What is Blockchain?
First and foremost, it is an emerging technology. It is a capability that requires computers, software, business specific application software, protocols, rules, the Internet, involved participants, mathematical expertise, and business or societal problems to which these ingredients can be applied.
Blockchain can be thought of as an operating system, much as Microsoft Windows and MAC OS are operating systems. That is, it is a technology platform for building things. “Blockchain is a developer’s world.”
Whereas the Internet might be thought of as a technology for mining information; the Blockchain might be thought of as a technology for conducting transactions that involve some form of value exchange. The value could be money. But, it could also be any form of tangible asset, intangible asset, or even digital asset. Almost anything of value can be traded on a blockchain network, reducing risks and cutting costs. The transaction supported by the blockchain technology could be an exchange of medical records. It could be transferring the ownership of a house, or a car. Or it could be some form of digital money, such as Bitcoin or Ethereum. Each of these is, in effect, an example of how Blockchain technology can be applied.
Again, Bitcoin is not Blockchain. It is a Blockchain application. However, the name associated with Bitcoin’s emergence (2008), Satoshi Yamamoto (presumed to be a pseudonym) probably had a lot to do with developing Blockchain components as he applied it to the Bitcoin application, regarding which he (her? them?) is supposedly the author/inventor/creator. In short, I am still not clear about who claims authorship for the architecture of blockchain. Generally speaking, Blockchain is analogous to open source code. Microsoft doesn’t own it. Nor does Samsung or Apple or IBM, or the US Government. Indeed, creating standards for this development platform is one of the big challenges, dutifully being worked on by the likes of IBM, Intel and many others.
There are a few proper nouns associated with the Blockchain vision (and it is indeed a vision). These subjects are sometimes incorporated as just a part of a Blockchain application. But in other representations, these subjects are perhaps viewed as parts which have their own antecedents. They are so important that we’ll examine them separately:
- Internet architecture. Blockchain applications ride the Internet, over
the same computers, telecommunications systems, protocols for information transfer and so forth. There can be no Blockchain without the Internet. This is not a back office software technology. This technology goes against very dynamic, real time applications.
- Internet architecture. Blockchain applications ride the Internet, over
- Digital ledgers. Ledgers record transactions. Transactions can be
simple and tiny. They can be huge and complex.
Buy/sells. Movement of an item from A to B. Change in
ownership. Transfer of medical records. Exchange of hard
economic value. Debits and credits. With Blockchain, these ledgers are digitized. They contain the entire transactional record. The transactions are also being time stamped. They also are uniquely identified, using, for example, hashing algorithms….
- Digital ledgers. Ledgers record transactions. Transactions can be
- Distributed Ledgers. …Moreover, the digital ledger exists in more than one place. In fact, each actor involved in the transaction, each participant, has exactly the same ledger, exactly the same electronic accounting for the transaction. The important thing here is that all participants believe that they are looking at the same data. Everyone believes that the digital file is telling the truth with regard to a specific transaction, or hundreds of different transactions built from the same starting point. For example, with regard to a Nissan automobile leased from a car dealership, Nissan, the manufacturing plant, the cargo ship, the dealer, the buyer, the leaser, the lessee and even the scrap metal guy, after the car has been bought and sold several times and then retired, have on their books exactly the same information. In fact, the distributed ledgers are so exact and so proved that there does not exist a central file as a final authority over these
transactions. The distributed ledger is the final authority. So, again, “the distributed ledger technology is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time”. There is no central data storage. There is no central administrator.
- Distributed Ledgers. …Moreover, the digital ledger exists in more than one place. In fact, each actor involved in the transaction, each participant, has exactly the same ledger, exactly the same electronic accounting for the transaction. The important thing here is that all participants believe that they are looking at the same data. Everyone believes that the digital file is telling the truth with regard to a specific transaction, or hundreds of different transactions built from the same starting point. For example, with regard to a Nissan automobile leased from a car dealership, Nissan, the manufacturing plant, the cargo ship, the dealer, the buyer, the leaser, the lessee and even the scrap metal guy, after the car has been bought and sold several times and then retired, have on their books exactly the same information. In fact, the distributed ledgers are so exact and so proved that there does not exist a central file as a final authority over these
- The Blockchain. “The key role of the blockchain is to make sure that all transactions are executed on the basis of consensus.” What are the component parts that make consensus possible? They are unique identifiers, cryptography and encryption, mathematical formulas and algorithms, rules, etc. These are a lot of the ingredients that make blockchain very complicated. But, they are essential because consensus is essential. Another term used is immutability, that is, not a letter or a number in the transaction can be changed without, essentially, the equivalence of full agreement from all of the participants. And that agreement is sought and received before any changes to anything are made,
and then that change is simultaneously (not really simultaneous) made to each participant’s digital ledger. Remember, this is crucial because we are using the blockchain to make a value
exchange – somebody pays, somebody gets.
- The Blockchain. “The key role of the blockchain is to make sure that all transactions are executed on the basis of consensus.” What are the component parts that make consensus possible? They are unique identifiers, cryptography and encryption, mathematical formulas and algorithms, rules, etc. These are a lot of the ingredients that make blockchain very complicated. But, they are essential because consensus is essential. Another term used is immutability, that is, not a letter or a number in the transaction can be changed without, essentially, the equivalence of full agreement from all of the participants. And that agreement is sought and received before any changes to anything are made,
- Smart Contracts. In effect, every contract is programmable. The Blockchain application must recognize that many transactions have associated terms and conditions, and when actual future conditions change, so do the terms. The Blockchain allows for this and automatically changes each participant’s ledger (and
accounting) to input the change caused by how the contract
defined the terms and conditions.
- Smart Contracts. In effect, every contract is programmable. The Blockchain application must recognize that many transactions have associated terms and conditions, and when actual future conditions change, so do the terms. The Blockchain allows for this and automatically changes each participant’s ledger (and
- Distributed Autonomous organization (DAO). This is a big deal in the
blockchain world. This means, “contracts are managed by digitally enforced rules based on mathematical formulas, with zero human involvement.”
HOW AND WHY IS BLOCKCHAIN USED?
We live in an increasingly complicated world. Global commerce has made the world a richer place, and seemingly benefited many more people than it has hurt. It isn’t going away. That is, big, complex
transactions are hugely numerous, and are only going to grow bigger. The people of the world are perpetually exchanging things. Indeed,
economic exchange is at the very heart of economic theory and economic reality. This is how the economy grows. I trade you something that you value more than I do; and you trade me something that I value more than you do. (Such trades achieve a position of “Pareto Optimality”, a point of pure efficiency, a rare position indeed.)
These trades get recorded. You record it and I record it. We both hope that each of us recorded it correctly. Then something happens and we want to alter the trade. For example, I want you to enhance the asset that I bought. You agree. But, you don’t actually do the enhancement. You farm it out. So, now we embark on this subsequent trade, which causes things to change. We have a new actor. We have additional financial involvement. We are operating in a different time frame. So, once again, two of us go back and make changes to our ledger before work commences, and the new guy creates his own ledger. This takes time. This increases the probability of errors. This is life as we know it. Now, expand the trade to six participants, for example, and think of it being more complicated, such as accounting for all of the ingredients of a supply chain stretching from a manufacturing plant in Japan to a car dealership in Phoenix. Everybody has separate records. Everybody can change their record and claim it is the official accounting. It takes time to get everything right. In too many cases, all work stops – that is, all productive activity – until the records are reconciled. And, in the middle of this is an accounting company, or a bank, which is acting as an intermediary so that the trading partners can get all of this right. In effect, they police the system. They are responsible for truth.
Now, let’s suppose that each of these participants has computer capability and that they are hooked up to the Internet. Let’s suppose that someone has written a Blockchain application to support these trades and has installed that software on your computer. In Blockchain language, each of these computers is now a Blockchain node. There are six nodes because there are six participants. Every participant in the transaction must have a node to make it work. This collection of nodes is called a peer to peer network, or P2P. Each node is equal. This is different from the client-server technology I am using to transmit this paper. My desk top is a client. Somewhere, behind all of this clutter on my desk, down through the phone line or the Wi-Fi network, is a server – a big central computer, operated by Google (Gmail) or Apple (me.com) or an individual internet services company which is receiving my messages, checking them over for technical compliance, and transmitting them on to the network, controlled by another set of servers, which eventually gets my email to you. In the application processing of a P2P network, there are no servers and no clients, just equivalent level nodes/computers/processors.
Now let’s assume that we conduct the trade that involves the six parties. Each participant enters the data associated with their part of the trade, whatever that might be: the information you would see on invoices. The agreement on price, terms, and so forth. It all gets entered into a digital record. At some point, we all agree that the record is correctly representative of what occurred and we, so to speak, print it. Except, we don’t actually print it, we digitize it and it shows up in the node of each participant. All six participants have exactly the same record. We have absolute proof of that.
Now, suppose a participant wants to add some data, input a new item, correct a price, alter an expected time of delivery. The change can be imputed into the system by any node; but nothing will happen until that change is subjected to a very specific protocol, based on very specific rules, tested against encryption routines, much of it based on very sophisticated math and cryptographic technology. The math is authenticating that the guy making the change has the authority to do so. The math is also allowing all of the other nodes to run their own models and calculations to make sure that the over whelming majority of participants acknowledge that the change is approved. They are trying to achieve consensus, in Blockchain terminology. (In a small, private network, presumably all of the participants would need to approve the change.) All of this occurs in a very transparent way. Each node sees everything that is happening. When the change is accepted, a new record is created. That record could be a block, or it could be a sub-set of a block. The linking of the two transactions, that is the initial transaction and then the changed transaction – that linkage – is the chain. Ergo: Blockchain. Each block contains information about previous blocks, collating all of it into an immutable chain. In a complicated transaction, such as that associated with a global supply chain, there could be dozens if not hundreds of subsequent transactions associated with the same overall trade, each creating a separate record and a distinct need for authenticating the authority to make the change, and verifying the accuracy of the change. “In a blockchain transaction, each iteration, each change is addressed and accomplished by the blockchain, with full proof, and full consensus and complete immutability.”
These trades get recorded. You record it and I record it. We both hope that each of us recorded it correctly. Then something happens and we want to alter the trade. For example, I want you to enhance the asset that I bought. You agree. But, you don’t actually do the enhancement. You farm it out. So, now we embark on this subsequent trade, which causes things to change. We have a new actor. We have additional financial involvement. We are operating in a different time frame. So, once again, two of us go back and make changes to our ledger before work commences, and the new guy creates his own ledger. This takes time. This increases the probability of errors. This is life as we know it. Now, expand the trade to six participants, for example, and think of it being more complicated, such as accounting for all of the ingredients of a supply chain stretching from a manufacturing plant in Japan to a car dealership in Phoenix. Everybody has separate records. Everybody can change their record and claim it is the official accounting. It takes time to get everything right. In too many cases, all work stops – that is, all productive activity – until the records are reconciled. And, in the middle of this is an accounting company, or a bank, which is acting as an intermediary so that the trading partners can get all of this right. In effect, they police the system. They are responsible for truth.
Now, let’s suppose that each of these participants has computer capability and that they are hooked up to the Internet. Let’s suppose that someone has written a Blockchain application to support these trades and has installed that software on your computer. In Blockchain language, each of these computers is now a Blockchain node. There are six nodes because there are six participants. Every participant in the transaction must have a node to make it work. This collection of nodes is called a peer to peer network, or P2P. Each node is equal. This is different from the client-server technology I am using to transmit this paper. My desk top is a client. Somewhere, behind all of this clutter on my desk, down through the phone line or the Wi-Fi network, is a server – a big central computer, operated by Google (Gmail) or Apple (me.com) or an individual internet services company which is receiving my messages, checking them over for technical compliance, and transmitting them on to the network, controlled by another set of servers, which eventually gets my email to you. In the application processing of a P2P network, there are no servers and no clients, just equivalent level nodes/computers/processors.
Now let’s assume that we conduct the trade that involves the six parties. Each participant enters the data associated with their part of the trade, whatever that might be: the information you would see on invoices. The agreement on price, terms, and so forth. It all gets entered into a digital record. At some point, we all agree that the record is correctly representative of what occurred and we, so to speak, print it. Except, we don’t actually print it, we digitize it and it shows up in the node of each participant. All six participants have exactly the same record. We have absolute proof of that.
Now, suppose a participant wants to add some data, input a new item, correct a price, alter an expected time of delivery. The change can be imputed into the system by any node; but nothing will happen until that change is subjected to a very specific protocol, based on very specific rules, tested against encryption routines, much of it based on very sophisticated math and cryptographic technology. The math is authenticating that the guy making the change has the authority to do so. The math is also allowing all of the other nodes to run their own models and calculations to make sure that the over whelming majority of participants acknowledge that the change is approved. They are trying to achieve consensus, in Blockchain terminology. (In a small, private network, presumably all of the participants would need to approve the change.) All of this occurs in a very transparent way. Each node sees everything that is happening. When the change is accepted, a new record is created. That record could be a block, or it could be a sub-set of a block. The linking of the two transactions, that is the initial transaction and then the changed transaction – that linkage – is the chain. Ergo: Blockchain. Each block contains information about previous blocks, collating all of it into an immutable chain. In a complicated transaction, such as that associated with a global supply chain, there could be dozens if not hundreds of subsequent transactions associated with the same overall trade, each creating a separate record and a distinct need for authenticating the authority to make the change, and verifying the accuracy of the change. “In a blockchain transaction, each iteration, each change is addressed and accomplished by the blockchain, with full proof, and full consensus and complete immutability.”
WHAT IS THE BLOCKCHAIN PROMISE?
- Increased efficiency: less oversight, intermediaries are reduced, duplication of effort is eliminated, tighter security.
- Increased speed: days to minutes
- Collective truth (again, all agree)
- No need for trusted, third party intermediary, and the cost of that third party.
- All conditions are coded as part of the contract, algorithmical truth.
- Everything will be done for us.”
I am not going to write a lot more words about the above seven bullets. If the benefit is not obvious already, it will become obvious as you continue to read.
WHAT ARE THE PARADIGMS BEHIND BLOCKCHAIN?
- Big data: A blockchain can collect and organize a huge amount of data.
- Cloud Computing: The distributed network falls within the dialogue about cloud computing, which is really a fancy word for suggesting that someone’s else’s infrastructure is doing your computing, your storing, your computations for you.
- Machine Learning: This is very significant when one looks outward in time, and away from very narrow applications. All of this computational stuff allows computers to get very smart. Eventually, after many iterations, certain functions – over seeing a contract – can be done, possibly, better my machines than by human oversight.
Blockchain is made possible because of:
- Advanced cryptography
- Advanced algorithms
- Stronger computer power
- Near ubiquitous computational power.
DO THE LEADERS OF THIS TECHNOLOGY ALL LOOK AT IT THE SAME WAY?
The simple answer is, no, and this is part of what makes Blockchain very intriguing.
I will only focus on my most obvious takeaway.
There are two huge perspectives on Blockchain. The first I will call a public perspective. The second I will call a private perspective.
Bitcoin and Ethereum are examples of the public Blockchain perspective. (Yes, I keep going back and forth between capitalizing Blockchain, and using lower case for blockchain. I can’t help it. Some times in feels like a proper noun; other times, not.) This perspective has huge political content as well as economic content. At its extreme, it is almost anarchist. It emphasizes equality, privacy, absolute certainty, elimination of an overarching authority, and systems openness. How interesting that its first major application is to build a form of economic exchange that lies totally outside the world’s global financial system.
IBM’s involvement is an example of utilizing the Blockchain Architecture to build private business networks which focus on very specific business applications. Many of the most important features of Blockchain thinking are maintained. Indeed, all of that cryptography, rules, protocols, digitized records, P2P architecture are the features that make it valuable. But, private blockchain networks may also get very focused on whether all participants should have an equal right – full transparency – to look at all of the data that is in the blockchain stream. Emerging from this private focus is the notion of permission. This means that the different participants are classified with respect to information access. In effect, a need to know has been added to the rules.
I get the sense that these two views of the Blockchain Technology are, to a degree, and maybe to a large degree, in contention. The public blockchain emphasizes openness. The private blockchain emphasis standards development. The public blockchain emphasizes anonymity. The private blockchain classifies participants, and grants permission, and all participants are probably known. The private blockchain is focusing on its application to specific problems of our time, such as portable medical records, global supply chains, multi party contracts, flow of goods and related payments, enabling manufacturers to share production logs with OEMs, and the like. The public blockchain enthusiasts are focused on the exploding transaction volumes that will come in with the Internet of Things (IOT), such as refrigerators that order food, self-driving cars that know when to fuel up, and payments networks without charge backs and account reconciliation. There are many other distinctions. In the end, the public blockchain is as much a movement as it is a developmental tool for building really cool business applications. It is for the masses. The private Blockchain – blockchains for business – is a permissioned, members only network “with proof that members are who they say they are and that goods or assets traded are exactly as represented.” Each network can establish its own conditions. Not all participants would necessarily have the same permission.
Let me add a final ambiguous point of information. A node on Ethereum, sort of a rival to Bitcoin, actually has at least three participation options. (1) It can elect to become a Light Client. Meaning that the node has a shallow copy of the blockchain. (Gee, that sounds a lot like not having been given permission, or not electing to want full permission.) (2) It can elect to be a full node, meaning it runs a full copy of the blockchain. Or (3) it can choose to be a miner, which means that in addition to having all of the functionality of a full node it is also involved in the verification of transactions. This means that such a node is running a lot more math than a normal node. By the way, Ethereum has 25,000 nodes. Bitcoin has 7000 nodes. Since every node needs to reach consensus, or at least that’s the original model, the number of calculations and energy consumed for the networks to reach consensus is huge because all nodes that are verifying are running these incredibly complex mathematical algorithms to reach consensus, that is, the acceptance of proof that the transaction is valid. Ethereum wants to be more than a new currency, they want to become the new Internet. Ethereum already supports smart contracts. In fact, one source said that “smart contracts are the lifeblood of ethereum”. A private blockchain network built by IBM to handle a specific business function, for a specific set of clients, might have only a handful of nodes.
I will only focus on my most obvious takeaway.
There are two huge perspectives on Blockchain. The first I will call a public perspective. The second I will call a private perspective.
Bitcoin and Ethereum are examples of the public Blockchain perspective. (Yes, I keep going back and forth between capitalizing Blockchain, and using lower case for blockchain. I can’t help it. Some times in feels like a proper noun; other times, not.) This perspective has huge political content as well as economic content. At its extreme, it is almost anarchist. It emphasizes equality, privacy, absolute certainty, elimination of an overarching authority, and systems openness. How interesting that its first major application is to build a form of economic exchange that lies totally outside the world’s global financial system.
IBM’s involvement is an example of utilizing the Blockchain Architecture to build private business networks which focus on very specific business applications. Many of the most important features of Blockchain thinking are maintained. Indeed, all of that cryptography, rules, protocols, digitized records, P2P architecture are the features that make it valuable. But, private blockchain networks may also get very focused on whether all participants should have an equal right – full transparency – to look at all of the data that is in the blockchain stream. Emerging from this private focus is the notion of permission. This means that the different participants are classified with respect to information access. In effect, a need to know has been added to the rules.
I get the sense that these two views of the Blockchain Technology are, to a degree, and maybe to a large degree, in contention. The public blockchain emphasizes openness. The private blockchain emphasis standards development. The public blockchain emphasizes anonymity. The private blockchain classifies participants, and grants permission, and all participants are probably known. The private blockchain is focusing on its application to specific problems of our time, such as portable medical records, global supply chains, multi party contracts, flow of goods and related payments, enabling manufacturers to share production logs with OEMs, and the like. The public blockchain enthusiasts are focused on the exploding transaction volumes that will come in with the Internet of Things (IOT), such as refrigerators that order food, self-driving cars that know when to fuel up, and payments networks without charge backs and account reconciliation. There are many other distinctions. In the end, the public blockchain is as much a movement as it is a developmental tool for building really cool business applications. It is for the masses. The private Blockchain – blockchains for business – is a permissioned, members only network “with proof that members are who they say they are and that goods or assets traded are exactly as represented.” Each network can establish its own conditions. Not all participants would necessarily have the same permission.
Let me add a final ambiguous point of information. A node on Ethereum, sort of a rival to Bitcoin, actually has at least three participation options. (1) It can elect to become a Light Client. Meaning that the node has a shallow copy of the blockchain. (Gee, that sounds a lot like not having been given permission, or not electing to want full permission.) (2) It can elect to be a full node, meaning it runs a full copy of the blockchain. Or (3) it can choose to be a miner, which means that in addition to having all of the functionality of a full node it is also involved in the verification of transactions. This means that such a node is running a lot more math than a normal node. By the way, Ethereum has 25,000 nodes. Bitcoin has 7000 nodes. Since every node needs to reach consensus, or at least that’s the original model, the number of calculations and energy consumed for the networks to reach consensus is huge because all nodes that are verifying are running these incredibly complex mathematical algorithms to reach consensus, that is, the acceptance of proof that the transaction is valid. Ethereum wants to be more than a new currency, they want to become the new Internet. Ethereum already supports smart contracts. In fact, one source said that “smart contracts are the lifeblood of ethereum”. A private blockchain network built by IBM to handle a specific business function, for a specific set of clients, might have only a handful of nodes.
WHAT ARE THE CONDITIONS THAT A BLOCKCHAIN TRANSACTION MUST MEET?
- “Consensus: To be valid, all participants need to agree
- Provenance: Everyone knows where the asset came from and how its ownership has changed over time.
- Immutability: None of the participants can tamper with the transaction after it’s been recorded to the digital ledger. For example, if a transaction were in error, and a new transaction was needed to reverse the error, it would be transparent to everyone.
- Finality: A single shared ledger provides one place to go to determine the ownership of an asset of the completion of a transaction
WHAT ARE THE MOST OBVIOUS CHALLENGES WITH BLOCKCHAIN?
Dutch Digital Data defines the challenges as these:
Technical Challenges:
Scaling, storage, transaction volumes, and energy consumption.
This concern relates especially to the public blockchain applications that envision thousands of computer nodes, each holding the same record, many, many of them responsible for the proof calculations that authenticate and verify the transactions. This takes a lot of computer power. And it also takes a lot of time. Networks like Bitcoin and Ethereum get slowed down by all of the rules calculations. Bitcoin perhaps processes less than ten transactions per second, and as nodes are added, that will degrade before it improves. (Visa now processes close to 2000 transaction per second.) Ethereum views itself as a “world computer”, with a goal to decentralize and democratize the Internet, moving toward thousands of linked computers, run by volunteers. Private networks would be more specific, more tightly designed, and probably will manage down this family of technical challenges. But, let there be no misunderstanding, Blockchain applications use lots of computer power.
Mechanisms for fault tolerance, consensus, and distributed ledgers.
Put simply, a lot of very exact stuff is supposed to happen in a blockchain application. Most of this exact stuff is very sophisticated. Building consensus is, essentially, accomplished mathematically. One could imagine that much work lies in front of us.
Trust and Accountability
The computer is taking over for the bank, the accountant, the lawyer, perhaps even the government regulator. That substitution is not going
to happen overnight.
Standardization for Interoperability and cyber-physical systems.
I would say only this. We have been here before. We now have
electronic money. I helped build it. Few can imagine how much had to be done to get where we are. In short, the technology industry knows how to get there, from here. It will take time. It will require a great deal of negotiation. There will be huge competing values. But, if there is an economic business case for blockchain applications, the industry will get there, of that one can be sure.
Security and Immutability of public blockchain, and quantum technology proof.
Business and Societal Challenges
- Contract Law
- Ethics, Liability, and Consumer Protection
- Transparency, confidentiality, and privacy
- Roll and Responsibility of Governments
- Enabling Complex Business Patterns
- Impact on Labor Market
- Social Innovation and Citizenship
As you can see from these seven concerns, the thought leaders behind Blockchain are not thinking small. IBM may want to sort of privatize it, turn it into IBM’s Hyperledge Fabric. Many others have very different
ideas.
GIVEN THE IMPORTANCE OF UNIQUE IDENTIFICATION, CAN I SAY A WORD OR TWO MORE ABOUT THIS?
Obviously, I am no expert. But, allow me to put it this way. Every participant on a blockchain, the individual nodes, must be uniquely
identified, and its identify may not be compromised. It is critical to the blockchain’s purpose that when I, a participant, agree on something, that is, approve a change, that there is an absolute certainty that I indeed approved that change. (Of course, the actual approval is going to take place digitally, as a function of computations and rules, computed by the node.) The participants on the network are identified by use of both publicly encrypted keys and privately encrypted keys, which is called asymmetric cryptography. An example of such regarding which I am directly informed is RSA encryption, well known in banking circles from studies that the Bank of England did twenty years ago for its application to retail POS systems. Literally, I had conversations with the guy heading this for the bank of England in the 1980’s. (At the time, they did not implement it because the overall cost to the banks and the retail infrastructure was prohibitive, which was my exact point.) The encryption used in Blockchain is no more effective than RSA – which is to say, that it is very effective – but much more efficient. It is called Elliptical Curve Cryptography (ECDSA).
Regarding identifying the exact transaction records, each block, which could be a single transaction or a set of transaction, is identified with a unique hash number, comprised of 26-35 characters, that is so unique that if you change the case of a letter in the transaction details – a record – it will generate a new hash number (which is numbers and symbols). Each subsequent block in a blockchain includes certain information elements: (1) Identification of the previous transaction that bought the input asset, (2) The index number for the output from the previous transaction, (3) the amount of asset/money etc. to be exchanged. When you open up the hash index from the previous transaction, every detail of that transaction is transparent, because the hash is, in effect, an indexing scheme that relates back to a record that could be the size of a book. And remember, in blockchain thinking, that transparency is provided to every single node. The private keys are a necessary part of each participant signing off on a transaction.
Let us hold for a later conversation a fuller discussion of Trust Attributes.
Regarding identifying the exact transaction records, each block, which could be a single transaction or a set of transaction, is identified with a unique hash number, comprised of 26-35 characters, that is so unique that if you change the case of a letter in the transaction details – a record – it will generate a new hash number (which is numbers and symbols). Each subsequent block in a blockchain includes certain information elements: (1) Identification of the previous transaction that bought the input asset, (2) The index number for the output from the previous transaction, (3) the amount of asset/money etc. to be exchanged. When you open up the hash index from the previous transaction, every detail of that transaction is transparent, because the hash is, in effect, an indexing scheme that relates back to a record that could be the size of a book. And remember, in blockchain thinking, that transparency is provided to every single node. The private keys are a necessary part of each participant signing off on a transaction.
Let us hold for a later conversation a fuller discussion of Trust Attributes.
WHO PARTICIPATES IN THE BUILDING AND OPERATING OF A BLOCKCHAIN APPLICATION?
This is the way IBM has outlined it:
Users: In our discussion, we have focused almost entirely on the participants, the end users, and the technology nodes which are the tools they use to participate.
Regulators: This actor would have special permission to oversee the network. (In public blockchains, there are people with different roles. In Bitcoin, there are participants/nodes who are called miners and they perform very specific functions that are not performed by all nodes, for example, calculating and collecting fees, overseeing consensus, etc.)
Developers: These are the actors who will create the applications and smart contracts.
Network Operators: These actors have special permission to define, operate, manage and monitor the blockchain network. Each business on the network – each participant/node – has one.
Traditional Processing Platform: These are the existing computer systems
Data Sources: These actors will provide the data for smart contracts and will define how communication and data transfers will occur.
Certificate Authority: The individuals who issue and manage the different types of certificates required to run a permissioned network.
… all of this with the central goal of reducing the market friction which accompanies contemporary models for value exchange, caused (1) by both the challenge of getting access to information; and the growing risks associated with collecting and storing transaction generated, value exchange information, such as cybercrime, hacking, privacy invasion, and identify theft; and also (2) by the challenges associated with interactions, such as the high cost of transacting, and both the physical and non-physical degrees of separation; and (3) the walls put up to shut out innovation, built by inertia, regulation, and invisible threats.
Now, pause for a moment and think about the above section and how it relates to the earlier one that focused on leadership of the public Blockchain, and leadership of the private Blockchain. You can see how IBM is sort of reigning in the concept to make it more compatible, and less revolutionary, with respect to the existing technology world. I would assume that there are a lot of people in the Etherworld who might frown on how IBM is sort of trying to control this.
Let’s return to market friction for a moment. There is no doubt in my mind that a very comprehensive benefit statement can be built for business Blockchains. We can build this case in subsequent analysis. The data for doing so is readily available.
The vision is quite seductive. Also, one can only imagine how disruptive this technology could be if it works.
In an above section, I outlined the business and societal challenges. These are very real but, for a single firm or business, the challenges may be more mundane.
Where do you find the talent to play in this game?
How do you decide where you want to play? More private, or more public?
What is the role you want to play? Application specific or, to use a term, operating systems specific?
How do you fund it?
What kind of investment are we talking about?
How do you educate the folks who need in the pool with you?
Users: In our discussion, we have focused almost entirely on the participants, the end users, and the technology nodes which are the tools they use to participate.
Regulators: This actor would have special permission to oversee the network. (In public blockchains, there are people with different roles. In Bitcoin, there are participants/nodes who are called miners and they perform very specific functions that are not performed by all nodes, for example, calculating and collecting fees, overseeing consensus, etc.)
Developers: These are the actors who will create the applications and smart contracts.
Network Operators: These actors have special permission to define, operate, manage and monitor the blockchain network. Each business on the network – each participant/node – has one.
Traditional Processing Platform: These are the existing computer systems
Data Sources: These actors will provide the data for smart contracts and will define how communication and data transfers will occur.
Certificate Authority: The individuals who issue and manage the different types of certificates required to run a permissioned network.
… all of this with the central goal of reducing the market friction which accompanies contemporary models for value exchange, caused (1) by both the challenge of getting access to information; and the growing risks associated with collecting and storing transaction generated, value exchange information, such as cybercrime, hacking, privacy invasion, and identify theft; and also (2) by the challenges associated with interactions, such as the high cost of transacting, and both the physical and non-physical degrees of separation; and (3) the walls put up to shut out innovation, built by inertia, regulation, and invisible threats.
Now, pause for a moment and think about the above section and how it relates to the earlier one that focused on leadership of the public Blockchain, and leadership of the private Blockchain. You can see how IBM is sort of reigning in the concept to make it more compatible, and less revolutionary, with respect to the existing technology world. I would assume that there are a lot of people in the Etherworld who might frown on how IBM is sort of trying to control this.
Let’s return to market friction for a moment. There is no doubt in my mind that a very comprehensive benefit statement can be built for business Blockchains. We can build this case in subsequent analysis. The data for doing so is readily available.
The vision is quite seductive. Also, one can only imagine how disruptive this technology could be if it works.
In an above section, I outlined the business and societal challenges. These are very real but, for a single firm or business, the challenges may be more mundane.
Where do you find the talent to play in this game?
How do you decide where you want to play? More private, or more public?
What is the role you want to play? Application specific or, to use a term, operating systems specific?
How do you fund it?
What kind of investment are we talking about?
How do you educate the folks who need in the pool with you?
WHERE IS THE THOUGHT LEADERSHIP COMING FROM?
I can only provide a very superficial answer to this question. Simply
put, I think it is coming from two places.
In the public blockchain world, the leadership may not be easily identifiable. In this research, I did not concentrate on Bitcoin and Ethereum because that takes us deeply into a specific application which is not the immediate focus. But, the little reading I did suggests that leadership is not centralized anywhere, that it is rather like hundreds if not thousands of cells that are loosely inter-connected with very few rules of engagement – other than to follow the vision of the Blockchain.
On the other hand, one can see that major technology players are trying to figure out how to apply this.
Sort of in the middle of all of this is the Linux Foundation, which is an open source community. There are now 130 members of that community that are supporting initiatives associated with Blockchain technology and other open source technologies. IBM has contributed Open Blockchain, now called Fabric. Intel contributed something called “Sawtooth Lake”, which I have not had a chance to study. But, it is an approach to validation and authentication, called proof of Elapsed Time (PoET), another way to arrive at some kind of consensus, regarding all or part of a transaction. Hyper Ledge Fabric (including 49k lines of code donated by IBM) is a developmental framework, built around a modular architecture, pluggable, which is leveraging open-source best practices. (By donating it, IBM in effect put it into the open source world.) It is written that there are now 5000 developers building with Hyperledge Technologies. There is even an address: hyperledge.org. No question that IBM has this technology on its radar screen.
In the public blockchain world, the leadership may not be easily identifiable. In this research, I did not concentrate on Bitcoin and Ethereum because that takes us deeply into a specific application which is not the immediate focus. But, the little reading I did suggests that leadership is not centralized anywhere, that it is rather like hundreds if not thousands of cells that are loosely inter-connected with very few rules of engagement – other than to follow the vision of the Blockchain.
On the other hand, one can see that major technology players are trying to figure out how to apply this.
Sort of in the middle of all of this is the Linux Foundation, which is an open source community. There are now 130 members of that community that are supporting initiatives associated with Blockchain technology and other open source technologies. IBM has contributed Open Blockchain, now called Fabric. Intel contributed something called “Sawtooth Lake”, which I have not had a chance to study. But, it is an approach to validation and authentication, called proof of Elapsed Time (PoET), another way to arrive at some kind of consensus, regarding all or part of a transaction. Hyper Ledge Fabric (including 49k lines of code donated by IBM) is a developmental framework, built around a modular architecture, pluggable, which is leveraging open-source best practices. (By donating it, IBM in effect put it into the open source world.) It is written that there are now 5000 developers building with Hyperledge Technologies. There is even an address: hyperledge.org. No question that IBM has this technology on its radar screen.
WHERE'S THE ACTION (Drawn from a Fortune Magazine cover story)
People
- Chris Dixon, General partner, Andreessen Horowitz
- Peter Smith, CEO, Blockchain (London based, crypto-currency
wallet provider) - Vitalik Buterin, created Ethereum
- Olaf Carlson-Wee, founder of Polychain capital
- Matt Higginson, partner in McKinsey’s global banking practice
- Adam Ludwin, CEO, Chain
- Frank Yiannas, VP Food safety, Walmart
- Amber Baldet, heads Blockchain group at J. P. Morgan
- Jeremy Millar, chief of staff at ConsenSys
- Patrick Nielsen, lead engineer of Quorum
- Mark Smith, CEO, Symbiont, NYC, supplies blockchain technology to Delaware
- Brian Armstrong, founded Coinbase
Companies
- ConsenSys, an Ethereum Development Studio
- FileCoin, Storj, decentralized cloud storage
- Basic Attention Token, adToken, digital advertising
- Ethereum
- Ethereum Foundation, Swiss non-profit, maintains the public Ethereum
- Polychain Capital, cryptocurrency hedge fund
- Chain
- Linux Foundation, Hyperledge Group, Blockchain R&D
- R3, Corda ledger
- Zerocoin Electric Coin C., makers of the Zcash cryptocurrency
Projects
- ICO = Initial Coin Offerings. Mechanism for raising funding for
Blockchain applications - Walmart, partnered with IBM, Hyperledger fabric
- Maersk, Danish shipping, Blockchain project tracking shipping
- Airbus, airplane manufacturing
- Daimler, automobile manufacturing
- BAE Systems, sharing cybersecurity threat data on blockchain
- Pokitdok and Gem, electronic medical record management
- Accenture, teamed with Microsoft and a UN group, digital identity
- J. P. Morgan, trade finance, Quorum Project
- Bank of America, teamed with Microsoft, digitizing and
automating money flow around trade - HSBC, ING, US Bank, and eight other banks. Protype application on R3’s Corda Ledger
- Barclay’s Bank, in-house test
- Northern trust, Hyperledge fabric, for private equity deal
recording - Enterprise Ethereum Alliance, a group of financial and tech firms that includes J. P. Morgan, pushing Ethereum-based blockchains for business
- The US State of Delaware, to support incorporation, where 2/3 of Fortune 500 are incorporated.
Data
- Total market value of all virtual currencies = $135 billion
