Blockchain

A Complete Beginners Guide to
Blockchain Technology

Cash is peer to peer
Observations:
➔ No middleman required.
➔ DIY Fraud detection
➔ Sufficient trust for the value of the
transaction
➔ Anonymous/Private
➔ Distributed

Electronic Middlemen
Observations:
➔ Requires 3 rd
party trust
➔ The more complex the flow, the
more middlemen required
➔ Specialised equipment needed
(e.g. POS terminal, connection to
Txn networks
➔ Fraud detection by 3 rd
parties
➔ Every step adds cost
Electronic Middlemen

Middlemen adding value
➔ Provision of infrastructure (Terminals, network connections etc)
➔ Management of commercial relationships between parties (Lots of
lawyers)
➔ Abstraction of complexity
➔ Fraud detection
➔ Customer service
➔ Regulatory compliance KYC, AML, Risk reporting
➔ Removal of bad-actors from the ecosystem
Until now, this is the best way we’ve been able to achieve the goal
of person-to-person transactions at a distance.

Transaction volumes are growing
Now:
➔ Online banking transaction growth
➔ SME’s/Retail acceptance of electronic
transactions
➔ Online purchases/Commerce
➔ In-App purchases
➔ Virtual currencies in games
➔ International Transaction growth
(Commerce and Remittance)
➔ Value storage cards (loyalty cards, ERP,
gift cards etc etc)
Future:
➔ Internet of Things
➔ Autonomous Objects
➔ Programmable
money/Finance automation

Limitations of cash

Can be used locally only, global reach is limited

Electronic funds transfer (ETF) requires Debit/Credit Card

High fees for merchants

Slow settlement

Micro transactions not possible

Controlled and governed by central authority with no hard cap.

Arbitrary limits on local and international transfers on timely basis

Accounts can be freezed

Minimum balance required in most cases for bank accounts

Not fungible

More probability for hacking as there is a single point of authority

Advantages Blockchain powered payment networks (Bitcoin)

No centralized authority or middlemen -

its not controlled or governed by a any authority or governement

No arbitrary limits and fungible -

No daily limits which banks impose whether a domestic or
international transfers, any amount can be moved

No freezing of accounts – paypal is notorious for this

No charge back – paypal again was notorious for this

No fees for merchants –

it costs nothing for merchant to accept bitcoin, no middleman and
bureaucracy, no need of paying credit fees.


Faster than internation bank trasnfers -

Instead of waiting for 2-5 business days, Bitcoin lowers this
down to an hour (hopefully less with lightning network).
Bonus – no FX fees either.

No government printing money -

The government can’t decide to inflate and devalue your
currency.

Limited supply -

Only 21 Million coins are available

Open and transparent -

Its free and open source anyone can verify its credibility by
checking its source code.

Global reach -

Wherever there’s internet, Bitcoin is possible. If there’s a
disaster all the way across the world and you feel like
donating, you can.


Immutable in nature -

Transactions once recorded cannot be altered hence not
possible to make fraud.

No need for special equipment.

Provide pseudo anonymity

2008 – “Satoshi Nakamoto” wrote…

Key historical dates
➔ 2009 first block created
➔ Satoshi Nakamoto was the pseudonym used
➔ Satoshi disappears December 2010 - date of last post

Seeking Satoshi
While conspiracy theories are fun, it's mostly irrelevant
➔ Operational design published openly
➔ Protocol is opensource
➔ Code is opensource and has mostly been re-written

What is a Blockchain?
What you need to know

What is blockchain?

Blockchain is a distributed database system that acts as an “open ledger” ,

Its replicated across several computers assembled in a peer-to-peer network
which is spread across globe collectively following protocol for validating new
blocks

It contains continuosly growing list of records called blocks, which are linked and
secured using cryptography.

each block typically contains a hash pointer as a link to previous block with
append only property.

Blockchains from First Principles

Blockchains
Transactions are grouped together into a Block.
The Chain is multiple Blocks, linked together.
0 21 43 5

Blockchains
0 21 43 5
➔ Blocks are numbered in ascending order, 0 is first/oldest
➔ The number is the ‘height’ of the block
➔ Arrows only go from newer to older blocks - a block only directly links to
the one immediately before it
➔ Once a block is stored, it’s read-only (which is why it doesn’t link to the
ones after it - that would require you to update it)

Blockchains
0 21 43 5
➔ Blocks store data, in Bitcoin, it’s the transactions, but it could be any
digital data
➔ Blocks are created periodically (on average, 10mins for Bitcoin) by a
process called ‘mining’
➔ A block represents a set of events that have occurred over a particular
time frame (usually, since the previous block)

Blockchain characteristics

Failure tolerance

Resilient to attacks

Open and transparent

Immutable

Secure

Trustless trust

Distributed consensus

Resilient to double spending problem

Pseudo anonymous

P2p network

Network Evolution
i) centralized iii) distributed
ii) decentralized

Distributed Networks
➔ Many, equal nodes
➔ Each node has multiple connections to other nodes
➔ Very resilient to failures, attacks
➔ As long as 2 nodes are up, the network is still running

Distributed consensus

Blockchain is a decentralized system with no single authority to trust, but maintains a commonly
agreed state between all the nodes in the network.

This common state is maintained via a distributed consensus.

Each blockchain has its own distributed consensus algorithm, which denies who can write to the
blockchain, and what rules to be followed and the rules for conflict resolution.

P2p network

blockchain implement their own p2p network to communicate between the nodes in network.

Once a transaction is verified by a node it broadcasts it to all the other nodes in the network,
and each node will independently verify.

A new node can join the network anytime.

Once one node hears about a bitcoin transaction, it validates it and then publishes it to all the
nodes its aware of.

The same thing will be repeated by all the nodes in the bitcoin network and ultimately all the
nodes in the bitcoin network will be aware of this transaction.

Blockchain are open and transparent

Blockchain is open and transparent

Transparency is ensured through the open, public decentralized ledger that anyone can view
Ex: blockexplorer.com

Blockchain creates Trustless trust

Trustless Trust

Encrypted transactions are initiated and accepted peer to peer.

There is no financial middleman or bank that establishes trust between the parties.

Instead, trust is established through the decentralized distributed ledger that is visible to anyone
within the network.

When a transaction is initiated, this worldwide network of computers race to validate the
transaction by solving complex algorithms. When the network reaches consensus that the digital
ledger reflects that the transferring party actually has the asset to transfer, the transaction is
validated and executed. And the digital ledger is updated, simultaneously, across the network.

Anyone with the necessary computer power can participate in the verification process

The network is able to validate, timestamp and clear a transaction instantly because that activity
happens immediately within the digital ledger itself, not between institutions.

Immutable

blockchain consists of blocks, where it starts with a genesis block, and each block since then,
links to the block prior to it.

Each block has it’s own hash and the hash of the block prior to it.

Each block has a set of transactions in it—and once written to the blockchain, it is hard to
change anything in the written block.

Since all the later blocks are linked to this block, if you are to change a block, you also need to
change all the other blocks written on top of it, till the very latest.

he distributed consensus algorithm (which we discuss in the next section) followed by each
blockchain implementation, makes this merely impossible both technically and economically.

Compare the ease and convenience of transferring digital
currency on the blockchain to the complexity of an ordinary credit
card transaction.

Comparision
Blockchain payment system

A wants to send money to B. The transaction

request is sent to every node in the worldwide
network

The network nodes validate that, according to
the digital ledger, whether A actually has the
money to send to B

If yes then transaction is approved and is
sealed into a secure block and the block is
linked to all previous blocks, forming an
immutable chain.

The money moves on the digital ledger from A
to B.

The transaction and settlement are
instantaneous.
Credit card transaction system

Customer pays with credit card

Merchant captures credit card information and
sends to the merchant’s bank

The merchant’s bank forwards the transaction
to the credit card company (VISA, Mastercard,
etc.)

The credit card company requests payment
authorization from the bank that issued the
credit card

The card-issuing bank approves the
transaction through the credit card company
and the merchant’s bank

Up to 48 hours later the transaction is posted
to the cardholder’s monthly statement by the
issuing bank and to the merchant’s statement
by the merchant’s bank

LOCAL ECONOMIES WORLDWIDE WILL RETAIN THE BENEFITS OF
THEIR LABOR
The largest flow of capital from the developed world to the developing world is
not foreign aid or corporate investment.
It’s the $600 billion sent home by emigrants in the form of remittances.
Currently that transfer of fiat currency goes though a middleman, be it a bank or
Western Union, charging anywhere from 5% to 25% in remittance fees
depending on where in the world the money is being sent.
And it takes several days to clear.
Imagine if that transfer were instant.
Imagine if it were peer-to-peer, with no middleman fees.
Goldman Sachs estimates that $100 billion annually could be saved and
plowed back into local economies.

SOCIETIES WORLDWIDE WILL BE SERVED BY MORE EFFICIENT
GOVERNMENTS
A significant number of governments around the world are applying blockchain technology to
solve their most pressing problems.
In Estonia, to combat healthcare fraud, the government has adopted blockchain technology to
secure one million health records, accelerating transparency and auditability.
The UK government’s Department of Work and Pensions is partnering with Barclays to use
the blockchain to distribute welfare payments, significantly
reducing waste and fraud.
The Republic of Georgia is piloting a blockchain land titling project. An estimated 70% of
people around the world who own land have tenuous title to it. Without a valid title, the land
can’t be borrowed against or sold. Documenting ownership of land, registering it as a
verifiable asset on the blockchain, opens up new value for the owners
Andhra pradesh and Telengana states of India are working on implementing blockchain for
land title projects

IMAGINE
Develop open platform
for demonstrating
corporate values to
customers
Inspire loyalty
Ensure customer privacy
Inspire customer
confidence
Drive preference
& lifetime value
Differentiate products
& services
Establish superior value
Amplify brand relevance
Improve & maintain
corporate reputation
Vet potential
partners & suppliers
IMAGINE a national
jewelry chain is able to
authenticate that every gem
has been mined responsibly,
establishing superior value
and brand preference by
“doing good.”
IMAGINE a health insurance
company is able to establish
a “healthy living” program
that offers discounts as
members achieve key
metrics and irrefutably
notarize them on the
blockchain. Then imagine
the cost efficiencies as
the process is automated
through smart contracts.
IMAGINE an automobile
company has been faulted
and fined for using flawed
parts. Then imagine going
forward they vet suppliers
on the blockchain and re-
establish a reputation for
responsible sourcing.
IMAGINE a non-profit
aid organization is able
to establish its integrity
and increase donations to
disaster victims because
donors can trace the flow of
their dollars directly into the
hands of those in need. Then
imagine those dollars get
there swiftly, without friction,
and at low cost.
SECURITY TRANSPARENCY AUTHENTICITY CREDIBILITY
IMMUTABLE TRUST
BUSINESSBENEFTIS

IMMUTABLE TRUST
can empower significant business transformation, transformation that can increase productivity, improve cost efficiency,
enhance revenue, establish brand preference, and create new value. And it is being put to work right now, today, across industries and across
functions by an increasing number of companies worldwide.
Walmart partnering with
IBM to track food on
the blockchain.
With blockchain, Walmart will be able to obtain
crucial data from a single receipt, including
suppliers’ details on how and where food was
grown and who inspected it.
Everledger using blockchain
for counterfeit diamond detection
& insurance fraud.
Everledger uses the blockchain to track
individual diamonds, from the mine to the
consumer and beyond.
Spotify partnering with Mediachain
Labs to help solve their music
licensing issues.
Spotify and Mediachain Labs are working
together on developing better technology for
connecting artists and other rights holders
with the tracks hosted on Spotify’s service.
JPMorgan Chase replacing
complicated databases
with blockchain ledger.
The hope among Quorum’s developers is
that blockchain can solve some banks’
most intractable problems including long
and expensive settlement times, systems
breakdowns and lack of clarity about risk
exposures.
SUPPLY CHAIN SOURCINGATTRIBUTION
OPERATIONS
Solar Change uses blockchain
to increase the use of solar
energy worldwide.
Solar Change introduces SolarCoin - a
revolutionary digital currency reward program
designed to improve and increase the use of
solar energy worldwide.
ING set to improve
customer experience
using blockchain.
Working with 10 other banks, ING showed it
could simplify the ‘Know Your Customer’ process
so customers only have to submit identity
documents once rather than each time they open
a new account. This increases transparency,
security and cost-efficiencies for banks.
ENERGY DISTRIBUTIOCUSTOMER EXPERIENCE
17
20 21
22
18
19

A national women’s fashion retailer is
struggling to update their image and become
a brand that matters among younger
Millennials. They’ve done their research
and carefully considered their customer’s
journey. They understand that younger
Millenial women favor brands that express
individuality and authenticity as well as
brands that have a positive social agenda,
brands that “do.”
So they’ve created a new line of scarves
sourced entirely with fabrics from Bhujodi,
India where the one-of-a-kind fabrics are
hand-loomed. So far, so good. The retailer
could tell this story across social and
traditional media and hope their customer
receives and believes the message.
to transparently prove their authenticity, to
connect with their audience from a single
source of immutable truth in order to build
trust and brand relevance.
The tag on each scarf carries the retailer’s
blockchain address whose immutable
records confirm Bhujodi as the origin of the
fabric and verifies that all-natural dyes were
used to create the fabric. Further, it validates
that the company of hand-loomers has a
reputation of employing their workers under
better than average conditions. Through the
blockchain, the product carries a transparent
extended brand narrative of authenticity and
trust directly to the Millennial consumer.
Moreover, knowing that “brands that do”
are important to Millennials, the retailer’s
marketing department has developed a
cause-related campaign to benefit Bhujodi.
The village’s electrical grid is unreliable and
frequently there are extended power outages.
The retailer has decided to donate up to 10
generators, based on the enthusiasm of its
customers to interact with its brand.
IMAGINE ESTABLISHING A BRAND
THAT MATTERS WITH THE BLOCKCHAIN
OR, THE RETAILER COULD PUT THE
BRAND INTO ACTION ON THE BLOCKCHAIN

Each time a customer interacts with the
retailer’s brand – through a purchase,
a social media share, interacting with
promotional materials – an agreed upon
Bitcoin micro-donation is made by the
company to the manufacturer. When the
total price of the generators is aggregated
and verified through the smart contract, the
funds are released to the manufacturer who
automatically ships the generators directly
to Bhujodi.
The trail of donations and the progress
against objectives is fully transparent
to customers on the blockchain. Their
actions are advancing a cause. And the
retailer is building trust, becoming a brand
that matters.
A SMART CONTRACT IS CR
ON THE BLOCKCHAIN. THE
TERMS BETWEEN THE RET
AND A MANUFACTURER OF
ELECTRICAL GENERATORS
PROGRAMMED INTO IT.

Ecosystem Developments
One of the fasting moving in tech

Parallels to the internet
Just as the internet revolutionised access to information, blockchains will do the
same to multiple industrial verticals:
➔ Finance first
● It's what blockchains were built to do
● It's where the money is
Non finance uses
➔ Specialist blockchains dedicated to one task
➔ Generalist blockchains to be used as a 'platform'
Brave new world/wild west – still lots of learn and build

Where are we now?
General
Public
Developers

Blockchain

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