Demystifying Blockchain for Businesses
Delivering Trusted Web3 Business Strategies Straight to Your Inbox
As soon as people begin reading about crypto and web3, one of the first words they come across is ‘blockchain’. We tend to read over the word and just nod in agreement, as if we all know what a blockchain is and how it works. We’ll even point to pictographs of blocks linked by lines and say, “look, it’s a blockchain!” but that visual representation rarely helps us understand anything.
If we’re really being honest, even those who have been in this space for some time are still confused about how blockchains work. Much of that reason is because it’s just hard to find simple language to describe its complicated mechanics.
In this week’s editorial, Hiro Kennelly works to demystify the inner-workings of the blockchain. “Imagine you play golf with the same foursome each week, and each player has their own scorecard where they write down all of the scores. After each round, everyone compares scorecards to make sure they match. If they do match, a new "block" of scores is added to a shared notebook. This "block" contains all the recent golf scores, and it's attached to the previous scores, creating a "chain" of golf scores. This chain is called a blockchain, and provides a secure, shared history of all golf rounds between you and your friends.”
This analogy certainly glosses over a few things and doesn’t describe all the ways in which blockchains work, but it, along with a bit of technical jargon, should leave you feeling more fluent in the language of crypto and web3. And that’s really the key. Once you understand how blockchains work, you can begin to see where this technology fits within your business, and that it will become indispensable not only for supply chain management and business-to-business payments, but for nearly every facet of your company’s operations and relationships.
Demystifying Blockchain for Businesses
Author: Hiro Kennelly
Like many emergent industries, crypto uses language that makes understanding the fundamental ways in which it works nearly impossible. In some ways, this is by design. As new technologies incubate in the far corners of the internet, complex language serves as a gatekeeping function, and many early adopters perpetuate the obfuscation to maintain both access and exclusivity.
Specialized language serves a purpose when technologies are being formulated, but when the basics are well understood and ready for broader adoption, it’s time to demystify the technology and democratize the access to information so that the fruits of the builders’ labors can make it to market.
Nowhere is this more true than in trying to help traditional companies understand the pure value proposition of blockchain technology. Away from the noise of DeFi and NFTs, the underlying technology is so powerful that those who ignore it will be left behind. If your business relies on record keeping and accounting, on invoicing and financing, on quality control and inventory management, you need to understand blockchain – to be clear, that’s every business on earth.
What businesses need is a simple explanation of blockchain technology and a clear use case to really grasp why so many are convinced that crypto isn’t just the future of the internet, it’s the next great economic engine. This may not seem true today, at least at first blush, but business leaders who take the time to really consider the implications of blockchain technology will come away with only one conclusion: there’s no better time to invest in understanding not just what blockchain is, but what it can do.
How Blockchains Work
Blockchains are built upon distributed ledger technology, which simply means a group of connected computers in different locations use rules to agree on what information to add to a database. Couple this technology with time-stamping and cryptographically secured data, link it all together, and that’s a blockchain: a cryptographically secured, distributed, and decentralized database of chronologically listed transactions.
That’s admittedly still a tough definition to parse, so let’s try a fun analogy. Imagine you play golf with the same foursome each week, and each player has their own scorecard where they write down all of the scores. After each round, everyone compares scorecards to make sure they match. If they do match, a new "block" of scores is added to a shared notebook. This "block" contains all the recent golf scores, and it's attached to the previous scores, creating a "chain" of golf scores. This chain is called a blockchain, and provides a secure, shared history of all golf rounds between you and your friends.
Blockchains come in all shapes and sizes, but it’s easiest to start by thinking about decentralization, which really just refers to how robust and fault-tolerant a network is. The more decentralized a blockchain, the more independent copies of the data there are on the network. Some blockchain are decentralized, like Ethereum, and others fairly centralized, like Solana. For many, decentralization is the gold standard, because decentralization enables more secure networks.
Blockchains are also transparent, meaning anyone with access to the network can see the activity. This is true for both public blockchains, like Bitcoin, and private blockchains run by governments and corporations. It may make intuitive sense that public blockchains should be transparent, but it’s just as important with private blockchains too. For example, SWIFT, which is the 11,000 member Society for Worldwide Interbank Financial Telecommunications, the world’s largest network for financial payments and settlements, is testing out blockchain technology on a private ledger — and even though non-members can’t see the transactions, all participants in that financial network can view the blockchain.
Perhaps even more important than transparency is immutability, which just means that once information is recorded on chain, it’s nearly impossible to modify or remove. Relatedly, blockchains also enable this notion of ‘trustlessness’, which is the idea that immutability gives rise to transactions that don’t require trusted third-party intermediaries, such as banks, to facilitate transactions. There’s even a fancy term for this — disintermediation.
Finally, it’s important to remember that blockchains are built using computer code, and can be endlessly customized to meet the needs of your business. If you’re interested in understanding more about blockchain technology, this thread is a good place to start:
Armed with the basic principles, take a breath and imagine the landscape of your business and industry, and begin to think about what adopting blockchain-based systems can do for your business. If you need a bit of a spark, the simple use case of supply chain management may ignite the virtual fire to begin the process of adopting this new technology for your business.
Supply Chain Management
One of the most obvious examples of where blockchain can make an immediate impact for many businesses is supply chain management. As international commerce increased and supply chains became more complex, unknown parties were forced to interact and counterfeit or low-quality goods often made their way into the supply chain. Blockchain helps to alleviate these issues, as it can be used to track the entire supply chain, from raw materials to finished products, ensuring efficiency and transparency at every stage.
A recent report on how blockchain can impact the retail and consumer packaged goods industries identified four key pain points in supply chain management: traceability, compliance, flexibility, and stakeholder management. The immutable and programmable aspects of the blockchain can significantly mitigate these pain points.
We’ve also seen blockchain put to use in the automotive supply chain, with the Mobility Open Blockchain Initiative, where many of the world’s leading auto manufacturers are working to build a vehicle- and parts-tracking system on chain. Daimler is working to use the blockchain to share data amongst its offices, manufacturing centers, and suppliers.
One of the most important supply chains for average consumers is the food supply chain. Walmart and Carrefour, two of the world’s largest retailers, have been working with the IBM Food Trust, a “collaborative network of growers, processors, wholesalers, distributors, manufacturers, retailers, and others, enhancing visibility and accountability across the food supply chain.” Carrefour, in particular, has embraced blockchain to manage its branded organic foods supply chain, giving consumers confidence in the provenance of the product and a way for the company to manage complex actions, like food recalls.
The list of ways in which blockchain can help supply chains is not limited to food, packaged products, and cars, of course. It can be used to verify the origins of luxury goods and otherwise combat counterfeiting through traceability and quality control. It can also streamline inventory and vendor management and facilitate the instant settlement of invoicing through business-to-business on-chain payments. We are just starting to discover that the integration of blockchain technology into business operations is not just better for the consumer, but for any company’s bottom line.
Blockchain for Your Business
One way to think about what blockchains can do is that it brings brands closer to consumers. Whether that’s because of the tech behind the scenes, in the case of automobile manufacturers, or allowing consumers to see the farm-to-store journey, as with Carrefour, building systems that enable brands to better connect with their customers is a rare win-win that increases profits for companies and solidifies customer loyalty.
Supply chains are just a narrow application of blockchain technology, and many industry leaders are exploring how blockchain can improve healthcare through better sharing of patient records, remove rent-extracting actors from marketplaces like event ticketing, improve the legitimacy of elections (including shareholder voting), and build comprehensive customer rewards and loyalty programs.
As you begin to imagine how the benefits of blockchain technology can improve your operations, one of the key considerations is to determine where intermediaries exist, and decide if your business really needs them in the middle of the transaction. Blockchain isn’t necessarily about eliminating the human element, but it is about reducing uncertainty and reliance on the unpredictability of human relations. Those ‘trusted’ third parties have been a necessary part of your business life, but what if you didn’t need them for everything? What relationships would you want to keep and why? How would your business be impacted? Only you can answer these questions, but they are some of the most important questions business leaders will grapple with in the months and years ahead.
Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO and the Editor-in-Chief at Good Morning News. He is also an Associate at Bankless Consulting, and is helping to build a grants-focused organization at DAOpunks.
Web3 Business Developments
Curated News on Recent Blockchain Adoption and Innovation
Amazon NFTs Will Be Tied to Real-world Assets, Token Possible
Author: Michael Bodley
Amazon revealed last week that they are planning to allow customers to purchase NFTs that are tied to real-world assets delivered to their doorstep. The move is an upgrade from Amazon's earlier NFT platform announcement and could potentially be communicated to every Amazon Prime customer in the US.
The move by Amazon would make it easier for people to access NFTs without having to learn about self-custody or setting up a MetaMask wallet. Amazon has approximately 167 million Prime members in the US, which could potentially help the company onboard millions of users to the world of NFTs.
Meta Is Building a Decentralized, Text-Based Social Network
Author: Casey Newton
Meta is reportedly in the early stages of developing a decentralized social network for text-based updates. A decentralized social network would enable users to set up their own servers and set server-specific rules for content moderation, potentially making the network more resistant to censorship efforts from governments. By making the network interoperable with other social products, Meta could gain an edge as it faces ongoing scrutiny over anti-competitive acquisitions.
While decentralization can offer benefits such as customizable community standards and interoperability, there are challenges with basic social-network functions becoming complicated when accounts are located across a vast network of servers. It is also unclear what the most successful business model for a decentralized social network would be, given previous attempts by companies like Mastodon have not been profitable.
While there are challenges in developing a profitable, global-scale decentralized social network, given the potential to disrupt Twitter and the backing of Meta's skilled growth hackers, they have the teams and track record to give it a better try than most.
Coinbase Announces Wallet As a Service: Now Any Company Can Seamlessly Onboard Their Users to Web3
Author: Patrick McGregor, Leonard Law
Coinbase announced last week that they are expanding its web3 business solutions, offering a fully customizable on-chain wallet for businesses around the world. Wallet-as-a-Service (WaaS) allows companies to provide a seamless wallet onboarding experience for their customers, enabling them to engage in web3 and capitalize on its potential. WaaS will provide a seamless user experience, ensure key ownership, and provide native integration, making it easy for companies to create web3 experiences at scale.
Web3 offers new opportunities for businesses to create personalized shopping and loyalty programs, build stronger communities, and generate new revenue streams. However, the complexity of web3 wallets has been a significant challenge for businesses. Coinbase aims to solve this problem by offering a simple and user-friendly wallet that is accessible to everyone regardless of technical knowledge.
Wallet-as-a-Service is a set of scalable and secure APIs that will allow companies to build fully customizable on-chain wallets for their customers. The use of Multi-Party Computation (MPC) cryptographic technology will simplify onboarding, enabling users to access web3 experiences without having to manage complicated seed phrases and private keys. This means that end users' self-custody keys are safe even if their devices are compromised, leaving their digital assets secure.
WaaS is already being used by companies like Floor, Moonray, thirdweb, and tokenproof to onboard users to web3 experiences across gaming, token-gated events, and digital marketplaces.
Zero-Knowledge Proof: Applications and Use Cases
You will be hearing more about zero-knowledge proofs (ZKPs) in the next few months. ZKPs are a cryptographic breakthrough that allows one party to prove a statement is true to another party without revealing any personally identifying information. ZKPs can be used across various industries to enhance the privacy, security, and efficiency of digital systems.
Adoption of ZKPs within the blockchain space is helping to scale the ecosystem and improve user privacy. This technology will redefine how we think about data management, enabling users to meet compliance requirements or verify specific information without exposing their personal details or trade secrets. Enhancing the privacy, security, and efficiency of digital systems will have a wide-ranging impact across industries:
Decentralized Identity: ZKPs can be used for identity verification without compromising sensitive personal information. By verifying that a user meets certain criteria without revealing personal data, ZKP-based identity protocols can give individuals greater control over their personal data, protect against identity theft and fraud, and reduce reliance on vulnerable passwords. Organizations can also benefit from reduced liability and compliance with privacy laws.
Secure Scaling Solutions: zkRollups are a Layer 2 scaling solution that can address the challenge of scaling blockchain networks to support mainstream adoption. By moving computation and state storage off-chain, zero-knowledge rollups can batch thousands of transactions and publish a zero-knowledge proof on the underlying Layer 1 blockchain, creating a highly secure environment with high throughput and low transaction costs.
Voting Systems: ZKPs can be used to create secure and confidential voting systems that enable individuals to cast votes without compromising their identity or revealing their vote choice. ZKP-based voting protocols eliminate the need for users to provide their identity, enhancing privacy and reducing the potential for fraud. Vote verification using ZKPs can ensure that election outcomes are accurate, enhancing the integrity of voting systems.
Internet of Things (IoT): The IoT connects an increasing number of devices to the Internet, which creates security and privacy concerns. ZK technology can secure IoT devices and protect user privacy by verifying software updates, authorizing access, and enabling secure communication. ZKPs can also reduce the energy demands of IoT devices, leading to increased efficiency and cost savings.
Supply Chain: ZKPs can help supply chains achieve both transparency and confidentiality. ZKPs allow corporations to verify the authenticity of goods and materials without revealing sensitive information, such as trade secrets or the identity of suppliers and customers. This can be useful for proving compliance with standards or regulations, as well as providing end-users with verifiable information about the origin of goods.
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HiroKennelly, Martin Gomez, siddhearta, Ryan Anderson
Fantastic write-up. To add on to the Zero-Knowledge Proof: Applications and Use Cases section, how about collaborating to write a non-tech primer to zero knowledge proofs?