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Blockchain beyond fintech by ridgelift.io

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Page 1 of 41
Blockchain – Beyond
Fintech
2018
Page 2 of 41
Table of Contents
1. Foreword……………………………………………………………………………………………………………………………………………………3
2. Executive Summary ....
Page 3 of 41
1.Foreword
Cryptocurrencies, bitcoin, etc. have become few of the most trending hashtags
in social media and ...
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Blockchain beyond fintech by ridgelift.io

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A comprehensive paper on blockchain technology. It covers blockchain technological aspects, blockchain evolution, future trends in blockchain implementation and reference architecture.

A comprehensive paper on blockchain technology. It covers blockchain technological aspects, blockchain evolution, future trends in blockchain implementation and reference architecture.

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Blockchain beyond fintech by ridgelift.io

  1. 1. Page 1 of 41 Blockchain – Beyond Fintech 2018
  2. 2. Page 2 of 41 Table of Contents 1. Foreword……………………………………………………………………………………………………………………………………………………3 2. Executive Summary .........................................................................................................................................4 3. Introduction to Blockchain………..….………….....……………………………………………………………………………………………5 3.1 Big Picture..……..……………………………………………………………………………………………………………………………………5 3.2 Market Overview….....................................................................................................................................5 3.3 Blockchain Technology.…………………………………………………………………………………………………………………………6 3.3.1 Blockchain……………………………….…………………………………………………………………………………………………..6 3.3.2 Blockchain DLT……………………….………….……………………………………………………….………………………………..7 3.3.3 Distributed Ledger Technology...........…………………………………….………………….………………………………..8 3.3.4 Distributed Database v/s Distributed Ledger ……………………………………………………….…….………………..9 3.3.5 Smart Contracts…………………………..….……………………………………………………………………………….…………10 3.3.6 Consensus Algorithm………………….…………………………………………………………………………………….………..11 3.3.7 Types of Blockchains……………..…….……..………………………………………………………………………….………….12 3.3.8 Blockchain Landscape…...…………..………………………………………………………………………………………………13 4. Blockchain Evolution & Use Cases…………………………………………..….…………………….…………..………………………...17 4.1 Blockchain Evolution…………………………………………………………….……………………………………………………………..16 4.2 Blockchain Use cases……………..…………………………………………….……………………………………………………………..18 5. Blockchain Future Trend & Opportunity….…………...........…..……..…………….…………………………………………….….22 5.1 Future Trend ……,,….…..……………………….……..…………………………………………………………………………………….….21 5.2 Challenges…………………………………………………………………………………………………………………………………………….24 5.3 Opportunities ……..…….………………..……………………………………………………………………………………………………….25 5.4 Reference Architecture.…………….…..………………………………………………………………………………..………………….. 31 6. References………………….……………….…………………………………………………………………………………………………………….39
  3. 3. Page 3 of 41 1.Foreword Cryptocurrencies, bitcoin, etc. have become few of the most trending hashtags in social media and indeed there is that game changing underlying technology- “Blockchain”, which is awaiting its due recognition. This paper is an honest effort to drill down into Blockchain technology, underpinning the Cryptocurrencies, in order to explore and showcase opportunities for enterprises, governments and society as a whole. An effort to look beyond basic utility of blockchain “who did what when”. If, blockchain were to dominate future computing, indeed it will be a great idea for developers to start applying their mind and contribute in nurturing this technology further, along with other open source community. This paper is prepared with a hope that futuristic developers & organizations, who envision future computing, resonate with blockchain technology. Their out of the box ideas of implementing this technology, could help resolve some of the issues before society. In times to come, “Trust” will emanate from the information systems, having blockchain as an underlying technology. It will be interesting to see, how efficacious this technology is, not just for transactional economic ecosystem, but also social and political arena. This paper deep dives into this technology, its components & architecture. Some future trends of blockchain deployment are getting visible, with evolution and maturing of this technology. In the process of preparing this paper, I referred lot of research papers, articles and lectures on YouTube & TED Talk by some of the renowned institutions and developers. We acknowledge their efforts of moving this technology ahead. ….. Udayan Modhe Co-founder, CEO – Ridgelift Labs www.ridgelift.io
  4. 4. Page 4 of 41 Cryptocurrencies, BlockChain and Decentralization is potential $ 10 Trillion Ecosystem and protocol Layer is where most of the value will be realized …Royal Bank of Canada 2. Executive Summary Blockchain has come long way, in last nine years. From a technology underpinning crypto currencies to a technology which can disrupt the way transactional commerce takes place. Large Tech companies like Intel & IBM have contributed heavily to this technology and offered their work in public domain. Hundreds of large corporations have started working on this technology, on pilot. Many more have announced their intentions. Blockchain has write-only type of data structure which resides across multiple computer devices (either intranet or internet), generally spread across locations or regions. It includes technology to store data in the form of Blockchain with time stamp & smart contracts. Bitcoin Block-Chain is different from the successive iterations, in terms of technologies such as shared computational power along new sets consensus algorithms. In summary, Blockchain consists of three basic components: • A data model that captures the current state of the ledger • A language of transactions that changes the ledger state • A protocol used to build consensus among participants around which transactions will be accepted and in what order, by the ledger. In block-chain every new block (A block refers to a set of transactions that are bundled together) gets added at the end of the ledger. Each block is time stamped, which is another unique feature. Every block has a reference to previous block within a cryptographic key – hash. Immutability of transaction for some could be a great security feature but for cynics, it would be a drawback. To some “Block-Chain” is disruption in Fintech, which is not the case. It is by no means a low cost alternative to some existing business models, processes or products. However, it has potential to change the way people transact. It can cause a shift in paradigm for political, social and economic systems. While it has a potential of great impact, it will be gradual, probably spanning over couple of decades, before blockchain occupies our day to day transactions. For wider reach of the technology, it will be imperative for all stake holders to come on board. No Government, Corporation or intermediary should feel threatened. In times to come, trust in the intermediary will be replaced with trust in the underlying code and consensus rules. This technology can be extremely effective in Governance, Provenance, Public Health, e-Commerce, Supply Chain Management, Construction, Manufacturing, etc. apart from Fin-tech. Social sector initiatives involving crowd funding, can be an effective use case for block-chain.
  5. 5. Page 5 of 41 3. Introduction to Blockchain Amidst the global financial meltdown in second half of 2008, research paper “Bitcoin: A peer to peer electronic cash system” by Satoshi Nakamoto was published. It spoke about an online system, for direct payment from one party to another without an intermediary, such as banks, etc. Timing couldn’t have been better for release of this paper. However, it was not spontaneous response to people’s loss of trust in banking system, during that phase. 3.1 Big Picture Launch of Bitcoin and other such digital currencies, has disrupted financial markets, with billions of dollars chasing these currencies. However, at the core of this Fintech Disruption was, emergence of “Tamperproof decentralized cryptographic blockchain computing technology, to facilitate intermediary-less transactions in not so trusted economic, social & political ecosystems”. After a surge in the combined market value of Cryptocurrencies, from less than $20bn to more than $540bn, the phenomenon — and the blockchain technology that underpins it — has become impossible for the businesses, especially from financial world to ignore, despite its denunciations of bitcoin in particular as “a fraud”, “index of money-laundering” and worse. Blockchain technology, initially considered very slow but extremely safe, is coming of age with newer iterations offering not just speed of transactions but, modularity and portability. Last couple of years blockchain has attained lot of traction, in terms of use cases in financial sector, where 100+ large institutions are working on adoption; IoT, where large consulting groups are working fusing blockchain technology, with IoT to eliminate security risks. Blockchain is also being piloted in other areas like Real Estate, Supply Chain Management. Credit Suisse’s report suggest that by 2025 Blockchain will be fully matured technology. So also others, believe that Blockchain is going to play important role in future of computing ! Imagine millions of people in a secured peer to peer network, where anyone can interact/ transact with any one, without any controlling authority. 3.2 Market Overview Marketcap of Cryptocurrencies has soared to 100s of billion dollars and so is the market potential for Blockchain Technology, underpinning these currencies. Paradigm shift towards highly secured decentralized computing is changing fortunes of blockchain technology. Royal Bank of Canada Analyst believes Cryptocurrencies, blockchain and decentralized computing to be $10 trillion ecosystem. IT hardware (current market $ 4.5 Billion) & energy resources for mining, cloud services, IT services for migration of existing systems on to blockchain, interbank payment systems, cross border remittances, clearing and settlements in financial markets, public service records, national ID systems, digital media, healthcare records, IoT
  6. 6. Page 6 of 41 integrations, IT security systems & services, real estate records migration, etc. will constitute that ecosystem. As seen in the graph, investments in blockchain technology alone amount to $ 550 millions, in 132 deals, that to up to 2016. Most of the current projects under implementation are shaping up by collaboration among the industry players and open source community is supporting them. Hence, economic value of these activities can’t be quantified and hence not considered here. However, upon reaching critical mass, deployment will increase exponentially, translating in increase in demand for commercial IT services, Indirect cost of financial institutions will reduce drastically and consumers will benefit from reduced fees for financial transactions. 3.3 Blockchain Technology 3.3.1 Blockchain Block-Chain (a subset of Distributed Ledger Technology) is a data ledger, forged with consensus, secured by cryptography, distributed over a trusted/ trustless network of P2P, unwired/ wired, nodes over intranet / internet, which can be configured to be public or private. It constitutes data blocks in chronological & irreversible sequence, each containing set of transactions, bundled together and added at the same time. The block is formed, upon consensus among the designated nodes, about the validity of transactions contained in it. Each block contains fixed no. of transactions along with cryptographic code and reference to
  7. 7. Page 7 of 41 previous block and time stamp. These transactions are immutable i.e. they can’t be modified or deleted. First block of the block-chain is called Genesis block. As seen in the figure, each block contains following: • Set of transactions, executed at the same time • Merkel tree root for transactions within the block • Hash of previous transaction • Consensus Nonce (number used once) Block-chain DLT has primarily two types of actors. First is human, who is a seller/buyer of crypto-currency or some asset using application running on block-chain. He creates transactions for block-chain. Second could be human or node, who validates the transaction, builds new blocks, signs them with cryptographic codes and publish in block chain. Such validating nodes arrive at consensus based on algorithms followed in respective architectures. Merkel tree root is a binary hash tree, a tamper proof mechanism, used to store hashes of the individual data in the block, which facilitates verification of data. In block-chain each block contains hash of previous block, except Genesis block. Each block gets appended to the block-chain by linking with hash of previous block. If a block is required to be changed, then each preceding block also requires to be modified, which makes blockchain immutable. Nonce is a 32 bit arbitrary no. used for mining process in Bitcoin, using game theory and complex algorithms. Blockchain is in essence a distributed consensus i.e. a way of agreeing on the state of database. 3.3.2 Block-Chain DLT Before diving into Ledger systems, let us quickly understand General Ledger (being used since 15 century). It is governed by three accounting principles – Debit the receiver, credit the giver; Debit loss and expense, Credit profit and gain; Debit inflow and credit outflow. These principles are inviolable. In Conventional ledger system, having intermediaries, if Lucy wants to send $10 to Bob, she sends request to the bank. It checks the authenticity and balance of
  8. 8. Page 8 of 41 Lucy’s account and accepts the transaction for processing. Bank then, through central intermediary, checks credentials of Bob and transfers fund to Bob. In the process, it charges transaction fees. Finally, bank creates ledger entry, with both sides of transactions and fees. Both the parties will get reflection of this central ledger into their ledger. In these transactions intermediaries have complete control over transactions. Blockchain Distributed ledger Technology, consists of blockchain, smart contracts and consensus logic. Ledgers are distributed among users of network. When Lucy transfers funds to Bob, this transaction is broadcasted on the network for validation. Depending on the type of DLT adopted, through a consensus mechanism, transaction is validated. This write only, time stamped & immutable record is appended in the block chain as a new block. This transaction has cryptographic key and reference to previous block, making it a chain of blocks. This block gets registered to the ledger of all the users in the network, so everyone has same copy of ledger. From Public block-chains, underpinning Bitcoin, Ethereum, etc. to Federated or Consortium block-chains adopted by sectors e.g. banks, energy, insurance on R3, Corda, etc. to Private block-chains e.g. Multi-chain, etc, Distributed Ledger Technology has come long way in last 9 years. In the last couple of years, with the advent of Hyperledger project, governed by Linux Foundation, few more iterations of Open Source DLTs are available for corporations to adopt, tune up and deploy. 3.3.3 Distributed Ledger Technology In DDBMS, data is not stored centrally on a server, rather it is distributed over few servers, PCs or cloud. There are many examples, Hadoop, No SQL, Peer Network Node data stores, Distributed SQL, etc. These are architectures widely used by likes of Facebook, Google, Amazon. After launch of Bitcoin, Distributed Ledger Technology came in light, though it was discussed in some research papers, during 1990s. People may say DLT is an extension of DDBMS. Distributed Ledger Technology (DLT) is transactional type of DDBMS. DLT deploys time stamping which is used for a while in many DBMSs. Time stamp based concurrency/ ordering control algorithm ensures time linked sequencing of transactions. It endorses immutability of transactions, which is already used by Google HDFS, etc. It incorporates consensus mechanism for validation of transactions in the network, the same is used outside DLT space
  9. 9. Page 9 of 41 in Raft & Paxos. However, DLT has a leverage of Cryptography over DDBMS. Its true decentralized read/write network, that doesn’t have parallels. Along with that ability of DLT to secure transactions, using host of protocols, sets it apart from all the conventional ones. Smart Contract are integral part of DLT, they add capabilities of building business logic and business processes, which can facilitate automation of transactions, based on predefined conditions. These technologies, encapsulated in DLT, forge trust among not so trusted users. There are two users in DLT - Transactional users & miners/ blockchain operator/ blockchain generators, these users operate DLT through processes in following sequence - Network discovery, Transaction creation (including asset creation & developing smart contracts, Block generation & submission (Mining and consensus process) and Block validation. Broadly DLT data model constitutes 3 components – transaction, block and block header. Together they capture the state of ledger. Block and Block Header are standard and essential to every block-chain platform. Block contains transactions. The block's metadata is kept in the Block Header, consisting of hash, previous hash, markel tree, nonce. Language of transaction consists of methodology for registering ledger services, testing deployed ledgers, reference implementation for storing on-chain configuration settings, Handling on-chain permissions for users and identity management, as a whole. Every other Block-chain DLT uses different protocol for consensus management e.g. Proof of work (PoW), Proof of elapsed time (PoET), Proof of Stake (PoS). The selection is based on business applications. 3.3.4 Distributed Database v/s Distributed Ledger Over last fifty years, information technology has come long way. From days of card readers, mainframes with enterprise applications and centralized database, dumb terminals for access to information, rise of PCs & Servers, relational database, Intranet, Client-Server applications, Internet, Cloud computing, global data access, social networking to current transition from centralized computing to decentralized architectures and systems. Distributed database & distributed ledger terminologies are getting entwined over last few years. Some people question, what’s new in distributed ledger technology, we had distributed database for long?
  10. 10. Page 10 of 41 “Distributed ledgers – or decentralized databases – are systems that enable parties who don’t fully trust each other to form and maintain consensus about the existence, status and evolution of a set of shared facts”… Richard Gendal Brown, R3 In Distributed Database (DDBMS), entire data is not stored on single server or CPU. It is stored across network, even it can be configured to use cloud storages solutions. This network is essentially under control of an organization or group, which utilizes this data. Multiple nodes within this network have partition or complete dataset or full replicas of dataset, stored on them. They freely share and seek information with users. Each node is trusted by others for the data being shared. They also offer a consistent view to external users, through strict access control. They validate the external information received for use or processing. It is network of “Trust” that is bonding these terminals, within a homogenous group. The network architecture and workflow environment is controlled by administrator. In Distributed ledger, it is network of nodes, spread across geographies, organizations and users, which don’t necessarily trust each other. However, outcome is same- consistent data, shared within network. The data stored in immutable, i.e. it can’t be modified or deleted. This is achieved with the use of complex algorithms and cryptography to offer decentralized concurrent control mechanism to secure consensus about the existence and status of shared information in trustless network. In this technology control of read-write is truly distributed. Ability to maintain data security over trustless network is X-factor of Distributed Ledger Technology. Many DLTs, underpinning crypto- currencies e.g. Bitcoin, Ethereum, etc. share data in public networks, which can be seen by anyone. However, Hyperledger, R3-Corda, etc. share data, in controlled private network environment. In nutshell, nodes of a distributed database trust each other and collaborate with each other to present a consistent, secure data. By contrast nodes within network of distributed ledger technology, don’t trust each other. They independently verify data they receive from each other and only share data they are happy to be broadly shared. 3.3.5 Smart Contracts In 1996, Nick Szabo proposed an idea of Smart Contracts, in the context of IT. He described a smart contract as “a set of promises, specified in digital form, including protocols, within which the parties perform on these promises.” These contracts would be executed between two entities, be individual or enterprise. These will work on flow chart control principles, e.g. if- then, do-while, etc. It was around the time, when internet had started blossoming. Over the years internet exploded with billions connected through it. But, what could have been a great bonding among them, “the smart contract”, went into oblivion; Until emergence of blockchain based distributed ledger technology.
  11. 11. Page 11 of 41 "Proof-of-work (PoW) is the outcome of a successful mining process and, although the proof is hard to create, [it] is easy to verify."…. Kudelski Security Report It is a conditional contract, which will get executed digitally, upon trigger of predefined set of conditions. Output of every smart contract, can be verified objectively. Hence, they are language of transactions to automate transactions which are repetitive or conditional in nature. Ethereum, Hyperledger and few other block chains incorporate smart contracts. Consider a normal business situation, A company buys machine from B company. After testing the machine, company A initiates the procedure of payment to company B. It involves processing delays, which costs company B. If Smart Contracts are implemented in their value chain. The positive test report of the machine will trigger payment for company B, by virtue of the programs defined for such scenarios. This will be game changer in commerce in terms of avoidance of delays and in turn cost saving. Implementation of smart contracts would improve business confidence and trust among companies. 3.3.6 Consensus Algorithm In Blockchain based DL technology, data is distributed over lot of nodes and for effective functioning of the DL, all the nodes should have identical data. It is achieved by consensus, which is a process of agreement among all the nodes, about the correct state of data. It is a complex algorithm, which results in, all nodes sharing same data set and protects blockchain against malicious actors. Every different flavor of blockchain DLT, has its own Consensus Algorithm. Bitcoin blockchain uses “Proof of Work” algorithm. In this blockchain there are two types of actors, first who transact i.e. they buy/sell Bitcoins, second are “Miners”, who certify the transactions and add them in the blockchain. These miners solve complex mathematical puzzle, based on game theory, which is called mining. Upon mining, they are rewarded with Bitcoins. This is a tamper proof process wherein, to manipulate blockchain, malicious actor has to collude with more than 51% of miners, spread across world. PoW consumes extremely high electricity power in mining process, since it takes long time to solve the mathematical challenge, with high configuration nodes.
  12. 12. Page 12 of 41 Proof of Stake was designed for Ethereum networks. It has Validators, who validate transactions. They don’t have to go through resource hungry mining process. Nodes are randomly selected and selection depends on stake of the node in network vis-a-vis other node. Node with higher stake has high probability for selection. Here too, Validators are rewarded with coins, which are already in the system. Broadly in Permissioned networks algorithms are lottery-based or voting based algorithms. Lottery based can scale higher with moderate finality; Whereas, voting-based algorithms provide low-latency finality. Hyperledger Sawtooth uses Proof of Elapsed Time algorithm. It is a random lottery system, on first come first serve basis, rather than a mining process of solving cryptographic puzzle. Validators are given random wait time, leader with shortest wait time creates new block. SBFT and PBFT are focused on this byzantine fault tolerance, in a Permissioned network scenario. A designated validator, selected from network, bundles proposed transactions and forms a new block. Consensus is achieved by satisfying 2F + 1 formula to certify new block, i.e. in a network of 7 nodes where 2 nodes are faulty, remaining 5 must reach consensus. The speed reduces as the size of network increases. Proof-of-Authority (PoA) is used for Permissioned ledgers. Designated nodes within the network are 'authorities', which are tasked to create new blocks and secure the ledger. In PoA algorithm majority of authorities are required to arrive at consensus, in order for a block to be created. Consensus Algorithm is designed and adopted, depending on the type of blockchain (Permissioned or Permissionless), target audience/ market of the blockchain, scalability- finality trade off. 3.3.7 Types of Blockchains Blockchain can be broadly categorized based on access to it. First, for public access, called Permissionless, which can be joined or viewed by anyone across the world. The other being for private access only. Which requires authentication of user credentials and subsequent permission to access the blockchain. It is called Permissioned blockchain. Selection of blockchain depends on use case, i.e. particular application under consideration. Example, If a startup decides to launch a platform for Buying/ Selling of used goods, it will adopt a Permissionless blockchain. In this application two transacting parties can build transaction, based on the trust of transparency, offered by the platform. Similarly, crypto currencies or Initial Coin Offerings can be launched on Permissionless blockchain. In this blockchain, people can view every block of transaction, right from Genesis block, however users will be anonymous. However, if a corporation goes for blockchain in supply chain management, its choice would be Permissioned blockchain, which will be deployed across value chain, spread across multiple organizations, be them vendors or clients. Each organization in that blockchain would
  13. 13. Page 13 of 41 have at least one designated authorizer. This will be a true enterprise application of blockchain DLT, where the shipment can be seamlessly tracked at each stage. The following table explores the differences between permissionless blockchains and Permissioned distributed ledgers. These parameters will help organizations in selection of right blockchain DLT for their applications. . 3.3.8 Blockchain Landscape Bitcoin had a humble beginning with almost a decade in existence and ever since, development has taken place in the blockchain technology, underpinning Cryptocurrency and a big time. It has emerged as a computing system of highly secured open distributed ledgers, having a potential of disrupting transactional ecosystems across economic, social & political arenas. This development can be tracked in following contexts: • Emergence of public blockchains for cryptocurrencies with mining process • Integration of smart contracts and faster blockchains • Development of Private blockchains with interoperability & modularity between various frameworks of blockchains, auxiliary software used for deployment and maintenance of blockchains, examining the data on the ledgers, as well as tools to design, prototype, and extend blockchain networks, APIs to facilitate communication between various layers and user applications. • Development of Consensus algorithms
  14. 14. Page 14 of 41 Blockchain developed traction steadfastly between 2009 to 2017, from being a secured but slow public distributed ledger system underpinning bitcoin, to fast, scalable & modular blockchain with wide iterations intended to suit unique needs of businesses, e.g. choice of permissionless or Permissioned, smart contract to automate transactions and interfacing to match current technology trends. These advancements in blockchain technology resulted in diversity in blockchain arena, with wide option of iterations with unique features to suit business requirements. Companies like Intel, IBM developed their versions of blockchain and offered to Linux Foundation for taking in forward in open source arena. With more than 100 companies like there collaborating in Hyperledger project, another 100+ financial institutions working together on R3 and few hundred on Ethereum. There has been a lot of activity on Github, which is the largest software collaboration platform in the world, with 68 million projects and 24 million participants. That makes it barometer for gauging software development activities, across spectrum of IT & across geographies. In the specific case of blockchain, it provides details about people and organizations behind blockchain development, type of programming, talent pool & its concentration, structure of networks and communities in blockchain, risk factors of deploying resources in blockchain, etc. After the “Code Drop” of Bitcoin blockchain in April of 2009, activities grew steadily for first few years, with projects growing upto 86,000. However, initial pace of projects, till 2012 was very low till 2012. But, after 2012, it rose exponentially with 2016 with 27000 projects. It averages to approx 8600 projects, per year. Following are few highlights about blockchain activities on Github (as on 12, October, 2017 | Source : Delloite report) • Total no. of projects – 86034 • Projects by companies, research institutes & startups – 9375+ • Average projects, per year – 8603 • Highest no. of projects in a year – 26885 in 2016 • Only 8% projects are maintained • Average project life 1.22 years As seen above, almost 89% projects were created by individual developers and organizational interest was just about 11%. However, less than 10% projects are maintained and updated (i.e. once in 6 months) with average life of just over 1 year. Initially the developer community engaged in Blockchain projects were mainly new technology enthusiasts, but over a period developer community has increased steadfastly, but not as much as required. Currently major developers are concentrated in USA, UK and surprisingly China, as against expectation in Israel or India. In terms of programming language association is concerned, needless to mention that C++ has highest association. Slowly over last couple of years, developers have started getting associated with Go language ( launched by Google in 2009). It is now second largest language used for blockchain projects on Github, people have started taking note of its simple
  15. 15. Page 15 of 41 language and scalability. Clearly for integration of other technologies with blockchain is concerned, Go appears to be highest preference of developer community. If we consider statistics about developer community (source : Evans Data Corporation), out of 21 million estimated developers, 9 million are Java Developers (largest pool) and 4.4 million C++ developers, with Go far distant from these languages. In spite of Java being the largest developer community, there is no platform for Java developers to synchronize with blockchain. A development of this front will help Blockchain reach critical mass, for wider acceptance. Let us discuss some of the popular iterations of blockchains. Bitcoin blockchain, which first started in Jan, 2009, enables direct transaction between two parties, without need of a trusted intermediary e.g. banks, etc. This is write only, irreversible transaction, appended at the end of a blockchain. This results in economic benefits to the parties e.g. reduced transaction fees, reduced credit cost for micro transactions, prevents double spending. Above all, it supports a crypto-currency. Ethereum is open source DLT, with smart contracts, which are programs for automation of conditional transactions. This block chain oriented platform has a decentralized virtual machine called the Ethereum Virtual Machine (EVM), which carries out Turing-complete (computationally universal) smart contracts over network spread across the world. It supports native cryptocurrency, Ether. Open source Ethereum platform and EVM can be used for developing decentralized applications, using power of smart contracts. With this platform, launching Cryptocurrency has become very easy. Ripple, an open source, public DLT platform with a native crypto-currency, XRP, was first issued in 2012 with The Ripple Transaction Protocol (RTXP), which facilitates free, instant transaction across the world without any chargeback. This protocol supports transaction of any currency, commodity or any asset. Lot of financial institutions are using this infrastructure for their operations. Hyperledger, governed by Linux Foundation, since 2015, is again an open source project, mostly working on iterations for Permissioned DLTs, meant for private implementation of blockchain. It is supported by tech giants such as IBM, Intel, etc. They have few blockchain frameworks, under development such as Indy, Burrow, Iroha, Sawtooth and Fabric supported by tools such as Explorer, Composer and Cello for implementation and monitoring. These frameworks support enterprise applications & identity management, which are useful for deployment of blockchain for international trade, supply chain management. Corda by R3 is open source DLT, which supports consortium or federated type of blockchain. It is controlled within a group of organizations. It is faster and offers secured environment for transactions. R3 was created by consortium of over 100 financial institutions, designed to record, manage & automate legal transactions between organizations. It offers security while achieving scalability and speed.
  16. 16. Page 16 of 41 Quorum is Permissioned flavor of Ethereum blockchain, designed by J P Morgan, offers data visibility, on need to know basis, using voting based consensus mechanism. Chain Core is an enterprise Permissioned blockchain, mostly focused on financial services, e.g. currencies, securities, derivatives, gift cards and loyalty points. The company partners with clients to launch and operate a network under the client's brand. Steller Network is unique blockchain with Lumen as native currency. It offers public blockchain and currency exchange services at fractional cost, which is USP. Validating nodes are called “Stellar Core”, which anyone can install, to be part of stellar network. These nodes validate transactions using stellar consensus protocol. Every transaction has small fees, which prevents malicious actors from spamming the network. It has best use case in currency exchange. Apart from base account, there are other entries which can be added e.g. Trust- line, offers and data. These add-ins allow account controller to have credit lines, offer entries and relevant data to their accounts. Smart contract layer can be used to automate transactions on those lines. Typical transaction record time is 5-10 seconds. Integrated Horizon API server offers RESTful API to allow client applications with steller network. It has SDKs for Java, JavaScript, Go, Python, C#, etc. It also has libraries for Java, Java Script & Go. This platform offers complete solution to build wallets, banking applications, payment systems and currency exchanges. IOTA is a unique crypto currency with M2M blockless blockchain technology, Offering machine-to-machine (M2M) connectivity for devices participating in Internet of things. It is a Cryptocurrency on a platform, which entails generalization of the blockchain protocol (the technology called Tangle) that sits at the backend of the IOTA platform. Instead of paying miners to validate the transactions, the architecture of the network involves peer-based validation. This allows the platform to be completely free of cost, without facing the scaling challenges that are inherent in the first generation of blockchains. Use of this platform for IoT, makes it true end-to-end solution blockchain solution for businesses. It enables businesses to explore new business-to-business models by making every technological resource, a potential service to be traded in an open market in real time, with no fees.
  17. 17. Page 17 of 41 4. Block-Chain Evolution & Use Cases 4.1Blockchain evolution Overwhelming majority of transactions have been digitized since the advent of internet and that vast majority of those transactions require a centralized intermediary. But even with such a preponderance of digital transactions, we still find 62 % or 2.5 billion of the world’s adult population is unbanked (source :World Bank Index measuring financial inclusion around the world) and we find transaction costs in some cases, as high as 20%. These circumstances gave birth to the necessity for an invention like blockchain. But blockchain was not alone in trying to alleviate these problems. There were contenders such as distributed databases, key- value stores (like AWS S3) which could have scaled to requirements. Blockchain survived this test of evolution by enabling decentralized, cryptographically secured currency, which enabled two mutually distrustful parties to transact. In the event of a breach of contract, the nature of blockchain - which exposes in the clear, parties involved in transaction & the amount and enables the network to obtain commensurate remuneration to the honest party. In the traditional financial systems, enabler of the transaction is the central authority/ intermediary and custodian of the ledger, which stores all the transactions. Fierce competition between few intermediaries to gain trust of individuals, results in creation of monopolistic organizations. Such organizations are moral hazard for the entire financial ecosystem, as they are “too big to fail” and this led to the financial crisis in 2008. On the hindsight, when we look at the evolution of blockchain, launch of Bitcoin Cryptocurrency & blockchain source code, in 2009, was genesis event in the evolution of blockchain. This was disruptive technology for traditional transactional systems explained above. It offered cryptography and immutability for transaction security and decentralized control of transaction approval to dismantle monopolistic system of intermediaries. This was perceived as a threat of ceasing to exist for those intermediaries and contending computing systems. Evolution of Blockchain happened on the principles of biological evolution. Biological evolution is change in heritable characteristics of biological populations, over successive generations. Similarly, every new generation of blockchain had heritable characteristics e.g. cryptography & immutability and changes happened in characteristics of consensus algorithm, nature of blockchain (only public to public –private). Evolutionary processes give rise to biodiversity and decedents replace members of population and are better adapted to survive, as natural selection takes place. To draw parallels, in every next generation of blockchain, there was a diversity, in terms of characteristics, adoptability to the demands of ecosystem and they survived the tests conducted by stakeholders of the ecosystem (Developers, intermediaries & user organizations).
  18. 18. Page 18 of 41 However, introduction of Smart Contracts in blockchain was trailblazing event, which has changed the dynamics of transactional computing, something similar to a strike of meteorite, which changed the dynamics of biological ecosystem. Blockchain has evolved to be a “Potential Future Computing Backbone Infrastructure” This potential to be a computing backbone infrastructure, has opened plethora of opportunities for businesses and developers, to help blockchain evolve into its next generation, which will happen around: • Interoperability between blockchains • Speed to match future demand of transactions • Scalability for enterprise applications • Distributed platforms to build blockchains & supporting interfaces to facilitate all types of transactions, without any intermediary, with extremely low cost of operations. • Platforms offering application interfacing to bridge disconnect between legacy computing systems & blockchain 4.2 Blockchains Use Cases Blockchain computing architecture is in public domain for almost a decade now. It has always been co-related to Cryptocurrencies, e.g. Bitcoin, Ether, etc. For a new technology to realize its full potential, lot of pieces need to exist before network effects can be realized. The blockchain community is indeed witnessing unprecedented levels of industry collaboration between players who are otherwise competitors. Apart from that, open source technologies are typically adopted by limited techo-savvy people/organizations first, but over the period as the successful use cases crosses critical mass, adoption of technology increase exponentially. We are not there yet! However, it will be interesting to see current use cases. Till 2009, only currencies world had seen were, sovereign fiat currencies. Nobody had even dreamt of a digital currency, floating in virtual world. But, Bitcoin became first such digital Cryptocurrency, minted in cyber world. With that floodgates opened for many more Cryptocurrencies getting floated at drop of a hat. These are native currencies, of those respective blockchains. Cryptocurrencies are traded world over, on some of the busiest exchanges, without any reported security breach of currency itself. Ethereum claims that it
  19. 19. Page 19 of 41 can support fiat currencies with asset backing too. Venezuela is working on oil backed crypto currency on blockchain technology, even Russia has similar plans. Traditionally, payment transfers between two entities is routed through multiple intermediaries e.g. central bank and banks at both ends, this network of intermediaries validates credentials of both sender & receivers and then effect payment transfer. These intermediaries charge fees for the same. However, Bitcoin can be used for online payment transfers between two entities, without need of intermediary. Users can create online wallets and Bitcoins can be transferred from one such wallet to other, instantly, in most secured manner with blockchain technology, with very low transaction cost. This technology can be best used for cross border remittances. As originally envisioned by Satoshi Nakamoto, blockchain can form backbone of any financial infrastructure, irrespective of stream of operations, in the financial world. Technically, it has capabilities to blow off the whole bunch of financial intermediaries, from banks to brokers to exchanges and what have you. However, in the interest of financial markets, blockchain is best adopted by financial intermediaries and reduction of cost, better transparency is passed on to the consumers & public at large. Financial markets typically have 3 day clearing & settlement cycles, e.g. D+3, T+3, etc. These are common to most investment markets today. This is due to time taken for processing humongous quantity of transactional records, through intermediaries such as custodial services (CSDs), central counterparty clearing systems (CCPs) and complex collateral management systems, together it costs billions in overhead. Migrating these transactions on blockchain will reduce the duty cycle of their clearing and settlement processes, where all counterparty balances are matched, reconciled and resolved across global trading system. This will positively impact large no of investors, day traders, pensions funds, market makers, asset managers. This is by far one of the most rewarding use cases of blockchain in financial markets, because in short time span there is visible cost savings. According to Santander’s 2015 report, moving into digital records, near real-time & over the internet, will save the industry $20 billion a year or more.
  20. 20. Page 20 of 41 In supply chain management, ethical source, compliances, record of transactions and processes are critical. However, due to grey areas such as questionable sourcing, aging of raw material, wrong routing of materials, etc. the chain produces negative results, impacting entire business value chain. Therefore, it is totally about the trust among intermediaries and intermediate processes. However, with deployment of blockchain in supply chain management its dynamics have changed. The need for trust is eliminated because of the system, consisting of immutable record of transactions with time stamp associated with every asset/product in the chain. The products bought and sold in various supply chains of the world, are getting recorded in near real-time on a shared ledger, at every stage. Real time bills of landing & letters of credit are recorded & documented against asset movements. Products & their values, tax and any other statutory compliances are available on screen. Using block chain an irreversible & immutable trail of transactions is established in the supply chain management, which is reflected in transparency of process, e.g. Fish caught by fishermen are tagged by IoT enabled sensors and tracked all through the supply chain, from place to place and recorded on blockchain. That offers transparency and result in rewarding ethical fishermen. Currently, it is difficult in tracking movement of products across value chain, which give rise to production delays, delayed project execution and such similar scenarios. Inputs of blockchain based supply chain management system can be part of Smart Asset Management. Through a tag such as RFID, product turns into a smart assets, which is easily tracked in the value chain. Every asset turns smart, when all the details about the asset, including serial numbers, value and any other information we need to know about that asset. They are digitized right from manufacturing stage till end of life cycle, e.g. who is it coming from and where is it going to; how it relates to other assets, etc. This is a great competitive tool for market players to win clients with richness in data availability. Normally, when a car exchanges hand, the transaction is based on the trust buyer has, in what seller says about the car, apart from what meets the eye. There are situations where seller cheats. This is where blockchain deployment for Provenance comes in picture. Where blockchain of a car has records, right from manufacturing stage to all services/ repairs it underwent, which will again offer transparency. It can be similarly deployed in apparel industry, where tracking from cotton to T-shirt, is recorded on tamperproof blockchain. It can deployed for manufacturing of canned foods/juices, wherein a QR code on can of juice can offer, details about various stages of juice making and for that matter every manufactured product. Using blockchain one can track product, through its life cycle. It can offer trail about exchange of ownerships, repairs/ damages and any such important aspect of a product. There are instances of data thefts, every now and then. Confidential records, financial data, personal details are vulnerable in current setup. Blockchain was conceived on the foundation of trust for trustless environment. It was open and transparent to an extent any anonymous entity can be part of blockchain, with malicious intentions. However, in private Permissioned networks, vulnerability of data diminishes with privacy by design principle incorporated in some iterations of blockchain. This opens a use case of Digital Identities which are recorded
  21. 21. Page 21 of 41 on blockchain protocol, then my things can have authorization to transact on my behalf. In other words, I have an identity recorded on a shared ledger, and then can add devices to my identity. Over time, I add smart objects too, from my shoes to my fridge to my car to my heating to my spectacles to my anything. Currently, in legal structure there are just too many papers. Solicitor firms, lawyers keep voluminous records of contracts/ agreements between the parties. They are custodians of the trust in financial, social and political ecosystems. Control of every legal aspect is vested with these people. This at times is reason for failure of many agreements, contracts and rise in disputes. Smart Contracts of blockchain ecosystem is game changer for the legal industry. Legal contracts can be embedded in transactional computing, using control mechanisms. Wherein, legal agreements would be executed automatically, upon hitting the trigger condition.. If all the legal agreements/ contracts are digitized, those contractual instruments, would be self executing programs. In true sense, blockchain is something which tell you what happened and how it happened, leaving a irrefutable digital trail, that this thing happened at that time on this date between these counterparties. This could be anything from a marriage vow to a divorce proceeding; a house sale to a land reclamation, etc. There is a lack of transparency in land and real estate transactions. Inefficiencies get added with no. of intermediaries operating in that sector. Apart from that real estate transactions involve numerous parties and transactions continue to be paper-based. Overall sector is vulnerable to disputes, defaults, frauds, etc. If blockchain is adopted in construction sector, It can help the sector in multiple ways, first it can create blockchain of land records, housing records, taxes and statutory obligations pertaining to construction sector. Once this underlying layer of data in place, government departments, builders, aggregators in real estate, buyers & sellers would have a transparent records about every detail pertaining to any property or land. Online aggregators can list properties, which will allow sellers, buyers & their realtor representatives to see all offers and transactions at the same time in real time. Smart contracts can facilitate automatic execution of transactions, once parties have agreed on its conditions, also solve the confirmation and verification process. There are few other use cases under consideration, e.g. for data security during its exchange between disparate cloud services, blockchain based forecasting for shares & commodities, decentralized micro-blogging, etc. In times to come market would be flooded with use cases for newer areas. There are challenges for DLTs to reach critical mass, e.g. lack of standards, regulatory challenges and the lack of knowledge & non availability of experts in the area of DLTs. These challenges are inherent to any new technological infrastructure that replaces an older infrastructure. As an infrastructure technology, all major stakeholders such as academicians, research institutions, market players, developer community need to work together in defining standards in a democratic manner. Indeed, there is a development with establishment of standards framework ISO / TC 307, though early days.
  22. 22. Page 22 of 41 5.Future Trends and Opportunities 5.1 Future Trends Seeds of future trends are sown in the evolution of blockchain, piloting on blockchain and results thereof. By now, almost every possible use case or potential of blockchain has been discussed in research reports, articles, TV shows and social media. Most large organizations are looking at this technology seriously, whether this wave of blockchain poses danger of tsunami to their businesses or it is perfect wave, which they can surf and extract pleasure of profits. Every technological reform has always been realized on the hindsight e.g. world before and after internet, world before and after Google, etc. Most technological advancement coming from large IT companies, come with force e.g. new versions/updates in MS products, Apple phones, Intel CPUs, where people are literally forced to adopt changes. However, technological advancement coming from open source community is not forceful. To that extent technological advancement from private corporations is push type, where as it is pull type, in case of open source development. Applying the same logic to Blockchain being an open source initiative, it will move with its own pace, much like Linux. It will have its place, but not necessarily that of leader, because much depends on the large corporations, who currently are custodians or intermediaries of the existing setups and their businesses may get impacted by blockchain. Another factor to our mind, implementation of blockchain is one way street. We don’t see that people can have option of rolling back blockchain implementation, which can be easily done in current computing environment. Hence, piloting will have to be rigorous one. There is rampant corruption across countries at every level of governance, be it release of subsidies, tax compliances, public benefits, etc. Because of this menace people are deprived of the benefits, they are entitled to. This can change with implementation of blockchain in governance. It will enforce transparency and trust in the governance. However, precisely this could be the challenge for acceptance of such a system by powerful people in governments. However, if implemented properly, it will change the governance mechanism for good. It can optimize delivery of public services and create value for its citizens. In will add efficiencies in governance. Public blockchain, can record all activities & transactions on the decentralized database permanently and
  23. 23. Page 23 of 41 more so, securely. By allowing people to track the movement of government funds, government spending, subsidies, etc. blockchain can establish accountability for state and create a cohesive environment across layers of governance and public life and restrict misappropriations of public tax money. Blockchain not only can deter corruption through accountability, but it can also do so by bypassing the middleman entirely. It can be deployed to manage international missions of humanitarian aid, refugee management, medical aid, etc. Every nation has a national ID system for its citizens to first prove he/she is a legitimate citizen of the country, then to rationalize services and processes in areas such as social services, taxes, local voting and administration but also to promote private services by stimulating the digital economy, all while reducing costs and adding transparency. However, there have been frauds recorded, often abusing this system. Blockchain can be deployed in National ID systems such as India’s Aadhaar. It can be deployed with 'Privacy by Design'. approach. It is all the more important that digital identities be handled with the utmost care, keeping human values front and center. It can lead to be truly a digital economy, wherein tax compliances and public services such as subsidy transfers, utilities, etc can be seamlessly managed. Given the immutable nature of the technology, there can’t be any fraud committed on this system and if committed, it will be caught in real time. Every project has few stakeholders – e.g promoter of project (private or government), contractors, beneficiaries. Every project is governed by project specifications and framework within which every stakeholder play their roles. Currently project management has lot of pitfalls due to many challenges e.g. lack of clarity about work specifications, payment delays, lack of
  24. 24. Page 24 of 41 failure trail, etc. If blockchain is deployed in project management right from agreement to delivery under binding principles of smart contracts, the execution will be smooth. At every stage, process and activities get registered on blockchain, leaving audit trail for failures, if any. By automating payments through escrow account, upon completion of stages, it will create an environment of dependability, which arises out of trust embedded in the system. It will dilute the risk perspective towards project of the stakeholders themselves. In customer relationship management entire value chain is people dependant. Hence, there is a risk due to negligence or acts of omission, commission, etc. Such vulnerabilities are impacting businesses adversely. Customer Relationship Management will have a utility of Permissioned/private blockchain, which can be implemented across value chains of the customers and suppliers. It will create an atmosphere of transparency and clarity across various organizations, which are blockchained. Every immutable transaction recorded on the system, be it purchase order, invoice, shipment documents, etc. will facilitate audit trail. Smart contracts can be deployed as closed loop control system for all processes, e.g. invoicing, payments, etc. There is an alarming state of education, in developing countries. There is low accountability for the institutions, teachers and even students. There are vulnerabilities around entire training process, examinations/ assessment and certification. Also existing paper-based certification systems may be subject to loss or fraud. If blockchain is embraced by or forced up on educational institutions, most activities can be streamlined right from admissions to certifications. Frauds, if tried can be traced quickly. While, actual certificates and other relevant documents could be in “data lakes”, but references can be part of blockchain. There will be transparent system of records, easy for institution to mine from and students & alumna access. Same applies to learning processes in corporate training, in terms of keeping track of continuing professional development and learning. Blockchain could potentially take data from conference attendances, courses & other forms of learning and store them securely in reputable systems. Imagine a blockchain of a student or a professional, which showcases entire learning curve, across the education institutions, detailing what happened and how it happened. There are large no of NGOs working in social sector with different focus areas such as health, sanitation, agriculture, women empowerment, malnutrition, etc. However, biggest challenge for the social sector is fund raising, due to issues related to non-transparency, lack of clarity of past work, financial compliances, etc. There few miscreants in social sector, as in every field, because of them people look at every NGO with suspicion. Good NGOs can adopt blockchain for all their activities, financial recording, fund-raising, subsequent deployment of funds and all such activities. It will reflect transparency in their operations and offer audit trail for every activity. Thereby donors can get details of utilization of their funds. Same applies to Crowd-funding in social sector, a transparent link between donors, NGOs or fund raisers and beneficiaries will ensure growth of the eco-system.
  25. 25. Page 25 of 41 Given vulnerabilities of voting machines and allegations of malpractices, election procedures, world over are under cloud of doubt. This can be eliminated with deployment of public blockchain in election process. Credibility can be achieved with immutable transactions and verification of digital identity of voter through private keys, while maintaining anonymity of voter. Every casted vote can be audited, while maintaining secrecy of voter identity. Some countries are already piloting this technology in electoral procedures. Market watchers can expect 2018 to be a year in which "certain products go viral" and "new providers/models emerge," says Credit Suisse report. According to the bank, a survey conducted by the World Economic Forum found 58% of executives anticipate 10% of global GDP to "be stored on the blockchain before 2025." That's the year Credit Suisse expects the technology to reach full maturity. At the moment, the technology is in the middle of the prototype and pilot stage. As for 2018, the bank said it will be a critical year. "Blockchain solutions will come into production as the "low-hanging fruit" of the industry is addressed - i.e. where blockchain’s use is immediately obvious, such as payments and trade finance," the bank said. 5.2 Challenges with Blockchain • Initial cost of migration to blockchain. Though blockchain is open source software, there is a definite cost of consultation for selection of right iteration of blockchain, development & customization of blockchain for existing applications, testing and commercial implementation, etc. It will be challenging to integrate the technology with existing legacy infrastructure. • Storage space issues, especially in the public blockchains. As no. of transactions are increasing there is ever increasing need of resources like speed and capacity. • Identification of peers and creating hierarchies who can be trusted to access the data. • Privacy and security challenges that might arise from the decentralized access of data, in the context of legal framework, prevailing in respective countries. • Probable resistance from existing market intermediaries, government staff. • Developing a regulatory framework in guiding the application of the new technology. • A key challenge with blockchains is ensuring that an industrialized version of these systems emerge that provide scalability, robustness and security required to handle the transactions required by large-scale supply chains and the associated governance issues. • Security issues around the authentication and encryption of the database. While the database is considered highly secure, the accuracy of each entry ultimately rests on the entity in control of each private account. • As with all areas of online security, there is also an increased need to protect against hacking. If tradeoff between flexibility & security falls apart, blockchain networks may be vulnerable to hack attacks or external threats. • Scalability is viewed with skepticism, as it involved speed and storage. Since, early days of adoption for large data, pitfalls are yet to be realized.
  26. 26. Page 26 of 41 5.3 Opportunities $ 10 trillion is the potential size of Blockchain technology ecosystem consisting of Cryptocurrencies, blockchain technology and decentralization - says Royal Bank of Canada report. Mark Cuban has announced that his basketball team Dallas Mavericks will begin accepting Cryptocurrency during next season. Companies, the owners of the logos in this picture, along with likes of 1800- flowers, Bloomberg, etc have started accepting cryptocurrencies. Blockchain ETFs attracted $ 240 million investment in a single week. All this point to, beginning of an era for Crypto economics and blockchain technology. Currently focus and economic activity in this sector is concentrated on speculation in Cryptocurrencies and related activities. This involves mining and trading of bitcoins, Ethereum, etc. Sale of ASIC / GPU based mining equipments is big business with current market size of approx $ 7 Billion and growing fast, as more people are aspiring to be miners. There are exchanges hosting wallets and facilitating Cryptocurrency transactions, at fees per transaction. However, bigger opportunity lies in underlying Blockchain technology (a system which enables migration of trust from entities to computing systems) and decentralization. Evolution of blockchain and crypto economics is triggering rainbow of opportunities. For example, development of platforms for various financial services, business platforms, IoT integration and development of decentralized applications (e.g. decentralized social networks, instant messengers, cloud storage, search engines, commodity exchanges, information aggregators, etc.). Broadly, this technology will expand many markets, more people will be connected online to embrace this evolution and entities would save transactional costs. Let us understand the opportunities in detail. Currently, there are 2.6 billion unbanked adults across world. Most of them have access to internet, but they don’t have exposure to formal financial world, consisting of digital payments, personal finance, insurance, etc. At the same time, it is difficult to obtain information about these potential beneficiaries. There as an opportunity to build a platform facilitating financial services with backbone infrastructure of decentralized blockchain technology offering data privacy, information sharing, immutability and a full stack of security protocols. This platform can facilitate creation of public, as well as private blockchains, for people to chose from, in the context of their unique requirement. There should be interoperability between public and private blockchains. For example, KYC credentials, can be managed on private blockchain network and functions of public interest can be maintained on public
  27. 27. Page 27 of 41 blockchain, e.g. information systems, etc. It should offer tools to build & manage blockchains and develop APIs/ Rest APIs, particularly for lean businesses and small enterprises, who want to reduce or eliminate the effort required in creating, managing and terminating blockchains. The platform should have infrastructure to facilitate development of decentralized apps for blockchain networks. It should facilitate developing smart contracts for process automation. It should facilitate deployment of blockchains to the cloud. Users can create and manage such blockchains through a user friendly dashboard and mobile users should get blockchain instance immediately. They should be able move in & out of the apps, seamlessly. This platform can enable the underserved people to avail financial services such as payment transfers, personal banking, insurance, microfinance, crowd funding, peer funding, payment wallets, etc. People can have online wallets and they can exchange funds among themselves instantaneously (without any intermediary, such as Bank, etc.) at fraction of cost. They can avail personal insurance or insurance for their house, crop (available in certain countries), automobiles, machinery, etc Due to tamperproof nature of blockchain records of their purchases and any subsequent modifications, repairs, etc. will create a trail of instances. This will be a record they can showcase, while selling/ mortgaging the house, machinery, etc. to peers or any institution. Availability of their financial records on secured blockchain network, will create a seamless, tamperproof credit history. Which will be a reference for banking or microfinance institutions to offer them loan for education, automobile, marriage or any incidental reason, through the course of life, that too, at nominal rate. Typically, banks accept deposits at X rate of interest and offers loans to entities at X + Y rate of interest. On demand availability of credit history, can be a major enabler for peer to peer funding. People can seek loan among themselves, by showcasing their tamperproof credit history to peers, willing to finance them. Here the financer can bypass the banking institutions and offer loan to needy at X rate of interest and needy also saves Y rate of interest. Such peer to peer transactions, built on blockchain platform will be a game-changer in financial markets, as a cost saving mechanism. It will save cost for both consumers and institutions/ individuals offering financial services. This will realize global financial inclusion. There is an opportunity to offer cost saving to the tune of 2-4% in
  28. 28. Page 28 of 41 manufacturing cost, by building a blockchain platform around Durable product lifecycle, which will maintain records about each durable product, right from the raw material stage, to production, to inspection, to product sale to customer and further covering stages, till end of product life cycle. It can be integrated with supply chain management to facilitate lean manufacturing. Integration of smart contracts across value chain will automate many inter corporate transactions, resulting in savings of financial cost. This platform will have mix of public and private blockchains. The public blockchain will carry records of product from raw material stage to end of life. Whereas, private blockchains will be implemented for intra organization operations, e.g. vendor, manufacturer, dealer, service centre, etc. will have their private blockchains. A product blockchain, a permissionless one, flows through various organizations, across value chain. At every stage new record blocks will be added in the blockchain. First, manufacturer decides to manufacture a product. He generates bill of material. Places order with few vendors for material. Vendors send material to manufacturer. Here product blockchain will have genesis block, consisting of records of various components for product. As the manufacturing stages advance, so does, the product blockchain will add records related to specific recordable details about product during manufacturing. As the products are sold to end customer, the customer details get added in the blockchain. Whenever, customer services the product, details related to service get added in to product blockchain, till the product life cycle ends. While, the product blockchain will be public, it will have interoperability with private blockchains, which will keep financial records with channels of privacy. They will be accessible only to restricted members. For example, price of particular component of the product, will be known only to purchase department user of manufacturer and sales department of the vendor of the product. In case of product failure, there would be trail of events, which can be scrutinized to find stage of the fault and accordingly remedial course correction can be implemented, to avoid future failures. At the end, the product blockchain will have transparent record of every instance of intervention with the product. For example, manufacturer receives parts of a car, the car is manufactured, sold through a retailer to end user, serviced multiple times across various service centers. Now there is a situation, the owner wants to sell that car to an interested buyer. At this stage, immutable records about the car, available on blockchain, will help buyer finalize his purchasing decision. Even, product financing peers or banks can refer to the blockchain records, to decide about financing. In such ecosystem, there are multiple stakeholder such as, vendor of parts, manufacturer, dealer, service centre, spare part dealer, etc. All of them must have consensus in accepting this system or compliance regulations enforces such a system, which will eliminate need of trust. Different sectors of industry can have such decentralized platforms. These platforms should have tools for blockchain deployment, APIs for user applications. Smart contracts will automate financial procedures and other inter corporate transactions. By participating on such platform, businesses will have great opportunity to improve their credibility, reduce operating
  29. 29. Page 29 of 41 cost, increase efficiencies and improve transparency, by deployment of blockchain in end-to- end value chain, consisting of vendors and clients or dealers. There will be 21 Billion Internet of Things (IoT) devices in 2020, up from 6.4 billion in 2016, according to Gartner and 10s of billion dollars are getting invested in this space. Smart city projects in many countries, manufacturing automation through AI/robotics and smart homes/ offices will be driving engines for this phenomenal growth projection. Intel, Cisco & Autodesk are some of the prominent players along with many startups, taking IoT forward. At local level IoT devices communicate through internet protocols, either through blue tooth, wireless Ethernet, etc. They are controlled through applications hosted in cloud with AWS, MS Azure, etc. However, in an IoT connected infrastructure, a network is only as strong as its weakest link. This means security will always be a necessary topic of discussion for the businesses and stakeholder at larger, participating in the IoT, including vendors and end users. The future of cities, communities and businesses is getting shaped in their dependency on connected IoT devices and their controlling systems. As a result, the prize is getting bigger for hackers, to exploit these devices and systems for their own gain. The centralized security model in market today will struggle to deal with vulnerabilities in IoT infrastructure. They will increase with no of IoT devices, i.e. more the sensors, actuators and other devices in an IoT installation, more the threat of hacking attack. These devices collect lot of data at local level and dispersed in cloud for processing and monitoring. Security of this data at centralized & distributed level along with integrity at REST and transport level is challenging. Further, full potential of IoT can’t be realized without internet of value IoV (internet of value) and in turn MoIP (money over internet protocol). More the devices/ node, vulnerability of IoT increases, where as more such nodes, security of blockchain enhances. The adversities and challenges of IoT is a great opportunity for integrating blockchain technology in IoT installations. There is an opportunity to build a platform, which will offer immutable and cryptographically secured blockchain layer, underneath IoT installations. This platform can have channels of private blockchains, to be made available for IoT installations. This platform should have choice of consensus algorithms for users to choose from, depending on their unique requirement. It should have cluster container approach, where in, low bandwidth wireless data from IoT devices can communicate well with platform given the lightweight virtualization in containers. The platform should have wide amount of APIs to connect with the wide range
  30. 30. Page 30 of 41 of devices, operating systems and languages involved in this ecosystem. More specifically, it should have a support for Java applications, as most of the existing IoT devices are working in Java environment. The platform should have following features : • Interfacing and integrating capabilities for wide range of operating systems • Highly responsive to large no. of IoT devices • Security at every layer of stack • Compatibility with wide standards of IoT devices • Facility for scalability • Support for step by step modular adoption of IoT • Support for integrating financial services with IoT to realize IoV Some of the IoT devices/ nodes collecting data from sensors and transporting to blockchain network, will themselves act as validators and as it goes in blockchain, more the validators, stronger the network. Such platforms will transform the way manufacturing, industrial process control and even financial processes in industrial arena, happen today. Blockchain will offer MoIP, in turn IOV to IoT to realize its full potential across value chain. Machine to machine manufacturing operations in IoT will extend to payments structure, which will enable machine- to-machine commerce. Such platform based on blockchain will eliminate the cyber security related vulnerabilities and IoT would evolve as a catalyst for Industrial Revolution 4.0 $ 335 Billion is the estimated size of sharing economy in 2025, meteoric rise from $ 14 billion in 2014, says report of Brookings. The sharing economy is “the peer-to-peer based activity of obtaining, giving, or sharing access to good and services”. Alternative names for this phenomenon include gig economy, platform economy, access economy and collaborative consumption. This augurs well with the peer-to-peer, decentralized network without any control of central authority, the hallmark of blockchain ecosystem. Currently there is a large cost of aggregation required to be paid by people, to benefit from sharing economy; to that extent, it is centralized and needs to evolve as true peer-to-peer economy, with fractional cost of aggregation. There is an opportunity build a blockchain platform, which will act as a hub for peer-to-peer instances of economic activities at, local community/ city levels. For example, car hailing, home sharing, social networking, local business promotion, local exchange of used goods, crowd bidding for agriculture produce and many such activities. Deployment of blockchain can make it cheaper to create and operate an online platform. For example, transparency in offers & transactions will result in competitive environment, benefitting the consumer. The financial transactions can be coordinated by self- executing smart contracts, using native Cryptocurrency or fiat currency. This platform can have public blockchain, where in anyone with internet connection can be part of this blockchain. There will be transparent record of all assets and their respective ownerships. It will offer chronologic sequence of offers and transactions, which will be guiding principles for future transaction. Consensus algorithm of proof of stake could be suitable for such platform, however there has to be choice of consensus algorithms. Trinity of blockchain,
  31. 31. Page 31 of 41 smart contracts and IoT will ensure speedy and automated processes. For example, A person can offer to rent out his house. Smart contract can enforce agreement with highest bidder and ensure automated transactions. Next level of automation using IoT can ensure, locking and opening property rights, through passwords. This platform should support mobile devices, offer APIs for various IoT systems and easily programmable smart contracts. Another case in point, used goods market. It is growing by year, not in absolute terms, but by virtue of higher discovery of those goods in each household, occupying storage spaces, without yielding any use benefit. Current mechanism facilitate transactions, but there are vulnerabilities in those transactions, e.g. stolen goods, duplicate goods, lack of transparency about offers, etc. An ecosystem with blockchain technology, offering options to households for renting, selling, exchanging, pawning, donating, etc. of such goods, will eliminate those vulnerabilities. Transparent blockchain will reveal ownership trails of the goods. It will help realize value for unused goods and immutable trail on blockchain will ensure transparency in each such transactions. Smart contracts can automate financial transactions, offering finality to the deals. A native digital coin within such system with blockchain backbone will be a negotiating tool for the users of this ecosystem. There are going to be immense opportunities in Blockchain arena. But, what will matter is first mover advantage. 5.4 Reference Architecture We propose development of a platform, by customizing open source blockchain framework, to achieve far reaching economic and societal impact in peer to peer environment, without a presence of central controlling authority. The Platform A model blockchain platform is proposed, as a holistic ecosystem to facilitate technological development for betterment of economic transactions and social interactions. At technological level, it can offer facility to build modular private (Permissioned) blockchains with smart contracts, supporting tools and libraries for deployment in mobile/ web environment. At functional level, it can host spectrum of use cases for commercial and social ecosystems, e.g. Fintech, eCommerce, peer finance, etc. This platform can facilitate development, testing and deployment of enterprise grade, as well as fast & responsive end user facing applications. It will have Integrated Smart Contract management, development tools, libraries & distributed data lakes to build and manage blockchains, for wide range of applications. Some key technology features are: • Permissioned enterprise grade & lightweight user application facing blockchains • Infrastructure to develop new APIs & consensus algorithms
  32. 32. Page 32 of 41 • Runs on demand arbitrary smart contracts • Multiple options for ordering services (consensus algorithm) • API server library • iOS, Android, Python and JavaScript library • Blockchain Explorer / data visualization suite • A client SDK (Node.js) to interface • Support for basic REST APIs and CLIs • Support for creation and management of digital assets A digital asset, in the form of a token is proposed to emanate from the platform. The utility of the token is primarily aimed at needs of various applications built on the platform, it can be used across applications. This platform will be based on the following proposed reference architecture of blockchain system. Reference Architecture of blockchain ecosystem is modeling a unique process, in which a service maintains some state, clients invoke operations that transform the state and generate outputs. Let us understand it, through following facets – Technology Stack, key elements of blockchain ecosystem, Actors & roles, Services, Processes and Data Model. This reference architecture will safeguard against failure of orderers, by offering different endorsers for each smart contract. It will offer scalability through right level of alignment between endorsers, smart contracts, orderers and removing smart contract from critical path of the ordering service. This architecture will facilitate deployment of smart contracts that have confidentiality requirements with respect to the content and state updates of its transactions. This platform will offer modular and pluggable consensus (i.e., ordering service) implementations. Technology Stack Here is the proposed technology stack of Blockchain, which will form basis for the reference architecture. Blockchain is the base of all blockchain based applications. On this platform two types of blockchains are proposed, first, an enterprise-grade, open-source blockchain framework and second, lightweight and responsive framework. There will be interoperability between these two frameworks, wherein libraries, APIs of lightweight blockchain can
  33. 33. Page 33 of 41 be deployed on to enterprise grade one. Next layer could be referred as overlay networks, as it is just a distributed decentralized network. This layer allows creation of smart contracts, which are codes defining the terms of agreement between two transacting parties. These can be used to trigger automated transactions. Next there will be distributed data lakes, storing supporting transactional data files, which are referred in blocks. Modularity of ordering services(consensus algorithms), will allow pluggable consensus, resulting in multiple options for ordering services, which can be selected based on requirement of applications. Sidechains facilitate applications to transact digital assets from one blockchain network to a completely different blockchain network in a secure manner, e.g. Bitcoin can be invoked on to this platform for application requirement. These are catalysts for fast micropayments. In the next layer digital identity management is proposed. Given the immutable nature of blockchain, it is all the more important that digital identities be handled with the utmost care, keeping human values front and center. Digital identities will be managed on the principle of Privacy by design. This layer will facilitate creation and management of digital assets, which could be Digital IDs, Tokens, etc. This layer will also initiate and manage communication with network of peers, for validation of transactions and eventually creation of blocks. At support layer, there will API’s for Java, JavaScript, C++ & Python, libraries for various operating environments, e.g. Android, iOS and JavaScript and support for Rest APIs. It will have Visualizer tools to facilitate deploy, view and query blockchains. It will have tools for cloud deployment of blockchain. Application layer will be used by the end users on a daily basis. The users will find the apps to be more people oriented, like a peer to peer app and no third party requests will be needed. There will be eCommerce apps, social networking apps, gaming apps and apps which are concerned requirements of day to day life. Components of Blockchain ecosystem Blockchain is a peer-to-peer network of nodes, who are engaged in transactions, without any controlling elements. Mobile devices, web apps or even smart IoT devices can be designated nodes, in the network having credentials to initiate and execute transactions. A shared, Permissioned ledger is a immutable, irreversible and append-only system of records and serves as a single source of facts. The ledger contains the current world state of the network and a chain of transaction invocations. The membership service provider (MSP) manages identity and Permissioned access for clients and peers, while ensuring privacy of users. It defines the rules in which identities are validated, authenticated and granted permission to the blockchain. It maintains digital identities of users, who are designated to join the network. It offers necessary permissions for users to create transaction. It interfaces with certificate authority that verifies user digital
  34. 34. Page 34 of 41 identities. In a consortium network, where multiple organizations are part of blockchain network. The blockchain can incorporate multiple MSPs. The Smart Contracts (chaincodes) are programs which contain business logic and asset definitions for automating transactions, around assets. Invoking transaction results in changes to the ledger. The world state reflects the current data about all the assets in the network. This data is stored in a database for efficient access, e.g. CouchDB. Channels are programmable data privacy mechanisms that allow transaction visibility for defined set of stakeholders of the ecosystem. Each channel is an independent chain of transaction blocks containing transactions only for that particular channel. Stake holders and Roles There are few stakeholders/ actors in blockchain system, which have designated roles, to be performed in the blockchain system. Users are the ones which initiate transactions. Users are applications that act on behalf of a person or device (through smart contracts), to propose transactions on the network. Each peer maintain copy of ledger, along with the state of the network. There are two types of peers: Endorsing peers and Committing peers. However, there is an overlap between endorsing and committing peers, in that endorsing peers are a special kind of committing peers. All peers commit blocks to the distributed ledger. Endorsers simulate and endorse transactions. Committers verify endorsements and validate transaction results, prior to committing transactions to the blockchain.
  35. 35. Page 35 of 41 Consensus mechanism (Ordering Services) accepts endorsed transactions, orders them into a block and delivers the blocks to the committing peers. In a blockchain system consensus is the process of reaching agreement on the next set of transactions to be added to the ledger. Services and Processes It starts with network discovery process. Where in, a user acquires blockchain IP and logs into blockchain network through API. His credentials and identity are validated, by membership service provider, in accordance with user profiles deployed by Certificate Authority (CA). After handshaking with network, the user discovers designated endorsing peers, committing peers and ordering services. The ledger is synchronized with peers, having most recent world state. User then initiates a transaction through web/ mobile app. The transaction can be a standard transaction involving transfer of asset to another user in the network or it can be a part of smart contract, where transaction automatically completes upon triggering the conditions, specified in smart contract. The transaction is sent to endorsing peers. Endorsing peer then simulates the transaction of user, as if transaction were executed. But without updating the ledger, it adds RW sets with transactions, signs and send back to user. Different endorsement policies can be specified for different smart contracts, at the time of deployment. Endorsement policies can also be channel specific. The user then submits the endorsed transaction and the RW sets to the consensus mechanism. In this mechanism, consensus happens for all the users, who have submitted
  36. 36. Page 36 of 41 endorsed transactions & RW sets. It delivers blocks, containing data of the endorsed transactions & RW sets, to all committing peers. The blocks would have time stamps and they would be added to blockchain in the sequence of block generation time. This platform will have choice of consensus mechanisms, which can be selected and plugged, as per requirement of use cases. Committing peers are responsible for adding blocks of transactions to the shared ledger and updating the world state. For transactions to get committed to the blockchain, their RW set should match most recent world state. Then only, the committing peer will append the blockchain with this transaction and the world state is updated. In case if RW set doesn’t match the world state, transaction will be still added in block, but it will be marked invalid and they would notify user about the failure of the transaction. If the transaction fails, that is, if the committing peer finds that the RW set does not match the current world state, the transaction ordered into a block will still be included in that block, but it will be marked as invalid and the world state will not be updated. Data Model In proposed blockchain system, every peer will maintain most recent ledger. The ledger maintains Block Storage, State Database and history database. Each block contains block header, block data and block metadata. Block storage is append only file system which stores the serialized bytes of block structure. Blocks are stored on a file system rather than a database which might affect query capability on the transaction logs, but a that makes it tamperproof. A state database (CouchDB) will be used to maintain the current state of all smart contracts. As a result, a smart contract can use the query capability of underlying database to retrieve and update current state. History of values assigned to a given key is present in the block storage along with who issued the transaction, who all endorsed it, RW sets of the transaction, etc. Though these values can be stored directly in a database for efficient querying for now, only index to the block for each key is maintained. A single index to block storage is maintained by history database.
  37. 37. Page 37 of 41 Web Deployment Model The platform is proposed to be hosted in the cloud, in the form of Blockchain-as-a-Service (BAAS). Businesses can have enterprise wide deployment of blockchain in calibrated mode, with a modular approach. They can break their entire requirement in parts and build one part at a time with underlying blockchain. Even, lean businesses and small enterprises, can deploy blockchain in cloud. That will save them of the effort required in creating, managing, and terminating blockchains. Their IT teams can create and manage such blockchains through a dashboard and users (typically, smart contract developers) can obtain a blockchain instance immediately. Platform aims to offer on-demand “As-a-service” deployment model for blockchain ecosystem. Developer community and IT teams of organizations can create and manage the blockchain network using the modular, customizable dashboards, offered on the platform. Organizations can create group of blockchain network in cloud known as ‘container clusters’ and then manage and monitor those networks with configurable dashboard. Cloud deployment model of the proposed blockchain platform is shown in the figure. Let us understand the various facets of the model, through a flow of process. Certificate Authority provides identity with security, privacy and protection for the blockchain users, for their designated roles. User -A initiates a transaction with User-B, on a decentralized app. The
  38. 38. Page 38 of 41 request is sent to cloud edge gateway (Firewall, load balancers) which routes it through API to container cluster services, which offers it a transaction instance. Authenticity of both the users is verified as per valid user list of certificate authority at identity management system. Along with supporting privacy management system, (working on privacy by design principle), it ensures that participating users have permission and have entitlements granted based on their roles in the blockchain network. The users then are enabled to participate in a transaction using APIs. Thus, from a web browser the users connect to the blockchain service. The blockchain system receives the transaction request. The committing nodes communicate to establish consensus. Upon consensus (as per consensus algorithm), the transaction is validated by these participating designated peers. The smart contract agreements are evaluated & enforced and the validated transaction is committed to the ledger.
  39. 39. Page 39 of 41 6.References 1. Bitcoin: A Peer-to-Peer Electronic Cash System – Satoshi Nakamoto 2. Hyperledger.org 3. IBM Blockchain Platform 4. Credit Suisse Report – Blockchain, August 2016 5. Business Intelligence Bitcoin Report, Dec 2017 6. Deloitte Insights Report – Evolution of Blockchain, October, 2017 7. Smart Contracts: 12 Use Cases for Business & Beyond, December 2016 8. A comprehensive Reference Model for Blockchain-Based Distributed Ledger Technology, Andreas Ellervee, May 2017 9. Distributed Ledger Technology- beyond blockchain, Government office for science, UK, 2016 10. Blockchain- A beginners guide, blockchain hub, September, 2017 11. Some simple economics of blockchain, Christian Catalini & Joshua S Gans, September, 2017 12. Architecture of the Hyperledger Blockchain Fabric, Christian Cachin, IBM, July 2016 13. Blockchain Technology in India- opportunities and challenges, Deloitte & ASSOCHAM, April, 2017 14. Financial Services – Building blockchain one block at a time, Cognizant 15. Coin desk article available at https://www.coindesk.com/crypto-blockchain-create-10- trillion-market-rbc-analyst-says/ 16. Blockchain technology - a very special kind of Distributed Database, Sabastien Muenier, December 2016 available at https://www.linkedin.com/pulse/blockchain- technology-very-special-kind-distributed-meunier/?trk=mp-reader-card 17. Wikipedia 18. Blockchain available at http://wiki.p2pfoundation.net/Blockchain 19. The four layers of blockchain, David Xiao available at https://medium.com/@coriacetic/the-four-layers-of-the-blockchain-dc1376efa10f 20. Ethereum.org
  40. 40. Page 40 of 41 21. Understanding blockchain, Johannes available at https://correlaid.org/blog/posts/blockchain-explained 22. Github available at https://github.com/hyperledger/iroha-android 23. In 2020 Bitcoin will consume more power than the world does today, World Economic Forum, available at https://www.weforum.org/agenda/2017/12/bitcoin-consume-more- power-than-world- 2020?utm_content=bufferdc4c3&utm_medium=social&utm_source=facebook.com&ut m_campaign=buffer 24. Smart Contracts- 12 use cases for business and beyond available at https://www.ccn.com/smart-contracts-12-use-cases-for-business-and-beyond/ 25. Corda.net 26. Why blockchain is future of sharing economy, Forbes available at https://www.forbes.com/sites/omribarzilay/2017/08/14/why-blockchain-is-the-future-of- the-sharing-economy/#1549a6f73342 27. Blockchain powered project management and CRM available at https://www.pupaclic.com/web-app/blockchain-powered-project-management-system- crm/ 28. Fusing Blockchain and IoT available at https://bitcoinmagazine.com/articles/fusing- blockchain-and-iot-interview-filaments-ceo/ 29. Blockchain: a new hope for IoT security available at https://connectedworld.com/blockchain-a-new-hope-for-iot-security/ 30. Current and Future state of Sharing Economy, Brookings India available at https://www.brookings.edu/wp- content/uploads/2016/12/sharingeconomy_032017final.pdf 31. Ripple.com 32. Quorum blockchain, available at https://www.jpmorgan.com/global/Quorum 33. Iota.org - IOTA blockchain 34. Kubernetes available at https://kubernetes.io/ 35. Architecture of Hyperledger blockchain fabric, IBM, July 2016 36. Senthilnathan’s blockchain blog at https://blockchain-fabric.blogspot.in/
  41. 41. Page 41 of 41 37. Read the docs at http://hyperledger-fabric.readthedocs.io/en/release/arch-deep- dive.html 38. Blockchain for business – introduction to Hyperledger technologies at https://courses.edx.org/courses/course- v1:LinuxFoundationX+LFS171x+3T2017/course/

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