Blockchain for dummies


Difference Between Bitcoin and Blockchain?

Bitcoin is only one of the application of blockchain technology

Instead of having a blockchain that relies on the exchange of cryptocurrencies with anonymous users on a public network (as is the case with bitcoin), a blockchain for business is a private, permissioned network with known identities and without the need for cryptocurrencies.

Proof of work is useful on a public blockchain, such as the one used
for bitcoin, but it consumes considerable computing power and electricity,
making it an expensive way to reach consensus. Such an
expense is unnecessary on a private business network where all participants
are known.

The emergence of bitcoin?

Bitcoin — a digital currency that was launched in
2009 by a mysterious person (or persons) known only by the
pseudonym Satoshi Nakamoto.
Unlike traditional currencies, which are issued by central banks,
bitcoin has no central monetary authority. No one controls it.
Bitcoins aren’t printed like dollars or euros; they’re “mined” by
people and increasingly by businesses, running computers all
around the world, using software that solves mathematical puzzles.
Rather than rely on a central monetary authority to monitor,
verify, and approve transactions and manage the money supply,
bitcoin is enabled by a peer-to-peer computer network made up
of its users’ machines, akin to the networks that underpin BitTorrent
and Skype.

Key characteristics of blockchain network?

Consensus: For a transaction to be valid, all participants must agree on its validity.
Provenance: Participants know where the asset came from and how its ownership has changed over time.
Immutability: No participant can tamper with a transaction after it’s been recorded to the ledger. If a transaction is in error, a new transaction must be used to reverse the error, and both transactions are then visible.
Finality: A single, shared ledger provides one place to go to
determine the ownership of an asset or the completion of a

Not all blockchains are built for business. Some are permissioned
while others aren’t. A permissioned network is critical for a blockchain
for business, especially within a regulated industry.

Blockchain Example

Car companies make leasing a vehicle look easy, but in reality, it
can be quite complicated. A significant challenge faced by today’s
car leasing networks is that even though the physical supply chain
is usually integrated, the supporting systems are often fragmented.
Each party within the network maintains its own ledger,
which can take days or weeks to synchronize (see Figure 1-2).

FIGURE 1-2: Tracking vehicle ownership without blockchain.

By using a shared ledger on a blockchain network, every participant
can access, monitor, and analyze the state of the vehicle
irrespective of where it is within its life cycle (see Figure 1-3).

FIGURE 1-3: Tracking vehicle ownership with blockchain

With blockchain, network participants can interact as follows:

  1. The government regulator creates and populates the registration for the new vehicle on the blockchain and transfers the ownership of the vehicle to the manufacturer.
  2. The manufacturer adds the make, model, and vehicle
    identification number to the vehicle template within the
    parameters allowed by the smart contract.
  3. The dealer can see the new stock availability, and
    ownership of the vehicle can be transferred from the
    manufacturer to the dealership after a smart contract is
    executed to validate the sale.
  4. The leasing company can see the dealer’s inventory.
    Ownership of the vehicle can be transferred from the dealer
    to the leasing company after a smart contract is executed to
    validate the transfer.
  5. The lessee can see the cars available for lease and
    complete any form required to execute the lease
  6. The leasing process continues between various lessees
    and the leasing company until the leasing company is
    ready to retire the vehicle.
    At this point, ownership of the asset is transferred to the
    scrap merchant, who, according to another smart contract,
    has permission to dispose of the vehicle

The value of Blockchain — remove market friction

Blockchain technology has the potential to remove much of the
remaining market friction — the speed bumps that throttle the pace
of business.

Reducing information friction

Uncertainty over the information needed to make business
decisions often acts as a barrier to business. Blockchain has
several properties that reduce information friction, including the
»»Shared ledger: Blockchains shift the paradigm from information
held by a single owner to a shared lifetime history of an asset or
transaction. Participants can validate transactions and verify
identities and ownership without the need for third-party
intermediaries. All relevant information can be shared with
others based on their roles and access privileges.
»»Permissions: A blockchain for business network can be set
up as a members-only club, where every participant has a
unique identity, and participants must meet certain criteria
to conduct transactions. Participants can conduct transactions
confident that the person they’re dealing with is who
she claims to be.
»»Cryptography: Advanced encryption, along with permissions,
ensures privacy on the network, preventing unauthorized access
to transaction details and deterring fraudulent activity.
»»Consensus: Ensures that all transactions are validated
before being appended to the blockchain, and the blockchain
itself is highly tamper-resistant.

Easing interaction friction

Blockchain is particularly well-equipped to reduce interaction
friction because it removes the barriers between participants in a
transaction. Blockchain properties that reduce interaction friction
include the following:

»»Shared ledger: Asset ownership can be transferred between
any two participants on the network, and the transaction
recorded to the shared ledger.
»»State-based communication: Today, banks communicate
via secure messaging architecture, such as SWIFT, to
accomplish tasks, with each bank maintaining its state of the
task locally. With blockchain, banks can send messages that
represent the shared state of the task on the blockchain,
with each message moving the task to the next state in its
life cycle.
»»Peer-to-peer (P2P) transactions: On a blockchain for
business network, participants exchange assets directly,
without having to process the transaction through intermediaries
or a central point of control, thus reducing the costs
and delays associated with the use of intermediaries.
»»Consensus: In place of intermediaries, blockchain uses
consensus algorithms to validate and authorize transactions.
Participants can conduct business at a pace that is more
in-line with the pace of their business decisions.
»»Smart contracts: Smart contracts eliminate the hassles and
delays inherent in contracts by building the contract into the
transaction. Through smart contracts, the blockchain
establishes the conditions under which a transaction or
asset exchange can occur. No more faxing or emailing
documents back and forth for review, revision, and

Easing innovation friction

Innovation friction is possibly the most difficult to overcome
through technology alone, but blockchain can help in the following

»»Eliminate the cost of complexity: As an organization’s
operations become increasingly complex, its growth results
in diminishing returns. Blockchains have the potential to
eradicate the cost of complexity and ultimately redefine the
traditional boundaries of an organization.
»»Reduce costs and delays of regulatory processes:
Automation can’t entirely eliminate governance through
regulation, but it can lower the costs and reduce delays
inherent in regulatory processes.
»» Expand opportunities: Blockchain can be both good and
bad for businesses by providing the technology that enables
businesses to develop new competitive business models.
Some businesses will fail, while others redefine entire

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