The Blockchain Exposition

It is pretty much a “What is Blockchain” article. As the?technology is still in its infancy; I think, writing an article on “What is Blockchain” will still be relevant for some more time to come :)

So, set yourself up for a Rendezvous with Blockchain! I hope, you will enjoy it. And after the rendezvous is over, I hope, you will feel that you know it better.

The article is presented as a conversation. I think good questions/doubts are as important as good descriptions. So let me introduce you to the people in conversation here - Rohit and Madhvi.

Idea and Trend

Madhvi: What is Blockchain?

Rohit: Hmmm... it's a new platform technology, which is now a global technology trend and the world is talking about it.

Madhvi: Tell me more...

Rohit: What is making you so interested in this?

Madhvi: I want to know, what is it, which is taking your time and attention :). Also, I am trendy, so I must catch up on any new trend :) And moreover; I am not averse to technology.

Rohit: Hmmm... Looks like, you have good reasons :). Tell me what do you want to know?

Madhvi: Ok, so... Blockchain, whatever it is, what problem does it solve?

Rohit: Let's look at few examples to understand the problems.

Assume you come across a website put up by some company. The website is not well known, so you can not be sure if it is genuine. You find some unique item on that website, which is not available elsewhere and you want to buy it. The transaction can happen in one of the following ways.

• Trust-based: You decide to trust the website and make payment to purchase the item. Here, there is a chance that the website company is not genuine, so you may not receive the purchased item and your money is also gone.
• Contract-based: You decide to get into some contract with the website company before making the payment. Which they too agreed for. However; if the company is not genuine, again you may not receive the purchased item and your money is also gone. In this case, based on the contract, you have legal ways to recover your money. But if the amount spent is not too high, it may not even be cost effective to take the legal route. Contracts are just documentation about the deal, which can be used in legal matters if the deal is broken. There are no means to enforce the contract while the deal is happening.
• Third Party (Central Authority): This is a third party trusted by both of you. You make the payment to this third party. Once the third party confirms the payment to the website company, they ship the purchased item. Once the shipment is confirmed, the third party makes the payment to the company. Works well for both the parties and both are happy. Oh, by the way, In the process, both the parties make an extra payment to the third party. A service charge to build trust, which otherwise was not possible to build.

In the above scenarios, the situation can be reversed as well. Even after making the shipment of the purchased item, the website company may not receive the payment. Don't take it personally, you may not do it :) But that you in the example could be someone else, who may do it.

In yesterday's world, these were the usual ways for any value exchange. While these systems work, they have their own problems.

Problem #1 Trust-based system limits business opportunity, as it can be done only between known people.

Problem #2 Trust-based system can either be based on personal interaction or digital certificates (in software and internet world). In either case, there is a thin possibility of breaking trust and the deal. A trust-based system only reduces the possibility of breaking a deal, it cannot eliminate it.

Problem #3: A contract-based system is better than a trust-based system, as it can work between two unknown parties. But in case if the contract is broken, it requires time, effort and money to recover the loss.

Problem #4 A third-party-based system requires you to pay extra to the third party to build the trust factor.

Problem #5 There is a thin possibility of this third party also turning rogue and running away with the money.

Further, let's look at remittance industry. A remittance is a transfer of money by a foreign worker to an individual in their home country. Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries. According to world bank data, in the year 2017, officially recorded remittances to low- and middle-income countries are $466 billion and global remittances, which include flows to high-income countries is $613 billion. The detailed report is here.

Remittance charge on an average is as much as 9%. If we do a simple math, when a remittance of $466 billion happened to the respective countries in 2017, these remittance firms made somewhere around $40 billion.

Problem#6 Transaction fee for cross-border money transfer is quite high.

Now let's look at Micropayments. A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. One problem that has prevented the emergence of micropayment systems is a need to keep costs for individual transactions low, which is impractical when transacting such small sums even if the transaction fee is just a few cents.

Problem #7 Conventional system makes it infeasible to do Micropayments.

The Blockchain whatever-it-is and however-it-does-this; but it solves all these problems.

The Blockchain does not require any central authority.

It does not require the trust to be built for any value exchange. It also does not require any third party involvement for any value exchange. It enforces contract during deal execution. While the deal is being executed and the contract is enforced, either of the parties cannot stop or change the contract enforcement or overrule it. Thus it eliminates all the existing problems of value exchange.

It also reduces the cost of transaction drastically. So it can save billions in remittance and other kinds of transactions. Also, micropayments system can make use of blockchain.

To summarize,

The Blockchain is a technology to build a decentralized system that allows value transfer without incurring any significant extra cost, also it allows value exchange without needing the trust.

Madhvi: In the context of these examples, I understand the problem that it solves. It raises a lot of curiosity about how does it do it. As you said however-it-does-this, for the time being, I will hold on to my curiosity and think that somehow-it-does-this. Let's talk more on what-part before we go to how-part.

Coming to my next question, for any technology to become a global trend, it should have an impact that is much wider and across various industries. So, what impact it can have on different industries and business?

Rohit: The idea of blockchain is groundbreaking. It can (and possibly will) change the world as we know it today.

Blockchain today is a lot like the internet in the early '90s. A new technology used by just geeks, a technology with an obscured future.

Today, the internet has become our way of life. Why internet has had such a success is because it brought in an unforeseen change in the information world. Internet radically eased and reduced the cost of sharing, transferring and exchanging information.

As you see, I am just penning down this conversation and putting it on the internet. Just putting it up there, makes it accessible to millions, who are going to read and like it :).

Madhvi: Really? Millions? I mean, of course, putting it on the internet makes it accessible to that many or more. But those many are going to read you! What modesty! Anyhow; let me not digress. So just go on.

Rohit: Yes, Millions! :)

And once you get past my charm, intelligence and sense of humor. I think it's my modesty that stands out. :D

Madhvi: I am not saying anything more. Just move on.

Rohit: Alright; the point, I was trying to make is that sharing information on the internet is incredibly easy - as I don't have to reach out to any printing agency, cheap - as it involves almost no cost, fast - as it reaches out to millions of people across the globe in no time.

In the pre-computer-and-internet era, sharing this would mean sending hard copies, and doing it for millions would be an enormous effort - to collect millions of addresses and getting the hard copies printed; insanely expensive - the printing and postal cost, insanely time-consuming and actually in all practical sense - infeasible.

So, let me repeat it one more time. Internet radically eases and reduces the cost of sharing or transferring or exchanging information.

Coming back to Blockchain. Similar to the Internet, Blockchain radically eases and reduces the cost of sharing or transferring or exchanging Value. Almost any industry that deals with some sort of transaction, can and will be disrupted by the Blockchain.

I will sum up the whole thing by making this remark

Blockchain is for Value, what Internet is for Information

Blockchain entered Gartner Hype Cycle for Technology Trend in the Year 2016, making it to the list of top technologies being looked upon by different industries globally.

There is a lot of information available all over the web about its potential impact on different industries. Here is an image (source: https://tinyurl.com/yd2blla5) which lists few real-world use cases for the Blockchain. Click on the image or the link above for more details.

Aside, there is an interesting initiative to create a new anti-fragile system that makes humanity better as we create converging exponential technological changes. It's an interesting read, which talks about Creative Destruction Externality, that is a result of technological innovation that changes/destroys the existing structures/systems. When that happens, it leads to instability. It further talks about, how to counteract this by internalizing the Creative Destruction Externalities.

Technology, in olden days, were seen as means to bring efficiency in the existing system - to do the same thing in faster, better and cheaper ways. But over a period of time technical advancements have brought in disruption in several industries and have transformed traditional or conventional systems. In the process, several companies who just waited-on the next-new-thing, thinking it won’t impact them, perished. You wait or you ride-on; disruption happens, if it has to!?

Having said that, any new technology cannot be just a checklist to be added, only because it has become the trend.?A careful analysis of business and technology should be done to understand how it can transform the business to create strategic advantages or new business avenues. Technical advancements have become critical for any business. Its careful evaluation and adoption are required to survive, succeed and edge out the competition.

If it sounds like an Arms Race, that's because it really is!

Madhvi: Hmmm "Blockchain is for Value, what Internet is for Information". That's an interesting remark. Blockchain does seem to bring an unforeseen change in the Transaction World, where building trust without having any third party was unthinkable, just yesterday.

Hey, by the way, you didn't tell me, how this whole thing started?

Rohit: Yes, I missed talking about it. Good, you brought it up. Any conversation on Blockchain is not complete without having a mention of this. Blockchain was invented as part of the most talked digital currency project Bitcoin. A person or a group of people, pseudo named Satoshi Nakamoto is(are) the brain(s) behind it.

Madhvi: OK, now I have a fair idea of the problem it solves and why it is a global technology trend. It will be interesting to know what's inside. Can you explain the technical details on how it works?

Rohit: At a very high level, The Blockchain is built using peer-to-peer networking, asymmetric cryptography, hashing algorithm and Merkel Tree. The peer-to-peer network makes blockchain a decentralized system, replacing the central authority in a conventional system. With asymmetric cryptography, any transaction cannot be repudiated. Hashing is used to build various security features. The ultimate aim of using hashing is to make any transaction immutable. Merkel Tree is a tree build based on hashing algorithm, it is used to maintain transaction within a block. Its used for optimization purpose.

These basic computing concepts are weaved together to build something that is in the top technology trend and has a potential to bring disruptions across various industries.

Such is the power of simplicity!

After all, God lives in those smallest of the things!

Now, before we get into more details, can I get some coffee?

Madhvi: coffee?

Rohit: Yes, because it's too early for wine:) it's 2 AM!

Madhvi: oh, it's 2! How about some coffee? :)

Rohit: Yes, please. Dark as is the night!

And while you come back, let me drop a small note for our readers.

Note for our readers

For all of you, who have made it this far and are looking for more.

When I was thinking of writing it; it always seemed going beyond an article. To avoid making it one tiring read, I will be putting them in a few Blocks. So, my "What is Blockchain" article doesn't end here, this too is a chain!

This was the Genesis Block :). More blocks will be available, as soon as I mine them :)