Chapter 1: Introduction

The objective of The Guide & 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) (Investopedia.com, 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 ++ (Notepad-plus-plus.org) for Windows and Sublime Text (Sublimetext.com) for 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 pervious 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 are identified in this definition - 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.