Introduction To Blockchain Objective: When You Finish This Unit, You Will Be Able To
Introduction To Blockchain Objective: When You Finish This Unit, You Will Be Able To
Introduction To Blockchain Objective: When You Finish This Unit, You Will Be Able To
Objective
When you finish this unit, you will be able to:
• Explain the use of blockchain for business.
• Identify different types of blockchain.
• Identify why blockchain is relevant for enterprise.
What is Blockchain
For an introduction to blockchain, watch the video Blockchain Fundamentals:
Blockchain for Business at https://www.youtube.com/watch?v=i9KPXyHc4Bw
• Blockchain is a major shift in both technology and processes for companies.
• Blockchain will serve as the backbone for transformed collaboration models and empower
other technologies, such as the Internet of Things (IoT), mobile, and analytics.
Problem: Inefficient, expensive, and vulnerable
Let us explore a common business network scenario. Several participants are involved
while transferring the ownership of a vehicle: the manufacturer, seller, buyer,
regulators, banks, and many more.
Each participant keeps their own ledgers, which are updated to represent business
transactions as they occur.
This process is expensive because of the duplication of effort and intermediaries that
add a margin for services. It is clearly inefficient because the business conditions (the
contract) are duplicated by every network participant. It is also vulnerable because if a
central system (for example, the bank) is compromised because of an incident, this
compromise affects the whole business network. Incidents can include fraud,
cyberattack, or a simple mistake. Overall, it requires much effort to provide a
transparent trail to auditors.
Solution: A shared, replicated, and permissioned ledger
What is a ledger
You are probably used to looking at your bank account. What is most important to you
is the available balance because it is what you may spend at the current moment. If
you want to see how your balance was derived, then you can look through the
transaction credits and debits that determined it. This is a real-life example of a ledger,
which is a state(your bank balance) and a set of ordered transactions (credits and
debits) that determine it. Hyperledger Fabric is motivated by these same two concerns:
to present the current value of a set of ledger states, and to capture the history of the
transactions that determined these states.
A ledger does not literally store business objects, but it stores facts about those
objects. When we say “we store a business object in a ledger”, what we really mean is
that we are recording the facts about the current state of an object and the facts about
the history of transactions that led to the current state. In an increasingly digital world,
it can feel like that you are looking at an object rather than facts about an object. In the
case of a digital object, it is likely that it is in an external data store, and the facts you
store in the ledger can identify its location and other key information about it.
Although the facts about the current state of a business object might change, the
history of facts about it is immutable; it can be added to, but it cannot be retroactively
changed. We are going to see how thinking of a blockchain as an immutable history of
facts about business objects is a simple yet a powerful way to understand it.
For more information about the ledger, see Ledger at https://hyperledger-
fabric.readthedocs.io/en/release-1.4/ledger/ledger.html
Identity
• Various regulations (such as KYC) that are applied to businesses require them to know
with whom they are dealing.
• Identity is used to ensure that business networks are kept private and individual
transactions confidential, with transparency for the regulator.
• In general, every business, no matter which country, is regulated. Commonly known examples
include KYC, AML, and Combatting the Financing of Terrorism (CFT). These regulations
require that companies know who their business partners are.
A standards-based Private or Public Key Infrastructure (PKI) creates identities that can
be trusted by other members of the business network. In addition, on- and offboarding
procedures are typically established.
Endorsement process
• Endorsement is the process in which a transaction is verified as “good”. It ensures that
participants are willing to accept the transaction and prevents the double spending problem.
• Endorsement is the process by which the network verifies a transaction. Depending on the
underpinning blockchain technology, different mechanisms are used to decide whether a
transaction is valid. You might have heard about Proof of Work (PoW) or Proof of Stake (PoS).
These strategies are necessary to create incentive for correct behavior in an anonymous
network.
• Blockchain for business has known identities and a different level of trust. Transactions must
be checked against the agreed business rules to avoid incorrect data being stored on the
ledger.
• Endorsement can be expensive in public blockchains:
o Without identity, transactions are distributed among the whole network for endorsement.
o PoW is CPU-intensive.
• In the real world, transactions are endorsed by a smaller number of participants: Sender bank,
receiver bank, and payments provider.
• Must be completed in an appropriate timeframe.
Why blockchain is relevant for enterprise
There are use case examples everywhere, and we are still in the early days of
understanding the potential of blockchain. Also, be aware that many use cases (for
example, supply chain) are cross-industry.
Finally, it all comes down to building infrastructures to benefit from blockchain use
cases.
Problem: Lack of trust in the food ecosystem
For more information, see The Sovrin Network- Making Self-Sovereign Identity a
Reality