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  • user 7:37 pm on November 1, 2016 Permalink | Reply
    Tags: , , Open Innovation,   

    Open Innovation, hyperledger & blockchain 

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    In this blog post, I will outline these three terms and explain the amazing transformational opportunity that arises from their coalescence.


     is a term originally coined by Dr Henry Chesbrough in the early 2000’s best summarised by Figure 1 below.

    Figure 1 – Open Innovation

    Open Innovation gives organisations the ability to create value by combining their ideas and innovation with those from their business network members.


    To understand , it’s useful to step back to realize that Business – and Governments – never operate in isolation. They are participants in a business network. Ownership of assets pass across the network in return for payments, governed by contracts. Network participants currently keep their own ledger – recording all assets they own and updated on when asset ownership changes. Whilst well tried & tested, this process is very inefficient, often piling cost on cost.

    Figure 2 – Components of Blockchain for Business

    Blockchain provides the business network with the ability to agree that a transaction is valid; an audit trail of asset ownership over time; a shared ledger ( “record book”) that is tamper proof, and guaranteed finality of transactions. Government oversight, compliance & audit can be part of the same network.


    Hyperledger is a Linux Foundation project to render a blockchain fabric (or plumbing) for business. It’s stated goals are a “collaborative effort created to advance blockchain by identifying and addressing important features for a cross-industry open standard for distributed ledgers that can transform the way business transactions are conducted globally”.

    For me, the important attributes of are:

    1. Open Governance – direction and oversight comes from a wide cross industry base, ensuring the widest applicability of the blockchain fabric for business usage.
    2. Open Standards – hyperledger blockchain solutions will interoperate with other blockchain solutions through open, published interfaces and services.
    3. Open Source – hyperledger source code can be inspected and validated by the broadest community of interest maximising quality and fitness for purpose.

    So what happens when we bring Open Innovation, blockchain and hyperledgertogether?

    First we need to realise that the business network as the first “acid test” for a blockchain use case – no business network means “think again about blockchain usage”.

    Our customers have different approaches to building out the networks to drive full value from blockchain, and we often get to advise and guide them in the pragmatic, practical steps of network formation. This comes down to how much our customer wants to embrace Open Innovation – that is how much they want to create value by combining their ideas with those from other business network members. This can be visualised by setting the slider in Figure 3.

    Figure 3 – Open / Closed Innovation Slider

    Full Open Innovation is not right for all use cases, not organisationally easy, and won’t be possible when strong competitive forces exist in the network.  But I would argue that the most transformational value can be realised when Open Innovation, blockchain and hyperledger can be brought together.


    More blockchain Information?

    1. Blockchain for Government
    2. Proving Provenance with Blockchain
    3. Blockchain and Cyber Security
    4. Blockchain, how SMART is your contract?
    5. Blockchain privacy services

    Originally published in Insights on Business, October 2016

    [linkedinbadge URL=”https://www.linkedin.com/pulse/open-innovation-hyperledger-blockchain-john-palfreyman?trk=hp-feed-article-title-like” connections=”off” mode=”icon” liname=”John Palfreyman”] is Director – Blockchain at IBM Cloud Division

     
  • user 10:00 am on October 28, 2016 Permalink | Reply
    Tags: , , , ,   

    Blockchain and major questions we need to understand. 

    After reading hundreds of papers on the question and choices are becoming clear. Companies are starting to get an insight of what Blockchain can do for them. I have discussed the possibility for not only as a financial system but also supply chains, government voting, medical record keeping, Identity, transport systems, security systems and the list goes on and on. The possibilities seem to be a bit endless at this point and therefore my mind started to think about what is the next step. What are the we need to answer to get going on a project? I decided to write this whitepaper dissecting the hype word Blockchain and clearing up two major questions that lets us look at the different ’s and some of the technical choices we need to understand to get started. This paper is intended for business strategist but techies might find it interesting too.

    What is a Blockchain?

    First, a Blockchain in its simplest form is sets of data, called blocks, connected in some manner to form a chain. The data is usually transaction data but does not have to be. Transaction data gives information about “A” sending or moving something to “B” at what time and how much. The users keep track of their transaction’s by saving links to their transaction’s and storing them in there “wallet”, a small piece of software. The Blockchain organizes blocks with some predefined capacity e.g. 1000 transactions, 1 megabite, all the transactions this hour or some other defined perimeter. The Blockchain mechanism’s, that will be outlined in this paper connect the block of data it to previous blocks and store them.

    First question:

    How are you connecting the blocks to each other? Or even more technical, if you want to give the impression you know something about Blockchains: What is the consensus algorithm?

    Consensus algorithms vary a lot. There are thousands of methods for connecting blocks. I will explain the three most commend ones:

    PoW – Proof of Work, this means that you have some work to do, usually mathematical. To give a real-world example of this, imagine walking in a dessert and suddenly, as you come over a sand dune, you see a pyramid. Before you know who has built it or even what it is, you automatically understand that it took a lot of work to set it up. That is proof of work. Looking at the Eifel tower it dawns on you that someone had to put all those nuts and bolts in place. That is proof of work. If proof of work is implemented correctly in a Blockchain this can be an extremely secure solution. uses PoW by using application specific circuits (super computers) to solve a hashing challenge, basically brut forcing an incomplete alphanumeric solution. This is kind of like solving a Sudoku puzzle. Because looking at a solved Sudoku it is easy to see if it is solved correctly and at the same time someone has obviously solved it and so its proof of work. To complete some work it requires energy, no matter if it’s the pyramids or the nuts and bolts in the Eifel tower or the hashing challenge on the bitcoin Blockchain, the all require energy. Bitcoin Blockchain PoW translates into using extreme amounts of electric energy. There-fore, since there is no guarantee that you’re the one that will win the challenge, you’re basically staking (gambling) your power consumption as an external factor from the Blockchain itself. With PoW the history, of all the transactions, is secured by the latest block, so any changes in technology will swiftly be compensated as newer technology, e.g. quantum computing, will help securing blocks. This type for Blockchain has one big draw back. You need a large amount of computing power before the Blockchain can be considered secure. I believe decentralization is the only option that has a chance but more on that later.

    PoS – Proof of Stake, this means that you have lottery tickets based on the amount of Power you hold on that Blockchain. Ethereum, Litecoin and Steemit are examples of PoS Blockchains. Compered to PoW, you are now on an internal stake in the Blockchain. So, say you have a vast amount of ether on the Ethereum Blockchain you win the lottery because the odds are in your favor. You then accept the block with your digital signature so that it is approved to connects to the Blockchain. There are to major challenges that arises with PoS. One, it is all done internally so the system is only of value to itself. Two, everyone in the system must watch and make sure that you are not cheating by corrupting the latest block, especially if your odds are so high that you’re signing several blocks in a row. However, if you’re corrupting blocks who are you hurting, if you have vast amounts?

    PoA – Proof of Authority, this means that VISA, MasterCard, a Nations central bank or someone of authority puts their stamp of approval on the block. In this scenario, you could have a 1024-bit encryption code. This code is virtually unbreakable now in this day and age. However where will we be in 20 years. With quantum computers, right around the corner, someone could change a transaction 20 years back that could render the Blockchain corrupted.

    Second question:

    How are you storing the information in the Blockchain? Or even more technical: The Blockchain is distributing the ledger, who is it distributing it to?

    DLT – Distributed Ledger Technology, this means that someone is storing the copy of the ledger usually in real time. Everyone that has a copy of the ledger can see the information in it. Practically you would run a query or search as they tend to get very long. The examples that I have encountered are consortium (a group of partners) of and financial institutions. The R3 Blockchain is one example. These are known as permission Blockchains, as they are closed to the public you require permission to get access. Bitcoin, Ethereum and most crypto-currencies are referred to as decentralized Blockchains, as a play on the opposite of a central bank. As the term suggest it is permission-less and therefore open for everyone to get their own copy of the ledger.


    [linkedinbadge URL=”https://www.linkedin.com/in/bbjercke” connections=”off” mode=”icon” liname=”Bjorn Bjercke”] is Blockchain Specialist

     
  • user 11:37 pm on October 27, 2016 Permalink | Reply
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    Smart Contracts: A Spectrum of Possibilities 

    In-house counsel are going to be hearing a lot about smart contracts. They need to prepare themselves for the discussions that their business and commercial leads are going to want to have with them. That means quickly coming to grips with the key commercial, legal and regulatory issues that can give rise to.

    Smart contracts exist as code within blocks in a . They have the potential to automate performance of a transaction and are typically described as “self-executing” for this reason.

    In identifying the issues a business may face in a smart contract deployment, it is important to take on board that there is a spectrum of possibilities as to what a smart contract actually is. At one end of the spectrum, there is the “code is contract” model (which aspires to fully encode complex commercial contracts). At the other end of the spectrum, there is the automation of business logic and/or the automation of the performance of aspects of a conventional contract.

    The “code is contract” model is very challenging from a legal perspective. It puts into question an issue potentially relevant for all smart contracts: has a legally binding contract formed? The answer to that question may vary according to the applicable law determining the issue.

    In between the two extremes on the smart contract spectrum, it is likely that more modest but achievable use cases will emerge. A good example is the smart contract model developed by Barclays and R3, under which contracting terms (in the form of an ISDA master agreement in natural language) are connected to computer code via parameters (a smart contract template). These parameters feed into computer systems for execution.

    This is in effect a split (or so-called “Ricardian”) contractual model, which avoids some of the pitfalls currently associated with the “code is contract” model (for example, how do you encode concepts that involve judgement or degree, such as “reasonable endeavours” or “as soon as practicable”?)

    Any proposed smart contract deployment would need to consider regulation. However, to date, the responses of regulators globally to blockchain have been fragmented, and are (generally speaking) at quite an early stage.

    There is likely to be a lack of certainty and consistency in terms of the regulatory treatment of smart contracts and other applications of blockchain technologies for some time. In developing their regulatory responses, policy-makers will need to consider a number of key questions, such as: what should be regulated; which activities should be regulated; who should be subject to and responsible for compliance with the relevant obligations; and how should regulatory responses be pitched so as to avoid stifling innovation? In addition, policy-makers are likely to focus on how AML and KYC regulatory obligations can be credibly performed. Regulators will also be interested in how the use of blockchain and smart contracts affects firms’ risk profiles.

    As a matter of risk analysis, in-house counsel will need to consider the legal and operational consequences of transacting in an electronic context. Apart from the fundamental question about whether a legally binding contract is formed, it is important to bear in mind that smart contracts sit within blockchains operating over the World Wide Web. They are code. Code can contain bugs. Code may not always perform as the parties had intended. Messages transmitted over the Internet can be delayed or interrupted, and data can be corrupted in transmission. Private encryption keys can be obtained by hacking. The liability implications of these kinds of events need to carefully considered.

    It is likely that, once a model is demonstrated to work in a live environment, not only will it be adopted elsewhere, but smart contracts will, with developments in the underlying technology, incrementally become more sophisticated over time. It is quite possible that, in five years or ten years’ time, smart contracts will be doing significantly more than just automating aspects of the performance of contracts.

    However, some observers put the time horizon for a large-scale implementation of smart contracts within, say, the financial services sector at just 18 months. My own view is that it will probably take longer. Having said that, there is a great deal of technology and entrepreneurial “digital fuel” being thrown at this area at the moment, so in-house counsel would be wise to track developments and to ask to be involved in the consideration of a business’s use cases and proof-of-concept deployments for smart contracts at an early stage .

    Norton Rose Fulbright has a dedicated global team focused on blockchains, distributed ledgers and smart contracts. Follow the latest developments here.

    Sean Murphy is a Norton Rose Fulbright Partner in London. He co-chairs the firm’s global blockchain and distributed ledger practice group.

     
  • user 7:40 am on October 20, 2016 Permalink | Reply
    Tags: , , , , , ,   

    How to know which Blockchain you should use. 

    Why Consensus Mechanisms Matter

    The world of and underlying technologies of distributed ledger, and the are experiencing rapid change and growth.

    As low-trust digital-based systems gain adherents and differing use cases, developers are creating new variant blockchains to deal with the inevitable fragmentation between public, consortium, and private blockchain technologies.

    First, let’s note the differences between public, consortium, and private blockchains.

    Public — Fully decentralized and uncontrolled networks with no access permission required — anyone can participate in the process to determine which transaction blocks are added. There is usually little or no pre-existing trust between participants in a Public blockchain.

    Consortium — The consensus process for new transaction blocks is controlled by a fixed set of nodes, such as a group of financial institutions where pre-existing trust is high.

    Private — Access permissions are tightly controlled, with rights to read or modify the blockchain restricted to certain users. Permissions to read the blockchain may be restricted or public. [1]

    There is usually some degree of pre-existing trust between at least some of Private blockchain participants.

    The degree of pre-existing trust that an organization requires, as well as necessary control over participant permissions, will determine what type of blockchain to use.

    Different blockchain solutions have advantages and disadvantages. Take for example, the difference between how transactions are validated within each type of blockchain:

    of Work (PoW): About “mining” transactions utilizing a resource-intensive hashing process, which (a) confirms transactions between network participants and (b) writes the confirmed transactions into the blockchain ledger as a new block.

    The accepted new block is proof that the work was done, so the miner may receive a 25 BTC (Bitcoins) payment for successfully completing the work. The problem with PoW is that it is resource-intensive and creates a centralizing tendency among miners based on computer resource capability.

    Proof of Stake (PoS): About “validating” blocks created by miners and requires users to prove ownership of their “stake”[2]. Validation introduces a randomness into the process, making the establishment of a validation monopoly more difficult, thereby enhancing network security.

    One problem with PoS is the “nothing at stake” issue, where miners have nothing to lose in voting for different blockchain histories, preventing a consensus from being created. There are several attempts to solve this problem underway.

    Additional developments in this area hope to combine PoW with PoS to create hybrid blockchains with the highest security and lowest resource requirements.

    To that end, some developers are focused on enhancing network security through ‘consensus without mining.’ [3]

    Tendermint co-founder Jae Kwon has published a paper describing his firm’s concept and approach in this regard.

    Existing Proof of Work and Proof of Stake protocols have various problems, such as requiring huge outlays of energy usage and increasing centralization (PoW) or participants having nothing at stake (PoS) possibly contributing to consensus disruption on mined blocks.

    Kwon’s solution is twofold and does not require Proof of Work mining:

    (a) A ⅔ majority of validators is required to sign off on block submission, with no more than ⅓ able to sign duplicate blocks without penalty

    (b) The protocol raises the penalty of double-spend attacks to unacceptably high levels by destroying the malicious actor’s Bitcoin account values.

    The algorithm is “based on a modified version of the DLS protocol and is resilient up to ⅓ of Byzantine participants.”

    Kwon and his team at Tendermint hope to bring speed, simplicity and security to blockchain app development.

    So, how does one decide on what type of blockchain to use and their relevancy for your company use case? [4]

    Below are a few examples of different types of blockchains, depending on the organization’s greatest prioritized need:

    One consideration is confidentiality. For example, in the case of a public financial blockchain, all the transactions appear on the ledgers of each participant. So while the identities of the transacting parties are not known, the transactions themselves are public.

    Some companies are developing ‘supporting’ blockchains to avoid this problem, by “storing or notarizing the contracts in encrypted form, and performing some basic duplicate detection.” Each company would store the transaction data in their own database, but use the blockchain for limited memorialization purposes.

    A second consideration is whether you need provenance tracking. Existing supply chains are rife with counterfeit and theft problems. A blockchain that collectively belongs to the supply chain participants can reduce or eliminate breaks in the chain as well as secure the integrity of the database tracking the supply chain.

    A third example is the need for recordkeeping between organizations, such as legal or accounting communications. A blockchain that timestamps and provides proof of origin for information submitted to a case archive would provide a way for multiple organizations to jointly manage the archive while keeping it secure from individual attempts to corrupt it.

    Blockchains fundamentally operate on the basis of how consensus is agreed upon for each transaction added to the ledger.

    What are the benefits of each type of consensus mechanism and in which situation are they best utilized?

    Proof of Work — Miners have a financial incentive to process as many transactions as quickly as possible. PoW is best utilized by high-throughput requirement systems.

    Proof of Stake — Transaction Validators receive rewards in proportion to the amount of their “stake” in the network. This arguably improves network security by discouraging duplicitous attacks. PoS is best used by computing power constrained organizations.

    Delegated Proof of Stake [5] — Network parameters are decided upon by elected delegates or representatives. If you value a “democratized” blockchain with reduced regulatory interference, this version is for you.

    PAXOS — An academic and complicated protocol centered around multiple distributed machines reaching agreement on a single value. This protocol has been difficult to implement in real-world conditions.

    RAFT — Similar to PAXOS in performance and fault tolerance except that it is “decomposed into relatively independent subproblems”, making it easier to understand and utilize.

    Round Robin — Utilizing a randomized approach, the round robin protocol requires each block to be digitally signed by the block-adder, which may be a defined set of participants. This is more suited to a private blockchain network where participants are known to each other.

    Federated Consensus — Federated consensus is where each participant knows all of the other participants, and where small sets of parties who trust each other agree on each transaction and over time the transaction is deemed valid. Suitable for systems where decentralized control is not an imperative.

    Proprietary Distributed Ledger — A PDL is one where the ledger is controlled, or proprietary, to one central entity or consortium. The benefits of this protocol is that there is already a high degree of pre-existing trust between the network participants and agreed-upon security measures. Suitable for a consortium or group of trading partners, such as supply chains.

    PBFT — In a PBFT system, each node publishes a public key and messages are signed by each node, and after enough identical responses the transaction is deemed valid. PBFT is better suited for digital assets which require low latency due to high transaction volume but do not need large throughput.

    N2N — Node to node (N2N) systems are characterized by encrypted transactions where only the parties involved in a transaction have access to the data. Third parties such as regulators may have opt-in privileges. Suitable for use cases where a high degree of transaction confidentiality is required.

    The above list represents the current major consensus mechanisms in operation or from research.

    Due to the initial visibility of Bitcoin, the financial services industry has been early in researching the possible uses of consensus mechanisms to streamline operations, reduce costs and eliminate fraudulent activity.

    The multi-trillion dollar global financial services industry is really composed of many different sectors, from lending to smart contracts, trading execution, letters of credit, insurance, payments, asset registration, regulatory reporting and more.

    For example, the process of securing a letter of credit, which is an important import/export trading service, would likely utilize a ‘consortium’ approach to achieving transaction consensus.

    In August, 2016 a banking consortium, R3CEV, successfully designed and executed trading smart contracts. These types of contracts could then be applicable to accounts receivable invoice factoring and letter of credit transactions.

    For the use case example of cross-border remittances, which would involve many individuals on both sides of the transaction, a ‘public’ consensus mechanism would likely be a relevant .

    Since remittances would need to have a relatively short time latency for transaction completion, a solution involving a Proof of Stake approach with its low resource requirement to validate transactions along with potentially higher security, would be compelling.

    In sum, the state of blockchain development is rapidly gaining speed worldwide, yet there is much work to be done.

    Numerous Global 2000 companies led by their executives and consultants are beginning to participate in development and testing of this revolutionary technology sector.

    Organizations that begin first-hand learning about the power of blockchain technologies will have increased opportunity to lead their industry.


    Originally published at intrepidreview.com on October 5, 2016.

    I’m always interested in meeting blockchain startups, and Chief innovation officers who are creating transformational products, so please feel free to contact me by email at [email protected]

    Collin Thompson is the Co-founder, and Managing Director of Intrepid Ventures, a blockchain startup and innovation studio that invests, builds, and accelerates Blockchain and companies solving the world’s most difficult problems. Collin focuses on early stage investments, innovation and business design for corporations, governments and entrepreneurs working with blockchain technology.

     
  • user 7:36 am on October 19, 2016 Permalink | Reply
    Tags: , , capital markets, , ,   

    Blockchain and the Capital Markets journey – Navigating the regulatory and legal landscape 

    has the potential to revolutionise the profitability of . The promise of risk mitigation, capital efficiency and operational benefits can only be realised through legal and change.

    Blockchain has generated significant interest in capital markets, as start-ups, global and other providers evaluate technology and potential use cases. Yet, many questions remain unanswered as to how blockchain, or other forms of distributed ledger technology (DLT), fit into the current regulatory and legal infrastructure.

    To deliver viable and valuable solutions in the highly-regulated environment of capital markets, blockchain will need to navigate the legal and regulatory landscape – either by evolving solutions which conform or by engaging policymakers to reshape its current contours.

    Innovate Finance has partnered with Hogan Lovells and EY to produce Blockchain and the Capital Markets Journey  which outlines the legal and regulatory challenges of using DLT in capital markets, including the over-the-counter (OTC) derivatives market. This report focuses on the UK’s regulatory and legal environment as a stepping-stone to understanding analysis and issues that are similar to those in other jurisdictions.

    We outline key themes that we believe will help shape the future architecture of blockchain:

    • Informing industry, policymakers and regulators of the potential impact of legal and regulatory requirements on proposed DLT-use cases
    • Providing regulatory insights about DLT for product providers, product buyers and investors (i.e., buy side firms)
    • Providing recommendations to support regulatory action in the UK and EU to accommodate DLT solutions
    • Proposing regulatory and industry collaboration at an early stage to realise its full benefits
    • Building skills and knowledge across the industry to support the DLT ecosystem

    In this report, we have helped to kick-start the debate by addressing important legal and regulatory questions that will impact the development of blockchain. Questions range from organisational to philosophical – all designed to encourage a wider agenda where regulators and law makers will collaborate with the industry to enact change.

    Click here to learn more: http://www.ey.com/ukbanking


    [linkedinbadge URL=”https://www.linkedin.com/in/imran-gulamhuseinwala-b673701″ connections=”off” mode=”icon” liname=”Imran Gulamhuseinwala”] is EY Partner – Head of FinTech

     
  • user 11:36 am on October 13, 2016 Permalink | Reply
    Tags: , beginner, , , , , for dummies,   

    A Beginners Guide to Blockchain Essentials (for Dummies) 

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    The top 5 things about the blockchain that you should really know.

    The talk about seems ubiquitous. But what exactly is a Blockchain? More specifically, what are the Blockchain essentials that you should really know?

    Let’s dive in to find out more about and separate the hype from the reality

    What is a Blockchain?

    A Blockchain is a tamper-proof distributed public ledger that manages transactions.

    Think of it like a magical Google spreadsheet in the cloud, or more specifically on a network.

    Put simply, a Blockchain is basically an incorruptible distributed ledger of data, which can be used to store informational assets ranging from managing cryptographic contracts to transferring value.

    The most recognized application on a blockchain is transactions. The transferring of value from one person to another with no central intermediary, and without allowing a person or party to spend their bitcoin twice “the double spend rule”.

    What does this mean?

    It means that “value” can have a change of title and ownership from one person/party to another, without the need of a trusted third party to validate/govern the trade.

    How is that you might ask?

    Well, the governance is in the protocol, you will find more information on this below so keep reading.

    Beside being a ledger for “data of value”, or cryptocurrencies, Blockchain technology is finding broader usage in peer to peer lending, (smart) contracts managements, healthcare data, stock transfers, and even elections.

    Like any emerging and disruptive technology, no one can predict the future of Blockchain technology. But one thing’s for sure — it isn’t (just) for purchasing black-market goods and services!

    As a matter of fact, Blockchain technology is finding its way into big firms such as IBM, Microsoft, and major .

    Interest in the technology is driven by (fear of disruption) the fact that it excludes trusted third parties (banks and clearinghouses) during transfer of values, which in turn results in fast, private and less expensive financial transactions.

    Blockchain can facilitate the peer-to-peer transfer of anything that’s of value. This may range from assets, properties, and contracts. The most crucial and far-reaching Blockchain applications is applied in Bitcoin, with transfer of value, and Ethereum with its enhancement of smart contracts.

    Let’s jump in and learn the historical background of these Blockchain essentials.

    2. Bitcoin

    The Bitcoin currency, as many have come to know it, has been with us since 2008 when Satoshi Nakamoto — A person, or group of people, published a whitepaper about peer-to-peer electronic currency.

    The major innovation that bitcoin unveiled was direct and secure transfer of money or “value” directly to any party on the network. The Bitcoin currency network is decentralized — there’s no central authority — the underlying Blockchain technology is used to store information which is verified by a network of “miners” who validate all transactions on the network.

    How should I think of this?

    Bitcoin is simply a virtual currency system which resembles the real world cash system.

    Since it’s un-eponymous launch in 2008, through the boom and bust of the hype cycle, Bitcoin has continued to grow at an exponential rate and the fringe curiosity that consumed a group of highly capable (Tech Nerds) has ushered in some new upgrades that has brought the blockchain closer to the mainstream.

    3. Ethereum — Blockchain 2.0

    Ethereum is a blockchain system based on the concepts of bitcoin. It is considered a second generation blockchain technology that was designed to let any person, with a basic level of computer skills, to develop and deploy their own decentralized applications on the Blockchain.

    Just like the Bitcoin, Ethereum is decentralized — no one regulates or owns it — it has it’s own or “fuel” called “Ether” which acts in the same way bitcoin does. However, Ethereum has a few innovations worth noting. Primarily, a second application on its blockchain infrastructure called a “smart contract”, it’s own virtual machine which powers the memory and applications on the network called the “ethereum virtual Machine”, and its own programmable language called “Solidity”.

    Ethereum is kinda like Bitcoin on steroids but made to be more accessible.

    It was developed by Vitalik Buterin, a 19-year-old Russian-Canadian in 2013 as a Blockchain 2.0 — next generation Blockchain technology — with capabilities to be able to program and perform arbitrary and complex computations.

    Rather than just providing users with a set of predefined operations — like Bitcoin transactions — Ethereum lets users develop their own operations with the complexity they wish.

    4. Smart Contracts

    What is a “smart” contract?

    Well they actually aren’t that “smart”

    Think of them like self-executing dumb software robots that live and do business on a decentralized network.

    Smart contracts are autonomous computer systems, written in code, that manage executions between individuals on the Blockchain.

    The code resides at specified addresses on the Ethereum Blockchain. These contracts are powered by our friend the Ethereum Virtual Machine (EVM) and by Ether. It’s the little engine that could, that keeps all the smart contracts running on time and coordinates them with the rest of the network.

    In order to create an added layer of customization and security Ethereum created some high-level languages that are used to create smart contracts for the EVM. Solidity, Serpent, and LLL.

    These are the major innovation that Ethereum has brought to blockchains and it allows for many amazing types of autonomous programs.

    Next, let’s explore the consensus mechanisms in Blockchain.

    5. Consensus Mechanisms

    “When you interact with multiple parties, you need some sort of consensus mechanism to ensure everyone has got the right records”–Dan O’Prey, Co-founder of Hyperledger.

    Both Bitcoin and Ethereum use a decentralized system to confirm the transactions without relying on a trusted third party.

    Therefore, consensus, or coming to a uniform agreement, helps a network of autonomous programs and computers come to an agreed state of the blockchain without conflict.

    As a matter of fact, the consensus is the backbone of the Blockchain and any other decentralized and distributed technology

    The proof of work, proof of stake and closed consensus are the most common mechanisms used in Blockchain technologies.

    A: Proof of work

    The most common consensus mechanism that’s used for Blockchain technology is what’s called “proof of work”. It is the system used in Bitcoin.

    When a transaction is initiated, the information is stored in a candidate block which is filled with the transaction’s information. A cryptographic beacon is sent out to the mining network that the candidate block has been created, and the miners get to work on solving a cryptographic puzzle that has a prize for whomever solves it, in the form of newly minted coins/currency.

    Miners have what some would think of as supercomputers that are much more powerful than the average Person’s Macbook pro. These machines have a “hashrate” or computing power that gives them an advantage when competing to solve consensus problems for reward.

    I know what all you climate control advocates are saying:

    Doesn’t that demand a lot of electricity and processing power?

    The short answer is yes, the cost of mining is based primarily, on hardware, electricity costs, and to some degree temperature.

    The problem with the Proof of work consensus is that it requires the miner to use their supercomputer to try out millions computations per second, in competition with other supercomputers around the world, to determine if the Blockchain can be updated or not.

    B: Proof of Stake

    The main objective of this mechanism is to allow stakeholders, the people with the most invested, or owned in the Blockchain ecosystem to have the strongest incentives to lead in the provision of consensus solutions for a Blockchain transaction.

    In simple terms

    Proof of stake consensus allows miners that have more “money”, cryptocurrency, or “skin in the game” to have a greater opportunity to mine blocks and make decisions for the network.

    The process starts by the miner consuming his/her cryptocurrency — commonly referred to as the kernel — which provides privileges for updating the Blockchain which is similar to Proof of work.

    However, the hashing computation in Proof of stakes is done using a limited search space where stakeholders with the greatest stakes have the ability to mine a commensurate allocation of the network, and are effectively stewards of the Blockchain system.

    Think of it like: the more a miner has, the more they can get, and the more they can decide.

    The one benefit of this controversial crypto-economic system is that by allowing stakeholders with incentives take charge of consensus the mechanism reduces the computing power required for consensus.

    This should make the climate control kids happy, but

    The main problem of this mechanism is that disadvantages other miners in the network since only the “richest” stakeholders are permitted to have control of consensus in the Blockchain.

    C: Closed Consensus

    In a Closed consensus mechanism certain nodes are required to put up a security deposit in order to participate in updating the Blockchain.

    This consensus mechanism doesn’t require mining, and is growing in popularity in some banking and insurance segments.

    The management of the consensus is done using security deposits which incentivize the validators. The “arbitrators” — conflict management nodes are the enforcers on the blockchain and the adjudicate when something is not write or if a miner is not acting fairly.

    The main objective of using an arbitrator’s protocol is to enforce consensus among the autonomous nodes in the Blockchain.

    If a validator authenticates a transaction which the arbitrators have considered illegitimate, then the validator losses their security deposit and they also forfeit their privileges of providing consensus in the Blockchain network in the future.

    Conclusion

    Now that you understand the basic essentials of Blockchain technology you should be able to distinguish very easily:

    What is a blockchain?

    How does bitcoin work?

    What are the major innovations that The Ethereum blockchain brought to the technology?

    What is a smart contract?

    What are the different types of consensus mechanisms that power a blockchain?

    Hopefully, this inspires further exploration and your own personal discovery, in what everyone is talking about, and how perhaps you might be able to join in the conversation and or project/experiment. if you want more information that is friendly and easily accessible please see our other post here: How does the Blockchain Work?

    The main take away that you should get from this article is that understanding the blockchain is not that hard, and when you do, you have the ability to affect your team and industry in ways that you might not thought possible in the past.

    I’m always interested in meeting blockchain startups, and technologists who are creating innovative products, so please feel free to contact me or by email at [email protected]

    Collin Thompson is the Co-founder, and Managing Director of Intrepid Ventures, a blockchain startup and innovation studio that invests, builds, and accelerates Blockchain and companies solving the world’s most difficult problems. Collin focuses on early stage investments, innovation and business design for corporations, governments and entrepreneurs working with blockchain technology.

    Originally published at intrepidreview.com on October 3, 2016.

     
  • user 7:36 am on October 13, 2016 Permalink | Reply
    Tags: , , , , , private blockchain,   

    Private Blockchain or Database? 

    aaeaaqaaaaaaaalpaaaajdhkotywzgu5ltu3ndmtngvloc05ngy2lwmxzdhmmge3ntzkmg

    How to Determine the Difference

    Introduction to a Private Blockchain

    A is a system, commonly known as a “Distributed ledger” that has an access control layer built into the protocol [1]. This means the network participants have control over who can join the network, and who can participate in the consensus process of the .

    This is in contrast to a public blockchain, which is open for all to participate in — as a user, as an entity that determines the validity of transactions, and the consensus process. Private blockchains, therefore have a very different level of security than public blockchains like [2].

    Private blockchains are a class of distributed ledgers that use transactions and blocks, first described in Bitcoin. Distributed ledgers are shared databases with access protection rights, with defined rules on what types of changes can be performed by what entities.

    The value of distributed ledgers at the enterprise level arises from the ability to do away with the reconciliation of data among participating entities [3]. This is especially the case with financial institutions that trade with one another.

    A lot of effort on the back-office today is spent in the reconciliation of records among different institutions [4]. Instead, distributed ledgers allow financial institutions to maintain a structurally consistent shared of transactions. This allows each participating institution to read data from the distributed ledger and be guaranteed that it is valid and reconciled against the data held by the other participating institutes.

    Difference between a Public and Private Blockchain

    Distributed ledgers are inspired from Bitcoin and other public blockchains. However, they differ in their fundamental characteristics of access and security promises.

    The security of a public blockchain like Bitcoin comes from its proof of work, which makes it mathematically impossible to fake or reverse transactions without miners colluding, using the current state of  [2].

    On the other hand, the security promises of distributed ledgers and private blockchains are only as good as the honesty of the entities validating the transactions. There are no mathematical guarantees behind the irreversibility of transactions in a private blockchain.

    Blockchain vs. Shared Database

    There is considerable debate in the community in the value of a private blockchain over a shared database. Some, like Prof. Arvind Narayanan of Stanford, contend that private blockchains are just another name for a shared database [2]. Others, like Gideon Greenspan of Multichain see several differences between private blockchain and SQL like databases, from disintermediation to robustness [5].

    Traditional databases are completely contained within one entity, irrespective of their structure (SQL or no-SQL type databases). This includes read and write access, which is only possible via applications controlled by the entity to which the database belongs [9]. Shared databases, on the other hand, involve read and write access involving multiple entities.

    Private blockchains mimic the security process utilized by public blockchains like Bitcoin, but do not involve mathematical guarantees at the validation level or with respect to irreversibility.

    However, they still make use of cryptography and data structures like Merkle trees to ensure non-valid transactions aren’t added to the blockchain [6].

    At the end of the day, private blockchains provide higher levels of error checking and transaction validity than regular shared databases.

    Even though they don’t use proof of work, blocks of transactions are validated using some other forms of consensus mechanism. This can still be chosen to be Byzantine Fault Tolerant (BFT).

    The most popular such algorithms include Raft [7] and Juno [8]. These consensus protocols work based on a leader-follower model, wherein for each block a leader is selected who creates the block and adds to the blockchain. There are various ways in which errors and anomalies are then corrected by the system.

    The Security Paradigm

    Shared databases in the past have suffered from the inability to prevent malicious activity. This would be the case, for example, when one of the participating entities is hacked, and that entity writes ‘corrupted’ data into the shared database, thus making it invalid for everyone involved.

    This specific problem also exists in centralized databases.

    Private blockchains solve this problem using cryptography and technologies similar to what Bitcoin and public blockchains use.

    In addition, the consensus protocols used by private blockchains today are “BFT Hardened”, such as Juno [8]. This improves the security features of the blockchain by protecting against insular hacking cases, thus preventing individual participants from acting in a malicious manner.

    Why Banks and Financial Institutions Choose a Private Blockchain

    and financial institutions have been increasingly investing in blockchain technology.

    However, most of this effort has gone towards the private blockchain space.

    There are many reasons for this. Private blockchains scale significantly better than public blockchains [6] and the network parameters, such as network congestion and transaction fees are known in advance.

    The underlying protocol development is also more predictable in the case of a private blockchain, and gives more control to the banks that control it.

    Also, banks and financial institutions are regulated entities that cannot operate over open protocols without performing due diligence of the parties involved in the transaction [10]. It is unclear whether regulations require miners to be identified for certain classes of transactions to provide settlement finality.

    There is also a reputational risk involved in using Bitcoin, which has been much maligned in the media with the associations to drug trade and exchange hacking.

    However, even today, many private blockchains ‘anchor’ to a chain like Bitcoin periodically to ensure the integrity of its data.

    Challenges in Launching Private Blockchain Consortiums

    By their very nature, private blockchains require different entities to come together and agree to a common set of standards by which it will operate. This is challenging due to legacy inertia and due to the differing requirements of different participants in the system.

    There are also unanswered questions around who should have the power to add or remove members, and which jurisdictions should be allowed to intervene (for example to reverse transactions due to legal or regulatory reasons).

    The first problem is partly being solved by Hyperledger, a Linux foundation initiative that aims to provide common blockchains standards [11].

    The future of these competing ideologies will be incumbent on issues of governance, scalability and reputation. These mandates will be required by incumbent institutions but conceived by innovative blockchain startups that see opportunity in mainstreaming the concepts of a blockchain, distributed ledger, and consortium chains.

    Originally published at intrepidreview.com on October 4, 2016.

    I’m always interested in meeting blockchain startups, and Chief innovation officers who are creating transformational products, so please feel free to contact by email at [email protected]

    Collin Thompson is the Co-founder, and Managing Director of Intrepid Ventures, a blockchain startup and innovation studio that invests, builds, and accelerates Blockchain and companies solving the world’s most difficult problems. Collin focuses on early stage investments, innovation and business design for corporations, governments and entrepreneurs working with blockchain technology.

     
  • user 7:35 pm on October 9, 2016 Permalink | Reply
    Tags: , , , real case example,   

    Reflections: one year working blockchain 

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    I’m amazed that it’s over a year since I started this adventure, and figured that it’s good to reflect on what I’ve learnt.

    [1] First projects make real

    First  is what we call our customer’s initial excursions into blockchain usage. More than a disposable “proof of concept” first projects are designed to scale up into production usage. They consist of a two-day design thinking workshop combined with between two and five, two-week agile development sprints. Our goal is to rapidly render an initial solution to prove the benefit of blockchain.

    We’ve seen customers moving quickly from awareness through experimentation towards production. We only recommend blockchain to clients when convinced usage will drive significant business benefit. We seek out initial “baby steps” so our customer can learn fast, prove initial benefit and drive larger benefits over time.

    Most of our work has been in the financial sector, but there are compelling use cases in all industries. We enjoy learning and sharing cross industry – which is exciting and invigorating!


    [2] Business networks drive value

    We use the business network as the first “acid test” – no business network means think again about blockchain usage! Our customers have different approaches to building out the networks to drive full value from blockchain, and we often get to advise and guide them in the pragmatic, practical steps of network formation.

    Our advice is objective, based on the first projects we’ve done with customers, and the key consideration are:

    1. WHAT is the business network – who are the members, their roles and what part will they play in the process of consensus?
    2. HOW will the network be formed? Will all parties be involved from the beginning, or more likely) will the network be incrementally grown over time?
    3. WHEN will new network members be introduced to the blockchain solution? Some of our customers decide to do the first one or two sprints themselves, simulating the role of other network participants whilst others want to involve key network members at the beginning of the journey through participation in the design thinking workshop.

    [3] Choosing a first project is key

    One of the most common questions we get asked in our work with customers is “what’s a good blockchain use case?”  So we’ve developed a way to ensure we are adding enough value by applying blockchain to a particular business problem. The approach is in five common sense steps, as explained in my previous blog post.

    The steps culminate in a “blockchain fit” test – where make sure that the use case hit the attributes of Network | Consensus | Provenance | Immutability | Finality.

    This selection process and associated discussion ensures we end up with a use case that:

    1. is suitable to augment customer awareness on blockchain
    2. can be implemented with blockchain in its current maturity state
    3. ensures blockchain is a good fit and drives significant business value.

    [4] Permissioned networks are ideal for business

    ’s interests are in the application of blockchain to permissioned, business to business networks.  In these networks privacy services – rendered with cryptographic technologies – ensure that participants see only the parts of the ledger that are relevant to them, and that all transactions are secure, authenticated and verifiable.

    Hyperledger blockchain fabric includes fine grained privacy services which can be tuned and configured to meet the needs of a vast variety of different use cases.  Our customers’ needs are also evolving, and our close links with development allow us to influence future requirements based on real customer needs.

    We’ve also noticed that regulators are taking an active interest in most of our first projects in all industries, to understand how they can best interact with this new, fast moving .


    [5] Hyperledger project engenders open innovation

    We are a founder member and key contributor to the Linux Foundation Hyperledger project to build out a blockchain fabric for business. The project now enjoys some 100 members – impressive growth from the 17 founder members in December 2015!

    We’ve already taken early code drops from the project and rendered these as blockchain (beta) services on our BlueMix cloud, and developed a High Security Business Network variant of blockchain that run our z-Series server.

    We are very excited about the promise of Hyperledger and convinced that the open governance, open source and open standards based fabric will engender true open innovation in multiple industries, making the most from the transformation opportunity offered by blockchain for business.

    More blockchain Information?

    1. Blockchain for Government
    2. Proving Provenance with Blockchain
    3. Blockchain and Cyber Security
    4. Blockchain, how SMART is your contract?
    5. Blockchain Privacy Services

    [linkedinbadge URL=”https://www.linkedin.com/in/johnpalfreyman” connections=”off” mode=”icon” liname=”John Palfreyman”] is Director – Blockchain at IBM Cloud Division

     
  • user 7:35 pm on October 8, 2016 Permalink | Reply
    Tags: , , ,   

    Why Banks Want Own Cryptocurrencies 

    Amidst news of major , both government and private, considering developing their own Blockchains for internal use, a question has to be asked: is there even a point? Given the seemingly self-defeating nature of using decentralized currencies in highly centralized operations, Cointelegraph asked top industry experts from Agentic UK, Lisk and Steemit about their opinion on the matter.

    Lucas Cervigni, Managing Director of Agentic UK, explains:

    “Recently, central banks have taken the asset to the next level by starting to research Cryptocurrencies of their own. As modern banking works under the fractional reserve system, this research makes sense. Through this system, banks are able to issue loans as long as they keep 10% in reserve. In turn, this creates money with each loan. That is not possible with and therefore the banks have begun considering centralized and government controlled cryptocurrencies. However this is a serious matter for the banks to consider, as should the central system issue all of the money, there is no doubt the dynamics of the fractional reserve system could change. Ultimately, the smaller banks could be left out of business.”

    State banks eyeing Blockchain

    People’s Bank of China (PBoC) announced on their website about their own digital currency conference, urging their team to speed up efforts to release its digital currency. Bank of Englandand Bank of Canada have also considered developing digital currencies.

    These types of currencies are called Central Bank-issued Digital Currency (CBDC). What are the implications of CBDC? To create a cashless society, steal the spotlight from Bitcoin and other privately-issued currencies, or to achieve a more accurate monetary policy?

    Banks want control

    Ned Scott, Founder of Steemit, thinks the bank-issued cryptocurrencies will differ from the protocols we got accustomed to:

    “It would be interesting to see what design choices the banks make for their Cryptocurrencies’ protocols and how they integrate the currency with their business. With every cryptocurrency there are variables that developers massage in terms of emission and the way they release the protocol into the wild. My feeling is that the profile of these Bank-issued coins would be very different from many of the decentralized protocols we see today. Banks are likely entertaining the idea more seriously if they feel they can control the currency, as well as gain from its use and possibly their manipulation over it.”

    A necessary evil

    Max Kordek, Founder of Lisk, eхplains why banks may see in Cryptocurrencies a necessary evil:

    “This topic requires the consideration of multiple perspectives. If I was a cryptocurrency user with little involvement in this space or knowledge of the current regulations, creating additional currencies could be difficult to comprehend. However, in reality certain laws and obligations could make a customized, maybe even private, Cryptocurrency a necessary evil.

    On the other hand, maybe current Cryptocurrencies do not meet the technological requirements a bank deems necessary for a digital currency. For example, perhaps they require a specific peg, specific Block-time, or in fact multiple currencies on one single .

    It is impossible to be certain of whether a bank-owned, government-owned or public Cryptocurrency will dominate in the future, but I do hope the latter is the case.”

    Buterin: Private Blockchains have Advantages

    When asked as to what the reason for the banks’ sudden interest in Cryptocurrency, the majority of our audience seem to agree that it is some combination of wanting to stay relevant and trying to control the future development of the Blockchain.

    A reasonable stance, considering how Bitcoin, and other Cryptocurrencies have already proven their worth by enabling the users to send transactions faster, cheaper, and with less restrictions, compared to bank transfers.

    However, Vitalik Buterin, the co-founder of Ethereum, argues that this trend is not entirely political. According to him, private Blockchains can, in certain contexts, offer several technological and financial advantages, compared to the public ones.

    Those advantages stem from the greater control that a bank is able to exert over a private Blockchain, and include less to no risk of a 51% attack, greater level of privacy for the Blockchain’s owner (duh) and even cheaper transactions.

    All in all, currently there is no clear consensus regarding the value of privately-owned Blockchains, and their impact on the overall ecosystem, if any, it remains yet to be seen.


    [linkedinbadge URL=”https://www.linkedin.com/in/lucascervigni” connections=”off” mode=”icon” liname=”Lucas Cervigni (Lucce)”] is Managing Director – AGENTIC GROUP UK

     
  • user 11:35 am on October 6, 2016 Permalink | Reply
    Tags: , dade, devcon,   

    Devcon2 and Ethereum and the Future 

    There is a sense of deflation following Devcon2. I think it is because the “killer app” did not appear, and the incremental improvements, while real, were already baked into the cake. What did emerge is a more comprehensive sense of where the “walls” are. One of them is the difficulty figuring out how to monetize an open platform. Not easy.

    This means that IBM and Microsoft can wedge themselves into the ecosystem and become an essential part of it by providing the support and infrastructure for development tools and data transfer for a plethora of proprietary blockchains. It also means that proprietary blockchains that are being developed by Accenture and others may become the default for innovators and suck up the creative energy we hoped would be invested in evolving open systems. For those of us who envisioned the democratization of banking and other transactions and data sharing, this is disheartening.

    Those who start a new with a few integral smart contracts can make money for the first group of investors if their blockchain gains traction and continues, but the income is front loaded to such an extent that the second or third funding tranches will have significantly diminished potential for a sizable return. I can see why most Venture Capital firms are passive about blockchain – there is no business to build that will enable the VC to cash out in a three to five year horizon. By that time, almost any business model and method can be replicated by a competitor using open source tools.

    So content is still “king.” It is the businesses that link content – preferably proprietary content – to the blockchain that will be sustainable. The blockchain(s) and their applications will probably be a variant of a public utility. I look forward to reviewing counter-arguments that any of you offer. My best response is to encourage you to explore the concept of the (Distributed Application Development Entity) where a royalty income stream is democratically generated from crowd sourced software innovation and business development activities for consumer facing applications developed through smart contracts on the platform.


    [linkedinbadge URL=”https://www.linkedin.com/pulse/devcon2-ethereum-future-stan-smith-knowledgelevers” connections=”off” mode=”icon” liname=”Stan Smith Knowledgelevers”] is Co Founder at Kleverer.com – blockchain and distributed application development entities – the DADE

     
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