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Blockchain And New Economic Paradigms

Seminararbeit 2018 15 Seiten

Informatik - Wirtschaftsinformatik


Table of Contents

1 Introduction

2 Blockchain Overview
2.1 Distributed Power
2.2 Paradigm Shift
2.3 Benefits of blockchain
2.3.1 Cost Efficiency:
2.3.2 Transparency & Trust:
2.3.3 Immutability:
2.3.4 Security:
2.3.5 Time efficiency:

3 Sample Use Cases on blockchain

4 Blockchain as a catallaxy

5 Conclusion:

1 Introduction

During the past years arising technologies and globalization have forced institutions and companies dealing within different challenges of digitalization. Systems and applications have become more complex and interconnected, setting a difficult problem for the current legacy systems and applications.

With the invention of Bitcoin in 2008 by a person or group of people known by pseudonym “Satoshi Nakamoto”, a solution to the challenges of globalization and digitalization was introduced to the world (Bashir 2018). Not Bitcoin as a cryptocurrency by itself, but the system Bitcoin is based on: blockchain technique. This new technology promises to radically alter the existing paradigms of nearly all industries including IT, finance, government, media, medical, energy and law as the most important ones (Bashir 2018, p. 8). The topic of this seminar paper is to elaborate the revolutionary implications of blockchain on different sectors and to glance at possible future aspects of blockchain’s potentials setting a new paradigm.

2 Blockchain Overview

So what is blockchain all about? Let us have a look at the key elements and why this is likely to become a game changer.

2.1 Distributed Power

Blockchain is a public decentralized ledger platform (Evans 2014). Across a peer-to- peer network, it distributes power with no single point of control (Tapscott 2018, p. 33) and can simplify the current paradigm which is the disparate nature of the systems. Blockchain reduces the complexity of managing separate systems because as a distributed ledger where information is updated automatically, it can be used by all parties during the same time.

Consequently, keeping lots of separate systems up to date and synchronized between each other is not needed due to the concurrent use of the same ledger with the same information. This implicates that blockchain structures disorganized systems which makes them significantly more efficient and incorruptible, because no centralized version of this information exists for hackers to corrupt. The revolutionary effect of such a distributed ledger can be applied to disrupt any centralized system that coordinates valuable information (Wright and De Filippi 2015).

2.2 Paradigm Shift

Blockchain is a disruptive, innovative technology (Swan 2015; Wiles 2015; Pilkington 2016) whose core benefit and service is providing decentralization (Bashir 2018, p.42). This general service of blockchain will lead to a paradigm shift from the current paradigm of centralized systems to the new paradigm of decentralization as shown in figure 1. Combined with the objective of working out the paradigm shift, figure 1 is applied, which presents a transaction example between two parties.

Figure 1: Paradigm Shift

Abbildung in dieser Leseprobe nicht enthalten

The most efficient structure to create, establish and enforce rules is centralization at the beginning which minimizes duplication and implements clear hierarchy (Davidson, De Filippi, & Potts 2016). The current paradigm is the reliance on a third-party intermediary like PayPal, Visa or Mastercard. There is no possibility for two parties of acting directly with each other because central systems like banks and intermediaries are placed between. In the current paradigm intermediaries are a necessary entity because of their responsibility of transferring money from one bank to another bank. Banks are also essential because they provide the movement and production of capital and the operation of the payments system. They can be seen as a centralized ledger of transactions matching savers with borrowers and intermediating on two sides of the market.

Blockchain is about to disrupt this intermediation by matching two parties directly which leads to the new paradigm. It is characterized in the redundancy of a trusted third party and in the reliance on blockchain for peer-to-peer or business-to-business transactions. Enabled by blockchain as a peer-to-peer electronic cash system based on cryptographic proof instead of trust, any two willing parties can directly transact with each other (Catalini & Gans 2017, p.l). Conceptually it is possible of placing blockchains alongside markets, as an open platform technology performing this decentralization service (Potts 2001). According to Vitalik Buterin, blockchains as decentralized systems are converging on being a ‘world computer’ (Wood 2015) meaning the idea that any application running on such a platform will be global in reach.

Because of this new decentralized opportunity through technological enablement, there are a lot of options and benefits through Blockchain which will be explained in the next abstract.

2.3 Benefits of blockchain

In order to work out the future predictions and impacts of blockchain, it is significant to address the most important advantages of blockchain technology at first. The main benefits are (2.3.1) cost efficiency, (2.3.2) trust and transparency, (2.3.3) immutability, (2.3.4) security and (2.3.5) time efficiency.

2.3.1 Cost Efficiency:

Intermediaries have a substantial market power because their advance in knowledge allows them to charge up fees for their transaction service. Same time they gather further power by having unique and rich access to transaction data between market players. Inefficiency, reduced innovations, the presence of a single point of failure, privacy risk and censorship risk are the consequences of these mark-ups (Catalini & Gans 2017, p.16).

Blockchain facilitates costless verification by allowing peer-to-peer and business-to- business transactions to be completed without the need for a third party. Having no third party, the transaction costs converge against zero. Furthermore, the costs of centralization rise the more they become vulnerable to exploitation while the costs of decentralization fall due to technological progress (Davidson, De Filippi, & Potts 2016, p. 5). As a distributed ledger blockchain becomes “increasingly cost effective to centralized solutions as they run down three exponential cost curves: (1) Moore’s law (cost of processing digital information, i.e. speed, halves every 18 months); (2) Kryder’s law (cost of storing digital information, i.e. memory, halves every 12 months); (3) Nielsen’s law (cost of shipping digital information, i.e. bandwidth, halves every 24 months) (Wiles 2015)” (cf. Davidson, De Filippi, & Potts 2016, page 3). Due to the strong learning curve of technology, blockchain is driving to a technological substitution against the mature technology of a centralized ledger (Davidson, De Filippi, & Potts 2016, p. 3).

2.3.2 Transparency & Trust:

Blockchain is also a trustless technology, meaning that instead of requiring a third party verification, it “uses a powerful consensus mechanism with cryptoeconomic incentives to verify authenticity of a transaction in the database” (cf. Davidson, De Filippi, & Potts 2016, p.3). Blockchain has an open-source structure which offers users a complete control over all the information and transactions stored in the distributed ledger. Enabling every member making a change in a public blockchain and viewing all changes that are made. Because of this, a perfect transparent system is created and as a result of transparency, trust is established. So “trust in the intermediary is replaced with trust in the underlying code and consensus rules” (cf. Catalini & Gans 2017, p.8).

2.3.3 Immutability:

Immutability of Blockchain describes the extreme difficulty of changing information maintained in the blockchain. The transactions are placed in a chronological chain-order and as more blocks are added during time, it becomes more difficult to tamper. A bad actor would have to spend a disproportionate amount of resources to change past transaction data because he would have to outpace the growth rate of the legitimate chain and to recompute all blocks after the manipulated block as the blockchain network is always taking the longest, valid chain as the true state of the ledger (Catalini & Gans 2017, p. A-2). Therefore, information in blockchain systems cannot be changed, modified or lost which provides a permanent historical incorruptible record.

2.3.4 Security:

Before being linked to the previous block, every single transaction is automatically validated and cryptographically secured by the blockchain. Furthermore, information is stored across the decentralize network rather than on a single computer, making it tough for hackers accessing it. Blockchain allows a privacy-preserving way of verifying transactions through preventing information leakage by allowing market participants to verify transaction attributes and enforce contracts without exposing the underlying information to a third party (Catalini & Gans 2017, p.6). The private data problem is removed due to the redundancy of exposing private information to a third party intermediary and the safety of private data not being reused of the original contractual arrangement (Catalini & Gans 2017, p.6).

2.3.5 Time efficiency:

A further major benefit in adaption of blockchain is time efficiency. Analyzing traditional transactions, usually it takes days to settle completely, it requires a third- party intermediary and is prone to human error. Blockchain can automate and make this process faster. Any data inputted into the blockchain is transmitted and stored automatically, so in real time. Cutting out intermediaries, there are also less transactions to absolve. Furthermore, blockchain is working 24 hours a day seven days a week instead of traditional banks having some services during business hours five days a week only.

3 Sample Use Cases on blockchain

Integrating blockchain technology into business is about shifting the common approach of centralization and addressing the organizational and business challenges of digitalization through a standard peer-to-peer or business-to-business architecture. This challenge is being faced by Hyperledger.

Hyperledger is a cross-industry collaboration founded by the Linux Foundation in December 2015. It includes companies ranging from the IT sector to the mobility technology sector over financial industries to blockchain start-ups such as Daimler, IBM, JP Morgan and Blockstream. Hyperledger is not just a single blockchain. It is a platform for blockchain based solutions and provides a framework for companies to build up their own blockchain relying on smart contracts. One of the first applications on Hyperledger is Rdw.

Rdw is a road transport initiative and it has developed a blockchain solution for bicycles in the Netherlands. The concept behind Rdw is that information about the bicycle are being saved in the blockchain and most important the ownership.



ISBN (eBook)
ISBN (Buch)
Institution / Hochschule
Johann Wolfgang Goethe-Universität Frankfurt am Main
Blockchain Catallaxy




Titel: Blockchain And New Economic Paradigms