Slides from ADCCA bootcamp

1. 1
BLOCKCHAIN BOOTCAMP
FOR BOARDS
AUSTRALIAN INSTITUTE OF COMPANY DIRECTORS
PERTH, MAY 26 2016
NICHOLAS GIURIETTO

2. Suddenly Everybody is Talking Blockchain

3. And Everybody is INVESTING in Blockchain!

4. “Every now and then, something comes
along that might just change everything.
And this is one of those moments.”
Elmer Funke Kupper,
Former CEO ASX
And Everybody is INVESTING in Blockchain!

5. Bitcoin and Blockchain
• “Peer-to-peer electronic cash that allows online
payments to be sent directly from one party to another
without going through a financial institution”
• Proposed by Satoshi Nakamoto in May 2008
• Bitcoin “Genesis Block” in January 2009
• Current market value approx. USD 7 Billion
• Underlying technology for Bitcoin
• A distributed database that contains blocks of
timestamped transactions linked together in a
continuous chain
• Supports the “Proof of Work” consensus methodology
and data immutability
• Allows creation and trading of an electronic asset

6. • Technological Foundations
• Business Model Disruptors
• Implications
• Next Steps
AGENDA

7. Distributed Ledger provides TRANSPARENCY

8. Transparency is great, BUT ….
• Is the Information Accurate?
• Can Anybody Mess with It?
• Who Can See It?
BUT …...

9. Consensus Protocol establishes ACCURACY
1. A new transaction is created on one node
2. The transaction is broadcast to all nodes

10. Consensus Protocol establishes ACCURACY
1. A new transaction is created on one node
2. The transaction is broadcast to all nodes
3. Each node starts collecting transactions into a
block (checks validity)

11. Consensus Protocol establishes ACCURACY
1. A new transaction is created on one node
2. The transaction is broadcast to all nodes
3. Each node starts collecting transactions into a
block (checks validity)
4. A random node completes a block
- and broadcasts it to other nodes

12. Consensus Protocol establishes ACCURACY
1. A new transaction is created on one node
2. The transaction is broadcast to all nodes
3. Each node starts collecting transactions into a
block (checks validity)
4. A random node completes a block
- and broadcasts it to other nodes
5. Other nodes accept the block (check validity)
and add it to their blockchain

13. IMMUTABILITY achieved through Blockchain
data
H( )
• A hash-pointer is a cryptographic reference to
a piece of data
• SHA-256 is a standard compression algorithm
• The hash is uniquely associated with the
underlying data
data
Prev H( )
data
Prev H( )
data
Prev H( )
H( )
• In a Blockchain each new block contains
the hash function of the previous block.
• To verify the whole chain – and every
transaction in it – you only need to be
able to confirm the most recent hash
data
Prev H( )
data
Prev H( )
data
Prev H( )
H( )
• If the data is corrupted (accidentally or
deliberately) then the next hash and all
subsequent blocks fail
• This creates a tamper-evident ledger

14. Longest Chain provides SECURITY
A double-spend attack occurs where a malicious actor seeks to get an invalid
transaction incorporated into the blockchain.
1. Alice broadcasts a transaction in
which she pays Bob one Bitcoin
for some goods.
2. She broadcasts a second
transaction in which she pays the
same Bitcoin to an account she
controls.
3. Both transactions are technically
valid but only one can end up in
the blockchain as the same
Bitcoin can’t belong to two
different accounts at the same
time.

15. Longest Chain provides SECURITY
How does Bob protect himself?
1. Bob observes the valid transaction BUT WAITS before releasing the goods
2. He waits until the valid transaction has been confirmed in subsequent blocks – generally 6
3. If Alice does succeed in inserting the invalid transaction into the blockchain, no harm is done as
she has simply paid herself but not received any goods.
1 2
3

16. Other SECURITY Considerations
• Normal public/private key cryptography is used to maintain the
privacy of data stored on the blockchain.
• A Takeover Attack is theoretically possible if a malicious actor
could gain control of at least 51% of the processing power across
the network.
• Although transactions are secure, it may be possible to observe
data flows between entities on a distributed network and draw
some insights about the nature of the transactions. Tools exist to
make this more difficult.

17. SECURITY
ACCURACY
TRANSPARENCY
IMMUTABILITY
TRUST
The Elements of TRUST

18. settlements
Permissioned versus Private Blockchains
Different use cases require different solutions.
Trade offs include:
• Security
• Consensus mechanism
• Speed

19. settlements
Smart Contracts
Features of a Smart Contract:
• computer programs that emulate (key) contractual clauses
• stored on a blockchain to give both parties confidence that they
will operate as intended

20. settlements
Smart Contracts
Bill Buyer Sally Seller
• Makes payment of $100
• Publishes a reversing transaction at
time T+1 unless any two parties
agree to cancel it.
• Sally has the money and ships
goods
• “Signs” the reversing transaction
• Bob receives goods
• “Signs” reversing transaction which
is now cancelled.
Bob has the goods Sally has the money

21. settlements
Smart Contracts
Bill Buyer Sally Seller
• Makes payment of $100
• Publishes a reversing transaction at
time T+1 unless any two parties
agree to cancel it.
• Sally has the money but decides
not to ship the goods.
• “Signs” the reversing transaction
• Bob does not receive the goods by T+1,
does not sign reversing transaction
• Reversing transaction triggers which
returns money to Bob
Bob has his money back
Sally still has her
goods but no money

22. settlements
Smart Contracts
Bill Buyer Sally Seller Jenny Judge
• Bob receives goods but they are
damaged
• Does not sign the reversing
transaction
Bob has the goods Sally still has the money
• Before T+1, Sally initiates
adjudication
• Jenny evaluates condition of
the goods
• Decides that Sally is right.
• Signs the reversing transaction,
which is now cancelled.

23. settlements
Sectors of the economy that will be impacted by Blockchain
solutions:
• Payments
• Settlements
• Origination
• Valuation
• Title
• Audit
• Supply Chain
• Provenance
• Contracts
• Credit Reporting
• Identity
The Blockchain Tsunami

24. settlements
Trade Finance

25. settlements
Provenance

26. settlements
Ledger Assets – Perth Based

27. settlements
Ledger Assets – Perth Based

28. Identity
Identity information is currently held by companies about an
individual:
● Duplication – KYC
● Sensitive data sent to multiple parties
● Company liable for storage
● Many ‘honeypots’ for hackers to attack

29. Identity Data is a “Toxic Asset”

30. Self-Sovereign Identity
Self-sovereign identity means:
● Identity data held immutably on a blockchain
● A web of trust ‘hardens’ the data over time
● Canonical source of data
● Identity data remains in the ownership of the individual
● Individual permissions who can see what data for what purpose and for how long

31. Self-Sovereign Identity
Good for Companies
Accuracy
Canonical source of data
Reduced Risk
Separate transaction data
from ID data
Good for the Individual
Control
Individual permissions
access to data
Audit
Access is logged and
visible to individual
Security
No honeypots
Real-time Updates
Rather than one chance
to ask

32. 1. Understand the Blockchain!
• Blockchain Bootcamp
2. Plan for the Moonshot.
• What is the radical disruption
that COULD happen?
3. Start Now.
• Practical Use Cases
• Incremental Learning &
Experience.
• Start small BUT start.
How Can YOUR Business Prepare?