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A BRIEF INTRODUCTION TO BLOCKCHAIN

“BLOCKCHAIN” HAS MANY MEANINGS

“To understand the power of blockchain systems, and the things they can do, it is important to distinguish between three things that are commonly muddled up, namely the bitcoin currency, the specific blockchain that underpins it and the idea of blockchains in general.”

“BLOCKCHAIN” HAS MANY MEANINGS

Phone

• The idea of a phone network

• A specific phone network (e.g., AT&T)

• A specific use of the phone network (e.g., fax)

Blockchain

• The idea of blockchain

• The specific blockchain that underlies Bitcoin or another coin offering

• Bitcoin or another cryptocurrency

WHAT IS BLOCKCHAIN?

A technology that:

permits transactions to be gathered into blocks and recorded;

allows the resulting ledger to be accessed by different servers.

cryptographically chains blocks in chronological order; and

WHAT IS A DISTRIBUTED LEDGER?

Centralized Ledger

Bank

Client A

Client C

Client D

Client B

Distributed Ledger

Node A

Node B

Node CNode D

Node E

• There are multiple ledgers, but Bank holds the “golden record” • Client B must reconcile its own ledger against that of Bank, and

must convince Bank of the “true state” of the Bank ledger if discrepancies arise

• There is one ledger. All Nodes have some level of access to that ledger.

• All Nodes agree to a protocol that determines the “true state” of the ledger at any point in time. The application of this protocol is sometimes called “achieving consensus.”

WHAT IS A DISTRIBUTED LEDGER?

Single Entity Multiple Entities

HOW MIGHT A DISTRIBUTED LEDGER WORK?

Users initiate transactions

using their Digital Signatures

Users Broadcast their

transactions to Nodes

One or more Nodes begin

validating each transaction

Nodes aggregate validated

transactions into Blocks

Nodes Broadcast Blocks to each

other

Consensus protocol used

Block reflecting “true state” is

chained to prior Block

WHERE MIGHT BLOCKCHAIN USE CRYPTOGRAPHY?

• Digital Signatures • Private/Public Keys

Initiation and Broadcasting of Transaction

• Proof of Work and certain alternativesValidation of Transaction

• Hash FunctionChaining Blocks

THE POWER OF DISTRIBUTED LEDGERS

BLOCKCHAIN

It can be used to allow owners of assets to exercise certain rights associated with ownership, and to record the exercise of those rights. •Proxy Voting

It can be used to record those transfers of value or ownership of assets •These records may be very difficult to alter, such that they are sometimes called effectively immutable

It can be used to transfer value or the ownership of assets •A human being or a Smart Contract can initiate the transfer

It can be used to create value or issue

assets

It can be used without a central authority by individuals or

entities with no basis to trust each other

The degree of trust between users determines the technological configuration of a distributed ledger.

HOW MIGHT DISTRIBUTED LEDGER PROPOSALS DIFFER?

Participation Open Closed

Permission Permissionless Permissioned

Ledger Design One ledger One ledger or Segregated ledgers

Validation Methodology depends on degree of trust between nodes. Where there is no basis for trust, may be achieved through proof of work, which requires the algorithmic solving of a cryptographic hash.

Consensus Mechanism Mechanism depends on degree of trust between nodes. Where there is no centralized authority, consensus may be determined algorithmically.

References

• Stoyanovich, M., & Tanz, F. E. (2019). Coming to Grips with Blockchain. Benefits Magazine, 56(5), 20-25. Retrieved from http://search.ebscohost.com/login.aspx? direct=true&AuthType=shib&db=f5h&AN=135900272&site=eds-live • Waldo, J. (2019). A Hitchhiker’s Guide to the Blockchain Universe. Communications of the ACM, 62(3), 38–42. Retrieved from https://doi.org/10.1145/3303868 • Burns, S. (2019). Blockchain: Hype Vs Reality. Computer Weekly, 21-24. Retrieved from http://search.ebscohost.com/login.aspx? direct=true&AuthType=shib&db=f5h&AN=138564674&site=eds-live • Tarzey, B. (2019). Inside Blockchain and Its Various Applications. Computer Weekly, 16-20. Retrieved from http://search.ebscohost.com/login.aspx? direct=true&AuthType=shib&db=f5h&AN=138681123&site=eds-live • Carson, B., Romanelli, G., Walsh, P., & Zhumaev, A. (2018). Blockchain beyond the hype: What is the strategic business value? McKinsey Quarterly, (4), 118–127. Retrieved from http:// search.ebscohost.com/login.aspx? direct=true&AuthType=shib&db=buh&AN=133693412&site=eds-live