Grasping Blockchain Fundamentals – Blockchain is a shared, distributed ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible — a house, a car, cash, land — or intangible like intellectual property, such as patents, copyrights, or branding.

Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved. That’s the elevator speech for blockchain.

In the rest of this chapter, I provide additional details to help you more fully appreciate this technology and its potential for streamlining business operations.

Grasping Blockchain Fundamentals

Tracing Blockchain’s Origin

You can gain a deeper understanding of blockchain by exploring the context in which it was developed — the need for an efficient, cost-effective, reliable, and secure system for conducting and recording financial transactions.

In this section, I provide that context and describe the characteristics of blockchain that make it such a suitable solution.

The shortcomings of current transaction systems

Throughout history, instruments of trust, such as minted coins, paper money, letters of credit, and banking systems, have emerged to facilitate the exchange of value and protect buyers and sellers.

Important innovations, including telephone lines, credit card systems, the Internet, and mobile technologies have improved the convenience, speed, and efficiency of transactions while shrinking and sometimes virtually eliminating the distance between buyers and sellers.

Still, many business transactions remain inefficient, expensive, and vulnerable, suffering from the following limitations:

» Cash is useful only in local transactions and in relatively small amounts.

» The time between transaction and settlement can be long.

» Duplication of effort and the need for third-party validation and/or the presence of intermediaries add to the inefficiencies.

» Fraud, cyberattacks, and even simple mistakes add to the cost and complexity of doing business, and they expose all participants in the network to risk if a central system, such as a bank, is compromised.

» Credit card organizations have essentially created walled gardens with a high price of entry. Merchants must pay the high costs of onboarding, which often involves considerable paperwork and a time-consuming vetting process.

» Half of the people in the world don’t have access to a bank account and have had to develop parallel payment systems to conduct transactions.

Transaction volumes worldwide are growing exponentially and will surely magnify the complexities, vulnerabilities, inefficiencies, and costs of current transaction systems.

The growth of ecommerce, online banking, and in-app purchases, and the increasing mobility of people around the world have fueled the growth of transaction volumes.

And transaction volumes will explode with the rise of Internet of Things (IoT) — autonomous objects, such as refrigerators that buy groceries when supplies are running low and cars that deliver themselves to your door, stopping for fuel along the way.

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To address these challenges and others, the world needs payment networks that are fast and that provide a mechanism that establishes trust, requires no specialized equipment, has no chargebacks or monthly fees, and provides a collective bookkeeping solution for ensuring transparency and trust.