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Stanford​ ​University
Blockchain
A​ ​Technology​ ​with​ ​the​ ​Potential​ ​to​ ​Disrupt
By​ ​Christina​ ​Rentschler,​ ​Victor​ ​Gardrinier​ ​and​ ​Dean​ ​Rauschenbusch
Leading​ ​Trends​ ​in​ ​Information​ ​Technology​ ​-​ ​MS&E​ ​238
16th​ ​of​ ​August​ ​2017
Table​ ​of​ ​Contents
Introduction 3
Quick​ ​historical​ ​recap 4
Market​ ​opportunities 5
Notable​ ​Successes... 5
Bitcoin 5
Ethereum 6
…​ ​and​ ​Failures 7
How​ ​does​ ​the​ ​Blockchain​ ​work? 8
A​ ​Distributed​ ​Network 8
Public​ ​Key​ ​Encryption 9
Hashes​ ​and​ ​Merkle​ ​Trees 10
Proof​ ​of​ ​Work 11
Blocks​ ​and​ ​the​ ​Blockchain 12
Business​ ​and​ ​Social​ ​Benefits​ ​of​ ​Blockchain 13
Potential​ ​Applications 14
Internet​ ​of​ ​Things​ ​(IoT) 14
Supply​ ​Chain 16
Verification​ ​of​ ​the​ ​authenticity 19
Conclusion 20
Bibliography 21
2  
Introduction
“Every informed person needs to know about Bitcoin because it might be one of the
world’s​ ​most​ ​important​ ​developments.”​ ​Leon​ ​Luow,​ ​Nobel​ ​Peace​ ​prize​ ​nominee
“We have elected to put our money and faith in a mathematical framework that is free of
politics​ ​and​ ​human​ ​error.”​ ​Tyler​ ​Winklevoss,​ ​Co-founder​ ​of​ ​ConnectU,​ ​CEO​ ​of​ ​Gemini
Blockchain has been a “hot topic” in the last couple of years. Topics like AI, Big Data,
IoT, Blockchain and especially Bitcoin are buzzwords that tend to be overused and
sometimes overhyped by the general public. In this paper, the view we shall argue is
that tokens like Bitcoin and Ether only represent the tip of the iceberg: the Blockchain
technology exists outside of Bitcoin and even outside of any cryptocurrencies. As long
as transactions are made and third parties are involved, a disruptive innovation using
blockchain​ ​can​ ​be​ ​made.
As mentioned in Sapiens , by Yuval Noah Harari, money is a concept that only exist1
thanks to our imaginative behaviors. Money is not just coins and bills but actual trust. Its
value depends on our trust in the system. Harari explains that money is the most
pluralistic​ ​system​ ​of​ ​mutual​ ​trust​ ​ever​ ​devised.
Therefore for transactions to occur, users must trust the system. And that is where
blockchain really adds value. According to ​The Economist , the blockchain lets people2
who have no particular confidence in each other collaborate without having to go
through a neutral central authority. Simply put, it is a machine for creating trust, not only
for​ ​digital​ ​payments​ ​but​ ​for​ ​a​ ​wide​ ​array​ ​of​ ​services.
Taking this into account, we will first have a quick look at the history of blockchain, the
past successes and failures and the potential market opportunities for this particular
technology. Thereafter, a more in-depth analysis of the underlying technology will be
carried out to help understand the real added-value behind the buzzword. In a third part,
we’ll discuss the business and social consequences related to its use before analyzing
its​ ​potential​ ​applications​ ​in​ ​a​ ​modern​ ​society.
1
​ ​Harari,​ ​Yuval​ ​N.,​ ​et​ ​al.​ ​​Sapiens:​ ​a​ ​Brief​ ​History​ ​of​ ​Mankind​.​ ​Vintage​ ​Books,​ ​2015
2
​ ​“The​ ​Trust​ ​Machine.”​ ​​The​ ​Economist​,​ ​The​ ​Economist​ ​Newspaper,​ ​31​ ​Oct.​ ​2015
3  
Blockchain can be defined as “a digital ledger in which transactions made are recorded
chronologically and publicly” . ​As the name suggests, it is an irreversible chain of3
blocks, where each block contains a list of transactions. The latter is connected to the
transaction before and after it. The users agree on a shared ledger to prevent fraud and
inefficiencies. The network is distributed and works on a consensus-based approach to
remove any third parties and to prevent any system administrators from deleting or
modifying a valid transaction, or on the contrary, to integrate any fraudulent transaction
in​ ​the​ ​chain.
Quick​ ​historical​ ​recap
Ironically​ ​enough,​ ​the​ ​history​ ​of​ ​blockchain​ ​starts​ ​with​ ​Bitcoin.
Bitcoin was first mentioned in the now famous white paper, ​Bitcoin: A Peer-to-Peer
Electronic Cash System . In the latter, the one who goes by the name Satoshi4
Nakamoto introduced the idea of a cryptocurrency that could delete third party’s
involvement in digital payment transactions and prevent the reproduction of the digital
information​ ​or​ ​what​ ​we​ ​call​ ​“the​ ​double-spending​ ​problem”.
Mathematicians, computer-scientists and game-theorists then quickly realized that,
although Bitcoin had potential, the real treasure was residing in the underlying
technology now known as blockchain. Realizing that was the second main discovery in
the​ ​short​ ​but​ ​compacted​ ​“blockchain​ ​history”.
Introduced to the general public two years ago, Ethereum: the Bitcoin’s main rival in the
crypto world, has seen an incredible growth with more than “2,000 percent so far in
2017” .5
Without going into too many details, the Ethereum platform uses blockchain to create
peer to peer smart contracts. The official token is called Ether and was, quite ironically,
first mentioned in 2013 in a paper written by a Bitcoin programmer, Vitalik Buterin, in
response​ ​to​ ​the​ ​rigidity​ ​of​ ​the​ ​Bitcoin​ ​blockchain​ ​system.
The most recent innovation regarding the blockchain is the proof of stake. In a few
words, the proof of stake is set to replace the proof of work, an algorithm which currently
ensures the security of the blocks. Proof of stakes systems are expected to provide a
similar level of security without using such an incredible amount of computational
power.
3
​ ​“Blockchain​ ​-​ ​Definition​ ​of​ ​Blockchain​ ​in​ ​English​ ​|​ ​Oxford​ ​Dictionaries.”
4
​ ​​Nakamoto,​ ​Satoshi.​ ​“Bitcoin:​ ​A​ ​Peer-to-Peer​ ​Electronic​ ​Cash​ ​System.” 
5
​ ​“The​ ​History​ ​Of​ ​Ethereum,​ ​In​ ​One​ ​Infographic.”​ ​​Benzinga
4  
Market​ ​opportunities
Such​ ​a​ ​disruptive​ ​technology,​ ​although​ ​young,​ ​has​ ​shaken​ ​the​ ​market​ ​since​ ​its​ ​creation.
Blockchain killer apps (Bitcoin and Ethereum), are known to be extremely volatile and
risk-averse investors usually tend to avoid them. Early investors in Bitcoin or Ether
have experienced several crashes and recoveries per year. A crash in the stock price in
January could be followed by an incredibly fast recovery of the same cryptocurrency
reaching record price the month after that. As usually mentioned, investing in the
Blockchain cryptocurrencies is not for the faint-hearted. However, in the medium to long
term, those early investors who had the “stomach to hold onto their stakes have been
handsomely​ ​rewarded” .6
Betting on the NYSE Bitcoin Index level is not the only way to benefit from those
blockchain applications. Paying goods or services using Bitcoins in countries affected
by a colossal inflation can also be presented as an opportunity for investors. Countries
considered politically unstable are the most susceptible to suffer from inflation and
therefore​ ​benefit​ ​from​ ​the​ ​use​ ​of​ ​cryptocurrencies​ ​to​ ​transact.
Notable​ ​Successes...
Bitcoin
As​ ​previously​ ​mentioned,​ ​the​ ​Bitcoin​ ​blockchain​ ​is​ ​by​ ​far​ ​the​ ​most​ ​popular​ ​one.
Considered as the original “blockchain”, bitcoin has seen an incredible growth in terms
of market capitalization since its introduction in May 2013. Its market capitalization was
multiplied by almost 30 in four years, going from an initial value of 1.575 B$ to 44.58 B$
in​ ​June​ ​2017​ ​(see​ ​graph​ ​below).
6
​ ​“The​ ​History​ ​Of​ ​Ethereum,​ ​In​ ​One​ ​Infographic.”​ ​​Benzinga
5  
Graph​ ​1.​ ​Bitcoin​ ​Market​ ​cap​ ​and​ ​Price​ ​evolution​ ​-​ ​Highcharts.com
One can also note how volatile the price (USD) has been this year. Going from less
than​ ​1000​ ​USD$​ ​to​ ​almost​ ​2950​ ​USD$​ ​in​ ​a​ ​couple​ ​months.
Ethereum
Ethereum can be seen as an improved Bitcoin. Not only can it be considered as a digital
currency, using the Ether as a token, but it is also an open source software. The latter
allows the emergence of new blockchain-based businesses by facilitating the process of
creating blockchain applications. Instead of starting from scratch, Ethereum provides a
platform​ ​that​ ​allows​ ​one​ ​to​ ​build​ ​potentially​ ​thousands​ ​of​ ​new​ ​applications​ ​on​ ​top​ ​of​ ​it.
In other words, any business that is currently centralized can be decentralized using
Ethereum. Musicoin, which allows singers and musicians to license their works and
FirstBlood, a decentralized eSport reward platform are both built on top of the Ethereum
platform .7
Ethereum’s shares in the cryptocurrencies market has risen astronomically over the last
few years. From 3-5% in the beginning of 2017, it quickly rose to almost 30% in June
2017 . However, it is undeniable that its main weakness remains its tremendous8
volatility.​ ​​ ​A​ ​weakness​ ​that​ ​all​ ​blockchain-based​ ​cryptocurrencies​ ​seem​ ​to​ ​share.
7
​ ​Initiative,​ ​HBS​ ​Digital.​ ​“Will​ ​Ethereum​ ​Be​ ​the​ ​Platform​ ​That​ ​Successfully​ ​Brings​ ​Blockchain​ ​into​ ​the
Mainstream?”​ ​​Medium​,​ ​Digital​ ​Initiative​ ​Digest,​ ​7​ ​Mar.​ ​2017
8
​ ​Chaparro,​ ​Frank.​ ​“Ethereum's​ ​Share​ ​of​ ​the​ ​Cryptocurrency​ ​Market​ ​Has​ ​Exploded.”​ ​​Business​ ​Insider​,
Business​ ​Insider,​ ​13​ ​July​ ​2017
6  
The advent of the blockchain allowed many other companies to thrive. To pay in bitcoin,
one might use BitPay or Bitstamp. To get the latest news and market capitalization of
bitcoin or other cryptocurrencies, one might use coindesk, Coin telegraph or Bitcoin
news. If a new cryptocurrency startup wishes to raise capital without going to the
Venture Capitals or the traditional banks, it can do so via an ICO (Initial Coin Offering).
The early investors in this new startup will be rewarded in percentage of this new digital
currency​ ​in​ ​exchange​ ​for​ ​Bitcoin .9
…​ ​and​ ​Failures
Although the Blockchain technology offers a very secure distributed system, it is not
flawless and has been exposed to a few cyber attacks in the last decade . As of today,
the main pillars of the Blockchain are the digital currencies. According to the Financial
Times, cyber attacks targeting digital currency apps using blockchain “has left the
financial services industry wondering whether new blockchain technology can be made
secure​ ​enough​ ​from​ ​criminals” .10
Apart from the downturn in bitcoin and ether prices, the blockchain has known other
failures. The sudden failure of the biggest bitcoin exchange platform: Mt. Gox, in 2014
provoked the vanishing of more than 450 M$. Black hat hackers highlighted the
importance of security in cryptocurrency exchanges. Another significant hack was the
collapse of the DAO (decentralized autonomous organization) in June 2016 which
resulted in the DAO being delisted from major trading platform built on top of the
Ethereum​ ​platform​ ​(Poloniex,​ ​Kraken) .11
The blockchain ecosystem is flourishing as years pass. The number of players involved,
of applications created and of ICOs are key metrics that assess this positive evolution.
These impressive disruptions are mainly due to the blockchain technology in itself,
which​ ​we​ ​will​ ​analyze​ ​in​ ​more-depth​ ​in​ ​the​ ​next​ ​paragraph.
 
9
​ ​Momoh,​ ​Osi.​ ​“Initial​ ​Coin​ ​Offering​ ​(ICO).”​ ​​Investopedia​,​ ​3​ ​Aug.​ ​2017
10
​ ​Kuchler,​ ​Hannah.​ ​“Cyber​ ​Attacks​ ​Raise​ ​Questions​ ​about​ ​Blockchain​ ​Security.”​ ​​Financial​ ​Times​,​ ​12
Sept.​ ​2016
11
​ ​“The​ ​DAO​ ​(Organization).”​ ​​Wikipedia​,​ ​Wikimedia​ ​Foundation,​ ​9​ ​Aug.​ ​2017
7  
How​ ​does​ ​the​ ​Blockchain​ ​work?  
The Blockchain is a quiet complex concept with a vast array of applications. But to
understand its potential for the future one should try to understand its technical
foundation. The Blockchain uses a ​Distributed Network​, ​Encrypted Communication​,
Hashing to ensure uniqueness and ​Proof of Work to offer trustless consensus. This
section aims to explain those four key concepts and how they are used in the
Blockchain.
A​ ​Distributed​ ​Network
The Blockchain relies on the participation of a large network of computers that store a
local copy, also called ledger, of the Blockchain on their computers. Networks can be
set up in many different ways and, depending on the requirements, each type of
network has benefits and disadvantages. The Distributed Network Architecture that
Blockchains uses ensure that this system is extremely stable and cannot be controlled
or destroyed by a single computer or even a larger group of computers. As illustrated in
Fig. 1, a centralized network is very basic and therefor simple to set up. But there is a
single critical node that controls the entire system. Furthermore it is only working for
small networks as all the traffic has to go through the main node. A Decentralised
Network is more reliable as it has fewer critical nodes and not a single node which
would destroy the entire system. A Distributed Network on the other hand is extremely
reliable and stable once set up as there is not a single critical node and barely a
possibility​ ​to​ ​destroy​ ​the​ ​system​ ​with​ ​a​ ​bundle​ ​of​ ​nodes.
 
Figure​ ​1:​ ​Centralized​ ​vs​ ​Decentralized​ ​vs​ ​Distributed​ ​Networks 
8  
Public​ ​Key​ ​Encryption 
 
 
Figure​ ​2:​ ​Illustration​ ​of​ ​Public​ ​Key​ ​Encryption 
 
All critical communication in the Blockchain is encrypted and verified. The Blockchain
usually uses Public Key encryption which is illustrated in FIgure 2. Every node in the
network owns a private and a public key. Each pair of keys is entangled with one
another. That means, that if the private key encrypts only the public key can decrypt and
vice versa. Every node makes their public key publicly available and tags it with their ID
so that everyone knows who it belongs to. Now packages can be send encrypted
through the network. Lets use the example of Bob and Jane from Fig 2. to give an
example. In order for Bob to encrypt his message to Jane, he takes her public key and
locks the message with it. If Bob now sends it to Jane, only she would be able to
decrypt the message. The problem is, that she is not able to verify where this message
came from. So what Bob also does is, that he encrypts his message with his own
private key. Having encrypted it with his private key and Janes public key, Jane now
can open the message with Bobs public key to see if he was the one who locked it and
then decrypt it with her private key to view the message. This is a simple explanation of
how​ ​encryption​ ​usually​ ​is​ ​handled​ ​on​ ​the​ ​Blockchain.12
 
 
12
​ ​Public​ ​Key​ ​Cryptography​ ​-​ ​Computerphile.​ ​Computerphile,​ ​22​ ​July​ ​2014
9  
Hashes​ ​and​ ​Merkle​ ​Trees 
What is hashing? To put it into simple words it is just a way of transforming a string of
words into a long sequence of characters and numbers which seem to be complete
gibberish.
 
Figure​ ​3:​ ​Illustration​ ​of​ ​how​ ​hashing​ ​ensures​ ​unique​ ​Hashes​ ​for​ ​Inputs 
 
As Figure 3 shows, these hashes that are being generated are unique (in the huge
majority of cases) and can therefore act like a unique ID to a string without actually
revealing anything about it. The concept of using hash values by itself would not be very
useful in the Blockchain, but in combination with Merkle Trees it becomes a vital
component of the technology. So in the Blockchain every single transaction is sent
through​ ​a​ ​hash​ ​function​ ​to​ ​create​ ​its​ ​unique​ ​hash​ ​value.
A Merkle Tree applies the concept of hash values to many transactions and results in a
single hash value which is dependent on every previous hash. It does it by inserting
pairs of hashes into a hash function until there is only a single hash left, the so called
Merkle Hash. So if anyone tries to change a previous transaction it will be directly
visible,​ ​since​ ​this​ ​will​ ​change​ ​the​ ​big​ ​Merkle​ ​Hash.
 
 
 
 
 
 
 
 
 
 
10  
Proof​ ​of​ ​Work 
The last major concept involved in the Blockchain that this paper will cover is the idea
behind​ ​Proof​ ​of​ ​Work.​ ​It​ ​is​ ​the​ ​missing​ ​part​ ​in​ ​a​ ​Block​ ​that​ ​we​ ​have​ ​not​ ​covered​ ​yet.
 
Figure​ ​4:​ ​Illustration​ ​of​ ​the​ ​Proof​ ​of​ ​Work​ ​process
 
The Proof of Work is basically a very complex mathematical problem which is sent into
the network to be solved. The problem is so complex, that it has to be solved using
brute force which requires a huge amount of CPU power. And even with a large CPU,
one is not guaranteed to solve the Proof of Work. In the Blockchain, this Proof of Work
uses the hash from the previous block in the Blockchain, the Merkle Hash of all the
transactions in the new block and a temporary Nonce Value (Hash). These three
hashes in addition with a Proof of Work Hash need to result in a certain number. An
example could be something that starts with five 0’s. This is enormously difficult to
compute. The first node to calculate this Proof of Work Hash gets to add the Block to
the Blockchain and gets a reward since it is very expensive (energy cost) to compute
such complex problems. Since the PoW problem can only be tackled by Brute force and
can be tackled by every node in the network it is not possible to be sure, that one will be
able to add a new Block to the Blockchain which destroys the incentive of manipulating
the​ ​Blocks​ ​in​ ​any​ ​way.
 
 
 
 
 
 
 
 
 
 
11  
Blocks​ ​and​ ​the​ ​Blockchain 
The Blockchain is a ledger which records all the transactions in a highly secure and
incorruptible way and stores those on each node in the distributed network making it
very reliable and democratic. It does this by
creating so called Blocks. Any node in the network
can attempt to create and add a Block to the
Blockchain.
A Block contains a list of transactions which are
gathered from the ether of transactions that haven’t
been formally verified and recorded in the ledger
yet. This list of transactions is then hashed through
the Merkle Tree leading to a Merkle Hash of all
these transactions. The Block furthermore contains
the Hash of the latest Block that has been added to
the Blockchain as well as a Nonce Value which is
needed to compute the Proof-of-Work Hash which
in return will be the unique Hash of this Block. This
puzzle is sent out to be solved and once a node in
the network finds the correct Hash this Block of
transactions​ ​is​ ​added​ ​to​ ​the​ ​Blockchain.
The Blocks can have a lot more information tags
depending on its implementation. Some of the
most common features are version information,
timestamps and information about the current
complexity​ ​of​ ​the​ ​network.
Since​ ​the​ ​Blockchain​ ​is​ ​only​ ​a​ ​technology,​ ​there
are​ ​many​ ​version​ ​of​ ​the​ ​Blockchain​ ​depending​ ​on
what​ ​it​ ​is​ ​used​ ​for​ ​specifically.​ ​One​ ​can​ ​almost​ ​see​ ​it
as​ ​some​ ​kind​ ​of​ ​operating​ ​system​ ​that​ ​runs​ ​the​ ​above​ ​applications​ ​namly​ ​Bitcoin,
Ethereum​ ​or​ ​similar.13
 
 
   
13
​ ​D'Aliessi,​ ​Michele.​ ​“How​ ​Does​ ​the​ ​Blockchain​ ​Work?”​ ​​Medium​,​ ​1​ ​June​ ​2016.
12  
Business​ ​and​ ​Social​ ​Benefits​ ​of​ ​Blockchain
After discussing the technical details and explaining the underlying components as well
as the mathematical concepts this subsection aims to bridge the technological aspects
to potential applications in the future. Basically the focus lies on the business point of
view to formulate general benefits generated by the technology and identify
characteristics which are responsible for the disruptive nature of the Blockchain
Technology.
Besides benefiting businesses, Blockchain technology also has social benefits, for
instance the increasing transparency empowers users and enables trustworthy
transactions between two parties. Thus the technology’s inherent transparency
characteristics has the potential to affect many different transaction processes where a
third party, the so called intermediary, was needed to build trust between two opposed
parties with diverging interests, where the intermediary ensured the correct execution of
a defined task. With Blockchain Technology the intermediary gets obsolete because
cryptographic characteristics and transparency secure a trustless two-party exchange,
which in essence describes the need for trusting the technology but not necessarily the
participants in the process . As a result users are empowered and have the opportunity14
to control their information and transactions themselves. All these aspects are mostly
supported through the application of a consensus mechanism in a distributed network
with​ ​direct​ ​communication​ ​and​ ​redundant​ ​stored​ ​information.15
On the business side a durable and reliable transaction system is achieved. Enabled by
the Blockchain’s underlying distributed topology in form of a peer-to-peer-network and
the replication of information within this network provides a highly available system,
mostly because it is very unlikely to crash the whole system and the failure of a single
node does not cause harm to the network and its functionality. Furthermore the data is
complete in every node, because the whole blockchain data is stored and replicated
across​ ​the​ ​network.16
As stated beforehand the users need to trust the technology or moreover the process’
integrity, which ensures an execution exactly as agreed between the parties. But not
14
​ ​Berg,​ ​Henry.​ ​“What​ ​Does​ ​It​ ​Mean​ ​That​ ​Bitcoin​ ​Is​ ​Trustless?”​ ​​Quora​,​ ​1​ ​Nov.​ ​2016
15
​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr.
2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017
16
​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr.
2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017
13  
only the execution also the immutability is secured by the protocol, thus tamper proof
records can be provided to a business. The immutability thereby relies on hash values
and Merkle Trees, which make it possible to detect frauds more easily, because only
one minor change in a block is leading to a totally different hash value of the block and
therefore also of the whole blockchain. Records and changes are visible to every
involved party and a risk reduction in businesses consisting of different parties can be
achieved.17
To conclude the Blockchains impact on businesses the simplified process should be
mentioned. Complex interactions through intermediaries are replaced with direct
communication and the recording of transactions in a secure public ledger which
support the efforts of companies to make their processes more time and cost efficient.
The opportunity to directly transact any kind of information to the counterpart at any time
can reduce cost through the loss of the intermediary and saves time because it does not
need​ ​to​ ​be​ ​processed​ ​by​ ​the​ ​third​ ​party.18
Potential​ ​Applications
The Blockchain Technology is often only associated with the finance industry and its
disruptive power in cryptocurrencies. The following section aims to show the
technology’s potential to change several industries and processes besides finance.
Therefore current problems and inefficiencies will be indicated and it is discussed how
the​ ​application​ ​of​ ​blockchain​ ​benefits​ ​these​ ​processes.
Internet​ ​of​ ​Things​ ​(IoT)
The Internet of Things (IoT) is a concept where physical objects are enhanced with
sensors, actuators and communication modules, to gather data and connect with other
devices as well as processing entities via the Internet Protocol (IP) to analyze and
obtain important information not accessible before. Through these information smart
devices can enhance our daily life in smart home applications, production process due
to​ ​the​ ​Industrial​ ​Internet​ ​of​ ​Things​ ​(IIoT)​ ​and​ ​driving​ ​experiences​ ​with​ ​connected​ ​cars.19
Besides the improvement achieved through the connectivity of the technology, a major
challenge is to deal with security aspects. Security, reliability and privacy issues need to
17
​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr.
2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017
18
​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr.
2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017
19
​ ​Chui,​ ​Michael,​ ​et​ ​al.​ ​“The​ ​Internet​ ​of​ ​Things.”​ ​​McKinsey​ ​&​ ​Company​,​ ​Mar.​ ​2010
14  
be addressed to secure IoT systems in homes, cars and factories and prevent
manipulation of processes and recorded data. This can be referred to the underlying
client-server-model. In a centralized network the IoT-devices are connected with the
cloud to process and store the produced data, because of the device’s limited
computational power. Furthermore single points of failure, where hackers can place
misleading algorithms and tamper data, need to be eliminated to prevent the corruption
of the whole system, which can cause serious financial damages or leads to dangerous
traffic​ ​situations.20
Blockchain can address these issues by offering a distributed network and resilient IoT
ecosystem, where IoT devices can be connected, their transactions processed and
historically recorded as well as their communication coordinated. Through the
elimination of a single point of failure it is easier to prevent the system from malicious
manipulations. Similar to the protected transactions in cryptocurrencies like Bitcoin data
flows within the Internet of Things can be tracked and secured in a tamper-proof public
ledger. Also in regards to the Industrial Internet of Things compliance and regulatory
requirements can be met due to the immutable record of transaction and
communication.21
Some companies are already working on combining their IoT solution with Blockchain
Technology to achieve a secure system. One example is IBM’s Watson IoT Platform
and its built-in capability to add IoT generated data to a private blockchain. The IoT
devices are connected to the Watson IoT Platform, which manages and analyzes the
received data. Moreover, it filters the data and translates its format to fit the blockchain
contracts API, so only the required information is sent to the IBM Blockchain. The latter
is a private blockchain, which replicates the device data into its distributed network and
runs transaction validation through the application of smart contracts. This enables a
transparent​ ​and​ ​protected​ ​sharing​ ​of​ ​device​ ​data​ ​among​ ​all​ ​involved​ ​business​ ​partner.22
At the end of May 2017 Toyota Research Institute announced to build a consortium with
several blockchain startups and research institutes to uncover the potential of using the
blockchain in the context of developing driverless or autonomous cars. They want to
determine ways to enable level 5 autonomous driving and moreover define use cases
regarding services all around driving, like toll payment and insurances. Their vision is to
make driving and testing data accessible for all players in the autonomous driving field
20
​ ​Banafa,​ ​Ahmed.​ ​“A​ ​Secure​ ​Model​ ​of​ ​IoT​ ​with​ ​Blockchain.”​ ​​OpenMind​,​ ​21​ ​Dec.​ ​2016
21
​ ​Banafa,​ ​Ahmed.​ ​“A​ ​Secure​ ​Model​ ​of​ ​IoT​ ​with​ ​Blockchain.”​ ​​OpenMind​,​ ​21​ ​Dec.​ ​2016;​ ​Compton,​ ​Jason.
“How​ ​Blockchain​ ​Could​ ​Revolutionize​ ​The​ ​Internet​ ​Of​ ​Things.”​ ​Forbes​ ​Magazine,​ ​27​ ​June​ ​2017
22
​ ​“Implement​ ​Your​ ​First​ ​IoT​ ​and​ ​Blockchain​ ​Project.”​ ​​IBM​ ​Watson​ ​IoT​ ​-​ ​Private​ ​Blockchain​,​ ​IBM
Corporation,​ ​2017
15  
by a secure and distributed ledger to reach the goal of autonomy faster while still
fulfilling safety aspects. The collaborating startup Oaken also mentioned the possibility
using the blockchain to store a digital identity of the vehicle and as result enabling
time-stamped​ ​location​ ​tracking.23
Supply​ ​Chain
“Global supply chains rely on a system that locks billions of dollars in a complex network
of​ ​intermediaries​ ​and​ ​financiers.”24
A supply chain is a process connecting different players to enable the production and
sale of a specific good for the costumer. It consists of raw material vendors, producers,
warehouses, distributors and retailers all interconnected and linked to each other with
the​ ​mutual​ ​goal​ ​to​ ​deliver​ ​the​ ​product​ ​to​ ​the​ ​customer.25
These interplays involving several different parties require, as stated in the quote above,
trustworthy, third parties, known as intermediaries to manage their complex interaction,
verify the authenticity of goods and guarantee proper transportation, storage and
manufacturing​ ​conditions.26
The main issue regarding supply chain is the question, if the process of complex
interaction via intermediaries can be somehow simplified by making the third party
obsolete. According to Wipro the supply chain comprises the connecting thread which
encapsulates certain, reoccurring problems. The following tasks need to be regarded
when managing a supply chain successfully, besides contracts, payments and logistics,
labeling,​ ​sealing​ ​as​ ​well​ ​as​ ​securing​ ​the​ ​process​ ​against​ ​counterfeiting​ ​and​ ​frauds.27
Knowing the benefits Blockchain can provide in terms of building a trusted process to
secure interactions between two parties might be the key to design a simpler supply
chain. Not only the Blockchain but also the Internet of Things, discussed in the previous
section, needs to be taken into account as illustrated in Figure 6. In combination these
concepts can enable a transparent view on the whole supply chain as well as its
traceability. Therefor goods need to be enhanced with sensors and communication
components to detect and communicate predefined measurements to the blockchain,
23
​ ​Prisco,​ ​Giulio.​ ​“Toyota,​ ​MIT​ ​Developing​ ​Blockchain-Based​ ​Project​ ​to​ ​Federate​ ​Data​ ​Generated​ ​by
Connected​ ​Cars.”​ ​​Crypto​ ​Insider​,​ ​25​ ​May​ ​2017
24
​ ​“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016
25
​ ​“Supply​ ​Chain.”​ ​​BusinessDictionary.com​,​ ​WebFinance​ ​Inc.
26
​ ​“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016
27
​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017
16  
where these information are shared between all involved parties and furthermore stored
immutably. Thereby trust between all participants can be supported and the business
partners​ ​can​ ​interact​ ​directly.28
Figure​ ​6:​ ​Illustration​ ​of​ ​a​ ​Supply​ ​Chain​ ​using​ ​IoT​ ​to​ ​connect​ ​to​ ​the​ ​Blockchain
IBM for instance teamed up with several industry partners to provide an IoT and
Blockchain solution to support the supply chain and transportation processes. One
partner is Maersk a global container shipping company and the other one is Walmart to
secure food safety in its supply chain. Both examples are outlined to display
opportunities​ ​achieved​ ​with​ ​the​ ​application​ ​of​ ​Blockchain.
On one hand Maersk as the world largest shipping company has to deal with a lot of
manual and analog paperwork during the transportation of goods. The supply and
transportation processes are currently inefficient in terms of non-digitized processes in
the shipment of containers and thereby highly reliable on timely human effort, because
the shipment documents have to pass many different hands which can lead to delays.
According to IBM a single shipment “can require sign-off from 30 unique organizations
and up to 200 communications” . In this process documents can get lost or overlook,29
which is why containers can stuck in ports, the whole supply chain is delayed and cost
are​ ​increasing.30
28
​ ​“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016;
“Implement​ ​Your​ ​First​ ​IoT​ ​and​ ​Blockchain​ ​Project.”​ ​​IBM​ ​Watson​ ​IoT​ ​-​ ​Private​ ​Blockchain​,​ ​IBM
Corporation,​ ​2017
29
​ ​“The​ ​Paper​ ​Trail​ ​of​ ​a​ ​Shipping​ ​Container.”​ ​IBM​ ​Corporation,​ ​3​ ​Mar.​ ​2017
30
​ ​Haswell​ ​&​ ​Storgaard.​ ​​Maersk​ ​and​ ​IBM​ ​Unveil​ ​First​ ​Industry-Wide​ ​Cross-Border​ ​Supply​ ​Chain​ ​Solution
on​ ​Blockchain​.​ ​5​ ​Mar.​ ​2017
17  
Through the application of blockchain the process can be digitized by keeping the
shipments transparent to all participants while still keeping up security aspects. The
whole container shipment is traceable at any time through a shared, distributed ledger,
recording all the supply chain events and information documented. The progress of a
shipping gets viewable due to the end-to-end-visibility and documents, like bill of lading
and customs status, get accessible in real time. The modification, deletion or appending
of information requires the consensus of the network. Which is why frauds and errors as
well as waste and costs can be reduced and as a result the whole process gets
improved.31
On the other hand Walmart utilizes the combination of Blockchain Technology and the
Internet of Things to guarantee food safety to its customer. Food retailers struggle with
the socalled food safety challenge. Occurring contamination outbreaks need to be
prevented or at least traceable to determine its source and thereby distinguish between
contaminated and non-contaminated chains or suppliers. In the past the process to
narrow down the possibilities to the responsible origin took too long and in the
meantime whole food segments could not be sold to the customer, which led to financial
losses of several suppliers and moreover good food was wasted, as seen in 2006 with
the spinach outbreak in the United States. If many foods contain one ingredient
depending​ ​on​ ​one​ ​supplier,​ ​this​ ​can​ ​lead​ ​to​ ​a​ ​serious​ ​domino​ ​effect.32
Walmart and IBM want to face this challenge by connecting every business partner
involved in the supply chain through the blockchain. Information about farming,
production, packaging and transportation should automatically be synchronized and
documented in the tamper-proof ledger of the blockchain, to enable tracking of
conditions as well as allow customers to have a traceable insight into were the product
came from. This can be achieved through using smart devices in the whole chain, which
are communicating with the blockchain and for instance temperature, location and
harmful​ ​conditions​ ​can​ ​be​ ​immutably​ ​stored.33
This approach also provides a way to prevent food frauds like the horse meat scandal
2013 in Europe, because the verification of authenticity is enabled. This aspect will be34
regarded​ ​in​ ​the​ ​next​ ​section.
31
​ ​Haswell​ ​&​ ​Storgaard.​ ​​Maersk​ ​and​ ​IBM​ ​Unveil​ ​First​ ​Industry-Wide​ ​Cross-Border​ ​Supply​ ​Chain​ ​Solution
on​ ​Blockchain​.​ ​5​ ​Mar.​ ​2017
32
​ ​Genius​ ​of​ ​Things:​ ​Blockchain​ ​and​ ​Food​ ​Safety​ ​with​ ​IBM​ ​and​ ​Walmart.​ ​IBM​ ​Watson​ ​IoT,​ ​16​ ​Feb.​ ​2017;
“Blockchain​ ​and​ ​Food​ ​Traceability​ ​Infographic.”​ ​IBM​ ​Corporation,​ ​2016
33
​ ​Genius​ ​of​ ​Things:​ ​Blockchain​ ​and​ ​Food​ ​Safety​ ​with​ ​IBM​ ​and​ ​Walmart.​ ​IBM​ ​Watson​ ​IoT,​ ​16​ ​Feb.​ ​2017;
“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016
34
​ ​Genius​ ​of​ ​Things:​ ​Blockchain​ ​and​ ​Food​ ​Safety​ ​with​ ​IBM​ ​and​ ​Walmart.​ ​IBM​ ​Watson​ ​IoT,​ ​16​ ​Feb.​ ​2017
18  
Verification​ ​of​ ​the​ ​authenticity
The verification of authenticity of goods and thereby the traceability of origins is one
major goal of applying supply chains and the food safety activities of Walmart and other
retailers. But many producers and retailers across industries struggle with counterfeiting
and​ ​trademark​ ​piracy.35
According to David Greenfield’s article ​Is Blockchain Coming to Manufacturing? “ 7-8
percent of global trade is comprised of counterfeit/pirated goods” . Currently, validation36
and verification of goods and services within the supply chain cannot be done in a
reliable way due to the lack of transparency. Not only can companies lose their
reputation but counterfeit products can set its user or consumer on health and safety
risks. Wipro wants to counteract the transparency issue and provide a reliable way to
verify goods by registering every product with a unique identifier and its key information
on the blockchain. Along the supply chain the authenticity is verified at every step and
information can be added to the blockchain. Through the tracking and traceability, the
originality​ ​of​ ​a​ ​product​ ​can​ ​be​ ​proven​ ​to​ ​the​ ​customer.37
Another blockchain-based application is provided by Project Provenance Ltd to support
retailers, producers, shoppers as well as partners like certification organizations or NGO
and build trust in products. Their goal is to provide customers a transparent view on
“origin, journey and impact” of the products they are buying and support businesses in38
enabling them to prove their competitive attributes like origin of ingredients or “impact
on environment and society” . Quality can be guaranteed and the authenticity of fair39
trade products or cloths can be proven through the secure, public ledger of blockchain
technology.40
For example to proof sustainability of tuna they started a pilot in Indonesia using
“mobile, blockchain technology and smart tagging” . The fisherman is registered and41
certified by a local NGO. When he catches tuna he is sending a simple SMS to register
its catch on the blockchain. Afterwards it gets transferred to the supplier and the
following steps on the supply chain. Every step is added to the existing information on
the​ ​block​ ​chain​ ​and​ ​a​ ​product​ ​history​ ​is​ ​created.42
35
​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017
36
​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017
37
​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017
38
​ ​“Every​ ​Product​ ​Has​ ​a​ ​Story.”​ ​Project​ ​Provenance​ ​Ltd,​ ​2017
39
​ ​“Every​ ​Product​ ​Has​ ​a​ ​Story.”​ ​Project​ ​Provenance​ ​Ltd,​ ​2017
40
​ ​“Every​ ​Product​ ​Has​ ​a​ ​Story.”​ ​Project​ ​Provenance​ ​Ltd,​ ​2017
41
​ ​“From​ ​Shore​ ​to​ ​Plate:​ ​Tracking​ ​Tuna​ ​on​ ​the​ ​Blockchain.”​ ​Project​ ​Provenance​ ​Ltd,​ ​15​ ​July​ ​2016
42
​ ​“From​ ​Shore​ ​to​ ​Plate:​ ​Tracking​ ​Tuna​ ​on​ ​the​ ​Blockchain.”​ ​Project​ ​Provenance​ ​Ltd,​ ​15​ ​July​ ​2016
19  
All in all the application of blockchain technology in the context of authenticity simplifies
verifying as well as proofing the originality of not only fair trade products, foods and
clothes​ ​but​ ​also​ ​files​ ​being​ ​unaltered.
Conclusion
 
Verification processes, Supply Chains and Internet of Things scenarios are exploiting
the capabilities the Blockchain Technology has to offer. Mostly because the blockchain
can provide secure transactions and communications between participants with
diverging interests. The blockchain stores information immutably and makes it
accessible for every participant, which enables a overall transparency and traceability of
actions.
The Internet of Things is just one of many sectors that could be disrupted by the
blockchain technology in the upcoming years or decades. Blockchain-News does an
incredible job at displaying the potential uses of Blockchain in different sectors. It
includes the Financial Sector with micro-finance, loan records and derivatives (forward
and futures contracts) as well as the Public Sector (Voting, Passport data, court
records..), the private one (storage of medical data, private contracts, HR records..) and
even​ ​extremely​ ​sensitive​ ​information​ ​such​ ​as​ ​nuclear​ ​codes .43
However, the Blockchain Technology still has to face a few challenges in the upcoming
years. Democratizing such a disruptive technology will take time. The example of
Bitcoin shows how complicated it is for a customer to shift from the traditional banking
system to a digital currency one. As we have seen, an incredible amount of
computational power is also required to validate the transactions. As the technology
gets more popular every day, the user base grows and the number of daily transactions
with it. To overcome this limitation, computer scientists often refer to blockchain scaling.
To prevent every computer in the distributed network to process every transaction, a
scaled blockchain would theoretically divide the work efficiently and without
compromising its security. Increasing the validation process would then allow
blockchain​ ​to​ ​widen​ ​its​ ​scope…​ ​but​ ​at​ ​what​ ​price? 
 
 
 
43
​ ​“Potential​ ​Uses​ ​of​ ​Blockchain.”​ ​​Blockchain​ ​News
20  
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23  

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Blockchain research paper

  • 1. Stanford​ ​University Blockchain A​ ​Technology​ ​with​ ​the​ ​Potential​ ​to​ ​Disrupt By​ ​Christina​ ​Rentschler,​ ​Victor​ ​Gardrinier​ ​and​ ​Dean​ ​Rauschenbusch Leading​ ​Trends​ ​in​ ​Information​ ​Technology​ ​-​ ​MS&E​ ​238 16th​ ​of​ ​August​ ​2017
  • 2. Table​ ​of​ ​Contents Introduction 3 Quick​ ​historical​ ​recap 4 Market​ ​opportunities 5 Notable​ ​Successes... 5 Bitcoin 5 Ethereum 6 …​ ​and​ ​Failures 7 How​ ​does​ ​the​ ​Blockchain​ ​work? 8 A​ ​Distributed​ ​Network 8 Public​ ​Key​ ​Encryption 9 Hashes​ ​and​ ​Merkle​ ​Trees 10 Proof​ ​of​ ​Work 11 Blocks​ ​and​ ​the​ ​Blockchain 12 Business​ ​and​ ​Social​ ​Benefits​ ​of​ ​Blockchain 13 Potential​ ​Applications 14 Internet​ ​of​ ​Things​ ​(IoT) 14 Supply​ ​Chain 16 Verification​ ​of​ ​the​ ​authenticity 19 Conclusion 20 Bibliography 21 2  
  • 3. Introduction “Every informed person needs to know about Bitcoin because it might be one of the world’s​ ​most​ ​important​ ​developments.”​ ​Leon​ ​Luow,​ ​Nobel​ ​Peace​ ​prize​ ​nominee “We have elected to put our money and faith in a mathematical framework that is free of politics​ ​and​ ​human​ ​error.”​ ​Tyler​ ​Winklevoss,​ ​Co-founder​ ​of​ ​ConnectU,​ ​CEO​ ​of​ ​Gemini Blockchain has been a “hot topic” in the last couple of years. Topics like AI, Big Data, IoT, Blockchain and especially Bitcoin are buzzwords that tend to be overused and sometimes overhyped by the general public. In this paper, the view we shall argue is that tokens like Bitcoin and Ether only represent the tip of the iceberg: the Blockchain technology exists outside of Bitcoin and even outside of any cryptocurrencies. As long as transactions are made and third parties are involved, a disruptive innovation using blockchain​ ​can​ ​be​ ​made. As mentioned in Sapiens , by Yuval Noah Harari, money is a concept that only exist1 thanks to our imaginative behaviors. Money is not just coins and bills but actual trust. Its value depends on our trust in the system. Harari explains that money is the most pluralistic​ ​system​ ​of​ ​mutual​ ​trust​ ​ever​ ​devised. Therefore for transactions to occur, users must trust the system. And that is where blockchain really adds value. According to ​The Economist , the blockchain lets people2 who have no particular confidence in each other collaborate without having to go through a neutral central authority. Simply put, it is a machine for creating trust, not only for​ ​digital​ ​payments​ ​but​ ​for​ ​a​ ​wide​ ​array​ ​of​ ​services. Taking this into account, we will first have a quick look at the history of blockchain, the past successes and failures and the potential market opportunities for this particular technology. Thereafter, a more in-depth analysis of the underlying technology will be carried out to help understand the real added-value behind the buzzword. In a third part, we’ll discuss the business and social consequences related to its use before analyzing its​ ​potential​ ​applications​ ​in​ ​a​ ​modern​ ​society. 1 ​ ​Harari,​ ​Yuval​ ​N.,​ ​et​ ​al.​ ​​Sapiens:​ ​a​ ​Brief​ ​History​ ​of​ ​Mankind​.​ ​Vintage​ ​Books,​ ​2015 2 ​ ​“The​ ​Trust​ ​Machine.”​ ​​The​ ​Economist​,​ ​The​ ​Economist​ ​Newspaper,​ ​31​ ​Oct.​ ​2015 3  
  • 4. Blockchain can be defined as “a digital ledger in which transactions made are recorded chronologically and publicly” . ​As the name suggests, it is an irreversible chain of3 blocks, where each block contains a list of transactions. The latter is connected to the transaction before and after it. The users agree on a shared ledger to prevent fraud and inefficiencies. The network is distributed and works on a consensus-based approach to remove any third parties and to prevent any system administrators from deleting or modifying a valid transaction, or on the contrary, to integrate any fraudulent transaction in​ ​the​ ​chain. Quick​ ​historical​ ​recap Ironically​ ​enough,​ ​the​ ​history​ ​of​ ​blockchain​ ​starts​ ​with​ ​Bitcoin. Bitcoin was first mentioned in the now famous white paper, ​Bitcoin: A Peer-to-Peer Electronic Cash System . In the latter, the one who goes by the name Satoshi4 Nakamoto introduced the idea of a cryptocurrency that could delete third party’s involvement in digital payment transactions and prevent the reproduction of the digital information​ ​or​ ​what​ ​we​ ​call​ ​“the​ ​double-spending​ ​problem”. Mathematicians, computer-scientists and game-theorists then quickly realized that, although Bitcoin had potential, the real treasure was residing in the underlying technology now known as blockchain. Realizing that was the second main discovery in the​ ​short​ ​but​ ​compacted​ ​“blockchain​ ​history”. Introduced to the general public two years ago, Ethereum: the Bitcoin’s main rival in the crypto world, has seen an incredible growth with more than “2,000 percent so far in 2017” .5 Without going into too many details, the Ethereum platform uses blockchain to create peer to peer smart contracts. The official token is called Ether and was, quite ironically, first mentioned in 2013 in a paper written by a Bitcoin programmer, Vitalik Buterin, in response​ ​to​ ​the​ ​rigidity​ ​of​ ​the​ ​Bitcoin​ ​blockchain​ ​system. The most recent innovation regarding the blockchain is the proof of stake. In a few words, the proof of stake is set to replace the proof of work, an algorithm which currently ensures the security of the blocks. Proof of stakes systems are expected to provide a similar level of security without using such an incredible amount of computational power. 3 ​ ​“Blockchain​ ​-​ ​Definition​ ​of​ ​Blockchain​ ​in​ ​English​ ​|​ ​Oxford​ ​Dictionaries.” 4 ​ ​​Nakamoto,​ ​Satoshi.​ ​“Bitcoin:​ ​A​ ​Peer-to-Peer​ ​Electronic​ ​Cash​ ​System.”  5 ​ ​“The​ ​History​ ​Of​ ​Ethereum,​ ​In​ ​One​ ​Infographic.”​ ​​Benzinga 4  
  • 5. Market​ ​opportunities Such​ ​a​ ​disruptive​ ​technology,​ ​although​ ​young,​ ​has​ ​shaken​ ​the​ ​market​ ​since​ ​its​ ​creation. Blockchain killer apps (Bitcoin and Ethereum), are known to be extremely volatile and risk-averse investors usually tend to avoid them. Early investors in Bitcoin or Ether have experienced several crashes and recoveries per year. A crash in the stock price in January could be followed by an incredibly fast recovery of the same cryptocurrency reaching record price the month after that. As usually mentioned, investing in the Blockchain cryptocurrencies is not for the faint-hearted. However, in the medium to long term, those early investors who had the “stomach to hold onto their stakes have been handsomely​ ​rewarded” .6 Betting on the NYSE Bitcoin Index level is not the only way to benefit from those blockchain applications. Paying goods or services using Bitcoins in countries affected by a colossal inflation can also be presented as an opportunity for investors. Countries considered politically unstable are the most susceptible to suffer from inflation and therefore​ ​benefit​ ​from​ ​the​ ​use​ ​of​ ​cryptocurrencies​ ​to​ ​transact. Notable​ ​Successes... Bitcoin As​ ​previously​ ​mentioned,​ ​the​ ​Bitcoin​ ​blockchain​ ​is​ ​by​ ​far​ ​the​ ​most​ ​popular​ ​one. Considered as the original “blockchain”, bitcoin has seen an incredible growth in terms of market capitalization since its introduction in May 2013. Its market capitalization was multiplied by almost 30 in four years, going from an initial value of 1.575 B$ to 44.58 B$ in​ ​June​ ​2017​ ​(see​ ​graph​ ​below). 6 ​ ​“The​ ​History​ ​Of​ ​Ethereum,​ ​In​ ​One​ ​Infographic.”​ ​​Benzinga 5  
  • 6. Graph​ ​1.​ ​Bitcoin​ ​Market​ ​cap​ ​and​ ​Price​ ​evolution​ ​-​ ​Highcharts.com One can also note how volatile the price (USD) has been this year. Going from less than​ ​1000​ ​USD$​ ​to​ ​almost​ ​2950​ ​USD$​ ​in​ ​a​ ​couple​ ​months. Ethereum Ethereum can be seen as an improved Bitcoin. Not only can it be considered as a digital currency, using the Ether as a token, but it is also an open source software. The latter allows the emergence of new blockchain-based businesses by facilitating the process of creating blockchain applications. Instead of starting from scratch, Ethereum provides a platform​ ​that​ ​allows​ ​one​ ​to​ ​build​ ​potentially​ ​thousands​ ​of​ ​new​ ​applications​ ​on​ ​top​ ​of​ ​it. In other words, any business that is currently centralized can be decentralized using Ethereum. Musicoin, which allows singers and musicians to license their works and FirstBlood, a decentralized eSport reward platform are both built on top of the Ethereum platform .7 Ethereum’s shares in the cryptocurrencies market has risen astronomically over the last few years. From 3-5% in the beginning of 2017, it quickly rose to almost 30% in June 2017 . However, it is undeniable that its main weakness remains its tremendous8 volatility.​ ​​ ​A​ ​weakness​ ​that​ ​all​ ​blockchain-based​ ​cryptocurrencies​ ​seem​ ​to​ ​share. 7 ​ ​Initiative,​ ​HBS​ ​Digital.​ ​“Will​ ​Ethereum​ ​Be​ ​the​ ​Platform​ ​That​ ​Successfully​ ​Brings​ ​Blockchain​ ​into​ ​the Mainstream?”​ ​​Medium​,​ ​Digital​ ​Initiative​ ​Digest,​ ​7​ ​Mar.​ ​2017 8 ​ ​Chaparro,​ ​Frank.​ ​“Ethereum's​ ​Share​ ​of​ ​the​ ​Cryptocurrency​ ​Market​ ​Has​ ​Exploded.”​ ​​Business​ ​Insider​, Business​ ​Insider,​ ​13​ ​July​ ​2017 6  
  • 7. The advent of the blockchain allowed many other companies to thrive. To pay in bitcoin, one might use BitPay or Bitstamp. To get the latest news and market capitalization of bitcoin or other cryptocurrencies, one might use coindesk, Coin telegraph or Bitcoin news. If a new cryptocurrency startup wishes to raise capital without going to the Venture Capitals or the traditional banks, it can do so via an ICO (Initial Coin Offering). The early investors in this new startup will be rewarded in percentage of this new digital currency​ ​in​ ​exchange​ ​for​ ​Bitcoin .9 …​ ​and​ ​Failures Although the Blockchain technology offers a very secure distributed system, it is not flawless and has been exposed to a few cyber attacks in the last decade . As of today, the main pillars of the Blockchain are the digital currencies. According to the Financial Times, cyber attacks targeting digital currency apps using blockchain “has left the financial services industry wondering whether new blockchain technology can be made secure​ ​enough​ ​from​ ​criminals” .10 Apart from the downturn in bitcoin and ether prices, the blockchain has known other failures. The sudden failure of the biggest bitcoin exchange platform: Mt. Gox, in 2014 provoked the vanishing of more than 450 M$. Black hat hackers highlighted the importance of security in cryptocurrency exchanges. Another significant hack was the collapse of the DAO (decentralized autonomous organization) in June 2016 which resulted in the DAO being delisted from major trading platform built on top of the Ethereum​ ​platform​ ​(Poloniex,​ ​Kraken) .11 The blockchain ecosystem is flourishing as years pass. The number of players involved, of applications created and of ICOs are key metrics that assess this positive evolution. These impressive disruptions are mainly due to the blockchain technology in itself, which​ ​we​ ​will​ ​analyze​ ​in​ ​more-depth​ ​in​ ​the​ ​next​ ​paragraph.   9 ​ ​Momoh,​ ​Osi.​ ​“Initial​ ​Coin​ ​Offering​ ​(ICO).”​ ​​Investopedia​,​ ​3​ ​Aug.​ ​2017 10 ​ ​Kuchler,​ ​Hannah.​ ​“Cyber​ ​Attacks​ ​Raise​ ​Questions​ ​about​ ​Blockchain​ ​Security.”​ ​​Financial​ ​Times​,​ ​12 Sept.​ ​2016 11 ​ ​“The​ ​DAO​ ​(Organization).”​ ​​Wikipedia​,​ ​Wikimedia​ ​Foundation,​ ​9​ ​Aug.​ ​2017 7  
  • 8. How​ ​does​ ​the​ ​Blockchain​ ​work?   The Blockchain is a quiet complex concept with a vast array of applications. But to understand its potential for the future one should try to understand its technical foundation. The Blockchain uses a ​Distributed Network​, ​Encrypted Communication​, Hashing to ensure uniqueness and ​Proof of Work to offer trustless consensus. This section aims to explain those four key concepts and how they are used in the Blockchain. A​ ​Distributed​ ​Network The Blockchain relies on the participation of a large network of computers that store a local copy, also called ledger, of the Blockchain on their computers. Networks can be set up in many different ways and, depending on the requirements, each type of network has benefits and disadvantages. The Distributed Network Architecture that Blockchains uses ensure that this system is extremely stable and cannot be controlled or destroyed by a single computer or even a larger group of computers. As illustrated in Fig. 1, a centralized network is very basic and therefor simple to set up. But there is a single critical node that controls the entire system. Furthermore it is only working for small networks as all the traffic has to go through the main node. A Decentralised Network is more reliable as it has fewer critical nodes and not a single node which would destroy the entire system. A Distributed Network on the other hand is extremely reliable and stable once set up as there is not a single critical node and barely a possibility​ ​to​ ​destroy​ ​the​ ​system​ ​with​ ​a​ ​bundle​ ​of​ ​nodes.   Figure​ ​1:​ ​Centralized​ ​vs​ ​Decentralized​ ​vs​ ​Distributed​ ​Networks  8  
  • 9. Public​ ​Key​ ​Encryption      Figure​ ​2:​ ​Illustration​ ​of​ ​Public​ ​Key​ ​Encryption    All critical communication in the Blockchain is encrypted and verified. The Blockchain usually uses Public Key encryption which is illustrated in FIgure 2. Every node in the network owns a private and a public key. Each pair of keys is entangled with one another. That means, that if the private key encrypts only the public key can decrypt and vice versa. Every node makes their public key publicly available and tags it with their ID so that everyone knows who it belongs to. Now packages can be send encrypted through the network. Lets use the example of Bob and Jane from Fig 2. to give an example. In order for Bob to encrypt his message to Jane, he takes her public key and locks the message with it. If Bob now sends it to Jane, only she would be able to decrypt the message. The problem is, that she is not able to verify where this message came from. So what Bob also does is, that he encrypts his message with his own private key. Having encrypted it with his private key and Janes public key, Jane now can open the message with Bobs public key to see if he was the one who locked it and then decrypt it with her private key to view the message. This is a simple explanation of how​ ​encryption​ ​usually​ ​is​ ​handled​ ​on​ ​the​ ​Blockchain.12     12 ​ ​Public​ ​Key​ ​Cryptography​ ​-​ ​Computerphile.​ ​Computerphile,​ ​22​ ​July​ ​2014 9  
  • 10. Hashes​ ​and​ ​Merkle​ ​Trees  What is hashing? To put it into simple words it is just a way of transforming a string of words into a long sequence of characters and numbers which seem to be complete gibberish.   Figure​ ​3:​ ​Illustration​ ​of​ ​how​ ​hashing​ ​ensures​ ​unique​ ​Hashes​ ​for​ ​Inputs    As Figure 3 shows, these hashes that are being generated are unique (in the huge majority of cases) and can therefore act like a unique ID to a string without actually revealing anything about it. The concept of using hash values by itself would not be very useful in the Blockchain, but in combination with Merkle Trees it becomes a vital component of the technology. So in the Blockchain every single transaction is sent through​ ​a​ ​hash​ ​function​ ​to​ ​create​ ​its​ ​unique​ ​hash​ ​value. A Merkle Tree applies the concept of hash values to many transactions and results in a single hash value which is dependent on every previous hash. It does it by inserting pairs of hashes into a hash function until there is only a single hash left, the so called Merkle Hash. So if anyone tries to change a previous transaction it will be directly visible,​ ​since​ ​this​ ​will​ ​change​ ​the​ ​big​ ​Merkle​ ​Hash.                     10  
  • 11. Proof​ ​of​ ​Work  The last major concept involved in the Blockchain that this paper will cover is the idea behind​ ​Proof​ ​of​ ​Work.​ ​It​ ​is​ ​the​ ​missing​ ​part​ ​in​ ​a​ ​Block​ ​that​ ​we​ ​have​ ​not​ ​covered​ ​yet.   Figure​ ​4:​ ​Illustration​ ​of​ ​the​ ​Proof​ ​of​ ​Work​ ​process   The Proof of Work is basically a very complex mathematical problem which is sent into the network to be solved. The problem is so complex, that it has to be solved using brute force which requires a huge amount of CPU power. And even with a large CPU, one is not guaranteed to solve the Proof of Work. In the Blockchain, this Proof of Work uses the hash from the previous block in the Blockchain, the Merkle Hash of all the transactions in the new block and a temporary Nonce Value (Hash). These three hashes in addition with a Proof of Work Hash need to result in a certain number. An example could be something that starts with five 0’s. This is enormously difficult to compute. The first node to calculate this Proof of Work Hash gets to add the Block to the Blockchain and gets a reward since it is very expensive (energy cost) to compute such complex problems. Since the PoW problem can only be tackled by Brute force and can be tackled by every node in the network it is not possible to be sure, that one will be able to add a new Block to the Blockchain which destroys the incentive of manipulating the​ ​Blocks​ ​in​ ​any​ ​way.                     11  
  • 12. Blocks​ ​and​ ​the​ ​Blockchain  The Blockchain is a ledger which records all the transactions in a highly secure and incorruptible way and stores those on each node in the distributed network making it very reliable and democratic. It does this by creating so called Blocks. Any node in the network can attempt to create and add a Block to the Blockchain. A Block contains a list of transactions which are gathered from the ether of transactions that haven’t been formally verified and recorded in the ledger yet. This list of transactions is then hashed through the Merkle Tree leading to a Merkle Hash of all these transactions. The Block furthermore contains the Hash of the latest Block that has been added to the Blockchain as well as a Nonce Value which is needed to compute the Proof-of-Work Hash which in return will be the unique Hash of this Block. This puzzle is sent out to be solved and once a node in the network finds the correct Hash this Block of transactions​ ​is​ ​added​ ​to​ ​the​ ​Blockchain. The Blocks can have a lot more information tags depending on its implementation. Some of the most common features are version information, timestamps and information about the current complexity​ ​of​ ​the​ ​network. Since​ ​the​ ​Blockchain​ ​is​ ​only​ ​a​ ​technology,​ ​there are​ ​many​ ​version​ ​of​ ​the​ ​Blockchain​ ​depending​ ​on what​ ​it​ ​is​ ​used​ ​for​ ​specifically.​ ​One​ ​can​ ​almost​ ​see​ ​it as​ ​some​ ​kind​ ​of​ ​operating​ ​system​ ​that​ ​runs​ ​the​ ​above​ ​applications​ ​namly​ ​Bitcoin, Ethereum​ ​or​ ​similar.13         13 ​ ​D'Aliessi,​ ​Michele.​ ​“How​ ​Does​ ​the​ ​Blockchain​ ​Work?”​ ​​Medium​,​ ​1​ ​June​ ​2016. 12  
  • 13. Business​ ​and​ ​Social​ ​Benefits​ ​of​ ​Blockchain After discussing the technical details and explaining the underlying components as well as the mathematical concepts this subsection aims to bridge the technological aspects to potential applications in the future. Basically the focus lies on the business point of view to formulate general benefits generated by the technology and identify characteristics which are responsible for the disruptive nature of the Blockchain Technology. Besides benefiting businesses, Blockchain technology also has social benefits, for instance the increasing transparency empowers users and enables trustworthy transactions between two parties. Thus the technology’s inherent transparency characteristics has the potential to affect many different transaction processes where a third party, the so called intermediary, was needed to build trust between two opposed parties with diverging interests, where the intermediary ensured the correct execution of a defined task. With Blockchain Technology the intermediary gets obsolete because cryptographic characteristics and transparency secure a trustless two-party exchange, which in essence describes the need for trusting the technology but not necessarily the participants in the process . As a result users are empowered and have the opportunity14 to control their information and transactions themselves. All these aspects are mostly supported through the application of a consensus mechanism in a distributed network with​ ​direct​ ​communication​ ​and​ ​redundant​ ​stored​ ​information.15 On the business side a durable and reliable transaction system is achieved. Enabled by the Blockchain’s underlying distributed topology in form of a peer-to-peer-network and the replication of information within this network provides a highly available system, mostly because it is very unlikely to crash the whole system and the failure of a single node does not cause harm to the network and its functionality. Furthermore the data is complete in every node, because the whole blockchain data is stored and replicated across​ ​the​ ​network.16 As stated beforehand the users need to trust the technology or moreover the process’ integrity, which ensures an execution exactly as agreed between the parties. But not 14 ​ ​Berg,​ ​Henry.​ ​“What​ ​Does​ ​It​ ​Mean​ ​That​ ​Bitcoin​ ​Is​ ​Trustless?”​ ​​Quora​,​ ​1​ ​Nov.​ ​2016 15 ​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr. 2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017 16 ​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr. 2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017 13  
  • 14. only the execution also the immutability is secured by the protocol, thus tamper proof records can be provided to a business. The immutability thereby relies on hash values and Merkle Trees, which make it possible to detect frauds more easily, because only one minor change in a block is leading to a totally different hash value of the block and therefore also of the whole blockchain. Records and changes are visible to every involved party and a risk reduction in businesses consisting of different parties can be achieved.17 To conclude the Blockchains impact on businesses the simplified process should be mentioned. Complex interactions through intermediaries are replaced with direct communication and the recording of transactions in a secure public ledger which support the efforts of companies to make their processes more time and cost efficient. The opportunity to directly transact any kind of information to the counterpart at any time can reduce cost through the loss of the intermediary and saves time because it does not need​ ​to​ ​be​ ​processed​ ​by​ ​the​ ​third​ ​party.18 Potential​ ​Applications The Blockchain Technology is often only associated with the finance industry and its disruptive power in cryptocurrencies. The following section aims to show the technology’s potential to change several industries and processes besides finance. Therefore current problems and inefficiencies will be indicated and it is discussed how the​ ​application​ ​of​ ​blockchain​ ​benefits​ ​these​ ​processes. Internet​ ​of​ ​Things​ ​(IoT) The Internet of Things (IoT) is a concept where physical objects are enhanced with sensors, actuators and communication modules, to gather data and connect with other devices as well as processing entities via the Internet Protocol (IP) to analyze and obtain important information not accessible before. Through these information smart devices can enhance our daily life in smart home applications, production process due to​ ​the​ ​Industrial​ ​Internet​ ​of​ ​Things​ ​(IIoT)​ ​and​ ​driving​ ​experiences​ ​with​ ​connected​ ​cars.19 Besides the improvement achieved through the connectivity of the technology, a major challenge is to deal with security aspects. Security, reliability and privacy issues need to 17 ​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr. 2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017 18 ​ ​Boersma​ ​&​ ​Bulters.​ ​“Blockchain​ ​Technology:​ ​9​ ​Benefits​ ​&​ ​7​ ​Challenges.”​ ​​Deloitte​ ​Nederland​,​ ​5​ ​Apr. 2017;​ ​Bashir,​ ​Imran.​ ​“Benefits​ ​and​ ​Limitations​ ​of​ ​Blockchain.”​ ​Packt​ ​Publishing​ ​Ltd.,​ ​2017 19 ​ ​Chui,​ ​Michael,​ ​et​ ​al.​ ​“The​ ​Internet​ ​of​ ​Things.”​ ​​McKinsey​ ​&​ ​Company​,​ ​Mar.​ ​2010 14  
  • 15. be addressed to secure IoT systems in homes, cars and factories and prevent manipulation of processes and recorded data. This can be referred to the underlying client-server-model. In a centralized network the IoT-devices are connected with the cloud to process and store the produced data, because of the device’s limited computational power. Furthermore single points of failure, where hackers can place misleading algorithms and tamper data, need to be eliminated to prevent the corruption of the whole system, which can cause serious financial damages or leads to dangerous traffic​ ​situations.20 Blockchain can address these issues by offering a distributed network and resilient IoT ecosystem, where IoT devices can be connected, their transactions processed and historically recorded as well as their communication coordinated. Through the elimination of a single point of failure it is easier to prevent the system from malicious manipulations. Similar to the protected transactions in cryptocurrencies like Bitcoin data flows within the Internet of Things can be tracked and secured in a tamper-proof public ledger. Also in regards to the Industrial Internet of Things compliance and regulatory requirements can be met due to the immutable record of transaction and communication.21 Some companies are already working on combining their IoT solution with Blockchain Technology to achieve a secure system. One example is IBM’s Watson IoT Platform and its built-in capability to add IoT generated data to a private blockchain. The IoT devices are connected to the Watson IoT Platform, which manages and analyzes the received data. Moreover, it filters the data and translates its format to fit the blockchain contracts API, so only the required information is sent to the IBM Blockchain. The latter is a private blockchain, which replicates the device data into its distributed network and runs transaction validation through the application of smart contracts. This enables a transparent​ ​and​ ​protected​ ​sharing​ ​of​ ​device​ ​data​ ​among​ ​all​ ​involved​ ​business​ ​partner.22 At the end of May 2017 Toyota Research Institute announced to build a consortium with several blockchain startups and research institutes to uncover the potential of using the blockchain in the context of developing driverless or autonomous cars. They want to determine ways to enable level 5 autonomous driving and moreover define use cases regarding services all around driving, like toll payment and insurances. Their vision is to make driving and testing data accessible for all players in the autonomous driving field 20 ​ ​Banafa,​ ​Ahmed.​ ​“A​ ​Secure​ ​Model​ ​of​ ​IoT​ ​with​ ​Blockchain.”​ ​​OpenMind​,​ ​21​ ​Dec.​ ​2016 21 ​ ​Banafa,​ ​Ahmed.​ ​“A​ ​Secure​ ​Model​ ​of​ ​IoT​ ​with​ ​Blockchain.”​ ​​OpenMind​,​ ​21​ ​Dec.​ ​2016;​ ​Compton,​ ​Jason. “How​ ​Blockchain​ ​Could​ ​Revolutionize​ ​The​ ​Internet​ ​Of​ ​Things.”​ ​Forbes​ ​Magazine,​ ​27​ ​June​ ​2017 22 ​ ​“Implement​ ​Your​ ​First​ ​IoT​ ​and​ ​Blockchain​ ​Project.”​ ​​IBM​ ​Watson​ ​IoT​ ​-​ ​Private​ ​Blockchain​,​ ​IBM Corporation,​ ​2017 15  
  • 16. by a secure and distributed ledger to reach the goal of autonomy faster while still fulfilling safety aspects. The collaborating startup Oaken also mentioned the possibility using the blockchain to store a digital identity of the vehicle and as result enabling time-stamped​ ​location​ ​tracking.23 Supply​ ​Chain “Global supply chains rely on a system that locks billions of dollars in a complex network of​ ​intermediaries​ ​and​ ​financiers.”24 A supply chain is a process connecting different players to enable the production and sale of a specific good for the costumer. It consists of raw material vendors, producers, warehouses, distributors and retailers all interconnected and linked to each other with the​ ​mutual​ ​goal​ ​to​ ​deliver​ ​the​ ​product​ ​to​ ​the​ ​customer.25 These interplays involving several different parties require, as stated in the quote above, trustworthy, third parties, known as intermediaries to manage their complex interaction, verify the authenticity of goods and guarantee proper transportation, storage and manufacturing​ ​conditions.26 The main issue regarding supply chain is the question, if the process of complex interaction via intermediaries can be somehow simplified by making the third party obsolete. According to Wipro the supply chain comprises the connecting thread which encapsulates certain, reoccurring problems. The following tasks need to be regarded when managing a supply chain successfully, besides contracts, payments and logistics, labeling,​ ​sealing​ ​as​ ​well​ ​as​ ​securing​ ​the​ ​process​ ​against​ ​counterfeiting​ ​and​ ​frauds.27 Knowing the benefits Blockchain can provide in terms of building a trusted process to secure interactions between two parties might be the key to design a simpler supply chain. Not only the Blockchain but also the Internet of Things, discussed in the previous section, needs to be taken into account as illustrated in Figure 6. In combination these concepts can enable a transparent view on the whole supply chain as well as its traceability. Therefor goods need to be enhanced with sensors and communication components to detect and communicate predefined measurements to the blockchain, 23 ​ ​Prisco,​ ​Giulio.​ ​“Toyota,​ ​MIT​ ​Developing​ ​Blockchain-Based​ ​Project​ ​to​ ​Federate​ ​Data​ ​Generated​ ​by Connected​ ​Cars.”​ ​​Crypto​ ​Insider​,​ ​25​ ​May​ ​2017 24 ​ ​“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016 25 ​ ​“Supply​ ​Chain.”​ ​​BusinessDictionary.com​,​ ​WebFinance​ ​Inc. 26 ​ ​“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016 27 ​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017 16  
  • 17. where these information are shared between all involved parties and furthermore stored immutably. Thereby trust between all participants can be supported and the business partners​ ​can​ ​interact​ ​directly.28 Figure​ ​6:​ ​Illustration​ ​of​ ​a​ ​Supply​ ​Chain​ ​using​ ​IoT​ ​to​ ​connect​ ​to​ ​the​ ​Blockchain IBM for instance teamed up with several industry partners to provide an IoT and Blockchain solution to support the supply chain and transportation processes. One partner is Maersk a global container shipping company and the other one is Walmart to secure food safety in its supply chain. Both examples are outlined to display opportunities​ ​achieved​ ​with​ ​the​ ​application​ ​of​ ​Blockchain. On one hand Maersk as the world largest shipping company has to deal with a lot of manual and analog paperwork during the transportation of goods. The supply and transportation processes are currently inefficient in terms of non-digitized processes in the shipment of containers and thereby highly reliable on timely human effort, because the shipment documents have to pass many different hands which can lead to delays. According to IBM a single shipment “can require sign-off from 30 unique organizations and up to 200 communications” . In this process documents can get lost or overlook,29 which is why containers can stuck in ports, the whole supply chain is delayed and cost are​ ​increasing.30 28 ​ ​“Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016; “Implement​ ​Your​ ​First​ ​IoT​ ​and​ ​Blockchain​ ​Project.”​ ​​IBM​ ​Watson​ ​IoT​ ​-​ ​Private​ ​Blockchain​,​ ​IBM Corporation,​ ​2017 29 ​ ​“The​ ​Paper​ ​Trail​ ​of​ ​a​ ​Shipping​ ​Container.”​ ​IBM​ ​Corporation,​ ​3​ ​Mar.​ ​2017 30 ​ ​Haswell​ ​&​ ​Storgaard.​ ​​Maersk​ ​and​ ​IBM​ ​Unveil​ ​First​ ​Industry-Wide​ ​Cross-Border​ ​Supply​ ​Chain​ ​Solution on​ ​Blockchain​.​ ​5​ ​Mar.​ ​2017 17  
  • 18. Through the application of blockchain the process can be digitized by keeping the shipments transparent to all participants while still keeping up security aspects. The whole container shipment is traceable at any time through a shared, distributed ledger, recording all the supply chain events and information documented. The progress of a shipping gets viewable due to the end-to-end-visibility and documents, like bill of lading and customs status, get accessible in real time. The modification, deletion or appending of information requires the consensus of the network. Which is why frauds and errors as well as waste and costs can be reduced and as a result the whole process gets improved.31 On the other hand Walmart utilizes the combination of Blockchain Technology and the Internet of Things to guarantee food safety to its customer. Food retailers struggle with the socalled food safety challenge. Occurring contamination outbreaks need to be prevented or at least traceable to determine its source and thereby distinguish between contaminated and non-contaminated chains or suppliers. In the past the process to narrow down the possibilities to the responsible origin took too long and in the meantime whole food segments could not be sold to the customer, which led to financial losses of several suppliers and moreover good food was wasted, as seen in 2006 with the spinach outbreak in the United States. If many foods contain one ingredient depending​ ​on​ ​one​ ​supplier,​ ​this​ ​can​ ​lead​ ​to​ ​a​ ​serious​ ​domino​ ​effect.32 Walmart and IBM want to face this challenge by connecting every business partner involved in the supply chain through the blockchain. Information about farming, production, packaging and transportation should automatically be synchronized and documented in the tamper-proof ledger of the blockchain, to enable tracking of conditions as well as allow customers to have a traceable insight into were the product came from. This can be achieved through using smart devices in the whole chain, which are communicating with the blockchain and for instance temperature, location and harmful​ ​conditions​ ​can​ ​be​ ​immutably​ ​stored.33 This approach also provides a way to prevent food frauds like the horse meat scandal 2013 in Europe, because the verification of authenticity is enabled. This aspect will be34 regarded​ ​in​ ​the​ ​next​ ​section. 31 ​ ​Haswell​ ​&​ ​Storgaard.​ ​​Maersk​ ​and​ ​IBM​ ​Unveil​ ​First​ ​Industry-Wide​ ​Cross-Border​ ​Supply​ ​Chain​ ​Solution on​ ​Blockchain​.​ ​5​ ​Mar.​ ​2017 32 ​ ​Genius​ ​of​ ​Things:​ ​Blockchain​ ​and​ ​Food​ ​Safety​ ​with​ ​IBM​ ​and​ ​Walmart.​ ​IBM​ ​Watson​ ​IoT,​ ​16​ ​Feb.​ ​2017; “Blockchain​ ​and​ ​Food​ ​Traceability​ ​Infographic.”​ ​IBM​ ​Corporation,​ ​2016 33 ​ ​Genius​ ​of​ ​Things:​ ​Blockchain​ ​and​ ​Food​ ​Safety​ ​with​ ​IBM​ ​and​ ​Walmart.​ ​IBM​ ​Watson​ ​IoT,​ ​16​ ​Feb.​ ​2017; “Watson​ ​IoT​ ​and​ ​Blockchain:​ ​Disruptor​ ​and​ ​Game​ ​Changer.”​ ​IBM​ ​Corporation,​ ​27​ ​Oct.​ ​2016 34 ​ ​Genius​ ​of​ ​Things:​ ​Blockchain​ ​and​ ​Food​ ​Safety​ ​with​ ​IBM​ ​and​ ​Walmart.​ ​IBM​ ​Watson​ ​IoT,​ ​16​ ​Feb.​ ​2017 18  
  • 19. Verification​ ​of​ ​the​ ​authenticity The verification of authenticity of goods and thereby the traceability of origins is one major goal of applying supply chains and the food safety activities of Walmart and other retailers. But many producers and retailers across industries struggle with counterfeiting and​ ​trademark​ ​piracy.35 According to David Greenfield’s article ​Is Blockchain Coming to Manufacturing? “ 7-8 percent of global trade is comprised of counterfeit/pirated goods” . Currently, validation36 and verification of goods and services within the supply chain cannot be done in a reliable way due to the lack of transparency. Not only can companies lose their reputation but counterfeit products can set its user or consumer on health and safety risks. Wipro wants to counteract the transparency issue and provide a reliable way to verify goods by registering every product with a unique identifier and its key information on the blockchain. Along the supply chain the authenticity is verified at every step and information can be added to the blockchain. Through the tracking and traceability, the originality​ ​of​ ​a​ ​product​ ​can​ ​be​ ​proven​ ​to​ ​the​ ​customer.37 Another blockchain-based application is provided by Project Provenance Ltd to support retailers, producers, shoppers as well as partners like certification organizations or NGO and build trust in products. Their goal is to provide customers a transparent view on “origin, journey and impact” of the products they are buying and support businesses in38 enabling them to prove their competitive attributes like origin of ingredients or “impact on environment and society” . Quality can be guaranteed and the authenticity of fair39 trade products or cloths can be proven through the secure, public ledger of blockchain technology.40 For example to proof sustainability of tuna they started a pilot in Indonesia using “mobile, blockchain technology and smart tagging” . The fisherman is registered and41 certified by a local NGO. When he catches tuna he is sending a simple SMS to register its catch on the blockchain. Afterwards it gets transferred to the supplier and the following steps on the supply chain. Every step is added to the existing information on the​ ​block​ ​chain​ ​and​ ​a​ ​product​ ​history​ ​is​ ​created.42 35 ​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017 36 ​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017 37 ​ ​Greenfield,​ ​David.​ ​​Is​ ​Blockchain​ ​Coming​ ​to​ ​Manufacturing?​​ ​LinkedIn​ ​Corporation,​ ​26​ ​June​ ​2017 38 ​ ​“Every​ ​Product​ ​Has​ ​a​ ​Story.”​ ​Project​ ​Provenance​ ​Ltd,​ ​2017 39 ​ ​“Every​ ​Product​ ​Has​ ​a​ ​Story.”​ ​Project​ ​Provenance​ ​Ltd,​ ​2017 40 ​ ​“Every​ ​Product​ ​Has​ ​a​ ​Story.”​ ​Project​ ​Provenance​ ​Ltd,​ ​2017 41 ​ ​“From​ ​Shore​ ​to​ ​Plate:​ ​Tracking​ ​Tuna​ ​on​ ​the​ ​Blockchain.”​ ​Project​ ​Provenance​ ​Ltd,​ ​15​ ​July​ ​2016 42 ​ ​“From​ ​Shore​ ​to​ ​Plate:​ ​Tracking​ ​Tuna​ ​on​ ​the​ ​Blockchain.”​ ​Project​ ​Provenance​ ​Ltd,​ ​15​ ​July​ ​2016 19  
  • 20. All in all the application of blockchain technology in the context of authenticity simplifies verifying as well as proofing the originality of not only fair trade products, foods and clothes​ ​but​ ​also​ ​files​ ​being​ ​unaltered. Conclusion   Verification processes, Supply Chains and Internet of Things scenarios are exploiting the capabilities the Blockchain Technology has to offer. Mostly because the blockchain can provide secure transactions and communications between participants with diverging interests. The blockchain stores information immutably and makes it accessible for every participant, which enables a overall transparency and traceability of actions. The Internet of Things is just one of many sectors that could be disrupted by the blockchain technology in the upcoming years or decades. Blockchain-News does an incredible job at displaying the potential uses of Blockchain in different sectors. It includes the Financial Sector with micro-finance, loan records and derivatives (forward and futures contracts) as well as the Public Sector (Voting, Passport data, court records..), the private one (storage of medical data, private contracts, HR records..) and even​ ​extremely​ ​sensitive​ ​information​ ​such​ ​as​ ​nuclear​ ​codes .43 However, the Blockchain Technology still has to face a few challenges in the upcoming years. Democratizing such a disruptive technology will take time. The example of Bitcoin shows how complicated it is for a customer to shift from the traditional banking system to a digital currency one. As we have seen, an incredible amount of computational power is also required to validate the transactions. As the technology gets more popular every day, the user base grows and the number of daily transactions with it. To overcome this limitation, computer scientists often refer to blockchain scaling. To prevent every computer in the distributed network to process every transaction, a scaled blockchain would theoretically divide the work efficiently and without compromising its security. Increasing the validation process would then allow blockchain​ ​to​ ​widen​ ​its​ ​scope…​ ​but​ ​at​ ​what​ ​price?        43 ​ ​“Potential​ ​Uses​ ​of​ ​Blockchain.”​ ​​Blockchain​ ​News 20  
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