Information Systems for

Managers (ISM)

▪ Session: 8
▪ Term: 3
▪ Batch: PGP 2022-24
▪ Facilitator: Dr. Ashish Viswanath

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 Blockchain
Managerial Overview of Tech Trends

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 Case
Coda Coffee and bext360 Supply Chain

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https://youtu.be/-mxyh39UjjI
What are the Coda Coffee founder’s
objectives?
What do these guys care about the most?
Group 11
What are the objectives of Fair-Trade &
Farm2Cup certifications?

Group 5
Do you think these certification helped in
achieving the objectives of Coda coffee
founders fully?

Group 5
• Key limitation?
• Fairtrade certificate neither guarantees quality nor ethics
• Low transparency and quality
• Traceability

• Solutions?
• Greater transparency (into ethics & quality of sourcing)
• Blockchain?
How does Bext360’s SaaS solution ensure
transparency?

The key to transparency is in the immutability

of records within the blockchain
https://youtu.be/sP14yyQaz3s
Year 2008
Blockchain
• 2008 - Dawn of a new revolution
• Bitcoin - An alternative currency was launched in 2008 on the
Internet, no central authority, automated consensus among
networked users
• Solution to lack of trust in the Banking system

• Bitcoin is a digital cash transacted via the Internet in a decentralized

trustless system using a public ledger called Blockchain
Digital Cash
• Electronic equivalent of paper currency

Properties:
• Independence: Do not require a physical transfer of value
• Security: Not possible to be double-spent or illegally created
• Privacy: Protect the privacy/anonymity of the user, untraceable
• Off-line: Payment Payee does not need to involve a bank
• Transferability: Directly from one user to another

Digital assets could be easily replicated

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Traditional Centralized Systems

• To verify and facilitate transactions between individuals/org. and thereby

change the ledger of each party; trusted third parties such as banks,
certificate authorities and credit card companies are involved.
• Limitations:
1. Multiple version of the truth
2. Little transparency
3. Slow Settlement times
4. High transaction costs
5. Security & Privacy

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How to move ‘value’ peer-to-peer
without any central intermediary?

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 How to move ‘money/value’ peer-to-peer
without any central intermediary?

Solution: ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ Nakamoto (Oct 31, 2008)

• The solution replaced a centralized trusted third party with a network of users, allowing
for a truly decentralized peer-to-peer payment solution.

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Mechanism

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What is Blockchain?
Definition:
• “A blockchain application is a distributed peer-to-peer system for
validating, time stamping, and permanently storing transactions on a
distributed ledger that uses cryptography to authenticate digital asset
ownership and asset authenticity, and consensus algorithms to add
validated transactions to the ledger and to ensure the ongoing integrity
of the ledger’s complete history.” (Lacity, 2018)

What does it do?

• It allows untrusting parties with common interest to co-create a
permanent unchangeable and transparent record of exchange and
processing without relying on a central authority (Gregory & Savic, 2019)
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What is Blockchain?
Time stamped append-only log Auditable database Consensus Protocol

Secured via Cryptography:

Addresses ‘cost of trust’
• Hash functions for tamper
(Byzantine Generals problem)
resistance & Integrity
• Digital Signature for consent
• Consensus for agreement
Source: MIT opencourseware 20
Cryptography:
Definition: Communications in the presence of adversaries

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Cryptography:
Definition: Communications in the presence of adversaries

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1. Tamper proofing using Hash function
• Hash function is an algorithm that calculates
a relatively unique output (called a message
digest) for an input of nearly any size (e.g., a
file, text, or image)

• Creates a “digital fingerprint” of the data

• Attractive way to verify that the underlying

data has not been tampered without giving
away the data

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 Demo - Hash
https://andersbrownworth.com/blockchain/hash

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2. Consent using Digital signature

• Allows to validate the authenticity of message/document

• It's the digital equivalent of a handwritten signature, but it offers far more inherent security
• Solve the problem of impersonation in digital communications
• Signers can also use them to acknowledge informed consent 25
 Consensus
In a decentralized network - no “central authority”

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Decentralized
Network
Consensus
Determining which user publishes the next block

Satoshi’s solution:
Security based on
1. Consensus Protocol (PoW)
2. Native Currency (Incentive)

If there is no central authority, how does the distributed

network (like the distributed generals) come to some
agreement?

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 Bitcoin
Transaction

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Blocks
• Users submit candidate transactions to the block chain
network via software
• It must then wait in a queue until it is added to the block
chain by a publishing node
• The block data contains a list of validated and authentic
transactions which have been submitted to the
blockchain network.
• Validity and authenticity is ensured by checking that the
transaction is correctly formatted and that the providers
of digital assets in each transaction have each
cryptographically signed the transaction.
• The other verifying nodes will check the validity and
authenticity of all transactions in a published block and
will not accept a block if it contains invalid transactions.

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 Demo - Blocks
https://andersbrownworth.com/blockchain/block

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 Chaining the Blocks
• If a previously published block were changed, it would have a different hash.
• This in turn would cause all subsequent blocks to also have different hashes since they include the
hash of the previous block.
• This makes it possible to easily detect and reject altered blocks

Source: NIST
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Nonce – for PoW (Proof of Work)
• Nonce is an arbitrary number
• Can be combined with data to produce different hash digests per nonce
hash (data + nonce) = digest
• Changing the nonce value provides a mechanism for obtaining different digest values while keeping
the same data.
• This technique is utilized in the proof of work consensus model

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Mining
• The steady addition of a constant of amount of new coins is analogous to gold miners
expending resources to add gold to circulation. In our case, it is CPU time and electricity
that is expended
• The incentive can also be funded with transaction fees

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https://youtu.be/FtR06bIDxkE
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Proof of Stake – Consensus Protocol
• Based on the idea that the more stake a user has invested into the system, the more
likely they will want the system to succeed, and the less likely they will want to subvert it.

• No coin creation (mining) exists in proof of stake

• Instead, all the coins exist from day one, and validators are paid strictly in transaction fees
• Stake is often an amount of cryptocurrency that the blockchain network user has invested
into the system (through various means, such as by locking it via a special transaction
type, or holding it within special wallet software)

• In PoS, your chance of being picked to create the next block depends on the fraction of
coins in the system you own (or set aside for staking).
• If the validator tries to double sign the system, those coins are slashed

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 Principles of Blockchain
• Distributed Database
• Each party on a blockchain has access to the entire database and its complete history.
• Records can be verified directly by each party, without an intermediary.
• Peer-to-Peer Transmission
• Communication occurs directly between peers instead of through a central node (intermediary).
• Transparency with Pseudonymity
• Transaction are visible to everyone and users can choose to remain anonymous.
• Irreversibility of Records
• Various computational algorithms and approaches are deployed to ensure that the recording on
the database is permanent.
• Computational Logic
• Users can set up algorithms and rules that automatically trigger transactions between nodes.

Source: The Truth about Blockchain, HBR, 2017

Blockchain Categorization

Permissionless Blockchain Permissioned Blockchain

• Unknown Participants • Known set of participants – trusted parties
• Open to anyone publishing blocks, without needing • Users publishing blocks must be authorized by some
permission from any authority authority
• Any user can read and write to the ledger • Possible to restrict read access and to restrict who
can issue transactions – revoked (if they misbehave)
• To prevent malicious users, it uses a ‘consensus’
system that requires users to expend or maintain • Also use consensus models for publishing blocks,
resources when attempting to publish blocks but these methods often do not require the expense
or maintenance of resources (no mining)
• Usually promote non-malicious behavior through
rewarding the publishers of protocol-conforming • No need for a native currency
blocks with a native cryptocurrency
• Consensus models are usually faster and less
computationally expensive (low power consumption)

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 Blockchain Continuum

Source: Murray, M. (2019). Tutorial: A Descriptive Introduction to the Blockchain. Communications of the Association for Information Systems, 45
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https://youtu.be/AEfg8hJsYbA
https://youtu.be/CYJILzRKJmQ
Emerging Applications of
Blockchain

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Smart Contracts
• Smart contracts are digital contracts that run on a Blockchain

Definition:

“A computerized transaction protocol that executes the terms of a contract. The general
objectives of smart contract design are to satisfy common contractual conditions (such as
payment terms, liens, confidentiality, and even enforcement), minimize exceptions both
malicious and accidental, and minimize the need for trusted intermediaries.”
- Nick Szabo (1994)

“A smart contract is a collection of code and data that is deployed using cryptographically
signed transactions on the blockchain network” - NIST

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Smart Contracts
• Paper contracts separates agreement from the execution

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A Digital Vending Machine
• A simple metaphor for a smart contract is a vending machine -
specific inputs guarantee predetermined outputs
• You select a product
• The vending machine tells the amount required to purchase the
product
• You insert the correct amount
• The vending machine verifies you have inserted the correct
amount
• The vending machine dispenses the product of choice
• The vending machine will only dispense your desired product after
all requirements are met
• Like how a vending machine removes the need for a vendor
employee, smart contracts can replace intermediaries in many
industries

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Lifecycle of a smart contract

Source: Zheng, Z., Xie, S., Dai, H. N., Chen, W., Chen, X., Weng, J., & Imran, M. (2020). An overview on smart contracts: Challenges, advances and platforms. Future
Generation Computer Systems, 105, 475-491.
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Smart contract – Use cases
• Automating insurance claims https://etherisc.com/
• Cross border payments, Escrow payments
• Loan processing
• Government – Land title registry
• Supply chain management
• Asset sharing (such as Uber and Airbnb)
• Identity management
• Bidding
• Lotteries, Gambling https://youtu.be/V7v0G1e6DHQ

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Non-fungible tokens (NFT)
• A way to represent anything unique as an blockchain-based asset
• Solution to the copy/paste problem
• Tokenizing physical assets

Definition:
• An NFT is a unit of data, stored on a type of digital ledger called a blockchain, which can
be sold and traded. NFTs are tokens that we can use to represent ownership of unique
items. They let us tokenize things like art, collectibles, even real estate.

Scope: Anything that is unique that needs provable ownership

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Non-fungible tokens (NFT)

An NFT internet The internet today

• NFTs are digitally unique, no two NFTs are the • A copy of a file, like an .mp3 or .jpg, is the
same. same as the original.
• Every NFT must have an owner and this is of • Ownership records of digital items are stored
public record and easy for anyone to verify. on servers controlled by institutions – you must
take their word for it.
• Content creators can sell their work anywhere
and can access a global market. • Creators rely on the infrastructure and
distribution of the platforms they use. These
• Creators can retain ownership rights over their
are often subject to terms of use and
own work, and claim resale royalties directly.
geographical restrictions.
• Platforms, such as music streaming services,
retain the majority of profits from sales.

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Use Cases
What are NFTs used for?
• Digital content - Maximizing earnings for creators
• Gaming items - Ownership for in-game items, resell in NFT marketplace
• Physical items - Tokenization
• Investments and collateral - NFT-backed loans
Real world Examples
• A unique digital artwork
• A digital collectible
• Fashion items
• Certificates of authenticity – DEGREECERT
• Music royalties via NFTs
• Buy real world goods

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How can Coda Coffee sell the value
of their partnership with Bext360 to
their wholesale and retail customers?
Group 3

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Delivering Value
• Conscious consumerism
• Retail customers vs. Wholesale customers
• In 2015, Nielsen polled 30,000 consumers in 60 countries.
• Across the board, consumers were willing to pay extra for sustainability
• 66% were willing to pay more for sustainable goods
• 73% of millennials were willing to pay extra for sustainability
• Cupping score – could be used as a differentiator

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 What Blockchain can do?
• Creates an immutable, digital audit trail of transactions – cheaply verify integrity

• Help business and individuals agree on the true state of affairs within the market
without relying on a costly intermediary

• Ensures that at any point in time the digital record represents the true consensus
among the key stakeholders involved.

• It can replace the need for trust between players, or the need for a trusted third
party to maintain and verify record of transactions

Source: What Blockchain Can not Do. Harvard Business Review, 2019
 What Blockchain can’t do?
• At the interface of offline world and it’s digital
representation, the usefulness of Blockchain still depends on
trusted intermediaries to effectively bridge the last mile
between a digital record and a physical individual, business,
device, or event.

• Blockchain provides no help in verifying who is actually

behind the digital identifier (offline verification)

• New business opportunities will emerge around new type of

intermediaries that keep digital records in sync with their
offline counterparts. How does someone know which record
is attached to which baby?
Key Strengths and Limitations of Bext360?
• Strengths
• Creates an immutable set of records
• Provide permission of data viewing and data entry for license owners
• Underprivileged suppliers receive immediate payments
• Customers can trust that supply chain is ethical – based on data
• Limitations
• Marker technology is still needed to prove that the product sourced is the
product received.
• The value proposition for the end consumers is not always clear.

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Thank You

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Secure Electronic Transaction

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Consensus Comparison Matrix

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