2. There are 4 kinds of people in the room…
2
1. Have heard about blockchain, don’t really understand it…but figure you’d better
cover your bases
2. Read a bunch of articles in the press and have attempted to dabble here and here
3. Spent some time working with one or more blockchains and waiting for it to mature
before committing yourself
4. Certified Crypto – Anarchist who believes that it will rule the world
a.k.a your skilled in at least one blockchain platform and contributing to it’s
repo or working to build a product on top of it
4. 10 октября 2016 год
(АБС) - Автоматизированная
банковская система
Реестр включает обязательства перед
84 400 вкладчиками на 52,1 млрд
рублей
Но реальный размер привлеченных
банком средств может превысить 57
млрд рублей
Агентству по страхованию вкладов
(АСВ) пришлось использовать
реестр двухмесячной давности,
пишут «Ведомости». В итоге в реестр
вкладчиков не попали клиенты с
требованиями на 5 млрд рублей
http://www.banki.ru/news/lenta/?id=9279756
Агентство с предложением Красновой не согласно и использовать более поздний реестр не намерено.
«Поскольку АБС, из которой мог быть сформирован реестр вкладчиков, уничтожена, первичной
документации нет и, соответственно, нет оснований доверять этому документу, так как в нем могли
появиться «нарисованные» или раздробленные вклады», — говорит представитель АСВ.
6. Buying Broker
Typical Finance Services Transaction
Securities Settlement Process
Database
Selling Broker
Database
Clearing House
(Intermediary)
Reconciliation
Database
Trust Boundary Trust Boundary
Challenges
Slow Processing
High risk of errors
Security
High Compliance
Overhead
Everyone has their own
database
7. Blockchain Attributes
Trust
Peer to Peer Secure
Distributed Network
TRUST
What if?
Everyone could have a ‘Single Version of the Truth’ - Blockchain
Clearing House
(Intermediary)
Blockchain
Buying Broker
Blockchain
Selling Broker
Blockchain
Tamper Proof
Security
Traceability
Shared
8. Peer to Peer Secure
Distributed Network
TRUST
What if?
We can take Intermediaries out of the process? – Business Benefits
Clearing House
(Intermediary)
Blockchain
Buying Broker
Blockchain
Selling Broker
Blockchain
Disintermediation ->
Digital Transformation
Security/Reduce Fraud
Improve efficiency and
productivity
Increase revenue and
reduce costs
11. 11
That decentralizes data in a trustless environment
Traditional System
Centralized system
with stored ledger
Blockchain System
Distributed system
with distributed ledger
Traditional ledgers are centralized and use 3rd parties and middlemen to approve and record transactions
Blockchain safely distributes ledgers across the entire network and does not require any middleman
The technology maintains multiple replicas like p2p torrent file sharing
12. 12
However, removing a central authority is risky
What is the master?
Double Spend Problem
Byzantine General Problem
Blockchain replaces AUTHORITY with CRYPTOGRAPHY (security)
What is needed is an electronic payment system based on cryptographic proof
instead of trust, allowing any two willing parties to transact directly with each other
without the need for a trusted third party.
- Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System | Oct 31, 2008
Who can
really be
trusted?
13. 13
Ledger: Blockchain uses a distributed ledger to track transactions
A ledger is a write only database most commonly used in accounting
The digital distributed ledger creates the same copy of the data across all the participating nodes
All new transactions are digitally signed and then broadcast across the blockchain network to be added to the system
Participants in the blockchain verify the transaction is valid and then writes it to the ledger
This is the technology originally designed to power the bitcoin currency
Entire network has
same ledger
FROM TO PROPERTY VALUE
Alex Katie Payment $500
Jim Sally Payment $300
Alex Garth Asset Car
Katie Tony Payment $100
Molly Paula Message I love you
Example ledger
14. 14
More complex example: Blockchain 2.0 & Smart Contracts
Blockchain 1.0 is a simple ledger that records transactions in sequence. It represents the state of the network at any given
moment. Blockchain 1.0 was focused on transacting payments. However, folks quickly realized that you could encrypt
pretty much anything and put it on the blockchain. There are marriage proposals written to the blockchain, photographs
stored, etc.
What if you stored whole agreements on the blockchain, what would that look like?
Blockchain 2.0 expands the power of the ledger to include additional logic (code) through Smart Contracts
₋ Smart Contracts contain code and execute various terms written in that contract
₋ Like normal contracts, these Smart Contracts are based on reaching agreed-upon conditions
₋ Smart Contracts are now stored on and exist within Blockchain 2.0’s distributed ledger
₋ Think of Smart Contracts as the computer code representation of a legal contract
Examples: Contracts can be as simple as recording a loan and making payments on that loan or as complex as swaps.
Transaction
Digital signature
0x23e423s3234…
Smart Contract Event Executed transaction
15. Types of Blockchain networks
Consortium
Woodgrove
Financial
Contoso
Bank
Northwind
Traders
Bank b
Insurance c
Investment
consortium
c
Bank A
Blockchain
Location 1
Location 2
Location 3
Location 4
Department
A
Department
B
Public
blockchain
Person a
Woodgrove
Financial
Person B
Northwind
Traders
Bank 6
Bank 1
Consortium
6
Public ConsortiumPrivate
• Many, unknown participants
• Writes by all participants
• Reads by all participants
• Consensus by Proof of Work
• Known participants from one org
• Write permissions centralized
• Reads may be public or restricted
• Multiple algorithms for consensus
• Known participants from multiple orgs
• Writes require consensus of n participants
• Reads may be public or restricted
• Multiple algorithms for consensus
16. 16
And it will disrupt multiple industries
Retail & Manufacturing
Financial Healthcare Government
18. 18
Standby Letter of Credit (SBLC) | Current State
Microoft
Treasury
Agrees to Buy
Requests SBLC
Provides SBLC
Terms
Accept Terms and
Provide Issuing Bank
Details
Validates and Approves
Issuing Bank
Submits Application
Sends SBLC
Sends SBLC
Reviews SBLC
for Treasury
Processing
Tracks security to expiration date so
long as customer maintains
payment schedule. If customer
defaults, pursues claim with
Advising Bank.
Initial
Contract
Negotiation
Initial Contract Negotiation
Inform Advising
Bank in case of
Customer default
Amendment Negotiation
Amendment
Negotiation Forwards
Amendments
Resends SBLC
Reviews SBLC
Again for
Treasury
Processing
Operational Inefficiencies
Capital implications
Lack of visibility
Increasing need
19. 19
Digital Transformation
People – All four parties involved would need similar IT skill competencies to build and operate a digital system
Process – Transformation would relocate the pain from manual entry to reconciliation whenever one counterparty updates
Technology – All counterparties would require compatible technology stacks and then allow access into their networks
Corporate
Web
server
Web
Server
Database serverDatabase
Server
EnterpriseDatacenter
DeviceCorporate
Network Application serverApplication
Server
Issuing Bank
Web
server
Web
Server
Database serverDatabase
Server
EnterpriseDatacenter
DeviceCorporate
Network Application serverApplication
Server
Advising Bank
Web
server
Web
Server
Database serverDatabase
Server
EnterpriseDatacenter
DeviceCorporate
Network Application serverApplication
Server
• Counterparty IT staffs have to maintain
network connections and provide operational
cybersecurity
• SBLC latency is reduced moving from paper
to digital but still exists due to counterparty
synchronization
• Which counterparty maintains the
authoritative system of record?
• The underlying databases are still subject to
data entry errors
Opportunities for “standard” digital transformation
But…
20. 20
Blockchain-enabled digital transformation is different
Distributed system with
distributed ledger
Secure
Authenticated counterparties digitally sign SBLC requests,
updates and claims.
Shared
Applicants and beneficiaries collaborate in near real-time using
standardized templates.
Distributed
Each member of the network can use the blockchain to validate
the other counterparties.
Authoritative
Each immutable SBLC entry is written once thereby increasing
visibility and auditability while reducing error rates.
With blockchain, it’s possible to create new, more efficient processes
22. 22
SBLC Process Flow | Using Blockchain
1. Applicant agrees
to transact with
Beneficiary via
SBLC
5. SBLC activated
with expiration
date; transaction
complete
2. Applicant
submits SBLC
request to the
ledger
3. Applicant
bank issues
SBLC
4. Beneficiary
bank reviews
and advises
SBLC
23.
24. 24
Popular scenarios where Blockchain adds value
Asset Titles
Diamonds
Designer brands
Car leasing & sales
Home Mortgages & payments
Land title ownership
Digital asset records
Government
Voting
Vehicle registration
WIC, Vet, SS, benefits, distribution
Licensing & identification
Copyrights
Identity
Personal
Objects
Families of objects
Digital assets
Multifactor Auth
Refugee tracking
Education & badging
Purchase & review tracking
Employer & Employee reviews
Media
Digital rights mgmt
Game monetization
Art authentication
Purchase & usage monitoring
Ticket purchases
Fan tracking
Ad click fraud reduction
Resell of authentic assets
Real time auction & ad placements
Computer Science
Micronization of work (pay for
algorithms, tweets, ad clicks, etc.)
Expanse of marketplace
Disbursement of work
Direct to developer payments
API platform plays
Notarization & certification
P2P storage & compute sharing
DNS
Medical
Records sharing
Prescription sharing
Compliance
Personalized medicine
DNA sequencing
IoT
Device to Device payments
Device directories
Operations (e.g. water flow)
Grid monitoring
Smart home & office management
Cross-company maintenance markets
Payments
Micropayments (apps, 402)
B2B international remittance
Tax filing & collection
Rethinking wallets & banks
Consumer
Digital rewards
Uber, AirBNB, Apple Pay
P2P selling, craigslist
Cross company, brand, loyalty tracking
Supply Chain
Dynamic ag commodities pricing
Real time auction for supply delivery
Pharmaceutical tracking & purity
Agricultural food authentication
Shipping & logistics management
Financial
Trading
Deal origination
POs for new securities
Equities
Fixed income
Derivatives trading
Total Return Swaps (TRS)
2nd
generation derivatives
The race to a zero middle office
Collateral management
Settlements
Payments
Transferring of value
Know your client (KYC)
Anti money laundering
Crowd Funding
Peer-to-peer lending
Compliance reporting
Trade reporting & risk visualizations
Betting & prediction markets
Insurance
Claim filings
MBS/Property payments
Claims processing & admin
Fraud detection/prediction
Telematics & ratings
Digital authentication
Asset management
Automated underwriting
Self-administered insurance
26. Open Infrastructure, Enterprise Capabilities
Blockchain has some missing parts…
Existing Systems
Identity
Privacy
Operations
&
Management
Better Tools
Security
In Depth
Key
Management
Data Services Solutions
27. 27
Execution on strategy in 3 steps to develop most compelling
Blockchain offering
POCs
HealthcareRetail & CPG GovernmentDiscrete
Manufacturing
Banking,
Capital
Markets
Azure – Blockchain resource provider
Horizontal SaaS & Adapters
3rd
Part
y
3rd
Party
3rd party
DL stack A
1st party DL Stack
1st Party
3rd
Party
Blockchain Virtual Machine Adapters
Smart Contract-Based Distributed Ledger Stacks UTXO + others
MiddlewareBasePlatform
3rd party DL
stack C…
…..
IndustrySolutions
Crypto services & architecture (secure containers, attestation, etc.)
Professional Services & Support
Identity & Key
Services
Encryption
Services
ML & BI
Services
Distributed
Ledger Gateway
Services
3rd party
DL stack B
28. 28
We’ve delivered an open, broad,and
flexible cloud across the stack
Applications Management Clients
Web App Gallery
Dozens of .NET & PHP CMS and Web apps
Infrastructure Databases App Frameworks
SQL Server
+Hundreds of community supported
images on VM Depot
Azure BaaS
HyperScale
EnterpriseGrade
Hybrid
Microsoft Azure | An Open Cloud
31. o Superset of public chain Ethereum
o Addresses enterprise needs
• Confidentiality, scalability, permissioning
o Real –world compatibility is key measure of success
o Not a specific product -> focus on specs
o Dogfooding governance on blockchain
Enterprise Ethereum Alliance
32. 32
Blockchain evolving from simple ledgers, to cryptlets that fetch trusted
and agreed-upon external data needed to execute Smart Contracts
Smart Contracts are unable to access external data or events based on time or market conditions. Calling code or
data outside of a Smart Contract or blockchain breaks the general trust barrier and authenticity of transactions.
Cryptlets will allow the blockchain to access external data securely, while maintaining the integrity of the blockchain.
Microsoft Innovation
33. Introducing Cryptlets – Secure Distributed Middleware
Blockchain ledger
A bank, hedge fund and
insurance company enter into a
SmartContract
Everyday at 4 PM GMT it needs a
calculated rate like:
(LIBOR * .04%) + Diff(Gold)
37. Blockchain Architecture
Blockchain data source Data Ingest Analysis Publish Visualize
Azure
REST
API
Azure ML
Scoring the
transactions
Azure
Blockchain
Service
Azure
Event
Hubs
Stream
Analytics
Stream
Analytics
Blockchain
Transactions
Blockchain Transactions
Stored as events into Azure
Data Lake
Live Dashboards
38. Mutual Pet Insurance at Azure
Ethereum Blockchain Consortium
Get up to an 80% refund of the cost of
veterinary services
Pet identification based on the photo
Pet owner facial scoring
«Live» smart contract LexiCard
Just started
100+
signed contracts
Microsoft Platforms &
tools: Azure Blockchain as
a Service, Microsoft Bot
Framework, Cognitive
Services
Hackathon award
Blockchain DevCon
Microsoft 2016
Currently in Russia
Plans to start also in
EU and US
Pet owner
scoring
Microsoft ML
Pet identification
Microsoft
Cognitive
39. 39
SIGN UP FOR AN AZURE ACCOUNT
• https://azure.microsoft.com/en-us/solutions/blockchain/
SETUP BLOCKCHAIN NETWORK ON AZURE
• Create your custom private/consortium network
https://azure.microsoft.com/en-us/documentation/templates/
DEPLOY DEV/TEST BLOCKCHAIN ENVIRONMENT TO LEARN
• Marketplace Offerings: https://azure.microsoft.com/en-
us/marketplace/?term=blockchain
• Azure Quickstart Templates:
https://github.com/Azure/azure-quickstart-templates
How do you
get started?
START BUILDING OUT SCENARIOS AND APPS
Develop your own Smart Contracts and Dapps using Visual
Studio Solidity Extension:
https://visualstudiogallery.msdn.microsoft.com/96221853-33c4-
4531-bdd5-d2ea5acc4799/
CONNECT WITH BLOCKCHAIN ENGINEERING TEAM
• Join Blockchain Azure Advisors group on Yammer:
http://aka.ms/AzureAdvisors
Editor's Notes
Опишите, как задачи вы ставите перед мастер-классом или докладом. Что узнают участники и т.п.
To explain at a high level how Blockchain works, I would like to take you through a scenario. Our customers store all of their key information in Databases. At a simplistic level, they store the data as records in a container. They invest a lot of money to surround their databases with layers of Security. If someone can penetrate these layers and access the database, a cyberattack can typically can access all of the information in that database and there is a breach. The organisation becomes the trust boundary for consumers of that data - users and applications.
To build on this scenario, let's look at a typical transaction in Financial Services - a Security Settlement. It involves the exchange of financial assets like stocks. It involves two brokers (a buyer and seller).
Because these two organizations don't trust each other, the process has to go through an intermediary such as a Clearing house. This is typical of many transactions in FSI.
This presents some challenges-
It is slow. Each party has to exchange data at different parts of the process
Everyone has their own view of the data (that is slightly different)
In some cases data can be incorrect in one or all databases
Security is a challenge. Data is not encrypted at rest or in transit in some cases
The compliance and audit overheads are high. FSI's have to dedicate resources to ensuring the process is auditable and increase additional steps to the process. It is very difficult for Regulators to trace the transaction after it is completed. Audit and Regulatory Compliance requirements have escalated hugely since the last financial crash.
What if - Everyone in the process could have the same Database - or a 'Single Version of the truth'
This is the prize of Blockchain technology. It will revolutionize how our customers can interact with their peers and their customers.
Blockchain enables this through four capabilities that work together to break down the trust boundaries between organizations
It provides a means to create a network of trust across organizations
It is tamper proof - everything written into the Blockchain is written is sequence and can't be changed after the fact.
This makes every transaction easy to audit and trace from a regulatory perspective
It is secure. Data is encrypted at all times - making it very difficult to hack
Santander estimate for productivity savings is between $15-20 Billion per year until 2020 - http://www.coindesk.com/santander-blockchain-tech-can-save-banks-20-billion-a-year/
Let's take our scenario one step further. Now that we have a network of trust between our brokers, we can simplify and accelerate the settlement process by taking out the Intermediary. This has huge benefits namely
Businesses can build new business models. We have seen the impact of this already in the Travel and Music Industries. It has also transformed how Microsoft goes to market with products (we used to sell our Software to consumers through a partners/retail - now we sell direct)
The Security and Fraud prevention benefits have massive potential for industries like Insurance where Claims Fraud is a huge cost
Blockchain can enable processes to happen at speed. Our Settlement process could be reduced from days to seconds with Blockchain technology. Now that the transaction is easier to audit and transparent from a regulator perspective, the audit overheads can be dramatically reduced. Santander have estimated that Blockchain technology can save the FSI industry between 15-20 Billion dollars per year in productivity gains.
Blockchain can also deliver cost savings - intermediaries typically take a percentage of the cost of a transaction.
Santander estimate for productivity savings is between $15-20 Billion per year until 2020 - http://www.coindesk.com/santander-blockchain-tech-can-save-banks-20-billion-a-year/
https://www.cryptocoinsnews.com/12-r3-member-banks-trial-cross-border-payments-ripples-xrp-blockchain/
https://www.linkedin.com/pulse/how-transactions-validated-distributed-ledger-george-samuel-samman
Blockchain Networks come in different types. We see Enterprises using Consortium or Private Blockchains.
Distributed Databases vs Distributed Ledgers
Traditional process reengineering benefits one process participant, while blockchain-enabled transformation accelerates benefits simultaneously to all participants.
Additional Slides to expand this story are added to the end of this presentation. To summarize the scenario
The diagram on the left shows a process that Microsoft Treasury follow to issue a Standby Letter of Credit to a customer (SBLC). This process involves the customer (applicant), Microsoft (the beneficiary) and two banks (the Issuing Bank which is the customers Bank, and an Advisory Bank (used by Microsoft to do the credit check).
The process on the Left takes between 3-5 weeks – is paper based with emails and faxes. Each line on the diagram represents a piece of information flowing between the four parties or a decision point.
The diagram on the right shows how the process was improved with Blockchain – reduced to 5 steps. With a Smart Contract, each party can see the state of the approval along every step of the way and works off a ‘single version of the truth’. The process has been reduced from weeks to 3-5 days. The full deck on this scenario is included at the end of this slide if you want to provide more context. Also look at this video to see how our Treasury business provides the context - https://mediastream.microsoft.com/events/2016/1609/SIBOS/player/SIBOS-1013.html
Enterprise Consortium Blockchains need more
How to work with
Identity and Key Management
Security in Depth
Operations and Management
Privacy – Secure Execution, Secure Data
Be great to have some analytics – the goose that lays the golden eggs
Oh and the tools really need to improve
Open source technologies will serve as the building blocks for this ecosystem
Project “Bletchley” will remain open to all protocols, consensus algorithms, databases, and virtual machines
Project “Bletchley” is a modular framework, which allows users to select the combination of technologies that best fits their needs
To pull business logic up above the blockchain to a separate middle layer, the logic code needs access to a variety of services, including secure execution, attestation, identity, cryptographic support, data formatting, reliable messaging, triggers, and the ability to bind that code to schema in specific smart contracts on any number of blockchains. Those services can be provided in a fabric, where the individual pieces of code that support the smart contracts can execute, send transactions to blockchain nodes, and be bound to the schema in the data tier.