This is our slides in a seminar for MBA students

1. Blockchain Tutorial for MBA
Chang, Chong Yie
Ver. 1803311505
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2. Who am I?
A loser photo for
McKinsey job
application
• Job
• Blokcert, 2018 -
• ITRI, 2013 – 2018
• iCatch, 2012 – 2013
• Avermedia, 2011
• ITRI, 2002 – 2009
• Education
• IMBA, IE Business School, 2009 – 2010
• Pre-MBA, Thunderbird, 2009
• Ms. in EE, CCU, 1998 – 2001
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3. Goal of The Slides
 Basic introduction to blockchain
 Cryptocurrencies
 Blockchain applications for a manager (market vision)
 Blockchain applications for a manager (company vision)
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4. Basic Introduction to Blockchain4

5. Let’s Start from Bitcoin
The first blockchain
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6. Centralized Database
Admin
User User
• Who can read/write
• The admin actually owns
the data
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7. Centralized Data with Multiple Parties
- Wikipedia
Company A Company B
• The administrator can freeze
a page if he wants.
• You believe that Wiki is a free
world.
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8. Centralized Data with Multiple Parties
- Wiki
A DB controlled
by the 3rd patt y
Company A Company B
The 3rd party
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9. Blockchain
• No, they do not trust each
other
• You can join the eco-system
by following the same
protocol
• The have consensus.
• Each node can have a full
copy of the chain.
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10. Computer Science behind Blockchain
-Hash
hash
functionkeys
John Smith
Lisa Smith
Sandra Dee
buckets
00
01 521-8976
02 521-1234
03
: :
13
14 521-9655
15
Any length Fixed length
Fast
OK
NO
• In general, you can verify uniqueness of
data by using “hash”.
• Blockchain uses hash to guarantee that
previous block is not tampered.10

11. Computer Science behind Blockchain
-Public Key Cryptography
Alice
Large
Random
Number
Key
Generation
Program
Public Private
Hello
Alice!
Alice's
private key
Encrypt
6EB69570
08E03CE4
Hello
Alice!
Decrypt
Alice's
public key
Bob
Alice
• The algorithm guarantees
that
• any one can encrypt data
by using Alice’s public key.
• only Alice can decrypt the
information.
• It is slow.
An address is an
alias of a public key
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12. Computer Science behind Blockchain
-Digital signature
• Blockchain uses
digital signature
to guarantee
that a transaction
is really executed
by “an address”.
Data
Hash
function
101100110101
Hash
Encrypt hash
using signer's
private key
111101101110
SignatureCertificate
Attach
to data
Digitally signed data
Digitally signed data
Data
Hash
function
101100110101
Hash
111101101110
Signature
Decrypt
using signer's
public key
101100110101
Hash
?
If the hashes are equal, the signature is valid.
Signing Verification
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13. Computer Science behind Blockchain
-P2P Network
• Blockchain uses P2P
network to make
sure that everybody
is aware of a
transaction.
• The slow
propagation of P2P
network limits
blockchain’s
capacity.
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14. Consensus on Blockchain #1
 There is no authority on blockchain.
 A transaction is valid because “most people has the
consensus on the validity of a transaction.”
 A transaction is valid not because it is valid but because
everybody admits it.
• In a world without authority, democracy is the
solution.
• Truth is not important, people believe you is
important.
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15. Consensus on Blockchain #2
• Everybody has the consensus
that the longest chain is
trustable.
• Believe in market
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16. Users on Blockchain
• Wallet: Users use wallets to
keep the key and issues
transactions. It does not have
to keep the whole chain.
• Exchange nodes accept
transactions and forward
transactions on P2P network.
• Miner nodes write transactions
on the blockchain.
Each node keeps
a full copy of the
chain.
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17. Transactions on Blockchain
Block 11
Prev_Hash
Tx_Root
Timestamp
Nonce
Block 10
Prev_Hash
Tx_Root
Timestamp
Nonce
Block 12
Prev_Hash
Tx_Root
Timestamp
Nonce
Hash01 Hash23
Hash0 Hash1 Hash2 Hash3
Tx0 Tx1 Tx2 Tx3
• A newer block hashes the
previous block.
• Each block contains multiple
transactions.
• Senders issue transactions.
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18. Why is Blockchain Temperproof
Block 11
Prev_Hash
Tx_Root
Timestamp
Nonce
Block 10
Prev_Hash
Tx_Root
Timestamp
Nonce
Block 12
Prev_Hash
Tx_Root
Timestamp
Nonce
Hash01 Hash23
Hash0 Hash1 Hash2 Hash3
Tx0 Tx1 Tx2 Tx3
Newer block hashes
previous block and
guarantees that the
previous block is not
tampered.
Each node keeps
a full copy of the
chain.
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19. What is Mining? #1
The first question, the oldest
question in the universe,
hidden in plain sight.
Who can write a transaction on the chain?
The person who cannot
lose his value on
blockchain.
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20. What is Mining? #2
• The program sets a difficult quiz
question to find a set of special
values which only can be
solved by brute-force.
• The first winner get bitcoins as
reward and collects
transaction fees from
transactions.
• There will be a new block every
10 minutes.
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• Making evil invest a lot on the
eco-system

21. Why is Blockchain So Slow?
 Transactions are batch-processed into a block every 10
minutes.
 People need time to figure out the longest chain.
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22. Why is Blockchain So Successful
 A genius solution for multiple parties who may not trust
each other.
 Everybody can join the market as long as that the new user
use the same protocol.
 Cryptography
 makes records on blocks trustable and auditable.
 allows transactions executable automatically among multiple
parties.
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23. Blockchain Platform Overview #1
 3 types of blockchain
 Public: Any person can access the blockchain and any person can
become a node on the chain
 Consortium: Only accept selected node from different parties
 Private: There is only one party control all nodes of a blockchain

24. Some Major Blockchain Platforms #1
Name Type of Chain
Supported
Applications Pros/Cons Notes
Bitcoin Public, Private Asset, cryptocurrencies,
snapshot of consortium
private chains
Has been review
thoroughly, trustable/
Transaction service charge
is too high, low transaction
throughput
One of the only two crypto
currencies I trust.
Ethereum Public, Private, and
Consortium
Asset, cryptocurrencies,
snapshot of consortium
and private chains,
business applications
Has been review
thoroughly, trustable/
Transaction service charge
is too high, low transaction
throughput, difficult to
develop consolidate smart
contracts
One of the only two crypto
currencies I trust.
Hyperledger Consortium and Private Asset, Business applications Supported by IBM and
Linux, Better architecture
design/ lack support of
cryptocurrencies
I only have limited
knowledge on Hyperledger
Ripple Public Wire transfer I believe that it is a fraud.
I only have limited
knowledge on Ripple
It may be fraud

25. Some Major Blockchain Platforms #1
Name Type of Chain
Supported
Applications Pros/Cons Notes
IOTA Public and private IOT applications It may be a fraud.
I only have limited
knowledge on IOTA
Too complicated to be
publicly reviewed.
R3 It was famous but not
important any more

26. Cryptocurrencies26

27. Only Two Cryptocurrencies Trustable
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• The mechanism is transparent.
• Enough liquidity on the market.
• The intrinsic property as asset is obvious
• Enough liquidity on the market.
• The eco-system is keep growing.

28. ICO without Regulation = Fraud
 Why are there regulations for raising fund on the market?
 To prevent fraud.
 Do most ICOs work hard on preventing fraud?
 No
 Can we link the token to company performance?
 No
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29. Regulators vs. Cryptocurrencies29

30. Cryptocurrencies vs. Fiat Currencies30

31. Why is Cryptocurrencies Critical?31

32. The more chaotic the world is
The Better bitcoin is
32

33. Blockchain Applications for a
Manager (Market vision)33

34. The Best Part of Blockchain
 It creates a market inherently.
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35. More and More Regulation
Good news
 More trust
 More protections to vendors,
investors, and consumers.
 Clearer direction for market
development
Bad news
 Limit of usage
 Unstable regulation (short-term)
 The eco-system may become
centralized and inefficient again.
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36. Huge Space to be Improved
 The capacity is low.
 Less than 100 transactions per second.
 Resource consuming
 Lack of trust
 Lack of mature standards and architectures
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37. Blockchain Applications for a
Manager (Company vision)37

38. Asset or Currencies?
 How can you evaluate your cryptocurrency value on your
books?
 Are you willing to register all addresses of your company?
 How can you identify peers of you cryptocurrency
transactions?
 Any extra tax after your cryptocurrency payment?
 How can you distinguish pure cryptocurrency transaction
and cryptocurrency payment?
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39. Ask The Questions before You Go
39

40. Understand Pros and Cons of
Blockchain
Pros
• All changes are traceable
• High trustworthy with careful
design
• All participants can have all
transaction data
• Mutual trust is not necessary
• Smart contract allows not-
temperable and automatic biz
flows.
Cons
• Too slow and limit capacity
• Current PoW mechanism is
resource consuming
• The eco-system is fragile
without enough participants.
• Careful design is necessary for
privacy protection.
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41. The Ideal Model for Blockchain in a
Company
Business applications
Smart contract & API
Layer
Blockchain Infra
Using APIs to develop applications for services
Unaware of different infrastructures
A dedicate team to develop smart contracts
and create API for the smart contracts for
business flows.
Using BaaS should be a better
choice
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Legacy IT Infra
Legacy API Layer

42. Some Blockchain Applications
- Future global payment
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* Courtesy of Microsoft
Initiate Relationship Transfer Money Deliver Funds Act Post Payments
Sender Bank
Money
Transfer
Operator
Beneficiary Bank
Money
Transfer
Operator
Distributed
Ledger
On-demand
Reports
Regulator
4
5
6
Regulator
Smart contract
Real-
time AML
Fiat
currency
Fiat
currency
Sender
Future state process
Trust between the sender and a
bank or money transfer operator is
established either via traditional KYC
or a digital identity profile
1 • The regulator can monitor
transactions in real time and receive
specific AML alerts through a smart
contract
• Funds are deposited automatically to
the beneficiary account via a smart
contract or made available for pickup
after verifying KYC
6 • Periodically, according to local
regulations, the bank and money
transfer operator will provide reports
to regulators containing transaction
details (e.g. sender and beneficiary
ID, currencies, transferred amount
and timestamps)
1 Verify KYC
2 Transfer request
3 Submit transfer
Beneficiary
7
A smart contract encapsulates the
obligation to transfer funds between
sender and beneficiary
2
The currency conversion is facilitated
through liquidity providers on the
ledger
3
• A smart contract enables the real-
time transfer of funds with minimal
fees and guaranteed delivery
without the need for correspondent
bank(s)
4
5
7

43. Some Blockchain Applications
- Trade finance
43
* Courtesy of Microsoft
Establish Payment Terms Deliver Goods Settle on terms
- Order Goods
Export Bank
Export Bank
2
3
51
Provide Invoice
Import Bank
Inspection
company
Customs
Country A
Freight
Customs
Country B
Importer Exporter
Importer Bank
Exporter
Importer
Receive goods
Initiate
Payment
Verified
Goods
Product
Shippe
d
4
Future state process
Following the sale agreement, the
financial agreement is shared with
the import bank through a smart
contract
1
• The goods are transported by freight
from Country A to Country B and
inspected by local customs agents
prior to being received by the importer
6
The importer digitally acknowledges
receipt of the goods, which initiates
payment from the import bank to the
export bank via a smart contract
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The import bank reviews the
arrangement, drafts the terms of the
letter of credit and submits it to the
export bank for approval
2
The export bank reviews the letter of
credit; once approved a smart
contract is generated to cover the
terms and conditions of the letter of
credit
3
The exporter digitally signs the letter of
credit within the smart contract to
initiate shipment
4
Goods are inspected by a third-party
organization and the customs agent in
the country of origin (ideally using a
digital signature for approval)
5
6 7
Financial
Agreement
Smart
contract
Letter of
Credit
Shipment
Initiated
Smart
contract
Shipment
received
Smart
contract
Smart
contra
ct
Payment
Complete

44. Some Blockchain Applications
- Renewable energy
44
G
Consumes renewable
electricity locally

45. Reference Data
 https://medium.com/blockchain-blog/17-blockchain-
platforms-a-brief-introduction-e07273185a0b
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