bcs bissg introduction to blockchain

BCS Business Information Systems Specialist Group

01 November 2016

1 © Distlytics Ltd 2016

An Introduction to Blockchain

& Distributed Ledger Technology

Gary Nuttall

Managing Director

Agenda

1. Introductions

2. Hype ?

3. Blockchain Primer

4. General Use Cases

5. Opportunities (& Threats)

6. Q & A

1 - Introduction: Me

1 - Introduction: You

What do you know about Blockchain ?

Are you a Developer, Designer, Manager,

Techie, “Business/User” ?

What do you hope to learn ?

1 - Introduction: This Presentation

This is an Introduction

We will not cover Merkle Trees, Nonces, Mining, Proof of Work, Byzantine

Fault Tolerence, SHA-256, Sharding, etc.

It assumes no prior knowledge

By the end of the session you will have a better understanding of

Distributed Ledger Technology, Blockchain and the potential applications

This presentation reflects my personal views and is not intended to reflect the views of past, current and

prospective employers, clients or other agents.

"Prediction is very difficult, especially if it's

about the future."

Nils Bohr, Nobel laureate in Physics

Caveat: Please read the small print…

1 – Introduction - Blockchain

(October 31, 2008 at 2:14 PM, EST) A few hundred members of an obscure cryptography

group received an email from somebody calling himself Satoshi Nakamoto.

"I've been working on a new electronic cash system that's fully peer-to-peer, with no

trusted third party," he bluntly stated. The email directed the readers to a nine page

whitepaper hosted on Nakamoto's brand new domain, bitcoin.org. BITCOIN and a global

financial revolution was born

http://bitcoin.org/


Protocol Commonly used

for

Enables

TCP/IP (1980’s) Internet Data sharing

HTTP (1990’s) World Wide Web Displaying

information

Blockchain (2008) Distributed Ledger Transfer of value


Five important things to know:

1. Bitcoin was first protocol, published in 2008 but it’s not the only one

2. Blockchain(s) aren’t just about cryptocurrencies

3. There are lots of “blockchains” – public, private, hybrid

4. There are lots of protocols: Bitcoin, Etherium, Eris, Ripple, etc. Like MS-

Excel, Lotus 1-2-3, Google Sheets

5. To date, all known “hacks” have been against applications not the underlying

blockchain(s)

Agenda

1. Introductions

2. Hype ?




6. Q & A

2 – Hype ? - Gartner

2 – Hype ? - Consultants

2 – Hype ? - Investments

2 – Hype ? - Consortia

2 – Hype ? - Startups

2 – Hype ? – Investment Summary

Agenda

1. Introductions

2. Hype ?




6. Q & A

3 – Blockchain Primer

3 – Blockchain Primer

• Cryptography & Hashing

• Distributed Ledger(s)

• Blockchain(s)

• Smart Contracts

• Benefits

3 – Blockchain Primer – Cryptography & Hashing

Mathematics to keep things secure & secret Mathematics to provide a unique signature

3 – Blockchain Primer – Distributed Ledger(s)

Barclays HSBC

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiXysig15_LAhWyZpoKHZTIDBMQjRwIBw&url=https://ananfauzi.wordpress.com/2013/04/29/mengenal-use-case-diagram-seri-tulisan-uml/&psig=AFQjCNG7TnSLTE2kTCq5HpR3zOIhHQNN-g&ust=1456928350721554


Transferring value

Barclays HSBC

£500



A Ledger is simply a journal of transactions

JOURNAL

-ID DATESTAMP FROM TO CURRENCY AMOUNT

1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00

Barclays HSBC

£500



…usually lots of transactions

BARCLAYS JOURNAL

JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT


2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00

3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00

Barclays HSBC

Santander

£500




BARCLAYS JOURNAL


1

01/01/2016

08:35 BARCLAYS HSBC GBP 500.00



HSBC JOURNAL


1

01/01/2016

08:35 BARCLAYS HSBC GBP 500.00

4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00

SANTANDER JOURNAL




Everyone has a copy of their own ledger

PROBLEMS!

RECONCILIATION – Need to check that every record of every transaction has been copied to each

other’s systems correctly.

AUDIT – Need to prove that the system works consistently

PROBLEMS!

COSTS

• Processing overhead (needs computing power)

• Reconciliation systems need to be designed, developed, tested & supported

• Excel addicts writing macros, functions & stuff that goes wrong

• Auditing overhead – cost of auditors, audits, etc.

• Data Quality issues – End up “working around” problems

TIME

• Need to wait for reconciliations to be executed and verified

• Audits are after the event and aren’t preventative

RECONCILIATION – Need to check that every record of every transaction has been copied to each

other’s systems correctly.

AUDIT – Need to prove that the system works consistently

Merge all the Ledgers into one…

BARCLAYS JOURNAL





HSBC JOURNAL




SANTANDER JOURNAL




A Mutual Ledger…Less reconciliation






SOLUTION!

Barclays

HSBC

SantanderCo-Op

First Direct

Block

1Block

2

Block

3

Block

1Block

2

Block

3

Block

1Block

2

Block

3

Block

1Block

2

Block

3

Block

1Block

2

Block

3

…And you have a Mutual Distributed Ledger

Distribute a copy of the ledger to everyone

JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT HASH BLOCK BLOCK HASH START BLOCK START HASH

1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 1111 0 110111

2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 101

3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 100011

4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 101101 1 1111000

IF FROM = %USER%

OR TO = %USER%

THEN DISPLAY LINE





Barclays HSBC




…now users can only access their own data

Which decreases Security Auditing overhead

Put crypto-security onto the Ledger



3 – Blockchain Primer –Blockchain(s)`

Why is it called a Blockchain ?


Imagine a physical ledger, with pages in it



At the bottom of the page you enter the

hash for that page




hash for that page

At the top of the next page, you start

with the hash from the previous page.

This means that when you hash the page

it includes the hash from the previous

page.




hash for that page


with the hash from the previous page

So, the data is held in BLOCKS which are

CHAINed together




hash for that page


with the hash from the previous page

So, the data is held in BLOCKS which are

CHAINed together

Now VERY difficult to change an earlier

entry as all of the hashes on all pages

would need to be recalculated

…Giving a Private, Permissioned Ledger

Metro Bank

You can restrict access only to members…

…Giving a Public, Unpermissioned Ledger

You can provide open access to everybody…

Other things could go onto a ledger…such as assets

MRS JENKINS BARRATT’S

£455,123.00

21 ACACIA AVENUE

Journal

ID Datestamp FROM TO UNIT IDENTIFIER

1 01/01/2016 11:45:00 MRS JENKINS BARRATT'S GBP 455,123.00

2 01/01/2016 11:45:01 BARRATT'S MRS JENKINS HOUSE 21 ACACIA AVENUE

3 02/01/2016 10:35:00 MR SMITH BMW DEALER GBP 35,455.00

4 02/01/2016 10:35:01 BMW DEALER MR SMITH CAR BMW X3 (LS16 ABC)

BMW

DEALER

£35,455

BMW X3 (LS16 ABC)

MR SMITH





Links to other things….such as documents

Counterparty Underwriter

Journal

ID Datestamp TYPE REFERENCE CLASS IDENTIFIER

1 01/01/2016 11:45:00 KYC PASSPORT PDF ABC123

2 01/01/2016 11:45:01 KYC DIR CHECK PDF ABC124

3 02/01/2016 10:35:00 CLAIM FNOL EMAIL DEF124

4 02/01/2016 10:35:01 CLAIM ASSESS WORD DOC121



https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiV4dG01pjMAhVC2RoKHce4A8gQjRwIBw&url=https://en.wikipedia.org/wiki/British_passport&psig=AFQjCNEaQPwhAO8DkI8oqPGddh7I5r0TCQ&ust=1461085655969986

It’s a write-only database

That everyone has an identical copy of

With all entries timestamped

And the data is cryptographically secured

So, back to the definition….

Which means:

• A complete history of all transactions - great audit trail

• Everyone has a copy of the same thing - No need for

reconciliation

• It’s highly distributed – Makes it cyber-resistant

• Data is cryptographically secured – overcomes security issues

Journal

ID Datestamp FROM TO UNIT IDENTIFIER

1 01/01/2016 11:45:00 ATRIUM LUFTHANSA EUR POLICY123

2 01/01/2016 11:45:01 BEAZLEY FARMER MCGREGOR GBP POLICY234

POLICY12

3

IF (POLICY_IS_ACTIVE AND

PREMIUM_PAID AND

CLAIM_CONDITION_MET

THEN PAY_CLAIM

POLICY234 IF (POLICY_IS_ACTIVE AND

PREMIUM_PAID AND

CLAIM_CONDITION_MET

THEN PAY_CLAIM

Connect with data sources, providing unquivocable evidence of…

Weather conditions (Temperature, precipitation)

Flight Delays

Decentralised Autonomous Organisations

WARNING: Smart Contracts are neither Smart nor Contracts!

3 – Blockchain Primer – Smart Contracts

Immutable – complete, timestamped, audit trail

Cyber resilient – still functional if nodes removed

Reconciliation significantly reduced

Cyber protected – can’t be easily hacked or ransomed

Smart Contracts can be created

3 – Blockchain Primer – Benefits

Agenda

1. Introductions

2. Hype ?




6. Q & A

4 – General Use Cases - Themes

Emerging themes Example

Financial Transactions Bitcoin, BTL, Cashaa

Asset Register Honduran Land Register

Provenance Everledger,

Provenance.org

Identity Management Estonia eRegister

Public Services UK Benefits

Smart Contracts TheDAO

Voting System Follow My Vote

Decentralized Markets Open Bazaar, slock.it

4 – General Use Cases - Examples

4 – General Use Cases - Examples

A few more….

4 – General Use Cases - Sectors

4 – General Use Cases - Startups

Value transfer

• Payments & Settlements

Asset Management

• Land Registry

• Diamonds

Removal of Trusted Third Party

• Conveyancing

• Banking (payments)

• Escrow

Accreditation

• KYC

• AML

• Professional Membership

Document Management

• Contracts

• Policies

• Electronic Signatures

Government Services

• UK GDS

• Local Government

Media

• Music

• Digital Images

Supply Chain

• Ethical Sourcing

• Consignment Tracking

5 – Opportunities (& threats)

OUT

The removal of Trusted Third Parties:

• Conveyancing

• Banking

• Escrow

Trusted Registers:

• Land registry

• Asset ownership

• Title Deeds

Value Transfer:

• Payments

• Foreign Exchange

• Trade Finance

IN

• New technology expertise needed

• “Legal programmers”

• Advisory – Patents/IP/Copyright

• New insurance products

• Challenger Banks

• Decentralised Autonomous Organisations

• Government Services

• Digital Copyright

5 – Opportunities (& threats)

About the future

Quote from Mayor of Cambridge, MA after having the telephone demonstrated in 1876:

I can see the time that every City will have one!

"This 'telephone' has too many shortcomings to be

seriously considered as a means of communication.

The device is inherently of no value to us.“Western Union telegraph company memo, 1877

Caveat Emptor?

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwiridmH243MAhVJPRoKHcH7Cb4QjRwIBw&url=https://en.wikipedia.org/wiki/Canard_(aeronautics)&psig=AFQjCNHaUEEaOncrXp9OYiRsd5xAKdWkGg&ust=1460708944571528

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiPj87F243MAhWMBBoKHcLPC9UQjRwIBw&url=https://en.wikipedia.org/wiki/Airbus_A380&psig=AFQjCNG7-YGKqPYKd7HaOO-I4iq_CQBxNA&ust=1460709084961031

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjFs-ne243MAhVB0xoKHYZEBtEQjRwIBw&url=https://pl.wikipedia.org/wiki/Lockheed_Martin_F-35_Lightning_II&psig=AFQjCNFbYePRsWK2jPiPt7-lS6686a7coQ&ust=1460709131121558

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiT49m83I3MAhXMWBoKHehlB7sQjRwIBw&url=https://en.wikipedia.org/wiki/Wild_West_shows&psig=AFQjCNEeOGG9gOYGJyn_syl5oL_xY1Sr9g&ust=1460709335227975

Q & A

57 © Distlytics Ltd 2016

Thank you!

Gary Nuttall contact details:

eMail: [email protected]

Twitter: @GPN01

LinkedIn:uk.linkedin.com/in/garynuttall

Web: www.Distlytics.com

www.linkedin.com/in/garynuttallwww.linkedin.com/in/garynuttall

www.linkedin.com/in/garynuttall

http://www.distlytics.com/