solutions like Hyperledger?
Since distributed ledgers share the same data amongst multiple entities, there needs to be a mechanism to ensure both entities are updating the data in the exact same way, and at the same time. Otherwise, each entity would have a slightly different database, rendering it effectively useless.
To accomplish this, distributed ledgers rely on consensus protocols, which are a shared process for determining how new data is verified and added to the ledger.
What distinguishes public and private blockchains is how their consensus protocols are implemented.
Remember that anyone can join a public blockchain as long as they have a computer & internet connection.
So the goal of a public blockchain is to create an economic environment where multiple parties that don’t know each other can transact without having to trust each other.
The goal of a private blockchain is different.
Instead of millions of people transacting globally (as is the case with a cryptocurrency blockchain), in a private blockchain each entity is often only transacting with a handful of other businesses at a time.
Since each party knows the others they are transacting with and generally has legally binding agreements with them, they aren’t as worried about being cheated as much as millions of people transacting with each other would (although of course, this is still a concern).
What businesses are often focused on is optimizing their processes and making interactions faster and more reliable. As a result, private business blockchains often define the rules for their distributed ledger protocols themselves.
Unlike public blockchains where anyone can join, each entity in a private must be authenticated into the system and will have specific access rights based on what was determined by all the businesses who share the ledger.
What is Hyperledger Fabric?
Hyperledger Fabric is a widely used private blockchain, primarily in enterprise settings to make transactions between multiple businesses more efficient. Like other blockchains, Hyperledger Fabric records a history of transactions in chronological order.
With Bitcoin, for example, what is recorded on the blockchain is the history of Bitcoin transactions. In Hyperledger Fabric, however, the definition of what is transacted is a bit looser, it is an asset—or anything that has monetary value.
How Can Businesses Transact on Fabric?
Here are 7 key points that you should know about how businesses can transact on the Hyperledger Fabric:
- Businesses can set the type of asset being transacted themselves – for example, it could be cars being bought and sold in a car supply chain.
- Assets are represented as a collection of key-value pairs, with state changes recorded as transactions on the ledger.
- Hyperledger Fabric provides the ability to modify assets using chaincode – which is software that defines an asset or assets, and the transaction instructions for modifying them. Chaincode is basically like business logic for a blockchain.
- Businesses in the Hyperledger network share the business logic, and all of them sign off on changes to database
- Members of each permissioned network interact with the ledger using chaincode
- Since the blockchain is private, Fabric uses a membership identity service that manages IDs and authenticates participants
- Access control lists provide additional layers of permission, and this permissioned network also assigns network roles by node type
Key Points about Hyperledger Fabric
There are 2 node types within the Hyperledger Fabric Network:
- Peer Nodes execute and verify transactions
- Ordering Nodes are responsible for ordering and propagating transactions to the network
This increases efficiency and scalability by allowing peer nodes to batch and process multiple transactions simultaneously. The networks consensus protocol, which businesses customize, is then implemented to create a single true record of transactions.
The Fabric ledger is comprised of 2 components:
- The Blockchain Log stores the immutable sequenced record of transactions in blocks
- The State Database maintains the blockchains current state (this is different than with BTC, which has no database
Hyperledger stores the current state and allows members of the network to query it.
The purpose of a log here is to track an asset's provenance, or place of origin, as it is exchanged amongst multiple parties. To track an asset's provenance means to track where and when it was created.
Provenance is important for business, as the business selling an item possesses the chain of titles verifying their ownership
The Problem
In our current database infrastructure, where multiple parties maintain their own ledgers and keep an incomplete record of the assets transactions, provenance is very difficult.
The reason businesses stuck to this broken data infrastructure system for as long as they did is for the sake of privacy. The problem with earlier versions of distributed ledgers were that every member of a network would have access to all the transactions, even if they weren’t involved in the transaction themselves.
This was a deal-breaker for businesses who were perhaps in the same business network as their competitors, and didn’t want to reveal their data and transactions to them.
The Solution
Hyperledger Fabric solves this problem by using Private Channels, which are restricted messaging paths that provide privacy for specific subsets of network members. All data on a private channel is invisible to members that are not granted access.
This important feature allows competing business interests to exist on the same permissioned network.
Industrial Applications of Hyperledger Fabric
Now that we know what Hyperledger Fabric is, let’s look at a few real-world applications of the private blockchain solution from this IBM blockchain use-cases resource.
1. Supply Chain
The Hyperledger Fabric can provide participants of a supply chain network the ability to input and track the sourcing of materials, track the provenance of goods through shipping, and maintain immutable records of the production and storage of a finished good all the way to a consumers purchase.
By improving supply chain visibility, the Hyperledger Fabric can reduce frictions to improve the cost, time, and risk associated with these complex processes. You can read a white paper by IBM about blockchain for an electronics supply chain here.
2. Insurance
IBM, AIG, and Standard Chartered partnered together to create a blockchain-based policy providing increased trust in insurance underwriting. This solution enables the execution of multinational coverage to operate more efficiently through a shared view of policy data and documentation in real-time. You can watch a video about the project here.
3. Food Safety and Traceability
A group of companies across the global food supply chain announced a blockchain-based collaboration with IBM with the goal of strengthening consumer confidence in the global food supply. You can read the press release here.
4. Carbon Credit Management
IBM recently announced a blockchain-based carbon credit management platform based on Hyperledger Fabric. You can read the full press release here.
5. Private Equity
Private equity as an asset class is a very manual process. Wherever there exists a tangle of manual processes managed by multiple parties, blockchain can pose an elegant solution. You can learn more about how Northern Trust is implementing this here.
These are just a few examples of industry use-cases of Hyperledger Fabric, if you want to learn more about blockchain use cases we recommend this resource from IBM.
Summary: Hyperledger Fabric
These are the top 5 core functionalities that make Hyperledger Fabric unique from other blockchain projects:
- Members can define their own asset types and consensus protocols for ordering transactions
- They can set permissions on who can join the network
- To increase efficiency and scalability, nodes are divided into two types – peer nodes and ordering nodes
- The fabric ledger itself consists of a database of the current state (which can be queried) and a log of transactions stored as a blockchain for tracking the provenance of each asset
- Assets are added, updated, and transferred using chaincode in the form of smart contracts deployed and invoked on the network
While most blockchain projects today focus on cryptocurrencies and tokens, Hyperledger has demonstrated the huge potential to build industrial applications of blockchain technology.
With interesting concepts and leaders behind this project, the ongoing developments of Hyperledger are worth keeping an eye on.
