IBM On Blockchain PDF

Making Blockchain Real for Business
Explained
V3.4, 8 September 16
© 2016 IBM Corporation Page 1
Contents
is Blockchain?
is it relevant
for our business?
can IBM help

us apply Blockchain?

Business networks,
wealth & 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)
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 subdivide an asset
– Tangible, e.g. a house – Financial, e.g. bond – Has property of anonymity
– Intangible, e.g. a mortgage – Intellectual, e.g. patents
– Digital, e.g. music
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)

Introducing Blockchain
A shared ledger technology allowing any participant in the business network
to see THE system of record (ledger)

Problem … Party A’s
records
Party D’s Bank
records records
Party C’s Party B’s Auditor

records records records
… Inefficient, expensive, vulnerable

Solution … Party A’s
records
Party D’s Bank
records records
Shared, replicated, permissioned
Party C’s Party B’s Auditor

records records records
… Consensus, provenance, immutability, finality

Blockchain underpins Bitcoin …
– Unregulated, censorship-
resistant shadow currency
– First Blockchain application
• Pioneer of Blockchain
technology
BUT
is not bitcoin
… Digital currencies different from cryptocurrency

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 All parties agree

visibility; transactions are to network verified
secure, authenticated transaction
& verifiable Privacy Consensus
… Broader participation, lower cost, increased efficiency

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

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

Privacy
Ledger is shared, but participants require privacy

• Participants need:
– Transactions to be private
– Identity not linked to a transaction
• Transactions need to be authenticated
• Cryptography central to these processes
Consensus
… the process by which transactions are verified

• Anonymous participants • Multiple alternatives
– Bitcoin cryptographic mining provides – Proof of stake, where influence is determined by
randomized selection among anonymous risk of validators
participants – Multi-signatures, validation needs consent from 3
– Significant compute cost (proof of work) out of 5 validators
• Known & trusted participants • Industrial Blockchain needs “pluggable”
– Commitment possible at low cost consensus
– Byzantine fault tolerance (BFT)
Contents
is Blockchain?
is it relevant
for our business?
can IBM help


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
Consensus use case –
Shared routing codes
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 of
• 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

Provenance use case –
Vehicle maintenance
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
Immutability use case –
Financial ledger
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
3. Changes nature of
confidence financial audit trail
compliance from
• Privacy features to ensure authorized user access passive to active
Letter of credit
Republic of A B-land
Sales contract
Finality use case – Company A:
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
A Plus LC and sends to Bank B
Bank 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
Other potential
use cases
– Securities – Retail Banking

• Post-trade settlement • Cross border remittances
• Derivative contracts • Mortgage verification & contracts
– Trade Finance – Public Records

• Bill of Lading • Real estate records
• Cross-currency payment • Vehicle registrations
• Citizen Identity
– Syndicated Loans
– Digital Property Management
– Supply Chain
Patterns for customer adoption
HIGH VALUE • Transfer of high value financial assets
• 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
Key players for Blockchain adoption
Regulator Industry Group Market Maker

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


Blockchain for Business – Our Point of View
Community + Code Open Source Code: Blockchain for business;
Linux Hyperledger Project Consensus | Provenance
Immutability | Finality
Open Governance – 100 member cross industry board
Cloud Blockchain managed service on IBM Cloud and z Systems;

IBM Blockchain Identity | Consensus | System Integration |
Hardware-assist for Performance & Security
IBM Blockchain on Bluemix
Clients Making Blockchain real for business

Blockchain Solutions Blockchain Garage;
Blockchain Garage New York | London | Singapore | Tokyo
Blockchain Services Practice
Linux Foundation’s Hyperledger Project
– Linux Foundation project announced December 17, 2015
QUICK FACTS
with 17 founders, now nearly 100 members
Chairman Blythe Masters/DAH
– The Hyperledger Project is a collaborative effort to
advance Blockchain technology by identifying and Executive
Brian Behlendorf
Director
addressing important features for a cross-industry open
standard for distributed ledgers that can transform the Technical Chair Chris Ferris/IBM
way business transactions are conducted globally
44,000 lines of code
Contribution
– Open source and open standards-based in February 2016
Sprint to one
codebase with Staged releases
Enable adoption of shared ledger technology at unified thinking
a pace and depth not achievable by any one
company or industry
www.Hyperledger.org
©©2016
2016IBM
IBMCorporation
Corporation Pag
Page2727
As of 07 September 2016
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. Hands on with business challenge
2. Explore customer 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 or face to face Remote or face to face Face to face Face to face
Free of charge Free of charge For fee For fee

IBM and Hyperledger in Action
HSBC, Bank of America, IDA Trade Finance - Letter of Credit
ABN AMRO Financial Restructuring & Recovery
Crédit Mutuel Arkéa Consortium Shared Ledger
Japan Exchange Group (JPX) Post Trade
Kouvola Innovation Supply Chain Logistics
London Stock Exchange Market Innovation
Mizuho Digital Currency
IBM Global Finance Shadow Chain for Dispute Resolution

Summary
Blockchain … IBM …
– is a shared, replicated, permissioned – supports the Linux Foundation
ledger technology Hyperledger open standard, open
– can open up business networks by source, open governance Blockchain
taking out cost, improving efficiencies
and increase accessibility – has an easy to access, proven and
incremental engagement model giving
– addresses an exciting and topical set customers the confidence to get
of business challenges, which cross started NOW
every industry

Thank you!
© 2016 IBM Corporation

Further Information – Use case Links
HSBC, Bank of America, IDA:
http://www.coindesk.com/hsbc-bank-america-blockchain-supply-chain/
ABN AMRO:
https://www.abnamro.com/en/newsroom/blogs/arjan-van-os/2016/walking-the-walk-exploring-the-power-of-
blockchain.html
Crédit Mutuel Arkéa:
http://www.coindesk.com/ibm-completes-blockchain-trial-french-bank-credit-mutuel/
JPX:
http://www.ibm.com/press/us/en/pressrelease/49088.wss
Kouvola Innovation:
http://www.ibm.com/press/us/en/pressrelease/49029.wss
London Stock Exchange:
http://www.ibtimes.co.uk/linux-foundation-blockchain-consortium-digital-asset-ibm-credits-london-stock-
exchange-board-1533798
Mizuho:
http://www.coindesk.com/mizuho-digital-currency-powered-blockchain-settlement/
IBM Global Finance:
http://www.coindesk.com/ibm-building-blockchain-dispute-resolution-system/

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Making Blockchain Real for Business

can IBM help

© 2016 IBM Corporation Page 2

– Wealth is generated by the flow of

– Markets are central to this process:

Two fundamental Intangible assets Cash is also

– Transaction – an asset transfer onto or

– Contract – conditions for transaction to occur

© 2016 IBM Corporation Page 5

© 2016 IBM Corporation Page 6

Party C’s Party B’s Auditor

… Inefficient, expensive, vulnerable

Shared, replicated, permissioned

Party C’s Party B’s Auditor

… Consensus, provenance, immutability, finality

… Digital currencies different from cryptocurrency

Ensuring appropriate All parties agree

… Broader participation, lower cost, increased efficiency

Records all transactions across business network

• Shared between participants

© 2016 IBM Corporation Page 11

Business rules implied by the contract … embedded in the Blockchain

© 2016 IBM Corporation Page 12

Ledger is shared, but participants require privacy

… the process by which transactions are verified

can IBM help

© 2016 IBM Corporation Page 15

Saves Removes Reduces Increases

What • Competitors/collaborators in a business network need Benefits

© 2016 IBM Corporation Page 17

What • Provenance of each component part in complex Benefits

What • Financial data in a large organization dispersed Benefits

Letter of credit Buyer applies

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

– Securities – Retail Banking

– Trade Finance – Public Records

• Sharing of assets (voting, dividend notification)

• Created by a small set of participants

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

Regulator Industry Group Market Maker

can IBM help

© 2016 IBM Corporation Page 24

Cloud Blockchain managed service on IBM Cloud and z Systems;

Clients Making Blockchain real for business

Let’s Blockchain First

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

Free of charge Free of charge For fee For fee

© 2016 IBM Corporation Page 29

© 2016 IBM Corporation Page 30

© 2016 IBM Corporation

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