Blockchain: Trust-Less

Transactions in a Trustless

World

Dr. Rhonda A. Syler

Faculty & Associate Director of Enterprise Systems

rsyler@walton.uark.edu

UNDERSTANDING BLOCKCHAIN

UNDERSTANDING BLOCKCHAIN

• Satashi Nakamoto – pseudonym of

anonymous developer or group of developers

of the first blockchain database

• Motivation: create a “trust-less” cash system

• …while solving the double-spending problem

A distributed, peer-to-peer system that validates, time stamps, and stores records on a distributed ledger allowing you to track assets –tangible and intangible.

4

What is Blockchain?

“It’s just a ledger that enables trust.” ~ Nate McKervey,

Head of Blockchain and DLT, Splunk

* Immutable * Decentralized * Distributed *

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Why Blockchain?

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Why Blockchain?Does today’s solution

involve reliance on trusted

third parties that are too

slow, too opaque, too

powerful, and/or too costly?Lacity (2018) Primary Use Case Criterion

ledger A

ledger E

ledger B

ledger Cledger D

Party BParty A

Party CParty D

Trusted 3rd Party

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What if?

8

What is Blockchain

One version of the truth.

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DECENTRALIZED• Every party holds the ledger

ONE VERSION OF THE TRUTH• Reduces the power of any one party• Provides accountability over who is

altering the data• Recording when the data is altered

CENTRALIZED• Every part is dependent on one central

party who holds the ledger• Central party has power over the data• Little to no accountability; Could

tamper with it with other parties knowing

Cross-border Payments

Bank A:France

Correspondent Bank

Customer A Accounts in

Country France & US

Correspondent Bank

National Payment SystemFrance

Bank A:US

National Payment

System US

BLOCKCHAIN

Blockchain Application

• Out of pocket costs €50,000• Two-hour settlement• No transaction fees

Cross-border Payments

Bank A:France

Customer A Accounts in

Country France & US

Bank A:US

BLOCKCHAIN

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BLOCKCHAIN

HOW DOES IT WORK?

Ledger

X Node A

Ledger

X Node B

Ledger

X Node C

Ledger

X Node D

Party BParty A

Party CParty D

Someone posts

a transaction

(or a block).

Problem solved. Transaction then added to

blockchain. Miners rewarded with digital currency.

+

Recipient

receives the

transaction.

Transaction

distributed for

validation.

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BLOCKCHAIN

PUBLIC VS. PRIVATEPublic blockchains are extremely impractical for enterprise. Enterprises…

• Are solving different problems

• Need privacy

• Seek transaction efficiency

– Smart contracts…..

Ledger X

Node A

Ledger X

Node B

Ledger X

Node C

Ledger X

Node D

Party BParty A

Party CParty D

Gatekeeper

E 31

E 4

BLOCKCHAINE 31 2

E 1 42

Vitalik Buterin ~

• Saw potential for Blockchain to be more than just a payment protocol

• Thought could be used to create decentralized applications

• He argued Bitcoin needed a scripting language to accomplish this

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BLOCKCHAIN

The Move Toward Enterprise Application

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BLOCKCHAIN

The Move Toward Enterprise Applications

• The big daddy of smart contracts

• An open-source public, blockchain-based distributed computing platform

• Consensus-based system operating via transaction

• Uses ETHER* to compensate mining nodes*blockchain for the Ether token is generated by the Ethereum platform

BLOCKCHAIN

The Move Toward Enterprise Application

SMART CONTRACTS

Early Smart Contracts – Physical Goods

• A program/computer protocol that enforces the

terms of an agreement between entities without

the need for a trusted third party.

• The smart contract is invoked when a transaction

calls it (through function calls).

BLOCKCHAIN

Smart Contracts

BLOCKCHAIN VALUE PROPOSITION

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Public/Private; Permissionless/Permissioned

Who can participate (submit transactions and view the ledger)?

Who can validate transactions and write to the ledger?

Permissionless(anyone)

Permissioned(by selection)

Public (anyone) • Anyone can join, read, write, and commit

• Hosted on public servers• Anonymous(Bitcoin, Ethereum)

• Anyone can join and read• Only authorized and

known participants can write and commit

Private (by invitation)

• Closed network• Only authorized

participants can join and read

• Only the network operator can write and commit

X

BLOCKCHAIN: USE CASE CRITERION

Pederson, Risius, and Beck Framework (2019)

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Not a blockchain use case

1.Need for a shared common database to serve as single source of truth across multiple parties?

2. Multiple parties involved in updating the database?

3. Involved parties have conflicting incentives/trust issues? (If not use one central database and share copies among trusted parties)

4. Parties can/want to avoid a TTP? (conflicting information, lags in communication, expensive?)

5. Governing rules vary between parties? Do participants need different access rights for reading and transacting? (Smart contracts are therefore needed)

6. Rules of transaction remain predominantly same? Need consistent rules for automatic execution of smart contracts and consensus procedures?

7. Need for an immutable, “one version of the truth” database for auditability? (If parties only need to track the current status, and not all the transactions that determined the current status, it’s not a use case).

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

No

No

No

No

No

No

Yes, a blockchain use case…but which one?

BLOCKCHAIN: USE CASE CRITERION

Pederson, Risius, and Beck Framework (2019)

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8. Is the public allowed to submit transactions (write)?9. Is the public allowed to read transactions?

Permissionless Public

10. Where is consensus determined?

Permissioned Public Permissioned Private

Across organizations with assigned validator nodes (Ripple)

Within organizations (private channels like Fabric)

Not a blockchain use case

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes No

No

No

No

No

No

No

No

BLOCKCHAIN: USE CASE CRITERION

Global Supply Chain Before Blockchains

Exporter’s Bank

Correspondent Bank Importer’s Bank

Exporter’s Terminal

Importer’s Terminal

Customs

Customs

Freight Forwarder/Couriers

Bills of ladingCertificationsConsignmentsCustomsInspectionsInsuranceInvoicesLines of creditOrdersShipping

Freight Forwarder/Couriers

BLOCKCHAIN

Consortium-Led Innovation: Track & trace pharmaceuticals

Private, permissioned blockchain

Retail Pharmacy

HospitalPharmacy

Pharmaceutical Manufacturer

BLOCKCHAIN

Anti Money Laundering (AML)Betting & prediction marketsBond IssuanceCollateral managementCompliance reportingCommodities pricingCross border payments (BNP Paribas)Crowd-fundingCurrency exchange (ripple, Stellar)Deal originationDerivatives tradingEquitiesFixed incomeKnow Your Customer (KYC)Mutual funds marketsPayments (Automated Clearing House)Peer-to-peer lendingPurchase orders for new securitiesPost-trade Settlements (ASX)Total Return Swaps (TRS)Trade financeWealth Management

Claims filingsClaims processingClaims admirationFraud detection/predictionMortgage-backed security (MBS)/property paymentsPolicy administrationPolicy quotesReinsurance

ComplianceDNA testingMedication monitoringPayer administrationPersonalized medicinePrescription tracking (CSCS)Provider licensure and credentialingPopulation health surveillanceRecords sharingRevenue cycle management

Financial Services Insurance

Healthcare

Government

Birth CertificatesBorder DataCorporate RegistryCopyrightsFiat CryptocurrencyFirearms trackingFlu tracking

Social Missions

Micro-financingMicro-paymentsRefugee trackingEnergy

Certifications/ DiplomasStudent records

Supply chain

Consumer

Cross company loyalty trackingCrowd sharing (rides, rooms)Digital rewardsGamesReviews

Media/Entertainment

ArtworkGames (crytokitty!)MusicVideos/movies/written works

Asset authenticity & tracking (Everledger, Tradelens, FoodTrus, Provenance, pharma, 3-d parts)AuctionsIoT grid monitoringShipping and logistics

Education

Local energy markets for microgrids (LO3)Peer-to-peer electric car charging (Share & Charge)

IdentityLicensingNotarizationTax return submissionTitle administrationVehicle registrationVoting

RESOURCES/WORKING GROUPS

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BLOCKCHAIN: RESOURCES/WORKING GROUPS

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• Founded in 2014 by David Rutter, R3 is one of the first

consortia of significance.

• R3 was launched with nine large banks: Barclays, BBVA

Francés, State Street, JP Morgan, Commonwealth Bank of

Australia, Goldman Sachs, Royal Bank of Scotland, Credit

Suisse and UBS;

• Eventually growing to 219 members

• R3 developed an enterprise-grade blockchain platform

called Corda for global financial institutions. Corda is

designed to increase privacy, reduce data redundancy (not

everyone needs to see a transaction), and scalability

INNOVATION TRENDS

BLOCKCHAIN: R3

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• The Linux Foundation launched this non-profit organization in December of 2015. Brian Behlendorf, the developer of the Apache Web server, serves as Executive Director

• Fabric, much of whose code was donated by IBM, is commonly used by enterprises, including IBM, Wal-Mart, and Maersk.

• Fabric released in July 2017

• By 2018, 18 premier members and 259 general members

Khan, F. (Oct 2018), “The Emergence of Blockchain Consortia”

BLOCKCHAIN: LINUX FOUNDATION & HYPERLEDGER

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https://entethalliance.org/wp-content/uploads/2018/05/EEA-Architecture-Stack-Spring-2018.pdfKhan, F. (Oct 2018), “The Emergence of Blockchain Consortia”

• Microsoft, Accenture, JP Morgan, BNY Mellon, CME Group, MasterCard, Santander, Wipro and 26 other enterprises founded The Enterprise Ethereum Alliancein February 2017.

• Within the first year, 200 organizations joined the alliance.

• Over 500 companies by 2018

• The Alliance is seeking solutions to Ethereum’s scalability, performance and privacy challenges.

• In October of 2018, EEA and Hyperledger Fabric announced collaboration, aiming to common standards between the two platforms.

• Sawtooth (donated by Intel) added support to EVM with “Seth”

BLOCKCHAIN: ETHEREUM

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1 https://www.bita.studio/

“Founded in August 2017, the Blockchain In Transport Alliance (BiTA), has quickly grown into the largest commercial blockchain alliance in the world, with nearly 500 members in over 25 countries that collectively generate over $1 trillion in revenue annually.”

“BiTA has offices in Chattanooga, TN, USA (Global/USA/Canada); Sydney, Australia (Asia-Pacific), and London, United Kingdom (Europe).”

BLOCKCHAIN: BITA1

UNIVERSITY OF ARKANSAS – WALTON COLLEGE OF BUSINESS

CENTER FOR BLOCKCHAIN EXCELLENCE

blockchain.uark.edu

Thank You!