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A new technology is redefining the way we transact. If that sounds incredibly far-reaching, that's because it is.

Blockchain has the potential to change the way we buy and sell, interact with government and verify the authenticity of everything from property titles to organic vegetables.

It combines the openness of the internet with the security of cryptography to give everyone a faster, safer way to verify key information and establish trust.

Scroll down to
explore Blockchain
Chapter 01 What is Blockchain?

Chapter 01

What is Blockchain?

01

Blockchain technology was originally developed as part of the digital currency Bitcoin. But the two are not the same. Blockchain can support a wide range of applications, and it's already being used for peer-to-peer payment services, supply chain tracking and more.

Transaction_01
Address ljfj5721sfxx2312g2q
Size 136 Bytes
Lock Time Block: 2982385
Received 2016-09-28 14:35:01
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01
Transaction
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A Digital Record

At its heart, a blockchain is a record of transactions, like a traditional ledger. These transactions can be any movement of money, goods or secure data—a purchase at a supermarket, for example, or the assignment of a government ID number.

Secure

Blockchain is designed to store information in a way that makes it virtually impossible to add, remove or change data without being detected by other users.

Decentralized

Today, transactions are verified by a central authority—like a government or a credit card clearinghouse. Blockchain applications could replace these centralized systems with decentralized ones, where verification comes from the consensus of multiple users.

Chapter 02 How Does it Work?

Chapter 02

How Does it Work?

02

A blockchain needs to do two things: gather and order data into blocks, and then chain them together securely using cryptography.

Section A

Recording a Transaction

seller
buyer

Let's start with a simple transaction: Alice sells her car to Bill.

Transaction_02
Address 18px1vpncmsm7lu3cs79
Size 225 Bytes
Lock Time Block: 431928
Received 2016-09-25 12:59:25

The transaction information is recorded and shared with the other computers in the blockchain network.

Section B

Building Transactions into Blocks

Transaction_03
Address 18px1vpncmsm7lu3cs7
Size 225 Bytes
Lock Time Block: 431928
Received 2016-09-25 12:59:25

On the network, the record is combined with other transactions into a block—like a traditional computer database. Each transaction is time-stamped.

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MAR 6, 2017

7:38:27 PM

When a block is complete, it also gets its own time stamp. So all information is sequential, which helps avoid duplicate entries.

Section C

Connecting Blocks into a Chain

Into the Network

The completed block is sent out across the network, where it's appended to the chain.

Forming a Line

Other participants on the network may be sending out their own blocks at the same time.

But the time stamps ensure that data is added in the right order, and all participants have the latest version.

Securing the Chain

The key to a blockchain's security is something called a hash. It's a bit of cryptographic math that makes the links between blocks virtually unbreakable.

A hash function takes the information in each block and uses it to create the hash—a unique string of characters.

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Locking it Down

The hash from one block is added to the data in the next block.

So when the next block goes through the hash function, a trace of it is woven into the new hash.

And so on, throughout the chain.

Raising the Alarm

So if there's any attempt to alter a previously created block, the hash that's encoded in the next block won't match up anymore.

This mismatch will continue through all subsequent blocks denoting an alteration in the chain.

Establishing Trust

Since all participants have a copy of the entire blockchain, they can detect any tampering.

So when the hashes match up across the chain, all parties know that they can trust their records.

Chapter 03 Blockchain in Action

Chapter 03

Blockchain in Action

03

The technology is still new, but its potential is enormous. Here are some examples of how blockchain could hypothetically transform everyday transactions. Because blockchains establish trust, they provide a simple, paperless way to establish ownership of money, information and objects—like concert tickets.

Section A

Trusted Concert Tickets

Can You Trust Your Seller?

It's hard to tell real tickets from counterfeits, especially if you bought them from a third-party website or a private individual.

Going Straight to the Source

A blockchain can help buyers quickly establish that a ticket (and its seller) can be trusted.

TICKET_58

Artist
Venue
Date
Time
Section Row Seat
Barcode
seller
buyer

The event venue registers the event, date and serial number of each ticket to a blockchain, which is accessible online.

When the ticket is first sold, it's assigned an address—a string of data which is publicly viewable on the blockchain.

The owner is given a private key, which is a hash of the address data.

Address

18PX1VPNCMSM7LU3CS796CQLAXXNMMW

TICKET_58

Artist ALL-STAR BENEFIT CONCERT
Venue CITY ARENA
Date AUGUST 23, 2017
Time 7:30PM
Section Row Seat 44 R 9
Barcode 9771473968012

That key can be used to "unlock" the address.

So by producing the correct key, the buyer can prove the item is hers, without having to check with the event venue.

If she chooses to sell the ticket, it's assigned a new address, and the new owner gets a new private key. And the new transaction is added to the blockchain.

The ticket can be resold multiple times, and when a seller unlocks the address with his private key, the buyer knows the ticket he's getting is authentic.

Address

K9ND7WNMDFC8M29S0FM4XIW4J7SN3PL

18PX1VPNCMSM7LU3CS796CQLAXXNMMWU

Address

K9ND7WNMDFC8M29S0FM4XIW4J7SN3PL

S7961NMMLU3M7LM3CS799FPC3NG3NW1

Transaction_03 Transaction_03
Address S7961NMMLU3M7LM3CS799FPC3NG3NW1 S7961NMMLU3M7LM3CS799FPC3NG3NW1
Size 225 Bytes 225 Bytes
Lock Time Block: 431928 Block: 431928
Received 2016-09-28 12:59:01 2016-09-28 12:59:01

Section B

More Efficient Markets

ORD 104.12 104.12 110.25
VCW 145.29 145.29 140.31
GDW 100.55 100.55 90.65
RBRE 55.23 55.23 90.11
MQO 193.43 193.43 188.34
XVER 60.89 60.89 69.98
ERQ 90.40 90.40 20.12
BERA 74.01 74.01 103.98
WRE 29.81 29.81 32.12
POLW 24.65 24.65 3.90
LLRO 40.84 40.84 60.77
AANE 53.20 53.20 56.34
KOGR 206.37 206.37 225.12
JXI 41.09 41.09 68.09
IHAF 204.58 204.58 223.45
ARY 83.09 83.09 68.32
GGPE 304.53 304.53 323.37
QPO 90.34 90.34 89.32
NRM 78.00 78.00 104.30
YRAE 20.21 20.21 26.54
SRSM 63.92 63.92 70.56

Removing the Bottlenecks

In the financial markets, trades happen in a fraction of a second. But actually exchanging the assets and payments can take days, involving multiple banks and clearinghouses. That can lead to errors, delays, added costs and unnecessary risks.

Smart
Contract

{
 'id' : 'Transaction Amount',
 'type' : 'Expression',
 'value' : 'Cash Amount'
},{
 'id' : 'Agreement Date',
 'type' : 'Date',
 'value' : '30-Dec-2016'
}

A Contract Written in Code

A smart contract is a piece of computer code that describes a transaction step by step. It can connect to multiple blockchains, tracking multiple assets, so it can swap those assets as needed to execute the transaction.

GDW 100.55

A broker buys stock on behalf of a client. The order is placed.

It includes private keys from both buyer and seller.

broker
seller
buyer
Stock blockchain
Transaction_01 Transaction_01
Address ljfj5721sfxx2312g2q ljfj5721sfxx2312g2q
Size 136 Bytes 136 Bytes
Lock Time Block: 2982385 Block: 2982385
Received 2016-09-28 14:35:01 2016-09-28 14:35:01
Payment blockchain
Transaction_01 Transaction_01
Address ljfj5721sfxx2312g2q ljfj5721sfxx2312g2q
Size 136 Bytes 136 Bytes
Lock Time Block: 2982385 Block: 2982385
Received 2016-09-28 14:35:01 2016-09-28 14:35:01

Smart
Contract

{
    'id' : 'Transaction Amount',
    'type': 'Expression',
    'volume': 'Cast Amount'
}

That triggers the execution of a smart contract.

It connects to multiple blockchains.

It verifies the availability of the stock and the payment, and then makes the transfer between the seller and buyer.

Section C

Digital ID

Who Goes There?

Blockchain can track more than commercial transactions; it can also hold and protect sensitive information. For example, ID papers have traditionally been issued and monitored by governments. But digitally-issued identification via blockchain could be a more secure mechanism.

ID at Your Fingertips

An international ID blockchain, accessible anywhere in the world, allows people to prove their identity, connect with family members and even receive money without a bank account.

A person is fingerprinted.

The fingerprint is digitized and the information is added to the blockchain, along with her name and other key information.

When an entity needs to establish her identity, they fingerprint her again.

And that data can be used to unlock and verify her ID.

ID_ ID_
Name Jane Smith
DOB 12.09.1982
Location New York, NY
Birthplace Birmingham, AL
Marital Status Married

That key can be used to "unlock" the address.

So by producing the correct key, the buyer can prove the item is hers, without having to check with the event venue.

Chapter 04 Beyond the First Steps

Chapter 04

Beyond the First Steps

04

Blockchain's potential is real, but the technology is still in its early stages. Before it can be widely adopted, it will have to overcome a number of hurdles.

Are Businesses Ready for Blockchain?

For businesses, blockchain could be a radical departure from manual processes. And new costs and risks come with any new technology. Companies might be reluctant to make that leap.

MILESTONE 1
Companies begin piloting uses of blockchain technology.
MILESTONE 2
Global companies start adopting blockchain.
MILESTONE 3
Early adopters begin to benefit.
MILESTONE 4
Majority of corporations have blockchain projects in production.
MILESTONE 5
Widespread adoption of blockchain.

Are Blockchains Ready for Business?

Can the technology handle the high volume required for mainstream commercial work? Even the most established blockchain—the one used for Bitcoin—can only process five to eight transactions a second. Emerging blockchain software companies are working on solutions that could be competitive with credit card networks that already process nearly 10,000 times that volume.

[source: Interview with Goldman Sachs Research's Jim Schneider]

[source: Interview with Goldman Sachs Research's Jim Schneider]

Blockchain
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Credit Cards

Setting Boundaries

The transparency of blockchain has real benefits for regulators. But it's still a new technology, with no standardized implementation. Lawmakers will need time to resolve questions about liability and other legal issues.

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New Tech, New Threats

Blockchain is protected by business-grade cryptography, but no technology is 100% secure. And when large sums of money are involved, hackers will try to follow. So security concerns could also slow blockchain adoption.

Chapter 05 The Takeaway

Chapter 05

The Takeaway

05

Blockchain could be a revolution in the way everyone—businesses, governments, organizations and individuals—work together. It provides a simple, secure way to establish trust for virtually any kind of transaction, helping simplify the movement of money, products or sensitive information worldwide.

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It's a transformation that's already begun. And organizations—both the ones that it can help, and the middlemen at risk of disintermediation —will need to be prepared as the technology matures.

Source: Goldman Sachs

Click to continue
Address

A transaction's address is a string of letters and numbers that uniquely identify it. Addresses are publicly viewable on the blockchain.

Block

A database of information from multiple transactions, similar to a page in a ledger. Each block is time stamped, and those time stamps are used to order the blocks as they're added to the blockchain.

Hash

The hash, generated by the cryptographic hash function, is what makes the blockchain secure.

  • Each hash is unique to the block it came from
    —a kind of digital fingerprint of the original data.
  • This process only works in one direction: If you start with the
    hash, it’s nearly impossible to recreate the original block.
Hash Function

The hash function is a piece of cryptographic math. It takes regular data and generates a short alphanumeric code. The function works in one direction: it's easy to turn regular data into a hash, but nearly impossible to reconstruct the original data from the hash.

Private Key

A private key is a string of letters and numbers that works like a password: it "unlocks" a blockchain address, allowing one party in a transaction to establish ownership of money, items or information.

The private key is a hash of the transaction address.

Smart Contract

A smart contract is a computer program with a fixed set of rules that have been agreed to by both parties in a transaction. When triggered, it can work with multiple blockchains to execute those rules.

For example, in a stock transaction, it can access one blockchain that tracks stock ownership and another that tracks ownership of cash. That allows it to transfer stock to the buyer and cash to the seller.

Smart Contract

On the blockchain, a transaction is any movement of goods, payments or confidential data. That could be what we usually think of as a transaction—buying and selling—but it could also be someone sharing a piece of personal information (like a medical record), or the transfer of materials across a supply chain.

.