MCCRC 4TH ANNUAL SYMPOSIUM

A BRIEF HISTORY OF BLOCKCHAIN

JOHN PALFREYMAN

V3, 12 Sep 17PALFREYMAN VENTURES

CONTENTS

1. BLOCKCHAIN EXPLAINED

2.“FOUR AGES” OF BLOCKCHAIN

3.PROJECT PITFALLS (& HOW TO AVOID THEM)

2

BLOCKCHAIN EXPLAINED

. . WEALTH & MARKETSBUSINESS NETWORKS . .

Business Networks need connectivity

• Between customers, suppliers, banks, partners

• Operate cross geography & regulatory boundaries

Wealth generated by flow of goods & services in transactions, according to contacts

Markets are core to process

• Public (fruit market, car auction • Private (supply chain, bonds)

TRANSFERRED ACROSS NETWORK TO BUILD VALUEASSETS

Two types:

• Tangible, e.g. a house

• Intangible, e.g. a mortgage

Intangible assets subdivide: • Financial, e.g. a bond

• Intellectual, e.g. a patent

• Digital, e.g. video

Cash is also an asset • property of anonymity

BUSINESS’ “BOOK OF RECORD”LEDGER

Ledger

• Updated on asset transfer in or out of business

• Multiple Ledgers

Transaction - asset transfer between ledgers • e.g. John gives Matt a car (simple)

Contract - condition for asset transfer

• If Matt pays John money, then car passes from John to Matt (simple)

• If car won't start (as decided by third party arbitrator) funds do not pass to John (more complex)

MEET BLOCKCHAIN

• Trusted, distributed ledger

• Shared business process

PROBLEM - DIGITISATION OF AGE OLD PROCESS

Participant A’s records

Insurer records

Participant B’s records

Auditor records

Regulator records

Bank records

. . INEFFICIENT, EXPENSIVE, VULNERABLE

SHARED REPLICATED PERMISSIONS LEDGER

Participant A’s records

Insurer records

Participant B’s records

Auditor records

Regulator records

Bank records

Blockchain

CONSENSUS, PROVENANCE, IMMUTABILITY, FINALITY

BLOCKCHAIN FOR BUSINESS

Privacy

Shared ledger

Smart contract

Trust

Append-only distributed system of

record, shared across the business

network

Appropriate visibility; transactions are

secure, authenticated &

verifiable

Business terms embedded in transaction database & executed with transactions

Transactions are endorsed by relevant participants

Differs from bitcoin in key areas: • Identity over anonymity • Selective endorsement over proof of work • Assets over cryptocurrency

BENEFITS

Saves TIME

• Near instantaneous transactions

Removes COST

• In overheads & intermediaries

Reduces RISK

• Tampering, fraud, cyber crime

Increases TRUST

• Shared processes & records

SELECTED USE CASES

Shared Reference Data

• Collaborators share critical information

• Tamper proof record of changes, control over who updates

Supply Chain

• Complete history of who’s owned what, and when

• Held in tamper proof records, control over who can change

Audit & Compliance

• Efficient way to inspect dispersed, trusted transactions

• Auditor is part of blockchain network with access to all

Letter of Credit

• Efficient way to implement supply chain financing

• Blockchain allows counterparts to validate transaction

“FOUR AGES” OF BLOCKCHAIN

HYPE CYCLE FOR EMERGING TECHNOLOGIES(C) GARTNER, INC

http://www.gartner.com/technology/research/methodologies/hype-cycle.jsp

NICHE

2009 (OR EARLIER) - 2014AGE 1 - NICHE

• Cryptography in hieroglyphs, 1900 BC

• 19th Century - becomes “scientific” - cryptanalysis • WW II - mechanical cypher machines

• Early 2000 - encryption through public key algorithms

• Bitcoin born in 2009, Wikileaks accepted in 2011 . .

A Brief History of Cryptography". Cypher Research Laboratories. 24 January 2006. Retrieved 18 September 2013. https://en.wikipedia.org/wiki/History_of_bitcoin

• “an innovative payment network and a new kind of money”

OR . . . • An unregulated shadow-currency • The first blockchain application • Resource intensive (for anonymity)

https://bitcoin.org/ https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf

. . . IN RESEARCH DIVISIONIBM INCUBATES . . .

• 12 labs on 6 continents, 3,000 researchers

• Primary research & transition to mainstream

• Typical Projects

• Quantum computing

• Artificial Intelligence

• Neuromorphic computing

• Cryptographyhttp://research.ibm.com

TALK

2015AGE 2 - TALK

• Gradual realisation that blockchain IS NOT bitcoin • Broader industry applicability - “blockchain for

business” • Banks view as both threat & opportunity

• Part of FINTECH movement • Technical discussions (lashings of gobbledygook) • Hype around blockchain starts as potential clarifies

IBM . . TO EMERGING BUSINESS

• Evaluate potential - initially in Finance Industry • Investigate fabric (aka plumbing) alternatives • Explaining blockchain in business terms • Business demonstrations - what can blockchain

do? • Start customer discussions, offering “hands on”

REF

EXPERIMENT

2016 (- AND CONTINUES)

AGE 3 - EXPERIMENT

• Banks & financial institutions start to experiment

• Other industries see potential & follow • Cross industry consortia arise, disrupt • Crazy use cases “blockchain’s the answer, what’s the

question”

• Hype hits fever pitch - customer confusion on business value

. . . AND PREPARE FOR MAINSTREAMIBM SUPPORT EXPERIMENTS

• Key contributor to Linux Foundation project

• Engagement approach - making blockchain real

• Hyperledger Fabric code for customer use • Customer projects (80 in year) and references • Other industries embrace, find core use cases

USE

2017 (- AND WILL CONTINUE)

AGE 4 - USE

• Banks & financial institutions move to production • Other industries experimenting, planning to use • Value for business accepted, understanding lags

• Need for basic awareness continues • Still crazy use cases . . . • Hype fever pitch continues - maturity & applicability

Ten things blockchain is not:  http://bit.ly/BlockchainNOT

IBM - SCALE & GROW

• Contribution to Linux Foundation project continues

• Grow project capability - in delivery cells

• Usage in all industries, some more mature than others

• Continue with customer project & references

• Business network enablement (hard!)

• Digital education, certification - multiple channels

REF

. . . & BACK TO HYPE CYCLE THOUGHTS . .

• Gartner, hype cycle & blockchain [report, late 2016]

• Close to peak of inflated expectations, 5-10 years from plateaux

• Trough of Disillusionment

• Actions for success? (vendor, customer)

• Plateau of Productivity

• What will it look like? (vendor, customer)

PROJECT PITFALLS AND HOW TO AVOID THEM

KNOW YOUR BLOCKCHAIN FROM YOUR BITCOIN?

RISK

• Familiarity with bitcoin & non-permissioned ledger

• Not fully understanding permissioned blockchain for business

MITIGATION

• Educate

• Don’t jump over awareness steps

BLOCKCHAIN VALUE OR RELIGION?

RISK

• Hype confuses: blockchain is solution to all problems

• Project gets off to wrong start, then hard to correct

MITIGATION

• Test fit: Network | Consensus | Immutability | Provenance | Finality

• Test early, continue through project

SHARED CLARITY OF PURPOSE?

RISK

• Not all network members have same goals in mind

• Value for all members not clear or accepted

MITIGATION

• Joint workshop - use case - debate value until clear

• Business network members agree governance approach

REFS

DISCUSS COOPERATION, OR MAKE TRANSFORMATION?

RISK

• Easy for network members to discuss how they work together . .

• . . at expense of focusing on transformational opportunity

MITIGATION

• Don’t rush - allow time for discussion - careful facilitation

• Design Thinking: persona analysis, current methods, improvement opportunities

CONCLUSIONS

• Blockchain: trusted distributed ledger with shared business process

• Just entered USE phase - production

• Learn lessons from projects to improve

THANKS JPALFREYMAN@ME.COM

@JOHNP261

PALFREYMAN VENTURESThanks to IBM for the inspiration and for use of graphics elements in this presentation