Blockchain Explained V

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IBM Corporation 
Making 
Blockchain 
Real for 
Business




Explained
1 
V2.09 19 Jan 16 
https://ibm.box.com/BlockExp 

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IBM Corporation 
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Contents
What 
Why 
How 
. . are Blockchain technologies ? 
. . is it relevant for our business? 
. . can IBM help us apply Blockchain? 

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Business Networks, Markets & Wealth
•
Business Networks 
benefit from connectivity
–
Connected customers, suppliers, banks, 
partners 
–
Cross geography & regulatory boundary
•
Wealth
is generated by the flow of goods & 
services across business network
•
Markets 
are central to this process:
–
Public 
(fruit market, car auction), or
–
Private 
(supply chain financing, bonds)
What? 

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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 types of asset
–
Tangible, e.g. a house
–
Intangible e.g. a mortgage
•
Intangible assets subdivide
–
Financial, e.g. bond
–
Intellectual e.g. patents
–
Digital e.g. music
•
Cash is also an asset
–
Has property of anonymity 
What? 

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Ledgers
 are Important
•
Ledger
[1]
is THE system of 
record for a business
–
records asset transfer between 
participants.
•
Business will have multiple 
ledgers for multiple business 
networks in which they 
participate.
[1] The principal book (or computer file) for recording and 
totaling financial transactions by account type, with debits and 
credits in separate columns and a beginning monetary 
balance and ending monetary balance for each account. 
What? 

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Participants
, 
Transactions
 & 
Contracts
•
Participants
- members of a business 
network
–
Customer, Supplier, Government, Regulator
–
Usually resides in an organization
–
Has specific identities and roles
•
Transaction
- an asset transfer
–
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)
What? 

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

What? 

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Problem -
Di
ffi
cult
to
monitor
asset
ownership
and
transfers
in
a
trusted
business
network
Counter-party
records
Bank records
Party C’s Records
Auditor records
Party B Records
Party A’s Records
API-integrations
Incident
 
What? 
Inefficient
,
expensive
, 
vulnerable
Ledger 
Ledger 
Ledger 
Ledger 
Ledger 
Ledger 

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Solution – 
a
 
permissioned
, 
replicated
, 
shared ledger
Counter-party
records
Bank records
Party C’s Records
Auditor records
Party B Records
Party A’s Records
What? 
Consensus, provenance, immutability, finality 
Ledger 
Ledger 
Ledger 
Ledger 
Ledger 
Ledger 
Participants have 
multiple shared 
ledgers 
NOTE : 
Participants 
same as before 

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Blockchain underpins Bitcoin . . .
1.
is unregulated, censorship-resistant 
shadow currency
2.
Blockchain ensures “cash like” coin passing 
•
unique,
•
immutable,
•
final 
3.
Bitcoin is the first Blockchain application
•
Blockchain 
is not
4.
Digital currencies di
ff
erent from cyptocurrency
What? 

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Blockchain for Business
Smart
Contract 
Privacy
Shared 
Ledger 
Validation
Ensuring appropriate 
visibility; transactions are 
secure, authenticated & 
verifiable 
Business terms embedded 
in transaction database & 
executed with transactions 
All parties agree to 
network verified 
transaction
Append-only distributed 
system of record
shared 
across business network 
Broader participation, lower cost, increased efficiency
What? 

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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
What? 

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

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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
What? 

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IBM Corporation 
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Validation
•
Transaction verification & commitment
•
When participants are anonymous 
–
Commitment is expensive
–
Bitcoin cryptographic mining 
provides verification 
for anonymous participants but at significant 
compute cost (proof of work)
•
When participants are known & trusted 
–
Commitment possible at low cost
•
Multiple alternatives
–
proof of stake 
where
fraudulent transactions cost 
validators (e.g. transaction bond)
–
multi-signature 
(e.g. 3 out of 5 participants agree)
•
Industrial Blockchain needs “pluggable” 
consensus
What? 

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IBM Corporation 
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Contents
What 
Why 
How 
. . are Blockchain technologies ? 
. . is it relevant for our business? 
. . can IBM help us apply Blockchain? 

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Industrial Blockchain Benefits
Reduce costs and complexity
Improve discoverability
Why? 
Trusted recordkeeping
Shared trusted processes

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Blockchain – not for all . . .
NEGATIVE
Indicators 
1.
Need high performance (millisecond) transactions
2.
Small organization (no business network) 
3.
Looking for a database replacement 
4.
Looking for a messaging solution 
5.
Looking for transaction processing replacement 
Why? 

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Patterns for Customer Adoption
(1) INTERNAL LEDGER
•
Ledger for internal reporting, audit and 
compliance, 
•
Consistent view of key business assets,
•
Provenance, immutability & finality more 
important than consensus.
•
Access to auditor and regulator
(2) CONSORTIUM SHARED LEDGER
•
Created by a small set of participants
•
share reference data between themselves 
and consumers. 
•
Consistent real-time view of key information
(3) INFORMATION HUB
•
A ledger set up in a single organization 
•
Sharing of information between participants 
(e.g. voting, dividend notification)
•
Assets have 
information
, not financial value, 
•
Require provenance, immutability & finality.
(4) HIGH VALUE MARKET
•
Ledger for the transfer of high financial value 
assets 
•
between many participants in a market. 
•
Requires all enterprise features of 
Blockchain 
How? 

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