How does a blockchain work?
Below are a few sample use-cases that can be implemented using both public and private blockchains. In the case of public blockchains, the need for
trusted intermediaries and central authorities can be eliminated, making the process potentially significantly more cost-effective.
Payments example with X-coins (x could be bitcoin or other cryptocurrencies)
Alice installs a wallet
app to create a new
wallet. A wallet app is
like a mobile banking
app and a wallet is
like a bank account.
Alice visits an exchange
to buy X-coins.
Alice sends 10 X-coins to
Bob using her wallet app.
The wallet app signs the
transaction with her
digital signature. The
signed transaction is now
pending verification.
Many transactions occur
in the network at any time.
All the pending transactions
in a given time frame are
grouped (in a block) for
verification. Each block
has a unique identifying
number, creation time,
and a reference to the
previous block.
The new block is put on
the network to verify if its
transactions are legitimate.
People on the network
(’miners’) compete to
verify the block.
Miners provide
transaction verification
services. Verification
is accomplished by
completing complex
cryptographic
computations.
Once verified, the new
block is added to the
front of the blockchain.
Each block joins the prior
block so a chain is made
– the blockchain.
All the transactions in the
block are now fulfilled
and Bob gets paid. The
miner who verified the
block first gets some
X-coins as prize; the
network provides it as
payment for work.
Asset registry example
Tokens or coins on the blockchain can be used to represent
an asset’s value digitally. Their value is tied to a real-world
promise by the asset issuer. Such tokens are mostly used
with digital assets; in this example, a digital image.
The image is not stored on the blockchain. The image’s
token that contains a reference to the image’s ownership
deed is stored on blockchain. Once put on the blockchain,
everyone in the network agrees on who the asset
belongs to.
Alice has a digital picture that she wants to sell using a
token. This token permanently stores Alice’s ownership of
the picture. This token can now be freely traded by sending
it to someone else. Bob buys the picture and Alice sends
Bob the token. Bob now owns the picture.
Smart contract example
?
01010011 01101101
01100001 01110010
01110100 00100000
01100011 01101111
01101110 01110100
01110010 01100001
01100011 01110100
00100000 01100101
Smart contracts are pieces of software
created to perform actions based on
certain inputs, for example to automate
the actions in a contract between two
parties.
In this example, a smart contract governs
a simple wager between Alice and Bob
about tomorrow’s high temperature.
They write a small computer program
which encapsulates the details of their
wager.
01010011 01101101
01100001 01110010
01110100 00100000
01100011 01101111
01101110 01110100
01110010 01100001
01100011 01110100
00100000 01100101
Alice submits a transaction to the
blockchain. The smart contract code is
inside the transaction’s body. At the end
of the day tomorrow, the smart contract
retrieves the day’s high temperature from
a weather service.
01010011 01101101
01100001 01110010
01110100 00100000
01100011 01101111
01101110 01110100
01110010 01100001
01100011 01110100
00100000 01100101
Bob has won the bet. The contract now
automatically pays Bob his winnings, as
agreed upon. The contract has now been
fulfilled and the smart contract stops
running.
Source: Deloitte Advisory Innovation, Deloitte Development LLC (United States).
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