Blockchain

A new disruption in financial servies?

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Bitcoin :  Currency and technology

• Mining• 21  million• Volatile  value• >50%  in  hands  of  880  individuals• Litecoin,  Ripple,  Zerocoin

Currency

“Satoshi  Nakamoto”2009

• Blockchain• Distributed  shared  ledger• Cryptograhy (SHA-­‐256,  PKI)• Consensus  model• Smart  contracts

Technology

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Party D’s Records Bank Records

Party C’s Records Auditor Records

Party B’s Records

Party A’s Records

API-integrations

Hack

Ledger

Ledger

Ledger

Ledger

Ledger

Ledger

Inefficient,  expensive,  error  sensitive  and  vulnerable

Information  &  asset  exchange  in  business  networks  – Separate  ledgers

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Information  &  asset  exchange  in  business  networks  – Shared  ledgers

Party D’s Records Bank records

Party C’s Records Auditor records

Party B Records

Party A’s Records

Ledger

LedgerLedger

LedgerLedger

Ledger

Consistency,  efficiency,  security  and  resilience

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4  key concepts of  blockchain

Distributed  shared  ledger Cryptography

Consensus Smart  contracts

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4  key concepts of  blockchain   -­‐ Distributed  shared  ledgers

• Group  of  replicated logs/databases   (nodes)

• Transactions  distributed  in  blocks

• All  nodes  hold  all transactions

• Parties  identified with  public  key  (=  anonymised)

• Accessibility of  transactions  depending  on  blockchain implementation

• Resilient for  failure  of  one  or  more  nodes

• Group  of  nodes  operate  tamper  proof

Nodes of  Bitcoin ledger

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Visualisation of  Bitcoin  flows  between  participants

Source  :  Elliptic.co

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4  key concepts of  blockchain  – Cryptography (1/2)

HashingCreation  of  a  bit  string  (digest)  representing  integrity  of  content  other  string.  Changing  one  character  in  the  original  string  results  in  complete  different  has.  Changing  multiple  characters  in  original  string  that  results  in  the  same  hash  requires  large  amount  of  processing  power  for  a long  period  of  time.    

Sample  sentence  to  explain  how  SHA256  works

Sample  sentence  to  explainhow  SHA256  works.

79e8a584005254f7717547b5829fd01fa6c6831bd92a2d28c93305636c71b499

c19617618972f1dc643b2bb7075c7cacac3aea970581ca5c6ec30aee59a74c07

Extra  dot

Input  data

Hash  value(32  bytes)

Hashing Hashing

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4  key concepts of  blockchain  – Cryptography (2/2)

Public  &  private  keys  and  walletsTwo  large  prime  numbers  that  have  a  mathematical  relation  with  each  other.  A  string  encrypted  with  one  key  can  only  be  decrypted  with  the  other.  One  key  needs  to  be  kept  private,  the  other  one  can  be  made  publicly  known  so  that  it  can  be  used  by  other  parties  to  exchange  data  with you  in  a  secure  manner.  Private  keys  need  to  be  stored  that  it  is  accessible  only  for  owner.  This  can  be  done  on  personal  devices  (PC,  smart  card,  USB  stick, phone,  …)  or  remotely  with  a  service  provider  (cold  and  hot  wallets).

EncryptionScrambling  of  clear  text  with  the  public  key  of  the  recipient  so  that  the  holder  of  that  private  key  is  the  only  one  that  can descramble  the  message.  This  is  used  to  guarantee  the  confidentiality  of  the  data  exchanged.    

Confidential  text  to  be  secured  by  encryption a66b311c9b158c1e55d4e6cc555016d2e554ac….

Encryption

Confidential  text  to  be  secured  by  encryption

Decryption

Private  keyPublic  key PKI  management

Digital  signatureEncryption  of  hash  representing  of  original  data  to  be  secured  with  the  private  key  of  the  sender  (called  digital  signature)  that  is  decrypted  by  the  recipient  with  the  public  of  the  sender.  If  the  decrypted  hash  matches  the  content  of  the  original  data  it  implies  two  things.  First,  the  encryption  can  only  be  performed  with  the  private  key  corresponding  with  public  key  and  secondly,   the  original  data  can’t  be  tampered  with.

2100f86450888dc01725af78a0e70415… 2626043be7d913ff5d8520b39253eef6240e31d…

Encryption

2100f86450888dc01725af78a0e70415…

Public  keyPrivate  key PKI  managementHash  of  data  to  be  secured Hash  to  be  checked  with  original  data

Decryption

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4  key concepts of  blockchain  – Consensus

• Consensus  =  Majority of  nodes  agree  on  validity  of  transactions

• Includes  validation  on  double-­‐spending

• Permissionless (public)   vs.  permissioned (private)  blockchain setup

• Proof-­‐of-­‐work   /  proof-­‐of-­‐stake   the  proof  validity  of  node(only  applicable   for  permissionless network)

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4  key concepts of  blockchain  – Smart  Contracts

• Business  logic that  can  be  assigned  to  a  transaction  on  the  blockchain

• Acts  as  a  ‘notary’ of  blockchain transactions

• Holds  conditions under  which  specific  actions  can/must  be  perfomed

• Facilitates  escrow services

• Can’t  be  modified without  predefined  permissions

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Sample  case  of  blockchain   for smart  contracts

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Source  :  Financial  Times

How  a  blockchain  works?

Value  of  blockchain technology

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Reduction  of  costs  and  complexity Shared  trusted  transactions

Resilience Secure Auditability

Reduction  of  errors

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Potential of  blockchain  extends across a  wide range  of  application areas

Financial  Services• Payments• Securities  registration  &  processing• Lending

Property• Real  estate• Intellectual  property• Cars

Governmental  services• Voting• Registrations  (passports,  driving  license)• Permits

Identification  &  Security• Party/device  registration• Authentication• Access  control

Trade• Document  exchange• Asset  exchange• Escrow  services• Trade  agreements

Internet  of  Things   (IoT)• Autonomous  devices,  such  as

• Cars• Drones• Robots

We  are  at  the  threshold  of  a  massive  explosion  in  the  history  of  computing

Devices  are  becoming  significantly  more  intelligent  and  connected

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Role of  blockchain   technology in  Internet  of  Things

*  =  Autonomous  Decentralized  Peer-­‐to-­‐peer  Telemetry  

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ADEPT*  – PoT of  IBM  and Samsung  on  IoT applying blockchain   technology

ibm.biz/empoweringtheedge

Key differentiating elements between blockchain  protocols:• Permission model  (private  vs.  public)• Consensus  approach• Smart  contracts• Extensibility &  programmability• APIs• Scalability &  latency• Resource  consumption

Multiple  implementations  of  blockchain  related  protocols  :• Bitcoin• Ethereum• Ripple• Stellar• Tendermint• Factom• Hyperledger• …and  many  more

There is  not one blockchain  protocol

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Key factors  that influence the future of  blockchain,   crypto  assets and smart  contracts

Interoperability  &  standardisation-­‐ Messages-­‐ Consensus-­‐ APIs

Scalability-­‐ Volumes-­‐ Response  times

Vulnarability-­‐ DDoS  attacks-­‐ Confidentiality

Regulatory  -­‐ Issuance  of  crypto  assets-­‐ Compliancy  rules-­‐ Oversight

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Deploy your  blockchainfabric  of  choice

Help  youdesign  and  buildyour  POC

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Help  guide  your  blockchain  exploration

Research Middleware Services Cloud iX Design & Development

IBM’s value add in  blockchain

1. Discuss  Blockchain  technology2. Explore  customer  business  

model3. Asses  Blockchain  suitability

1. Show  Blockchain Application  Demo

2. Explain  technology  usage3. Validate  Client  Interest

1. Understand  Blockchain  concepts&  elements

2. Hands on  with  Blockchain  technology

3. Demo  customization  using  Design  Thinking

1. Explore customer  specific  business  model

2. Design,  build  &  iterate  approach3. Builds  limited  scope  deployable  

solution

2  hours  meeting 2  hours  demo 1  day  workshop 2-­‐6  weeks

Remote  or  face  to  face Remote  or  face  to  face Face  to  face Co-­‐located joint  team

Fee of  charge Free  of charge Free of  charge For  charge

Conversation Demonstration Proof  of  Concept

Proof  of  Technology

Overview IBM  blockchain  engagement  model

Sample  agenda  1-­‐day  workshop

• Introduction (10  mins)

• Technology  Overview (50  mins)

• Break (15  mins)

• Understand (90  mins)

• Lunch (60  mins)

• Explore (90  mins)

• Break (15  mins)

• Prototype  (30  mins)

• Evaluate (60  mins)

UNDERSTAND

EXPLORE

PROTOTYPE

EVALUATE

Is blockchain going to be the next big disruptor for…… information technology

… the economy… the society… our lifestyle

?

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