by
PART (2)
BTA-Blockchain-Business-Foundations
Cryptocurrency
and Blockchain
Bitcoin If, up until this point in time, you were
of the belief that Bitcoin was the world’s first attempt at a digital currency
which is disintermediated and trustless you would be mistaken – but you would
hardly be the only one. The truth is, prior to Bitcoin many other attempts had
been made to create a truly fungible digital currency. The reason we hear
little about these prior attempts is that they all failed to solve one critical
problem a currency must address – the double spend problem.
of the belief that Bitcoin was the world’s first attempt at a digital currency
which is disintermediated and trustless you would be mistaken – but you would
hardly be the only one. The truth is, prior to Bitcoin many other attempts had
been made to create a truly fungible digital currency. The reason we hear
little about these prior attempts is that they all failed to solve one critical
problem a currency must address – the double spend problem.
Double-spending Double spending is a potential flaw
in a digital cash scheme in which the same single digital token can be spent
more than once. This is possible because a digital token consists of a digital
file that can be duplicated or falsified. This problem was prominent when
trying to create a decentralized currency but was solved by blockchain.
Blockchain solved this by putting transactions in a block, verifying each
transaction, then adding these blocks to the chain.
in a digital cash scheme in which the same single digital token can be spent
more than once. This is possible because a digital token consists of a digital
file that can be duplicated or falsified. This problem was prominent when
trying to create a decentralized currency but was solved by blockchain.
Blockchain solved this by putting transactions in a block, verifying each
transaction, then adding these blocks to the chain.
|
Exo-Blockchain-Business
|
Cryptocurrencies have some similar characteristics
to fiat currency:
to fiat currency:
• Durable: Does this store of value persist well
through time?
through time?
• Portable: Is this store of value easy to move
around and transfer?
around and transfer?
• Divisible: Is this store of value easy to divide
into smaller sub-units for small payments & transactions?
into smaller sub-units for small payments & transactions?
• Fungible: Is each unit of this store of value
equal in value to any other unit?
equal in value to any other unit?
• Scarce: Is this store of value scarce enough to
give it meaningful value?
give it meaningful value?
• Accepted: How widely accepted is this store of
value as a means of payment or settling a debt?
value as a means of payment or settling a debt?
1.
Blockchain is the underlying security and record
keeping mechanism that manages and controls
Blockchain is the underlying security and record
keeping mechanism that manages and controls
1.
the Bitcoin network. It is simply a ledger that
records the transfer of Bitcoin or other assets between people or entities. The
records stay on the blockchain (they are the blockchain), what is
transferred is the control or ownership of the underlying asset – Bitcoin.
the Bitcoin network. It is simply a ledger that
records the transfer of Bitcoin or other assets between people or entities. The
records stay on the blockchain (they are the blockchain), what is
transferred is the control or ownership of the underlying asset – Bitcoin.
Why Use
Blockchain?
Introduction:
A key concept in blockchain is the concept of
decentralization. In order to properly understand decentralization, it is
helpful to understand both centralized and distributed approaches. As we review
each approach, it is critical to keep in mind that each new approach is NOT a
replacement for the approaches that preceded it – they should be thought of as
additional tools in the solutions design toolbox. In other words, just because
you bought a screwdriver does not mean you go home and toss out all your wrenches;
each approach offers value in uniquely different ways and it is not uncommon to
use multiple approaches in the context of one solution.
decentralization. In order to properly understand decentralization, it is
helpful to understand both centralized and distributed approaches. As we review
each approach, it is critical to keep in mind that each new approach is NOT a
replacement for the approaches that preceded it – they should be thought of as
additional tools in the solutions design toolbox. In other words, just because
you bought a screwdriver does not mean you go home and toss out all your wrenches;
each approach offers value in uniquely different ways and it is not uncommon to
use multiple approaches in the context of one solution.
The oldest and most well-known approach to systems
architecture is a centralized approach. In a centralized solution there is
typically a single owner or small group of owners of the solution, the data
which the solution works with, and the infrastructure that delivers the
solution. In other words, all layers and components of the solution are owned
and managed by a central authority.
architecture is a centralized approach. In a centralized solution there is
typically a single owner or small group of owners of the solution, the data
which the solution works with, and the infrastructure that delivers the
solution. In other words, all layers and components of the solution are owned
and managed by a central authority.
The next approach is a distributed or cloud
approach. In a distributed solution, centralized control, ownership of the
solution and the data which makes up the solution are retained. However,
ownership of the infrastructure which delivers the solution is given up.
Facebook is a great example of a distributed solution – Facebook owns the
application as well as the data which goes into the application, but Facebook
has largely given up ownership and management of the infrastructure that
delivers the solution to hosting providers such as Microsoft, Amazon, or
IBM.
approach. In a distributed solution, centralized control, ownership of the
solution and the data which makes up the solution are retained. However,
ownership of the infrastructure which delivers the solution is given up.
Facebook is a great example of a distributed solution – Facebook owns the
application as well as the data which goes into the application, but Facebook
has largely given up ownership and management of the infrastructure that
delivers the solution to hosting providers such as Microsoft, Amazon, or
IBM.
A decentralized approach removes centralized
ownership and control at all levels. In a truly decentralized solution the
solution and its data are shared amongst all participants and the
infrastructure can be shared by the solution owners or provided by the
community at large.
ownership and control at all levels. In a truly decentralized solution the
solution and its data are shared amongst all participants and the
infrastructure can be shared by the solution owners or provided by the
community at large.
Benefits of a Blockchain
As with any new tool, you will find there are good
and bad use cases for blockchain. Blockchain provides many benefits, but it
does have drawbacks as well. Understanding both is critical to applying the
right technology to the problem set you’re addressing. Before detailing the
specific benefits and drawbacks, it’s critical to understand that the benefits
provided by blockchain always come at the expense of efficiency, speed, and
performance.
and bad use cases for blockchain. Blockchain provides many benefits, but it
does have drawbacks as well. Understanding both is critical to applying the
right technology to the problem set you’re addressing. Before detailing the
specific benefits and drawbacks, it’s critical to understand that the benefits
provided by blockchain always come at the expense of efficiency, speed, and
performance.
Blockchain is, by design, an exceptionally
inefficient solution. However, by embracing these inefficiencies we gain the
benefits of security, redundancy, and massive fault tolerance. Embracing such
an inefficient approach can seem very odd to those who have spent a career in
traditional I.T. and have been conditioned to purge inefficiency whenever
possible.
inefficient solution. However, by embracing these inefficiencies we gain the
benefits of security, redundancy, and massive fault tolerance. Embracing such
an inefficient approach can seem very odd to those who have spent a career in
traditional I.T. and have been conditioned to purge inefficiency whenever
possible.
 |
Finger-Lock-Block-04 |
|
Blockchain-Scaqe-Block
|
The benefits of blockchain solution include:
• Shared Infrastructure between Organizations in a
Business Network
Business Network
Your internal line of business (LOB) systems are
the single source of truth for any
the single source of truth for any
question about your organization, but what is the
single source of truth for processes that span multiple organizations in your
business network?
single source of truth for processes that span multiple organizations in your
business network?
• Publicly Verifiable
Accountability to customers and end-users
(permission-less)
(permission-less)
• Secure o Control who sees what data when
(permissioned)
(permissioned)
• Quality Assurance
Track origins of all supply chain components
• Example: Food origin and/or safety recalls o
Smart Contract as a replacement for middlemen operators
Smart Contract as a replacement for middlemen operators
• Lower Transaction Costs
Removing middlemen reduces cost
• Tokenization
Create trade-able tokens backed by real-world value
o Fractional Asset Ownership and Asset Digitization
o Fractional Asset Ownership and Asset Digitization
▪ Example- Own 1 car in 1 city, or own 100 cars in
100 cities
100 cities
• Redundant and Highly Fault Tolerant
A distributed ledger is fault tolerant in that if a
single node were to lose track of the ledger it would remain somewhere else on
the network. To better understand fault tolerance, we can think of a group
message. Everyone in the group message has a copy of the conversation, if
someone wanted to delete something in the group chat, they would need to delete
it on everyone’s phone. Fault tolerance is especially useful when there are
many people participating.
single node were to lose track of the ledger it would remain somewhere else on
the network. To better understand fault tolerance, we can think of a group
message. Everyone in the group message has a copy of the conversation, if
someone wanted to delete something in the group chat, they would need to delete
it on everyone’s phone. Fault tolerance is especially useful when there are
many people participating.
• Bring Clarity and Transparency to Business
Processes
Processes
• No Centralized Authority
• Low Barrier to Entry
• Instant, Global Transactional Capabilities
• No Double Spending
Drawbacks of
Blockchain
Blockchain is no different from any other
technology – the benefits it provides come at a cost. There are some drawbacks
to blockchain that must be properly considered in order to determine if
blockchain is a good choice in an overall solutions architecture. These
drawbacks are outlined below.
technology – the benefits it provides come at a cost. There are some drawbacks
to blockchain that must be properly considered in order to determine if
blockchain is a good choice in an overall solutions architecture. These
drawbacks are outlined below.
Here are some of the drawbacks blockchain
faces:
faces:
• Extremely inefficient
• Very new technology
Constantly changing and evolving o Not very many
trained resources o High Cost for trained resources
trained resources o High Cost for trained resources
• Best practices, recommended patterns still being
formed
formed
• Scalability, transaction speed / cost, especially
on public platforms
on public platforms
• No centralized ownership, no single
authority
authority
• Can be difficult (even impossible) to get a
complete “God Mode” view of the solution and its data
complete “God Mode” view of the solution and its data
• Many platforms and toolsets are still
pre-production releases, and may not be ready to heavy applications
development
pre-production releases, and may not be ready to heavy applications
development
The Nature of
an Append-Only Ledger
When listening to descriptions of blockchain it is
not uncommon to hear that blockchain constitutes a “globally shared
database”. This is not a bad analogy, as long as one bears in mind several
key differences. Databases have four primary operations or functions, commonly
referred to as the CRUD functions. In a classical database, those functions
are:
not uncommon to hear that blockchain constitutes a “globally shared
database”. This is not a bad analogy, as long as one bears in mind several
key differences. Databases have four primary operations or functions, commonly
referred to as the CRUD functions. In a classical database, those functions
are:
• CREATE
New records can be created and added to the
database.
database.
• READ o Existing records can be read
from the database.
from the database.
• UPDATE
Existing records can be updated in-place.
• DELETE
Existing records can be removed or purged from the
database.
database.
In blockchain, the last two of these functions have
been intentionally removed. The only possible operations on a blockchain
are:
been intentionally removed. The only possible operations on a blockchain
are:
• CREATE
New records can be created and added to the
ledger.
ledger.
• READ o Existing records can be read
from the ledger.
from the ledger.
Blockchain (by design) provides absolutely no
ability to update or delete data on the ledger. This leads to the append-only
and immutable properties of blockchain. If data is recorded on the blockchain,
and that data later changes, that change must be recorded as an additional
record on the ledger – no ability to update it in place exists. If data is no
longer relevant, a new record must be added to the ledger indicating such –
there is no ability to delete the record.
ability to update or delete data on the ledger. This leads to the append-only
and immutable properties of blockchain. If data is recorded on the blockchain,
and that data later changes, that change must be recorded as an additional
record on the ledger – no ability to update it in place exists. If data is no
longer relevant, a new record must be added to the ledger indicating such –
there is no ability to delete the record.
This append-only approach delivers the benefit of
full version history of all data points within a blockchain solution.
Databases, by contrast, excel at showing a ‘snapshot’ or current state of
data.
full version history of all data points within a blockchain solution.
Databases, by contrast, excel at showing a ‘snapshot’ or current state of
data.
Peer to Peer
(p2p)
(p2p)
Centralized and Distributed system architecture
solutions usually adopt a client / server network approach. Blockchain and
decentralized applications platforms largely forego client / server to adopt a
Peer-to-Peer (P2P) approach. In a P2P network, all nodes or computers are equal
to all others. There are no servers, all nodes are clients and servers
simultaneously. This allows for virtually unlimited fault- tolerance and built
in failover abilities, as well as backups via data redundancy. All of this
comes at the expense of performance and efficiency.
solutions usually adopt a client / server network approach. Blockchain and
decentralized applications platforms largely forego client / server to adopt a
Peer-to-Peer (P2P) approach. In a P2P network, all nodes or computers are equal
to all others. There are no servers, all nodes are clients and servers
simultaneously. This allows for virtually unlimited fault- tolerance and built
in failover abilities, as well as backups via data redundancy. All of this
comes at the expense of performance and efficiency.
 |
Exo-Bockchain-Business-09 |
Decentralized
Networks and Ledgers
Networks and Ledgers
Introduction
In a blockchain the ledger is stored, updated, and
maintained by a peer network. Each node in this network maintains its own
individual copy of the ledger. It is the job of the network as a whole to come
to a consensus on the contents of each update to the ledger. This ensures that
each individual copy of the ledger is identical without requiring a centralized
“official” copy of the ledger.
maintained by a peer network. Each node in this network maintains its own
individual copy of the ledger. It is the job of the network as a whole to come
to a consensus on the contents of each update to the ledger. This ensures that
each individual copy of the ledger is identical without requiring a centralized
“official” copy of the ledger.
Why a Decentralized Network?
As mentioned, we assume right from the beginning
that none of the participants will or have to trust one another. As long as
they trust in the integrity and the accuracy of the blockchain itself they do
not have to trust each other. The image below can be used to represent a
blockchain network. Each dot on this picture is a node or a miner on the network,
keeping a copy of the ledger.
that none of the participants will or have to trust one another. As long as
they trust in the integrity and the accuracy of the blockchain itself they do
not have to trust each other. The image below can be used to represent a
blockchain network. Each dot on this picture is a node or a miner on the network,
keeping a copy of the ledger.
Imagine if you were going to try to attack a
network with this architecture, you could not perform a denial of service
attack. The only true way to attack a network like this would be to take every
single node offline. If you scale up this picture let’s say 10x or 100x (adding
nodes) you can see just how powerful and secure this network becomes.
network with this architecture, you could not perform a denial of service
attack. The only true way to attack a network like this would be to take every
single node offline. If you scale up this picture let’s say 10x or 100x (adding
nodes) you can see just how powerful and secure this network becomes.
Nodes can go online and offline as they choose, and
the network continues to function seamlessly. When an offline node comes back
online it can simply sync back up to the current state of the ledger with the
other nodes online. This allows blockchain to not have a single point of
failure or dependency that must be entrusted. This makes blockchain, and by
extension, P2P architectures ideal for scenarios where network connectivity or
uptime is not a guarantee – this is why there is so much interest and
excitement around blockchain in parts of the world with developing
infrastructure.
the network continues to function seamlessly. When an offline node comes back
online it can simply sync back up to the current state of the ledger with the
other nodes online. This allows blockchain to not have a single point of
failure or dependency that must be entrusted. This makes blockchain, and by
extension, P2P architectures ideal for scenarios where network connectivity or
uptime is not a guarantee – this is why there is so much interest and
excitement around blockchain in parts of the world with developing
infrastructure.