Business of Blockchain

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What is blockchain

Formally, blockchain is a digital mechanism to create a distributed digital ledger on which two or more participants in a peer-to-peer network can exchange information and assets directly without the need for a trusted intermediary. The blockchain authenticates the participants and validates that they own the assets they want to exchange and that the transaction can take place. The blockchain records the information pertaining to the transaction on a digital ledger, a copy of which is independently held and updated by each participant in the network. Records are unchangeable, time-stamped, encrypted, and linked to each other in blocks; each block is a cluster of about two thousand transaction records grouped together.2 The ledger grows as participants transact.

Combination of Technology / Principles

Distribution - Each participant operates a full node with a full copy of the ledger, with updates for each new transaction that occurs. Any participant can view the ledger but nobody can change it.

Encryption - Public and private keys to record data in the blocks securely and semi-anonymously

Immutability - Completed transactions are cryptographically signed, time-stamped and sequentially added to the ledger. Records cannot be corrupted or otherwise changed unless the participants agree on the need to do so. Such an agreement is called a fork

Tokenization - Tokenization. Transactions and other interactions on a blockchain involve the secure exchange of value. The value comes in the form of tokens.8 Digital markets can function more effectively with tokens and need to create them (tokenization) for various reasons. Tokens might function as digital representations of physical assets, as a reward mechanism to incentivize network participants, or to enable the creation and exchange of new forms of value. They also allow private and corporate participants to control their data.

Decentralization. Both network information and the rules for how the network operates are maintained by multiple computers, or nodes, on the distributed network. In practice, decentralization means that no single entity controls all the computers or the information or dictates the rules. Every node maintains an identical encrypted copy of the network record. A consensus mechanism operated by each full node verifies and approves transactions.a This decentralized, consensus-driven structure removes the need for governance by a central authority and acts as a fail-safe against fraud and bad transactions.

Misconceptions

It's not a database
not a general store of information
immutable
distributed

Tokenizations and Digital Assets

"Digital transactions don’t have a minimum size the way transactions do in the analog world. Units of data, cryptocurrency, reward points, and pieces of an asset (as opposed to the whole) are just a few new forms of value that digitalization makes tradable in single units. Individually, the units could be worth less than $0.01, but they can be traded by the millions or trillions. The burgeoning trade in these digital assets is big business, exploding as we write this book."

"Businesses need a different way to deal with new digital assets and interactions without involving an intermediary that can collect data on every party in the transaction and take a piece of the value. You need blockchain. Blockchain can also redirect existing value flows. It does this by reducing control over four business currencies by central market powers—including large multinational corporations, digital platforms, and large intermediaries. The business currencies are: data, access, technology, and contracts."

As new forms of value come online with enhanced blockchain solutions, businesses will likewise innovate new business models using decentralized operational structures. Organizations will be technically able to delegate economic decision making to “things,” which would act autonomously and according to the terms defined in a smart contract that runs on the blockchain. These enhanced things could remove humans from the transaction and eventually move blockchain networks toward completely autonomous transactions and ultimately the establishment of decentralized autonomous organizations (DAO).

Fully programmable implies that smart things or autonomous agents have attained legal authority to make independent decisions to produce or consume assets. To illustrate with a simple example, a sensor in a programmable building could decide on the amount of energy a room needs for the lighting system and then could “buy” the necessary energy from the sensors managing the micro-wind turbines installed on a neighbor’s roof.

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Business of Blockchain

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