Blockchain for Beginners


Recently I've gotten a lot of questions about what a "Blockchain" is and how it works. If you are already familiar with databases and encryption, there is a great deal of highly technical information available on this topic. The following post is intended for those who are just starting out. 

Who hasn't heard of cryptocurrencies like Bitcoin, Ethereum, and Dogecoin? Or NFT's? Maybe you have even invested in them? One thing they all have in common is a database technology called "Blockchain." Data security and integrity are of  the highest importance in financial transactions and blockchain is one way we can guarantee this. To understand the way it works, it helps to think of a single Block like a spreadsheet containing data. A collection of these blocks is a called a “Blockchain.”

Similar in structure to a ledger, the blockchain is distributed in nodes across a computer network. Each node on the network contains a copy of the entire blockchain. The first block is always numbered “Block 0” and is known as the “Genesis Block.” The “hash” is a randomly generated Hexadecimal number which may be up to 256 bits long. Since the hash generated is unique to the data, it acts very much like a “fingerprint.” This makes a hash useful for verifying the integrity of data sent through public communication channels like the Internet. The Genesis Block is a special case in that it does not reference a previous block. The diagram below shows the basic structure of a blockchain:


The blockchain is updated automatically. Once a set number of approved transactions have been completed, a new block is created. This new block is linked to the chain using the previous block's hash as shown above. Unlike other structures, no centralized database server is required to instruct the other computers on the network to create the new block containing data. Once the blockchain is updated it can not be changed. It is impossible to forge, making it very secure for online transactions. Only new entries may be added to a blockchain. 

In order to conduct a transaction (such as a Bitcoin payment) you will need to have a Digital Wallet and a Private Key. The private key is a string of random numbers known only to you. For security purposes, this number must be kept secret. You sign the message using your private key. This “two-key” system dates as far back as the mid-1970’s and forms the basis for encryption and cryptography today.

Finally, the encrypted payment or transaction is uploaded to the network. If it is valid, the data is stored inside a block where it can no longer be altered. 

Popular posts from this blog

EOQ Calculations in Excel

Image
Last week in Operations Management we used Excel to calculate the Economic Order Quantity and graph Carrying Costs, Ordering Costs, and Total Costs. The Economic Order Quantity or "EOQ" is the order size that "minimizes" Total Costs. Any more or less and you are spending too much on ordering or too much on keeping inventory. For example, in the Excel spreadsheet below, if you had an Annual Demand of 12000 units, Ordering Costs of $10 per order, and Holding costs of $4 per unit per year, the EOQ would be 245 units and Total Costs would be $980.00: We used the following formula in Excel to calculate EOQ: =SQRT((2*B2*B3)/B4) And the following formula to calculate Total Costs at this point: =$B$6/2*$B$4+$B$2/B6*$B$3 To create the graph, we used the following formulas and simply copied them over a range of 100 to 500 units. Ordering Costs: =$B$2/D2*$B$3 Holding Costs: =D2/2*$B$4 Total Costs: =F2+G2 Looking at this chart, we can clearly see that our order size of 245 is ...
Read more

Reliability Calculations in Excel

Image
In Operations Management today we used Excel to calculate product reliability. Reliability is defined as "the ability of a product, service, part, or system to perform its intended function under a prescribed set of circumstances" (Stevenson, 2009). In order to calulate reliability over a given length of time we need to use the following formula: P(no failure) = e -t/MTBF where: e = 2.7183 t = Length of service before failure MTBF = Mean Time Between Failures One of the cases we did in class involved an auto detailing company that wanted to calculate the reliability of its vacuum cleaners. Excel provides an "EXP" funtion that we can easily apply here. After entering all data for the problem as shown on the spreadsheet below, we type the formula =EXP(-A5/$B$2) in cell B5 and copy down. Next we plot the distribution for t=0 to the maximum life expectancy of 20 years using a line graph. What we end up with looks like a classic case of "ex...
Read more

“How Are We Doing?” Efficiency, Utilization, and Productivity

Image
In business, knowing how we are performing in relation to our competition is vital. Internally we want to know if we are using resources effectively and getting the most out of what we have. Efficiency and Productivity are two calculations that are fundamental to the success of any organization. While the calculations are simple, choosing what measures to use and collecting the necessary data requires a thorough understanding of your industry. To calculate Efficiency you will have to first decide what to use as a base for comparison. Does your company already have a “target” of some kind? Like total units produced? If so then you can compare everything to that. Once you have that, there are a couple of basic formulas that can be used: Efficiency = Actual Output/Effective Capacity X 100% Utilization = Actual Output/Design Capacity X 100% Design Capacity is the maximum output achieved under ideal conditions. Effective Capacity is always less than Design Capacity because of factors...
Read more