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BlockCypher Developer Portal – Blockchain 101

blockchain 101

You’re excited. So excited. The hum has eventually caught you; everywhere you go you hear “blockchain” this, “distributed ledger” that. You’re ready to make your mark in Switching the World Through Blockchains (tm pending). You turn on your computer, your beloved text editor springs into activity. Except. you are drawing a blank as copiously empty as the improvised file you haven’t yet created.

You don’t have the faintest idea how to use a blockchain. Or what a blockchain is, indeed.

Don’t worry. Almost everybody who uses “blockchain” in a sentence is as confused as you are. They’re just in too deep to admit it. But never fear, we’re here to help! Below is a high-level, 30-minutes-or-less crash course on public blockchains, geared toward inquisitive developers who don’t have a cryptography background. We use Bitcoin as the blueprint, but with a few differences it can extend to other public blockchains.

General Byzantine’s Distributed Pizzeria

A long time ago, there was a General of grand pomp and import, who garnered fairly a reputation for pizazz in his station. Upon retirement, he transformed his panache for pizazz into something more palatable: pizza. Thus was General Byzantine’s Distributed Pizzeria born. It was a bit old-fashioned, but it was the best pizza in antiquity. if you could get it.

Sadly, the General’s pizza venture was short-lived, primarily owing to his archaic method of delivery and accounting. The General was a fine believer in delegation and autonomy. to a detrimental extreme. The General’s pizzeria was not one, but many restaurants, each independently taking orders, delivering pizzas, and keeping its own running tabs on customers. If one franchise received an order but ran out of ingredients, for redundancy’s sake it would send requests to several other nearby restaurants to finish the order, but without any consistent reconciliation system. Orders were permanently intercepted and modified by competitors and pranksters. Some customers would receive dozens of pizzas after ordering just one; others would have their tabs called in by several franchises independently, referencing dozens of phantom pizzas they never ordered.

But the pizzas that were successfully delivered? Magnifico. Best in the land.

Owing to runaway costs and severe mismanagement, General Byzantine’s Distributed Pizzeria was shuttered two weeks after its grand opening. Well, three weeks. Unsurprisingly, it was hard to communicate the closure to all the General’s pizza outposts. It was a beautiful, flawed experiment.

Why the story of his failed pizzeria? A few reasons: everybody loves pizza, and the very first real-world transaction to ascribe value to Bitcoin involved a pizza delivery (a cool Ten,000 BTC for a single pie, worth $20 then and $6 million as of this writing).

The Building Blocks Behind Building Blockchains: A Story In Three Parts

Not to be too hard on poor General Byzantine, but explicitly understanding his pizzeria’s problems will help expose how a blockchain could mitigate them.

Problem 1: Order and Pizza Integrity

The General couldn’t ensure the authenticity of the orders sent inbetween restaurants and customers, leading to modified orders, pizzas, and customer tabs (thanks to pranksters and competitors).

Problem Two: No Consistent or Authoritative Record

When a restaurant ran out of ingredients, it would send requests to many different restaurants to fulfill its order, potentially resulting in the pizza getting delivered many times, or not at all. Customer debts might be duplicated or dropped after haphazard reconciliation. The final record was a mess, because one didn’t truly exist.

Problem Trio: The Dual Pepperoni/Spend Problem

As a consequence of both problems above, some particularly sneaky customers may attempt to deliberately pay once for numerous pizzas; especially if they knew that a restaurant was running out of ingredients, or could intercept and modify messages about their tabs. Without a consistent, authoritative record, and no ensure of message authenticity, what’s to stop these thieves?

Ownership and Transferring Value: A Generalized Distributed Pizzeria

It should come as no surprise that inconsistency, data malleability, and double-spends plague systems beyond our hypothetical General Byzantine’s pizzeria. Like supply chains with dozens of different participants, or individuals wishing to exchange value amongst themselves, or—perish the thought—even banks.

The typical solution to these problems is to simply designate a central (sometimes outer) party as the ultimate arbiter and record. In our pizzeria example, that might mean all orders and customer tabs flowing into a single designated restaurant; in the bank case, they rely on SWIFT and credit card companies for payments, and central banks for loan capital. This is not a fundamentally bad solution, but it creates fresh risks by relying on a centralized party with out-sized authority on the final record. For banks, that translates into big security risks and effective monopoly pricing power for the centralized party in control (and why remittances, credit cards, and bank fees tend to be so damned expensive).

Come in Our Plucky Hero, The Blockchain

What if we could solve all these issues without relying on a single trusted party? Where every participant could download and update their own copy of the ledger, controlling the rows where they have authority, yet none can double-spend or create conflicting orders? What if we could make General Byzantine’s Distributed Pizzeria work? What if these were more than just leading questions? (We can, they can, we can, they’re not)

As you likely suspect, public blockchains—like Bitcoin and Ethereum—are the reaction. Public blockchains provide a practical solution to our problems, without relying on a single trusted party to arbitrate consensus and data integrity. And here’s the key insight why:

A public blockchain like Bitcoin is simply a set a of rules and incentives for a public, permissionless, immutable ledger.

The “how” it manages this magic requires more exploration, which we’ve divided into four parts below. The concepts are introduced in the order necessary to understand a blockchain from its most fundamental unit very first (transactions) before graduating to more abstract concepts (blocks, a chain of blocks, the consensus mechanism/incentives). Presenting it this way also conveniently matches solving our Byzantine pizzeria problems in the order they were introduced.

Part 1: Public-Key Cryptography and Transactions

Let’s begin at the most fundamental unit of a blockchain: its transactions. Consider Alice and Bob (and yes, before you ask, their parents were cryptographers who couldn’t spare precious imagination on naming them).

Bob is the manager of one of General Byzantine’s pizza shops, and Alice is a customer. Alice wants to send Bob some bitcoin in exchange for pizza. So she sends a message to an open, public network of computers that transfers bitcoin from her control to Bob’s control. In the most naive case, what prevents someone from modifying this message? If it’s an open ledger that anyone can download and interact with, can’t someone intercept Alice’s message and switch it?

Gratefully not! Because this message—which is indeed a transaction—takes advantage of Public-Key Cryptography. You can read more about how this works on its wonderful Wikipedia page, but here’s a brief explanation in a nutshell:

Take a random number, selected from a very large range (like

2^256 large, in Bitcoin and Ethereum’s case). This is your “private key.”

Now from this private key, you can perform a series of mathematical operations to generate a fresh number, called your “public key.” In good cryptosystems, it’s effortless to generate a public key from a private key, but nigh unlikely to do the switch roles; these operations sate the properties of a one-way function. The operations are arcane and complicated, and depend on the cryptography you’re using. in Bitcoin and Ethereum’s case, it’s ECDSA over the secp256k1 curve. If that doesn’t mean much to you, that’s okay; you can accept that it’s fancy and trust it works, but again, Wikipedia has a nice explanation for the interested reader.

Now here’s where things get “taken to 11”. mathematically. With your private key, you can “sign” arbitrary data, and then anyone with the resulting data from this operation (called a “signature”) and your public key can mathematically verify that you signed the data. without ever exposing your private key! It’s kinda like affixing your handwritten signature to the bottom of a message/document in real life. But unlike a handwritten signature, this one is nigh unlikely to forge brief of stealing the private key, and signing data doesn’t expose you name, private key, or private information.

So to recap: with a public-private key pair, you can demonstrate you signed messages with a particular private key without ever exposing the private key! What does this have to do with Alice and Bob?

Well, imagine instead of Alice’s and Bob’s name in this collective ledger (or heaven forbid, checking/routing number) you have Alice’s public key and Bob’s public key, and the associated amounts of bitcoin. When Alice sends bitcoin to Bob, she can send a transaction that says “take the bitcoin associated with my public key, and instead, associate it with Bob’s public key,” along with a signature that validates this message. Then anyone can verify that she was the right person—or more appropriately, her private key was valid for her public key—to send it! And Bob can do the same thing for future transactions with his public key. Again, this is a simplification and the actual rules differ a bit inbetween Bitcoin and Ethereum, but it’s a fair simplification.

Now imagine that we set up a ledger that requires valid signatures derived from public-private key pairs for all transactions, and everyone agrees to run this version of the ledger. Now if someone attempts to modify Alice’s message without her private key, the modification would be rejected by all participants, and the ledger would not be updated.

Public-key cryptography is central to a public blockchain’s permissionless and secure nature. Since the number of possible private keys is such a mind-bogglingly large number (2^256 is on the order of 1.15 * 10^77, which is close to the number of atoms estimated to exist in the Universe) you can generate one offline with a practical assure that nobody else will generate the same one. You can then generate a public key from this private key, copy it to an online computer, and then distribute this public key widely to accept payment. Used this way, public-key cryptography is not only vastly more secure than traditional means of payment acceptance and storage, it also enables a user to generate a practically limitless number of “accounts” offline, without ever having to ask anyone’s permission to participate in the system.

Put more succinctly: if you can generate a 256-bit number, you can accept bitcoin (and ether, in Ethereum’s case). Neat huh? And to get a little ahead of ourselves, since a public-private key pair is just a duo of numbers, “you” doesn’t have to mean a person; machines can generate addresses to pay or send value to other humans or machines! Think of the possibilities.

But Wait, None of This Means We Have An Authoritative Record or Solves Double-Spends

Right you are, astute, idealized reader! There’s nothing particularly novel about public-key cryptography in and of itself; it’s a powerful, prevalent technology in today’s world, but it only solves part of the blockchain puzzle. Consider our current take on the Alice and Bob pizza problem: Sure, with signed messages, you can cryptographically validate that Alice sent the message telling “give Bob my bitcoin,” and Bob received it. but how do you know that Alice didn’t send the same message to dozens of others, attempting to send her same “bitcoin” many times over? How does one actually reach a consistent, authoritative ledger?

To get there, we need to introduce another cryptographic construct, which will enable us to discuss how many transactions are structured into the latticework of blockchains. and in the process reaction where the term “blockchain” got its name.

Part Two: Cryptographic Hashing and Blocks

With just public-key cryptography, we have verifiable messages that ensure transaction integrity and authenticity, but we cannot stop Alice (or any other participant) from attempting to double-spend transactions, irreconcilably drifting everyone’s copy of the ledger into disarray. To tackle this problem, we need to introduce a fresh cryptographic construct into our repertoire: The Cryptographic Hash. Fortunately it’s simpler to understand than public-key cryptography, but it’s just as critical.

Much like a signature from public-key cryptography, cryptographic hashing lets you prove data is valid. but instead of proving it’s valid from a private key, you’re proving it’s valid from the data itself. Confused? Now that we’ve read that sentence back, so are we; let’s build on our example to help.

Let’s say I have a bundle of transactions from Bob’s pizza shop. They look something like this:

Alice sent Bob one bitcoin.

Chris sent Bob two bitcoin.

Dave sent Bob five bitcoin.

Bob sent Eve three bitcoin.

Let’s call this list of four transactions a single page in our ledger. or a “block” if you will (hint, hint). We can use a cryptographic hashing function to create a unique ID for each transaction, based on the data itself. Let’s attempt doing that with SHA256; a cryptographic hash function used extensively in Bitcoin. Let’s commence with the very first line:

Alice sent Bob one bitcoin.

We can use OpenSSL in the guideline line to generate the hash of the very first row:

echo -n ‘Alice sent Bob one bitcoin.’ | openssl sha256

The output is a thirty two byte (256-bit) hash, encoded in hexadecimal. Note that this value is unique for the message ‘Alice sent Bob one bitcoin.’ Let’s switch it to say ‘Alice sent Bob 1.1 bitcoin’ and see what happens to the hash:

echo -n ‘Alice sent Bob 1.1 bitcoin.’ | openssl sha256

Despite the initial data—which is also known as a “pre-image” in fancy cryptography terms—switching only slightly, the resulting hash looks very different. This is a desirable outcome for a cryptographic hash; you want the output to show up very random, and switch dramatically even if the “pre-image” switches only slightly. Without knowing the initial data, the output will show up very random, and it would be very difficult to predict the input. the only way to do so is to brute-force the inputs (that is to say: guess a chunk of data, run your cryptographic hashing function on this guess. If the output isn’t what you’re looking for, you repeat the cycle with a fresh guess. over and over and over again).

So let’s go back to our list of transactions and convert all of our messages into SHA256 hashes; here’s what our list looks like:

You don’t need to take my word that this is the list; you can verify that these are the right hashes by using the instruction line on our original list, or a website like this.

Armed with this list of hashes, it’s possible to generate a single, cryptographically verifiable hash (and ID) for this block of transactions. How? By hashing the hashes! The particular structure used by blockchains for transactions is typically a Merkle tree. Once you know how cryptographic hashes work, it’s effortless to understand; you just concatenate your hashes into pairs, then find the hash of each pair. With those hashes, you do the same thing. and if you have lots of hashes, you keep doing it until you have a single hash (known as the “Merkle root”). Let’s attempt it with our list of hashes. Very first, we concatenate the two pairs (shortened here for readability’s sake).

Then we apply SHA256 onto each of these; in case you’re wondering, we pipe through xxd to convert our hex string into raw binary data. (Again, hashes shortened for readability)

echo -n ’96f9ee71. ‘ | xxd -r -p | openssl sha256

echo -n ‘4b1267af. ‘ | xxd -r -p | openssl sha256

Our list went from four to two hashes:

Now we do this entire process again, resulting in our final Merkle root:

echo -n ‘a4e0820e0743. ‘ | xxd -r -p | openssl sha256

Tadaa! Now we have a single hash that represents—and validates!—our list of transactions, using the data of each transaction. Consider what would happen to this hash if you modified a single transaction’s data. It would switch the hash of the transaction, which would then cascade through the Merkle tree, switching all of the branches’ affected and eventually modifying the root.

This is pretty much how transactions are structured in blockchains. A “block,” equivalent to a page in an old-fashioned accounting ledger, contains both the data of each transaction and each transaction’s cryptographic hash, along with a Merkle root indicating all transactions contained therein.

While this is a bit of a simplification (transactions aren’t written in English and we’re missing tons of detail), it’s a fair demonstration of how cryptographic hashes validate and structure a block. But even with this structure, it’s unclear how this could solve the double-spend problem, or help us achieve group consensus on our ledgers. If everyone is sending transactions to each other and assembling blocks themselves, and Alice desired to be mischievous, there’s nothing about this structure that would prevent her; she’d simply have to send separate transactions to different parties assembling these blocks.

But don’t fret! Now that you understand public-key cryptography, hashes, and block structure, we can solve that final riddle. And boy is the solution a doozy.

Part Three: . Chaining Blocks, Reaching Consensus? Always. Be. Hashing.

As previously shown, a cryptographic hash function like SHA256 generates hashes that are thirty two bytes (aka two hundred fifty six bits) long. In essence, SHA256 takes any arbitrary data, and outputs a 256-bit number (introduced in our examples above in hexadecimal).

Knowing what we know about SHA256, lets ponder a puzzle. Assuming the output of SHA256 is randomly distributed given random input data, what’s the probability that the output of SHA256 on any chunk of data is below 2^256? Well, it’s 100%. All 256-bit numbers are below 2^256, from zero to 2^256-1.

How about below 2^255? Reminisce that 2^256 / two = 2^255. so you are effectively halving your “success” condition for this probability. So we go from 100% to 50%. Now how about 2^254? You halve your success space again, from 50% down to 25%. You can see the pattern. the smaller your desired SHA256 output, the smaller the probability you’ll find one. If you want to find a particularly low number, it may take millions, billions, trillions, quadrillions, or even quintillions of guesses!

But remarkably, it’s very effortless to verify that your solution is correct; all someone need do is take your data, apply the SHA256 hashing function, and verify the reaction is below the amount they require. This is a desirable feature of cryptographic hashes; they are one-way functions—like deriving a public key—but in the context of cryptographic hashes, it’s difficult to guess without having the pre-image/prior data, but effortless to verify.

When you broadcast a pre-image and hash that meets these criteria, you’re publicly demonstrating that you spent a lot of computational time guessing the hash, which anyone can verify quickly. Or more succinctly, you’ve shown Proof-of-Work. In a sense, Proof-of-Work (PoW) is a proxy for voting with computing power, but cryptographically tied to the data it hashed. Or to put another way, it’s a way of notarizing data with computational power. “This data is valid to me, and to prove it, here’s the time and money I spent on computing a hash that meets your criteria.”

Aye, this is just the trick we need to conjure some blockchain magic. Let’s add some fresh rules to our hypothetical open/collective block-based ledger:

  • All transactions in a block must have valid signatures, a la public-key cryptography, and all transaction inputs must spend money from previous outputs (e.g., if Alice’s public key only has one bitcoin from a prior transaction, she can’t send two to someone else from this public key). Thanks to public-key cryptography, any participant can verify these are valid without exposing private keys.
  • Upon receiving a transaction, participants can choose to include it in a candidate block that they’re in the process of assembling.
  • Every block hash must be lower than a number generated by an agreed upon difficulty formula. Some lumps of data in the block can be randomly adjusted without affecting transaction validity (to enable participants to generate fresh block hashes).
  • The difficulty formula is self-adapting based on how quickly or leisurely blocks with hashes below the difficulty threshold were found; in Bitcoin’s case, the protocol adjusts the difficulty to target a ten minute average block confirmation time.
  • All blocks contain a hash of the previous block (which includes transactions, transaction hashes, the Merkle root of all transactions), thus chaining them together.
  • The longest chain with the most Proof-of-Work is the authoritative ledger.

And that, good reader, is a blockchain! How exactly does this setup prevent mischievous Alice from double-spending her pizza money? Let’s run through an example, where we have four participants with equal computing power; Alice, Bob, Chris, and Dave. Alice creates a transaction that sends money to Bob’s public key; we’ll call it one bitcoin for plainness’s sake. So it looks like this:

To Bob, Chris, Dave (75% of PoW computing power):

Alice sends Bob one bitcoin.

She broadcasts this transaction to Bob, Chris, and Dave. BUT, being sneaky, she creates a different transaction that takes this same bitcoin and sends it to another public key she controls (recall, it’s very effortless to create fresh public-private key pairs), and determines to use her computing power to attempt to find a block before everyone else. This transaction looks like this:

To Alice (25% of computing power):

Alice sends Alice one bitcoin.

This transaction sits in all the participants “mempools”; a staging area for transactions that haven’t yet been included in blocks. They are all working in parallel to find a hash lower than an agreed upon difficulty. Assuming this plain distribution of computing power, 25% of the time, Alice would detect a hash that creates a valid block (with bitcoin sent back to her), while 75% of the time, Bob, Chris, or Dave would detect a hash that creates a valid block (sending Alice’s bitcoin to Bob).

Already, the odds are against Alice; at very first glance it emerges she’ll only be successful 25% of the time. However, it’s even worse in practice. Because Bob doesn’t fully trust the other participants—having been burned by Alice’s cyberized five-finger discount before—he determines to wait until Alice’s transaction has been “confirmed” by being deep in the blockchain; that is, by waiting until her transaction has several discovered blocks ahead of it. Consider a case where Bob says he will wait six blocks. Now, in order to double-spend Bob, Alice will have to “hammer” the other three participants after they detect six more blocks; in other words, she’ll have to find the same number of fortunate hashes, with a lot less computing power. There’s a mathematical discussion in the original Bitcoin paper that explains the probability in detail.

This Proof-of-Work consensus mechanism works marvelously, as long as at least

51% of the participants are fair. In fact, a public blockchain with these constraints practically solves a difficult problem in computer science: the Byzantine Generals’ Problem. And yes, our own hypothetical General Byzantine’s eponymous name was not a coincidence.

Why Hash At All? Satoshi’s One Weird Trick: Marrying Technology and Incentives

Our blockchain story is almost finish. But one thing should very likely be nagging at you. where do the “bitcoin” (or “ether”) come from in this ledger? Since according to the rules listed above, you can never create more bitcoin in a transaction; you can only spend previously unspent bitcoin. But how does the bitcoin get minted into the ledger? Who has that power?

The response is a testament to the elegance of Bitcoin’s enigmatic founder, Satoshi Nakamoto. The best way to response that question is to very first ask another question: why should anyone agree to engage in Proof-of-Work for chaining blocks? It takes lots of computational power, and while it’s a public service to secure the network, that’s not usually a compelling incentive. but what if you incentived those who secure the network with the power of minting currency?

That’s exactly what Satoshi designed! Every block contains what’s known as a “coinbase” transaction, which includes freshly minted bitcoin. That is why these players in the blockchain ecosystem are known as “miners.” The number of bitcoin given as a prize is coded into the software that describes the protocol; it has a known schedule, and if you attempt to crack it with a freshly discovered block, it will be soundly rejected by other participants. The native token schedule differs by blockchain; for Bitcoin there will only ever be 21,000,000 bitcoin (each one sub-divisible to 10^8) making it a naturally deflationary currency. Ethereum, meantime, has no hard cap, but its inflationary rate decreases over time.

In addition to the “minted” bitcoin/ether (which are known as the “block prize”), anyone who detects a block is also entitled to fees that are added to all transactions within that block. This is to incentivize including transactions, especially in Bitcoin’s case, where the block prize halves every four years and will eventually entirely vanish.

It’s this alignment of incentives and technology which marks the difference inbetween a plain collection of preexisting cryptography, and Bitcoin/Ethereum. At the time of this writing the Bitcoin and Ethereum ecosystems are collectively worth $11bn, and are both protected by an unfathomable amount of computing power. And thanks to this incentive alignment, there are ultimately free, permissionless, secure, immutable ledgers that have the potential to switch the world in ways we can’t even imagine. Perhaps thanks to blockchains, General Byzantine’s Distributed Pizzeria might actually work. well, at least the payment and supply management components. No idea how he’s going to stop people stealing his delicious pizzas en route.

Take a Deeper Slice of Blockchains: Further Reading/Viewing

There is much, much more to blockchains; this is but a discreet, developer-friendly introduction. But for the nosey reader, there’s a wealth of free information out there on the web. Here’s some suggested reading/viewing to get you commenced, introduced in recommended order:

Khan Academy Bitcoin Introduction

Khan Academy did a wonderful movie series about Bitcoin which covers the topics raised here in an approachable, but technical, manner. You can embark the very first movie here.

Original Bitcoin Whitepaper

On a fateful Halloween Day in October, a pseudonym named Satoshi Nakamoto posted their world-changing research in a succinct, remarkably matter-of-fact manner: “I’ve been working on a fresh electronic cash system that’s fully peer-to-peer, with no trusted third party.” The Bitcoin Whitepaper remains one of the most cogent explanations of Bitcoin’s workings, a remarkable feat for the paper that introduced the concept. Read it here.

The Bitcoin.org Developer Reference

Now that you have a basis for understanding the world’s most prominent blockchain, it’s time to dive into the weeds. The Bitcoin.org Developer Reference is a fine place to add depth to your understanding.

Ethereum, Solidity, Clever Contracts, Oh My

Imagine someone took the clever ideas behind Bitcoin’s blockchain, and said, “if it’s good enough for embedding static data and transferring money, it’s good enough for a general state machine.” That’s Ethereum. While newer and smaller than Bitcoin, in its two years of existence it has catapulted to the 2nd largest blockchain by market capitalization and one of keen developer interest. We just embarked supporting it ourselves, and plan on expanding our API services to include many of Ethereum’s advanced features. Ethereum has a number of differences compared to Bitcoin: accounts have balances of a native currency called “ether,” there can be self-executing “accounts” that have fully-baked programming logic to permit exotic, conditional exchanges. hence why Ethereum calls itself a “world computer.” It has much more plasticity than Bitcoin, but is also a fair bit riskier. Here are a few places to embark your journey into Ethereum:

Our Documentation

Now, at long last, we recommend checking out our API services. BlockCypher is like a bridge for blockchains; instead of running your own knots, our API scales and manages connections to public blockchains so you can spend your time working on your game-changing Bitcoin/Ethereum application. Our own reference documentation is available here:

No matter where your curiosity takes you, we wish you the best of luck on your journey into the wild and wonderful world of blockchains. We are still early in this experiment, and already blockchains and cryptocurreny are switching the way millions of people engage in their economies, both locally and globally. Projects taking advantage of blockchains run the gamut from helping bring the unbanked online to building partially autonomous organizations through wise contracts. A better economy is yours to build. And if you happen to successfully build a distributed pizzeria, certainly let us know; it’s an idea whose time has certainly come.

BlockCypher Developer Portal – Blockchain one hundred one

blockchain khan academy

You’re excited. So excited. The hum has ultimately caught you; everywhere you go you hear “blockchain” this, “distributed ledger” that. You’re ready to make your mark in Switching the World Through Blockchains (tm pending). You turn on your computer, your beloved text editor springs into activity. Except. you are drawing a blank as copiously empty as the makeshift file you haven’t yet created.

You don’t have the faintest idea how to use a blockchain. Or what a blockchain is, indeed.

Don’t worry. Almost everybody who uses “blockchain” in a sentence is as confused as you are. They’re just in too deep to admit it. But never fear, we’re here to help! Below is a high-level, 30-minutes-or-less crash course on public blockchains, geared toward inquisitive developers who don’t have a cryptography background. We use Bitcoin as the blueprint, but with a few differences it can extend to other public blockchains.

General Byzantine’s Distributed Pizzeria

A long time ago, there was a General of grand pomp and import, who garnered fairly a reputation for pizazz in his station. Upon retirement, he transformed his panache for pizazz into something more palatable: pizza. Thus was General Byzantine’s Distributed Pizzeria born. It was a bit old-fashioned, but it was the best pizza in antiquity. if you could get it.

Sadly, the General’s pizza venture was short-lived, primarily owing to his archaic method of delivery and accounting. The General was a good believer in delegation and autonomy. to a detrimental extreme. The General’s pizzeria was not one, but many restaurants, each independently taking orders, delivering pizzas, and keeping its own running tabs on customers. If one franchise received an order but ran out of ingredients, for redundancy’s sake it would send requests to several other nearby restaurants to accomplish the order, but without any consistent reconciliation system. Orders were permanently intercepted and modified by competitors and pranksters. Some customers would receive dozens of pizzas after ordering just one; others would have their tabs called in by several franchises independently, referencing dozens of phantom pizzas they never ordered.

But the pizzas that were successfully delivered? Magnifico. Best in the land.

Owing to runaway costs and severe mismanagement, General Byzantine’s Distributed Pizzeria was shuttered two weeks after its grand opening. Well, three weeks. Unsurprisingly, it was hard to communicate the closure to all the General’s pizza outposts. It was a beautiful, flawed experiment.

Why the story of his failed pizzeria? A few reasons: everybody loves pizza, and the very first real-world transaction to ascribe value to Bitcoin involved a pizza delivery (a cool Ten,000 BTC for a single pie, worth $20 then and $6 million as of this writing).

The Building Blocks Behind Building Blockchains: A Story In Three Parts

Not to be too hard on poor General Byzantine, but explicitly understanding his pizzeria’s problems will help expose how a blockchain could mitigate them.

Problem 1: Order and Pizza Integrity

The General couldn’t ensure the authenticity of the orders sent inbetween restaurants and customers, leading to modified orders, pizzas, and customer tabs (thanks to pranksters and competitors).

Problem Two: No Consistent or Authoritative Record

When a restaurant ran out of ingredients, it would send requests to many different restaurants to fulfill its order, potentially resulting in the pizza getting delivered many times, or not at all. Customer debts might be duplicated or dropped after haphazard reconciliation. The final record was a mess, because one didn’t indeed exist.

Problem Trio: The Dual Pepperoni/Spend Problem

As a consequence of both problems above, some particularly sneaky customers may attempt to deliberately pay once for numerous pizzas; especially if they knew that a restaurant was running out of ingredients, or could intercept and modify messages about their tabs. Without a consistent, authoritative record, and no assure of message authenticity, what’s to stop these thieves?

Ownership and Transferring Value: A Generalized Distributed Pizzeria

It should come as no surprise that inconsistency, data malleability, and double-spends plague systems beyond our hypothetical General Byzantine’s pizzeria. Like supply chains with dozens of different participants, or individuals wishing to exchange value amongst themselves, or—perish the thought—even banks.

The typical solution to these problems is to simply designate a central (sometimes outward) party as the ultimate arbiter and record. In our pizzeria example, that might mean all orders and customer tabs flowing into a single designated restaurant; in the bank case, they rely on SWIFT and credit card companies for payments, and central banks for loan capital. This is not a fundamentally bad solution, but it creates fresh risks by relying on a centralized party with out-sized authority on the final record. For banks, that translates into big security risks and effective monopoly pricing power for the centralized party in control (and why remittances, credit cards, and bank fees tend to be so damned expensive).

Come in Our Plucky Hero, The Blockchain

What if we could solve all these issues without relying on a single trusted party? Where every participant could download and update their own copy of the ledger, controlling the rows where they have authority, yet none can double-spend or create conflicting orders? What if we could make General Byzantine’s Distributed Pizzeria work? What if these were more than just leading questions? (We can, they can, we can, they’re not)

As you likely suspect, public blockchains—like Bitcoin and Ethereum—are the reaction. Public blockchains provide a practical solution to our problems, without relying on a single trusted party to arbitrate consensus and data integrity. And here’s the key insight why:

A public blockchain like Bitcoin is simply a set a of rules and incentives for a public, permissionless, immutable ledger.

The “how” it manages this magic requires more exploration, which we’ve divided into four parts below. The concepts are introduced in the order necessary to understand a blockchain from its most fundamental unit very first (transactions) before graduating to more abstract concepts (blocks, a chain of blocks, the consensus mechanism/incentives). Presenting it this way also conveniently matches solving our Byzantine pizzeria problems in the order they were introduced.

Part 1: Public-Key Cryptography and Transactions

Let’s embark at the most fundamental unit of a blockchain: its transactions. Consider Alice and Bob (and yes, before you ask, their parents were cryptographers who couldn’t spare precious imagination on naming them).

Bob is the manager of one of General Byzantine’s pizza shops, and Alice is a customer. Alice wants to send Bob some bitcoin in exchange for pizza. So she sends a message to an open, public network of computers that transfers bitcoin from her control to Bob’s control. In the most naive case, what prevents someone from modifying this message? If it’s an open ledger that anyone can download and interact with, can’t someone intercept Alice’s message and switch it?

Gratefully not! Because this message—which is indeed a transaction—takes advantage of Public-Key Cryptography. You can read more about how this works on its wonderful Wikipedia page, but here’s a brief explanation in a nutshell:

Take a random number, selected from a very large range (like

2^256 large, in Bitcoin and Ethereum’s case). This is your “private key.”

Now from this private key, you can perform a series of mathematical operations to generate a fresh number, called your “public key.” In good cryptosystems, it’s effortless to generate a public key from a private key, but nigh unlikely to do the switch sides; these operations sate the properties of a one-way function. The operations are arcane and complicated, and depend on the cryptography you’re using. in Bitcoin and Ethereum’s case, it’s ECDSA over the secp256k1 curve. If that doesn’t mean much to you, that’s okay; you can accept that it’s fancy and trust it works, but again, Wikipedia has a nice explanation for the interested reader.

Now here’s where things get “taken to 11”. mathematically. With your private key, you can “sign” arbitrary data, and then anyone with the resulting data from this operation (called a “signature”) and your public key can mathematically verify that you signed the data. without ever exposing your private key! It’s kinda like affixing your handwritten signature to the bottom of a message/document in real life. But unlike a handwritten signature, this one is nigh unlikely to forge brief of stealing the private key, and signing data doesn’t expose you name, private key, or private information.

So to recap: with a public-private key pair, you can demonstrate you signed messages with a particular private key without ever exposing the private key! What does this have to do with Alice and Bob?

Well, imagine instead of Alice’s and Bob’s name in this collective ledger (or heaven forbid, checking/routing number) you have Alice’s public key and Bob’s public key, and the associated amounts of bitcoin. When Alice sends bitcoin to Bob, she can send a transaction that says “take the bitcoin associated with my public key, and instead, associate it with Bob’s public key,” along with a signature that validates this message. Then anyone can verify that she was the right person—or more appropriately, her private key was valid for her public key—to send it! And Bob can do the same thing for future transactions with his public key. Again, this is a simplification and the actual rules differ a bit inbetween Bitcoin and Ethereum, but it’s a fair simplification.

Now imagine that we set up a ledger that requires valid signatures derived from public-private key pairs for all transactions, and everyone agrees to run this version of the ledger. Now if someone attempts to modify Alice’s message without her private key, the modification would be rejected by all participants, and the ledger would not be updated.

Public-key cryptography is central to a public blockchain’s permissionless and secure nature. Since the number of possible private keys is such a mind-bogglingly large number (2^256 is on the order of 1.15 * 10^77, which is close to the number of atoms estimated to exist in the Universe) you can generate one offline with a practical assure that nobody else will generate the same one. You can then generate a public key from this private key, copy it to an online computer, and then distribute this public key widely to accept payment. Used this way, public-key cryptography is not only vastly more secure than traditional means of payment acceptance and storage, it also enables a user to generate a practically limitless number of “accounts” offline, without ever having to ask anyone’s permission to participate in the system.

Put more succinctly: if you can generate a 256-bit number, you can accept bitcoin (and ether, in Ethereum’s case). Neat huh? And to get a little ahead of ourselves, since a public-private key pair is just a duo of numbers, “you” doesn’t have to mean a person; machines can generate addresses to pay or send value to other humans or machines! Think of the possibilities.

But Wait, None of This Means We Have An Authoritative Record or Solves Double-Spends

Right you are, astute, idealized reader! There’s nothing particularly novel about public-key cryptography in and of itself; it’s a powerful, prevalent technology in today’s world, but it only solves part of the blockchain puzzle. Consider our current take on the Alice and Bob pizza problem: Sure, with signed messages, you can cryptographically validate that Alice sent the message telling “give Bob my bitcoin,” and Bob received it. but how do you know that Alice didn’t send the same message to dozens of others, attempting to send her same “bitcoin” many times over? How does one actually reach a consistent, authoritative ledger?

To get there, we need to introduce another cryptographic construct, which will enable us to discuss how many transactions are structured into the latticework of blockchains. and in the process reaction where the term “blockchain” got its name.

Part Two: Cryptographic Hashing and Blocks

With just public-key cryptography, we have verifiable messages that ensure transaction integrity and authenticity, but we cannot stop Alice (or any other participant) from attempting to double-spend transactions, irreconcilably drifting everyone’s copy of the ledger into disarray. To tackle this problem, we need to introduce a fresh cryptographic construct into our repertoire: The Cryptographic Hash. Fortunately it’s simpler to understand than public-key cryptography, but it’s just as critical.

Much like a signature from public-key cryptography, cryptographic hashing lets you prove data is valid. but instead of proving it’s valid from a private key, you’re proving it’s valid from the data itself. Confused? Now that we’ve read that sentence back, so are we; let’s build on our example to help.

Let’s say I have a bundle of transactions from Bob’s pizza shop. They look something like this:

Alice sent Bob one bitcoin.

Chris sent Bob two bitcoin.

Dave sent Bob five bitcoin.

Bob sent Eve three bitcoin.

Let’s call this list of four transactions a single page in our ledger. or a “block” if you will (hint, hint). We can use a cryptographic hashing function to create a unique ID for each transaction, based on the data itself. Let’s attempt doing that with SHA256; a cryptographic hash function used extensively in Bitcoin. Let’s embark with the very first line:

Alice sent Bob one bitcoin.

We can use OpenSSL in the directive line to generate the hash of the very first row:

echo -n ‘Alice sent Bob one bitcoin.’ | openssl sha256

The output is a thirty two byte (256-bit) hash, encoded in hexadecimal. Note that this value is unique for the message ‘Alice sent Bob one bitcoin.’ Let’s switch it to say ‘Alice sent Bob 1.1 bitcoin’ and see what happens to the hash:

echo -n ‘Alice sent Bob 1.1 bitcoin.’ | openssl sha256

Despite the initial data—which is also known as a “pre-image” in fancy cryptography terms—switching only slightly, the resulting hash looks very different. This is a desirable outcome for a cryptographic hash; you want the output to show up very random, and switch dramatically even if the “pre-image” switches only slightly. Without knowing the initial data, the output will show up very random, and it would be very difficult to predict the input. the only way to do so is to brute-force the inputs (that is to say: guess a lump of data, run your cryptographic hashing function on this guess. If the output isn’t what you’re looking for, you repeat the cycle with a fresh guess. over and over and over again).

So let’s go back to our list of transactions and convert all of our messages into SHA256 hashes; here’s what our list looks like:

You don’t need to take my word that this is the list; you can verify that these are the right hashes by using the guideline line on our original list, or a website like this.

Armed with this list of hashes, it’s possible to generate a single, cryptographically verifiable hash (and ID) for this block of transactions. How? By hashing the hashes! The particular structure used by blockchains for transactions is typically a Merkle tree. Once you know how cryptographic hashes work, it’s effortless to understand; you just concatenate your hashes into pairs, then find the hash of each pair. With those hashes, you do the same thing. and if you have lots of hashes, you keep doing it until you have a single hash (known as the “Merkle root”). Let’s attempt it with our list of hashes. Very first, we concatenate the two pairs (shortened here for readability’s sake).

Then we apply SHA256 onto each of these; in case you’re wondering, we pipe through xxd to convert our hex string into raw binary data. (Again, hashes shortened for readability)

echo -n ’96f9ee71. ‘ | xxd -r -p | openssl sha256

echo -n ‘4b1267af. ‘ | xxd -r -p | openssl sha256

Our list went from four to two hashes:

Now we do this entire process again, resulting in our final Merkle root:

echo -n ‘a4e0820e0743. ‘ | xxd -r -p | openssl sha256

Tadaa! Now we have a single hash that represents—and validates!—our list of transactions, using the data of each transaction. Consider what would happen to this hash if you modified a single transaction’s data. It would switch the hash of the transaction, which would then cascade through the Merkle tree, switching all of the branches’ affected and eventually modifying the root.

This is pretty much how transactions are structured in blockchains. A “block,” equivalent to a page in an old-fashioned accounting ledger, contains both the data of each transaction and each transaction’s cryptographic hash, along with a Merkle root signifying all transactions contained therein.

While this is a bit of a simplification (transactions aren’t written in English and we’re missing tons of detail), it’s a fair demonstration of how cryptographic hashes validate and structure a block. But even with this structure, it’s unclear how this could solve the double-spend problem, or help us achieve group consensus on our ledgers. If everyone is sending transactions to each other and assembling blocks themselves, and Alice desired to be mischievous, there’s nothing about this structure that would prevent her; she’d simply have to send separate transactions to different parties assembling these blocks.

But don’t fret! Now that you understand public-key cryptography, hashes, and block structure, we can solve that final riddle. And boy is the solution a doozy.

Part Trio: . Chaining Blocks, Reaching Consensus? Always. Be. Hashing.

As previously shown, a cryptographic hash function like SHA256 generates hashes that are thirty two bytes (aka two hundred fifty six bits) long. In essence, SHA256 takes any arbitrary data, and outputs a 256-bit number (introduced in our examples above in hexadecimal).

Knowing what we know about SHA256, lets ponder a puzzle. Assuming the output of SHA256 is randomly distributed given random input data, what’s the probability that the output of SHA256 on any lump of data is below 2^256? Well, it’s 100%. All 256-bit numbers are below 2^256, from zero to 2^256-1.

How about below 2^255? Reminisce that 2^256 / two = 2^255. so you are effectively halving your “success” condition for this probability. So we go from 100% to 50%. Now how about 2^254? You halve your success space again, from 50% down to 25%. You can see the pattern. the smaller your desired SHA256 output, the smaller the probability you’ll find one. If you want to find a particularly low number, it may take millions, billions, trillions, quadrillions, or even quintillions of guesses!

But remarkably, it’s very effortless to verify that your solution is correct; all someone need do is take your data, apply the SHA256 hashing function, and verify the reaction is below the amount they require. This is a desirable feature of cryptographic hashes; they are one-way functions—like deriving a public key—but in the context of cryptographic hashes, it’s difficult to guess without having the pre-image/prior data, but effortless to verify.

When you broadcast a pre-image and hash that meets these criteria, you’re publicly demonstrating that you spent a lot of computational time guessing the hash, which anyone can verify quickly. Or more succinctly, you’ve shown Proof-of-Work. In a sense, Proof-of-Work (PoW) is a proxy for voting with computing power, but cryptographically tied to the data it hashed. Or to put another way, it’s a way of notarizing data with computational power. “This data is valid to me, and to prove it, here’s the time and money I spent on computing a hash that meets your criteria.”

Aye, this is just the trick we need to conjure some blockchain magic. Let’s add some fresh rules to our hypothetical open/collective block-based ledger:

  • All transactions in a block must have valid signatures, a la public-key cryptography, and all transaction inputs must spend money from previous outputs (e.g., if Alice’s public key only has one bitcoin from a prior transaction, she can’t send two to someone else from this public key). Thanks to public-key cryptography, any participant can verify these are valid without exposing private keys.
  • Upon receiving a transaction, participants can choose to include it in a candidate block that they’re in the process of assembling.
  • Every block hash must be lower than a number generated by an agreed upon difficulty formula. Some chunks of data in the block can be randomly adjusted without affecting transaction validity (to enable participants to generate fresh block hashes).
  • The difficulty formula is self-adapting based on how quickly or leisurely blocks with hashes below the difficulty threshold were found; in Bitcoin’s case, the protocol adjusts the difficulty to target a ten minute average block confirmation time.
  • All blocks contain a hash of the previous block (which includes transactions, transaction hashes, the Merkle root of all transactions), thus chaining them together.
  • The longest chain with the most Proof-of-Work is the authoritative ledger.

And that, good reader, is a blockchain! How exactly does this setup prevent mischievous Alice from double-spending her pizza money? Let’s run through an example, where we have four participants with equal computing power; Alice, Bob, Chris, and Dave. Alice creates a transaction that sends money to Bob’s public key; we’ll call it one bitcoin for plainness’s sake. So it looks like this:

To Bob, Chris, Dave (75% of PoW computing power):

Alice sends Bob one bitcoin.

She broadcasts this transaction to Bob, Chris, and Dave. BUT, being sneaky, she creates a different transaction that takes this same bitcoin and sends it to another public key she controls (reminisce, it’s very effortless to create fresh public-private key pairs), and determines to use her computing power to attempt to find a block before everyone else. This transaction looks like this:

To Alice (25% of computing power):

Alice sends Alice one bitcoin.

This transaction sits in all the participants “mempools”; a staging area for transactions that haven’t yet been included in blocks. They are all working in parallel to find a hash lower than an agreed upon difficulty. Assuming this ordinary distribution of computing power, 25% of the time, Alice would detect a hash that creates a valid block (with bitcoin sent back to her), while 75% of the time, Bob, Chris, or Dave would detect a hash that creates a valid block (sending Alice’s bitcoin to Bob).

Already, the odds are against Alice; at very first glance it shows up she’ll only be successful 25% of the time. However, it’s even worse in practice. Because Bob doesn’t fully trust the other participants—having been burned by Alice’s cyberized five-finger discount before—he determines to wait until Alice’s transaction has been “confirmed” by being deep in the blockchain; that is, by waiting until her transaction has several discovered blocks ahead of it. Consider a case where Bob says he will wait six blocks. Now, in order to double-spend Bob, Alice will have to “hammer” the other three participants after they detect six more blocks; in other words, she’ll have to find the same number of fortunate hashes, with a lot less computing power. There’s a mathematical discussion in the original Bitcoin paper that explains the probability in detail.

This Proof-of-Work consensus mechanism works marvelously, as long as at least

51% of the participants are fair. In fact, a public blockchain with these constraints practically solves a difficult problem in computer science: the Byzantine Generals’ Problem. And yes, our own hypothetical General Byzantine’s eponymous name was not a coincidence.

Why Hash At All? Satoshi’s One Weird Trick: Marrying Technology and Incentives

Our blockchain story is almost accomplish. But one thing should very likely be nagging at you. where do the “bitcoin” (or “ether”) come from in this ledger? Since according to the rules listed above, you can never create more bitcoin in a transaction; you can only spend previously unspent bitcoin. But how does the bitcoin get minted into the ledger? Who has that power?

The reaction is a testament to the elegance of Bitcoin’s enigmatic founder, Satoshi Nakamoto. The best way to response that question is to very first ask another question: why should anyone agree to engage in Proof-of-Work for chaining blocks? It takes lots of computational power, and while it’s a public service to secure the network, that’s not usually a compelling incentive. but what if you incentived those who secure the network with the power of minting currency?

That’s exactly what Satoshi designed! Every block contains what’s known as a “coinbase” transaction, which includes freshly minted bitcoin. That is why these players in the blockchain ecosystem are known as “miners.” The number of bitcoin given as a prize is coded into the software that describes the protocol; it has a known schedule, and if you attempt to crack it with a freshly discovered block, it will be soundly rejected by other participants. The native token schedule differs by blockchain; for Bitcoin there will only ever be 21,000,000 bitcoin (each one sub-divisible to 10^8) making it a naturally deflationary currency. Ethereum, meantime, has no hard cap, but its inflationary rate decreases over time.

In addition to the “minted” bitcoin/ether (which are known as the “block prize”), anyone who detects a block is also entitled to fees that are added to all transactions within that block. This is to incentivize including transactions, especially in Bitcoin’s case, where the block prize halves every four years and will eventually entirely vanish.

It’s this alignment of incentives and technology which marks the difference inbetween a elementary collection of preexisting cryptography, and Bitcoin/Ethereum. At the time of this writing the Bitcoin and Ethereum ecosystems are collectively worth $11bn, and are both protected by an unfathomable amount of computing power. And thanks to this incentive alignment, there are ultimately free, permissionless, secure, immutable ledgers that have the potential to switch the world in ways we can’t even imagine. Perhaps thanks to blockchains, General Byzantine’s Distributed Pizzeria might actually work. well, at least the payment and supply management components. No idea how he’s going to stop people stealing his delicious pizzas en route.

Take a Deeper Slice of Blockchains: Further Reading/Viewing

There is much, much more to blockchains; this is but a modest, developer-friendly introduction. But for the nosey reader, there’s a wealth of free information out there on the web. Here’s some suggested reading/viewing to get you embarked, introduced in recommended order:

Khan Academy Bitcoin Introduction

Khan Academy did a wonderful movie series about Bitcoin which covers the topics raised here in an approachable, but technical, manner. You can commence the very first movie here.

Original Bitcoin Whitepaper

On a fateful Halloween Day in October, a pseudonym named Satoshi Nakamoto posted their world-changing research in a succinct, remarkably matter-of-fact manner: “I’ve been working on a fresh electronic cash system that’s fully peer-to-peer, with no trusted third party.” The Bitcoin Whitepaper remains one of the most cogent explanations of Bitcoin’s workings, a remarkable feat for the paper that introduced the concept. Read it here.

The Bitcoin.org Developer Reference

Now that you have a basis for understanding the world’s most prominent blockchain, it’s time to dive into the weeds. The Bitcoin.org Developer Reference is a superb place to add depth to your understanding.

Ethereum, Solidity, Brainy Contracts, Oh My

Imagine someone took the clever ideas behind Bitcoin’s blockchain, and said, “if it’s good enough for embedding static data and transferring money, it’s good enough for a general state machine.” That’s Ethereum. While newer and smaller than Bitcoin, in its two years of existence it has catapulted to the 2nd largest blockchain by market capitalization and one of keen developer interest. We just began supporting it ourselves, and plan on expanding our API services to include many of Ethereum’s advanced features. Ethereum has a number of differences compared to Bitcoin: accounts have balances of a native currency called “ether,” there can be self-executing “accounts” that have fully-baked programming logic to permit exotic, conditional exchanges. hence why Ethereum calls itself a “world computer.” It has much more plasticity than Bitcoin, but is also a fair bit riskier. Here are a few places to commence your journey into Ethereum:

Our Documentation

Now, at long last, we recommend checking out our API services. BlockCypher is like a bridge for blockchains; instead of running your own knots, our API scales and manages connections to public blockchains so you can spend your time working on your game-changing Bitcoin/Ethereum application. Our own reference documentation is available here:

No matter where your curiosity takes you, we wish you the best of luck on your journey into the wild and wonderful world of blockchains. We are still early in this experiment, and already blockchains and cryptocurreny are switching the way millions of people engage in their economies, both locally and globally. Projects taking advantage of blockchains run the gamut from helping bring the unbanked online to building partially autonomous organizations through clever contracts. A better economy is yours to build. And if you happen to successfully build a distributed pizzeria, undoubtedly let us know; it’s an idea whose time has certainly come.

Related video:

Blockchain Will Disrupt Metals – Mining – Rio Sr

Blockchain Will Disrupt Metals & Mining – Rio Sr. Tech

Bitcoin and Blockchain are characterized as disruptive, and indeed they are potentially. We feel it is better to differentiate inbetween the two. Blockchain, we contend is foundational for building industries. Bitcoin, on the other forearm is disruptive. Disruption is for us is becoming the preferred word of the whining incumbents who having failed to recognize revolution in their industry. The auto worker who complains about the robot, only this fellow is a CEO.

Additionally, Bitcoin and Blockchain are intertwined far more than we primarily believed in what we are now coming to understand is a brilliant stroke for the developers.. Some of the best parts of Blockchain coveted by the people wishing for decentralized money are only available with a Bitcoin front end. That is not lost on us.

The point of this intro is two fold. Very first to note that Mining industry executives should be attacking the false premise that Cryptos are a store of wealth. They are not. Brief of that they should just keep their impulses and anxieties to themselves. Ms. Ash below does her company a disservice even if quoted out of context. Crop the idea that Cryptos are a store of wealth because they are NOT. This is a war in which CNBC and FOB shills the securities and banking are leisurely stealing your lunch. They partly succeeded in GLD. Now they are going to take more with Cryptos. And it is a lie.

For this article, note that Barrick Gold’s CIO “wonders aloud” if Bitcoin would soon become a greater store of value than Gold. That is nonsense at its base. What is more, what business person wonders aloud if their industry is fated? We’ve opined fairly strongly on the similarities and differences inbetween Bitcoin and Gold. And Bitcoin is simply not a store of value.

If your job is to market your company in social media, that is not advisable. in fairness, the article below was written by a person working with (for?) Rio Tinto. We would like to have seen the actual quote and searched in vain for it in context.

Ms. Ash is either a genius who is paving the way for Barrick’s own use of Blockchain in their own business dealings, or shown her entire industries arm in that their greatest fear is. If it is the latter, we are here to tell her, Bitcoin is not a store of wealth. And if she knew the qualities of the product her company sells and, she’d understand that. That is not to say that the public is wrongly perceiving it as such. Her job should be to correct the misinformation that is being spread by brokers and paid pundits to effect a land grab of Gold investors into the world of paper securities. For when the crypto bubble crashes, not only will wealth be demolished, there will be that much less with which to buy her company’s product.

2nd; Blockchain will switch almost all industries by lowering costs in mid and back offices. Fired blue dog collar workers will be also less sad to know that lawyers will be among the ranks for the unemployed as well, as credit departments will be less needed.

In fact, miners should be working right now with sellers of gold to create more efficient distribution of their product. Blockchain, as did the internet before it, strips away intermediaries that do not add value. Miners should be RUNNING to embrace it and in doing so connecting directly with those well run sellers with large distribution networks. The internet enabled B2B business transactions. Blockchain’s promise is the C2C business model. Learn it and see how it can be implemented now.

The author goes even further discussing the way mining itself will be done. From drills to movie games. And he is not off base to our observations.

Eventually, we have searched for the origin post for citation in vain and Linked in does not provide or permit it. Linked-in is itself a walled garden model which is fortunate to be alive. If larger media aggregators like HooteSuite are any sign, linked-in has problems coming.

When we do find the origin post we will gladly link to it here

Blockchain Will Disrupt Metals & Mining

Daniel Koffler, Senior Mgr Emerging Technology Rio Tinto

The last twelve months have seen a lot of hype surrounding potential blockchain application in many technology and financial publications and mass media in general. The public’s fascination with blockchain based cryptocurrencies like Bitcoin and Ether has been the focal point of much of this attention. Bitcoin and (to a lesser extent) Ether have become significant global value stores and are already beginning to capture a significant percentage of “safe haven” value transfer that for at least of a duo of millennia has been predominated by precious materials pulled from the Earth such as gold, silver and diamonds.

Michelle Ash, Chief Innovation Officer at Barrick Gold recently even wondered aloud on social media as to whether Bitcoin would soon become a greater store of value than gold. While this is a fascinating trend, the intent of this article is not to concentrate existing cryptocurrencies, but to explore some of the other significant switches blockchain technology will likely bring to the Metals and Mining industry in the coming years.

Tokenization of physical assets

One of the most fundamentally transformative capabilities blockchain brings to the Metals and Mining industry is its capability to tokenize physical items and permit for the distribution, sale and trading of these fresh representative digital assets without the costs and overhead involved in equivalent physical world manipulations of the asset. A flawless exemplar of this capability is the RMG product developed by the UK’s Royal Mint. This year, the more than 1,000 year old Her Majesty’s Royal Mint will begin suggesting a blockchain based digital token called RMG (Royal Mint Gold). Each RMG is the tokenized equivalent of one gram of physical gold located in the Royal Mint vaults. In issuing these tokens, the British Royal Mint is looking to convert the global gold trading market.

Today, when you trade in gold on the spot market, you are subject to fees such as treating and warehousing fees for the gold you own on paper. These fees add up quickly and can significantly effect the cost and profitability of gold trades. The Royal Mint RMG market is designed to eliminate these extraneous fees altogether and permit much more frictionless trading and exchange of gold value. The Mint is assuring that RMGs will always hold at least as much value as physical gold by promising to buy back RMGs at current gold trading prices should RMG value drop below physical gold value for more than three days. Select Mint fucking partners are even authorized to create, sell and trade their own derivatives based on RMGs. And to top all this off, RMGs will always be redeemable for the physical gold they represent. That’s right, you can trade in your RMGs for physical gold whenever you like.

Reversing Cash-Flow in the Mining Industry

While the staid Royal Mint is very careful in its marketing of the RMG product, the global implications could be staggering. In essence this year there will be a cryptocurrency based on the gold standard (like almost all national currencies were prior to the 1970s) and it is fully backed by the British Government. The implications for the metals and mining industry are even greater. The Royal Mint has tokenized metal being held in its vaults. What if mining companies could tokenize metals and other materials that are still in the ground (the best vault in the world)?

Consider it for a moment. What if mining companies were able to begin selling and trading the value of deposits in the ground before they were dug up? The company could then purchase insurance against its capability to mine and produce the metal to market. This would switch the entire cash-flow structure of the mining industry. Miners would be able to produce cash based on the estimated size of exploration deposits and THEN pay to produce the metal. The switches this would create within the metals and mining industry are staggering.

Smarter Contracts, Fewer Lawyers

Another capability many blockchain implementations bring to the table (particularly Etherium) is the capability to create and execute brainy contracts. These are the equivalent of legal contracts, yet instead of being written in legalese and possibly open to interpretation, clever contracts are written as puny snippets of computer code that get executed by a triggering event. They are testable (so the outcome should never be a surprise). You can create models and simulations to test various outcomes based on any number of factors, and because they execute against a blockchain, execution and settlement tend to happen at the same time.

Think about how much time, cost and risk this eliminates from current contract structures. Lawyers aren’t required to draft contracts, they simply need to assert that the agreed terms don’t crack existing laws or regulations. There is no human intervention required to execute terms of the contract. For example when product is delivered to a customer, either the customer or even the transportation vehicle itself can assert to the blockchain that delivery has happened and the terms of payment get automatically executed and lodged. No letters of credit, no financial institution intermediaries, no arguments, no misunderstandings, no excuses, no waiting. As more and more transaction migrate to brainy contracts it may even be possible to eliminate accounts receivable and payable functions altogether.

Provable Product Provenance

Using blockchain to prove product provenance is another interesting use case. The Kimberly Process, responsible for providing certificates of origin and serial numbers to ensure diamonds on the market are not blood diamonds, is already investigating moving to a blockchain based system and it makes sense. Anywhere a paper certificate might be forged or lost is a excellent place to investigate using blockchain.

But product provenance goes beyond this. If we get production systems in metals and mining to embark reporting data directly from the production process onto a blockchain system, we can instantly calculate and prove details such as product origin, custodial chain and the end to end carbon footprint involved in producing any particular tonne of ore. Furthermore, if we are generating renewable energy elsewhere or buying carbon credits to offset production emissions, we can prove to our customers and regulators that we are not dual counting or otherwise fudging the system.

Publishing asset maintenance records onto a blockchain system would also provide a number of benefits. From a regulatory standpoint we could instantly prove maintenance has been done without having to by hand create and submit compliance reports internally or to regulators. Furthermore, if we were then to sell assets either due to a divestiture or shutdown, we can provide the purchaser with cradle to grave records for the assets in question. Assets themselves could even query the blockchain for maintenance and operator information and be programmed to block usage if decent maintenance has not been done or the operator is not certified to operate the asset.

We’ve only begun to scrape the surface of some of the more interesting blockchain use cases within the metals and mining industry. The technology holds a lot of promise in almost every industry and I am very excited to see what the future will bring.

Related video:

Blockchain Use Cases for Distributed Accounting and Open Standards

bbiller.com

This article explains why I elected to adopt UBL standards for billing with my project, http://bbiller.com which will use blockchains and wise contract tokens to create a single source of truth in the billing process.

The implications of Blockchain and the advantages in leveraging rather than hacking at fresh ways to do the same billing process are supported by this article. In essence the model at http://bbiller provides an end to end service delivery solution based on well endorsed and accepted international standards.

UBL, the Universal Business Language, defines a royalty-free library of standard XML business documents supporting digitization of the commercial and logistical processes for domestic and international supply chains such as procurement, purchasing, transport, logistics, intermodal freight management, and other supply chain management functions.

UBL can be thought of as a lingua-franca — a (data format) language that permits disparate business applications and trading communities to exchange information along their supply chains using a common format.

Objectives — why do we need UBL?

We believe that the standardization of a proven, pragmatic, royalty-free XML syntax will encourage the proliferation of inexpensive off-the-shelf-software that “natively speaks” UBL and will thus drastically lower the cost of entry for puny businesses into the electronic networks used by their larger trading playmates. To put it another way, UBL means the end of the expensive one-off software systems that typified the EDI era.

UBL also provides the chance to end the debate over standards for business document formats that has discouraged the adoption of fresh technologies for conducting business in the digital age such as Blockchains.

Functionality — what can it be used for?

UBL is designed to buttplug directly into existing business, accounting, legal, auditing, and records management practices, eliminating the re-keying of data required by traditional fax, scanned-image and paper-based supply chains and in doing so provides an entry point into electronic business for puny and medium-sized businesses.

Albeit designed for use in business supply chains it can be (and has been) adapted for other contexts of use. This is because all the business document constructs in a UBL are drawn from a single library of reusable components. This ensures a high degree of alignment among the various parts of the UBL specification, and the assembly of XML schemas from a common element base facilitates code reuse in processing applications.

UBL Traction — who uses UBL?

Beginning with the two thousand five adoption of UBL for all public sector invoicing in Denmark (known as OIOUBL), UBL has become the foundation for a number of successful European public procurement frameworks, including EHF (Norway), Svefaktura (Sweden), ePrior (European Commission DIGIT), the National Health Service (UK), and PEPPOL, the pan-European public procurement platform. The PEPPOL community (OpenPEPPOL) serves government agencies and their suppliers from Austria, Denmark, France, Ireland, Italy, Norway, Poland, and Sweden through a network of over one hundred Access Point all exchanging UBL conformant documents.

Other implementations for eInvoicing include E-Fatura (Turkey), Factura Electronica (Peru), SimplerInvoicing (the Netherlands), CHORUS-factures (France) and Tradeshift (globally). The European eInvoice Service Providers Association (EESPA) also recommends UBL as the lingua franca for their Model Interoperability Agreement.

UBL has also become foundational to a number of efforts in the transport and logistics domain, including the European Common Framework (European Commission), DTTN (Port of Hong Kong), TradeNet (Port of Singapore), Electronic Freight Management (US), and Freightgate (globally).

In keeping with the original vision of UBL as a standard basis for electronic business in general, UBL is now increasingly used by organizations whose scope extends beyond the generic supply chain. These include the European Textile, Clothing, and Footwear industry group (eBiz-TCF) and Wehkamp, the largest online retailer in the Netherlands.

UBL is also incorporated as a reference format in a puny but growing number of industry standardisation activities. These include CEN Workshop Agreement (CWA) 16667, Reference Architecture Two.0 for eBusiness Harmonisation in Textile/Clothing and Footwear Sectors, ISO TS 24533, an international technical specification developed by ISO TC two hundred four (Intelligent Transport Systems) for data interoperability in the movement and intermodal transfer of freight, and a companion international specification, ISO TS 17187, that identifies UBL as the collaborative syntax for harmonizing other syntaxes used across the supply chain domain for tracking the shipment of goods.

The implementations listed above are by no means exhaustive. UBL is available with open access. This means no registrations or approvals are required and there are no license fees to use UBL. As such it is not possible to know all the current implementations. We welcome details of other implementations if the owners are willing to share them.

UBL Sanction — who has endorsed UBL?

UBL is the product of an open and accountable OASIS Technical Committee with participation from a multitude of international and industry data standards organizations. It was originally approved as an OASIS standard in two thousand four and is among the most mature and widely implemented OASIS Standards. The current version, UBL Two.1 (PDF), was approved in 2013.

In two thousand fourteen the European Commission announced UBL Two.1 was officially eligible for referencing in tenders from public administrations (one of the very first non-European standards to be so recognized).

In two thousand fifteen UBL Two.1 was also approved as ISO/IEC 19845:2015, establishing UBL as a true international standard for use by governmental bods globally. With this endorsement UBL has reached the maximum level of sanction possible for an international standard.

UBL was conceived as the part of the UN/CEFACT-OASIS ebXML partnership that would standardize XML data formats for electronic business. While widely used outside of ebXML and independent of any particular infrastructure framework, UBL proceeds to complement the ebXML framework of standards.

Also within OASIS, UBL complements and in some cases builds upon the work of the Tax-XML, eGov, Code List Representation, and Business Document Exchange Technical Committees.

Last (but not least) UBL provides components to realize the Open-edi model in real-world trading communities as described by the Open-edi Reference Model standardized as ISO/IEC 14662:2010. As such UBL is a key component of the contribution of OASIS to the ISO/IEC/ITU/UNECE eBusiness MoU.

The financial information capabilities of UBL have been enhanced in the areas of financial accounting, payment mandates, trade financing, currency treating, and payments reconciliation in order to support downstream processing of invoices within financial services. Legal information capabilities have been enhanced to support advanced procurement and global trade using business models such as outsourcing, application service provision, and virtual services via cloud computing.

Related video:

Blockchain: Top Tech Investing Trend Of two thousand seventeen And two thousand eighteen – Investing Haven

Blockchain: Top Tech Investing Trend Of two thousand seventeen And 2018

The top tech investment trend of two thousand seventeen and two thousand eighteen is … blockchain. We consider cryptocurrencies part of the blockchain technology trend, as crypto is ‘running’ on blockchain platforms.

Blockchain, in technical terms, is a digital ledger in which transactions made in a cryptocurrency are recorded chronologically and publicly. The applications (use cases) are numerous: peer to peer electrical play exchange, peer to peer money exchange, digital rights management, crowdfunding, and so on. Basically every time there is a transaction inbetween two parties that has to be recorded without an intermediary you can make use of blockchain.

The reason why the growth potential of blockchain is hefty is because it covers an area that is largely untouched by the internet: intermediaries, notaries, brokers, etc. In brief, the middlemen. Indeed, what is their added value in the digital age?

Blockchain tech investing trends in 2017

By far the most interesting tech investment trend in two thousand seventeen has been Ethereum. And it is not over yet. The price of Ethereum keeps on rising, and there are good fundamental reasons why InvestingHaven’s research team believes that the two thousand seventeen price forecast for Ethereum is $550 (dual from where it stands, and 4-fold from when we published that forecast).

There is still slew of upside potential in Ethereum, no matter whether the above chart looks over-extended. Based on fundamental data we truly see that both usage request and investment request keep on rising, and basically have slew of potential.

Ethereum may be hard to invest in, as you need a wallet (not an effortless process to find a reliable one and get verified). An even less accessible way to invest in blockchain is in ICOs, Initial Crypto Offerings. Apart from being hard to access it also comes with slew of risks. So albeit this is a very hot trend we do not recommend to go all in with ICOs unless you indeed know what you are doing. Nevertheless the potential comes back, long term, can be stellar.

Third, there are not many IPO’ed blockchain stocks out there, but the ones publicly available have done remarkably well in 2017. It should not come as a surprise that InvestingHaven readers have profited, and we get many ‘thank you’ messages, as we have covered and proceed to cover blockchain stocks extensively this year, with a series of spot-on calls:

Indeed, it pays off to closely go after InvestingHaven.

Blockchain: also the most profitable tech investing trend of 2018?

We are truly coaxed that blockchain, including cryptocurrencies, will be very hot in 2018. More and more startups will mature their technology and company, work towards an IPO, and become successful small-cap and mid-cap technology companies in two thousand eighteen and 2019.

As blockchain will grow in two thousand eighteen it is mandatory to identify the stocks and cryptocurrencies that have intrinsic value. With intrinsic value we mean services that are used in real life, that solve real life problems, that have good request among one or several customer segments, and that display growth in terms of usage.

It indeed pays off to closely go after the blockchain space. A bubble could be in the making but as long as you are invested in companies or cryptocurrencies that have intrinsic value you are good on the (very) long term.

We forecast that the price of Ethereum will proceed its rise, along with some other cryptocurrencies like Ripple and Zcash (potentially Stellar Lumens). We also forecast that blockchain stocks like BTL Group could do very well. We expect to see fresh IPOs.

When it comes to ICOs we are very cautious, and recommend to only pick one or two in a year to invest in, given the very high risk associated with it, as well as the lack of legal framework (think of property rights).

Blockchain will be a very hot tech investing trend, maybe the greatest tech investment trend, of 2018.

Related video:

Blockchain: the internet of value, Rathbone Investment Management

Blockchain: the internet of value

Blockchain offers an alternative to many record-based transactions, from money transfers and asset custody to ‘know your client’ checks, healthcare records and music downloading. It would release large cost savings and create extra value, but could negatively influence employment levels. Otherwise, transaction times are likely to be diminished.

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Jakov Agbaba, Risk Analyst at Rathbones, co-authored with Julian Chillingworth, Chief Investment Officer

Risk of disruption = medium/high

You might have read or heard about it; ‘blockchain’ is the financial disruption buzzword of the moment. Intended primarily as the platform for storing and transferring the Bitcoin currency, blockchain has become the building template for what is referred to by some as the fattest switch since the internet.

Blockchain is promising to do for value what the internet has done for information: decentralise control, eliminate asymmetries, and switch the way we transact and interact with everything. From money transfers and asset trading, through healthcare provision and music downloading to collaborating and sharing of resources, blockchain promises to enable, empower and revolutionise. And disrupt.

A massive public ledger of transactions

Blockchain is a platform for transacting without an intermediary, from one individual or peer directly to another. In electronic payment terms this means that one person can make a payment to another person without using a bank or any other intermediary. All aspects of the transaction are performed by a computer or, as is actually the case, by a database. Figure eight shows how this differs from current intermediated transactions.

The very first defining feature of this fresh and nascent technology is that it is distributed or collective. Rather than located on one computer, blockchain is a database spread across numerous machines. Everyone can access blockchain, view its contents and add fresh transactions.

Another defining feature of blockchain is that it is decentralised. In the context of databases, this simply means that no single party has control. The update and maintenance of blockchain database is carried out by many parties. In Bitcoin blockchain, these parties are known as miners. Their job is to validate transactions and keep the database up to date.

Latest estimates from McKinsey & Co suggest that blockchain could generate $80 to $110 billion of value in the financial services industry alone (McKinsey, 2017). Most of this influence, McKinsey says, would be felt in the payments segment, where cross-border business-to-business payments could see fresh value creation of $50 to $60 billion. This would be created from extra activity, cost reduction, and capital release from the current cumbersome process.

A report published in two thousand fifteen by Santander InnoVentures claimed that blockchain could generate cost savings in cross-border payments of $15—20 billion per year by two thousand twenty two (Santander InnoVentures, 2015). The report went on to say that the instantaneous influence would be felt by the cross-border payments segment of the financial sector. Blockchain would achieve those savings, the authors argued, by bypassing the existing international payment networks, which are slow and expensive.

The disruption of cross-border payments has already began. Transferring money from one country to another today costs significantly less than it used to. There are many online providers of this service, which has put significant competitive pressure on the traditional providers, such as banks and money transfer companies.

Chris Mager of BNY Mellon describes the current state of affairs in banking as an “unprecedented period of switch and transformation” and goes on to say that there is a potential role for blockchain in payments (FinTech Network, 2017). Existing payment systems are outdated, slow and inefficient; they were not designed for the world we live in today. Blockchain could help by eliminating these inefficiencies and, through this, reducing banks’ costs and their charges to the consumer.

Blockchain technology has the potential to make the cost of transferring £1 equivalent to the cost of transferring £10,000. At present, the costs associated with processing a transaction make the £1 transfer disproportionately costly. The human effort required to process both transactions is identical, yet the value of each is vastly different. Liquidate human involvement and substitute it with a machine and the cost falls to the point where both transactions are viable.

Application of blockchain technology to payments would also deal with the disproportionate amount of time it takes to process cross-border transactions: inbetween four and seven days. Blockchain could enable the almost instantaneous execution of payments, both domestically and globally (FinTech Network, 2017). The delay inbetween sending and receiving the payment would be equal to the amount of time it took for the sender to sign off the transaction, the recipient to confirm and the miner to validate it. On average, this is somewhere inbetween ten minutes and an hour (Dr. Joseph Bonneau, 2015).

It is significant to note the influence of these switches is not limited to the cost savings and convenience for consumers. The switches can have a significant influence on global trade too. Exporters and importers are intensely burdened by the cost and time it takes to pay for goods and services. As an aside, global shipping companies can practice significant delays when crucial customs paperwork gets lost, delaying the loading or unloading of containers. Blockchain could permit such paperwork to be seen by all necessary parties in real time without the risk of it becoming lost. The cost-savings could be thick.

The influence of this technology on the financial sector is not limited to payments. Blockchain database could be used to store other data. In its latest white paper, the FinTech Network (a blockchain consortium of about seventy banks) cites four potential areas of banking where blockchain could reduce inefficiencies, generate savings, increase security and reduce fraud (FinTech Network, 2017).

Know your customer (KYC) is a procedure mandated by regulators through which banks and other financial institutions carry out checks on customers in order to prevent fraud, particularly money-laundering. According to a latest survey by Thomson Reuters, banks on average spend $60 million per year to carry out these checks. For the largest banks, however, expenditure on KYC and due diligence can be closer to $500 million (Thomson Reuters, 2016).

KYC procedures can be costly, requesting and cumbersome for both the financial institution and their customers. Albeit there are attempts to centralise KYC information and make it available to participating banks, 84% of banks in the SWIFT network still do not participate in information sharing (FinTech Network, 2017).

Each time a customer — retail or corporate — switches banks or approaches another bank for extra services, a fresh KYC procedure must be carried out. The information the fresh bank is required to gather is already there, but just isn’t collective. So the task is duplicated, the cost replicated, the customer inconvenienced by having to once again prove their identity and cover at least a part of the cost of this repeated activity. If the information were held on a blockchain, it could be readily used by other financial institutions.

It is significant to make clear that this or any other information does not need to be collective with the entire of blockchain. Using private blockchains, the information can be secured and distributed only to those who need to view it. These can be either private sections of a public blockchain or separate and closely-held blockchains. These are like an intranet; it is similar to the internet, except accessible only to the employees of a particular organisation.

Chris Huls, a blockchain specialist at Rabobank who investigates different types of blockchain and the opportunities they suggest to the financial sector, has proposed that KYC data be stored on the blockchain (FinTech Network, 2017). Once a bank has carried out its KYC process on a customer, it could confirm this with a statement on the blockchain and a summary of the documentation that has been collected from the customer. This information could then be used by other banks, insurance companies and other financial institutions — after all, much of the underlying information belongs to the customer, not the bank.

In a latest report, Goldman Sachs estimated that application of blockchain in customer onboarding and transaction monitoring, as well as the technology and training required for these functions, would generate $Two.Five billion of cost savings for banks, or 25% of the overall operational costs. Key savings would be seen in transaction monitoring (that is, the monitoring of existing clients), where blockchain would lead to a 30% reduction in headcount or cost savings of $1.Four billion (Goldman Sachs, 2016).

Figure 8: Embedding distributed ledger technology

A distributed ledger is a network that records ownership through a collective registry.

Cryptocurrencies and cryptosecurities

Global custody is another key area of potential disruption. Custodians are the safe-keepers of assets. Their role is to safeguard the financial assets of individuals and financial institutions. Custodians hold stocks, bonds and commodities; they treat settlements of asset purchases and sales, recording switches in ownership; they collect and store information on assets, record and monitor dividends as well as coupon payments on bonds; administer corporate deeds; manage bank accounts and treat foreign exchange transactions.

All of these roles could be performed automatically through blockchain. They can be written into what is known as a clever contract. This is an automated and self-executing agreement stored on blockchain in the form of computer code or a program consisting of pre-written logic in the form a statement: “if this happens, then do that”. The execution of a brainy contract is performed by a computer. It can be viewed by everybody, replicated and used as a template for fresh contracts and arrangements (Antony Lewis, 2015).

Blockchain’s recording and data storing capability will deal with the register of ownership, while wise contracts will facilitate everything that needs to happen in the life of an asset, such as dividend and coupon payments, corporate deeds and so on. Goldman Sachs estimates that the automation of custodial services will save the financial industry $11 billion to $12 billion per year in overhead costs (Goldman Sachs, 2016). It will also speed the settlement of assets from the current period of three days to potentially one hour, which is inconceivable in the current labour-intensive systems of settlements and custody (FinTech Network, 2017).

Blockchain can permit parties to inject into any transaction, irrespective of size, without drawing up a fresh contract every time this transaction occurs. For example, a musician might determine to post his or her music on a blockchain music platform, including, for example, one free play of the song. But, if another party dreamed to download the song for future listening, use it as a ring tone or put it into a movie, the artist could stipulate the costs and terms governing such use.

This same contract could be applied to an infinite number of transactions. The artist wouldn’t need an agent to sell his or her music, neither would a fresh legal contract be needed for each transaction. The artist would be able to keep a larger proportion of the value they have created and the consumer would benefit from lower costs.

Such an automated world could sound like pie in the sky to anyone who is familiar with the labyrinthine workings of financial institutions’ middle and back offices, as well as the global settlements and custodian processes for every asset, but the future is remarkably near.

In 2015, UBS reported it was working on clever contracts in the form of self-servicing bonds (Sarah Jenn, 2015). These instruments, also known as wise bonds, are automated contracts in which all aspects of servicing are executed by a computer. UBS has created a blockchain-based application that can deal with a bond’s issuance, interest calculation, coupon payments and maturation process. There is no need for pre- or post-trade intermediaries, usually the back and middle offices in an organisation.

Other uses of blockchain

Albeit the initial wave of significant blockchain innovation and disruption is likely to happen in the financial industry, the technology has potential to switch other areas of life.

Imagine a healthcare system with the data and other devices required to make treatment fully targeted, less expensive, more effective and, above all, make certain conditions preventable. From clinical trials and patient records to patient compliance with treatment, blockchain could be the very first medium of healthcare collaboration inbetween patients, physicians, medical researchers and regulators.

At present, medicine still largely has a ‘one-size-fits-all’ treatment, which means that adverse drug reactions are commonplace. Often, a ordinary test and instantaneous access to a patient’s records, could prevent such reactions. Sharing patient data inbetween physicians using one secure database source could mean that treatment could be given more effectively, at a lower cost, and without sometimes fatal errors.

Data from clinical trials is infrequently collective inbetween different medical researchers. Sometimes, this cannot be done for competitive reasons, but there are situations and stages of medical development which would warrant greater collaboration inbetween medical researchers. While looking for one particular molecule, researchers will often come across other molecules that do not fall into their area of research or expertise. These molecules are usually not collective, but sharing them with other researchers, the World Health Organisation and other organisations could potentially lead to ground-breaking discoveries (Deloitte, 2017; Tierion, 2016; and Helen Disney, 2017).

We have mentioned the effect blockchain may have on healthcare, but there are other industries as well as parts of our daily lives that could be significantly switched with the advent of this technology. We discussed custodial services earlier, but similar effect could be seen in the land registry. Some countries are already transferring their land registries to blockchain. Other areas of innovation and disruption include:

  • instantaneous brainy card payments
  • corporate supply chains
  • tracking of government finances
  • online voting
  • cloud storage
  • music payment and licensing
  • further decentralisation of the sharing economy.

Conclusion: disruption or innovation?

In two thousand fifteen and 2016, venture capitalists invested around $1 billion in the development of blockchain (McKinsey, 2017). The banking industry is expected to spend around $400 million by two thousand nineteen (McKinsey, 2017). Wide-ranging uses of blockchain are being developed and tested in many other industries.

Blockchain is coming, that’s for sure. What is not certain is what form it will take, the kind of switch it will eventually lead to and when this will happen. It will be some time before these questions can be answered.

Proponents of blockchain argue that the technology is not as much about disruption as it is about innovation. And to some extent they are right. For example, with cross-border payments, blockchain might suggest banks a get-out-of-jail-free card — a way to rival against their online counterparts and ultimately hold on to their market share. In terms of healthcare, blockchain may suggest a less costly, more effective and secure way of collecting, storing, sharing and analysing data. It could lead to significant improvements in healthcare provision.

But some companies will inevitably suffer disruption. In these cases, blockchain may prove unlikely to adopt, conflicting with every part of their service suggesting and presenting a threat rather than chance. Those businesses will either have to readjust and switch, which can take both time and resources, or face closure when other providers build up critical mass and suggest similar services at far lower cost.

Box 6: Blockchain: how it works

Blockchain is a digital public ledger of all transactions that have ever been executed. Each block in the chain represents a group of transactions.

A fresh transaction is carried out using a private key. Using a public digital signature, the same transaction is then signed by the sender at one end and the recipient at the other. Once the transactions in a block have been validated (by so-called ‘miners’ in the case of Bitcoin), the block is added to the chain and forms a permanent part of the database.

Think of it as pages in a book. A book is a chain of pages. Each page in this blockchain book is a mini-statement of transactions. The entire blockchain book represents all the transactions ever executed. Every time a block is packed and added to the chain, a fresh block is generated. Blocks are linked to each other in a clear linear and chronological order, with every block containing a hash or link to the previous one. The entire chain is akin to a chronologically ordered book of all transactions that can be read and added to by everyone — an open book for all.

Unless it has been disputed, which normally happens very early on, the transaction cannot be erased or altered retroactively. This is the third key feature of blockchain: it is protected from revision and tampering. Once entered, a transaction is permanent.

The database is secured using sophisticated and powerful cryptography. There are private keys we mentioned earlier, but there are also public keys. Owners are linked to their cryptocurrency using private keys. Provided they are stored securely, these private keys are not accessible to anybody else. The public and private keys are then linked together, so that the information necessary for a transaction to take place can be relayed publicly. All other information remains accessible to the holder of the private key only. Providing your private key to somebody else means providing them access to your cryptocurrency — losing your private key means losing your cryptocurrency forever.

Hacking into and taking control of the database would be prohibitively expensive. It is said that the power behind the Bitcoin blockchain is equal to five hundred of the world’s most powerful supercomputers multiplied by 13,000 (The Economist Explains, 2015).

Related video:

Blockchain Technology for Investment Banks – Accenture

Are you exploring blockchain technology for your investment bank?

Accenture studies the key questions investment banks should consider with blockchain and crypto technology.

Blockchain is a disruptive technology platform that uses cryptography and a distributed messaging protocol to create a collective ledger inbetween trading counterparties to execute ordinary transfer of asset ownership or more elaborate transactions using ‘clever contracts’. The data on the ledger is pervasive and persistent and creates a reliable ‘transaction cloud’ as that transaction data cannot be lost or corrupted by any of the participants

There are many possible applications of blockchain technology in investment banking. Suggested use cases in testing mode include KYC/AML data sharing, trade surveillance, regulatory reporting, collateral management, trading, settlement and clearing. This transformation has the potential to make trading processes far more efficient, improve regulatory control and eliminate unnecessary intermediaries.

What is blockchain in the investment banking context?

Blockchain is a disruptive technology that uses a distributed messaging protocol to create a collective ledger inbetween trading counterparties to validate transactions. The data on the ledger is pervasive and persistent and creates a reliable ‘transaction cloud’ so that transaction data cannot be lost or can only be technically corrupted by any of the participants at very high costs.

What is different about blockchain compared to other technologies?

Blockchain technology has a fundamentally different set up than traditional technologies in the capital markets environment. It was designed to permit participants to trust the blockchain network itself via a consensus mechanism, which means there is no traditional governance assumed as the maintenance of the ledger is performed by a network of communicating knots running dedicated software.

The cryptographic distributed ledger is replicated amongst the participants in a peer-to-peer network which does not rely on a third party and leaves a cryptographically auditable trail. The blockchain concept eliminates the third party intermediary holding custody on the asset rights as that is managed by ‘brainy contracts’ which execute themselves meeting pre-defined conditions.

A distributed ledger collective near real-time inbetween the capital markets participants and validated among separate knots creates a platform which promises to remedy existing anguish points in the current banking landscape, such as:

Supplant major middle- and back-office functions

Introduce unprecedented cohesion to the internal bookkeeping processes

Display a record of consensus with a cryptographic audit trail of transactions

Create near real-time settlement

Strengthen risk management through stronger auditability and counterparty ties

For what can it potentially be used?

There are many possible applications of blockchain technology in investment banking. Suggested use cases in testing mode include KYC/AML data sharing, trade surveillance, regulatory reporting, collateral management, trading, settlement and clearing. Some banks are looking at the technology to explore it internally very first within their own middle- and back-office operations.

Blockchain supported distributed ledgers are particularly useful for sophisticated financial assets where there is no clear central authority to regulate, arbitrate, and/or mitigate risk of trade or counterparty failure, hence products benefitting from the technology will be Public & Private Stocks/Bonds, FICC derivatives, Syndicated loans, Corporate Bonds, Factoring, Letters of Credit, and Derivatives Margin/Collaterals.

Blockchain technology has the potential to disrupt business models through automation, brainy controls and risk and cost reduction. The capability to lodge currency, equity and immovable income trades almost instantaneously through permissioned distributed ledgers may create a significant chance for banks to drive efficiency, improve regulatory control and eliminate unnecessary intermediaries.

Leveraging blockchain technology within the capital markets industry will be significant if the existing legacy technology, operations and infrastructure landscape within the established capital markets players is considered. The number of applications within and outside the banks will be diminished as the blockchain transaction contains all relevant information for the successful transfer of assets and/or related contracts.

What are the blockchain unknowns?

As the technology is maturing, various concerns will need to be addressed. Here are just some of the questions investment banks will need to ask themselves before diving into blockchain technology:

How can client privacy and security be respected?

What is the cost/benefit of supplanting or introducing this technology with current systems?

How can blockchains scale better with processing speed?

Will counterparties need to be identifiable and linked to a legal entity?

Should access to the blockchain be managed or open?

Can the ownership of a financial asset that is not crypto currency be transferred using the distributed ledger concept with certainty and finality?

Can this financial asset be legally enshrined in computer code as a wise contract, such that any legal dispute could be determined by how the code of the clever contract executes on a distributed network?

Can a wise contract be programmed to execute the lifecycle events of a financial asset?

How will we establish a legal framework across both wise and traditional contracts?

How is the ledger version managed?

What is the likely regulatory framework to define the good practice?

What are other associated risks which need to be considered?

Is that the same as Bitcoin?

Blockchain is the underlying Bitcoin technology providing the distributed ledger structure. The Bitcoin blockchain was originally designed to be a decentralized permissionless ledger with anonymous consensus which is primarily and growingly used for virtual currency transfers. The validation of the transactions are happening via a mining mechanism which burns energy as equivalent to ensure the knot network stays incorruptible. As of this writing, more third-party solutions for Bitcoin are increasingly permission-based.

Blockchain utilization in capital markets looks beyond the money transfer and attempts to address more sophisticated issues. When we talk about the blockchain in capital markets, we do not envisage an energy consuming mining mechanism to validate transactions but rather alternative technical consensus mechanisms. By design, permissioned, distributed ledger systems are more congruent with the existing needs of capital markets participants while also supporting growing regulatory requirements.

Ultimately, we believe Bitcoin will proceed to serve a very valuable purpose and we anticipate a number of fresh innovations and apps to be built on Bitcoin going forward. However, we also believe that Bitcoin based applications for capital markets will be limited by a number of factors, including the fact that Bitcoin was not built with specific capital markets business needs in mind.

Is Blockchain technology worth considering or is it a passing fad?

The brief response: Blockchains could become the critical backbone of the future capital markets infrastructure addressing significant industry issues, including the reduction counterparty risk minimization, reduction of settlement times, improvement of contractual term spectacle and enhanced regulatory reporting transparency.

Banks and venture capitalists have begun investing significantly in blockchain technology. We can envisage various stages of technology adoption, kicking off from an internal utilization within a bank to an intermediary stage where capital markets participants run private (permissioned) blockchains until regulation or legislation catches up and defines a fresh industry technology standard.

Related video:

Blockchain: opportunities and challenges – Daily Planet

Blockchain: opportunities and challenges

Blockchain, a technology increasingly gaining attention, looks to hold much promise for climate-focused innovation.

As a public ledger-based technology, Blockchain has the potential to dramatically convert energy and supply chains through wise contracts, de-centralised infrastructure, and facilitating traceability and transparency. However, debate has been raised about some of the major challenges for Blockchain, including the large amount of energy needed for data processing, and the treating of privacy-sensitive data such as consumption, locations or financial transactions. We asked:

What opportunities and challenges do you see for Blockchain in your particular sector?

“De-centralised energy means that we’re all engaged in one of the fundamental issues of our age: how to eliminate greenhouse gases. By actively engaging in the way we generate and consume energy, we can collectively pass on a better world to our children and grandchildren.

Blockchain does pull us towards a peer-to-peer energy system. It permits us to buy and sell our own energy, working with our neighbours and community to create a cleaner, more socially equitable energy system. But it’s not the only way.

With blockchain, we rely on technology providers just as much as when we use a central database. The governance is different, but dependency remains. I don’t think we’ve yet truly fully understood how that governance will work. Until then, I’m watching blockchain but not committing wholeheartedly to it.”

Graham Oakes, Founder and Chief Scientist, UpSide Energy

“Wherever there are long supply chains or numerous companies involved in verifying and executing transactions, the promise of blockchain ledgers is to eliminate inefficiencies and middlemen to create cheaper, better services for customers.

We are already watching off-grid communities producing resilient, cost-effective solar energy and generating SolarCoins as added income. Communities in Australia and Brooklyn can transact solar violet wand inbetween prosumers, reducing grid congestion and achieving low carbon targets at the same time.

These are just two of the ways that companies are presently using blockchain to convert the customer practice around energy, and we are just at the beginning of what is possible.”

Molly Webb, Founder and CEO, Energy Unlocked

“One of the key assumptions is that Blockchain will make all elements of the current carbon market obsolete, but the very first step is connecting the various systems, knots and projects and ensuring we have key transaction data on a blockchain.

With time, cumbersome elements could be streamlined or substituted but we’ll need localised databases and verification. It will be about automation, not reduction in governance. There is no one blockchain or definitive system that has been built. It’s a set of technological devices we must put together for each case to address the problems of the users, and then build on these.

Incorporating jurisdiction/timestamp is five to six years away as it needs to be built from the bottom up, incorporating and bridging the sub, national and regional levels in order to build one big blockchain.”

Katherine Foster, Co-Founder and Director for International Collaboration, Institute for Distributed Technology

Related video:

Blockchain is dead, long live the Blockchain – Chris Skinner – s blog

Blockchain is dead, long live the Blockchain

I’ve noticed a fine deal of schadenfreude related to the R3 bump. Lots of people telling that blockchain is past its sell-by date, R3 are bust and distributed ledgers are dead. I think it’s related to the journalists who, having delighted in bigging up blockchain big time for the past two years are now relishing the idea of trashing it but come on guys, blockchain is far from dead. It’s just entered the trough of disillusionment.

For those unacquainted with that term, it’s from the Crossing the Chasm book that defined the hype cycle of technologies.

Often a technology is perceived to be massive but, because we over estimate how quick it will take off, we get disillusioned with the fact that nothing much is happening and so we commence to feel it’s not going to happen. Everything goes quiet and then, a few years later, we abruptly go wow, look at this shiny fresh thing that’s switched the world.

We eyed this with the internet (a boom and bust and boom); mobile (it’s only for yuppies but now I can’t live without one); and the PC (who needs a computer in the home?). We’ll see this with blockchain and, like those previous technologies, it will fulfil the Bill Gates quote of over estimating the speed and underestimating the influence this technology will have.

R3 has gotten into bumpy waters because they’ve open sourced Corda https://www.corda.net/ , their distributed ledger system. Some of the original members hoped to get a good comeback on their investment and don’t believe they will get that from an open sourced system, so they’ve left. So what? It doesn’t take away the value, intent or concentrate that Corda and R3 are bringing to financially distributed ledgers.

I liken it to bitcoin. So many people embarked with an argument over bitcoin itself – it’s bad, it’s for money launderers and paedophiles, it’ll ruin the world. I was and am one of those people and still believe that bitcoin is bad until it has a governance model. Now the bitcoin community is creating that model, and so maybe bitcoin is good.

Then we went through bitcoin is bad but blockchain is good for about a year. That’s also switching as we’ve gone from blockchain is good to blockchain is also bad. This is not just because of R3, but the DAO hack and Ethereum hard forks have not helped. These, combined with the general issues around bitcoin, have all led to a view that collective ledgers and digital currencies will fail. Wrong.

As I blogged the other day about a global network needs global finance, it also needs a global currency long term. And it needs global databases for identity management and value exchange. It is all happening and it is all transformational and hugely impactful when it does. It’s just going to take a lot longer to make it happen than the naïve media believed when they got all excited about blockchain in the very first place.

Just to put that in context, I’m reproducing a blog from just over a year ago …

I’m often asked how quickly the switches I outline will take place, and my reaction is inbetween ten and twenty years. The building of the real-time, almost free financial network on the internet using blockchain and mobile will take about a decade at least before it becomes mainstream. Oh, some go. That’s a way off. Can we talk about something happening sooner?

That’s an interesting reaction, as sure we could talk about how Apple See Payment apps aren’t working or the big deal with Pursue Pay, but c’mon. I’m not talking about incremental innovations here, but fundamental ones. The rebuilding of the entire financial markets using collective ledgers. The inclusion of seven billion people in the financial network through mobile. Those are the big ticket items. Another user of Stripe is interesting, but it’s not the massive switch we can see coming downstream.

So why is this fundamental switch going to take ten years, at least? Because that’s how long any major switch takes to become mainstream due to The Waterfall Effect.

The Waterfall Effect is exactly that: the cascade of flowing switch from idea to implementation to acceptance to mainstream; and you have to reminisce there are many players in play here. It starts with a fresh technology, such as the blockchain collective ledger protocol.

The technology then has to be built into something sturdy and fresh providers are created to innovate – Blockapps, Chain, Chainalysis, Choosecase, Circle, Coinbase, Consensys, Epihpyte, Erethreum, Eris, Ledger X, R3CEV, Ripple, Symbiont, Tradeblock and more – and to permit this technology to be adopted.

Then the large incumbent technology providers commence their programs to join these fresh innovators and bring them into an architecture that works for their bank clients. Some say the incumbent technology companies stir too slow. In fact, some believe that the real problem is not the banks’ legacy systems but their legacy providers, but hey, let’s not go there. Eventually, the providers get it, and adapt and adopt the technologies into their frameworks and architectures.

Eventually it’s ready for bank prime time.

Then that’s another story, as now the banks have to adapt and adopt the frameworks and architectures from their incumbent providers and innovative start-up fucking partners. That takes time, and different banks stir at different speeds dependent upon the use case and capability to switch.

Let’s say this has taken about six years, and that’s how long it’s taken to get collective ledgers from Satoshi Nakamoto’s white paper to serious use cases being adopted by banks as proof of concept (POC). That’s still a way off from POC to implementation and mainstream use. The latter is still 3-5 years away in many cases. For the sake of argument, let’s say it takes a decade to get from the white paper to mainstream incorporation.

OK, so now we’re getting somewhere, but we’re still not there as the corporations and consumers haven’t been touched yet. Often a bank can innovate and sometimes even innovate quick, but then their customers have to switch too. Corporates will adapt and adopt a technology that will reduce costs and improve straight through processing but, a bit like the banks and their incumbent technology providers, the corporates also have legacy systems and legacy providers who also have to adapt and switch.

Give that another five years and then, eventually, consumers can have the service. But do they want it? According to many of my bank friends, every time they update their bank apps with fresh features and switched interfaces, their Net Promoter Score (NPS) goes down. This is because 80% of customers don’t like switch. Shoot. So the consumer takes another year or two before they switch onto the fresh cheaper, quicker service. And hey. We’ve got there.

But this waterfall effect – fresh technology, start-up developers, incumbent providers, main markets of usage, clients of main market users and, eventually, customer of clients – means that nay major technology switch takes at least a decade to maybe three decades before it gets mainstream. After all, the mobile telephone was invented in one thousand nine hundred seventy three but took almost thirty years to become mainstream. We talk about how things are moving swifter – apps go viral in seconds – but these are things that stir once you’ve switched the underlying architecture, and that’s why ground-breaking switch takes decades. Once you’ve made the switch however, everything that sits on that underlying architecture can budge at light speed.

This is why the blockchain will take another decade before it is mainstream, as it’s switching the foundations, the rails, the roads of finance. It’s not just a bit of froth on the foundation, like most of the apps out there.

The blockchain is a foundation, not a bit of froth

Related video:

Blockchain for Finance Infographic – IBM Blockchain

IBM Global Financing uses

countries in which IGF provides technology financing services

USD forty three billion

IBM Global Financing

With a vast network of suppliers and fucking partners, IGF faces major challenges

around dispute resolution.

25,000+

disputes every year

USD one hundred million

in capital tied up

at any given time

USD 31,000

Without blockchain, participants in the transaction:

  • Lack end-to-end visibility, from invoice to cash
  • Utilize incompatible systems
  • Have no end-to-end view of progress of goods and payment
  • Have to launch a dispute to resolve issues
  • Waste time, tie up money and strain relationships

IGF Suppliers Playmates

Fucking partners

  • Products not delivered on time, incorrectly, or not delivered at all
  • Filed disputes to put payment on hold
  • Spent time investigating the missing products

Suppliers

  • Assumed task was over when products are shipped
  • Expected to be paid
  • Experienced a significant number of product delivery disputes
  • Resolving disputes costs time and resources

Traditional financiers

  • Could not monitor dispute interactions inbetween fucking partners and suppliers
  • Incapable to help resolve issues

IBM Global Financing diminished time spent resolving financial disputes by 75% using blockchain technology

Blockchain is an immutable, collective ledger that provides needed

visibility across the business network

Providing comprehensive visibility across the entire transaction lifecycle permits stakeholders to

prevent or speed the resolution of disputes

IGF Suppliers Playmates

Blockchain provides:

Visibility

Utter details of the

dispute as it occurs

Efficiency

Productivity

Instant activity gets

work back on track

Cash flow

IBM Blockchain

  • Utilizes data available from suppliers to supply enhanced information to both suppliers and business playmates
  • Requires no code switches to core commercial financing system
  • Integrates blockchain into existing user interface
  • Enhances data & includes key information regarding status which minimizes disputes
  • Establishes a platform for competitive advantage

IBM Blockchain technology helped IGF save time and administrative costs.

Diminished time for

40+ days to <Ten days

Achieved

40% capital efficiency

All stakeholders realize

Invoicing with IGF on Blockchain

Order placed

PO is added to the blockchain

Transaction approved/rejected

Approved/rejected

IGF verifies approval on blockchain, provides credit

Shipment sent by supplier

All parties have insight into status

Invoice to IGF

Supplier submits invoice

IGF remittance to supplier initiated

IGF can verify goods have been shipped, pays supplier.

Proof of delivery

All participants can verify delivery

Payment due to IGF from fucking partner

Upon proof of delivery, IGF notifies fucking partner of payment due

Fucking partner remittance to IGF initiated

Playmate issues payment

If disputes arise, they can be quickly resolved by consulting the blockchain

1. Order placed by playmate

PO is added to the blockchain

Two. Transaction approved/rejected

Trio. Approved/rejected

IGF verifies approval on blockchain, provides credit

Four. Shipment sent by supplier

All parties have insight into status

Five. Invoice to IGF

Supplier submits invoice

6. IGF Remittance to supplier initiated

IGF can verify goods have been shipped, pays supplier.

7. Proof of delivery

All participants can verify delivery

8. Payment due to IGF from fucking partner

Upon proof of delivery, IGF notifies fucking partner of payment due

9. Playmate remittance to IGF initiated

Playmate issues payment

If disputes arise, they can be quickly resolved by consulting the blockchain

Related video:

Blockchain Europe: Utilities pilot peer-to-peer energy trading, Engerati – Energy Retail

Blockchain Europe: Utilities pilot peer-to-peer energy trading

More than twenty European energy trading firms will conduct peer-to-peer trading in Europe’s wholesale energy market using blockchain technology.

2017 is turning into the year of the blockchain for the energy sector, with fresh projects across a range of use cases emerging with enhancing regularity.

Indicative of the extent of activity now under way, there are presently some forty startups operating globally in the energy blockchain, according to David Groarke, Managing Director of Indigo Advisory Group, who is tracking the space.

However, the technology is presently too slow to treat real-time market requirements and still needs to mature, which the core developer network estimate to be two to five years away.

Groarke points to two key differences for blockchain in the energy sector compared with the financial services sector, where the technology is also advancing rapidly.

One is the higher output volume, e.g. 1m transactions per 2nd, to make IoT applications a reality. The 2nd is around privacy concerns with the likelihood of permissioned-based blockchains emerging due to national, regulatory and privacy concerns.

With their concentrate on standards and interoperability, these are areas where consortia such as the Energy Web Foundation and the recently formed cross-industry Enterprise Ethereum Alliance should play a role.

P2P trading platform

Pilot projects are another essential step in this process and what promises to be one of the largest, at least in terms of the number of participants, is now under development in Europe.

In November 2016, the German energy software and IT services provider Ponton demonstrated a blockchain European energy trade at the EMART event. Following this, twenty three energy trading firms in the region have joined compels in order to undertake peer-to-peer trading on an enhanced version of the platform.

Ponton’s Enerchain framework permits trading organisations to anonymously send orders to a decentralised orderbook using encryption technology, which can be hit by other trading organisations, i.e. peer-to-peer without a central marketplace operated by a third party.

“The project practically shows the power of the blockchain by creating a marketplace that does not require a physically centralised platform,” explains Michael Merz, Managing Director of Ponton.

“Enerchain demonstrates what can be expected for the future in related areas of energy trading: peer-to-peer wholesale trading, plasticity trading in the regional grid, and synchronising grid management processes inbetween TSOs and DSOs.”

Blockchain Europe – collaboration

Among the companies supporting the project are major players including EDF, Endesa, Eneco, Engie, Enel, E.ON, Iberdrola, Vattenfall and RWE.

Others include Alpiq and Axpo Trading from Switzerland, Salzburg AG from Austria, and Arge Netz, BKW, Capital Stage, ES.FOR.IN, Leipziger Stadtwerke and Uniper from Germany, as well as the hydropower company Statkraft and oil and gas giant Total.

These participants have committed to share the required development costs for a proof of concept with a full-scale prototype which is integrated into their existing trading infrastructure and supports a decentralised credit limit solution required for bilateral trading.

The multitude of the participants is reflected in the broad range of traded products, including forward trades, spot trades, flow kinks and more exotic trades – all with physical delivery – as well as the concentrate on regional markets, states Ponton in a statement.

The aim is for Enerchain to support a broad range of energy products, including day-ahead, monthly, quarterly and yearly baseload for power and gas.

During the proof of concept, which will run until the end of 2017, participants will get significant exposure to the blockchain technology and find out whether a decentralised solution can support the trading volumes and transactional speed known from existing markets.

A crucial phase of the project will be during the fourth quarter when participants intend to embark live trading on Enerchain.

Enerchain is powered by the open source blockchain engine, Tendermint.

Blockchain for system operators

Blockchain is expected to be a key technology for the future digital transmission and distribution system operators (TSOs, DSOs) in Europe.

Several projects are targeting this area. For example, in Austria Wien Energie has launched a pilot to test blockchain for gas trading.

The TSO TenneT has launched pilots in Germany and the Netherlands to explore the integration of storage and electrified vehicles to provide plasticity to the grid with a blockchain-based solution.

Another project exploring plasticity for the German market is the Fresh Four.0 (Norddeutsche Energiewende – northern German energy revolution), of which Ponton is also a participant.

Fresh Four.0 aims at balancing production and consumption locally in the Schleswig-Holstein and Hamburg region – the former being one of the largest net exporting regions for renewable energy and the latter a fat consumer right nearby. Due to grid capacity constraints, an enlargening share of generation capacity has to be shed in high stream situations.

Ponton is developing a wise marketplace to link plasticity providers and grid operators.

Ponton also says it is working at the request of a group of Austrian DSOs on a “radically fresh technology” to synchronise the grid balancing activities of TSOs, DSOs and aggregators.

The solution is yet to be tested in the field, but stated results of simulations include an integrated process that coordinates requesting of balancing power inbetween TSOs, DSOs, aggregators and generation units within seconds and a reduction in the settlement time from more than a month to just fifteen minutes.

Related video:

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