The Business Blockchain

Promise, Practice, and Application of the Next Internet Technology

William Mougayar

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119300335
• Edition: 1
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

The definitive pioneering blueprint covering the what, why and how of the blockchain.

Blockchains are new technology layers that rewire the Internet and threaten to side-step older legacy constructs and centrally served businesses. At its core, a blockchain injects trust into the network, cutting off some intermediaries from servingthat function and creatively disrupting how they operate. Metaphorically, blockchains are the ultimate non-stop computers. Once launched, they never go down, and offer an incredible amount of resiliency, making them dependable and attractivefor running a new generation of decentralized services and software applications.

The Business Blockchain charts new territory in advancing our understanding of the blockchain by unpacking its elements like no other before. William Mougayar anticipates a future that consists of thousands, if not millions of blockchains that will enable not only frictionless value exchange, but also a new flow of value, redefining roles, relationships, power and governance. In this book, Mougayar makes two other strategic assertions. First, the blockchain has polymorphic characteristics; its application will result in a multiplicity of effects. Second, we shouldn't ask ourselves what problems the blockchain solves, because that gives us a narrow view on its potential. Rather, we should imagine new opportunities, and tackle even more ambitious problems that cross organizational, regulatory and mental boundaries.

Drawing on 34 years of technology industry experience as an executive, analyst, consultant, entrepreneur, startup mentor, author, blogger, educator, thought leader and investor, William Mougayar describes a future that is influenced by fundamental shifts brought by blockchain technology as the catalyst for change.William Mougayar has been described as the most sophisticated blockchain business thinker. He is a blockchain industry insider whose work has already shaped and influenced the understanding of blockchain for people around the world, via his generous blogging and rigorous research insights. He is a direct participant in the crypto-technology market, working alongside startups, entrepreneurs, pioneers, leaders, innovators, creators, enterprise executives and practitioners; in addition to being an investor, advisor, and board member in some of the leading organizations in this space, such as the Ethereum Foundation, OpenBazaar and Coin Center.

Just as the Internet created new possibilities that we didn't foresee in its early years, the blockchain will give rise to new business models and ideas that may still be invisible. Following an engaging Foreword by Vitalik Buterin, this book is organized along these 7 chapters:

1. What is the Blockchain?

2. How Blockchain Trust Infiltrates

3. Obstacles, Challenges & Mental Blocks

4. Blockchain in Financial Services

5. Lighthouse Industries & New Intermediaries

6. Implementing Blockchain Technology

7. Decentralization as the Way Forward

The Business Blockchain is an invitation for technologists to better understand the business potential of the blockchain, and for business minded people to grasp the many facets of blockchain technology. This book teaches you how to think about the blockchain.

1
WHAT IS THE BLOCKCHAIN?

“If you cannot understand it without an explanation, you cannot understand it with an explanation.”

–HARUKI MURAKAMI

PAY CLOSE ATTENTION. This chapter is probably the most important in the book, because it attempts to offer a foundational explanation of the blockchain. It is the first stage of this book’s promise to give you a holistic view of the blockchain’s potential.

Understanding blockchains is tricky. You need to understand their message before you can appreciate their potential. In addition to their technological capabilities, blockchains carry with them philosophical, cultural, and ideological underpinnings that must also be understood.

Unless you’re a software developer, blockchains are not a product that you just turn on, and use. Blockchains will enable other products that you will use, while you may not know there is a blockchain behind them, just as you do not know the complexities behind what you are currently accessing on the Web.

Once you start to imagine the blockchains’ possibilities on your own, without continuously thinking about trying to understand them at the same time, you will be in a different stage of your maturity for exploiting them.

It is my belief that the knowledge transfer behind understanding the blockchain is easier than the knowledge about knowing where they will fit. It’s like learning how to drive a car. I could teach you how to drive one, but cannot predict where you will take it. Only you know your particular business or situation, and only you will be able to figure out where blockchains fit, after you have learned what they can do. Of course, we will first go together on road tests and racing tracks to give you some ideas.

VISITING SATOSHI’S PAPER

When Tim Berners-Lee created the first World Wide Web page in 1990, he wrote: “When we link information in the Web, we enable ourselves to discover facts, create ideas, buy and sell things, and forge new relationships at a speed and scale that was unimaginable in the analogue era.”

In that short statement, Berners-Lee predicted search, publishing, e-commerce, e-mail, and social media, all at once, by a single stroke. The Bitcoin equivalent to that type of prescience by someone who just created something spectacular can be found in Satoshi Nakamato’s 2008 paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,”¹ arguably the root of modern blockchain-based cryptocurrency innovation.

The paper’s abstract depicts Bitcoin’s foundation, and it explains its first principles:

• A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
• A trusted third party is not required to prevent double-spending.
• We propose a solution to the double-spending problem using a peer-to-peer network.
• The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.
• The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.
• The network itself requires minimal structure. Messages are broadcast on a best-effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

If you are a non-technical reader, and you focus on the italicized parts, you will start to get the gist of it. Please re-read the above points, until you have internalized Nakamoto’s sequential logic! Seriously. You will need to believe and accept that validating peer-to-peer transactions is entirely possible by just letting the network perform a trust duty, without central interference or hand-holding.

Paraphrasing Nakamoto’s paper, we should be left with these points:

• Peer-to-peer electronic transactions and interactions
• Without financial institutions
• Cryptographic proof instead of central trust
• Put trust in the network instead of in a central institution

As it turns out, the “blockchain” is that technology invention behind Bitcoin, and what makes this possible. With Satoshi’s abstract still in your mind, let us dive deeper with three different but complementary definitions of the blockchain: a technical, business, and legal one.

Technically, the blockchain is a back-end database that maintains a distributed ledger that can be inspected openly.

Business-wise, the blockchain is an exchange network for moving transactions, value, assets between peers, without the assistance of intermediaries.

Legally speaking, the blockchain validates transactions, replacing previously trusted entities.

TECHNICAL	Back-end database that maintains a distributed ledger, openly.
BUSINESS	Exchange network for moving value between peers.
LEGAL	A transaction validation mechanism, not requiring intermediary assistance.

Blockchain Capabilities = Technical + Business + Legal.

THE WEB, ALL OVER AGAIN

The past is not an accurate compass to the future, but understanding where we came from helps us gain an enlightened perspective and a better context for where we are going. The blockchain is simply part of the continuation of the history of Internet technology, represented by the Web, as it carries on its journey to infiltrate our world, businesses, society, and government, and across the several cycles and phases that often become visible only in the rearview mirror.

Whereas the Internet was first rolled out in 1983, it was the World Wide Web that gave us its watershed evolutionary moment, because it made information and information-based services openly and instantly available to anyone on earth who had access to the Web.

In the same way that billions of people around the world are currently connected to the Web, millions, and then billions of people, will be connected to blockchains. We should not be surprised if the velocity of blockchain usage propagation surpasses the historical Web users growth.

By mid-2016, 47% of the world’s 7.4 billion population had an Internet connection. In 1995, that number was less than 1%. It took until 2005 to reach one billion Web users. In contrast, cellular phone usage galloped faster, passing the number of landlines in 2002, and surpassing the world’s population in 2013. As for websites, in 2016, their total number hovered at around one billion. Quite possibly, blockchains will grow into several flavors, and will become as easily configurable as launching a website on Wordpress or Squarespace.

The blockchain’s usage growth has an advantage on the Web’s trajectory, because its starting point is amplified along four segments: Web users, cellular phone users, website owners, and any “thing” that gains benefits from being connected, and becoming a “smart thing.” This means that blockchain usage will ride on these four categories, instead of purely seeking new users.

ONE OR SEVERAL BLOCKCHAINS?

There are no previous paradigms for the blockchain. It is n...