Blockchain

essentials

© 2017 IBM Corporation

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Contents
is blockchain?

is it relevant
for our business?

can IBM help

you apply blockchain?

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Business networks,
wealth, and markets
– Business Networks benefit from connectivity
• Participants are customers, suppliers,
banks, partners
• Cross geography & regulatory boundary

– Wealth is generated by the flow of

goods & services across business
network in transactions and contracts

– Markets are central to this process:

• Public (fruit market, car auction), or
• Private (supply chain financing, bonds)
© 2017 IBM Corporation
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 Transferring assets, building value
Anything that is capable of being owned or controlled to produce value, is an asset

Two fundamental Intangible assets Cash is also

types of asset
– Tangible, e.g. a house
– Intangible, e.g. a mortgage
© 2017 IBM Corporation
subdivide an asset
– Financial, e.g. bond – Has property of anonymity
– Intellectual, e.g. patents
– Digital, e.g. music
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Ledgers are key …
Ledger is THE system of record for a business.
Business will have multiple ledgers for multiple
business networks in which they participate.

– Transaction – an asset transfer onto or

off the ledger
• John gives a car to Anthony (simple)

– Contract – conditions for transaction to occur

• If Anthony pays John money, then car passes
from John to Anthony (simple)
• If car won't start, funds do not pass to John (as
decided by third party arbitrator) (more complex)

© 2017 IBM Corporation

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Introducing blockchain

with shared
business
A trusted, processes
distributed
ledger

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Problem …
Participant
B’s records
Participant Bank
A’s records records

Insurer Regulator Auditor

records records records

… inefficient, expensive, vulnerable

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A shared replicated, permissioned ledger…
Participant
B’s records
Participant Bank
A’s records records

Blockchain

Insurer Regulator Auditor

records records records

… with consensus, provenance, immutability and finality

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Blockchain underpins Bitcoin …

is:
– An unregulated shadow-currency
– The first blockchain application
– Resource intensive

– Blockchain for business differs in key areas:

– Identity over anonymity
– Selective endorsement over proof of work
– Assets over cryptocurrency

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 Requirements of blockchain for business

Append-only Shared Smart Business terms

distributed system of ledger contract embedded in
record shared across transaction database
business network & executed with
transactions

Ensuring appropriate Transactions are

visibility; transactions are endorsed by
secure, authenticated relevant
& verifiable participants
Privacy Trust

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Shared ledger

Records all transactions across business network

• Shared between participants

• Participants have own copy through replication
• Permissioned, so participants see only appropriate transactions
• THE shared system of record

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Smart contract

Business rules implied by the contract … embedded in the Blockchain

and executed with the transaction
• Verifiable, signed
• Encoded in programming language
• Example:
– Defines contractual conditions under which corporate Bond transfer occurs

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Privacy

The ledger is shared, but participants require privacy

• Participants need:
– Appropriate confidentiality between subsets of participants
– Identity not linked to a transaction
• Transactions need to be authenticated
• Cryptography central to these processes
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Trust

The ledger is a trusted source of information

• Participants endorse transactions
– Business network decides who will endorse transactions
– Endorsed transactions are added to the ledger with appropriate confidentiality
• Assets have a verifiable audit trail
– Transactions cannot be modified, inserted or deleted
• Achieved through consensus, provenance, immutability and finality
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Contents
is blockchain?

is it relevant
for our business?

can IBM help

us apply blockchain?

© 2017 IBM Corporation

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 Blockchain benefits

Saves Removes Reduces Increases

time cost risk trust
Transaction time Overheads and Tampering, fraud Through shared
from days to near cost intermediaries & cyber crime processes and
instantaneous recordkeeping
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 Example:
Shared reference data

What • Competitors/collaborators in a business network need Benefits

to share reference data, e.g. bank routing codes
1. Consolidated, consistent
• Each member maintains their own codes, dataset reduces errors
and forwards changes to a central authority for
collection and distribution 2. Near real-time access to
• An information subset can be owned by organizations reference data

How • Each participant maintains their own codes within a 3. Naturally supports code
Blockchain network editing and routing code
• Blockchain creates single view of entire dataset
transfers between participants

© 2017 IBM Corporation

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 Example:
Supply chain

What • Provenance of each component part in complex Benefits

system hard to track
1. Trust increased, no authority
• Manufacturer, production date, batch and even "owns” provenance
the manufacturing machine program
2. Improvement in
How • Blockchain holds complete provenance details system utilization
of each component part
3. Recalls "specific"
• Accessible by each manufacturer in the production rather than cross fleet
process, the aircraft owners, maintainers and
government regulators
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 Example:
Audit and compliance

What • Financial data in a large organization dispersed Benefits

throughout many divisions and geographies
1. Lowers cost of audit and
• Audit and Compliance needs indelible record of all regulatory compliance
key transactions over reporting period
2. Provides “seek and find”
How • Blockchain collects transaction records from diverse access to auditors and
set of financial systems regulators
• Append-only and tamperproof qualities create high
confidence financial audit trail
3. Changes nature of
compliance from
• Privacy features to ensure authorized user access
passive to active
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 Letter of credit
Republic of A B-land
Sales contract
Company A:
Example: Buyer/
applicant
Company B:
Seller/beneficiary

Letter of credit Buyer applies

for LC
Seller’s bank authenticates
LC and credits Company B
Buyer’s bank issues
Bank A LC and sends to Bank B
seller’s bank

What • Bank handling letters of credit (LOC) wants to offer Benefits

them to a wider range of clients including startups
1. Increase speed of execution
• Currently constrained by costs & the time to execute (less than 1 day)
2. Vastly reduced cost
How • Blockchain provides common ledger for letters of credit
3. Reduced risk,
• Allows all counter-parties to have the same validated e.g. currency fluctuations
record of transaction and fulfillment
4. Value added services,
e.g. incremental payment
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 Potential use cases by (selected) industry
Further examples

Financial Public Sector Retail Insurance Manufacturing

Trade Finance Asset Supply chain Claims Supply chain
Cross currency Registration Loyalty programs processing Product parts
payments Citizen Identity Information Risk provenance Maintenance
Mortgages Medical records sharing (supplier Asset usage tracking
Medicine supply – retailer) history
chain Claims file
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 Patterns for customer adoption
• Transfer of high value financial assets
HIGH VALUE • Between many participants in a market
MARKET • Regulatory timeframes

• Sharing of assets (voting, dividend notification)

ASSET • Assets are information, not financial
EXCHANGE • Provenance & finality are key

• Created by a small set of participants

CONSORTIUM • Share key reference data
SHARED LEDGER • Consolidated, consistent real-time view

• Real-time view of compliance, audit & risk data

COMPLIANCE • Provenance, immutability & finality are key
LEDGER • Transparent access to auditor & regulator

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 Key players for blockchain adoption
Regulator
– An organization who enforces
the rules of play
– Regulators are keen to support
Blockchain based innovations
– Concern is systemic risk – new
technology, distributed data,
security
© 2017 IBM Corporation
Industry Group
– Often funded by members of a
business network
– Provide technical advice on
industry trends
– Encourages best practice by
making recommendations to
members
Market Maker
– In financial markets, takes buy-
side and sell-side to provide
liquidity
– More generally, the organization
who innovates
- Creates a new good or service,
and business process (likely)
- Creates a new business process
for an existing good or service
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Contents
is blockchain?

is it relevant
for our business?

can IBM help

us apply blockchain?

© 2017 IBM Corporation

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How IBM can help

Technology
Hyperledger Hyperledger
Fabric Composer

Hosting and Support

High Security
IBM Bluemix
Business Network

Making blockchain real

for clients
Garages Engagement
© 2017 IBM Corporation
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Hyperledger, a Linux Foundation Project

– A collaborative effort created to advance cross-industry

blockchain technologies for business Brian Behlendorf
Executive Director
– Announced December 2015, now over 140 members
Blythe Masters
– Open source, open standards, open governance Board Chair

– One active framework (“Fabric”) and seven projects in

incubation Chris Ferris
TSC Chair

– IBM is a premier member of Hyperledger

www.hyperledger.org

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 Hyperledger members
Premier General

© 2017 IBM Corporation Associate Source: https://www.hyperledger.org/about/members

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Updated June 2017
Hyperledger Composer: Accelerating time to value
Business Application
– A suite of high level application abstractions for business networks
– Emphasis on business-centric vocabulary for quick solution creation
– Reduce risk, and increase understanding and flexibility
Hyperledger Composer

Blockchain (Hyperledger Fabric)

– Features
– Model your business networks, test and expose via APIs
– Applications invoke APIs transactions to interact with business network
– Integrate existing systems of record using loopback/REST

– Fully open and one of eight Hyperledger projects

– Try a demo now! - http://composer-playground.mybluemix.net/

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 Selected references

FX Netting Settlements through Identity management

digital currency

Food Safety Private Equity Channel Financing

Low liquidity securities Cross Border Contract

trading and settlement Supply Chain Management

© 2017 IBM Corporation

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IBM engagement model overview

Let’s Blockchain First

Talk Scale
Hands-on Project

1. Discuss Blockchain 1. Understand Blockchain 1. Design Thinking 1. Scale up pilot or Scale

technology concepts & elements workshop to define out to new projects
2. Explore customer 2. Hands on with business challenge
2. Business Process
business model Blockchain on Bluemix 2. Agile iterations Re-engineering
incrementally build
3. Show Blockchain 3. Standard demo project functionality 3. Systems Integration
Application demo customization
3. Enterprise integration

Remote Digital Face to face Face to face

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 Continuing your education journey…

Explained Solutions Composed Architected Explored Next Steps

– What is – Use cases, – What is – Learn key – Technical deep – How to

blockchain for patterns and Hyperledger blockchain dive on Linux proceed with a
business references Composer technical Foundation first project
– Why is it – How IBM can – Assets, concepts Hyperledger – Design
relevant help transactions & – Designing a Fabric Thinking
– What is IBM participants solution – Covers V1 Workshop
doing content logistics
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