Blockchain.currentState() and How Will it Impact Your Industry? V 1.2

Blockchain.currentState() & How Will it Impact Your Industry? Ahmad Gohar
Solution Architect @ IBM WTC @ansgohar

Dec 8, 2017 Ahmad Gohar # Code Europe 2017 2
Who am I ? Solution Architect at IBM WTC IBM Certified Expert IT Specialist OpenGroup Certified Master IT Specialist M.Sc. In IS MIBA OCEJPA, OCPWCD, OCP SQL/PL Java Duke Award Winner 2016 @ansgohar

What is Blockchain ? ? ?

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)

Transferring assets, building value Two fundamental types of asset Intangible
assets subdivide Cash is also an asset – Tangible, e.g. a house – Intangible, e.g. a mortgage – Financial, e.g. bond – Intellectual, e.g. patents – Digital, e.g. music – Has property of anonymity Anything that is capable of being owned or controlled to produce value, is an asset

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 with shared business processes A trusted, distributed ledger

Problem … … inefficient, expensive, vulnerable Insurer records Auditor records
Regulator records Participant A’s records Bank records Participant B’s records

A shared replicated, permissioned ledger… … with consensus, provenance, immutability
and finality Insurer records Auditor records Regulator records Participant A’s records Bank records Participant B’s records Blockchain

Requirements of blockchain for business Append-only distributed system of record
shared across business network Business terms embedded in transaction database & executed with transactions Transactions are endorsed by relevant participants Ensuring appropriate visibility; transactions are secure, authenticated & verifiable Privacy Shared ledger Smart contract Trust

• Shared between participants • Participants have own copy through
replication • Permissioned, so participants see only appropriate transactions • THE shared system of record Records all transactions across business network Shared ledger

Trade Finance

Smart contract • Verifiable, signed • Encoded in programming language
• Example: – Defines contractual conditions under which corporate Bond transfer occurs Business rules implied by the contract … embedded in the Blockchain and executed with the transaction

Smart Contracts

Traditional Vs Smart Contracts

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 The ledger is shared, but participants require privacy

Trust • 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 The ledger is a trusted source of information

Online Transactions • Physical cash – Non-traceable (well, mostly!) – Secure (mostly) – Low inflation • Can’t be used online directly Electronic credit or debit transactions Bank sees all transactions Merchants can track/profile customers

E-Cash • Secure – Single use – Reliable • Low inflation • Privacy-preserving

Bitcoin • A distributed, decentralized digital currency system • Released by Satoshi Nakamoto 2008 • Effectively a bank run by an ad hoc network – Digital checks – A distributed transaction log

– An unregulated shadow-currency – The first blockchain application –
Resource intensive Blockchain underpins Bitcoin … – Blockchain for business differs in key areas: – Identity over anonymity – Selective endorsement over proof of work – Assets over cryptocurrency is:

Bitcoin Transactions Public key 0xa8fc93875a972ea Signature 0xa87g14632d452cd Public key 0xc7b2f68...

How does Bitcoin work? Bitcoin The protocol / technology bitcoins The currency / coin / unit of account Transaction Transfer of a coin from one owner to the next, signed cryptographically Public/Private key The receiver’s public key is his Bitcoin address The sender’s private key is used to digitally sign the transaction Block Validated collection of transactions over 10 minutes, created through mining Mining Generates a block and validates transactions through proof-of-work, creating new bitcoins in the process Blockchain Timestamped sequence of linked blocks The public ledger

The Hashing Problem To extend the blockchain, a miner creates a new block, containing: (1) hash of previous block (2) new transactions to include in the blockchain (3) creation of reward bitcoins (e.g., 25 new BTC) (4) nonce Block is valid if hash of (1)-(4) ends in enough zeroes, as determined by current difficulty. Miner has to find the right nonce by trial and error! Difficulty chosen so that the time until the first miner wins is about ten minutes, on average.

Hashes • A hash function (like SHA-256) takes a block
of data in, and produces an effectively random fixed size number. • Any change to the input randomizes it SHA-256 “The quick brown fox did some crypto” 410312395834291203… SHA-256 “The quick brown Fox did some crypto” 983249120432492340…

Use of Cryptographic Hashes  Proof-of-work  Block contains transactions to be validated and previous hash value.  Pick a nouce such that H(prev hash, nounce, Tx) < E. E is a variable that the system specifies. Basically, this amounts to finding a hash value who’s leading bits are zero. The work required is exponential in the number of zero bits required.  Verification is easy. But proof-of-work is hard.

The Chain Block #0 Winner nobody Parent_hash 0 Nonce 0
Block #1 Winner Player 23 Parent_hash 000D45698 Nonce 3459 SHA-256 Block #2 Winner Player 16 Parent_hash 000F67839 Nonce 974329 SHA-256

What about cheaters? • Make a fake hash • What
happens then? • The algorithm will fail • Other participants will not use your block, making it not part of the chain

Solving the Bitcoin puzzle • Miners “create” bitcoins (or other
tokens) • Transactions send value (bitcoins) from key to key • The blockchain prevents overspending without the need for a central authority • Crypto currency code can only change by miner consensus • Consensus replaces authority • Number of tokens in Bitcoin is limited to 21 million • Reward per block • Mining difficulty grows

Double spending: why ecash is hard? BANK Alice Bob Sign A (Transfer X to Bob) Charlie Sign A (Transfer X to Charlie) Sign Z (Transfer X to Alice) Redeem X? Redeem X? JB

Solution: Maintain a global public append-only log Sign A (Transfer X to C) ... Sign A (Transfer X to B) ... The block chain –a public ledger of all transactions. (In Bitcoin, the log is extended in increments of blocks, each of which may contain thousands of transactions.)

Where are the rules? • The laws of Bitcoin (or
any blockchain) are coded in the miner nodes • Decisions are made collectively by the miners • If 51% of the miners agree, the decision is valid • This includes each individual transaction • The source of the node is law • How do you change rules? • We want to add more coins • We want to change the block format

Take over • What happens if you obtain the majority
of mining power? • Ability to approve your own transaction But • The value of Bitcoin will most likely become zero

Public Key Crypto: Encryption • Key pair: public key and private key

Patterns for customer adoption COMPLIANCE LEDGER CONSORTIUM SHARED LEDGER ASSET
EXCHANGE HIGH VALUE MARKET • Created by a small set of participants • Share key reference data • Consolidated, consistent real-time view • Sharing of assets (voting, dividend notification) • Assets are information, not financial • Provenance & finality are key • Transfer of high value financial assets • Between many participants in a market • Regulatory timeframes • Real-time view of compliance, audit & risk data • Provenance, immutability & finality are key • Transparent access to auditor & regulator

Key players for blockchain adoption Regulator Industry Group Market Maker
– 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 –Often funded by members of a business network –Provide technical advice on industry trends –Encourages best practice by making recommendations to members –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

2009-2017 https://blockchain.info/charts/blocks-size?timespan=all

2017

It’s early stages yet

Blockchain timeline

Experimental Technically Confirmed Commercialization New Applications/ Ecosystem How Mature?

Back to BitCoin • Validation – Is the coin legit? (proof-of-work)  Use of Cryptographic Hashes – How do you prevent a coin from double-spending?  Broadcast to all nodes • Creation of a virtual coin/note – How is it created in the first place?  Provide incentives for miners – How do you prevent inflation? (What prevents anyone from creating lots of coins?)  Limit the creation rate of the BitCoins

Blockchain Internet of Things (IoT) Big Data Social Media / Mobile Apps Cloud  Cloud Host 、 Cloud Storage 、 Cloud Network 、 VDC DR and Backup  Social Networks  Messaging/ chat apps Structured Data Semi-Structured Data Unstructured Data  Decentralized Security  Reliable / Scalable  IoT Connectivity  IoT Sensors  IoT Platform Technology Enablers – Digital Transformation

Banking & Payment Industry

Banking & Payment Industry • Some people saying that Blockchain will do the banking what the Internet did to media • The Blockchain Banks “The Unbanked” • Technologies like Bitcoin allows anyone to send money almost instantly with low fees • Banks are investing in Blockchain

Banking & Payment Industry Example

Cyber-Security Industry

Cyber-Security Industry • Blockchain is public, but the data is verified and secured using Advanced cryptography • Resistant to unauthorized changes and hacks • Blockchain eliminates the need for middlemen which make it more efficient than many other legacy cybersecurity systems

Supply Chain Management Industry

Supply Chain Management Industry • Transactions are documented in a permanent decentralized record, and monitored securely and transparently • Can be used to reduced costs, and monitor time, labour, waste, emissions • Understand the environmental impact of the products • Verify authenticity or fair trade status of the product

Supply Chain Management Industry Example

Forecasting Industry

Forecasting Industry • Blockchain will change how we do research, consulting, analysis and forecasting • Place your bets in decentralized way from sports, stocks, elections

Forecasting Industry Example

Networking and IOT Industry

Networking and IOT Industry • IBM & Samsung are using a Blockchain technology to create a decentralized network of IOT devices • Eliminate the need for central location to handle communications for IOT devices • The Devices could communicate directly, update software, manage bugs, and monitor energy usage

Insurance Industry

Insurance Industry • The global insurance market are based in trust management • Blockchain is a new way of managing trust and can be used to verify many types of data and insurance contract • Oracles integrate real-world data with Blockchain smart contracts • This technology is useful for any type of insurance that relies on real-world data

Insurance Industry Example

Private Transport & Ride Sharing Industry

Private Transport & Ride Sharing Industry • Blockchain can be used to create decentralized peer-to-peer ride sharing apps allowing booth car owners and users to arranges booth terms and conditions without 3rd party providers in secure way • Automatically pay for parking, tolls, and fuel using e-wallets

Private Transport & Ride Sharing Industry Example

On-line Data Storage Industry

On-line Data Storage Industry • Data in centralized servers are vulnerable for hacking, data loss, and human error • Blockchain allow cloud storage to be more secure and robust against attacks

On-line Data Storage Industry Example

Charity Industry

Charity Industry • Common complains in the charity space include inefficiency and corruption which prevent money from reaching to those who need to have it • Blockchain can help donations to get where they are going

Charity Industry Example

Voting Industry

Voting Industry • The Blockchain will disrupt voting • Blockchain can be used for voter registration, identity verification, and vote counting • Immutable, publicly-viewable ledgers of recorded votes would make elections more fair and democratic

Voting Industry Example

Government Industry

Government Industry • Government systems are often slow, opaque, and prone to corruption • Blockchain can reduce bureaucracy and increase security, efficiency, and transparency of the governmental operations

Government Industry Example

Healthcare Industry

Healthcare Industry • Another industry that relies on legacy systems is health-care • Hospitals need a secure platform to store and share sensitive data • Blockchain can help hospitals safely store medical records and share them with authorized doctors or patients

Healthcare Industry Example

Energy Management Industry

Energy Management Industry • Energy management has been a highly centralized industry for a long time • Energy producers and users can’t buy IT directly from each other and must go through the public grids

Energy Management Industry Example

Online Music Industry

Online Music Industry • Blockchain startups are coming up with ways for musicians to get paid directly from their fans • Smart contracts can solve licensing issues and catalog songs with their respective creators

Online Music Industry Example

Retail Industry

Retail Industry • When you shop you trust the retail system of the store or marketplace • Blockchain based retail utilities connect buyers and sellers without a middleman and associated fees • Trust comes from smart contract systems

Retail Industry Example

Real Estate Industry

Real Estate Industry • Issues in buying and selling real state: Bureaucracy, lack of transparency, fraud, and mistakes in public records • Blockchain technology can speed up transactions by reducing the need for paper-based record keeping • Helps tracking, verifying ownership, ensure accuracy of documents,and trasering anf peoperty deeds

Real Estate Industry Example

Crowdfuunding Industry

Crowdfuunding Industry • Crowdfunding platforms create request between creators and supporters, but they also charge high fees • In blockchain- based crowdfunding, trust is created through smart contracts and online reputation systems • New projects can release their own tokens, that can later be exchanged for products, services, or cash • Many blockchain startups have now raised millions of dollars through such token sales • The future is uncertain, but promising

The blockchain space is wide open and the opportunities are many

World’s largest taxi company World’s most valuable retailer Largest accommodation provider Industry Digital Transformation is Happening

Recap • Blockchain is one of the most promising new technology for the future. • What is it? Distributed ledger technology that underlies crypto-currencies like Bitcoin. • Transparent, Safe, Auditable, and Resistant to outages. • Blockchain makes tings transparent, Democratic, Decentralized, Efficient, and Secure. • Industries ripe for disruption by Blockchain.

Continuing your journey… Explained Solutions Composed Architected Explored Next Steps
– What is blockchain for business – Why is it relevant – What is IBM doing – Use cases, patterns and references – What is Hyperledger Composer – Assets, transactions & participants – Learn key blockchain technical concepts – Designing a solution – Technical deep dive on Linux Foundation Hyperledger Fabric – How to proceed with a first project

The Revolutionary Benefits Of Blockchain Tamper- Proof An encrypted record of events that can never be changed retrospectively 01 02 04 03 05 Smart Contracts A store of code and data to automate business processes between parties via self-executing logical workflows Reconciled Data Perfect copies of a database, distributed across all participants, meaning no data reconciliation No Intermediaries P2P interactions across the network, without the need for intermediaries Innately Secure In-built encryption and consensus mechanisms provide high resistance to network attacks

Recommendations • Start from first principles: • What needs fixing? • Why hasn’t it been fixed yet? • What does the new process look like, A to Z? • Which pieces of the puzzle are missing? • Start small, and think big in terms of: • Use cases in your industry. • What it means for the development of distributed computing.

Continuing your journey… Explained Solutions Composed Architected Explored Next Steps
– What is blockchain for business – Why is it relevant – What is IBM doing – Use cases, patterns and references – What is Hyperledger Composer – Assets, transactions & participants – Learn key blockchain technical concepts – Designing a solution – Technical deep dive on Linux Foundation Hyperledger Fabric – How to proceed with a first project

Bitcoin resources • http://bitcoin.org • http://en.wikipedia.org/wiki/Bitcoin • http://blockchain.info • http://www.coindesk.com • http://two-bit-idiot.tumblr.com • http://www.reddit.com/r/Bitcoin/ • Video “How Bitcoin works under the hood”: https://www.youtube.com /watch?v=Lx9zgZCMqXE • http://mitbitcoinexpo.org

Acknowledgement Some of the slides, content, or pictures are borrowed from the several resources, and some pictures are obtained through Google search without being referenced below 129 CS660 - Advanced Information Assurance - UMassAmherst

@ansgohar

Blockchain.currentState() and How Will it Impac...

Blockchain.currentState() and How Will it Impact Your Industry? V 1.2

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