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1Page© 2016 IBM Corporation© 2016 IBM Corporation
Making Blockchain Real for Business
Explained
David SmitsIT Architect
Contents
is Blockchain?
is it relevant for our business?
can IBM help
us apply Blockchain?
2Page© 2016 IBM Corporation
3Page© 2016 IBM Corporation
Business networks, wealth & markets
– Business Networks benefit from connectivity
• Participants are customers, suppliers,
banks, partners
• Cross geography & regulatory boundary
– Wealth is generated by the flow of
goods & services across business
network in transactions and contracts
– Markets are central to this process:
• Public (fruit market, car auction), or
• Private (supply chain financing, bonds)
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Transferring assets, building value
Two fundamental types of asset
Intangible assets subdivide
Cash is also an asset
– Tangible, e.g. a house
– Intangible, e.g. a mortgage
– Financial, e.g. bond
– Intellectual, e.g. patents
– Digital, e.g. music
– Has property of anonymity
Anything that is capable of being owned or controlled to produce value, is an asset
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Ledgers are key …
Ledger is THE system of record for a business.
Business will have multiple ledgers for multiple business networks in which they participate.
– Transaction – an asset transfer onto or off the ledger
• John gives a car to Anthony (simple)
– Contract – conditions for transaction to occur
• If Anthony pays John money, then car passes from John to Anthony (simple)
• If car won't start, funds do not pass to John (as decided by third party arbitrator) (more complex)
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Introducing BlockchainA shared ledger technology allowing any participant in the business network
to see THE system of record (ledger)
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Problem …
… Inefficient, expensive, vulnerable
Bank records
Party A’s records
Party C’s records
Auditor records
Party B’s records
Party D’s records
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Solution …
… Consensus, provenance, immutability, finality
Party C’s records
Auditor records
Party B’s records
Party D’s records
Bank records
Party A’s records
Shared, replicated, permissioned
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– Unregulated, censorship-
resistant shadow currency
– First Blockchain application
• Pioneer of Blockchain
technology
Blockchain underpins Bitcoin …
… Digital currencies different from cryptocurrency9Page© 2016 IBM Corporation
BUT
is not bitcoin
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Blockchain for business …
Append-only distributed system of record shared across
business network
Business terms embedded in transaction database & executed with transactions
All parties agree to network verified transaction
Ensuring appropriate visibility; transactions are
secure, authenticated & verifiable Privacy
Shared ledger
… Broader participation, lower cost, increased efficiency
Smart contract
Consensus
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• Shared between participants
• Participants have own copy through replication
• Permissioned, so participants see only appropriate transactions
• THE shared system of record
Records all transactions across business network
Shared ledger
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Smart contract
• Verifiable, signed
• Encoded in programming language
• Example:
– Defines contractual conditions under which corporate Bond transfer occurs
Business rules implied by the contract … embedded in the Blockchain and executed with the transaction
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Privacy
• Participants need:
– Transactions to be private
– Identity not linked to a transaction
• Transactions need to be authenticated
• Cryptography central to these processes
Ledger is shared, but participants require privacy
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Consensus
• Anonymous participants
– Bitcoin cryptographic mining provides randomized selection among anonymous participants
– Significant compute cost (proof of work)
• Known & trusted participants
– Commitment possible at low cost
– Byzantine fault tolerance (BFT)
… the process by which transactions are verified
• Multiple alternatives– Proof of stake, where influence is determined by
risk of validators
– Multi-signatures, validation needs consent from 3 out of 5 validators
• Industrial Blockchain needs “pluggable” consensus
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Car Lease Video
16
Regulator
How do participants typically work today ? Ownership Transfer
“In house”(ledger)
Synchronisation: × Slow× Error prone
× Multiple ledgers
× Who owns what, when, could get confused ?
1. Manufacturer
“In house”(ledger)
2. Dealer
“In house”(ledger)
3. Leasing Company
“In house”(ledger)
“In house”(ledger)
4. Lessee
5. Scrap Merchant
“In house”(ledger)
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1. 製造業者•車を製造します
•販売特約店に所有権を移転します
Participants
Regulator•Creates “Vehicle Template”
1. Manufacturer• Manufactures cars• Transfers ownership to Dealers
2. Dealer• Sells cars• Transfers ownership to Leasing
Companies
3. Leasing Company• Provides lease cars• Transfers ownership to Lessee
4. Lessee• Leases Cars
• Transfer of ownership to Scrap Merchant
5. Scrap Merchant
• Disposes of Cars
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Business Process (1/2)
Regulator
1. Creates “Vehicle Template(V5C)”
1. Manufacturer
3. Add Vehicledata to V5C
2. Dealer
2. Transfers ownership to Manufacturers
4. Transfers ownership to Dealers
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Business Process (2/2)
2. Dealer3. Leasing Company
4. Lessee 5. Scrap Merchant
5. Transfers ownership to Leasing Companies
6. Transfers ownership to Lessee
7. Transfer ownership to Scrap Merchant
8. Disposes car
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How could participants work with blockchain ?
node
1. Manufacturer
2. Dealer
3. Leasing Company
4. Lessee
5. Scrap Merchant
Regulator
Shared Ledger
SmartContracts
node
nodenode
node node
Conditions for asset transfer
Records of asset transfer
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21Link https://www.youtube.com/watch?v=IgNfoQQ5Reg21Page© 2016 IBM Corporation
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Smart Contract
Smart Contract
CryptographyCryptographyShared LedgerShared Ledger
ConsensusConsensus
Ensuring secure, authenticated & verifiable transactions
Business terms embedded in transaction database & executed with transactions
All parties agree to network verified
transaction
Append-only distributed ledger shared across
business network
Blockchain Recap
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V5C
Data
Owner: Regulator
VIN:
Maker:
Model:
Methods
Create
V5C
Data
Owner: Manufacturer
VIN:
Maker:
Model:
Methods
Update
Smart Contract (1/2)
Regulato
rCreate V5C template Transfer V5C template to Manufacturer.
Smart
Contract
Smart
Contract
Crypto
graphy
Crypto
graphy
Shared
Ledger
Shared
Ledger
Conse
nsus
Conse
nsus
Update V5C with car information
1. ManufacturerRegulato
r
Blank
Rule of Creation
Only Regulator can create
V5C template.
Rule of Update
Only Manufacturer can
update V5C.
V5C
Data
Owner: Manufacturer
VIN:
Maker:
Model:
Methods
Transfer
Blank
123
Alfa Romeo
Mito
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Smart Contract (2/2)
V5C
Data
Owner: Dealer
VIN: 123
Maker: Alfa Romeo
Model: MiTO
Methods
Transfer
Transfer V5C to Dealer.
2. Dealer
● ● ●
Disposes car.
5. Scrap Merchant
V5C
Data
Owner: Leasing company
VIN: 123
Maker: Alfa Romeo
Model: MiTO
Methods
Transfer
V5C
Data
Owner: Scrap merchant
VIN: 123
Maker: Alfa Romeo
Model: MiTO
Methods
Dispose
Rule of Dispose
Only scrap merchant can
dispose car.
1. Manufacturer
Transfer V5C to Leasing Company.
Smart
Contract
Smart
Contract
Crypto
graphy
Crypto
graphy
Shared
Ledger
Shared
Ledger
Conse
nsus
Conse
nsus
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Shared Ledger
Shared Ledger
Block 1020
Previous Hash
Transactions
Create V5C template
Hash of TX
Nonce
Timestamp
● ●
●
● ● ●
Block 1021
Previous Hash
Transactions
Transfer V5CRegulator to Manufacturer
Hash of TX
Nonce
Timestamp
Block 1022
Previous Hash
Transactions
Hash of TX
Nonce
Timestamp
Block 1023
Previous Hash
Transactions
Hash of TX
Nonce
Timestamp
Update V5C Transfer V5CManufacturer to Dealer
Block 1024
Previous Hash
Transactions
Transfer V5CDealer to Leasing Company
Hash of TX
Nonce
Timestamp
Block 1025
Previous Hash
Transactions
Leasing Company to Lessee
Transfer V5CLeasing Company to Lessee
Hash of TX
Nonce
Timestamp
Block 1026
Previous Hash
Transactions
Hash of TX
Nonce
Timestamp
Block 1027
Previous Hash
Transactions
Hash of TX
Nonce
Timestamp
Transfer V5CLessee to Scrap
Dispose V5C
Smart
Contract
Smart
Contract
Crypto
graphy
Crypto
graphy
Shared
Ledger
Shared
Ledger
Conse
nsus
Conse
nsus
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Distributed to all nodes by Peer2Peer
Smart ContractsShared Ledger
Block
Hash
Node
Node
NodeNode
Consensus
Regulator1. Manufacturer
2. Dealer
3. Lease Company
4. Lessee
5. Scrap Merchant
Node
Hash of TX
nonce
Timestamp
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Create V5C(Send transaction)
Create V5C(Send transaction)Proof of WorkProof of WorkDiscover nonce!Discover nonce!
OK
OK
OKOK
V5C
Data
Owner:
Regulator
VIN:
Make:
Model:
Method Create
Transaction
Create V5C
Create BlockCreate BlockConsensusConsensusCreate V5C(Execute transaction)
Create V5C(Execute transaction)
635840321837635840321837
000000012345000000012345
OK
Block
Hash
Transfer V5C(Send transaction)
Transfer V5C(Send transaction)
Transaction
Transfer V5C
Node
Hash of TX
nonce
OK
Proof of WorkProof of Work
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Timestamp
759710275638759710275638
000000067890000000067890
Discover nonce!Discover nonce!Create BlockCreate BlockConsensusConsensus
OK
OK
OKOK
OK
OK
Transfer V5C(Execute transaction)
Transfer V5C(Execute transaction)
Block
Hash
Manufacturer
Transfer
Update V5C(Send transaction)
Update V5C(Send transaction)
Transaction
Update V5C
Proof of WorkProof of Work
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Hash of TX
nonce
Discover nonce!Discover nonce!Create BlockCreate Block
Hash of TX
nonce
Timestamp
387291845274387291845274
000000037648000000037648
OK
OK
OKOK
OK
OK
ConsensusConsensus
Update
123Alfa Romeo
MiTO
Update V5C(Execute transaction)
Update V5C(Execute transaction)
SharedLedger
SmartContract
Smart
Contract
Smart
Contract
Crypto
graphy
Crypto
graphy
Shared
Ledger
Shared
Ledger
Conse
nsus
Conse
nsus
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Summary
Shared trusted processes
Trusted recordkeepingImprove discoverability
• Reduces complexity of system interfaces and reconciliations between car lease participants.
• Improves discoverability and transparency as ALL transaction related to a specific car is stored on a single shared ledger.
• Regulation compliance are checked for each transactions.(e.g. VIN can not be changed after manufacture)
• All transactions can not be modified without the consensusof other participants.(As opposed to a single participant assuring data integrity)
Reduce costs and complexity
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Contents
is Blockchain?
is it relevant for our business?
can IBM help
us apply Blockchain?
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Blockchain benefits
Savestime
Removescost
Reducesrisk
Increasestrust
Transaction time
from days to near
instantaneous
Overheads and
cost intermediaries
Tampering, fraud
& cyber crime
Through shared
processes and
recordkeeping
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Benefits
1. Consolidated, consistent
dataset reduces errors
2. Near-real-time of
reference data
3. Naturally supports code
editing and routing code
transfers between participants
What • Competitors/collaborators in a business network need to share reference data, e.g. bank routing codes
• Each member maintains their own codes, and forwards changes to a central authority for collection and distribution
• An information subset can be owned by organizations
How • Each participant maintains their own codes within a Blockchain network
• Blockchain creates single view of entire dataset
Consensus use case –Shared routing codes
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Benefits
1. Trust increased, no authority
"owns” provenance
2. Improvement in
system utilization
3. Recalls "specific"
rather than cross fleet
What • Provenance of each component part in complex system hard to track
• Manufacturer, production date, batch and even the manufacturing machine program
How • Blockchain holds complete provenance details of each component part
• Accessible by each manufacturer in the production process, the aircraft owners, maintainers and government regulators
Provenance use case –
Vehicle maintenance
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Benefits
1. Lowers cost of audit and
regulatory compliance
2. Provides “seek and find”
access to auditors and
regulators
3. Changes nature of
compliance from
passive to active
What • Financial data in a large organization dispersed throughout many divisions and geographies
• Audit and Compliance needs indelible record of all key transactions over reporting period
How • Blockchain collects transaction records from diverse set of financial systems
• Append-only and tamperproof qualities create high confidence financial audit trail
• Privacy features to ensure authorized user access
Immutability use case –
Financial ledger
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Benefits
1. Increase speed of execution
(less than 1 day)
2. Vastly reduced cost
3. Reduced risk,
e.g. currency fluctuations
4. Value added services,
e.g. incremental payment
What • Bank handling letters of credit (LOC) wants to offer them to a wider range of clients including startups
• Currently constrained by costs & the time to execute
How • Blockchain provides common ledger for letters of credit
• Allows all counter-parties to have the same validated record of transaction and fulfillment
Finality use case –
Letter of credit
Letter of credit
Republic of A
Buyer’s bank issues
LC and sends to
seller’s bankA Plus Bank
Bank B
Seller’s bank authenticates
LC and credits Company B
Sales contract
Company B:Seller/beneficiary
Company A:Buyer/
applicant
B-land
Buyer applies
for LC
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– Securities• Post-trade settlement
• Derivative contracts
– Trade Finance• Bill of Lading
• Cross-currency payment
– Syndicated Loans
– Supply Chain
– Retail Banking• Cross border remittances
• Mortgage verification & contracts
– Public Records• Real estate records
• Vehicle registrations
• Citizen Identity
– Digital Property Management
Other potential
use cases
35Page© 2016 IBM Corporation
Patterns for customer adoption
COMPLIANCE LEDGER
CONSORTIUM SHARED LEDGER
ASSET EXCHANGE
HIGH VALUE MARKET
• Created by a small set of participants• Share key reference data• Consolidated, consistent real-time view
• Sharing of assets (voting, dividend notification)• Assets are information, not financial• Provenance & finality are key
• Transfer of high value financial assets• Between many participants in a market• Regulatory timeframes
• Real-time view of compliance, audit & risk data• Provenance, immutability & finality are key• Transparent access to auditor & regulator
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Key players for Blockchain adoption
Regulator Industry Group (e.g. R3) Market Maker
– An organization who enforces the rules of play
–Regulators are keen to support Blockchain based innovations
–Concern is systemic risk – new technology, distributed data, security
–Often funded by members of a business network
–Provide technical advice on industry trends
–Encourages best practice by making recommendations to members
–In financial markets, takes buy-side and sell-side to provide liquidity
–More generally, the organization who innovates- Creates a new good or service,
and business process (likely)
- Creates a new business process for an existing good or service
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Contents
is Blockchain?
is it relevant for our business?
can IBM help
us apply Blockchain?
37Page© 2016 IBM Corporation
38Page© 2016 IBM Corporation
Blockchain for Business – Our Point of ViewCommunity + Code
Linux Hyperledger Project
Open Source Code: Blockchain for business;
Consensus | ProvenanceImmutability | Finality
Open Governance – 100 member cross industry board
Cloud
IBM Blockchain
Blockchain managed service on IBM Cloud and z Systems;
Identity | Consensus | System Integration | Hardware-assist for Performance & Security
IBM Blockchain on Bluemix
Clients
Blockchain SolutionsBlockchain Garage
Making Blockchain real for business
Blockchain Garage; New York | London | Singapore | Tokyo
Blockchain Services Practice
39Page© 2016 IBM Corporation
Linux Foundation’s Hyperledger Project
– Linux Foundation project announced December 17, 2015
with 17 founders, now nearly 100 members
– The Hyperledger Project is a collaborative effort to
advance Blockchain technology 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
– Open source and open standards-based
Enable adoption of shared ledger technology at
a pace and depth not achievable by any one
company or industry
QUICK FACTS
Chairman Blythe Masters/DAH
Executive Director
Brian Behlendorf
Technical Chair Chris Ferris/IBM
Contribution44,000 lines of code in February 2016
Sprint to one codebase with unified thinking
Staged releases
www.Hyperledger.org
40Page© 2016 IBM Corporation 40Pag© 2016 IBM Corporation As of 07 September 2016
© 2016 IBM Corporation 41
Comparison Matrix
Hyperledger Ethereum Ripple Bitcoin
Description General purposeBlockchain
General purpose Blockchain
PaymentsBlockchain
Payments Blockchain
Governance Linux Foundation Ethereum Developers Ripple Labs Bitcoin Developers
Currency None Ether XRP BTC
Mining Reward N/A Yes No Yes
State Key-value database Account data None Transaction data
Consensus Network Pluggable : PBFT Mining Ripple Protocol Mining
Network Private or Public Public or Private Public Public
Privacy Open to Private Open Open Open
Smart Contracts Multiple programming languages
‘Solidity’ programming language
None Possible, but not obvious
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Engagement model overview
1. Discuss Blockchain technology
2. Explore customer business model
3. Show Blockchain Application demo
1. Understand Blockchain concepts & elements
2. Hands on with Blockchain on Bluemix
3. Standard demo customization
1. Design Thinking workshop to define business challenge
2. Agile iterations incrementally build project functionality
3. Enterprise integration
1. Scale up pilot or Scale out to new projects
2. Business Process Re-engineering
3. Systems Integration
Remote or face to face Remote or face to face Face to face Face to face
Free of charge Free of charge For fee For fee
Let’s Talk
BlockchainHands-on
First Project
Scale
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HSBC, Bank of America, IDA Trade Finance - Letter of Credit
ABN AMRO Financial Restructuring & Recovery
Crédit Mutuel Arkéa Consortium Shared Ledger
Japan Exchange Group (JPX) Post Trade
Kouvola Innovation Supply Chain Logistics
London Stock Exchange Market Innovation
Mizuho Digital Currency
IBM Global Finance Shadow Chain for Dispute Resolution
IBM and Hyperledger in Action
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Summary
Blockchain …
– is a shared, replicated, permissioned ledger technology
– can open up business networks by taking out cost, improving efficiencies and increase accessibility
– addresses an exciting and topical set of business challenges, which cross every industry
IBM …
– supports the Linux Foundation Hyperledger open standard, open source, open governance Blockchain
– has an easy to access, proven and incremental engagement model giving customers the confidence to get started NOW
© 2016 IBM Corporation
Thank you!
David_smits@be.ibm.com@DavidGSmits
46Page© 2016 IBM Corporation
Further Information – Use case LinksHSBC, Bank of America, IDA:
http://www.coindesk.com/hsbc-bank-america-blockchain-supply-chain/
ABN AMRO:
https://www.abnamro.com/en/newsroom/blogs/arjan-van-os/2016/walking-the-walk-exploring-the-power-of-blockchain.html
Crédit Mutuel Arkéa:
http://www.coindesk.com/ibm-completes-blockchain-trial-french-bank-credit-mutuel/
JPX:
http://www.ibm.com/press/us/en/pressrelease/49088.wss
Kouvola Innovation:
http://www.ibm.com/press/us/en/pressrelease/49029.wss
London Stock Exchange:
http://www.ibtimes.co.uk/linux-foundation-blockchain-consortium-digital-asset-ibm-credits-london-stock-exchange-board-1533798
Mizuho:
http://www.coindesk.com/mizuho-digital-currency-powered-blockchain-settlement/
IBM Global Finance:
http://www.coindesk.com/ibm-building-blockchain-dispute-resolution-system/
© 2016 IBM Corporation 47
Bitcoin
• In a nutshell: The original Blockchain application, spawning an industry
• Use case: Cryptocurrency transfer between anonymous participants
• Network: Single public network
• Accounts: BTC currency, rewards for mining, transaction fees
• User Data: Small transaction data area
• Consensus Network: Transactions validated using ‘Proof of Work’ cryptographic mining
• Privacy: Transaction ledger completely open
• Smart Contracts: In original design and code, but not obvious
• Open: Open source. Changes governed by Bitcoin developers.
• Recent Innovations: None – relatively established
• Backing: Bitcoin applications are backed many VCs. Network not backed.
• More information: https://bitcoin.org
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Ethereum
• In a nutshell: Popularized smart contracts
• Use case: Smart contracts encapsulate business rules. Ether currency as ‘fuel’
• Network: Single public network. Private network providers available, e.g. Eris
• Accounts: Ether currency, rewards for mining, transaction fees
• User Data: Accounts can hold binary user data
• Consensus Network: POW transaction validation
• Privacy: Fully open ledger
• Smart Contracts: Fully externalized via ‘Solidity’ programming language
• Open: Open source. Changes governed by Ethereum developers
• Recent Innovations: Discussing ‘Proof of Stake’ option – May 2016
• Backing: Ethereum applications are backed by VCs. Network by donations
• More information: https://www.ethereum.org
© 2016 IBM Corporation 49
Ripple
• In a nutshell: International Payments Platform for banks and businesses
• Use case: Cryptocurrency (XRP) transfer between anonymous participants
• Network: Single public network
• Accounts: Hold XRP currency balance
• User Data: No user data
• Consensus Network: Transactions validated using novel, ‘white-list’ network protocol
• Privacy: Fully open ledger
• Smart Contracts: None.
• Open: Open source. Changes governed by Ripple Labs
• Recent Innovations: Focus on international banking settlements
• Backing: Andreesen Horowitz, Google Ventures
• More information: https://ripple.com
© 2016 IBM Corporation 50
Hyperledger
• In a nutshell: Distributed ledger backed by the Linux Foundation
• Use case: General purpose distributed ledger satisfying broad requirements
• Network: Private networks focus. Available as managed service. Public later
• Accounts: Not currency based. (UTXO API available using smart contracts)
• User Data: Flexible key-value database
• Consensus Network: Transactions validated using PBFT as default. Pluggable design
• Privacy: From fully open to private ledgers
• Smart Contracts: Broad choice of programming languages. Extensible via Docker containers
• Open: Open source. Changes via standard Linux Foundation processes
• Recent Innovations: Merging contributions from IBM, DAH, Intel prior to expect GA July 2016
• Backing: 30 Founders: IT companies, Banks & Financial organizations
• More information: https://www.hyperledger.org