Blockchain Is Easier to Understand Than You Think

By: Johannes Schweinebraden & Alec Nikolov

If you understand why a team prefers working in one shared Excel file on SharePoint instead of sending different Excel files back and forth, you already understand an important part of blockchain.

With separate Excel files, everyone has their own version. When something changes, the new information needs to be sent around and every participant has to update its own file, often resulting in something called “Agreement_Final_v7”. A shared Excel on SharePoint changes this because everyone works from the same underlying file and sees the latest version.

Blockchain applies a similar idea between different companies. Instead of every participant relying only on its own record, parties can work from one shared record. They no longer need to keep and compare separate versions, because they can work from the same agreed information. This is why blockchain is also called a distributed ledger. 

Now keep that shared Excel in mind, because it helps explain almost everything that comes next.

How BMW Uses Blockchain to Move Money

Traditionally, the different parties involved in moving money between countries and currencies each keep their own records. Think of these as separate Excel sheets that need to be updated as the transaction moves from one bank to the next.

BMW and J.P. Morgan used blockchain for a EUR-to-USD transaction between Frankfurt and New York. Instead of relying on several separate records that have to be updated one after another, the process now works more like one shared Excel: each transaction is recorded on one common infrastructure and the relevant parties can see what has happened.

But BMW added something else to that shared Excel: rules.

Imagine adding VBA to your shared Excel and telling it, “If X happens, do Y.” BMW's treasury team could define conditions in advance so that, once they were met, the system could convert the money and transfer it automatically. The transaction could happen near-instantly and outside traditional settlement hours, without somebody manually starting each individual step.

On blockchain, these programmed rules are called smart contracts. The benefit is easy to understand: instead of people and systems repeatedly checking what happened and deciding what should happen next, the shared Excel already knows the rule and can act automatically.

Our shared Excel can now do two things: show everyone the same agreed information and automatically act on that information.

How J.P. Morgan Uses Blockchain to Exchange Two Things at Once

Now imagine buying a BMW. You probably do not want to transfer CHF 50,000 and then wait for the seller to hand over the car. The seller probably does not want to give you the keys first and then wait for the payment either.

The ideal transaction would feel like a handshake: the moment both sides agree, you get the car and the seller gets the money. If one side does not happen, neither does the other.

J.P. Morgan uses blockchain for the same basic idea in financial transactions. In its short-term financing platform, one party provides money while the other provides an asset as collateral. Blockchain can connect the two sides so that the cash and collateral change hands at the same time - like a digital handshake.

The technical term is atomic settlement, but the idea is simply that both parts happen together.

Now bring back our shared Excel. Both parties are looking at the same transaction instead of comparing separate records, while the programmed rules make sure the two sides are connected. The shared record is updated as the transaction happens rather than each participant having to update its own version afterwards.The benefit is faster settlement, less reconciliation and no risk that one party has already delivered while the other has not. 

Our shared Excel can now share information, follow rules and coordinate two things changing hands at the same time.

How the Same Car Explains Tokenisation

Imagine the car transaction again. You and the seller shake hands, the money moves and you receive the car. But there is still another step: somewhere, the official ownership record needs to change from the seller's name to yours.

Now imagine that the ownership record is part of the same shared system. The moment the transaction happens, the vehicle registry can also reflect that you are now the owner. There is no separate file that first needs to be updated later before the new ownership is reflected.

That is a simple way to understand tokenisation. An asset or right can be represented digitally on blockchain infrastructure. That digital representation is called a token. The car itself does not suddenly live on the blockchain. What can live there is the digital record of the right or ownership connected to that car. If the car is sold, that digital ownership record can move from the seller to the buyer.

The same idea can be applied to many different assets and rights. Instead of a car, the token could represent a fund share, a bond or another asset, depending on how the legal and technical setup is designed.

Now connect this back to our shared Excel. The same infrastructure can show who owns the asset, the smart contract can define the rules for transferring it, and the payment and ownership transfer can be connected in the same transaction.

So, What Is Blockchain?

Start with one shared Excel on SharePoint instead of several separate Excel files. Then add VBA so that the shared record can automatically act when certain conditions are met. Add a digital handshake so that the money and the car can change hands together. Finally, allow the ownership of the car to be updated in that same shared system.

You have now built the basic logic of blockchain: one shared record, programmable rules, coordinated transactions and digital ownership.

The technology underneath is more sophisticated, but the basic idea is not. If you understand the shared Excel and the car transaction, you already understand the core logic behind blockchain.

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