Blockchain: Banking, Business and Beyond

Blockchain: Banking, Business and

Beyond

BLOCKCHAIN:Banking, Business, &

Beyond

Michael NovakDigital Transformation Partners

21 March 2017

Michael NovakDigital Transformation Partners

21 March 2017

Blockchain:The Short Version…

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Today’s Agenda

Why Blockchain? Why now?Smart Contracts

Blockchain in BusinessFinanceSupply ChainHealthcareGovernment

Blockchain and Beyond

Blockchain:Banking, Business & Beyond

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Why Blockchain? Why Now?

Blockchain In The News

Is the glue that binds IoT

Could fight voter fraud

Can disrupt Healthcare5 ways

Has potential to revolutionize supply chains

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Blockchain In The News

"[Blockchain] is a very important, new technology that could have implications for the way in which transactions are handled throughout the financial system.

Janet YellinUS Federal ReserveChairwoman

“Bitcoin represents not only the future of payments but also the future of governance”

Dee HockFounder Visa

“Stay away from [Bitcoin]. It's a mirage, basically.”

Warren BuffetCEO Berkshire Hathaway

“When folks really start to step back and think about business processes as a decentralized sport, as a team sport, it completely changes the possibilities of how you do a KYC and AML.”

Jerry CuomoIBM Fellow, VP of Blockchain

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Before 2005

Closed, centralizednetworks

Present Time

Open IoT networks, centralized cloud

Present Time

Open IoT networks, centralized cloud

Why Blockchain? Why Now?

2025 and beyond

Open IoT networks, distributed cloud

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Why Blockchain? Why Now?

Trust - A foundation of commerce and government

6,000 years ago - Gold was universal record of account

15th century - Double entry accounting invented

LedgerLedger

LedgerLedger

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Why Blockchain? Why Now?

2008 - Bitcoin academic paper published– Authored by “Satoshi Nakamoto” (a pseudonym)

– Theorized that online transactions easier and cheaper if parties could transact without external overseers

– First digital asset • No backing or "intrinsic value“

• No centralized soverign issuer or controller

– Solved digital “double-spend” issue

2009 - Bitcoin genesis block created

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Blockchain Definition

“A type of distributed ledger in which value exchange transactions (in

Bitcoin or other token) are sequentially grouped into blocks. Each block

is chained to the previous block and immutably recorded across a

peer-to-peer network, using cryptographic trust and assurance

mechanisms.“Gartner

“An incorruptible digital ledger of economic transactions that can be

programmed to record …virtually everything of value.”Don & Alex Tapscott, “Blockchain Revolution” (2016)

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Blockchain Definition

• A concept

• A transactional database

• A decentralized public ledger

• A technology protocol (e.g. TCP/IP, HTTP)

• Application Areas:– Exchange for assets: physical, intellectual, and digital

• A registry of all things

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Decentralized Payment Network

Bitcoin Miners secure network while processing, validating all transactions

Kate never discloses sensitive financial info in transaction. Merchant doesn't store or secure payment detailsPayment propagated thru network, validated by

Miners. Becomes immutable and permanent record on public blockchain ledger

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Transaction Example - Bitcoin

Kate initiates payment

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Merchant: No chargebacks.Payments are direct.

Bitcoins received and transaction detected by merchant

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Bitcoin vs. Money

Prepared by BTCS.com** = New traits made possible by blockchain 13

Bitcoin Tether GameCredits Stratis

Ethereum Zcash Stellar Lumens Siacoin

Dash Iconomi ShadowCash SingularDTV

Ripple Factom Lisk Storjcoin X

Litecoin Dogecoin Decred Emercoin

Monero Waves Bytecoin Counterparty

Ethereum Classic Steem Peercoin Bitcrystals

NEM DigixDAO BitShares First Blood

MaidSafeCoin Golem Komodo Byteball

Augur Ardor Nxt Xaurum

Cryptocurrency Ecosystem

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600+ more…

© 2017 CoinMarketCap

Do You Need Blockchain?

Use Public Blockchain Use Hybrid Blockchain Use Private Blockchain

Do not need Blockchain

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Smart Contracts:Automata as Authority

Smart Contracts Defined

1996 – Smart Contracts academic paper published– Authored by Nick Szabo (not a pseudonym)

“A set of promises, specified in digital form, including protocols

within which the parties perform on these promises.”

– May include contractual clauses to secure relationships over public networks and make contract breaches expensive or prohibited:

• Collateral

• Bonding

• Delineation of property rights

• Others

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Smart Contract Advantages

PwC Blockchain and smart contract automation 18

Smart Contract Use CasesSimple To Complex

PwC Blockchain and smart contract automation 19

Blockchain in Business

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Smart Contract Use Cases

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Digital Identity Records Securities

Trade Finance Derivatives Financial Data Recording

Mortgages Land Title Recording Supply Chain

Auto Insurance Clinical Trials Cancer Research

BlockchainChanging Many Industries

BlockchainBlockchain

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Prepared by BTCS.com

Blockchain Use Case:Digital Identity

Enable individuals to own and control digital identity: reputation, data and digital assets

Current Challenges Smart Contract Benefits• KYC / AML expensive and time

consuming processes • Individuals own and control personal

data • Verified by various counterparties

• Limited control over data leakage• Reliance on trusted 3rd parties

• Counterparties do not hold sensitive data

• High liability to safeguard user data

• Single point-of-failure

• Increased compliance, resiliency and interoperability

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Blockchain Use Case:Financial Data Recording

Enable uniform financial data across organizations, improved financial reporting and reduced auditing and assurance costs

Current Challenges Smart Contract Benefits• Accounting systems prone to

fraud, errors• Improved transactional data integrity,

transparency - increased market stability

• Capital intensive processes; duplicate maintenance of infrastructure

• Reduced expenditures • Accounting systems cost-sharing

across multiple organizations

• Significant human capital/ middleware; systems do not always interoperate

• Improved insight into parties’ capital due to increased financial accessibility

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Blockchain Use Case:Supply Chains

Full spectrum visibility as products move from farm/factory, transported, stored, and incorporated into finished products

Current Challenges Smart Contract Benefits• Data capture silos • No motivation to share

information with relevant parties

• Simplification of complex multi-party systems delivery

• Captured data must be similar format to extract values

• Achieve granular-level inventory tracking and delivery assurance

• Incompatibilities in data• Blind spots in tracking goods due

to supply chain silos

• Improved financing, insurance terms and reduced risk

• Determine origin, ownership, and processes components might have undergone

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Blockchain Use Case:Healthcare

Governs medical record access, providing means for auditability and data sharing

Current Challenges Smart Contract Benefits• EHRs never designed to manage

multi-institutional, life time medical records

• Restores comprehensive patient agency over healthcare information empowering citizens to make informed decisions

• Providers, not patients in charge of patient record stewardship

• Records available for longitudinal studies with less overhead than traditional research trials

• HIPAA Privacy Rule inhibits prompt record maintenance

• Health IT may charge above market prices for data exchange interfaces

• Providing patients with comprehensive record review, care, auditability and data sharing

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Blockchain Use Case:Government

Estonia: E-Resident Program– Anyone in the world can apply to become an “e-resident”

– Digital ID card to securely sign digital documents

– Healthcare initiative puts citizens in control of own data

Sweden: Real Estate Transactions– All parties - banks, government, brokers, buyers and sellers able to

track progress of agreement

– Enables instantaneous confirmation of valid transactions with the utmost levels of security and integrity

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Blockchain Use Case:Government

United States Federal Government– Office of the Comptroller of the Currency (OCC) released its “responsible

innovation framework”, a policy focused on blockchain startups

Arizona– HB 2417: any "record or contract" secured by a blockchain would be "considered

to be in an electronic format and to be an electronic record“.

New Hampshire– HB 436: exempt virtual currency users from having to register as money service

businesses, and create a formal definition for "virtual currency“.

Delaware– Moving state archival records to an open distributed ledger

– Allowing private companies that incorporate in the state to keep track of all equity issued and shareholder rights

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Blockchain and Beyond

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Blockchain and Beyond

Blockchain ICO

Initial Coin Offering (ICO) - Crowdfunding (“crowdsale”) applied to cryptocurrency• Cryptocurrency as themed funding mechanism

• Crypto-tokens sold to target audience in exchange for Bitcoins or fiat currency

• Company raises capital to fund product development

• Subscribers own crypto-token shares

https://cointelegraph.com/explained/ico-explained 31

Blockchain ICO - 2016

32Prepared by BTCS.com

Decentralized Applications( DAPP )

Project Name Activity Centralized Equivalent

• OpenBazaar Buy/sell items locally Craigslist

• LaZooz On-demand ride service Uber, Lyft• Twister Social networking, peer-to-peer microblogging Twitter, Facebook• Gems Social networking, private token-based social

messaging Twitter, SMS apps

• Bitmessage Secure messaging (individual or broadcast) SMS services

• Storj File storage Dropbox, Google Drive

• Onename• BitID• Bithandle

Digital identity verification VeriFone, Verisign, Facebook

www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 33

Decentralized Borderless Voluntary Nation ( DBVN )

Bitnation NGO– Powered by Ethereum blockchain

– Holocratic Governance structure allows citizens to create own “Holons”, and invest or donate into Holons, Projects, and different parts of Bitnation infrastructure -depending on their interests

• Example:– Offers victims of crisis an blockchain-based emergency digital ID and a bitcoin

visa card to receive funds from family in absence of a bank account

– ID form generates a QR code which can be used with a cellphone to apply for a Bitcoin Visa Card - accepted throughout Europe and the UK without a bank account

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Blockchain and IoT

Blockchain potential: Economic, large-scale resource allocation and coordination mechanisms

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Blockchain and Beyond

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Venture Capital Landscape (2017Q1)

Blockchain and Beyond

Consortiums– Finance Services largest focus area (currently)

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Consortium Examples

Blockchain and Beyond

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Summary:Blockchain Strengths

Decentralized No central authority. All nodes have entire blockchain providing redundancy

Consensus New transactions are added only after participant nodes agree that they are valid

Authentication Cryptography and digital signatures prove participants identity

Immutability Data that exists earlier in a blockchain cannot be altered

Uniqueness Transactions are time-stamped, making it possible to audit and verify information

Programmable Smart contract instructions embedded within blocks allow actions to be carried out when conditions are met

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Summary:Blockchain Challenges

No customer protection after verification

Both parties must agree to reverse transactions

Scalability, Size Bitcoin handles 7 tps. VISA network handles 2k/tps, peak of 10k/tps

Blockchain size 126GB, Bitcoin nodes 17k (March 2017)

51% issue If mining pool operator has 51% of network, they would always have “longest blockchain”; decides all new bitcoin destinations.

Govt. Regulation Customary tracking, auditing points to trace consumption of goods and services needs to change.

Regulators (e.g., SEC for public offerings) need to accept, approve blockchain’s use for securitization such as entering, verifying, and protecting data methods

Immaturity Technology still evolving rapidly40

Blockchain Summary

• A concept

• A transactional database

• A decentralized public ledger

• A technology protocol (e.g. TCP/IP, HTTP)

• Application Areas:– Exchange for assets: physical, intellectual, and digital

• A registry of all things

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All of the Above…and More

Thank You

www.meetup.com/DC-Emerging-Technologies-DC-EMT-IoT-AI-3D-Printing/

Michael NovakPartnerDigital Transformation Partners

Email: iotmnovak@gmail.comTwitter: @MisterNova

Appendix

Blockchain

• “Blockchain Revolution” (2016) by Don & Alex Tapscott

• "Blockchain - Blueprint for a New Economy" (2015) By Melanie Swan, Founder, Institute for Blockchain Studies www.blockchainstudies.org

• BTCS.com - http://www.btcs.com/index.php

• The Blockchain is Still Waiting for its Web, Here is a Blueprint for Getting us There By William Mougayarhttp://startupmanagement.org/2017/01/16/the-blockchain-is-still-waiting-for-its-web-here-is-a-blueprint-for-getting-us-there/

• Blockchain State of Blockchain Consortia By William Mougayar https://www.slideshare.net/wmougayar/state-of-blockchain-consortia-by-william-mougayar-december-2016

• Autonomous Research -http://www.autonomous.com/fintech/d9335db1-bf1a-4ab2-8d1d-a36cb747a6ae

• IBM Blockchain - https://www.ibm.com/blockchain/

• Microsoft Blockchain - https://azure.microsoft.com/en-us/solutions/blockchain/

• SAP Blockchain - https://news.sap.com/marketing-blockchain-fair-price-for-customer-data/

• Investopedia -http://www.investopedia.com/terms/b/blockchain.asp

Bitcoin

• Bitstocks What is Bitcoin -https://www.bitstocks.com/success/success-what-is-bitcoin

• CoinMarketCap - https://coinmarketcap.com/

• Initial Coin Offering (ICO) -https://cointelegraph.com/explained/ico-explained

• Bitcoin.com - https://www.bitcoin.com/

• Ethereum - https://www.ethereum.org/

• Investopedia -http://www.investopedia.com/terms/b/bitcoin.asp

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