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- Herausgeber: Packt Publishing
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
Your one-stop guide to blockchain technology and its business applications
Key Features
- Assimilate blockchain services such as Ethereum and Hyperledger to transform industrial applications
- Know in and out of blockchain technology to understand various business use cases
- Understand various common and not-so-common challenges faced in blockchain development
Book Description
Blockchain for Business 2019 is a comprehensive guide that enables you to bring in various blockchain functionalities to extend your existing business models and make correct fully-informed decisions. You will learn how decentralized applications are transforming numerous business sectors that are expected to play a huge role in the future. You will see how large corporations are already implementing blockchain technology now. You will then learn about the various blockchain services, such as Bitcoin, Ethereum, Hyperledger, and others to understand their use cases in a variety of business domains. You will develop a solid fundamental understanding of blockchain architecture.
Moving ahead, you will get to grips with the inner workings of blockchain, with detailed explanations of mining, decentralized consensus, cryptography, smart contracts, and many other important concepts. You will delve into a realistic view of the current state of blockchain technology, along with its issues, limitations, and potential solutions that can take it to the next level.
By the end of this book, you will all be well versed in the latest innovations and developments in the emerging blockchain space.
What you will learn
- Understand the fundamentals of blockchain and how it was developed
- Gain a good understanding of economic concepts and developments
- Develop a base for concepts such as cryptography, computer networking, and programming
- Understand the applications of blockchain and its potential impact on the world
- Become well versed with the latest developments in the blockchain space
- Explore blockchain frameworks, including decentralized organizational structures, networks, and applications
Who this book is for
This book is for financial professionals, business executives, managers, and enthusiasts who are interested in getting well-versed with blockchain technology in various business domains. This book will help boost your existing business models using blockchain services. No prior experience of blockchain is required.
Das E-Book können Sie in Legimi-Apps oder einer beliebigen App lesen, die das folgende Format unterstützen:
Seitenzahl: 308
Veröffentlichungsjahr: 2019
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Blockchain for Business 2019
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Commissioning Editor: Sunith ShettyAcquisition Editor: Devika BattikeContent Development Editor: Athikho Sapuni RishanaTechnical Editor: Joseph SunilCopy Editor: Safis EditingProject Coordinator: Kirti PisatProofreader: Safis EditingIndexer:Tejal Daruwale SoniGraphics:Jisha ChirayilProduction Coordinator: Nilesh Mohite
First published: January 2019
Production reference: 1250119
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ISBN 978-1-78995-602-3
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Contributors
About the author
Peter Lipovyanov is an experienced investment banker and venture investor currently focusing on blockchain projects and crypto-assets. A firm believer in the potential of blockchain technology to change the world for the better by facilitating financial inclusion across the globe and improving the efficiency of financial markets and other sectors of the economy, he has been involved in several promising blockchain projects building decentralized applications. His passion for education also led him to create a bestseller online course about the fundamental principles of blockchain technology and its business applications, which is the basis for this book.
About the reviewers
Samanyu Chopra is a developer, entrepreneur, and blockchain supporter with wide experience of conceptualizing, developing, and producing computer and mobile software. He has been programming since the age of 11. He is proficient in programming languages such as JavaScript, Scala, C#, C++, and Swift. He has a wide range of experience in developing for computers and mobiles. He has been a supporter of Bitcoin and blockchain since its early days and has been part of wide-ranging decentralized projects for a long time. You can connect with him via LinkedIn.
Iqbal Singh is the CEO and founder of Immanent Solutions, a management-consulting and blockchain solutions firm based in Chandigarh, India. He is also the chief blockchain architect for the Blockchain Solutions Asia 2018 conference. Iqbal possesses 15 years' extensive hands-on experience in blockchain, IT, Internet of Things (IoT), AI, automation, and the RIA industry. Iqbal has provided business solutions for Bitcoin, Ethereum, Ripple, and R3's Corda blockchain platform. He heads 30 professional teams working in the fields of data science, algorithms, cryptography (SHA256, X11, and Script), blockchain, initial coin offerings (ICO), Coin, ERC20, Exchange, BTC, and ETH Expert Architect.
Narendranath Reddy is an experienced full-stack software engineer and Hyperledger Fabric expert with a proven track record of helping enterprises to build production-ready blockchain-backed applications. He is an experienced innovator and creative thinker. He has won four hackathons on blockchain and is a keynote speaker. He regularly speaks about blockchain and distributed ledgers and is currently working as a blockchain developer at Block Gemini, Dubai. Previously, he worked as a blockchain developer at Innominds, Hyderabad, and as a software developer at UST Global in Trivandrum and Madrid.
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Table of Contents
Title Page
Copyright and Credits
Blockchain for Business 2019
About Packt
Why subscribe?
Packt.com
Contributors
About the author
About the reviewers
Packt is searching for authors like you
Preface
Who this book is for
What this book covers
To get the most out of this book
Download the color images
Conventions used
Get in touch
Reviews
Bitcoin, Blockchain, and Cryptoassets
An introduction to blockchain
The rise of blockchain
Key features of blockchain
Ease of access
Blockchain – the internet of money
The hype of industrial companies around blockchain
Impacts of blockchain
Impacts in the financial sector
Impacts in our daily lives
The Chinese formula scandal
Blood diamonds
Impacts of blockchain on the internet
Summary
A Brief History of Money
An introduction to money
Money as a medium of exchange
Money as a unit of account
Money as a store of value
Money – an abstraction of value
The gold standard
An introduction to fiat currencies
What happens when fiat currency systems fail
How blockchain comes into the picture
Summary
The Birth of Bitcoin and the Advantages of a Decentralized Payment System
How Bitcoin came into existence
The beginning of the economic crisis
The birth of Bitcoin
Projects leading up to Bitcoin
An introduction to Bitcoin
Double-spending and how Bitcoin resolved it
How traditional payment systems work
Electronic transfers in banks
Credit and debit card transactions
Transactions in PayPal
Differences between centralized and decentralized payment systems
Summary
Five Forces of Bitcoin - #1 Blockchain
Introduction to Bitcoin's five forces
The first force – blockchain
Why blockchain is better
How blockchain works
Different types of blockchain
Public blockchains
Private blockchains
Value of blockchain
Areas where blockchain can be handy
Summary
Five Forces of Bitcoin - #2 Cryptography
Introduction to cryptography
Uses of cryptography in early times
Types of cryptography
Cryptographic techniques used in Bitcoin
Hash functions
Digital signatures
Summary
Five Forces of Bitcoin - #3 Consensus Algorithm
The Byzantine Generals' Problem
The Proof-of-Work consensus algorithm
Introduction to mining
The different aspects of a Bitcoin transaction
Nonce and difficulty
The computing power
Decentralized consensus and game theory
Examples of miner misbehavior
Example of double-spending
The architecture surrounding the Bitcoin network
Consensus attacks
Summary
Five Forces of Bitcoin - #4 P2P Network
Introduction to P2P networks
P2P model versus client-server model
Financial transactions
How Bitcoin differs
Nodes of the Bitcoin network
Types of nodes
Full nodes
SPV nodes
The Bitcoin P2P network
The mainnet
The testnet
Additional entities
Summary
Five Forces of Bitcoin - #5 Software Code Base
Introduction to Bitcoin's software code case
Wallets
Blockchain explorer
Bitcoin's scripting language
Bitcoin as an application platform
Asset registry
Crowdfunding
Summary
How Ethereum Took the Idea of Blockchain to the Next Level
Introduction to Ethereum
How Ethereum came into existence
The Theil fellowship
Understanding Ethereum
The Ethereum Virtual Machine
Introduction to virtual machines
Summary
Ethereum - A Global Platform for Decentralized Applications
Decentralized applications based on Ethereum
Types of decentralized applications
Ethereum and initial coin offerings
Decentralized autonomous organizations
The DAO
Summary
Blockchains Focused on Specific Sectors and Use Cases
The different categories of blockchain
Sector-specific public blockchains
Blockchain and IoT
Private blockchains
How blockchain affects privacy
Blockchain cryptoassets dealing with privacy
Summary
Corporate Blockchains
Introduction to corporate blockchains
R3 Corda
The core services provided by blockchains
Hyperledger
The Hyperledger frameworks
Hyperledger Fabric
Hyperledger Sawtooth
Sawtooth architecture
Hyperledger Iroha
Hyperledger Burrow
Hyperledger Indy
Enterprise Ethereum Alliance
Private blockchains for business
Summary
The Disruptive Potential of Blockchain Technology
Blockchain and financial services
How blockchain comes into the picture
Why banks shouldn't ignore blockchain
But why should banks even bother?
Banking business lines that can be potentially disrupted
How blockchain can affect lending
Trade finance on the blockchain
Blockchain and insurance
Investment banking and blockchain
Blockchain and financial regulation
Blockchain and the retail sector
The Internet of Things
How is this related to the retail industry?
Blockchain and intellectual property
Blockchain and the food sector
Blockchain and the transportation sector
Blockchain and the global tech giants
How could blockchain disrupt YouTube's dominance?
How could Blockchain disrupt AdSense?
How could blockchain disrupt Facebook's business?
Amazon
The impact of blockchain on Amazon Web services
Apple
Summary
Blockchain and AI
A brief history of AI
Implementing AI
Projects combining blockchain and AI
Future of AI for smart contracts
Summary
Current Issues and Potential Solutions to Take Blockchain to the Next Level
Issues faced by blockchain
Scalability
Governance
Interoperability
Privacy
Solutions for scalability issues
On-chain solutions
Proof-of-Stake
Sharding
Off-chain solutions
Payment or state channels
Plasma
Truebit
Solutions to other challenges
Next generation blockchain projects
The exciting world of blockchain
Resemblance to previous disruptive innovations
The technology hype cycle
Blockchain and Web 3.0
Summary
Other Books You may Enjoy
Leave a review - let other readers know what you think
Preface
Blockchain for Business 2019 is a comprehensive guide that enables you to use various blockchain functionalities to extend your existing business models and make correct and fully-informed decisions. You will learn how decentralized applications are transforming various business sectors, and that they are expected to play a huge role in the future. You will see how large corporations are already implementing blockchain technology. You will then learn about various blockchain services, such as Bitcoin, Ethereum, and Hyperledger, in order to understand their use cases in various business domains. You will develop a solid and fundamental understanding of blockchain architecture.
Moving ahead, you will get to grips with the inner workings of blockchain with detailed explanations of mining, decentralized consensus, cryptography, smart contracts, and many other important concepts. You will delve into a realistic view of the current state of blockchain technology, along with its issues and limitations, as well as their potential solutions, which can take it to the next level.
By the end of this book, you will be well-versed in the latest innovations and developments in the emerging blockchain space.
Who this book is for
This book is for financial professionals, business executives, managers, and enthusiasts who are interested in learning more about blockchain technology in various business domains. This book will help boost your existing business models using blockchain services. No prior experience of blockchain is required.
What this book covers
Chapter 1, Bitcoin, Blockchain, and Cryptoassets, introduces the reader to the content of the book. It gets the reader up to speed with the latest blockchain developments, including price action, and covers some exciting blockchain projects and use cases.
Chapter 2, A Brief History of Money, covers the definition, main functions, origins, and evolution of the concept of money from barter trade to commodities, gold standard, fiat, and finally digital and cryptocurrencies. It examines these concepts with some basic economic theory and historical examples to enable the reader to logically make sense of the current developments in digital and cryptocurrencies.
Chapter 3, The Birth of Bitcoin and the Advantages of a Decentralized Payment System, introduces the circumstances around the launch of Bitcoin and the chain of events and innovations that lead to its creation. It explains the advantages of using a decentralized system instead of a centralized system.
Chapter 4, Five Forces of Bitcoin – #1 Blockchain, introduces the five technologies driving Bitcoin, namely blockchain, cryptography, consensus algorithm, peer-to-peer network, and software code base. Then, it goes on to describe the blockchain technology in more detail.
Chapter 5, Five Forces of Bitcoin – #2 Cryptography, defines cryptography and describes its historical evolution and some key concepts that are relevant to Bitcoin and cryptoassets in general.
Chapter 6, Five Forces of Bitcoin – #3 Consensus Algorithm, discusses the heart of the Bitcoin blockchain, the Proof-of-Work consensus algorithm, which solved the double-spending problem in a decentralized way for the first time in history, and thus enabled the existence of decentralized payment networks.
Chapter 7, Five Forces of Bitcoin – #4 P2P Network, discusses Bitcoin's peer-to-peer protocol and network and the different types of nodes in the network, including full nodes, and SPV nodes.
Chapter 8, Five Forces of Bitcoin – #5 Software Code Base, discusses Bitcoin's software code base and its scripting language. Different types of wallets, blockchain explorers, and other applications are also presented. The chapter also discusses the programmability of Bitcoin, which enables features and decentralized applications such as digital asset registers, trade finance, and crowdfunding.
Chapter 9, How Ethereum Took the Idea of Blockchain to the Next Level, introduces Ethereum and its founder, Vitalik Buterin. The chapter discusses how it was launched, looks at its main features, and examines how it builds upon Bitcoin. Then it goes on to explain Ethereum's Turing-complete smart contracts and the Ethereum Virtual Machine.
Chapter 10, Ethereum – A Global Platform for Decentralized Applications, presents Ethereum's use case as a platform for decentralized applications with the help of some examples. Then it goes on to present Ethereum's crowdfunding aspect, again with examples. It also discusses Ethereum's bold vision of Decentralized Autonomous Organizations (DAOs).
Chapter 11, Blockchains Focused on Specific Sectors and Use Cases, presents some public blockchains focused on specific sectors or use cases, as opposed to general-purpose blockchain protocols such as Ethereum. Then it goes on to examine the potential impact of blockchain on the financial, consumer, and technology sectors.
Chapter 12, Corporate Blockchains, discusses the main private permissioned blockchain projects developed by and for large corporations. It describes the differences between this type of blockchain and the permission-less public blockchains discussed previously.
Chapter 13, The Disruptive Potential of Blockchain Technology, recaps the current state of affairs in the blockchain space and takes a look at the future potential of the technology.
Chapter 14, Blockchain and AI, discusses the intersection between blockchain and AI and some potential convergence points and use cases. What are the key advantages of blockchain and AI, and how can they be combined? The main thesis is that the convergence between blockchain and AI lies in the automation of tasks and entire business processes to increase productivity and efficiency in the future's shared economy.
Chapter 15, Current Issues and Potential Solutions to Take Blockchain to the Next Level, discusses the current challenges for blockchain technology, such as scalability, interoperability, governance, privacy, and regulation. Then it presents the set of solutions being developed to overcome these challenges and take blockchain to the next level and, potentially, mass adoption. Some of the main projects trying to develop next-generation blockchain technology are also presented.
To get the most out of this book
A general idea about blockchain would be useful.
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Bitcoin, Blockchain, and Cryptoassets
In this book, you will learn about the amazing world of blockchain. Blockchain is a technology that pretty much took the world by storm in 2017, and it shows no signs of slowing down. Bitcoin, blockchain, and cryptocurrency are words that almost everybody knows these days. These words have entered peoples' minds through mainstream media, which has finally paid some attention to this exciting new technology.
In this chapter, we will cover the following topics:
An introduction to blockchain
The key features of blockchain
The impact of blockchain in industries
The impact of blockchain on the internet
An introduction to blockchain
What, exactly, is blockchain? Blockchain is a rapidly increasing list of records that are linked to each other via cryptography. In simple terms, a blockchain is a record of a particular transaction that is encrypted, secured, and linked to other transactions.
When blockchain started out, it didn't gain much ground. However, by 2017, it was hard not to pay attention to a market that had increased in value by around 50 times over the course of 12 months, from around 15 billion US dollars in January, 2017, to over 830 billion US dollars on 7 January, 2018.
These are eye-watering numbers, but they only represent the value of publicly traded cryptoassets (meaning the currencies that are in circulation), and not the entire supply! A lot of the supply is still locked away and kept by the founding teams, which helps to make Bitcoin as secure as it is now. You will learn more about this in later chapters of this book.
The rise of blockchain
Just like with the internet stocks in 2000 (and pretty much every single asset that has ever existed), blockchain has gone through the boom and bust cycle of markets driven by greed and fear.
Every market participant has probably heard the following terms thousands of times:
FOMO
:
Fear of missing out
FUD
: Fear, uncertainty, and doubt
These terms correctly describe the psychology of the crowds that drive the roller coaster situation in the markets. This is especially amplified in markets dealing in new technologies, where people speculate on the future of such new technologies and startups, especially when these markets are public and global, which means that anyone, from anywhere in the world, can take part 24/7! That's the main reason for the incredible volatility that we have seen in cryptoassets.
Since its peak in January 2018, the market capitalization has gone down to the 100-200 billion USD range. While such a fall may be disappointing for some, we should still be reminded of the 15 billion market cap in January 2017. This is still amazing growth in a very short period of time, which has hardly been observed in other industries throughout history.
Key features of blockchain
The cryptoassets and blockchain market is quite possibly the fastest growing industry that the world has ever seen. This has to do with the speed at which information travels nowadays, which is also unprecedented.
So, why is blockchain such a big deal? What is Bitcoin? What are cryptoassets?
The preceding questions were asked by everyone when blockchain was new to the market. Quite often, they were given complicated answers, involving terms such as distributed database, cryptographic keys, hash functions, game theory, consensus protocols, and so on.
But, if you think about it, people were once baffled by terms such as domain name, website, bandwidth, and download. The main point is that blockchain technology is set to reshape the future, and will soon be a part of everyday life, just like the internet is.
Ease of access
Just like the internet, anyone can get involved in blockchain! We've seen people with diverse backgrounds, from all corners of society, getting involved with blockchain and cryptoassets. From the Wall Street tycoon to the average person, and even people with questionable reputations, everyone can enjoy the benefits of blockchain. On top of that, everyone involved has something to say about the glories or the evils of the technology. Even high-profile individuals and world leaders are trying to steer public opinion, in one way or another.
One of the positive effects of all of the media noise that started with the skyrocketing prices and brought blockchain to the mainstream domain, was that it attracted a lot of talent to this space. Thousands of developers and business people have joined the industry and focused their efforts on building blockchain projects. All of this new energy must lead to substantial results and value creation, which will justify some of the hype and market valuations that we have seen. But such fundamental developments and value creation don't happen overnight. They take a lot of time and effort.
Blockchain – the internet of money
The key features of blockchain—security, transparency, decentralization, immutability, and programmability, are combined in a platform, which doesn't need any central authority in order to process transactions, value, and information transfers. By doing so, in a direct, peer-to-peer way, blockchain creates a completely new paradigm for global business.
No wonder there are so many heated opinions and discussions about it; and, oh boy, can it get overwhelming! What this shows is how important this technology is, and what it can bring to the world.
While we call it the internet of money, we should remember that blockchain is a layer on top of the internet that is highly effective and efficient for storing and transferring values in a decentralized way.
The hype of industrial companies around blockchain
During the boom of 2017, we saw all sorts of projects and companies claiming to use blockchain for pretty much everything; this just shows an attempt to ride the hype wave. There were even cases such as the New York-based soft drinks company Long Island Iced Tea, which rebranded itself to Long Blockchain Corp, only to see its shares rise by nearly 500%. Such actions definitely don't help anyone, as the company was promptly investigated by the Securities and Exchange Commission(SEC).
Some of the other developments in the blockchain community were the multiple forks in the largest cryptoasset, Bitcoin, which we saw recently. Forks are basically splits in the network, resulting from differences in the software protocol being run by its participants.
We have seen various actors trying to drive their own versions of Bitcoin forward, and this has resulted in the creation of Bitcoin Cash, Bitcoin Gold, Bitcoin Diamond, Bitcoin Private, and Bitcoin Satoshi's Vision (SV), among others. Such developments may partly result from a desire to improve the protocol, but they also result from greedy attempts to achieve more control and extract more value from the internet of money. Effective governance of decentralized systems in the presence of multiple (and sometimes, contradictory) interests that have to be balanced is one of the most difficult problems that need to be solved going forward.
Going back to the key benefits of distributed ledgers, removing middlemen and quick and efficient transaction settlement are definitely right at the top. This can enable lots of interesting use cases, from payments and money transfers to property registers and capital markets. Such infrastructures can be public or private, the main differences being in the level of trust embedded in the system. A public network that is open to everyone, where parties don't know each other, needs a different level of security and a different consensus mechanism than a private, permissioned network, where parties are vetted before they are allowed to join. This will be discussed in detail later on.
Impacts of blockchain
Blockchain has the potential to fix many problems on a global scale, and to impact many industries.
There is a large number of industries that have become stagnant, centralized, and inefficient, thereby proving unable to grow economically in their current state, create value, or solve existing problems. In the case of such industries, what we need is a technological revolution, and blockchain is ready to lead the charge!
Impacts in the financial sector
The financial sector will be among the first to be disrupted by blockchain technology. The previous major technological innovations in the financial sector, the ATM and the credit card, were introduced way back in the 1950s and 60s.
Not only that, but according to the World Bank, their most recent study found 2 billion people who are unbanked. That's over a quarter of the entire global population! As you can imagine, this stunts global economic progress significantly. Not to mention that the unbanked people, who are mostly from developing countries, are at a clear disadvantage. It is difficult enough to increase productivity and trade within their own country, let alone transacting with the rest of the world. Many people consider the fees for sending money overseas for these populations unfair. Money transfer services, such as Western Union and MoneyGram, were charging 10% on average in 2008, and 7.5% in 2016. Blockchain technology can disrupt the status quo and bring this to a halt.
It can bring new, efficient solutions—not just for money transfers, but also for global trade finance, clearing and settlement, insurance and securities trading, and many more financial services and products.
But, it's not just the client facing side of finance that blockchain technology can improve. It can also streamline compliance and regulatory functions, such as anti-money laundering (AML) and know your customer (KYC).
Impacts in our daily lives
Blockchain technology can also be applied to accounting and auditing, healthcare, the media, consumer goods, logistics and supply chain management, power and utilities, the internet, and even the government. We will delve into these areas in Chapter 10, Blockchains Focused on Specific Sectors and Use Cases. For now, let's give you a little taste of the ingenious ways that some companies are trying to apply blockchain, in order to change peoples' lives for the better.
The Chinese formula scandal
Do you remember the awful Chinese infant formula scandal in 2008?
300,000 babies fell victim to melamine being added to baby formula. Melamine is a chemical used to produce plastics, which you'll find in your everyday whiteboard. When added to milk, the chemical appears to contain higher protein content, which was a dirty trick that led to many infants being hospitalized.
The effects of this scandal were felt worldwide, and they destroyed the reputation of China's food export industry! At least 11 countries refused to import dairy products from China. Chinese retailers would travel to Australia and other countries to buy huge stocks of their baby formula. And the Chinese government even executed several individuals involved in the scandal. Sadly, this is not an isolated incident. Many other companies use illegal and immoral ingredients in their foods and other consumer products, often being discovered after it's too late.
That's where blockchain technology can come into action. It can help to remedy and prevent counterfeit consumer goods. A startup called WaBi is working on resolving these kinds of problems. By combining blockchain and radio-frequency identification (RFID) technologies, they can track and verify the authenticity of all ingredients and components used in consumer goods.
Blood diamonds
Another example comes from a company called Everledger, which is working to resolve the long-standing issue with blood diamonds. Their aim is to track the origin of each diamond and record it on an immutable blockchain database.
Similarly, other startups are aiming to solve the problems of counterfeit art and other luxury goods with blockchain technology.
Gradually, distributed ledgers will become a part of our everyday lives in many different areas, helping to improve the way that we make payments and investments, the way that we register our properties, how we verify our identity, and even the way that we vote in elections.
Impacts of blockchain on the internet
Blockchain can also reform the internet, by bringing in web 3.0 and more.
A less centralized internet with more peer-to-peer interaction will discourage large internet monopolies and circumvent gatekeepers. Decentralization can empower consumers and producers alike, by giving them more control over their personal data and a level playing field in online business. It can also increase the role of prosumers, people that both consume and produce goods and services in a system. Some examples include decentralized social networks, and marketplaces, where participants are rewarded for contributing content or sharing and consuming resources at the same time. This is a next-level sharing economy, enabled by distributed applications.
Fully-programmable blockchain networks enable such distributed applications and peer-to-peer marketplaces. We have recently seen many startups trying to build more efficient markets for scarce resources, such as electricity, computer processing power, file storage, and advertising. Whether blockchain technology can be applied successfully to add value to such projects is a matter of scalability, user interfaces, and user experience.
Interoperability with other systems (and the internet as a whole) is also very important, and there are projects trying to build such protocol infrastructures in an efficient way. More importantly, the protocols are the sets of standardized rules adopted worldwide for using in computer systems to communicate with each other. Protocols, such as HTTP and FTP, have formed the base layer of the internet. Such protocols are now being developed for distributed computing systems, such as blockchain. The interaction of these new technologies and the concept of a shared economy is expected to deliver the vision of web 3.0.
Summary
This chapter introduced the basic facts and the latest developments around blockchain technology. You learned about the great opportunities and benefits that can arise from adopting and applying this technology around the world. You also saw some cases of misuse and inappropriate practices, trying to take advantage of the market hype, which will need to be remedied by market participants and regulators.
In the rest of this book, we will go deeper into each of these topics. The book will show you, in detail, how the technology works, as well as its pros and cons. We will delve further into blockchain applications, potential challenges, the solutions to those challenges, and how the technology is expected to evolve in the future. So, let's step into the world of blockchain together!
A Brief History of Money
Now that you've had a sneak peek into the enormous body of knowledge that blockchain technology manifests, it is a good time to take a step back and go back to the basics. In this chapter, we'll look at the history of money. If you can grasp how the financial sector reached its current state, then you will better understand why blockchain technology is the natural next step in monetary evolution.
The following topics will be covered in this chapter:
An introduction to money
Money – an abstraction of value
An introduction to fiat currencies
What happens when fiat currency systems fail
How blockchain comes into the picture
An introduction to money
A brief discussion of money will help to solidify your understanding of the mix of finance and technology that we have in the world today.
Basically, we should ask ourselves this question: what is money? Let's think about it for a second; we will find that it's not as easy to define as it might seem.
The textbook definition would claim that money has three main functions, as follows:
A medium of exchange
A unit of account
A store of value
If you are still lost with these definitions, we'll be going into more detail about what they mean in the coming sections.
Money as a medium of exchange
Let's look at a simple example of a barter exchange. Suppose that you traded one of your ranch's horses for a cow. What a good deal, right? Now, a week later, you go out for dinner, you finish the meal, the waitress comes over to give you the bill, and you prepare to pay her with a part of the cow that you got earlier! We can imagine that such a situation will not end well!
This is where we need money! Money is your medium of exchange. Often, you cannot trade a good or service for another good or service directly. Money is an intermediate commodity that is universally accepted and has a standard value for all parties. That's why it facilitates value exchanges more efficiently than barter trade.
Money as a unit of account
So, is that all we need money for? Actually, there's more to it. We also use money as a unit of account, meaning that we use it to compare the values of goods or services to those of other goods or services, and to record those values.
For example, when we check out and compare vehicles, we always try to find the most value for our money. We compare these vehicles by using their values, and we decide which one is better suited for us.
