Course: Information Technology & Systems

Session 5:
Blockchain

Agenda
-Blockchain technology
-Blockchain adoption in business
INFORMATION TECHNOLOGY & SYSTEMS

Blockchain

“...blockchain is an open, distributed ledger that

can record transactions between two parties
efficiently and in a verifiable and permanent way”
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What is a hash?
A hash function takes an input string (numbers, alphabets, media
files) of any length and transforms it into a fixed length.

Each block in blockchain is represented with a hash

The hash algorithm has certain unique properties:

It produces a unique output (or hash).
It is a one-way function.
INFORMATION TECHNOLOGY & SYSTEMS

Demo
http://blockchain.mit.edu/blockchain

https://blockchaindemo.io/
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Characteristics of Blockchain
Distributed
Peer-to-peer
Database

Transparency
&
Pseudonymity
Irreversible

Computer
Logic
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Characteristics of Blockchain - 1
■ Distributed database
– All parties have access to complete history
– No intermediary

■ Implications
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Characteristics of Blockchain - 2

■ Peer-to-peer transmission
– Communication directly between nodes, to all nodes
– No centralized information

■ Applications
■ Supply chain: https://youtu.be/f87MYGKHZrw?t=28
■ https://youtu.be/SV0KXBxSoio?t=35
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Characteristics of Blockchain - 3

■ Transparency with pseudonymity

– All transactions visible to everyone on the blockchain
system
– parties may hide their identity

■ Controversy
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Characteristic of Blockchain -4

Irreversibility of records
■ Once a record is entered, one cannot change it
■ Algorithm (hash function) makes it irreversible
■ The chain keeps getting created, making the block
irreversible

Application
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Characteristic of Blockchain -5

Computational logic
 Programmes can be automatically triggered
 Chain automatically formed

https://youtu.be/SV0KXBxSoio?t=35
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Adoption of Blockchain

The number of
parties involved Legal cryptocurrency
– the degree of
coordination
required

Private blockchains
across organizations

The degree of
newness
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Single Use
Low-novelty, low-coordination applications that create better,
less costly, highly focused solutions
Application for blockchain: Bitcoins at present
Why?
Use by a limited number of individual users
Just an alternative payment
But bitcoins have enormous implications for financial systems
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Bitcoin Bitcoin is one of the most popular types

of cryptocurrencies, which are digital mediums of
exchange that exist solely online. 

MINING A BITCOIN
•Bitcoin miners compete to solve extremely complex math problems that require the use of
expensive computers and enormous amounts of electricity.
•arrive at the correct or closest answer to the question-> guessing the correct number (hash)
•Miners guess the target hash by randomly making as many guesses as quickly as they can,
which requires major computing power
•The difficulty increases as more miners join the network.
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Localization
High in novelty, but limited number of users
Application: Private networks on which multiple organizations are connected
through distributed ledgers
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Substitution
Low on novelty, high number of users and players
Application: Legalized cryptocurrency systems
Why?
Transform the way centralized banks hold power to valuation of money
Substitute money
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Legal Cryptocurrency in Remittances & Inflation

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Transformation
Novel application with major coordination across multiple users and
players
May change economic, social, & political systems
 Application: Smart contracts
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Smart Contracts
A smart contract is a self-executing contract with the terms of the
agreement between buyer and seller being directly written into lines of
code
The code and the agreements contained therein exist across a
distributed, decentralized blockchain network
The code controls the execution, and transactions are trackable and
irreversible.
Application: Kickstarter (across anonymous unknown parties)
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References
The truth about blockchain. Ianstiti & Lakhani (2017). HBR (Session 15
material)