Blockchain Applied

Practical Technology and Use Cases of Enterprise Blockchain for the Real World

Stephen Ashurst, Stefano Tempesta

• Editore: Productivity Press
• Anno: 2021
• ISBN:
  9781000434354
• Edizione: 1
• Argomento: Commerce
• Categoria: Finance

Blockchain is the popular name given to the exciting, evolving world of distributed ledger technology (DLT). Blockchains offer equitable and secure access to data, as well as transparency and immutability. Organisations can decide to use blockchain to upgrade whatever ledgers they are currently deploying (for example, relational databases, spreadsheets and cumbersome operating models) for their data and technology stack in terms of books and records, transactions, storage, production services and in many other areas.

This book describes the applied use of blockchain technology in the enterprise world. Written by two expert practitioners in the field, the book is in two main parts: (1) an introduction to the history of, and a critical context explainer about, the emergence of blockchain written in natural language and providing a tour of the features, functionality and challenges of blockchain and DLT; and (2) a series of six applied organisational use cases in (i) trade finance, (ii) healthcare, (iii) retail savings & investments, (iv) real estate, (v) central bank digital currencies (CBDC) and (vi) fund management that offer the reader a straightforward, easy-to-read comparison between 'old world' technology (such as platforms, people and processes) versus what blockchain ledgers offer to enterprises and organisations in terms of improved efficiency, performance, security and access to business data.

Blockchain is sometimes tainted by association to Bitcoin, Onecoin and others. But as cryptocurrencies and stock markets continue to rise and fall with volatility and the world economy emerges changed by coronavirus, working from home and the threat of inflation, many enterprises, organisations and governments are looking again at the powerful features of blockchain and wondering how DLT may help them adapt. This book is an ideal introduction to the practical and applied nature of blockchain and DLT solutions for business executives, business students, managers, C-suite senior leaders, software architects and policy makers and sets out, clearly and professionally, the benefits and challenges of the actual business applications of blockchain.

Chapter 1

The Blockchain Age

In the era of the internet, online transactions and smart contracts are the lifeblood of all internet activity for individuals and businesses, governments and software platforms alike.

The primary function of economies is to maintain a steady, secure and predictable flow of money transactions through foreign exchange transfers, payments and credit. Economic transactions are dependent on transparent and accurate records being kept within the central bank and banking system and via government agencies such as tax authorities and welfare benefits services.

Civil legal systems depend heavily on clarity of contracts between entities in order for transactions to be enforceable. Commerce, land and property, and investment agreements – to name but a few – require parties to access and adhere to the terms agreed, with close attention to be paid to detailed terms and dates.

The digital revolution unleashed by the internet is undeniable but has not yet reached its zenith. Process automation, machine-learning and artificial intelligence, distributed apps and matching engines are pushing forward changes in human transactions and are driving automation in every field – for example, healthcare and finance.

Where this journey of innovation takes us is still far from clear, but in order to ensure consistency and fairness, there will need to be a value-focused approach to transaction and contract management.

This book focuses, for the first time, on the real-world impacts that distributed ledger technology (DLT), also known as blockchain, will have on transactions and contracts. We refer to this as the ‘Blockchain Age’, a real revolution in the way things work online.

But this is not a technology book. Our intention is to set out and explain the business potential of blockchain and to provide the reader with a comparison of the day-to-day practices of six industries and how they might be changed by their wholesale adoption of blockchain: (1) trade finance, (2) healthcare software, (3) retail savings and investments, (4) real estate and land registry, (5) central bank currency, and (6) fund management.

Our hope is that, by demonstrating how transactions and contracts are now, in the internet age, versus how they might be in the near future in the age of blockchain, we’ll sketch out a new way of thinking and talking about distributed ledgers: how blockchains may be deployed to fix real-world constraints and dissolve obstacles to progress in key industries.

What Is ‘Blockchain’?

In the information technology world, the new noun ‘blockchain’ is self-explanatory: a ‘block’ is a storage unit or space for digital information to be stored in a database; and a ‘chain’ refers to the various or string of database locations where these blocks of information are stored.

But what information do these blocks store within them? And how many blocks long might a chain be?

Blocks encompass specific information about digital/online transactions. Each block records a transaction amount, time and the date on which it took place. The details (but not necessarily the identities) of the transaction participants such as individuals, companies, legal entities and so on are also stored in the block by way of assigning a cryptographic hash or unique digital signature instead of revealing actual names.

Blocks are validated by all parties using one of the several different methods of consensus mechanism available, and blocks are then attached to the chain (note: the very first block in a chain is known as the ‘genesis’ block). New blocks are issued according to pre-set rules and, in some cases, based on a background activity known as ‘mining’.

Blocks also interact with business rules about the transfer and status of certain information within each block, such as who owns what and when a transfer might take place and between whom. These rules, and the execution of them, are known as ‘smart contracts’: embedded processes in the operations of the blockchain that are automated.

Because blockchains are decentralised ledgers, there is no centralised location where a blockchain can be downloaded. New participants in a blockchain must install suitable software (such as Web3py for example, a Python library for connecting with the Ethereum blockchain network) on their laptop and then connect to the blockchain via the internet, locally on their own machine using software such as geth that will sync a blockchain to a laptop, or hosted (blockchain access that’s provided by a third-party service). Once connected, there are clear links to where a participant may access the main blockchain itself and, usually, several test or sandbox instances of the blockchain for testing smart contracts etc.

On a day-to-day basis, new and existing blocks are linked together using cryptography, the science of constructing codes for data security and privacy. Therefore, by design, these blocks within a chain of databases cannot be modified or altered and are immutable.

In Bitcoin, a block has been designed to hold 1 MB of data, which would mean each block can store thousands of transactions within itself. By definition, blockchain technology is decentralised, meaning, for example, that the contents of each block are available for public viewing. Transparency is a key feature of blockchain.

Let’s understand the history of blockchain technology and how it has weaved through countless innovations and upgrades to its place in our automated world today.

History in the Making: Blockchain Technology

The idea for blockchain technology was put forward by research scientists Stuart Haber and W. Scott Stornetta in 1991. They were the pioneers in the computer programming concept of time-stamping digital documents so that they could not be backdated or manipulated.

Blockchain technology was first configured and implemented as a practical solution in 2008 by a pseudonymous group of developers, Satoshi Nakamoto. They designed and developed the technology using hash encryption to uniquely timestamp blocks of data without surfacing the identity of the entity that performed the transaction.

This approach was highly innovative in that it did not require a central governing body to provide confirmation and verification. Therefore, blockchain is sometimes referred to in computer science as a peer-to-peer trustless mechanism.

This design was implemented as a core component of the cryptocurrency bitcoin. It multiplied the transparency of transaction details as the ledgers were made available to the public on the Bitcoin cryptocurrency network. The Bitcoin blockchain storage size recording all transactions that had occurred on its network reached 350 GB in June 2021.

The raging success and galloping growth of blockchain technology can be seen in the upward trend of the increment in the Bitcoin block file size today, which had surpassed 200 GB of storage space for Bitcoin in the first quarter of 2020.¹

By 2014 various other approaches to decentralised ledger technology were initiated in addition to Bitcoin, which developed blockchain technology further and has created a ‘Blockchain 2.0’ wave of innovation.

‘Bitcoin 2’ saw the emergence of Ethereum and its cryptocurrency ether. Vitalik Buterin, the founder of Ethereum, believed that the uses of blockchain technology went far beyond simply recording transactions. Buterin created an innovation in blockchain technology that enables the construction, design and management of smart contracts on the Ethereum platform.

Smart contracts are blockchain-hosted automated computer programs that document, manage, verify and execute business rules, specifically the terms of legal agreements between parties. Smart contracts are directly written in code within blocks.

Smart contracts expand the range of blockchain functionality from transactional data storage to the automatic implementation of business rules and legal conditions on that data and reduce third-party oversight as the public structure of blockchain creates transparency and significantly lowers manipulation of data.

Following the breakthrough innovation of smart contracts, independent software developers and engineers have created and published applications that run inside the Ethereum blockchain known as DApps (decentralised applications). Thousands of such applications are now running in the Ethereum blockchain, offering smart contracts for telecom providers, power, energy utility platforms and financial exchanges.

To understand how blockchain technology works, let us look at the process flow of steps from the occurrence of a transaction to the recording of the data in the blocks.

Blockchain in the Real World

In parallel with the development of blockchain technology over the past decade or so, business and industry have also become highly integrated by deploying complex networks, vertical enterprise platforms and solutions that rely on data, transactions and business rules.

Most enterprises today are integrated with key partners and suppliers outside their organisational boundaries in multiple industries and are, in addition, required to engage with a multitude of government and regulatory agencies. The common currency between all these entities is data, and the requirement for people and processes to define, manage and secure that data is a vital part of the real-world activities of individuals, businesses and government.

But data in real-world infrastructure is exposed to risk from mistakes, hostile actors and competition. We are all familiar with the large-scale incidents that relate to data – leaks, hacks and even the legal exploitation of data for political and commercial purposes. Boards, founders and managers, therefore, are constantly looking for technological solutions which enable business-to-business (B2B) data integration to operate with fewer risks, greater security and better reputational outcomes than exist currently.

In addition, business data governance in complex; modern integrated networks require all participants (individuals, businesses and government) to adhere to contractual obligations and complex rules of engagement, for example data privacy and processing directives and laws. There’s something of a mismatch when detailed agreements between parties are difficult to measure for performance and adherence in the real world and certainly not in real time. The emergence of peer-to-peer models makes enforcement of multi-party data agreements even more cumbersome.

Blockchain technology offers smart contracts as a powerful solution to the real-world active management of data in a secure, access-controlled and transparent way. Smart contracts enable modern, integrated businesses, their partners, suppliers and regulators to act together without breach, as smart contracts automatically execute business rules when the conditions are met.

The key attribute of a smart contract is its ability to streamline complex business rules between parties into a predictable series of automated or semi-automated activities. Since each smart contract is built with cryptographic security, it also renders the outcomes of the executed rules as highly secure, immutable data that can’t be manipulated.

So the net effect of the smart contract is to build trust: all parties, having agreed to the business rules expressed in the smart contract, can have faith that the automation of the smart contract and the blockchain will execute exactly the outcomes agreed.

Smart contracts offer a considerable advantage for every industry where there are legal agreements in force. Smart contracts significantly reduce legal paperwork, mitigate against the risk of breach and reduce the need for non-automated reconciliations and manual errors. Smart contracts, being cryptographically secure, are immune to hacks and malwares as every data point recorded as a result of the smart contract’s executing a rule is stored in all nodes of the blockchain by consensus.

Blockchain Forecasts

According to a Deloitte global survey on blockchain, business executives and leaders are recognising blockchain as a pragmati...

Indice dei contenuti

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Contents
• Foreword
• Preface
• Acknowledgments
• About the Authors
• Chapter 1 The Blockchain Age
• Chapter 2 Bitcoin: Blockchain v1.0?
• Chapter 3 Blockchain 2.0 and Smart Contracts
• Chapter 4 The Next Generation of Enterprise-Ready Blockchain
• Chapter 5 Governance and Security
• Chapter 6 The Convergence of IoT, AI and Blockchain
• Chapter 7 Trade Finance Use Case
• Chapter 8 Healthcare Software and Data Use Case
• Chapter 9 Retail Investments Use Case
• Chapter 10 Real Estate and Land Registry Use Case
• Chapter 11 Central Bank Currency Use Case
• Chapter 12 Fund Management Use Case
• Chapter 13 Conclusion
• Glossary
• Index