A-Case-for-the-BlockChain

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A case for the Block chain
Author: Vikram Andem
1
History of early adaptation of technology by airline industry
KLM introduces punch based
(printed paper & type writer) ticket
issuance, starts record keeping of its
flight and passenger details for its
regular scheduled commercial air
services from Amsterdam to London
and Batavia (Colonial Jakarta)
Invention of magentronic
reserve allowed airline agents
to search a memory drum to
quickly determine the
availability of seats. Single
reservation time reduced from
120 minutes to 40 minutes.
1920’s
1910’s
Tony Jannus conducted the world’s first
scheduled commercial airline flight on
Jan 1st 1914 for the St. Petersburg-Tampa
Airboat Line operating two scheduled
flights per day, six days a week.
Passengers sat on a wooden seat in the
hull of a two-place seaplane that did
not have a windshield and rarely flew
more than 5 feet above the water. Price
of a one-way ticket was $5 for the 22minute trip. Passengers were allowed a
maximum weight of 200 lbs., including
hand baggage. Excess weight was
charged at $5 per hundred pounds,
minimum charge 25 cents.
Author: Vikram Andem
United Airlines with its own “new” physical
Keyboard interface offers travel agents the first
access to its central reservation system “Apollo”,
which gives agents access to listing for all major
airlines as well as for hotels, car rentals and other
travel-related services revolutionizing the way
passenger’s book airfare.
1970’s
1950’s
1940’s
Commercial Airline
Reservations are made
by agents on large card
index files with tally
marks for the number of
available and assigned
seats, and are only
accepted 30 days prior
to departure.
1960’s
IBM develops the SABRE (Semi-Automatic
Business-Related Environment) reservation
system for American Airlines, the industry's
first to work over phone lines in "real time”.
In the picture below, an AA operator sitting
at a prototype of the SABRE ticket agent
console poses next to 20,000 airplane
tickets. That represented one day of AA
ticket sales back in the early 1960s. Being
able to have instant updates to its seat
inventory and passenger information gave
AA a big competitive advantage.
Internet booking engines give
consumers the first web-based
access, allowing them to search
across multiple independent travel
sites for the best fares. Search and
booking time for airfares and travel
reduced to few minutes.
1990’s
1980’s
Introduction of Global
Distribution Systems (GDS),
which allows airline agents
and travel agents to search
fares and book flight legs
across multiple carriers. A
GDS can link services, fares
and bookings consolidating
products and services across
all three travel sectors: i.e.,
airline, hotel, car rentals, and
other reservations.
2000’s
Since 2000
consumers
are
increasingly
using smart
phones and
tablets to
book travel
and airline
reservations.
2
History of early adaptation of payment systems
The Charga-Plate, developed in 1920’s, was an early predecessor to the credit card. It
was embossed with the customer's name, city, and state. It held a small paper card on its
back for a signature. In recording a purchase, the plate was laid into a recess in the
imprinter, with a paper "charge slip" positioned on top of it. The record of the transaction
included an impression of the embossed information, made by the imprinter pressing an
inked ribbon against the charge slip. In some cases, the plates were kept in the issuing
store rather than held by customers. When an authorized user made a purchase, a clerk
retrieved the plate from the store's files & then processed the purchase. Charga-Plates
speeded back-office bookkeeping and reduced copying errors that were done manually
in paper ledgers in each store.
1920’s
1910’s
In 1914
Western
Union
began
issuing
charge
cards a.k.a
collect
cards to its
frequent
customers.
Author: Vikram Andem
1930’s
In 1934, American Airlines and the Air Transport Association simplified the
process even more with the advent of the Air Travel Card.They created a
numbering scheme that identified the issuer of the card as well as the
customer account. With an Air Travel Card, passengers could "buy now, and
pay later" for a ticket against their credit and receive a fifteen percent
discount at any of the accepting airlines. By the 1940s, all of the major
domestic airlines offered Air Travel Cards that could be used on 17 different
airlines. By 1941 about half of the airlines' revenues came through the Air
Travel Card agreement. In October 1948, the Air Travel Card became the first
internationally valid charge card within all members of the International Air
Transport Association
The concept of customers paying different merchants using the
same card was expanded in 1950 by Ralph Schneider and Frank
McNamara, founders of Diners Club, to consolidate multiple cards.
The Diners Club, which was created partially through a merger with
Dine and Sign, produced the first "general purpose" charge card
and required the entire bill to be paid with each statement. That
was followed by Carte Blanche and in 1958 by American Express
which created a worldwide credit card network.
Late 1940’s to Early 1950’s
Post 1960’s
Though United tracked customers as far back as the 1950s, the very
first modern frequent-flyer program was created in 1972 by Western
Direct Marketing, for United Airlines. It gave plaques and
promotional materials to members. In 1979, Texas International
Airlines created the first frequent-flyer program that used mileage
tracking to give 'rewards' to its passengers, while in 1980 Western
Airlines created its Travel Bank, which ultimately became part of
Delta Air Lines' program upon their merger in 1987. American
Airlines' AAdvantage program launched in 1981 as a modification
of a never-realized concept from 1979 that would have given
special fares to frequent customers. It was quickly followed later
that year by programs from United Airlines (Mileage Plus) and Delta
Air Lines (SkyMiles), and in 1982 from British Airways (Executive Club).
3
Year 2009: Bitcoin and Blockchain (the underlying technology)
Bitcoin¹
is a digital asset and a payment system invented by Satoshi Nakamoto, who
published the invention in 2008 and released it as open-source software in 2009. The system is peerto-peer; users can transact directly without an intermediary. Transactions are verified by network
nodes and recorded in a public distributed ledger called the block chain. The ledger uses bitcoin as
its unit of account. The system works without a central repository or single administrator, which has
led the U.S. Treasury to categorize bitcoin as a decentralized virtual currency. Bitcoin is often called
the first cryptocurrency, although prior systems existed. Bitcoin is more correctly described as the first
decentralized digital currency. It is the largest of its kind in terms of total market value.
Bitcoins are created as a reward for payment processing work in which users offer their computing
power to verify and record payments into a public ledger. This activity is called mining and miners
are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining,
bitcoins can be exchanged for other currencies, products, and services. Users can send and receive
bitcoins for an optional transaction fee. Bitcoin as a form of payment for products and services has
grown, and merchants have an incentive to accept it because fees are lower than the 2–3%
typically imposed by credit card processors. Unlike credit cards, any fees are paid by the purchaser,
not the vendor. The European Banking Authority & other sources have warned that bitcoin users are
not protected by refund rights or chargebacks. Despite a large increase in the number of merchants
accepting bitcoin, the cryptocurrency does not yet have much momentum in retail transactions.
Clickable links on Bitcoin
Bitcoin FAQ Blockchain Vocabulary Bitcoin Network
Legal & Regulatory: Official Government Reports
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USA: Congressional Research Service: Bitcoin: Questions,
Answers, and Analysis of Legal Issues (Oct/ 2015)
USA: Government Accountability Office: Report to the
Committee on Homeland Security and Governmental
Affairs, U.S. Senate (May/ 2014)
USA: Government Accountability Office: Report to the
Committee on Finances, U.S. Senate (May/ 2013)
USA: Library of Congress: Regulation of Bitcoin in Selected
Jurisdictions (Nov/ 2014)
USA: Federal Reserve Bank: Technical Background and
Data Analysis (Oct/2014)
European Parliament: Markets, economics & Regulation
(Nov/ 2014)
Court of Justice of the European Union: Ruling Bitcoin is
Exempt from VAT(Oct/2015)
European Banking Authority: Opinion on virtual currencies
(July/2014)
Blockchain
(database) is a public ledger that records bitcoin transactions. A novel solution accomplishes this without any trusted central
authority: maintenance of the block chain is performed by a network of communicating nodes running bitcoin software. Transactions of the form payer X sends Y
bitcoins to payee Z are broadcast to this network using readily available software applications. Network nodes can validate transactions, add them to their copy
of the ledger, and then broadcast these ledger additions to other nodes. The block chain is a distributed database; to achieve independent verification of the
chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the block chain. Approximately six times per hour, a new group
of accepted transactions, a block, is created, added to the block chain, and quickly published to all nodes. This allows bitcoin software to determine when a
particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a
conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the block chain is the only place that bitcoins can be said to
exist in the form of unspent outputs of transactions.
Source: Wikipedia
Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the block
chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain
to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere. Mining is intentionally designed to be
resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be
considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function. The primary
purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system.
Miners are paid any transaction fees as well as a "subsidy" of newly created coins. This both serves the purpose of disseminating new coins in a decentralized
manner as well as motivating people to provide security for the system. it requires exertion and it slowly makes new currency available at a rate that resembles
the rate at which commodities like gold are mined from the ground. Bitcoin mining is so called because it resembles the mining of other commodities: it requires
exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
¹ for this presentation “Bitcoin” and “bitcoin” terminology are used interchangeably , but in technical literature , Bitcoin with a capital “B” refers to the protocol – the code, the
nodes, the network and their peer-to-peer interaction. bitcoin with a lowercase ‘b’ refers to the currency – the cryptocurrency we send and receive, via the Bitcoin network.
Author: Vikram Andem
4
Bitcoin/Blockchain : Facts vs. commonly misunderstood/misstated information assumed by public
The bitcoin infrastructure isn’t controlled by any entity. There are plenty of legitimate reasons why someone would use bitcoins for a transaction.
A currency issued by an institution.
A Ponzi scheme.
A currency backed by gold / silver
or computing power.
A physical currency that looks like
the gold plated coins shown below.
Challenge explaining
the underlying disruptive
technology “Blockchain” to
a common person today.
An innovative open source project / an algorithm
based on Mathematics/Cryptography.
A distributed transaction public ledger (database).

A distributed de-centralized peer-to-peer digital/
virtual currency/commodity used on internet.
Unspent (cryptographic public /private key pair)
outputs of transactions denominated in any multiple
of satoshis². Sample bitcoin paper wallet is shown below.

It requires a certain level of
understanding of underlying
mathematics/cryptography to
understand how Bitcoin or
Blockchain internals' work (but its
easy for anyone to use it).
As a disruptive technology Its
not easy to perfectly predict use
cases, applications of future
growth prospectus just like other
disruptive technologies e.g.,
Telephone (1877), Digital Circuit
(1938), Transistor (1947), RDBMS
(1970) or TCP/IP (1982) especially
in the early stages of the
invention to a common person.
It’s a great invention,
but who would ever
want to use one?
on May 10th 1877: US President Rutherford B. Hayes speaking
about the first telephone installed in the White House
² satoshi is currently the smallest unit of the bitcoin currency recorded on the block chain. It is a one hundred millionth of a single bitcoin
(0.00000001 BTC). The unit has been named in collective homage to the original (anonymous) creator of Bitcoin, Satoshi Nakamoto
Author: Vikram Andem
5
Very high level overview (source: Nature magazine)
This overview is published by Nature, an
international journal widely known in the
scientific community for covering original,
groundbreaking research spanning all of the
scientific disciplines.
The article was published on September 30th
2015 and can be accessed at:
http://www.nature.com/news/the-future-ofcryptocurrencies-bitcoin-and-beyond-1.18447
Author: Vikram Andem
6
(very simplified) Bitcoin transaction life cycle
Author: Vikram Andem
7
How a bitcoin transaction works
Bob an online merchant, decides to begin accepting bitcoins as a payment. Alice, a buyer, has bitcoins and wants to purchase merchandise or services from Bob.
Wallets &
Addresses
Wallets are files
that provide
access to
multiple Bitcoin
addresses.
Bob and Alice
both have Bitcoin
“wallets” on their
computers.
Creating a
New Address
A bitcoin address is a string of 26-35 alphanumeric
characters, beginning with the number 1 or 3.
Two examples of bitcoin address are listed below:
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
Bob creates a
new Bitcoin
address for Alice
to send her
payment to for
the purchase.
1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2
3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy
When Bob creates a new address, what he’s really doing is generating a “Cryptographic Key Pair”, composed of a Private Key
and a Public Key. If you sign a message with a Private Key (which only you know) it can be verified by using the matching
Public Key (which is known to anyone). Bob’s new Bitcoin address represents a unique Public Key and the corresponding
Private Key is stored in his wallet. The Public Key allows anyone to verify that a message signed with Private Key is valid.
Alice’s wallet holds the Private Key for
each of her addresses. The Bitcoin
client signs her transaction request
with the private key of the address
she’s transferring bitcoins from.
Submitting
a Payment
Anyone on the (Bitcoin) network can
now verify that the transaction
request is actually coming from the
legitimate account owner (Alice).
Gary, Garth, and Glenn are
Bitcoin miners. Their
computers bundle the
transactions of the past 10
minutes into a new
“transaction block”
Author: Vikram Andem
It’s tempting to think of bitcoin
addresses as bank accounts, but
they work a bit differently, Bitcoin
users can create as many
addresses as they wish and in fact
are encouraged to create a new
one for every new transaction to
increase privacy. So long as no one
knows which addresses are Alice’s,
her anonymity is protected.
Public Key Cryptography 101
Alice tells her Bitcoin
client that she’d like to
transfer the purchase
amount to Bob’s address.
Verifying the
Transaction
Each wallet has
its own balance
of bitcoins.
The miners’ computers are set up to calculate cryptographic hash functions.
Cryptographic hash
functions transform a
collection of data into an
alphanumeric string with
a fixed length, called a
hash value. Even a tiny
changes in the original
data drastically changes
the resulting hash value.
it’s essentially impossible to predict which
initial data set will create a specific hash value.
continued
(next page)
8
How a bitcoin transaction works (continued)
Nonces : To create different hash values from the same
data, Bitcoin uses “nonces”. A nonce is a just a random
number that’s added to prior data to hashing. Changing
the nonce results in a wildly different hash value.
The (bitcoin) mining computers calculate
new hash values based on a combination
of the previous hash value, the new
transaction block, and a nonce.
continued (from
previous page)
Finding a needle in a haystack (within 10 minutes):
The miners have no way to predict which nonce
will produce a hash value with a required number of
leading zeros. So they’re forced to generate many
hashes with different nonces until they happen
upon one that works.
Verifying the
Transaction
Miners
Reward
(coinbase)
Miners get rewarded
for finding the next
“correct” block.
(awarded on lottery
basis by the system)
Transaction
Verified
Author: Vikram Andem
Creating hashs is computationally trivial, but the
Bitcoin system requires that the new hash value
have a particular form – specifically, it must start
with a certain number of zeros.
Each block includes a
“coinbase” transaction that
pays out 50 bitcoins to the
winning miner (say Gary). In this
case a new address is created in
Gary’s wallet with the balance
of newly minted bitcoins.
As time goes on, Alice’s transfer to Bob gets
buried beneath other, more recent
transactions. For anyone to modify the
details, he would have to redo the work that
Gary did (and the entire change after that) –
because any changes required a completely
different winning nonce – and then redo the
work of all the subsequent miners. Such a
feat is practically (mathematically)
impossible as time passes by.
Note: The 50 bitcoins are awarded every 10 minutes (as when
the project kick stated in year 2009) and the system is designed
to half the reward after every four years or precisely, after every
210,000 block is mined – currently at the time of writing the
presentation the (lucky) miner reward for finding the next block
(on lottery basis) is 25 bitcoins, which will half to 12.5 bitcoins in
the September of 2016. The system is designed so that the
Bitcoin mining reward will stop entirely after 21 million bitcoins
are awarded (in year 2140). This means there can be a maximum
of 21 million bitcoins in circulation “forever”.
No one person or one entity can tamper or change the design
given the mathematics/cryptography used in the (open source)
design of the system and its practically (mathematically)
impossible in the near distance future to break (e.g., DDOS) the
system. The largest (and the fastest) bitcoin mining community
as of 2016 are located in China which took over USA (in 2015)
followed by the European Union.
9
Use Cases
News (What others are doing?) clickable links
Instant and Low Cost
Transfer of Money,
including Remittances,
Micropayments, and
Donations
Execution of Contracts
General
Top General Usages
Identity Management
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Microsoft's Azure Blockchain As a Service Program Gains Momentum (01/07/2016)
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Forty Big Banks test blockchain-based bond trading system (03/02/2016)
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IBM Bets Big On Blockchain, The Bitcoin Technology That Could Revolutionize Business (02/16/2016)
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Nasdaq Linq Enables First-Ever Private Securities Issuance Documented With Blockchain Technology
(12/30/2015)
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Goldman Sachs wants to create its own version of bitcoin (12/02/2015)
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Harvard Business Review: Bitcoin’s Promise Goes Far Beyond Payments (04/24/2014)

Microsoft Certifies Ethereum Offering in Blockchain Service First (03/01/2016)
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8 Banking Giants Embracing Bitcoin and Blockchain Tech (Citibank, BNP Paribas, Société Générale, UBS,
Barclays, Banco Santander, Standard Chartered) (07/27/2015)
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Universal Air Travel Plan (UATP) & Bitnet Partnership Opens Up 260 Airlines to Bitcoin Payments
(02/10/2015)
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The Economist: Booking flights with bitcoin (02/26/2015)
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Sabre: Bitcoins, digital currency and new opportunities for the industry (01/26/2016)
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Amadeus IT Group: Travel payments take centre stage at ATPS in San Francisco (12/04/2014)
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Mexico's TAR First Latin American Airline to Accept Bitcoin (06/02/2015)
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Leading European airline, Wizz Air, promoting the world’s first bitcoin-only espresso bar (02/17/2016)
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Expedia Begins Accepting Bitcoin For Hotel Bookings (06/13/2014)
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CheapAir.com First Online Travel Agency to Accept Bitcoins (11/22/2013)
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LOT Polish Airlines, Air Lituanica, airBaltic are accepting Bitcoin along with normal payment options.
(08/05/2015)
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Virgin Galactic Now Takes Bitcoin for Private Spaceflights, Sir Richard Branson Says (11/26/2013)
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Universal Air Travel Plan (UATP) and Bitnet Work to Bring 'Frequent Flyer Miles' to All Bitcoin Enthusiasts
(02/14/2015)
Transfer of Property
Transforming Miles
(frequent-flyer)
Additional Revenue (for
those who choose to pay
with bitcoin or other
virtual currency)
Cost & Time Savings
(vs. credit card payment
fees, and other expenses
incurred with foreign
currency conversion )
Author: Vikram Andem
Airline & Travel specific
Top Airline Usages
10
Appendix A : (free) links to online learning, videos, text book, projects & clubs etc.
Video’s
Learn Bitcoin in one hour (each video is ~10 minutes)
Bitcoin &
1. What is it?
Blockchain for
2. Overview
high school &
3. Cryptographic hash functions
college students
4. Digital signatures
Source: Khan Academy, this effort was
5. Transaction records
partially funded by Bill & Melinda Gates
foundation, Google & others and designed
6. Proof of work
by Chief Technology Officer of RSA
7. Transaction block chains Security, Dr. Zulfikar Ramzan, Ph.D (MIT).
8. The money supply
9. The security of transaction block chains
The future of blockchain and disruptive financial technologies
Hutchins Center on Fiscal and Monetary Policy, Brookings Institution
(formal/free) Courses
Bitcoin and Crypto Currencies (CS 251): Autumn 2015
School of Engineering, Stanford University
Bitcoin and Crypto currency Technologies (Sept 2015)
Course era offering by Princeton University
(academic) Text Book
Bitcoin and Cryptocurrency Technologies (February 2016)
Princeton University Press
Bitcoin vs. Banks: on how bits are replacing banks
Dr. Randall Kroszner, Booth School of Business, The University of Chicago
The Economics of Bitcoin & Virtual Currency
Dr. Susan Athey, Graduate School of Business, Stanford University
Why Bitcoin Will Change Everything
Haas School of Business, The University of California, Berkeley
Bitcoin's impact on Global Economy, Cyberposium 20
Harvard Business School, Harvard University
Bitcoin's impact on Global Economy
Microsoft (NY) Technology Center & MIT Media Lab
Author: Vikram Andem
New
development
The 21
bitcoin
computer
First computer with
native hardware and
software support for
the Bitcoin protocol
It is designed for
developers to easily
build Bitcoin-payable
apps, services and
devices
Projects, Clubs & Entrepreneur groups
MIT Bitcoin Project
Massachusetts Institute of Technology
Bitcoin Engineering
Stanford University
Bitcoin Club, Harvard Business School
Harvard University
Bitcoin Association of Berkeley
The University of California, Berkeley
11
Questions
Author: Vikram Andem
Version
Release date
Author
Contact
0.1
03/13/2016
Vikram Andem
[email protected]
12
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