Blockchain Enterprise: The significant evolutionary step of DLT

Considering that Dilbert's comic above made some sense to you, my proposal here is to provide a non-exhaustive overview of DLT Distributed Ledger Technologies. It may not meet your expectations if you are already working in the area or have a technical bias. The proposal here is to generate foundations for business discussions based on the concepts that guide technology adoption. If you've never heard of Blockchain, I recommend a quick video from the World Economic Forum, watch and come back; it's pretty simple and can help [https://www.weforum.org/videos/what-is-blockchain].

Now, let's talk a little bit about terms you'll eventually hear when you're talking about Blockchain or other related technologies. First, following Dilbert's tip, let's clarify some alphabet soup ("the words") that can be used in the rest of the explanation.

A ledger, as a concept, is a book or system where a set of transactions (example: accounting/financial) validated permanently are recorded. In the accounting case, it is that paper book where transactions are recorded in pen (permanent).

Distributed Ledgers, in this context, is a group of technologies capable of delivering the characteristics of a Ledger (permanent record of a fact) in a distributed way, understood to be distributed in 2 or more different companies/copies having the same information.

Blockchain is the technology that implements a Distributed Ledger, fundamentally using cryptography, blocking (block) of the chain transactions (chain), and a distributed processing model to validate the integrity of the information in the blocks (block) by validating the previous cryptographic chain (chain) /historical.

If it got a little confusing, look at this link below, it's straightforward and quickly illustrates what I tried to explain in a few words.

http://graphics.reuters.com/TECHNOLOGY-BLOCKCHAIN/010070P11GN/index.html

Cryptocurrency, where Bitcoin is the most emblematic exponent, is an application developed using Blockchain implementation and "gamification" techniques as an incentive for the integrity and security of the network in addition to a remuneration model.

Smart Contracts, or smart contracts, are a piece of computer code that performs a specific, pre-programmed task. For example, a validation of the mandatory information for which job I must perform at noon. Sorry if this definition is simple, but in practice, it is. You in the digital world already deal with software running tasks and programs all the time; here, just the context is different.

About missed terms like Proof Of Work (proof of work), mining, and others, don't worry; we'll talk about these in a specific article. I didn't put it here so as not to distract from macro concepts in general when we get into these terms; there's an article about Bitcoin. It's like a black hole that attracts the brain, and in the end, people have forgotten what Blockchain is and are asking if I have Bitcoin, how I buy it, and other things. Let's stay focused.

The rest of our approach will be in the figure below, which will help us understand the real proposed meaning and the central objective. The analysis focuses on understanding and recognizing 3 moments (depending on your age, the first moment doesn't even exist in your memory, before the internet).

My proposal to understand the impact of DLTs or Distributed Ledger Technologies is to analyze the relationship between companies and their interactions.

The most basic would be Communication; here, we focus on how companies communicate (channel/medium — for example, the internet). The second step is how companies process the information received in this Communication; we are talking about which business rules are applied to this Communication by their systems. The third step occurs after processing; when using business rules, I can say whether this information is true or false (perception). Finally, based on this scenario, we define which action to take.

If you're a little confused, then let's look at an example:

Two companies, A and B, decided to carry out a transaction that makes sense between them; to illustrate, I will call [pay].

Stage 1 – Companies A:

• [Action] Send a message containing [Amount, Payment Date];

• [Perception] this message is accurate, system company A;

• [Processing] validate if the amount is greater than zero and if the payment date is valid, company A's system;

• [Communication] via internet or reliable channel, this Communication will arrive at company B;

Stage 2 – B Companies

• [Communication] receives a message from Company A, considers that the channel is valid, and agrees between them;

• [Processing] validates if the amount is greater than zero, and if the payment date is valid, company B's system;

• [Perception] if your system is validated, it understands that the message is valid, company B's system;

• [Action] performs some action with this message, in this example, pay;

Before the Internet:

Before the Internet, the main problem between companies was communication. The race here was communication protocols and standards, like good old TCP/IP — still not the best — coming through. Having communication, like a phone line, would make a difference in your ability to do business with partners and consequently in your results; phone lines were assets — as cars are today (if it sounds crazy, it's because you didn't live the 80's and early 90's). 

Now:

With the advent of the internet, abstractly for other communication protocols. There has been a change in the way companies communicate using technology. Eventually, our perception as individuals of the internet is website access but try to provoke yourself to expand and think about emails, voice-over data (VoIP), file transfers, APIs, and others. Establishing a standard communication protocol between the parties has taken us to a leap in business integration, and the last few years have been pure fun.

There have been revolutions in companies. However, we still have a simple integration between the businesses. I will try to illustrate it better. Companies have a common communication channel, however:

• They reprocess [processing] the transactions between the parties. What does it mean in terms of technology that two companies write the same system to validate the same message, each from its perspective;

• The perception of truth is bilateral; that is, from my point of view, it is validated, generating here the infamous conciliation and reconciliation processes;

• Actions are the core of the business. How do I, as a business, take action with this information after it has been received [communication], processed [processing], validated [perception]?

After Shared Ledger:

What the distributed ledger technologies bring is similar to what happened with the advent of the Internet [Shared Communication], a way to solve or improve the stages of [Processing] and [Perception].

• We write a common SmartContract (software) with the standard rules that need to be validated for all participants to consider a transaction valid [ Shared Processing ] — the key is to find the standard rules among the participants.

• This same code will be validated and reprocessed by two or N network participants using some consensus algorithm.

Oops, I forgot this explanation about consensus algorithm, but come on, a consensus algorithm is the set of rules supported by technology that a given transaction must meet to be considered valid by all network members.

So, for example, in a Network of 10 participants, we can establish that three participants must re-validate a transaction so it can be valid for the others.

Once validated by two or N parts of the network, the information is sent for recording definitively among the others [Shared Perception=Truth]; all will have the same validated information. Reducing here your conciliation or reconciliation with your external partners.

Here lives what many have called “the Blockchain revolution.” These characteristics allow deep integration of businesses and production chains guaranteed by the capabilities delivered by technology and desired by companies and governments for centuries: a shared, integrated, and verifiable truth in the form of a distributed ledger implemented by technologies such as Blockchain.

It allows companies to focus on their business [action] and new models that can be explored from this new paradigm.

Phew. This one was long, huh? We can explore some examples in this context. However, the objective here is to establish these fundamentals. So save it carefully, and we will analyze the usage in the following articles.

André Carneiro

Emerging Technologies and DLT /Blockchain

• The future of financial infrastructure — An ambitious look at how blockchain can reshape financial services.(World Economic Forum)
• A REUTERS VISUAL GUIDE Blockchain explained.(reuters.com)
• World Bank Presentation Sept 2016v1 — Global Symposium for Innovative Financial Inclusion.