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2 Microsoft Cloud Society Future Summit Blockchain and Artificial Intelligence Daron Yöndem CTO, XOGO Inc. Microsoft Regional Director, Azure MVP

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How to get rich?

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Blockchain Introduction

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What is Blockchain? Blockchain is a secure, shared, distributed ledger Secure Shared Distributed Ledger DLT

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General Propose Chain General Propose Chain Blockchain | Multiple Chain Types Blockchains Alternative blockchains (altchains) (Decentralized Transport) (cryptocurrency) (cross-industry collaborative) (cross-industry collaborative) (FSI consortium) open platform for developers and devops to build blockchain apps (banking industry collaborative) (Social News Blockchain DB) (IBM Open Blockchain )

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Consortium Woodgrove Financial Contoso Bank Northwind Traders Bank b Insurance c Investment consortium c Bank A Blockchain Location 1 Location 2 Location 3 Location 4 Department A Department B Public Consortium Private • Many, unknown participants • Writes by all participants • Reads by all participants • Consensus by Proof of Work • Known participants from one organization • Write permissions centralized • Reads may be public or restricted • Multiple algorithms for consensus • Known participants from multiple organizations • Writes require consensus of several participants • Reads may be public or restricted • Multiple algorithms for consensus Public blockchain Persona Woodgrove Financial Person B Northwind Traders Bank 6 Bank 1 Consortium 6 Source: Ethereum blog by Vitalik Buterin https://blog.ethereum.org/author/vitalik-buterin/ Blockchain | Network Types

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Artificial Intelligence Infuse

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Who should I trust? • Trusted single source? • Distributed trust? • Trust in the system? • Trust in the ledger?

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Intelligent Apps Leverage AI to create the future of business applications Conversational Agents Transform your engagements with customers and employees Business Processes Transform critical business processes with AI 95% Of customer interactions powered by AI bots by 2025 75% Applications to include AI by the end of this year 85% Of enterprises using AI by 2020 Enterprise scenarios for AI

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General Propose Chain General Propose Chain Blockchain and AI | Distributed Intelligence Perfect Storm Alternative Posibilities • AI and encryption work very well together • Blockchain can help us track, understand and explain decisions made by AI • AI can manage blockchains more efficiently than humans Sources: Forbes , Francesco Corea • Having a clear audit trail for AI: improve the trustworthiness of the data as well as of the models • Increase AI effectiveness: Secure data sharing means more training data), and then better models • Increase artificial trust: Bots to trust each other and increase machine-to-machine interaction • Scalability: AI can introduce new decentralized learning systems such as federated learning • Security: AI can bring security to blockchain via incredible progress made by machine learning • Reduce Network Latency: Better efficiency and a lower energy consumption

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How does Blockchain work?

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1 Company A wants to transfer a value to Company B (i.e. digital currentcy, a digital asset, a certificate, etc.). 3 Company A transaction is stored in the ledger as a block with other transaction. The block has an unique ID, the transition time and the ID of the previous block in the chain. 2 Company A uses a digital app to transfer the value to Company B. The app stamps the transaction with Company A digital signature, and now needs to be verified by blockchain. 4 The block containing Company A transaction is then broadcast to the entire network to be verified in each node. 5 After the verification process, Company B receives the value, and all the transaction history remains permanent and transparent available for all the blockchain participants.

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Financial Institution Security Layer Data – Center of Gravity Database

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Buying Broker Typical Finance Services Transaction Database Selling Broker Database Clearing House (Intermediary) Reconciliation Database Trust Boundary Trust Boundary Challenges Slow Processing High risk of errors Security High Compliance Overhead Everyone has their own database

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Peer to Peer Secure Distributed Network TRUST What if? Everyone could have a ‘Single Version of the Truth’ - Blockchain Clearing House (Intermediary) Blockchain Buying Broker Blockchain Selling Broker Blockchain

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Evolution of Blockchain Blockchain 1.0 – A simple ledger

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That decentralizes data in a trustless environment Centralized system with stored ledger Distributed system with distributed ledger Traditional ledgers are centralized and use 3rd parties and middlemen to approve and record transactions Blockchain safely distributes ledgers across the entire network and does not require any middleman Traditional System Blockchain System

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Data is stored in a ledger FROM TO PROPERTY VALUE Alex Katie Payment $500 Jim Sally Payment $300 Alex Garth Asset Car Katie Tony Payment $100 Molly Paula Message I love you Example ledger Entire network has same ledger

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Evolution of Blockchain Smart Contracts are unable to access external data or events based on time or market conditions. Calling code or data outside of a Smart Contract or blockchain breaks the general trust barrier and authenticity of transactions. Cryptlets will allow the blockchain to access external data securely, while maintaining the integrity of the blockchain. Blockchain 2.0 – Introducing Smart Contracts

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Traditional Contract Deployed to Nodes Blockchain 2.0 | Smart Contracts

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Evolution of Blockchain Smart Contracts are unable to access external data or events based on time or market conditions. Calling code or data outside of a Smart Contract or blockchain breaks the general trust barrier and authenticity of transactions. Cryptlets will allow the blockchain to access external data securely, while maintaining the integrity of the blockchain. Blockchain 3.0 – Microsoft evolving the ledger to address the big problem

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Blockchain 3.0 | State-of-the-art cryptlets innovation  Blockchain 2.0 introduced the power of Smart Contracts…  …but Smart Contracts are unable to access external data or events based on time or market conditions ₋ Calling code or data outside of a Smart Contract or blockchain breaks the general trust barrier and authenticity of transactions  Cryptlets will allow the blockchain to access external data securely, while maintaining the integrity of the blockchain  Cryptlets are a Microsoft innovation and solve a significant hurdle to enterprise blockchain adoption Property 0x117292138928 edc23dc21323c Value 0x893423022ef8s92d1 223412dds321ac Property 0x117292138928 edc23dc21323c Value 0x893423022ef8s92d1 223412dds321ac Code Contract accountRegistry(mapping (string=> address) accountMap; function accountRegistry()(… Property 0x117292138928 edc23dc21323c Value 0x893423022ef8s92d1 223412dds321ac Code Contract accountRegistry(mapping (string=> address) accountMap; function accountRegistry()(… Interest Rate 0x132945934528 asf0439dsa3x

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Blockchain shows tremendous potential across industries Asset Transfer Cross-Organizational Workflow High-Assurance Audit Manufacturing Asset tracking Real time auction for supplier contracts Supply chain transparency Retail Loyalty tracking Product provenance Logistics management Insurance Claims Management MBS/Property Payments Fraud detection Automated underwriting Banking and Capital Markets Bond Issuance Trade Finance Loan Syndication Post Trade Settlement Cross Border Payments Derivatives Trading KYC/AML Government Licensing and ID Benefits distribution Aid tracking Military security Health Personalized medicine Records sharing Compliance

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Bad Blockchain Bad

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When your project meets certain criteria Answering a few questions can determine if blockchain is appropriate Does the process involve low-value, manual verification steps? Are there any intermediaries that control the single source of the truth? Do multiple parties manipulate the same data? Is this a business process that crosses trust boundaries?

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Manually deploy ledger Write business logic Orchestrate signing, hashing and routing Store smart contract reference data Synchronize data with off- chain DB Ingest messages and events Build web client API management Manage keys Customize integrations Extend capabilities Integrate with existing business apps Configure consortium network Link to federated identity systems

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Populated preconfigured networks Integrated relevant cloud services Built a simple interface 1 2 3

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Horizontal SaaS & adapters Data Platform (ML/BI) Off-Chain Storage Monitoring & Security 3rd Party Services Enterprise Integration Identity & Key Management Client apps & devices Enterprise ledger Workflow execution Identity & key management Ledger-neutral approach Auto-generate starter apps Integration APIs & events Workflow/user admin Azure data integration Azure Blockchain Workbench

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Dev/Test: Enable developers to get started Single node (virtual machine) 1 Single Member: Simulate production for multiple divisions within a single organization Multi-node across single region 2 Multi-member: Collaborate between multiple divisions and organizations Multi-node across multiple regions, Azure subscriptions, and/or organizations 3

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Configurable constitution to govern membership Richer and more flexible confidentiality models Database-like speeds for transaction throughput and latency Scalability Confidentiality Consortium Governance

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Manually deploy ledger Write business logic Orchestrate signing, hashing and routing Store smart contract reference data Synchronize data with off- chain DB Ingest messages and events Build web client API management Manage keys Customize integrations Extend capabilities Integrate with existing business apps Configure consortium network Link to federated identity systems

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Traditional Contract Mortgage Variable Items % Rate Payment Amount Static Items Payment Date | Late Date | Term Assets or Security | Amount Financed Total Sale Date Payment Late Fee 12/1/16 $500.00 $0 1/1/17 $500.00 $0 Payments & Fees Recorded in Ledger

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Storing business logic on-chain means that it has to be re-written for each chain, limiting scaling Security Scale Traditional Contract Mortgage Variable Items % Rate Payment Amount Static Items Payment Date | Late Date | Term Assets or Security | Amount Financed Total Sale Date Payment Late Fee 12/1/16 $500.00 $0 1/1/17 $500.00 $0 Payments & Fees Recorded in Ledger Proprietary code stored in shared data layer. Unable to call off-chain data

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Blockchain + Cryptlets Cryptlets (Business Logic) Business Logic Traditional 3-Tier Software Architecture Presentation Layer Presentation Layer Presentation Layer Early blockchain Dapp architecture Blockchain (Data Layer) Smart Contracts (Data Handling) Data Layer Stored Procedures (Data Handling) Blockchain (Data Layer) Smart Contracts (Business Logic)

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Do we still have time for a demo?

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Visit our Azure Blockchain Page Visit the Azure Blockchain Blog and our Blockchain User Voice Connect with the Microsoft Tech Community Sign up for an Azure account and join our Blockchain Preview Program

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Microsoft Cloud Society Future Summit Thanks! Daron Yöndem CTO, XOGO Inc. Microsoft Regional Director, Azure MVP