Blockchain Overview

Unit 01 Part 2

IBM Skills Academy

V1.0, July 2018

Learning objectives

Blockchain behind
the scenes

How can we apply

blockchain?

Summary
What you should be able to do

Upon completion of this unit, you should be able to:

• Identify participants and assets in a business network.

• Discuss the role of a shared ledger and smart contracts in a blockchain solution.

• Discuss at a high level the chain of blocks that make up a blockchain.

• Describe how a blockchain application might transfer an asset by using smart contracts.

• Explain the role of Hyperledger Fabric and Hyperledger Composer in a blockchain for a business solution.

• Understand the benefits of IBM Blockchain Platform for enterprises.

3
Learning objectives

Blockchain behind
the scenes

How can we apply

blockchain?

Summary
Blockchain recap

• Blockchain builds on basic business concepts:

o Assets are exchanged between business
network participants.
o Transactions describe asset exchange.
o Contracts underpin transactions.
o The ledger is a log of transactions.

• Blockchain is a shared, replicated ledger.

Permissioned blockchains bring trust to business
networks through consensus, provenance,
immutability, and finality.

5
Example: Car leasing lifecycle
PARTICIPANTS
ASSET

6
Status quo: Car leasing supply chain
PARTICIPANTS

Government Manufacturer Dealer buys the Leasing Lessee At the end of

regulator adds the car from the company leases the the car’s life,
SUPPLY CHAIN

creates and make, model, manufacturer. buys the car car from the the scrap
populates the and vehicle from the Leasing merchant
registration identification dealer. company. disposes of
for the new number to the car.
vehicle. the vehicle
information.

7
Status quo: Car leasing information systems
PARTICIPANTS
PARTICPANT’S LEDGER
INFORMATION IN EACH

Vehicle Vehicle Vehicle Vehicle Vehicle Vehicle end

registration, registration, information and information, information, of life and
ownership, make, model, ownership ownership, leasing disposal
and lifecycle and vehicle service history, period, and record
information identification warranty, lease terms
number. leasing history,
lessee
information,
and lease
terms
8
Status quo: Disparate ledgers at each participant
Government
Manufacturer’s
regulator’s
records
records

Scrap
merchant’s Dealer’s Accountability
records records

Privacy

Scalability

Leasing
Lessee’s
company’s
records
records

Problem: Inefficient, expensive, and vulnerable

9
Blockchain solution: A shared, replicated, and permissioned ledger…

Government Manufacturer
regulator

Scrap Smart Shared

merchant contracts ledger Dealer

Conditions Records of
for asset asset
transfer transfer

Lessee Leasing company

... and Smart contracts to define services that access the ledger. 10
A shared, replicated, and permissioned ledger
Government Manufacturer
regulator

Scrap
merchant Dealer

Blockchain

Smart Shared
contracts ledger
Lessee Leasing company
Conditions Records of
for asset asset
transfer transfer

11
A shared, replicated, and permissioned ledger
• Shared or distributed ledger: Each participant maintains its own copy of the ledger
through replication.
• The ledger stores transactions for each asset in the form of an immutable chain of
blocks (blockchain):
o The ledger is modified only through software-driven consensus.
o The only allowed modification to the ledger is to append transactions.
o Existing transactions cannot be changed, deleted, or reordered.
• Permissioned: Only identified, authenticated, and chosen participants update the ledger.

Smart Shared
contracts ledger

Conditions Records of
for asset asset
transfer transfer

12
Shared ledger: Components
• Blockchain
The chain provides an immutable, transparent record of
txns txns txns transactions:
$ $ $ o A linked list of blocks.
o Each block describes a set of transactions.
Blockchain o Immutable. Blocks cannot be tampered with.

• World State
The world state stores the current state of assets:
A owns $ o An ordinary database (for example, a key/value store).
o Stores the combined outputs of all transactions.
World state o Not usually immutable. Smart Shared
contracts ledger

Conditions Records of
for asset asset
transfer transfer

* $ represents an asset 13
Shared ledger: Asset transfer
Participant A wants to transfer
1 an asset to Participant B.
2 The set of transactions is
represented digitally as a “block”. 3 The block is broadcast to every
permissioned participant in the network.

$ $ $

A
A owns $

6 The asset transfers from A to B

and the world state is updated. 5 The block is appended to the
chain within the shared ledger. 4 Network participants approve the
transaction is valid (by consensus).

$ $

$
$
B
B owns $
$
© 2018 IBM Corporation
* $ represents an asset
Shared ledger: Blockchain immutability

… Previous
Block Hash:
#
$ Previous
Block Hash:
&
$ Previous
Block Hash:
@
$
Block Hash: & Block Hash: @ Block Hash: !

• A blockchain is made up of a series of blocks, with new blocks always added to the end.
• Each block includes the result of a hash function of the previous block.
• Immutability: If someone tries to tamper with a transaction’s outcome, the block’s hash is
updated, violating the integrity of the blockchain. Therefore, the change is rejected.

* $ represents an asset

15
Shared ledger: Scalability, accountability, and privacy
Scalability The shared distributed ledger for each business network stores: Accountability
o Transactions for each asset
FINALITY
o The current state of each asset, including asset ownership
Each participant maintains its own copy of ledger through replication.

The set of transactions for asset transfer is represented by a block. PROVENANCE

The ledger stores all transactions within a time-ordered chain of blocks.
$ $ $
The chain of blocks cannot be modified except to append blocks of
transactions. IMMUTABILITY

Existing blocks cannot be changed, deleted, or reordered.

The ledger is modified only through software-driven consensus among CONSENSUS
the participants.
Only permissioned participants can update the ledger.
Privacy
Identities of participants are not linked to transactions (confidentiality).

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Smart contracts

• Software that provides a well-defined set of services that accesses a shared

ledger. Applications interact with the ledger through smart contracts.
• Smart contracts encapsulate the business terms and conditions to be run with
transactions. For example, you can define contractual conditions under which a
vehicle lease transfer occurs.

Smart Shared
contracts ledger

Conditions Records of
for asset asset
transfer transfer

17
Revisiting the car leasing blockchain solution
Government Manufacturer
regulator

Scrap Smart Shared Accountability

merchant contracts ledger Dealer

Privacy

Conditions Records of
for asset asset
transfer transfer
Scalability

Lessee Leasing company

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Car leasing blockchain solution: Details

Vehicles
S1: Smart
contract for car
ownership
transfer
User Car leasing
User application Transactions
S2: Smart
Vehicles
contract for
car lease
transfer SHARED LEDGER

Blockchain network

The blockchain network for car leasing consists of:

• Smart contracts that define services and conditions for vehicle transactions, such as car ownership
and lease transfer.
• A shared ledger that maintains:
• The vehicles’ information.
• The list of transactions relating to the smart contract operations that were performed.

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Car leasing: Change of lessee

World state
S1: Smart
contract for car
ownership MyCar.lessee =
transfer Dave

Car leasing
User application S2: Smart
contract for car
Blockchain
lease transfer
$ $ $
setLessee
Set lessee of
MyCar to Dave Shared ledger

* $ represents an asset
20
Car leasing: IBM Blockchain solution

https://www.youtube.com/watch?v=IgNfoQQ5Reg21
Learning objectives

Blockchain behind
the scenes

How can we apply

blockchain?

Summary
Hyperledger: Blockchain technologies for business

• A collaborative effort to advance cross-industry blockchain

technologies for business.

• A Linux Foundation project: Open source, open standards, and

open governance.

• Incubates multiple projects for business blockchain technologies.

• Founded February 2016; now more than 230 member

organizations.

• IBM is a premier member of Hyperledger.

• IBM Blockchain Platform is based on Hyperledger Fabric and

Hyperledger Composer.

www.hyperledger.org 23
Hyperledger Fabric and Hyperledger Composer

A business application that uses blockchain can be built by

using two key Hyperledger projects: Business Application

• Hyperledger Fabric is a blockchain that provides an

implementation of a ledger, smart contracts, privacy, Hyperledger Composer
and consensus.
• Hyperledger Composer is a suite of tools that
makes it easy to develop blockchain applications. Hyperledger Fabric

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Hyperledger Fabric

• An implementation of a permissioned blockchain

that is a foundation for developing general-purpose Business Application
blockchain for business applications.

• Emphasis on ledger, smart contracts, consensus, Hyperledger Composer

confidentiality, resiliency, and scalability.

Hyperledger Fabric
• New major release each quarter.

• IBM is one of the many contributing organizations.

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Hyperledger Composer

• A suite of high-level application abstractions for developing

business networks.
Business Application
• Emphasis on business-centric vocabulary for quick solution
creation.
• Reduce risk, and increase understanding and flexibility.
Hyperledger Composer
• Its main features are:
o Modeling of business networks, which are tested and
exposed through APIs.
Hyperledger Fabric
o Invoking transactions to interact with the business network.
o Providing integration points for existing systems of record.
• Full support for Hyperledger Fabric to use on all available features
to extend the underlying Blockchain infrastructure.

26
IBM Blockchain Platform: Blockchain as a service
IBM Blockchain Platform is a fully integrated, enterprise-
ready blockchain platform that is designed to accelerate the
development, governance, and operation of a multi-
institution business network:

• Developer tools use Hyperledger Composer to quickly

Blockchain application

Governance Tools
build blockchain applications.

Operational Tools
Developer Tools
Hyperledger Composer
• Hyperledger Fabric provides the Blockchain infrastructure,
which is managed through a set of intuitive operational
tools. Hyperledger Fabric

• Governance tools enable democratic management of the IBM Cloud

business network.

• Flexible deployment options, including a highly secure and

performant IBM Cloud environment.

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IBM Blockchain Platform: End-to-end lifecycle coverage
Develop
• Accelerate creation of
blockchain applications.
• No-charge development and
test tools that are hosted on
IBM Cloud.
• Based on easy-to-use
Hyperledger Composer
toolset.
Govern Operate
• Activate, customize, and • Connect, deploy, and manage
change complete blockchain blockchain peers with flexible
business networks. deployment options.
• Secure democratic • Production ready, secure, and
governance across scalable.
organizations. • Based on Linux Foundation
• Implement rules for Hyperledger Fabric.
authorizing network
updates.
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IBM Blockchain Platform: Benefits
Reduces risk
• Multiple deployment
sizes with flexible pricing
and support.
• Democratic governance
policies to help prevent
unauthorized network
changes.
Saves time Enterprise-ready Open
• Implement blockchain • Designed for high • Based on popular and
projects more quickly. availability and disaster open Linux Foundation
recovery. Hyperledger
• Extensive toolset for technologies.
development, • Highly secured and
governance, and suitable for transactional • No vendor lock-in!
operation of blockchain workloads. Embraces open source,
networks. open standards, and
open governance.
Simplified development, governance, and operations
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Learning objectives

Blockchain behind
the scenes

How can we apply

blockchain?

Summary
Unit summary and takeaways
This unit covered a high-level overview of blockchain for business, with the following key takeaways:
• Permissioned participants transfer assets through consensus by using a shared ledger and smart
contracts.
• A shared ledger is composed of an immutable record of transactions and the current state of assets. It is
designed to enable accountability, privacy, and scalability.
• A smart contract defines a set of operations and conditions for asset transfer.
• A blockchain for business solution can be built by using open-source technologies:
• Hyperledger Fabric is a blockchain, providing the implementation of a ledger, smart contracts,
privacy, and consensus.
• Hyperledger Composer is a suite of tools that makes it easy to develop blockchain applications.
• IBM Blockchain Platform provides the following benefits for enterprises:
• Security, high availability, and high performance.
• Simplified development, governance, and operations.

31
Checkpoint questions

1) Which two are key components of blockchain?

a) World state

b) Shared assets

c) Blocks with hashes

d) Hash of transactions

e) Immutable data storage

32
Checkpoint questions

2) Hyperledger Composer provides tools to model which two of the following?

a) Smart contracts

b) Cryptocurrencies

c) Distributed ledgers

d) Business networks

e) Chain of transactions

33
Checkpoint questions

3) What is a reason for enterprises to use Hyperledger Fabric?

a) Asset ownership

b) Proprietary software

c) Centralized governance

d) Permissioned participants

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Checkpoint questions

4) Where is an asset transfer recorded?

a) Within the smart contract that is stored in the world state.

b) Within the list of transactions in the asset.

c) Within a block in a transaction.

d) Within a chain of blocks.

35
Checkpoint questions

5) Hyperledger Fabric enables any enterprise to update the shared ledger when an asset is transferred.

a) True

b) False

36
Checkpoint answers

List the correct answer for each question.

1. a, c

2. a, d

3. d

4. d

5. b (The enterprise should be a permissioned participant in the business network.)

37
Exercise introduction
In this exercise, we introduce the lifecycle for the manufacturing of a vehicle,
identify the artifacts of the business network, and how a blockchain solution can be
applied.

38
References

For more information about the topics that are covered in this unit, see the following resources:

• What is Blockchain and why are we exploring it at This Place?: https://medium.com/this-place/what-is-

blockchain-and-why-are-we-exploring-it-at-this-place-aebc0d694450

39
Thank you.

Questions? Tweet us or
go to ibm.com/blockchain
@IBMBlockchain
IBM Blockchain
IBM Blockchain
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