Principals of Blockchain technology - Digital Business Ecosystem Kick of meeting Helsinki

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2 Principals of Blockchain technology - Digital Business Ecosystem Kick of meeting Helsinki Dr. Kari Korpela, Information Logistics Integration School of Business and Management Lappeenranta University of Technology with collaboration GS1 Innovation Network - Mark Harrison and Hussam El-Leithy IBM IoT Blockchain team - Timothy Hahn

3 Double-entry bookkeeping years Luca Pacioli establised 1494 Accounting called language of business for organization's economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators Ledger Debit Credit Equity = Assets Liabilities Double-entry system of book-keeping is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account A ledger is for recording and totaling economic transactions measured with debits and credits in separate columns, beginning monetary balance and ending monetary balance for each account Source: WikipediA

4 Standards to support interoperability 60 s 70 s 80 s 90 s s Common Business Language (CBL) US Transportat ion Data Coordinatin g Committee ANSI ASC / X.12 EDI X.12 XML XML ebxml UBL UN / EDIFACT US Automotive Industry (AIAG EDI) SWIFT ISO System of System integration M2M A2A B2B Transportation layer FTP HTTP RosettaNet GS1 BLOCKCHAIN ARPANET TELENET INTERNET

5 Transactions trough use perspective Sending and receiving Blockchain transaction Block 1 is a current public ledger status Owner 1 s Public Key Owner 1 s Private Key Block 2 Block 2 Block 3 Block 3 SHA-256 hash Block 2 Block 3 Hash Hash Block 3 Block 2 Block 1 Block 2 SHA-256 hash Block 3 Owner 1 s Public Key Owner 1 s Public Key User A sends a transaction (secure with Private Key), address to User B and adds Public Key) = block 2: - Transaction is connected to a block - Transaction is propagated to the entire network to hash approval - Block 2 is then included to the chain that stores the transaction in a public ledger - User B receives transaction and opens with public key User B can respond and send new transaction to user A by the Public Key with same procedure = Block 3

6 What does it involve? A peer-to-peer network of computer nodes for storage and verification of blocks Node A announces a transaction to its peers B and C. If the transaction is verified, B and C forward the transaction to their peers. The transactions propagate rapidly across the network

7 Hashing of data SHA-256 hash ONE WAY SHA-256 hash ONE WAY 0567 d6v a6v632 Digital data is stored in binary as bits of 0 and 1. A hashing a function such as MD5, SHA-1, SHA-256 converts the data into a compact fingerprint in a oneway function If even one bit of data in the original file is changed, the resulting hash value looks completely different

8 Private key Decrypt Transaction Owner 1 s Public Key You can use your private key to encrypt data to prove that it was you who encrypted it. You also use your private key to decrypt data from others that is encrypted with your public key ( for your eyes only ) Only you can decrypt the data using your private key. You keep your private key secret. Encrypt Owner 1 s Private Key

9 Public key Transaction You can tell anybody your public key. Decrypt Owner 1 s Public Key Encrypt Anyone can use your public key to decrypt data that you encrypted with your private key. Anyone can use your public key to encrypt data that is only intended for you to see. Only you can decrypt the data using your private key. Encrypt Owner 1 s Private Key Decrypt

10 Sending / Receiving encrypted data WELL KNOWN Public Key Transaction Owner 1 s Public Key Transaction Owner 2 s Public Key Transaction Owner 3 s Public Key Other people can encrypt data using your public key and send it to you and only you can decrypt it using your private key. Anyone can encrypt that data using your public key. FOR YOURS EYES ONLY - Data encrypted with your public key Only you can decrypt the data using your private key. Keep your private key secret and can use it to encrypt data. Anyone can decrypt the data using your public key. Owner 1 s Private Key Owner 2 s Private Key Owner 3 s Private Key They know that only you could have encrypted it. TOP SECRECT Private Key

11 Creating digital signature 1. SHA-256 hash To create a digital signature, do 2 steps. 1. Create a hash of the data ONE WAY 0567 d6v Encrypt the hash with your private key 2. Encrypts TOP SECRET Digital signature

12 Verifying digital signature 1. SHA-256 hash To verify a digital signature, do 3 steps. 1. Create a has of the original data ONE WAY 0567 d6v Decrypt the digital signature using the public key 3. Check that step 1 and 2 both give the same result 2. Decrypts WELL KNOWN Digital signature

13 Timestamped immutable records Transaction Transaction Transaction Approximately every 10 minutes, another block is added to the BitCoin blockchain. Block n-1 Block n Block n+1 Transactions contained in earlier blocks become preserved and more trusted over time, as additional blocks are added somewhat like fossils buried deep in layers of sedimentary rocks, with new layers being added on top over time. Because of this, some people have used blockchain as an immutable timestamped record (i.e. a notary function) 10 min 10 min 10 min Typically they use special Zero-value output (OP_Return) to record some data Often the data is a reference to digital file and the corresponding hash value the hash value prevents them from tampering with the data contents of the file and the blockchain locks in the timestamp within an immutable log or ledger

14 Attaching assets to transactions Inputs Debits Outputs Credits It is also possible to use colored coins to not only exchange monetary value but to attach a virtual or real-world asset, so that the transfer of the monetary value also means a transfer of the ownership of the corresponding asset to a new owner.

15 How to benefit by blockchain? Blockchain - DBE Core business transactions DBE Core is a open technical standard for exchanging business process data typically within organizations and as they move trough supply chain and also including additional information as attachments. Each organization can capture, record and share DBE Core messages corresponding standardized process protocol for their peer-to-peer manner (if they know who to contact). Event data for uniquely identified objects is commercially sensitive so companies don t publish this openly but may be prepared to share with other parties on the same supply chain, to provide traceability information on a need-to-know basis Contracts, transaction data, timestamps, audit trail

16 Blockchain - DBE Core SC Financing Blockchain Tech Could Improve Banking, Says EBA Report. Blockchain technology has the potential to reduce costs, improve product offerings and increase speed for banks, according to the most recent report from the Euro Banking Association (EBA). "What can be safely said at this point in time is that crypto technologies are an area to be closely monitored and revised for further analysis." Here, the report says that the level of cooperation between Payment Service Providers (PSPs) and the crypto technology community also between PSPs themselves will determine the future relationship between banks and 'crypto 2.0' companies.

17 IoT Blockchain Blockchain options (how) examples Collect share store control agree - authorize Contract A Contract A Contract N Value add service development Business documents Integrating global trade documentation Manage agreement to do work or purchase service and record transaction IoT information Collect information from sensors and devices Locations of shipments as they move through system Equipment history, from usage, maintenance, warranty work, replacement parts Development Create development environment for new value add service design Automatically update the smart contract

18 IBM Beta Components Open Block Chain (IoT integration)

19 Structure areas of blockchain etc. Smart contracting - Digital identity - Digital authorization - Digital signing - Agreements and document to be shared - Secure participation for development - Control of Private/Public Keys IoT transactions - Sensors and adapters - Push and pull information - Open data - Data model - Smart Apps Business transactions - esourcing, eprocurement, elogistics, eaccounting, eattachments - Data model - Smart Apps - Intellectual Property - Patent protection Ledger for record keeping - Smart contracting - Business transactions - IoT transactions - Intellectual Property - Patent protection Blockchain areas to collect share store control agree - authorize Smart contracting Manage and control Business transactions Integrating global trade documentation IoT transactions Collect information from sensors and devices Locations of shipments as they move through system Equipment history, from usage, maintenance, warranty work, replacement parts Ledger to record, archive and for audit rail of transactions

20 Discussion: Blockchain Use Cases Manufacturing, Automotive, Marine, Aviation, Energy Information: business transactions, IOT: sensors, adapters Dynamic contracts, authentication, signatures, true history eprocurement Open data, analytics, micro payments Raw material esourcing Global Trade facilitation Standardization efinance Warranty: OM, owner, buyer, insurance Customer Tracking & tracing, RFID, global location elogistics Customs & Tax Track objects, shipping, payments Finance Transaction Based financing

21 We are looking for collaboration to find next disruptive solutions to create value DIGITAL BUSINESS ECOSYSTEM How to create new value by combining - DBE core solution and - Blockchain technology LUT School of Business and Management Lappeenranta University of Technology Prof. Jukka Hallikas, Dr. Kari Korpela IBM Academy of Technology kari.korpela@lut.fi Tel

22 Few references Blockchain Conference San Francisco Video: UK Government Office for Science Video: Avoiding The Pointless Block Chain Project Blockchain Tech Could Improve Banking, Says EBA Report IBM Talks Open Ledger Project, Bright Future for Blockchain IBM Reveals Proof of Concept for Blockchain-Powered Internet of Things Blockchain in the Investment Bank; Accenture THE BLOCKCHAIN FOR BUSINESS IS READY IN 2016 Linux Foundation Unites Industry Leaders to Advance Blockchain Technology Blockchain: The Next Big Thing in the Supply Chain Blockchain technology supports blockchains thinking