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?

2016 IBM Corporation Page 2

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)
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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
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subdivide an asset
Financial, e.g. bond Has property of anonymity
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)

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

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Problem Party As
records
Party Ds Bank
records records

Party Cs Party Bs Auditor

records records records

Inefficient, expensive, vulnerable

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Solution Party As
records
Party Ds Bank
records records

Shared, replicated, permissioned

Party Cs Party Bs Auditor

records records records

Consensus, provenance, immutability, finality

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Blockchain underpins Bitcoin
Unregulated, censorship-
resistant shadow currency
First Blockchain application
Pioneer of Blockchain
technology

BUT

is not bitcoin

Digital currencies different from cryptocurrency

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 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

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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

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
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 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)
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Contents
is Blockchain?

is it relevant
for our business?

can IBM help

us apply Blockchain?

2016 IBM Corporation Page 15

 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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 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

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 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
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 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
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 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
Sellers bank authenticates
LC and credits Company B
Buyers bank issues
A Plus LC and sends to Bank B
Bank sellers 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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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
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 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
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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
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Industry Group Market Maker
Often funded by members of a In financial markets, takes buy-
business network side and sell-side to provide
Provide technical advice on liquidity
industry trends More generally, the organization
who innovates
Encourages best practice by - Creates a new good or service,
making recommendations to and business process (likely)
members - Creates a new business process
for an existing good or service
Contents
is Blockchain?

is it relevant
for our business?

can IBM help

us apply Blockchain?

2016 IBM Corporation Page 24

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
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Linux Foundations 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
2016 IBM Corporation Page 26
www.Hyperledger.org
2016
2016IBM
IBMCorporation
Corporation Pag
Page2727
As of 07 September 2016
 Engagement model overview

Lets 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

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IBM and Hyperledger in Action
HSBC, Bank of America, IDA
ABN AMRO
Crdit Mutuel Arka
Japan Exchange Group (JPX)
Kouvola Innovation
London Stock Exchange
Mizuho
IBM Global Finance
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Trade Finance - Letter of Credit
Financial Restructuring & Recovery
Consortium Shared Ledger
Post Trade
Supply Chain Logistics
Market Innovation
Digital Currency
Shadow Chain for Dispute Resolution
Summary
Blockchain
is a shared, replicated, permissioned
ledger technology
can open up business networks by
taking out cost, improving efficiencies
and increase accessibility
addresses an exciting and topical set
of business challenges, which cross
every industry
2016 IBM Corporation Page 30
IBM
supports the Linux Foundation
Hyperledger open standard, open
source, open governance Blockchain
has an easy to access, proven and
incremental engagement model giving
customers the confidence to get
started NOW
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
Crdit Mutuel Arka:
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/
2016 IBM Corporation Page 32