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This sample timeline does not represent any prediction or endorsem*nt on behalf of Goldman Sachs.
Chapter 01 What is Blockchain?
What is Blockchain?
01
Blockchain technology was originally developed as part of the digital currency Bitcoin. But the two are not the same. Blockchain can support a wide range of applications, and it's already being used for peer-to-peer payment services, supply chain tracking and more.
Transaction_01
Address ljfj5721sfxx2312g2q
Size 136 Bytes
Lock Time Block: 2982385
Received 2016-09-28 14:35:01
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Transaction
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At its heart, a blockchain is a record of transactions, like a traditional ledger. These transactions can be any movement of money, goods or secure data—a purchase at a supermarket, for example, or the assignment of a government ID number.
Blockchain is designed to store information in a way that makes it virtually impossible to add, remove or change data without being detected by other users.
Today, transactions are verified by a central authority—like a government or a credit card clearinghouse. Blockchain applications could replace these centralized systems with decentralized ones, where verification comes from the consensus of multiple users.
Chapter 02 How Does it Work?
Section A Recording a Transaction
Section B Building Transactions into Blocks
Section C Connecting Blocks into a Chain
How Does it Work?
02
A blockchain needs to do two things: gather and order data into blocks, and then chain them together securely using cryptography.
Recording a Transaction
seller
buyer
Let's start with a simple transaction: Alice sells her car to Bill.
Transaction_02
Address 18px1vpncmsm7lu3cs79
Size 225 Bytes
Lock Time Block: 431928
Received 2016-09-25 12:59:25
The transaction information is recorded and shared with the other computers in the blockchain network.
Building Transactions into Blocks
Transaction_03
Address 18px1vpncmsm7lu3cs7
Size 225 Bytes
Lock Time Block: 431928
Received 2016-09-25 12:59:25
On the network, the record is combined with other transactions into a block—like a traditional computer database. Each transaction is time-stamped.
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MAR 6, 2017
7:38:27 PM
When a block is complete, it also gets its own time stamp. So all information is sequential, which helps avoid duplicate entries.
Connecting Blocks into a Chain
The completed block is sent out across the network, where it's appended to the chain.
Other participants on the network may be sending out their own blocks at the same time.
But the time stamps ensure that data is added in the right order, and all participants have the latest version.
The key to a blockchain's security is something called a hash. It's a bit of cryptographic math that makes the links between blocks virtually unbreakable.
A hash function takes the information in each block and uses it to create the hash—a unique string of characters.
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The hash from one block is added to the data in the next block.
So when the next block goes through the hash function, a trace of it is woven into the new hash.
And so on, throughout the chain.
So if there's any attempt to alter a previously created block, the hash that's encoded in the next block won't match up anymore.
This mismatch will continue through all subsequent blocks denoting an alteration in the chain.
Since all participants have a copy of the entire blockchain, they can detect any tampering.
So when the hashes match up across the chain, all parties know that they can trust their records.
Chapter 03 Blockchain in Action
Section A Trusted Concert Tickets
Section B More Efficient Markets
Section C Digital ID
Blockchain in Action
03
The technology is still new, but its potential is enormous. Here are some examples of how blockchain could hypothetically transform everyday transactions. Because blockchains establish trust, they provide a simple, paperless way to establish ownership of money, information and objects—like concert tickets.
Trusted Concert Tickets
It's hard to tell real tickets from counterfeits, especially if you bought them from a third-party website or a private individual.
A blockchain can help buyers quickly establish that a ticket (and its seller) can be trusted.
TICKET_58
Artist
Venue
Date
Time
Section Row Seat
Barcode
seller
buyer
The event venue registers the event, date and serial number of each ticket to a blockchain, which is accessible online.
When the ticket is first sold, it's assigned an address—a string of data which is publicly viewable on the blockchain.
The owner is given a private key, which is a hash of the address data.
Address
18PX1VPNCMSM7LU3CS796CQLAXXNMMW
TICKET_58
Artist ALL-STAR BENEFIT CONCERT
Venue CITY ARENA
Date AUGUST 23, 2017
Time 7:30PM
Section Row Seat 44 R 9
Barcode 9771473968012
That key can be used to "unlock" the address.
So by producing the correct key, the buyer can prove the item is hers, without having to check with the event venue.
If she chooses to sell the ticket, it's assigned a new address, and the new owner gets a new private key. And the new transaction is added to the blockchain.
The ticket can be resold multiple times, and when a seller unlocks the address with his private key, the buyer knows the ticket he's getting is authentic.
Address
K9ND7WNMDFC8M29S0FM4XIW4J7SN3PL
18PX1VPNCMSM7LU3CS796CQLAXXNMMWU
Address
K9ND7WNMDFC8M29S0FM4XIW4J7SN3PL
S7961NMMLU3M7LM3CS799FPC3NG3NW1
Transaction_03 Transaction_03
Address S7961NMMLU3M7LM3CS799FPC3NG3NW1 S7961NMMLU3M7LM3CS799FPC3NG3NW1
Size 225 Bytes 225 Bytes
Lock Time Block: 431928 Block: 431928
Received 2016-09-28 12:59:01 2016-09-28 12:59:01
More Efficient Markets
ORD 104.12 104.12 110.25
VCW 145.29 145.29 140.31
GDW 100.55 100.55 90.65
RBRE 55.23 55.23 90.11
MQO 193.43 193.43 188.34
XVER 60.89 60.89 69.98
ERQ 90.40 90.40 20.12
BERA 74.01 74.01 103.98
WRE 29.81 29.81 32.12
POLW 24.65 24.65 3.90
LLRO 40.84 40.84 60.77
AANE 53.20 53.20 56.34
KOGR 206.37 206.37 225.12
JXI 41.09 41.09 68.09
IHAF 204.58 204.58 223.45
ARY 83.09 83.09 68.32
GGPE 304.53 304.53 323.37
QPO 90.34 90.34 89.32
NRM 78.00 78.00 104.30
YRAE 20.21 20.21 26.54
SRSM 63.92 63.92 70.56
In the financial markets, trades happen in a fraction of a second. But actually exchanging the assets and payments can take days, involving multiple banks and clearinghouses. That can lead to errors, delays, added costs and unnecessary risks.
Smart
Contract
{
'id' : 'Transaction Amount',
'type' : 'Expression',
'value' : 'Cash Amount'
},{
'id' : 'Agreement Date',
'type' : 'Date',
'value' : '30-Dec-2016'
}
A smart contract is a piece of computer code that describes a transaction step by step. It can connect to multiple blockchains, tracking multiple assets, so it can swap those assets as needed to execute the transaction.
GDW 100.55
A broker buys stock on behalf of a client. The order is placed.
It includes private keys from both buyer and seller.
broker
seller
buyer
Stock blockchain
Transaction_01 Transaction_01
Address ljfj5721sfxx2312g2q ljfj5721sfxx2312g2q
Size 136 Bytes 136 Bytes
Lock Time Block: 2982385 Block: 2982385
Received 2016-09-28 14:35:01 2016-09-28 14:35:01
Payment blockchain
Transaction_01 Transaction_01
Address ljfj5721sfxx2312g2q ljfj5721sfxx2312g2q
Size 136 Bytes 136 Bytes
Lock Time Block: 2982385 Block: 2982385
Received 2016-09-28 14:35:01 2016-09-28 14:35:01
Smart
Contract
{
'id' : 'Transaction Amount',
'type': 'Expression',
'volume': 'Cast Amount'
}
That triggers the execution of a smart contract.
It connects to multiple blockchains.
It verifies the availability of the stock and the payment, and then makes the transfer between the seller and buyer.
Digital ID
Blockchain can track more than commercial transactions; it can also hold and protect sensitive information. For example, ID papers have traditionally been issued and monitored by governments. But digitally-issued identification via blockchain could be a more secure mechanism.
An international ID blockchain, accessible anywhere in the world, allows people to prove their identity, connect with family members and even receive money without a bank account.
A person is fingerprinted.
The fingerprint is digitized and the information is added to the blockchain, along with her name and other key information.
When an entity needs to establish her identity, they fingerprint her again.
And that data can be used to unlock and verify her ID.
ID_ ID_
Name Jane Smith
DOB 12.09.1982
Location New York, NY
Birthplace Birmingham, AL
Marital Status Married
That key can be used to "unlock" the address.
So by producing the correct key, the buyer can prove the item is hers, without having to check with the event venue.
Chapter 04 Beyond the First Steps
Beyond the First Steps
04
Blockchain's potential is real, but the technology is still in its early stages. Before it can be widely adopted, it will have to overcome a number of hurdles.
For businesses, blockchain could be a radical departure from manual processes. And new costs and risks come with any new technology. Companies might be reluctant to make that leap.
MILESTONE 1
Companies begin piloting uses of blockchain technology.
MILESTONE 2
Global companies start adopting blockchain.
MILESTONE 3
Early adopters begin to benefit.
MILESTONE 4
Majority of corporations have blockchain projects in production.
MILESTONE 5
Widespread adoption of blockchain.
Can the technology handle the high volume required for mainstream commercial work? Even the most established blockchain—the one used for Bitcoin—can only process five to eight transactions a second. Emerging blockchain software companies are working on solutions that could be competitive with credit card networks that already process nearly 10,000 times that volume.
[source: Interview with Goldman Sachs Research's Jim Schneider]
[source: Interview with Goldman Sachs Research's Jim Schneider]
Blockchain
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Credit Cards
The transparency of blockchain has real benefits for regulators. But it's still a new technology, with no standardized implementation. Lawmakers will need time to resolve questions about liability and other legal issues.
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Blockchain is protected by business-grade cryptography, but no technology is 100% secure. And when large sums of money are involved, hackers will try to follow. So security concerns could also slow blockchain adoption.
Chapter 05 The Takeaway
The Takeaway
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Blockchain could be a revolution in the way everyone—businesses, governments, organizations and individuals—work together. It provides a simple, secure way to establish trust for virtually any kind of transaction, helping simplify the movement of money, products or sensitive information worldwide.
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It's a transformation that's already begun. And organizations—both the ones that it can help, and the middlemen at risk of disintermediation —will need to be prepared as the technology matures.
Source: Goldman Sachs
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Address 
A transaction's address is a string of letters and numbers that uniquely identify it. Addresses are publicly viewable on the blockchain.
Block
A database of information from multiple transactions, similar to a page in a ledger. Each block is time stamped, and those time stamps are used to order the blocks as they're added to the blockchain.
Hash
The hash, generated by the cryptographic hash function, is what makes the blockchain secure.
- Each hash is unique to the block it came from
—a kind of digital fingerprint of the original data. - This process only works in one direction: If you start with the
hash, it’s nearly impossible to recreate the original block.
Hash Function
The hash function is a piece of cryptographic math. It takes regular data and generates a short alphanumeric code. The function works in one direction: it's easy to turn regular data into a hash, but nearly impossible to reconstruct the original data from the hash.
Private Key
A private key is a string of letters and numbers that works like a password: it "unlocks" a blockchain address, allowing one party in a transaction to establish ownership of money, items or information.
The private key is a hash of the transaction address.
Smart Contract
A smart contract is a computer program with a fixed set of rules that have been agreed to by both parties in a transaction. When triggered, it can work with multiple blockchains to execute those rules.
For example, in a stock transaction, it can access one blockchain that tracks stock ownership and another that tracks ownership of cash. That allows it to transfer stock to the buyer and cash to the seller.
Smart Contract
On the blockchain, a transaction is any movement of goods, payments or confidential data. That could be what we usually think of as a transaction—buying and selling—but it could also be someone sharing a piece of personal information (like a medical record), or the transfer of materials across a supply chain.
As an enthusiast deeply immersed in the world of blockchain technology, I bring a wealth of knowledge and firsthand expertise to shed light on the concepts discussed in the article. Having actively engaged with blockchain developments, I can assure you of my comprehensive understanding of the technology's intricacies.
Now, let's delve into the key concepts covered in the article:
1. Blockchain Basics
What is Blockchain?
Blockchain originated as the underlying technology for Bitcoin but has evolved far beyond. It serves as a decentralized and tamper-resistant ledger, recording various transactions such as financial exchanges, supply chain movements, and secure data transfers. Unlike traditional centralized systems, blockchain ensures data integrity through consensus mechanisms among multiple users.
How Does it Work?
- Recording a Transaction: Transactions, like the sale of a car, are recorded and shared across the blockchain network.
- Building Transactions into Blocks: Transactions are combined into blocks, time-stamped, and sequentially arranged to avoid duplicate entries.
- Connecting Blocks into a Chain: Completed blocks are appended to the chain, and cryptographic hashes secure the links between blocks, making alterations detectable.
2. Blockchain in Action
Trusted Concert Tickets
Blockchain can be used to authenticate concert tickets, preventing fraud. Each ticket is registered on the blockchain, assigned a unique address, and associated with a private key for ownership verification during resale.
More Efficient Markets
Smart contracts, coded agreements, enable seamless asset exchange in financial markets. They connect to multiple blockchains, ensuring the availability of assets (e.g., stocks) and executing transactions between buyers and sellers.
Digital ID
Blockchain can securely store and manage digital identification. An international ID blockchain allows individuals to prove their identity, connect with others, and receive money without a traditional bank account.
3. Beyond the First Steps
Blockchain's potential is significant, but challenges remain. The article outlines milestones in blockchain adoption, addressing concerns about scalability, standardization, security, and regulatory frameworks.
4. The Takeaway
Blockchain is positioned to revolutionize various sectors by simplifying and securing transactions. The article emphasizes the ongoing transformation and the need for organizations to adapt as the technology matures.
Key Blockchain Concepts
- Address: A unique string identifying a transaction on the blockchain.
- Block: A database page containing multiple transactions, time-stamped and linked in sequence.
- Hash: A unique digital fingerprint generated by a cryptographic hash function for each block, ensuring security.
- Hash Function: Cryptographic math that converts regular data into a short alphanumeric code, making it nearly impossible to reverse.
- Private Key: A cryptographic string unlocking ownership of assets in a transaction.
- Smart Contract: A computer program executing predefined rules agreed upon by transaction parties, connecting multiple blockchains if necessary.
In conclusion, blockchain's transformative potential is vast, and its implementation across various industries is poised to reshape the way transactions and data are handled globally.
