Blockchain at its core is simply a distributed ledger. Any transaction needs to be validated and verified. When you make a credit card purchase the card issuer validates that you have enough available credit and eventually transfer these funds to the seller. This is an example of a centralized ledger. The bank controls this information and controls the decision-making process. This is fine if the market always wants to rely on large expensive organizations to do this.

What if I am just a small website selling goods and I want to transact in a very cheap way that cuts out these people in the middle all taking a fee. I could earn more for myself and get paid instantly. This is what something like bitcoin can provide. The bitcoin network consists of individual nodes or miners processing these transactions for a very small fee paid to them in bitcoin. The distributed nature also makes this very secure as no one node has all the transaction data. They each process a block of the info and then when all blocks are processed the transaction is approved and money is transferred. There is no settlement process either so people get their money immediately. This allows for global scale transaction processing at low cost that’s also highly secure.

Ethereum takes the distributed ledger concept a step further and allows true business logic to sit on top of the distributed ledger allowing for intelligence to be added into the process.  Using the website example above let’s pretend the website sells software development work and the payout structure depends on meeting certain milestones.  If you were using a standard transaction processing distributed ledger like bitcoin, you would have to take on the task of building all this logic into your website to manage and track all the work and the milestones and potentially manually manage the payments.  Using Ethereum you could build all of this logic into what’s called a smart contract.  This smart contract has the logic needed to manage all of this so you don’t have to.  You have to do the development to manage the smart contract but once that’s done the whole process is now automated.  This ability has taken the whole blockchain concept to a new level.

BigCo owns 10,000 patents across the U.S., Asia and Europe. Management announced a new product and requires patent protection against competitors but has limited budget to acquire the desired rights. The Chief IP Officer has identified 500 patents to use as collateral which are appraised by an independent accountant to be worth $40 million. IPC Group will loan to BigCo $10 million in IPC’s for five years. BigCo can then use the IPC’s to purchase or license-in the required patents.

BigCo now determines that a portfolio of patents represents non-strategic technology which is needed by others in a related industry. BigCo. estimates the demand for this technology to by 3 million units of production over the next 2 years and creates a ULR Smart Contract offering each unit for $0.50. LittleCo. anticipates making 10,000 products using this technology and purchases the same number of units, recording on its books a $5,000 asset. Over the next two years, LittleCo makes only 8,000 products reselling the unused ULR Smart Contracts to a third party at $0.75 a unit, making a profit due to the limited remaining supply.