The Guide and Workbook for Understanding Blockchain in Business (2nd)

Chapter 1: Introduction

The objective of The Guide and Workbook for Understanding Blockchain in Business is to help you understand blockchain and its use in business ecosystems (i.e. the network of organizations, including suppliers, distributors, customers, competitors, and government agencies, involved in the delivery of a specific product or service through both competition and cooperation) (, 2019). Blockchain is a concept as well as an information technology (IT). Because of cryptocurrencies like bitcoin, most people are somewhat familiar with how the technology works, but not with its underlying IT or the concepts on which it is built. Making matters more confusing, is the hype surrounding blockchain applications. This book is designed to introduce blockchain, with a focus on blockchains in business, to students and professionals with and without a technology background. It is based on how the author teaches blockchain to accounting and MIS students at the University of Delaware and to educators and other professionals in workshops and seminars.

From an IT perspective, blockchain is a peer-to-peer transaction computer network technology where each peer can submit transactions, that are validated, assigned a digital identity, collected into blocks, linked to previous blocks, and stored on a shared blockchain ledger. On a cryptocurrency blockchain, anyone can become a peer by downloading an application, purchasing some of the cryptocurrency, and submitting transactions to spend it by sending an amount to a peer. Every peer on the blockchain can see the transaction but not the identity of the parties involved in the transaction. On a business blockchain, peers are invited to join and each has a known identity and permission to perform specific transactions; which may or may not be visible to all.

From a concept perspective, blockchain is a network on which assets are represented as digital tokens carrying value, with digitized processes, and agreed upon validation rules, digitized contracts, and sharing arrangements. It is not so much a stand-alone IT as it is a new way to digitally collaborate and securely share data for mutually beneficial purposes.

The Guide & Workbook for Understanding Blockchain in Business (hereafter Workbook) is intended to be used by business students, professionals, and others interested in learning about blockchain as a concept and as an IT in business. From an accounting and management information systems perspective (hereafter AMIS), blockchains should be considered to be a part of new, redesigned business information ecosystems that exhibit characteristics different from more traditional information systems.

The Workbook is written from the perspective that business students and professionals need to understand the technology behind blockchains in order to be able to know how they work and make informed decisions about their potential for improving an information system ecosystem. To do so, one must understand the concepts and the enabling technology. It is intended to be used as part of an accounting or MIS class or as an independent study guide and workbook. To get the most out of it, keep in mind the following:

  • The Workbook is designed to be used while you are in front of a computer connected to the Internet. You should also have a current Web browser and a text editor. In examples and exercises, the author uses Mozilla Firefox, the Internet Explorer, Chrome, and Notepad ++. For a text editor, the author recommends Notepad ++ ( or Visual Studio Code ( for Windows and Macs. As you read the material and work through the examples, point your Web browser to the indicated URLs, download the example files, and use the recommended tools to write code;
  • In Chapters 2, 3, and 4, you will find “Interactive exercises” designed to reinforce your learning;
  • In Chapter 3, you will find exercises that require you to use the Hyperledger Composer to model and write the code to submit transactions to a blockchain. The exercises pull together the concepts covered in the Workbook and are designed to be completed as assignments or self-directed exercises.

Blockchain – what and why

Though you will see a lot of different definitions of blockchain, at its heart, a blockchain is a peer-to-peer network in which peers create transactions that are written to a shared ledger and affect the status of an asset. These transactions are collected into blocks, validated by a consensus algorithm, connected to previous blocks to create a chain of blocks of transactions that cannot be changed, and shared among the peers. On a cryptocurrency blockchain like Bitcoin (BTC), the asset is bitcoin, the transaction is a decrement in the number of bitcoins held by a peer in a wallet (i.e., a peer spends bitcoins in his or her wallet by sending them to another peer), the validation algorithm is known as “Proof of Work,” and the sharing is known as a “distributed ledger.” On a business blockchain, the asset is anything of value, the transaction is something that changes the status of the asset, like transferring ownership from one peer to another, the validation algorithm varies but is often a “Proof of Authority,” meaning the current owner has the authority to transfer ownership, and the sharing is a ledger available to authorized peers. In any case, blockchain is a peer-to-peer network technology that validates and records transactions in blocks, chains them together, and shares the results.

Two of the most important business reasons for implementing blockchains, alluded to in this definition, are collaboration and sharing. Most, if not all, businesses today collaborate with other businesses, customers, and agencies in some type of relationship. They share data and reports and they connect to each other in various ways forming business ecosystems. The most basic example is a supply chain; which, when it involves multiple participants, is better labeled a business ecosystem. Here are a couple of examples of business blockchains that are much more than supply chains; they are business ecosystems.

TradeLens - digitizing the global supply chain

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TradeLens grew out of a partnership between the global logistics giant, Maersk GTD, Inc. and IBM Corporation. The shipping of products in a global market and the corresponding handling of shipping containers is an incredibly complex endeavor. It involves a multitude of participants that have to communicate, exchange documents, and share data on a global scale. The following is illustrative:

  • An original equipment manufacturer (OEM) creates finished products and its accompanying documentation;
  • The OEM contracts with a cargo and shipping company, like Maersk, and a local carrier to transport the products to a freight forwarding company (FF) for warehousing;
  • The FF communicates and shares all documents with a local customs authority (CA) for inspection, taxes, and shipping authorization;
  • The FF again transports the products and CA documentation to a local port (P) where Maersk packs the products in containers and oversees their loading onto a container ship;
  • At the other end, at a point of entry, the whole process is repeated in reverse, the containers are inspected, authorized for entry, taxed, and transported to their destination.

Each of the participants in this business ecosystem, OEMs, cargo handlers, port authorities, etc., creates documents and shares them with a participant downstream in the process. Frequently, each participant has to communicate with other participants to clarify an issue or solve a problem that arises; often having to create new documents or revise existing ones and come up with ad-hoc solutions. The goal of the TradeLens blockchain is to eliminate as many of the friction points (a.k.a., inefficiencies) as possible by digitizing documents and processes, allowing the various participants to have a single source for a single version of the truth by facilitating collaboration, data sharing, and digital communication to accomplish the goal of getting the products from the OEM to their destination.

A relevant question is, could this be done with traditional information systems (IS), possibly with cloud storage? The answer is, partially yes but with difficulty. Since each participant has their own, proprietary computer-based IS, configured to support their own internal processes, and not designed to share data with others, they do not inherently support collaboration and sharing. Blockchain, on the other hand, is designed from the get-go to support collaboration and sharing. And, it adds validation, smart contracts, and immutability to the solution. Global trade ecosystems illustrate an environment that is ripe for a cross-organizational digital network for sharing data.

TradeLens is a permissioned blockchain, where each participant is an authorized, verified node, with specific permissions to submit documents, share with other participants, and create queries to obtain the status of the asset(s) as recorded on the blockchain. Each participant organization represents a peer on the blockchain and each has an inherent stake in the integrity of the data submitted. The blockchain itself acts as a shared data storage platform that facilitates document sharing, as well as, collaboration and planning. In addition, all transactions, including the submission of documents, are verified, secured, and traceable. For example, being able to answer the following questions about the status of their shipped products would be quite valuable to an OEM: Have they cleared customs? In which container, on which ship have they been loaded? What is the estimated time of arrival at the destination port? And so on. It is an outstanding example of why companies would want to participate in a blockchain.

Circulor - Traceability-as-a-service

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Circulor is a UK company best described as a high tech start-up focused on tracking supply chain data; they have created a new term for an IT service - Traceability-as-a-Service. Tracing the origins of a product is difficult in itself, but how about tracing specific components that go into the manufacture of a consumer product like your smart phone or your car. Tantalum is a rare mineral that is a critical component of almost all electronic devices. It is also a “conflict mineral” – it is mined primarily in small African countries, accounting for 60% of the world’s supply, that have problems with workers enslaved by warlords and mining by child labor. The U.S. and the EU have passed regulations, the U.S. Dodd-Frank Act (2010) and EU Regulation 2017/821, requiring that importers of conflict minerals, referred to as “3TG” (tin, tantalum, tungsten, and gold), and the companies that incorporate them in their manufactured products, put in place due-diligence procedures to trace and disclose the source of their relevant raw materials.

Circulor in cooperation with the government of Rwanda, the world’s largest supplier of tantalum, has developed a blockchain-based system to trace tantalum from mine-to-manufacturer. The following is illustrative of the major components:

  • Miners entering a PRG (Power Resources Group) tantalum mine in Rwanda have their photo ID card scanned by a smartphone. It must match the image in the Circulor facial recognition system;
  • 150 lbs. bags of mined ore are tagged with a QR code, including GPS coordinates, and shipped by local carrier to Kigali, the capital of Rwanda;
  • From Kigali, they are shipped to the Republic of Macedonia (formally part of Yugoslavia) for refining into powder, which must meet a mass balance check (i.e., the output, tantalum powder, must match the weight of the input, the mined ore, minus the waste);
  • The tantalum powder is packaged, sealed, tagged, scanned, and shipped to an OEM in the U.S.;
  • In the U.S., the tantalum powder is used in the manufacture of capacitors – electronic components that store electrical energy and couple and decouple signals;
  • The capacitors are shipped to China to be used in the assembly of circuit boards and all manner of finished products, including smart phones, tablets and laptops, electric cars, and audio systems.

Each of these activities/transactions is stored on the Circulor blockchain and each participant has access based on permissions. As you can appreciate, the value added of being a part of this blockchain depends on where you are in the ecosystem. Rwanda and PRG become a trusted supplier of tantalum and other raw materials, with the associated economic benefits. Refiners in Macedonia, capacitor OEMs in the U.S., and finished product manufacturers, like Apple, Dell, and Tesla, can prove their due diligence and report to shareholders and regulators that their products are manufactured with conflict-free components and reap the associated goodwill, risk reduction, and economic benefits.

These two blockchain examples are interesting business ecosystems that illustrate some of the potential of collaboration in their own right, but also why blockchain is so revolutionary. Businesses have been sharing and collaborating using computerized systems for years, why is blockchain so different? In my opinion, blockchain has three major characteristics, all related, that make it a revolutionary information system technology in business – tokenization of assets, collaboration and sharing, and immutability.

“Tokenization” refers to representing something of value (an asset) in digital form. In data security, tokenization is done by referencing a sensitive data element with a non-sensitive equivalent, thereby making it more secure. Tokenization on a blockchain means not only identifying an asset with a digital reference but also representing its value as it changes due to business events. In its purest sense, a digital currency, like bitcoin, has an inherent market value that fluctuates as it is traded on its blockchain. In the Circulor example, the asset being mined has a value as a raw material, but what is important is its existence as an extracted raw material (i.e., it is now an asset measured by its weight). Then, each business partner that processes it adds value to it, and the end user realizes value by way of risk reduction and regulatory compliance. Tokenizing an asset and putting it on a blockchain means it can be shared, along with its value, among peers. In addition, it can be tracked, each peer has essentially immediate access to its status, there is one version of the truth, and there is no reliance on a third party intermediary.

If you tokenize an asset, you can “collaborate and share” transactions related to it. As mentioned earlier, at its heart, blockchain is all about peers on a network creating transactions related to an asset, recording them in a chain, and sharing the results. On an open blockchain that anyone can join, like Bitcoin, every peer has the right to submit transactions and everyone has access to a copy of the blockchain – essentially a “distributed database.” On a business blockchain, where the peers are known and invited to participate, peers would have access rights as established by an access control script. The important point is that collaboration and sharing data about an asset, as seen in the TradeLens and Circulor examples, is the main business reason for the blockchain.

“Immutability” refers to the un-changeability of transactions once they are validated, included in a block, and added to a blockchain. When they become immutable they are believable/ trustworthy. Every transaction on a cryptocurrency blockchain is submitted by a peer on the network and is visible to all other peers. It is then submitted to an agreed upon validation algorithm referred to as a “consensus protocol,” which varies depending on the blockchain. On the Bitcoin blockchain, every transaction is from a peer on the network spending an amount of bitcoin. Transactions happen every second and are collected into a block of transactions every several minutes by special peer nodes with a lot of computing power; referred to as “miners.” Miners run the Bitcoin “proof of work” algorithm to validate the transactions in a block, add a date and time stamp, and then connect a new block to the previous block on the chain using a “hashing” algorithm (explained later). By hashing each block to the previous block on the chain, the individual transactions and the block itself, become unchangeable. Since the transactions have been validated, they are also believable. On a business blockchain, transactions are submitted by peers with the authority to do so, validated by special nodes that run an agreed upon algorithm, often a “proof of authority” algorithm (meaning that the originating peer has the authority to submit the transaction), time stamped, and hashed to the previous blocks on the chain, creating an immutable record of transactions related to an asset.

So, by tokenizing an asset, collaborating with peers who submit transactions that are validated with an agreed upon algorithm, time stamping and hashing them to previous blocks of transactions, and sharing them on the network, we end up with an immutable chain of transactions representing a single version of the truth. This is what is so revolutionary about blockchains in business. As illustrated by the TradeLens and Circulor tantalum blockchains, businesses can create collaborative environments using blockchain that would be more difficult with earlier, traditional information systems technology.

As you will discover, using blockchain in business is only limited by your imagination. Starting with this foundation, The Guide & Workbook for Understanding Blockchain in Business is designed to help you understand blockchain as a new information systems technology with revolutionary potential. In the workbook, we will take an object-oriented approach to understanding and analyzing blockchain. In addition, by working through the interactive exercises and completing the end of chapter exercises, you will gain hands-on experience with the technology.

Preview of The Guide and Workbook for Understanding Blockchain in Business
To understand the blockchain concepts and the technology on which it is based, it is beneficial to start with cryptocurrency and then move to business applications. In Chapter 2, you will find a discussion of permissionless blockchains, as exemplified by Bitcoin, and permissioned blockchains, as exemplified by a bicycle manufacturer and its retail partners. The chapter is designed to explain the technology and flesh out the underlying concepts behind these two types of blockchains. With hands-on exercises, it provides a foundation for understanding blockchains, as well as, the mechanics of how they work. In Chapter 3, you will find a hands-on exercise in modeling a business blockchain. Based on a blockchain application developed by IBM, you will be exposed to Hyperledger Composer. Using it, you will model a business blockchain. In Chapter 4, you will find a discussion of blockchains in business with a focus on financial services and accounting and auditing applications.

From a teaching perspective, the Workbook is designed to be self-contained. Each chapter will introduce a student to concepts with hands-on examples of how they are implemented. Each chapter has end-of-chapter exercises through which to broaden your understanding of blockchain in business.

I hope you enjoy The Workbook and find it to be a useful tool for learning about this emerging technology that is changing the face of business. It will be an important part of your future as a business professional.