Blockchain: More than Bitcoin – Part 2.ico

bitcoin
Image Courtesy: Thomas Trutschel/Getty

 

This is a short detour from the normal flow of our blockchain discussions. This used to be part of Part 2 of the series, but I thought we should address Bitcoin separately without spending too much time on its workings.

What is Bitcoin?

One major factor for the buzz and excitement around blockchain is Bitcoin, a digital currency built on blockchain technology as its underlying platform.

Bitcoins actually are digital “units” which get transferred from one person to another, very similar to cash. The amount of bitcoin that each person has (balance) and any transfer of bitcoins from one person to another (transaction) is encrypted and stored on the bitcoin blockchain, a digital copy of which is maintained at every member of this blockchain, in an application file called a bitcoin wallet.

How do you print a digital currency?

Bitcoins are generated by computers continuously and collectively solving complex calculations. These computers are usually owned and operated by the members of the bitcoin network. Very simply, an application on your computer continuously solves mathematical problems and you are given bitcoins in return. This is called bitcoin mining.

As the bitcoin network has grown, the mathematical calculations have become more complex and need longer times to solve, as a way to control the number of bitcoins in circulation.

What is its value?

Now because Bitcoin is a digital currency (or cryptocurrency, a term used to emphasize the encryption used in the system), it is naturally compared to existing currencies like the US Dollar, GB Pound, Euro etc. And this has exposed bitcoin to speculation and trading, much like stocks or commodities.

Another aspect of bitcoin is that it does not have an inherent value by itself. It is not pegged to the value of a commodity like gold, so it also does not have a relative value. The only thing that would set its relative value is its demand.

The demand for bitcoin

The smart part about the bitcoin blockchain is that, while everyone has a complete copy of the bitcoin ledger, one can only read the transactions in which one is involved. If you need to see the transactions of another, they have to permit you to see them. This permission is unbreakable and immutable, hence law enforcement authorities, governments, banks etc. Cannot override this permission. This makes the bitcoin blockchain a really confidential and secure storage of financial value.

While this confidentiality is great for a financial instrument, this level of secrecy is now making bitcoin really lucrative for people who want to hide their money and financial transactions. Some of these are:

  • People with unaccounted money (black money)
  • People who want to avoid paying tax
  • People engaged in illegal or antisocial activities
  • People engaged in terrorist activities

All of the people on the list above have huge sums of physical money that they need to hide or transfer secretly. One well-publicized example was the WannaCry Ransomware attack, which demanded its ransom in bitcoin.

As a result, they end up buying large amounts of bitcoin, creating a demand for bitcoin which cannot be matched by the rate at which bitcoin is mined. This drives up the relative value of bitcoin (the value of bitcoin in terms of other currencies). As a result, the trading of bitcoin like any other commodity like gold or crude oil has taken precedence over using bitcoin as a means of exchange.

The future for bitcoin

As stated earlier, there are two schools of thought about bitcoin. On the one hand, there is a lot of excitement about the cryptocurrency and its potential to be independent of any controlling authority.

In a perfect world, a bitcoin will become the standard means of exchange and will determine the true price of everything.

So a loaf of bread in New York would cost 1 bitcoin and in Delhi and in Tokyo and in Capetown. This will be the end of inflation as we know (and hate) it. And because every transaction is recorded by default, no one will be able to hoard or steal bitcoin because what is yours will be yours, verified by everybody else’s ledger.

However, this is not liked by the traditional controllers of currency, viz. Governments, central banks and financial institutions. The fact that they lose control over the supply of currency and the complete inability to impose transaction fees and taxes turns out to be a massive loss for these entities. As a result, all these agencies will not favour bitcoin and other cryptocurrencies without having a measure of control over it. And that fundamentally goes against the very nature of a cryptocurrency.

Moreover, the volatility in bitcoin trading (buying and selling bitcoin like a commodity) and the huge spurt in its relative price is also troubling for many smaller and developing economies, which are worried about their own value will be severely eroded with a new global currency taking over. At the time of this writing, the price of one bitcoin had moved from $1808 in May 2017 to hit its record high of $19213 in December 2017 only to fall to $6100 in Jan 2018. Given this kind of volatility, the bitcoin has become a very expensive speculative commodity.

So it is my personal opinion that cryptocurrency, in its current form, will be strongly opposed by the governments and central banks, with greed and ignorance driving their opposition. Cryptocurrency across the world will be subjected to heavy regulation, varying from mandatory declarations of bitcoin holdings at the least, to absolute bans at its worst. Add to that, the reduction of bitcoin to a mere commodity will result in its real value as an economic equalizer being completely overlooked.

As of today, bitcoin is probably a very risky investment as its future is very uncertain. Unless there is some consensus about the validity and acceptability of bitcoin across the world, this uncertainty will continue to play out.

#bitcoin #cryptocurrency #blockchain

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Blockchain: More than Bitcoin – Part 2

Blockchain-as-chain

Continuing our series on using blockchains in business, let us see what are the general types of the blockchain, what are the advantages of the blockchain technology and why is blockchain so popular right now.

In the previous episode of this series, we looked at what a blockchain is and in a very simplified way, saw how it operated.

To recap,

A blockchain network is a large number of interconnected nodes maintaining a synchronised digital ledger of encrypted digital transaction records.

Two of the most important aspects of the blockchain is who has control of the blockchain and who has access to the blockchain.

Types of Blockchain

Blockchains can be classified based on who has control of and who has access to the blockchain. There are three kinds of block chains:

Blockchain Fig2

Public blockchain: these type of Ledgers are public and accessible to all. They are fully decentralised which means no one party controls the blockchain. Anyone could become a member (node) in the blockchain.

An example of this would be the bitcoin blockchain, where nodes are distributed around the world and no one node or entity controls the bitcoin blockchain.

Consortium blockchain: these type of Ledgers are not fully public and are accessible to only a small group of members who operate the blockchain. They are partially centralised, which means a small group of members controls the blockchain.

For example, a number of banks can come together and have a blockchain running between them and only these banks’ customers had access to this blockchain.

Private blockchain: these type of Ledger are fully private and are usually controlled by a single party. Only this entity has access to the blockchain and it is fully centralised.

An example of a private blockchain would be security applications or internal transactions, such as payroll processing or performance appraisals or identity management, which are private to a single organisation.

Arguably, the whole idea of a private blockchain defeats the “no single control” definition of a blockchain. But under certain circumstances and for certain applications, a private blockchain might make more sense than a public one.

The advantages of a blockchain

By now you have a fair idea of how the blockchain system is set up, how it works and the major types of blockchain systems. The way blockchains are built and operated inherently creates a number of advantages. Considering that the blockchain is a continuous digital record of transactions within a system, let us see the various advantages that the blockchain offers over conventional transactions, using our friends, Bill, George and Jack:

Trust

The transactions in a blockchain are created, encrypted and stored digitally between the parties of the transaction directly. There is no intervention or requirement of a 3rd party to verify or ratify the transaction.

For example, if George transferred $100 to Jack through the blockchain system, this transaction is recorded automatically and encrypted as a block to the blockchain. This is then updated to every copy of the blockchain ledger with every member of the blockchain network. The trust is built into the system and there is no need for a bank or intermediary to keep a record or verify the transaction.

Redundancy

Every member of blockchain system has a copy of the blockchain transaction ledger. As a result, there is no danger of the record ever being destroyed or lost.

For example, if Jack loses his record book, he can take a copy from George and verify it from Bill and other members of the system. And as the record is digital and encrypted, its secure and easy to replicate and verify quickly.

Safety

One of the main advantages of the blockchain is that the transaction records are secured with very strong encryption, which is generated automatically.

Let’s consider the bitcoin blockchain, where transactions are encoded with randomly generated numbers (also called keys) made up of 78 digits. Like this:

115792089237316195423570985008687907223269984665640568739457584007913192639935

The encryption calculation uses this randomly generated number to create a private key for each member on the bitcoin blockchain. The private key is used to access their bitcoin wallet account and transactions.

For someone to regenerate someone’s bitcoin private key, they will need to guess this random number. If one million hackers generated one million random numbers every second, it would take approximately 3,671,743,063,080,802,746,815,416,825,491,118,336,277,193,184,902,172 million years (on average) to generate the exact same private key.

Speed

The blockchain is a digital computer-based system. As a result, any transaction being recorded is almost instantaneously encrypted, recorded and updated across the blockchain network. As compared to a conventional transaction where any record creation can take hours, days or weeks depending upon the process involved, blockchain recording saves a lot of time and eliminates unnecessary processing.

Autonomy

The blockchain is a completely self-sufficient system without the need for any external party needing to get involved in its functioning. Recording of transactions is done automatically between the transacting nodes, securing the transaction records is done by encryption and verification of transactions is done by comparing ledgers internally. As a result, interference of any sort, either physically or via regulatory means is completely eliminated.

Accuracy

The blockchain, due to its distributed nature and high level of encryption, is very very difficult to modify, once a transaction has been recorded and updated. The result is an extremely high degree of accuracy in the ledger.

For example, if Jack wants to make a change to a transaction in a blockchain ledger, not only has he to decode the encryption, which is nearly impossible, and change every transaction after the one he wanted to make the change in (we’ll see why when we get a bit more technical about the blockchain). And now, he has to do all those changes in the ledger copies of Bill, George and every member of the blockchain system.

Saves Money

Transactions in the blockchain are completely between the parties involved. There is no need for middlemen, attorneys and other third parties usually involved in conventional transactions. This can lead to tremendous savings in service fees, irrespective of the value of the transaction.

So now you realize why the blockchain is so amazing in its possibilities as compared to existing ways of doing transactions. Almost every financial dispute in the world is because of breach of trust, something that the parties in a transaction are expected to honour. So if there was a way to eliminate the need for trust, there would be no disputes, no middlemen and no lawyers in a perfect world…

That is all for Part 2 of this series. If you’ve just joined in, you can also read Blockchain: More than Bitcoin – Part 1 .

As always, I await your feedback and comments.

#blockchain #bitcoin #cryptocurrency

Blockchain: More than Bitcoin – Part 1

Blockchain-as-chain

As I speak to numerous business decisionmakers, technology leaders and consulting experts, I notice a strong bias towards theoretical knowledge about blockchain. Everybody knows about blockchain in relation to bitcoin, arguably its most successful and viral by-product. Almost every leader I’ve met was aware of the definition of the blockchain and seemed to understand the revolutionary aspect of the technology. They all knew that the decentralized nature of the blockchain is what makes it successful in managing the most precious of human behaviour: Trust.

However, very few of the leaders I spoke to were aware of the real dynamics of the technology and while theoretically, they could think of business cases in which blockchain could be applied within their business, the practical aspects of deploying blockchain in a relevant way were missing.

This is what drove me to start learning about blockchain in its practical sense:

How does one use the blockchain in a real world scenario? How does one build an “application” using the blockchain?

There are two aspects that I should highlight before we dive into the actual series. My learning is specifically from a business application scenario and not from a cryptocurrency viewpoint. While it can be argued that a cryptocurrency is an application of the blockchain, there are probably many resources available online which with the subject of much greater authority. The focus of this series of blog posts is to experiment with blockchain as a technology and understand how it can be used in business scenarios.

The other aspect is that I am not a blockchain expert nor am I a seasoned programmer. I approach blockchain as a novice would and these are the notes that I make as I studied blockchain and work with it. While I have some experience in programming and I have some experience with cryptography, I approach the subject of blockchain as a complete newcomer. As a result, it might be possible that part of this series might be completely amateurish and at some places even erroneous. I request the reader keep this in mind while reading the posts and be gracious enough to point out any errors which I promptly correct.

So having said that, let’s begin!

 

What is the blockchain?

The simplest technical definition is as follows:

The block chain is an open, distributed and encrypted ledger of digital transactions.

 

Let’s consider the following story of three friends: Jack, Bill and George. All three of them are very financially disciplined and each of them records any transactions between the three of them in a little book that each of them has.

One day, Jack gives Bill $100 and George is also present. Promptly, each of them makes a record of this transaction in their respective books (ledger). At any point in time, if there is a question about any transaction, the friends can refer to each other’s book and keep their book updated. Thus each of them has an updated copy of the transaction record at all times (distributed ledger).

Now, it is possible that any one of the friends, say Jack, tries to change a record to show a different value in his book. But as the books of the other two friends do not show this record, it is quickly found out. This is the concept of trust inbuilt into the system.

Let’s say George and Jack together decide to change their books to reflect a fraudulent value. Then it is possible that Bill can be convinced that his book entries are wrong and a fraud can be committed. Hence if a majority of the distributed ledgers are modified, a wrong transaction can be passed off as a correct one. Remember this loophole in the system, we will revisit it in a short while.

What if someone other than the three friends decides to change any one book? While a single book change will be caught, the three friends are paranoid and record their transactions using coded symbols that only they can read (encryption). This makes the transactions unreadable to someone outside the friend circle and hence difficult to modify.

Now finally, let’s make the circle of friends bigger, all of whom record the transactions happening within the group in coded symbols that only they could read. Remember that loophole we talked about? As the circle of friends grows, then the chances that a majority of these friends changing their ledgers simultaneously to create false records, are much smaller.

And that is what a blockchain is about. A large, connected group of nodes maintaining a synchronised digital ledger of encrypted digital transaction records.

Each of these records is a digital block of data, arranged in a chronological sequence to create a chain of blocks, called a Blockchain.

In Part 2, we will look at the different types of blockchain and where they might be typically used. We will also see the main advantages of a blockchain.

I know that was very simplistic. I’ll be happy to hear all your comments.

#blockchain

 

What is my purpose?

purpose Linkedin.png

Everyone ends up asking oneself this question eventually. Some really early in life, some when in a crisis and some as a result of a discussion or external influence.

The following is my story of determining my purpose. It might be a long read, but hopefully a good one.

I vividly remember asking myself this question in March 2002, when I had just finished reading “Think and Grow Rich” by Napoleon Hill. I was part of an IT project team stranded in Ahmedabad, Gujarat during the infamous 2002 Godhra Riots and even though we were in a safe part of the city, we had nothing to do as our project was stalled and such existential questions often emerged as part of the environment we were in.

Deciding upon one’s purpose is usually an iterative process and so was mine.

My first iteration was to define my purpose in terms of my job. So my first purpose was:

** My purpose is to build the best networking solutions for my customers **

While this looked fine, it somehow lacked the idealistic flair that well-defined purpose statements (especially organization mission statements) have. Also, it felt too limiting and dependent on my job.

My second iteration was to define my purpose in terms of me as a person. And the role I have to play in life. So my second iteration got me to:

** My purpose is to be a great son and a supportive brother **

(I wasn’t married at this time)

Again, this still felt a bit limiting. After all, don’t we all aim to be the best version of the relationships we maintain? What’s so special about that?

Now it was a morose time in Ahmedabad. Everybody went about their business in hushed silence and the sombre tension in the atmosphere was depressing and often weary. You could notice that even though the violence did not affect us directly, everyone was tired of it.

These were the days of Internet cybercafes which used to be the only place you could check your emails if you could not afford a costly dial-up internet connection in your home. I remember waiting in line for a computer terminal to free up when I heard the cybercafe owner lamenting about how his IT guy had not done a good job of setting up his network and every day was a struggle with getting his network working.

I offered to help him redesign his network and sat up with him in his shop past midnight to configure all his computers into one well-configured network. Sometimes as a techie, you just want to switch off your Word documents and Excel spreadsheets and just get your hands dirty with technology.

Three days later, when I went back to the shop, Rasikbhai was all beaming.

“Navinbhai, ekdum (totally) first class!! Not one problem. Even the speed of surfing is better.”

Every day since then, when I passed his shop, Rasikbhai would wave at me with a happy smile. He could not stop telling other people what I had done. For him, I was the technical magician who improved his business. Moreover, it brought me joy and pride that I could help someone with my skills.

And it was then that I realized what I believe is my unique purpose:

My unique purpose is to bring a smile to everyone I meet

For me, that “smile” is a metaphor. It can be telling a funny story to someone who’s down, bringing a word of encouragement to someone who is demoralized, helping a Rasikbhai with my technical skills, helping a client solve his business issues with my consulting or just sharing a friendly smile with the doorman or parking attendant. It is taking away the “pain” from another person’s mind, even momentarily, to enable them to smile.

Yes, it sounds foolish and rhetorical. I have been laughed at by interviewers when I’ve stated this in interviews, scoffed at by well-meaning friends who would tease me to become a stand-up comic as well as had many dismiss me as an idealistic fool.

But I truly believe that this is my unique purpose. To be a catalyst in other people’s lives, as much as I can. To bring a smile to anyone I meet.

After all, Rasikbhai’s smile is always a testimony to the accuracy of that purpose.

*********

(Think and Grow Rich by Napoleon Hill is my favourite book. It is a great book to start the thinking process and to discover your purpose and calling in life. I will highly recommend it to anyone who hasn’t read it before.)

Delete that “About Us” slide

Do consultants really add value to a business?

Lately, my limited television viewing has included the House of Lies series. Its interesting to watch real life  consulting situations melded with all the jokes and anecdotes about consultants that you have heard. And while this may be a comedy series, it does have a lot of factual details to can make consultants smile and wince in cognizance to the situations depicted.

Which brings me to the question – Do we add value to your business?

Executives I’ve spoken to are varied in their opinion, depending upon which side of the change they’re on. Some swear by the consultants they’ve hired and sing praises in every forum they find. The majority however have a not-so-favourable opinion of the value delivered.

In all honesty, we as consultants are also guilty of doing too little to change the perception that the world has of us. Its time we project and publicise the value we bring to customers, not just the size of the deals. Not just get the business, but create evangelists among clients.

 

So we can have our reputation for bringing value precede us. So we waste less time proving who we are and spend more time doing what we can do.

So we can get rid of that “About Us” slide in our presentation deck.

Mapping the true value of IT

Most analyses of IT value consider the quantitative aspects of the IT investment as parameters for evaluation. The quantitative parameters like Capital and Operational cost, revenue increase etc. are strong indicators of the value of any investment. Using these parameters is a strong starting step towards understanding how valuable a particular IT investment is to the organization. However, relying solely on the quantitative benefits of an IT investment is an incomplete evaluation of the value. Quantitative benefits would only indicate the dollar worth of the investment. However, how valuable the particular investment is to the organization is dependent on other factors, which may enhance or even degrade the true value of an investment.

 

IT Value

 

The IT Investment Value Tetrad, depicted above, extends the value of IT investments across four specific areas which affect a particular investment’s value to the organization. The four factors individually increase or decrease the value of an IT investment and their sum total is a very close approximation of the true value of the IT investment.

 

The IT Investment Tetrad defines the following four factors which contribute to the value of any investment:

Quantitative Benefits – The net financial savings or gains that can be easily quantified in monetary value. These benefits essentially include savings in costs or directly attributable increases in revenue of the organization.

Qualitative Benefits – Savings or benefits from the IT investment that are more difficult to quantify in financial terms, but are still significant to business goals, strategy or operations. These include benefits like Brand enhancement, organization and operational efficiency and knowledge capital enhancement.

Risk – The risks of implementing the solution, especially the managing of costs and the achievement of identified benefits. This includes risks of delays, adverse exigencies and risk of obsolescence. Value of the investment is inversely proportional to the magnitude of risk identified.  

Stakeholder Reach – The number of stakeholders, both in terms of number and type, which are impacted, positively or negatively, by the IT Investment. For example, core network equipment, which would benefit the working of the entire branch office, is ordinarily rated higher that software procured for the exclusive use of a particular department.

The above mentioned factors, when evaluated objectively, present a true picture of the potential value that an IT investment brings to the organization. Also, as this evaluation does not rely on any one type of factor but rather represents all the factors, this type of value finds acceptance to all stakeholders.

The most important characteristic of this evaluation is that the single value arrived at the end of the analysis allows an objective comparison of different investment opportunities which may be of different types. A comparison based on the pure quantitative value would be possible only between investments of the same type. Using the IT Investment Value Tetrad, an objective comparison and prioritization of an investment opportunity to buy networking equipment can be done vis-à-vis an investment opportunity to buy software. Given the current economic scenario and the ever increasing need to classify and prioritize IT investments, the Tetrad based analysis is a powerful tool to ensure better business value.

Benefits across the table

As defined above, the IT Investment Value Tetrad can enable a rational decision making process based on the true value of any IT Investment. The specific benefits for both types of stakeholders helps the process of Business IT fitment within the organization.

Benefits for Top Management:

  • Enhanced measurability and valuation of IT Investments
  • Increased objectivity in evaluating IT Investments
  • Increased clarity on the strategic role of IT in the business
  • Compelling business justification for Investments to present to external stakeholders

Benefits for CIOs and IT Managers:

  • Stronger Business based valuation of Technology
  • Objective prioritization of IT investments in relation to Business goals
  • Stronger business case to justify investment requirement
  • Increased contribution to the Organization’s strategic goals