Presented to students and faculty at Michigan State University as a guest lecturer on private blockchains being used in government and industry for Management 491.

1. Enterprise Blockchains
MSU MGT 491
27 November 2018
Stephen Newell
Blockchain Leader
US Public Sector
IBM Corporation
srnewel@us.ibm.com

2. Background
Example 1 - Food Trust
Governance
Example 2 – TradeLens
Hyperledger Project
Example 3 – Health records
Business model
Example 4 – IBM Global Finance
State governments and blockchain
Resources

3. Background

4. Blockchain == Distributed Ledger
Permissioned == Private / Consortium
Permissionless == Public / Non-permissioned
Cryptocurrency == Virtual currency
Node == Peer
And, Member != Node
For today, these are interchangeable terms

5. Peer-to-peer economy
Disintermediate
Reduce friction
New business models
New markets
Uses cryptocurrency
Decentralized
Governance: code
Disruptors
Business network
Improve: efficiency
cycle time
info quality / security
compliance
No cryptocurrency
Owner / Consortium
Governance: board
Enterprises
How enterprise blockchains are different
Public / Permissionless Private / Permissioned
Any two strangers (or systems) on the
planet can trade directly with each other.
Improve processing and lower risk
between known partners
Thesestatementsarebroadgeneralizationsandnottrueinallinstances.

6. Identity known participants
Endorsement not proof of work
Business assets not cryptocurrency
Privacy confidential transactions between parties
Governance group oversees rules and operation
Higher throughput up to several thousand / second
Single source of truth greater trust and transparency
Blockchain for enterprise is (probably) private

7. Example 1: Food Trust

8. Why?
Reduce impact of food contamination incident
Increase consumer confidence in food supply
Increase consumer transparency of quality and origin
Improve track and trace
Business problem:
It takes too long to determine the source of contamination
Until determined, must empty the supply chain
Highlights
Consortium-based network
Platform for competitors to participate
Supply chain visibility
Cost savings
Extend with data analytics and consumer app
Standards-based: GS1 (barcode, EDI, RFID for supply chains)

9. How long to trace a package of mangoes back to the farm?
6 days : 18 hours : 26 minutes

10. Retailers
Logistics
Growers
Processors
Pilot with network members
2.2 seconds

11. Add:
Fruits / Dairy
IoT
Certifications
Consumers
Regulators
Analytics / AI
Scaling up

13. Nestle’s Gerber Foods Strawberry Supplier Dole
Tracing foods back to source
through the complex supply
chains so common in today's
global food ecosystem
Capturing data from farm to
store as berries move through
the supply chain
Capture, manage, and optimize
large data sets collected during
audits and certifications
Examples of benefits to members

14. Other supply chains
Pharma

15. Governance

16. Member Member
Community Based Network
Member Member
Member Member
Founder Directed Network
Member Member
Founder
Member
Member
Consortium Based Network
Member
Founder
Founder
Founder
Founders are equal among other participants,
may include a joint legal entity among the
founders (e.g. – JV)
Individual founder in a position
to provide strong direction
Driven by industry standards
bodies or existing non-blockchain
network owners
Types of networks

17. Permissioned networks require governance
Group to oversee the network and the blockchain
Rules and policies for the decentralized business ecosystems
• New members / onboarding
• Members leaving
• Valid transactions
• Updates/changes to rules
• Smart contracts
• Legal structure
• APIs
• Consensus
• Data formats / standards
• Data ownership / sharing
• Security standards
• Privacy of transactions
• Business model / fees
• Operations
• Selection and oversight of network operator
• Certificate authority and keys
• More….

18. Example 2: TradeLens

19. Why?
Container shipping is still paper form-based.
Business problem:
Manual and costly paper-based forms and workflow
Missing documents hold up shipments (for weeks)
Time spent chasing documents
Risk of fraudulent documents
Highlights
Consortium-based network
Document-based workflow
Platform for shippers, ocean carriers, customs authorities, ports, more
Component in a transformation
Will require regulatory changes around world to go paperless
A single shipment of avocados
from Mombasa to Rotterdam
involves 30 actors, 100+ people,
and 200 information exchanges.

22. Hyperledger Project

23. Many varieties of blockchain
Key differentiators:
• Permission model
• Consensus approach
• Smart contracts
• Programmability
• Extendibility / Modularity
• Scalability and latency
• Resource consumption
• Use of virtual currency
• Privacy

24. https://www.hyperledger.org/
Hyperledger – set of projects under the Linux Foundation

25. Hyperledger is a collaborative effort
created to advance cross-industry
blockchain technologies for business
Founded February 2016; now more
than 270 member organizations
IBM is one of a number of contributors
Open source
Open standards
Open governance model
Source: https://www.hyperledger.org/members
Updated: 4 October 2018
Premier
Associate
Academia Associate
General
IBM Blockchain Platform – built using Hyperledger

26. Emphasis on ledger, smart contracts,
consensus, confidentiality, resiliency and
scalability.
V1.2 released July 2018
Includes significant confidentiality and
service discovery improvements
Hyperledger Fabric – distributed ledger technology

27. Example 3: Health Records

28. Why?
Need to share health records while maintaining control, compliance, privacy
Business problem:
CDC – providers need to share records with CDC for outbreaks
FDA – researchers have collections of records/data for sharing
Highlights
Founder-based network
Smart contracts to control access (CDC)
Smart contracts to control terms and conditions (FDA)
Blockchain used to track and audit data use
Consent model for sharing data
Considerations for storing data off-chain; HIPAA-compliance and PII

29. What?
• Track the chain of custody of the EHRs for compliance
• Manage consent and sharing of EHRs
• Focus on sharing for public health purposes
How?
• Each participant agrees to capture the access and
storage of EHR data on the blockchain
• Create single view of who referenced the EHR data
• Include consent model so that owners of data can
quickly and easily provide consent for others to access
their data and then record consent to avoid dispute
CDC pilot

30. What?
Secure, efficient and scalable exchange of health data
How?
• Ledger of where and how data is exchanged
• Test oncology and personal device data
Benefits
• Create an audit trail through the ledger to:
– hold information leakers accountable
– maintain transparency in what data is going where
– secure weak spots in the sharing process
© IBM Corporation 2018
FDA pilot

31. *HIVE: High-Performance Integrated Virtual Environment, FDA’s cloud-based environment that comprises both
a storage library of data and a powerful computing capacity.
Submission of
big data, such
as genomics,
to the FDA
FDA – blockchain and off-chain storage

32. Data storage
Non-permissioned blockchains store transaction data on the chain.
Permissioned blockchains can store data off-chain
• Keep transaction record size small (performance, storage size)
• Keep sensitive data off-chain (PII, PHI, etc)
• Keep expungable data off-chain
• Control location of off-chain storage
• Maybe metadata on chain
• Maybe consent and logging of access on chain
• Maybe optional large documents for a transaction off chain
• Maybe store a hashed pointer on chain
• Must consider off-chain data protection and integrity
• GDPR compliance through off-chain data

33. Business model – Enterprise

34. Blockchain ROI comes from
B2B process efficiencies
Target 20-30% productivity improvement
Automate processes (smart contracts)
Increase collaboration
Increased trust
Less fraud
Reduce errors
Reduce disputes
Finality of transactions
Immutability of records
Enforcing consistent process
Shared record-keeping
Capital efficiency
Optimize working capital
Reduce risk exposure
New business opportunities
New connections
New synergies
New markets

35. Blockchain monetization
Founding members can monetize the platform
• Governance will control use of platform
• Licensing to new participants
• Apps
Data on the blockchain can be monetized
• Governance controls use of data
• Maintain expected privacy
• Permission of data owner

36. What makes a good blockchain use case?
Business network of multiple organizations
• Multiple parties with shared control of data
• More than one entity reading or writing transactions to a database
• There is value in shared data and process; esp. consistent structured info
• Routine or logical interactions could be programmed to self-execute
• Friendly ecosystem
• Everyone would benefit
• Consider how partners could come together
Fragmented and slow business processes
• Lots of people, process, paper
• Need transparency of business process
• Frequent transmission of data files
• Redundant business processes
• Heavily regulated
Lack of trust between parties
Significant reconciliation efforts
• Integrity problems with shared data
• Potential for fraud
• Lack of trust between parties
• One party will not accept the ‘truth’ as reported by another party
• Islands of information with lots of cross-reconciliation
• Frequent audits
• Order of transactions is important
Difficulty in tracing an asset
• Need cradle-to-grave history
• Need more visibility
• Need one shared record of truth that cannot be altered
Can’t be solved with other technologies
• More than a workflow systems
• More than a distributed database
• More than a content management system
• More than a transaction system
The user pays a fee today
• A fee is charged; for example, a fee to request a license.
• If you reduce internal cost of process, fee makes it self-funding

37. What is the business problem?
What is the process today?
Who are the network members?
What are the assets in the process?
What are the transactions? Between whom?
How will all participants benefit?
What is the revenue or cost savings potential?
How could it scale: members, data, functionality, value?
Can you draw the circle bigger?
What adjacent market plays?
What is the governance model?
What information is private between members?
Smart contracts?
Rough order costs and ROI?
Monetization of platform or data?
Competition? Is someone already in the market?
How do you measure success?
What is the MVP (minimum viable product)?
What is the MVE (minimum viable ecosystem)?
What is the MVD (minimum viable data)?
What data standards apply?
Can you select a friendly set of partners?
What is the minimum integration and interoperability?
Transaction rate?
Consensus mechanism?
Data and storage model?
What technical infrastructure is needed?
What skills are needed? Project team?
For a potential use case For a PoC or pilot
Questions you start asking

38. Cost model - sample

40. Business model – IBM

41. IBM Cloud
IBM Blockchain Platform
Consulting – Business / Strategy
Services – Design / Build / Operate
Blockchain Plan
Build / Run
Hosting
Platform
Solution Value to Members $2.2T Industry cost reduction or new revenue
$70B Blockchain platform
$55B Services and solution
Blockchain Solution ProviderSell a solution
Sell the stack $975B Network OwnerBlockchain Network Owner
Outcome
2030Opportunity
Source: Credit Suisse, Gartner
IBM business capabilities and opportunity
Over 500 client projects. 10 production networks

42. 1) Blockchain 101
What is it?
Where would I use it?
2) Select use case
Explore possibilities.
Discuss business process
Discuss business network
Involve Line of Business
Maybe demo
Maybe Proof of Technology
Maybe Discovery Workshop
3) Garage
Design Thinking Workshop
2-day workshop
Business case / ROI
Business roadmap
Incentive model
Monetization
Network effect
Cashflow and funding
MVP Build Up
MVE and MVD
3 to 10-weeks
4) Production
Blocks on a chain
Business process re-engineering
Systems integration
Scale over time
Onboarding new members
Additional business functions
Additional members
Additional value to participants
3 to 6+ months
MVP – Minimum Viable Product; the smallest feature set to make it a success.
MVE – Minimum Viable Ecosystem; the smallest set of business partners to make it a success.
MVD – Minimum Viable Data; the smallest set of transactions and data elements to make it a success
Four steps to production use

43. Example 4: IBM Global Finance

44. Why?
Cost of dispute resolution
Business problem:
Purchase order -> approval -> shipment -> invoice -> remittance
Too many disputes on: Approved? Where is it? Where’s the payment? Etc.
Takes too long to resolve disputes.
Ties up capital
Highlights
Founder-based network
Process improvement => freed up significant capital
Improved satisfaction for all parties
Single source of truth
Add-on to existing systems. Does not require application rewrite.

45. Dispute resolution cut to under10 days
Fewer disputes
Self-help for queries
One source of truth for all
Freed up $50+m in capital
Better data for analytics
In production since Sept 2016
IGF - Overview

46. State governments and blockchain
Legislation
Initiatives
Pilots
Use case examples

47. Legal standing for:
• Blockchain signatures
• Blockchain transactions
• Smart contracts
Prohibit local governments from:
• Licensing blockchains
• Taxing blockchains
• Inhibiting the use of blockchains
Establish crimes for:
• Forging blockchain transactions
• Counterfeiting blockchain transactions
Favorable to fintech:
• Cryptocurrency
• Fintech blockchains
• Cryptocurrency mining
• Crowdfunding
• Virtual coin offerings
Legislation – regulatory environment

48. Operational use:
• Corporate record keeping
• Voting
• Professional regulation
• General record-keeping
Economic development:
• Add a blockchain focus to the economic development agency
• Start a public awareness campaign
• Fund state university to guide agencies
Study blockchain:
• Form committee or group to report back to legislature
Legislation – other

49. Adds cryptocurrency and blockchain to
crimes against credit or deposit accounts
Prohibit forging/counterfeiting a
public record on a distributed ledger
Michigan – blockchain legislation

50. Initiative
Delaware (2016) Delaware Blockchain Initiative
• Create regulatory-friendly environment
• Legal infrastructure for corporate shares I blockchain
• Named ombudsman
• Commit to using blockchain in state agencies
Illinois (2016) Illinois Blockchain Initiative
• Create regulatory-friendly environment
• Invite blockchain business to Illinois
• Put blockchain to use in state and local government wherever possible
• Five proof-of-concepts (property deed recording, academic credentialing, health
provider registry, energy credit market, vital records)
Colorado (2018) Council for the Advance of Blockchain Technology
• Recommend a legal framework
• Recommend guidelines for agencies
Arkansas (2018) Blockchain for Arkansas
• Governor convened workshop of food supply and agriculture businesses and
stakeholders to begin work on an industry-led coalition.
Initiative
Wyoming Wyoming Blockchain Coalition
Oregon Oregon Blockchain Venture Studio
SponsoredbyGovernor
Non-
profit
State initiatives

51. Utah – 3/22/16
Primary voting on Republican party website members to nominate US President candidate
West Virginia – 5/8/18 and 11/6/18
Primary voting on mobile devices for U.S. Senate for a set of overseas military members
and families. Limited to those with residences in two counties. Used voatz
General election on mobile devices for a set of overseas military members and families.
Limited to those with residences in 24 counties. 144 voters participated. Used voatz
Pilots

52. Tracking chain-of-custody for evidence
Tracking and processing permit applications
Tracking opioids
Tracking marijuana seed-to-dispense / seed-to-sale
Tracking grants
Tracking child support payments
Maintain corporate records
Credentialing of professionals
Maintain vital records / identity
Health provider registry
Consent management
Data sharing with blockchain controlling access
Data sharing with external organizations
Use case examples – state government
Interface to a provider platform
Participate in industry blockchain

53. Use Case Examples – Education
Parent/student consent and records exchange
Maintaining and tracking credentials (academic degrees, certifications)
Course articulation (match courses/requirements for transfers)
Maintaining longitudinal student records

54. Final thoughts

55. Gartner Hype Cycle for distributed ledgers
TIME
VISIBILITY
Technology trigger
Peak of inflated
expectations
Trough of
disillusionment
Slope of
enlightenment
Plateau of
productivity
You are
here

56. Expect winners and disappointments
Seems to be moving from disruption to transformation
Great time to learn with a proof-of-concept.
It’s all about the business opportunity or problem
• Blockchain is a technology – not an outcome.
• Business group should lead.
• Must have a clear ROI for all involved.
Early adopters are in production (https://unbounded.network/)
Real and growing
The best applications are ones no one has yet imagined.

57. Resources

58. Topic Description Link
NASCIO report Blockchains: Moving Digital Government Forward in the States https://www.nascio.org/Publications/ArtMID/485/ArticleID/496/Blockchains-Moving-Digital-Government-Forward-in-the-States
CompTIA report Harnessing the Blockchain Revolution https://www.comptia.org/resources/harnessing-the-blockchain-revolution-comptia-s-practical-guide-for-the-public-sector
NIST report Blockchain Technology Overview (draft) https://www.nist.gov/news-events/news/2018/01/nist-report-blockchain-technology-aims-go-beyond-hype
Topic Description Link
Get started with Composer Use Composer in your browser or download a copy to run locally.
Has links to tutorials, documents, and community.
https://hyperledger.github.io/composer/latest/
Blockchain Developer Center IBM developerWorks landing page for tools, tutorials, code, and community. https://developer.ibm.com/blockchain/
Download Hyperledger Fabric Various signed Docker images for download. https://hub.docker.com/u/ibmblockchain/
github IBM Blockchain page for code samples, documentation, issues https://github.com/IBM-Blockchain
Zero to Blockchain IBM Redbooks course to build a blockchain application http://www.redbooks.ibm.com/abstracts/crse0401.html?Open
GovtDeveloper
Topic Description Link
Introduction Blockchain for Dummies https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=XIM12354USEN
Getting started The Founder’s Handbook https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=28014128USEN
IBM blockchain Landing page to explore the platform, start developing, and more https://www.ibm.com/blockchain/
IBM