Business of Blockchain LERNER Consulting 05 2017

Confidential Information 0

“Bitcoin the currency, I think, is going to go nowhere … the blockchain is a technology which we’ve been studying and yes it’s real.” —Jamie

Dimon on CNBC

Confidential Information

Business Of BlockchainSetting the Record Straight

May 2017


What is a blockchain?

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Publically recorded events (ledger entries) recorded chronologically and verified by multiple third parties


What’s in a Blockchain Ledger?

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1. Eye Exam 5/12/2017 Patient 8931

2. Visit on 5/12/20173. Need new glasses4. New prescription

Patient 89315. Prescription 99881

filled6. Follow-up appt

scheduled 6/12/20177. Annual Checkup

5/12/2018






5/12/2018






5/12/2018

• Rows of information, just like a database

• Validation and verification is based on mistrust

• Public audit trails, (we’ll talk about private ones later)

• Record keeping by many third parties often unknown


Why Separate Blockchain from Bitcoin

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Trust


Blockchain Evolution – FinTech Emerges

• 1.0 – Currencies

– Hardwired to crypto fund transfers. Uni-tasker

• Consensus based

– 2.0 – Contracts

• Recorded agreements across transactional processes. Multi-tasker

– 3.0 – Organizing Activity

• Assets are owned and may transact with one another.

• Smart homes, distributed devices in remote areas (E.g., farms)

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Platform as a Service

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Platforms = Wealth: Amazon Web Services

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• Detached from Retail business in 2006

• AWS Q1 2016– $604 MM

• AWS Q1 2017– $890 MM

• Operating Margin – 24%+

https://www.recode.net/2017/4/27/15451726/amazon-q1-2017-earnings-profits-net-income-cash-flow-chart


What’s happening today?

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Averageinvestmentis$1,000,000

15%ofbanksplantoputblockchaininproductionin

2017

$500MMVCMoneyin2016

IBMDevoting1,000FTEsand

$200MM

Estoniahasdevelopedane-

Residencyprogram

Total2016investmentwas

$1.4B


Why separate the blockchain from Bitcoin

• Common vocabulary– The blockchain – The underlying

ledger solution for Bitcoins– A blockchain – The technology

solutions that solve distributed record keeping

– Distributed Ledger Transactions (DLT) – Consensus based transactions

– Proof of Work– Proof of Stake

9Byzantine General Scenario


Proof of Work

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• Transactions or “messages” are part of the encryption input

• Approximately six times per hour transactions are committed to the ledger

• Cryptographic standard SHA-256– Mathematically “hides” the incoming message– One way encryption

• First miner who ”solves” the equation gets paid

• Nonce (Number used once)• Proof-of-Work

– Paying for accounting

• Electrical energy intensive


Digest Results from SHA-256

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fox =776cb326ab0cd5f0a974c1b9606044d8485201f2db19cf8e3749bdee5f36e200

fxo =

fbf7443c4238ad48b4d28226ff7dcca5e5ab467b2c37b960ebc860703d925f52

Thequickbrown fox jumped over the lazy dog =

7d38b5cd25a2baf85ad3bb5b9311383e671a8a142eb302b324d4a5fba8748c69


Proof of Stake

• Requires a series of Validators

• Requires much less electrical energy

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Blockchain Projects and Technologies• Open Source and Open Source projects• Hyperledger – Hyperledger.org

– Open source projects supported by the Linux Foundation• Fabric – IBM supplied technology for distributed ledgers• Iroha (ee-roh-ha) - Soramitsu, NTT Data, Colu• Sawtooth Lake – Intel

• Ethereum – Ethereum.org– Distributed scripting language which is “coin-operated”– Smart contracts between individual entities

• Enterprise Ethereum (Entethalliance.org)– Business consortium based project. Technologies that acknowledge the need for regulatory compliance

• Eris (now Monax) Monax.com– Pre-built blockchain solutions– Examples Asset Managements, Claim Management

• Ripple (Ripple.com)– Basic settlement process between banks

• Quorum (https://www.jpmorgan.com/country/US/EN/Quorum)– Open Source from JPMorgan Chase to validate transactions amongst trust third parties

• R3 (R3cev.com)– Company based consortium developing a blockchain technology (Corda) for permissions and privacy. Ledgers are selectively

transferred 13


Is This a Hammer In Search of a Nail?• Inter-Company Transfers (manual hand-offs)– Insurance– Property and title transfers– Anything with government as a third party

• Verifiable Record Management– Formally physical assets now digital (stocks, currency, prescriptions,

vehicles) • Identity Management– Identity and “certificates of trust” for mobile economy companies such

as AirBnB and Uber• Smart Contracts– It’s the new Software as a Service

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Private vs. Public Blockchains

• Public Blockchain– Many third parties validate ledger entries– No single “owner”– Harder for the black hats to take over– Policy changes are by consensus unlike companies (e.g., Facebook)

• Private blockchains– Faster to close or clear transactions– Single owner – Bad scenarios for trust– Good for small autonomous networks

• Internet of Things

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Company Profile: Overstock.com• Founded: February 2002• Nasdaq: OSTK.O ~$15• Revenue: $1.754B• Overstock.com, Inc., is an online retailer and incubator of blockchain

technology

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• Wholly owned by Overstock • Incubate technologies in six

areas– Voting– Land– Underlying Technologies– Cap Markets– Identity– Banking


Lawrence I Lerner

• Bridging the gap between the Business and Technology– 25 years executive leadership (PricewaterhouseCoopers, Cognizant)– 15 startup companies – lead and funded– Every day technology product launched Motorola, Discover Card, The

New York Times, Safeway Stores, in-store coupons– Public and Private board roles

• [email protected]• Direct: +1.630.248.0663 (Seattle Based)• Twitter: RevInnovator

• LinkedIn: https://www.linkedin.com/in/lawrencelerner/

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Bitcoin- Just Three Things1. The value of a bitcoin is

volatile- Like stocks

2. Bitcoin transactions are notreversible- Like cash

3. There are no bitcoins– There are only bitcoin

transactions

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Business of Blockchain LERNER Consulting 05 2017

Economy & Finance

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