Blockchain Applications Are Coming to The Enterprise

Transcription

1 A JITTERBIT & MAGNET360 WHITEPAPER Blockchain Applications Are Coming to The Enterprise Table of Contents Introduction... 2 What is Blockchain?... 3 New Form of Digital Trust... 5 A Medium of Exchange... 5 How It Works... 6 Smart Contracts... 7 Does Blockchain Need Cryptocurrency?... 8 How is Blockchain Changing Software Delivery?... 9 Indusry Impact Expeditious Workflow Cheaper Transactions Transparent and Immutable Contracts Jitterbit: A Need for Compatible Blockchain APIs Magnet360: Connected Blockchain Strategies Decentralized Platforms Consensus Level Security Autonomous Processes... 11

2 2 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Introduction Last year, the rise of cryptocurrency prices like Bitcoin triggered a surge in boardroom discussions around blockchain. Although the crypto market has since fluctuated wildly, blockchain conversations remain. Analysts and industry experts have concluded that, despite the volatile and speculative nature of cryptocurrency, blockchain technology is undeniably valuable. Now, technology leaders around the world are exploring ways to leverage blockchain technology, create stable platforms and capitalize on decentralized networks. Blockchain poses several advantages to enterprise systems that could help position early-adopters as future industry leaders. Still, the technology is misunderstood by the mainstream and propagated as a speculative asset. Meanwhile, companies like IBM, Salesforce and Microsoft are experimenting with existing blockchain platforms and creating new operational paradigms. The interest of large companies in blockchain is a promising indication of its permeance in future enterprise technology. However, there are still many hurdles to the adoption of blockchain technology. Mainly, companies must begin to understand how blockchain fits into their existing structures and map integration strategies through APIs. Today, Jitterbit is committing resources to explore the benefit of blockchain and develop integration tools for future networks. In this document, we will outline some of the fundamental benefits of blockchain and describe the technology s potential.

3 3 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE What is Blockchain? A blockchain is a distributed, open and immutable ledger that records transactions digitally and chronologically. The blockchain uses a network of computers to collectively log transactions and maintain ledgers. These computers, sometimes referred to as miners, secure the ledger and validate its accuracy through consensus. In a true decentralized blockchain, the network rewards miners for their participation with cryptocurrency. Miners generate cryptocurrency by solving complex algorithms that also secure the network and codify each transaction. The incentivized nature of blockchain allows the network to scale with multiple computers vying for the cryptocurrency rewards.

4 4 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE BLOCKCHAIN TECHNOLOGY The blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without the need for a central certifying authority. Potential applications include fund transfers, settling trades, voting, and many other uses. HOW IT WORKS: Someone requests a transaction. The requested transaction is broadcast to a P2P network consisting of computers, known as nodes. Validation The network of nodes validates the transaction and the user s status using known algorithms. A verified transaction can improve cryptocurrency, contracts, records, and other information. The transaction is complete. The new block is then added to the existing blockchain, in a way that is permanent and unalterable. Once verified, the transaction is combined with other transactions to create a new block of data for the ledger. BENEFITS Increased transparency Accurate tracking Permanent ledger Cost reduction UNKNOWNS Complex technology Regulatory implications Implementation challenges Competing platforms CRYPTOCURRENCY Cryptocurrency is a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. Bitcoin is the best known example. POTENTIAL APPLICATIONS Has no intrinsic value in that it is not redeemable for another commodity, such as gold. Has no physical form and exists only in the network. Its supply is not determined by a central bank and the network is completely decentralized. AUTOMOTIVE FINANCIAL SERVICES TRANSPORTATION HEALTHCARE Consumers could use the blockchain to manage fractional ownership in autonomous cars. Faster, cheaper settlements could shave billions of dollars from transaction costs while improving transparency. Using a blockchain IoT device and ledger, transportation companies can have an immutable record of goods transferred from one location to the next. Patients encrypted health information could be shared with multiple providers without the risk of privacy breaches.

5 5 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE New Form of Digital Trust A better way to think about blockchain is in the context of social trust. Michael Casey and Paul Vigna wonderfully articulate this perspective in their book The Truth Machine. The amalgamation of information that goes into proving we can be trusted as a member of society has historically depended upon institutions that record and affirm our life events and credentials bank accounts, birth certificates, changes of address, educational records, driver s licenses, etc. and keep track of our financial transactions. Social trust is the basis of society. Today, we derive trust from centralized institutions that use third-parties to validate transactions. Legacy foundations and infrastructures banks, government departments, education systems, medical facilities, etc. provide proof and records of our claims. This system is effective with proper checks and balances. However, these systems are susceptible to corruption, error, inefficiency and malicious attack due to their dependence on central authority. Countries with less reliable infrastructures face perennial mistrust that could result in social, economic and political unrest. Blockchain is a solution to social trust that removes third-party interference. Blockchain technology rely on modern digital technologies that use cryptographic proof to validate transactions that obviates a central authority. The autonomous common protocol, which generates consensus, orchestrated across several nodes (or clusters of computers), makes blockchain a tenable solution that prevents corrupt intermediaries. A Medium of Exchange Bitcoin (or BTC), the gen-1 iteration of blockchain, uses its network of computers to focus on real-time peer-to-peer transaction settlements. It was created in 2009 by an anonymous person or persons under the pseudonym Satoshi Nakamoto to circumvent traditional financial institutions and re-architect transactions. To understand Bitcoins purpose, we need to first look at our existing monetary system: how money is created and how it is tracked. Let s use the U.S. as an example: For the U.S., the Federal Reserve regulates the printing of money to keep the US

6 6 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Dollar (USD) stable. We trust the federal reserve to keep an accurate record of demand in their ledgers and print money accordingly. US Dollar value is a speculative store of trust; people accept cash at the ascribed value because they trust that it will be received elsewhere at equal value. Society assumes the value based on trust in the Federal Reserve. The Federal Reserve uses banks to distribute currency. Trust in the USD passes from the Federal Government to banking institutions that measure how much money they have stored and how much they have distributed to the public. This is all done through internal ledger systems. For almost 500-years central banking authorities have used double-entry bookkeeping: a system where every entry to an account requires a corresponding and opposite entry to a different account. This is how consumers access money and exchange with peers. The government and banks all act as middlemen to facilitate the monetary flow. With this system, notaries, accountants, and bankers have sole authority of financial trust trust that occasionally financial institutions betray, as was the case with the 2008 financial fraud of the Wall Street firm Lehman Brothers. Bitcoin is a departure from traditional money in many ways. It is digital, limited and produced with exponential difficulty. The value of the cryptocurrency is speculative. However, unlike the USD, it is deflationary and derives its value from its immutable trust of computer consensus, unmatched security (you cannot counterfeit it), and immediacy of digital transactions. How It Works Hundreds of thousands of computers (miners), which constitute the Bitcoin network, allocate their processing power to keep a full copy of the blockchain and verify and process transactions. When a person sends a Bitcoin to another user s address, the entire network validates the transaction and confirms the legitimacy. Then, the miners each update their ledger to reflect the transaction. The network pays miners small transaction fees (about BTC per byte of transaction data). Several transactions are bundled together into a block, which is then hashed (or marked with a special cryptographic equation). Miners compete to solve the equation, which validates the block and adds it to the blockchain. The first miner that solves the equation receives a substantial Bitcoin reward (about 12.5 BTC). There are only 21 million bitcoins available and the Bitcoin block mining

7 7 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE reward halves every 210,000 blocks. Over time, more miners join the network to compete for the block rewards and obtain transaction fees. More miners add more network stability and improve transaction speeds. Also, added miners increase competition to receive block rewards. Fewer and fewer Bitcoin are available to mine and the demand causes the value of Bitcoin to steadily increase with adoption. Smart Contracts Bitcoin proposed a novel approach to monetary exchange. But the concept of a secure and immutable ledger has since evolved to incorporate much more. Ethereum (ETH), a gen-2 cryptocurrency, added smart-contract capabilities to the blockchain. A smart contract is a computer protocol that is written into the blockchain to digitally facilitate, verify and enforce the negotiation of a contract. Developers of Ethereum envisioned using blockchain technology to encompass all digital access, ownership and exchange. With smart contracts, people could use the blockchain to not only validate transactions but also enforce contracts with the same cryptographic code. In this system, persons could create a bounty style request. For example: Person/Object A writes a smart contract that will reward any person/object that completes an event. Person/Object B completes this task according to the programmed smart-contract and the blockchain network forms a consensus that the contract has been fulfilled. The blockchain network completes the transaction by transferring the associated cryptocurrency amount from person/object A to person/object B s wallet without any third-party medium. The trust of the contract fulfillment is decentralized and based on the mathematical trust of the network.

8 8 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Does Blockchain need Cryptocurrency? This is a heavily debated topic within the crypto community. In basic terms, blockchain deliberates the state of a shared database between multiple parties who don t trust each other. Technically, a blockchain can exist between several privately owned computers without a reward structure. In this instance, computers would still verify transactions, but restrictive network ownership would diminish trust. On the other hand, if only a few entities own the entire blockchain network, it s trust is more centralized. Regardless of the consensus, central authorities could still easily collude to augment, taint or hack the data. Cryptocurrency is the preferred means by which several people can participate using public blockchain protocols. The more participants in the network, the greater the trust. The value is of the token is reflective of the value of a set protocol (e.g. transaction settlement). Digital Rights E-commerce Global Payments Escrow Wagers SMART CONTRACTS DIGITAL CURRENCY Remittance P2P Lending Microfinance BLOCKCHAIN Equity Private Markets Debt SECURITIES RECORD KEEPING Healthcare Title Records Ownership Crowdfunding Intellectual Property Derivatives Voting

9 9 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE How is Blockchain Changing Software Delivery? Blockchain may re-architect the digital world as we know it. It could disrupt digital rights, access and records. As an interconnected network of computers that incentivizes and scales, blockchain provides a blueprint for a world computer. All actions on the internet are digital transactions. When you request access to a server a centralized system of computers that store and host websites you create a digital transaction between your computer and the host. At the moment, we allow third-parties to broker those transactions. We transmit and receive data to websites - such as Google, Facebook, Amazon and Apple - that are hosted on these servers. As digital consumers, we place an immense amount of trust in these companies for securing our s, personal data, internet searches and content. Many enterprise applications today run on cloud servers and share data freely through open source APIs. Central authorities dictate the flow of information and decide what is shared and with whom. Cloud servers encrypt and encode information to protect it, but there is little public transparency about how each cloud app company uses our information. Blockchain reclaims trust and allows users to reshuffle the management of data into a decentralized network guided by autonomous and immutable code. In the blockchain paradigm, users own their data and transact with a level of anonymity (users are identified by their wallet address rather than a name). With blockchain, software can become more prescriptive, secure and efficient. Here is a sampling of possible use cases according to The Truth Machine: Inviolable property registries, which people can use to prove they own their houses, cars, or other assets; Real-time, direct, bank-to-bank settlement of securities exchanges, which could unlock trillions of dollars in an interbank market that currently passes such transactions through dozens of specialized institutions in a process that takes two to seven days;

10 10 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Self-sovereign identities, which don t depend on a government or a company to assert a person s ID; Decentralized computing, which supplants the corporate business of cloud computing and web hosting with the hard drives and processing power of ordinary users computers; Decentralized Internet of Things transactions, where devices can securely talk and transact with each other without the friction of an intermediary, making possible big advances in transportation and decentralized energy grids; Blockchain-based supply chains, in which suppliers use a common data platform to share information about their business process to greatly improve accountability, efficiency, and financing with the common purpose of producing a particular good; Decentralized media and content, which would empower musicians and artists and, in theory, anyone who posts information of value to the Net to take charge of their digital content, knowing they can track and manage the use of this digital asset. Decentralized Platforms Blockchain lays the groundwork for a cloud 2.0. Platforms like Ethereum provide developers tools to build decentralized applications (Dapps). These platforms use the Blockchain to host their backend processes. Unlike cloud computing, the decentralized blockchain does not need to live in a server room. It spans the mining network and uses cryptographic proof to dictate access. Decentralized platforms allow developers to tokenize their applications and ascribe value to the apps purpose. In this way Dapps can commoditize participation. Consensus Level Security Blockchains are secure. Far more secure than any cloud-based system today. A blockchain-based application runs concurrently across the whole of the network and cryptographically checks each interaction to maintain system integrity.

11 11 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE If any ledger of interaction does not match with all of the other ledgers across the network, the system will reject a block formation and/or terminate the smart contract. The network must establish consensus that each interaction is valid. With central authorities, hackers can target single points of vulnerability and then exploit weaknesses to obtain private data or hijack the system. For a hacker to change or corrupt a blockchain, they would need to simultaneously hack the majority of computers in the network. They would need to rewrite thousands of ledgers or attack a minimum of 51% of the consensus nodes. In practice, the attack would cost more for the hacker than the value they d extract. And since the blockchain network continues to expand overtime as more miners participate, the difficulty to hack blockchains gets exponentially harder. Autonomous Processes Smart contracts use virtual machines to enact tasks that would otherwise need third-party validation or interference. Because of the exactness of cryptographic proof, smart contracts may present opportunities to automate and expedite process that previously required substantial oversight. For example: Let s say you want to set up a smart contract on the blockchain for a farm-to-table interaction between a fish company, shipping company and restaurant. You want to use IoT devices to measure the temperature of the fish and guarantee that the storage and shipping environment is perfect, providing the restaurant the best product. You plan to broadcast this information on an open ledger to give customers, inspection entities and supply chain managers clear and immutable evidence of quality and quantity of shipments. Without the blockchain, the initial supplier, delivery driver and restaurant staff are responsible for self-reporting the quality and quantity of the shipment. Trust is uncertain and if the fish spoils, each party could fault another party. Self-reporting takes time, and it is difficult for individuals to recognize temperature discrepancies fast enough to divert spoiled product and trigger replacement orders. Using the blockchain, you create an IoT monitoring system that measures and reports temperature, location and ownership to the ledger. You set compliance

12 12 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE rules for benchmarks in the journey. Now, the supplier scans the IoT device and initiates the journey. Each party rescans the IoT shipment when it trades ownership. The blockchain network generates consensus on who owns the product, where the product is and whether it is in compliance with the temperature parameters. If the IoT device identifies that the temperature is out of the acceptable range, the contract will shift into an out of compliance state. Managers can contact the responsible party and quickly facilitate a refund or reorder. In this example, the blockchain serves to both expedite the shipping and guarantee compliance. The IoT to blockchain connection allows each party to forgo traditional manual data entry. Because the ledger spans the blockchain network, no person can falsify claims that they did not receive a shipment or that the shipment wasn t properly regulated.

13 13 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Industry Impact Just within the fintech space, removing third-parties and expediting monetary exchange has trillion-dollar implications. Consider that international wire transfers sometimes take up to 5 business days for banks to clear the transaction. Compound that with transaction fees and the amount of interest lost and you can see how a blockchain could unlock trillions of dollars lost to inefficiency. For other digital rights and trusts, blockchain may have even bigger implications. Corporations own trust for digital assets. Today, individual companies regulate energy grids, access to Internet, our identity profiles medical records, government documents, property registries, etc. all digitally. Gatekeepers control our information with major autonomy. But in decentralized models, we could transact more directly without gatekeepers. Imagine you had a digital wallet set up for energy where you transacted directly with the grid rather than a collection service. Tokens in your digital wallet, pegged to cryptocurrency, could flow between your wallet and the energy company based on exactly how much energy you use in real-time. You could set limitations, warnings and even program individual devices to regulate your daily spend down to the exact cent. In this model, you d have the most efficient energy grid with the lowest cost to customers. What if you could get internet without internet providers? What if you could access software for fractional costs on a demand basis? What if you could secure your data and regain complete authority of your digital thumbprint? Expeditious Workflow Removing third-parties in lieu of a more autonomous system offers obvious time-saving benefits. Logs and ledgers that require constant review and approval weigh down processes. Automatically reviewing and approving with a secure and immutable network expedites workflow.

14 14 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE With blockchain, we could see faster and more accurate transactions, computations and contract validations. Cheaper Transactions Third-parties cost money. If you ve ever used a bank or notary, you ve likely noticed there are fees attached to processing transactions or forms. For other digital transactions, fees are less manifest and are often baked into the price of software or content access. Transactional mediums require manpower, time and energy, all of which create costs. Cutting out third-parties saves money as much as it saves time Transparent and Immutable Contracts When you create a contract with an individual, it s important that you have your own copy or receipt of the transaction. Without it you have no proof. Receipts are fairly common, but what protects the integrity of a receipt. What insures that it constitutes proof, or that it will be recognized and honored? What happens if a receipt is lost, misfiled or overwritten? Digitally, receipts occur silently between IP Addresses, Logins, Passwords and Usernames. But hardly anyone really pays attention to these contracts. If there is a violation from one party it may go ignored or unnoticed. Such might be the case in terms of private data. Does Facebook really keep your data secure? Could they say that information is private and then sell it to someone else? On the blockchain, a person may encrypt their information but retain an identifying cryptographic key that can chronicle where the data is sent. Digital assets are all immutably branded within the blockchain so that transactions are irrefutable and irreversible.

15 15 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Jitterbit: A Need for Compatible Blockchain APIs Blockchain offers a new approach to data management and provides another source for valuable information. Anywhere a company or individual needs trust -- any transaction that requires a record -- blockchain can support with autonomy, efficiency and certainty. In the future, companies may choose to store several contracts or transactions on the blockchain to capitalize on the immutable record. Still, they will need a way to visualize and analyze records. Companies will want to move ledgers into the familiar cloud and on-prem databases and CRMs they use for everyday digital business. To do that, they ll need strong APIs. That is where Jitterbit comes in. Jitterbit and other API companies could provide the needed bridge between blockchain ledgers and cloud/prem databases. The evolution of blockchain will likely spark new applications that measure blockchain data to create better workflow. Digital Rights E-commerce Global Payments Wagers Escrow Equity Private Markets Debt Microfinance BLOCKCHAIN SMART CONTRACTS SECURITIES DIGITAL CURRENCY RECORD KEEPING Remittance P2P Lending Healthcare Title Records Ownership Blockchain APIs Crowdfunding Intellectual Property CUSTOMER Derivatives Voting DIRECT EAI/BUS FTP

16 16 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE In particular, AI could play a major role in the future of ledger interpretation. Assuming companies can use APIs to extract ledgers, companies may begin to create more dynamic and accurate measures of company records. This would bolster operational efficiency and open doors to unprecedented workflow management. For the moment, blockchain and cryptocurrency technologies are still in the Wild West phase of development. There is a lot of potential, but most use cases haven t moved past theoretical. The next decade will see many iterations of blockchain. At Jitterbit, we are excited to see what decentralized ledger technology might become. How far along are companies with blockchain? 84% say their organizations have some involvement with blockchain technology. Blockchain project stage 14% 20% 32% 10% 15% 7% None Research Development Pilot Live Paused Includes companies at any stage

17 17 JITTERBIT BLOCKCHAIN APPLICATIONS ARE COMING TO THE ENTERPRISE Magnet360: Connected Blockchain Strategies According to Gartner, blockchain has reached peak Hype Cycle. Most business use cases for blockchain being discussed today do not require a truly distributed and immutable ledger. In fact, the vast majority of these use cases would be better served by a traditional database. There will be many corporate blockchain projects that end up being nothing more than the corporate intranet of today s IT landscape. What adds more value to a company today? Their corporate intranet or their employees, products and services connected to the internet? Try to imagine Amazon, Google, Facebook or Uber without the internet. These companies would simply not exist. With this in mind, Magnet360 helps companies focus on blockchain strategies that are centered on connecting your employees, products and services to public blockchains. We want companies to avoid the intranet trap of building closed corporate blockchains. Currently, we are exploring with companies how they connect to public blockchains and build their own distributed applications that run on these blockchains. Today, the most mature use case in blockchain is focused on finance with Bitcoin, Ethereum and many public cryptocurrency projects functioning at scale. These public blockchains are set to create a major disruption of finance over the next decade. We see the groundwork being laid by companies like ICE, parent of the New York Stock Exchange who are launching a new company called Bakkt. Bakkt, partnering with Microsoft and Starbucks, will focus exclusively on the disruption of finance by cryptocurrencies. Beyond the finance area, it is hard to predict what industries will be disrupted by blockchain technologies. However, we are watching closely the areas of supply chain, digital identity, and gaming. Schedule time to discuss blockchain integration with a Jitterbit expert!