What Startup Founders should understand about Blockchain
Blockchain has the potential to disrupt all industries. Today, Blockchain is more than just Cryptocurrencies.
It is a new way of storing, sharing and protecting data.
In many ways, it can be compared to the invention of cloud computing and the Internet.
Blockchain’s distributed ledger technology (DLT) allows us to create peer-to-peer networks that are decentralized and trustless.
This means that there are no central authorities such as banks or governments involved in the transaction process.
Instead, each party involved can verify and approve transactions without an intermediary.
What can Blockchain do?
Blockchain fundamentally changes three things: how we transfer assets from one person or entity to another; how we store data; and how we protect that data from third parties.
How does it work?
In order to understand how blockchain works, we first need to understand the concept of transactions and blocks in the blockchain network: Transactions are a way of transferring value between accounts, usually with one account paying another for a product or service.
Blocks are containers for transactions on a blockchain network — they are cryptographically signed by one or more parties who help create blocks on the network (e.g., miners).
A block also contains information about previous blocks in its chain as well as a hash of itself — this self-referential nature allows someone in possession of a block’s hash to verify that block’s contents without having any other information about it (e.g., not even its previous block in the chain).
Once you have created a new block with your transaction inside it, you will broadcast this new block into your local peer-to-peer network where other nodes will receive this new block into their local databases (also called blocks) as well as independently validate these transactions before accepting them if valid — thus creating consensus among all nodes about which transaction is valid (and which ones are not) based on their own local ledgers/blockchains.
When you control your own private keys (this is key), you don’t need anyone else’s permission to send value over the internet — because when you make a transaction with Bitcoin or any other cryptocurrency, you send money directly from one side of an immutable ledger entry (your wallet) to another side of an immutable ledger entry — without any middlemen involved in the process!
In order for someone else who does not have access to your private keys to send you money, they need to know your public address.
Your public address is cryptographically derived from your private key and looks like a long string of characters, letters and numbers. There is no way to derive the private key from the public address without having access to a private key.
With this basic understanding of how transactions work on a blockchain network, we can now look at what happens when we have multiple peers that want to update their local ledgers with new information or transactions.
Blockchain networks rely heavily on peer-to-peer (P2P) networks in order for nodes to be able to communicate with each other.
In order for two different peers that do not trust each other or are unaware of each other in the network (for example, two different nodes run by two different people) to exchange information or transactions quickly and without conflict, they need a common platform (the chain) where they can store data about all blocks that have been created by all other peers (or nodes) — also referred to as “network time” (or “consensus” in blockchain parlance).
Once two peers connect with each other and want to start sharing information or transactions on the blockchain network, they exchange their information about their local state of the blockchain — i.e., what blocks they have in their own databases about who owns which assets based on previous block information — by running a consensus algorithm such as Proof-of-Work, Proof-of-Stake or Byzantine Fault Tolerance on top of their own locally validated data about what has happened before in order to find out if there’s an agreement between themselves based on their own locally validated data about what has happened before (e.g., whether both nodes agree about who owns which assets).
If there is an agreement between them based on their own locally validated data about what has happened before, it means that both parties agree that there is consensus among them both regarding what has happened before — thus creating consensus among both parties regarding what has happened before.
What are some use cases for Blockchain?
Cryptocurrencies: Bitcoin was one of the first systems built using blockchain technology. With Bitcoin and many other cryptocurrencies like Etherium and Litecoin serving as digital currencies used for payments online and off-line today, everyday people can now transact directly with one another without relying on banks or governments as intermediaries.
Digital Identity: Blockchain can also be used as a decentralized identity management system. This has the potential to aid migrants, refugees and others who have been displaced by civil war or other humanitarian crisis to maintain their rights to work and access services such as healthcare and education.
Supply-chain Management: Blockchain technology can also be used to track the movement of goods and services throughout its supply chain — from raw materials, to production, to packaging, to delivery — in order for businesses to ensure that products are not counterfeit or tainted by human trafficking or slave labor.
Smart Contracts: Smart contracts allow for transactions between parties without third-party verification. This is done through computer code that executes automatically when certain conditions are met. For example, if you rent out a room on Airbnb and no one is home when the renter arrives they could set up a smart contract that automatically releases the funds from your account into the renter’s account once they check in via the GPS location on their phone.
Real Estate & Mortgages: Blockchain technology can also be used in real estate transactions, such as to verify property ownership, conduct verifications of public records and to secure the distribution of mortgages or deeds for properties.
What about the Education Industry?
We have seen a lot of higher education institutions and organizations with great ideas but their execution has been poor. These institutions have either failed to reach the right audience or created products that do not solve real problems for students and their families.
In addition, the problem with the higher education industry is that it is highly competitive, with a long sales cycle, high cost of customer acquisition and very confusing product offerings. Higher education institutions need to be able to reach out to students in an intuitive way with a very low cost-of-customer-acquisition. Also, it is important for them to understand what student needs are and provide services based on their feedback.
Blockchain technology can be used in the education industry to solve many of these problems while creating valuable experiences for students and their families. I believe there are four areas where blockchain can have the biggest impact on this industry: consumer identity management, transfer of assets (e.g., money), academic records and smart contracts. I am exploring ways to apply blockchain technology in all of these areas using my company’s products at Cudy Technologies.
Blockchain technology has the potential to disrupt almost every industry from finance, health care, education, energy and even public services. As cryptocurrencies like Bitcoin continue to gain traction globally, it’s important that startup founders are aware of blockchain technology’s potential impact on their businesses in the future.
About the Author
I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students teach and learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.