lumineau et al. (2021) Flashcards
blockchain
a cryptography-based decentralised system consisting of an ongoing list of digital records that are shared within a peer-to-peer network (ie. a chain of blocks of digital records). many experts regard it as one of the most distruptive technological innovations that may change how collaborations are organised.
traditional financial models
rely heavily on intermediary institutions such as banks. they are important in solving the classic double-spending problem and keep ledgers for every account and verify each transaction. they are efficient and convenient but risky because of possible tampering of a record or being hacked.
classic double-spending problem
the possibility that one unit of digital cash can be spent twice by the same party.
Bitcoin
a type of cryptocurrency introduced in 2008 that solved the double-spending problem without recourse to a centralised authority. the ledgers are distributed to everyone who has access to the internet. via consensus algorithms, everyone shares and keeps an identical list of transaction records. these records are stored in blocks that are linked linearly using cryptographic hash functions and can be traced back to the genesis block.
cryptographic hash functions
one-way mathematical functions that map data of any size to data of a fixed size.
genesis block
the first block back to which every other block can be traced.
miners
some servers (computers) in the blockchain that are incentivised by token rewards to verify every claimed transaction and propagate valid ones to the rest of the system. thus, no one is able to spend a bitcoin twice. it is made costly by a consensus mechanism called proof-of-work.
proof-of-work
a consensus mechanism that makes validating processes deliberately costly. no single node has the required computational power to fake transaction records. so, in bitcoin blockchain, all information is immutable and trustworthy.
IBM, AIG, and Standard Chartered Bank’s insurance blockchain
enables a shared, real-time view of policy data and documentation to all parties involved and permits the recording and tracking of events in each country and the automatic execution of payments if prespecified conditions are met.
General Services Administration (GSA)
a federal agency providing procurement services for US government offices and one of the largest buyers globally. it initiated a collaboration with United Solutions to develop a new procurement blockchain.
immutable
no single party can change information without the consensus of all the nodes in the network.
consensus in a centralised network
relies on the central party distributing information and other parties accepting such information as the agreed truth. information is controlled by a single party who is the sole information holder and decision maker.
consensus in a decentralised network
requires careful design of the consensus algorithms. blockchains provide a solution to this problem.
consensus in blockchain
no single party owns the whole decision right. more than one party verifies, accepts, or rejects transactions. thus, control is shared and entities can update and interact directly without relying on central coordination. a major benefit is data integrity.
machine-based automation
blockchains are run automatically on machine-driven systems. machines are at the centre of collaborations. it gives the ability to bypass human actors’ unpredictability and inability to process massive amounts of information, and to exploit benefits of machines, eg. reliability and faster and cheaper computation.
smart contracts
programs written in the blockchain that automatically verify and approve valid transactions that satisfy prescribed protocols.
architectural innovation
rests on the recombination of existing components in previously unforeseen ways. blockchain is an example as it blends existing technologies such as cryptography and distributed databases.
coordination
about aligning expectations between transacting parties. to seek solutions to coordination challenges, partners turn to governance mechanisms, such as (1) contractual and (2) relational governance mechanisms.
contracts
legally enforceable agreements giving rise to obligations that are enforced or recognised by law. they effectively protect the investment of transacting parties from opportunistic inclinations of partners. also, they serve as a mechanisms for facilitating coordination and communication to help build a collaborative environment.
contractual governance
relates to a legally binding promise defining the rights and obligations of the parties. in case of a breach, the law ensures the injured party can pursue legal remedies such as compensation or cancellation. the basic purpose is to prevent changes in the actions of the parties to an agreement.
relational governance
based on the patterns of behaviour to which parties are expected to conform. it emphasises flexible arrangements and extensive information exchange to establish a shared value system and sense of solidarity between partners. it relies on self-enforcing agreements.
self-enforcing agreements
enforced only by the parties themselves.
blockchain governance
represents a self-contained and autonomous system of formal rules. it relies on a set of protocols and code-based rules (eg. smart contracts), which are automatically enforced by the underlying blockchain based network. it creates order without law and implements what can be thought of as private regulatory frameworks.
cooperation failure
the potential opportunism in human nature. blockchains mitigate this at its source by employing machines to automatically execute transactions.
procedural coordination
day-to-day communication and exchange of information.
structural coordination
the distribution of rights and responsibilities in a relationship, such as the division of labour, roles, and task descriptions.
