Blockchain – A dummies journey into the unknown

Unless you are castaway on an Island, I can bet you’ve been bombarded by Blockchain or Bitcoin news. Blockchain is the new cool kid on the ‘Block’. I have been reading about this for a while and I am privileged to talk directly with folks within the technology world who are trying to bring this power into the hands of the commons.

If you don’t use it; you lose it!

Just reading and understanding something without actually using it is more an entertainment than real cognitive growth. At work, my boss encouraged me to report back applications of Blockchain technology within my Organization / Function. Suddenly my perspective on evaluating the technology changed from academic to utilitarian. This write-up is sharing what I’ve learnt so far. This is my dummies version limited to just my conceptual understanding (and not at all technical). All Technology folks… please forgive my ignorance in advance.

What’s this Blockchain? What does it do?

Similar to how internet created peer-to-peer information sharing, virtually, instantly and for free, Blockchain creates peer-to-peer business value sharing, instantly, without the need of intermediaries (not yet sure about the free part). Just like internet, there is no central authority that controls all the information. Instead the data is shared among many peer participants on the network. Let me explain three known scenarios that I am interested to try out in my organization.

1. Transfer of Money (BitCoin) – Today, transfer of money from person A’s bank account into person B’s bank account is managed by intermediary banks. The most basic value the bank creates in the transfer process is broadly threefold –

    • Executes money transfer instructions i.e. takes instructions from A to transfer money into B account and executes on the instructions.
    • Makes sure the source amount (transferred by A) reconciles to the destination amount (deposited into the account of B)
    • Keeps a log / history of transactions for future use

Blockchain technology, operating in some mystical location, can execute all the three above instantly without the help of intermediary bank. It also creates (via cryptography) extremely strong controls to minimize fraud or foul play within the process.

See the video that explains the concept.

Block Chain – A Short Introduction

2. Proving Ownership (Provenance) – Lets’ say you make a music album with your friends and stream it online for a small fee. To ‘stream it online’, you generally need the help of intermediaries such as Groove, YouTube, iTunes, Spotify, Pandora, etc. Today it’s very hard even for these giant companies / marketplaces to track use of music and minimize the risk of piracy. Spotify recently paid $30M in fines because of unpaid royalties. Recently Qualcomm sued Apple for unpaid Royalties. The fundamental problem is, it’s very difficult to track the ownership of any asset (music, IP, etc.) over the entire supply chain i.e. right from production to ultimate consumption.

Blockchain helps solve the problem of tracking the ownership (called Provenance) by assigning cryptographic signature to the asset. In the example of the music album above, the Singer, Guitarist, Drummer, etc. can have their unique cryptographic signatures to track the use of their album all along the way.

See the video that explains the concept –

The story of Provenance – The blockchain startup revolutionizing supply chains

3. Executing Contracts (Smart Contracts)

Continuing with the music example, lets say your company entered into a contract with the Music Band to sell their music on your platform. The terms and conditions are entered into the contract and is managed centrally within your company. Processes and controls ensure the agreed / contractual price is matched with the quantity of sales / usage i.e. music royalties is calculated by the simple Price (P) x Quantity (Q) calculation. Upon calculation, a statement is generated that shows basis of payment with lot of details such as users, geography, device, etc. and periodically the amount is paid to the Music Band.

In the real world, there is always a disconnect between what the Music Band thinks they earned and what is actually paid. Even within the music company, the data between marketplace, finance systems of record, royalties calculation systems and accounts payable generally don’t tie. This is the source of all legal litigations and expensive audits.

Blockchain eliminates the need for a central system and integrates with various nodes on the network (marketplace, payee ledger, finance systems of record, royalties systems, accounts payable, etc.) to create one source of truth that is arrived by a mechanism of ‘consensus’. The smart contract technology self-executes upon trigger to complete actions such as generate statements and make payments.

Simple introduction to smart contracts on a Blockchain

I am sure there are a lot more geeky applications of the technology but the above is what I am interested in. I am planning on conducting a proof of concept to see if the technology can add any value for my use cases. Will share more on if this is just a momentary hype or there is real promise in the technology. Stay tuned.

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