Enterprise blockchain development with hyperledger fabric and composer pdf

Hands-On Blockchain with Hyperledger

Building decentralized applications with Hyperledger Fabric and Composer

Nitin Gaur Luc Desrosiers Venkatraman Ramakrishna Petr Novotny Dr. Salman A. Baset Anthony O'Dowd

BIRMINGHAM - MUMBAI

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Foreword In my role as the chair of the Hyperledger Technical Steering Committee, I've come to realize the great divide between the enormous hype surrounding blockchain and the depth of understanding of how blockchain technology works, where the technology is on the maturity curve, and how it might be leveraged in the context of the enterprise.

Most of the hype relates to the cryptocurrency aspects of public, permission-less blockchain—ICOs as a substitute for more traditional IPOs, and the potential for disrupting traditional systems of banking, insurance, securities, and so on. It is the potential for disruption and the asymmetric profits that disruption might yield that have driven many to explore how blockchain might be used to one company's advantage over the rest of a given domain. However, what many are discovering is that blockchain is a team sport, and for blockchain to be successful in an enterprise, it demands a degree of industry collaboration not seen before.

The authors of this book take you beyond the hype. They lay a solid foundation for understanding the state of the technology landscape—including active and incubating projects under development at Hyperledger. They provide you with a framework for choosing the right technology platform, designing your solution, and integration with existing systems. And they explain the various governance models for establishing and operating a blockchain business network.

If you are an enterprise architect or developer tasked with developing a blockchain solution for your enterprise or industry, this book is a must-read.

Cheers,

Christopher Ferris IBM Distinguished Engineer, CTO Open Technology

IBM Digital Business Group, Open Technologies

Contributors

About the authors Nitin Gaur, as the director of IBM's Blockchain Labs, is responsible for instituting a body of knowledge and organizational understanding around blockchain technology and industry-specific applications. Tenacious and customer focused, he is known for his ability to analyze opportunities and create technologies that align with operational needs, catapult profitability, and dramatically improve customer experience. He is also an IBM Distinguished Engineer.

Luc Desrosiers is an IBM-certified IT architect with 20+ years of experience. Throughout his career, he has taken on different roles: developer, consultant, and pre-sales architect. He recently moved from Canada to the UK to work in a great lab: IBM Hursley. This is where he had the opportunity to join the IBM Blockchain team. He is now working with clients across multiple industries to help them explore how blockchain technologies can enable transformative uses and solutions.

Venkatraman Ramakrishna is an IBM researcher with 10 years of experience. Following a BTech from IIT Kharagpur and PhD from UCLA, he worked in the Bing infrastructure team in Microsoft, building reliable application deployment software. At IBM Research, he worked in mobile computing and security before joining the Blockchain team. He has developed applications for trade and regulation, and is now working on improving the performance and privacy- preserving characteristics of the Hyperledger platform.

Petr Novotny is a research scientist at IBM Research, with 15+ years of experience in engineering and research of software systems. He received an MSc from University College London and PhD from Imperial College London, where he was also a post-doctoral research associate. He was a visiting scientist at the U.S. Army Research Lab. At IBM, he works on innovations of blockchain technologies and leads the development of blockchain solutions and analytical

tools.

Dr. Salman A. Baset is the CTO of security in IBM Blockchain Solutions. He oversees the security and compliance of blockchain solutions being built by IBM in collaboration with partners such as Walmart and Maersk, and interfaces with clients on blockchain solutions and their security. He drives the implementation of the General Data Protection Regulation for blockchain-based solutions. He has also built the identity management system, used by Fortune 500 companies involved in global trade digitization, and IBM Food Trust blockchain solutions.

Anthony O'Dowd works in IBM's Blockchain team. He is based in Europe as part of a worldwide team that helps users build solutions that benefit from blockchain tech. Anthony has a background in middle and back office systems, and has led the development of key IBM middleware in enterprise messaging and integration. He likes to work in different industries to understand how they can exploit middleware to build more efficient, integrated business systems.

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Table of Contents

Title Page Copyright and Credits

Hands-On Blockchain with Hyperledger Packt Upsell

Why subscribe?

PacktPub.com

Foreword Contributors

About the authors

Packt is searching for authors like you Preface

Who this book is for

What this book covers To get the most out of this book

Download the example code files

Conventions used Get in touch

Reviews

1. Blockchain - Enterprise and Industry Perspective Defining the terms – what is a blockchain? Four core building blocks of blockchain framworks

Additional capabilities to consider

Fundamentals of the secure transaction processing protocol Where blockchain technology has been and where it's going

The great divide

An economic model for blockchain delivery

Learning as we go

The promise of trust and accountability

Industries putting blockchain technology to work Blockchain in the enterprise

What applications are a good fit?

How does the enterprise view blockchain?

Litmus testing to justify the application of blockchain technology

Integrating a blockchain infrastructure for the whole enterprise Enterprise design principles

Business drivers and evolution

Ensuring sustainability

The principles that drive blockchain adoption

Business considerations for choosing a blockchain framework Technology considerations for choosing a blockchain framework

Identity management

Scalability

Enterprise security

Development tooling

Crypto-economic models

Decentralization with systemic governance

Enterprise support Use case-driven pluggability choices

Shared ledger technology

Consensus

Crypto algorithms and encryption technology

Use case-driven pluggable choices

Enterprise integration and designing for extensibility Other considerations

Consensus, ACID property, and CAP

CAP

ACID

Attestation – SSCs are signed and encrypted

Use of HSMs

Summary

2. Exploring Hyperledger Fabric Building on the foundations of open computing

Fundamentals of the Hyperledger project

The Linux Foundation 

Hyperledger

Open source and open standards Hyperledger frameworks, tools, and building blocks

Hyperledger frameworks

Hyperledger tools

The building blocks of blockchain solutions Hyperledger Fabric component design

Principles of Hyperledger design

CAP Theorem

Hyperledger Fabric reference architecture

Hyperledger Fabric runtime architecture

Strengths and advantages of componentized design

Hyperledger Fabric – the journey of a sample transaction Hyperledger Fabric explored

Components in a blockchain network

Developer interaction Understanding governance in business networks powered by blockchain

Governance structure and landscape

Information technology governance

Blockchain network governance

Business network governance

Summary

3. Setting the Stage with a Business Scenario Trading and letter of credit

The importance of trust in facilitating trade

The letter of credit process today Business scenario and use case

Overview

Real-world processes

Simplified and modified processes

Terms used in trade finance and logistics

Shared process workflow

Shared assets and data

Participants' roles and capabilities

Benefits of blockchain applications over current real-world processes Setting up the development environment

Designing a network

Installing prerequisites

Forking and cloning the trade-finance-logistics repository Creating and running a network configuration 

Preparing the network

Generating network cryptographic material

Generating channel artifacts

Generating the configuration in one operation

Composing a sample trade network

Network components' configuration files

Launching a sample trade network

Summary

4. Designing a Data and Transaction Model with Golang Starting the chaincode development

Compiling and running chaincode

Installing and instantiating chaincode

Invoking chaincode Creating a chaincode

The chaincode interface Setting up the chaincode file

The Invoke method Access control

ABAC

Registering a user

Enrolling a user

Retrieving user identities and attributes in chaincode Implementing chaincode functions

Defining chaincode assets

Coding chaincode functions

Creating an asset

Reading and modifying an asset

Main function Testing chaincode

SHIM mocking

Testing the Init method

Testing the Invoke method

Running tests Chaincode design topics

Composite keys

Range queries

State queries and CouchDB

Indexes

ReadSet and WriteSet

Multiversion concurrency control Logging output

Configuration

Logging API

SHIM logging levels

Stdout and stderr

Additional SHIM API functions

Summary

5. Exposing Network Assets and Transactions Building a complete application

The nature of a Hyperledger Fabric application

Application and transaction stages

Application model and architecture

Building the application Middleware – wrapping and driving the chaincode

Installation of tools and dependencies

Prerequisites for creating and running the middleware

Installation of dependencies Creating and running the middleware

Network configuration

Endorsement policy

User records

Client registration and enrollment

Creating a channel

Joining a channel

Installation of chaincode

Instantiation of chaincode

Invoking the chaincode

Querying the chaincode

Completing the loop – subscribing to blockchain ev

ents

Putting it all together User application – exporting the service and API

Applications

User and session management

Designing an API Creating and launching a service

User and session management

Network administration

Exercising the application

User/client interaction modes

Testing the Middleware and Application Integration with existing systems and processes

Design considerations

Decentralization Process alignment

Message affinity

Service discovery

Identity mapping Integration design pattern

Enterprise system integration

Integrating with an existing system of record

Integrating with an operational data store

Microservice and event-driven architecture Considering reliability, availability, and serviceability

Reliability

Availability

Serviceability

Summary

6. Business Networks A busy world of purposeful activity

Why a language for business networks? Defining business networks

A deeper idea Introducing participants

Types of participant

Individual participants

Organizational participants

System or device participants

Participants are agents

Participants and identity Introducing assets

Assets flow between participants

Tangible and intangible assets

The structure of assets

Ownership is a special relationship

Asset life cycles

Describing asset's life cycles in detail with transactions Introducing transactions

Change as a fundamental concept

Transaction definition and instance

Implicit and explicit transactions

The importance of contracts

Signatures

Smart contracts for multi-party transaction processing

Digital transaction processing

Initiating transactions

Transaction history

Transaction streams

Separating transactions into different business networks

Transaction history and asset states

A business network as a history of transactions

Regulators and business networks Discussing events from the perspective of designing a business network using Co mposer

A universal concept

Messages carry event notifications

An example to illustrate event structure

Events and transactions

External versus explicit events

Events cause participants to act

Loosely coupled design

The utility of events Implementing a business network

The importance of de-materialization

Blockchain benefits for B2B and EDI

Participants that interact with the blockchain

Accessing the business network with APIs

A 3-tier systems architecture

Hyperledger Fabric and Hyperledger Composer

Summary

7. A Business Network Example The letter of credit sample

Installing the sample Running the sample

Step 1 – preparing to request a letter of credit

Step 2 – requesting a letter of credit

Step 3 – importing bank approval

Step 4 – exporting bank approval

Step 5 – letter received by exporter

Step 6 – shipment

Step 7 – goods received

Step 8 – payment

Step 9 – closing the letter

Step 10 – Bob receives payment

Recapping the process Analyzing the letter of credit process

The Playground

Viewing the business network A description of the business network

The participant descriptions

The asset descriptions

The transaction descriptions

The event descriptions A model of the business network

Namespaces

Enumerations

Asset definitions

Participant definitions

Concept definitions

Transaction definitions

Event definitions Examining the live network

Examining a letter of credit instance

Examining participant instances

Examining transaction instances

Submitting a new transaction to the network

Understanding how transactions are implemented Creating business network APIs

SWAGGER API definitions

Querying the network using SWAGGER

Testing the network from the command line

Creating a new letter using SWAGGER

Network cards and wallets

Access-control lists

Summary

8. Agility in a Blockchain Network Defining the promotion process

Smart contract considerations

Integration layer considerations

Promotion process overview Configuring a continuous integration pipeline

Customizing the pipeline process

Local build

Configuring Travis CI

Customizing the pipeline using .travis.yml

Publishing our smart contract package Configuring your Git repository

Setting the code owners of our smart contract

Sample content of the CODEOWNERS

Protecting the master branch Configuring Git for commit signing and validation

Configuring GPG on your local workstation Testing the end-to-end process

Creating a new transaction

Pushing a commit to the master branch directly

Submitting a pull request with an unsigned commit Adding test cases

Submitting a pull request with a signed commit

Adding the mergeAssets unit test

Releasing the new version Updating the network

Notifying the consortium Upgrading the business network

Downloading a new version

Updating the business network

Summary

9. Life in a Blockchain Network Modifying or upgrading a Hyperledger Fabric application

Fabric blockchain and application life cycle Channel configuration updates

Prerequisites for adding a new organization to the network

Generating network cryptographic material

Generating channel artifacts

Generating the configuration and network components in one operation

Launching the network components for the new organization

Updating the channel configuration

Adding the new organization to the network Smart contract and policy updates

Modification in chaincode logic

Dependency upgrades in chaincode

Ledger resetting

Endorsement policy update

Upgrading chaincode and endorsement policy on the trade channel

Platform upgrades System monitoring and performance

Measurement and analytics What should we measure or understand in a Fabric application

Blockchain applications vis-à-vis traditional transaction proce

ssing applications

Metrics for performance analysis Measurement and data collection in a Fabric application

Collecting health and capacity information

Profiling containers and applications

Measuring application performance Fabric engineering guidelines for performance

Platform performance characteristics

System bottlenecks

Configuration and tuning Ledger data availability and caching

Redundant committing peer

Data caching

Fabric performance measurement and benchmarking

Summary

10. Governance, Necessary Evil of Regulated Industries Decentralization and governance Exploring the business models

Blockchain benefits

Supply chain management

Healthcare

Finance – letter of credit

From benefits to profits Network business model

Founder-led network

Consortium-based network

Community-based network Hybrid models

Joint venture

New corporation

Role of governance in a business network Business domains and processes

Membership life cycle

Funding and fees

Regulation

Education

Service life cycle

Disputes Governance structure

Centralized governance

Strategic governance

Operational governance

Tactical governance

Decentralized governance Governance and the IT solution

Managed on-boarding

Summary

11. Hyperledger Fabric Security Hyperledger Fabric design goals impacting security Hyperledger Fabric architecture 

Fabric CA or membership service provider

Peer

Smart contract or chaincode

Ledger

Private data

Ordering service Network bootstrap and governance – the first step towards security

Creating the network

Adding new members

Deploying and updating chaincode 

Data model Strong identities – the key to the security of the Hyperledger Fabr ic network

Bootstrapping Fabric CA

Register

Default Fabric roles  Enroll

Which crypto protocols are allowed in certificate signing requ

ests?

Revoking identities 

Practical considerations in managing users in Fabric CA Chaincode security

How is chaincode shared with other endorsing peers?

Who can install chaincode?

Chaincode encryption Attribute-based access control

Pros and cons of attribute-based access control Common threats and how Hyperledger Fabric mitigates them 

Transaction privacy in Hyperledger Fabric

Channels

Private data

Encrypting transaction data

Hyperledger Fabric and Quantum Computing

General data protection regulation (GDPR) considerations

Summary

12. The Future of Blockchain and the Challenges Ahead Summary of key Hyperledger projects

Hyperledger framework – business blockchain technology Hyperledger tools

Hyperledger Composer The road ahead for Blockchain

Addressing the divide – the enterprise blockchain and crypto asset

-driven ecosystem

Interoperability – understanding business service integration

Scalability and economic viability of the blockchain solution 

Staying engaged with the Hyperledger blockchain 

Summary Other Books You May Enjoy

Leave a review - let other readers know what you think

Preface We would like to thank our readers in taking time to consume our collective body of work that is representative of our practice, experience, and knowledge gained along the way. This book was motivated by the desire that we and others have had to contribute to the evolution of blockchain technologies. We were also challenged by a lack of a comprehensive guide that addresses myriad considerations, including but not limited to technology design choices, architecture choice, business consideration, and governance models. The authors of this book represent a unique and diverse set of skills, which should be evident in addressing the depth of the content with ease and simplicity. We have collectively focused on organization and flow to ensure not only an easy-to- follow and natural flow but also topical modularity.

The contents of this book are aimed to address a diverse audience, from business leaders to blockchain developers and anyone who would like to learn from practitioners' experience expressed in this book. We believe that not only will the audience enjoy and benefit personally and professionally from the book, but also this book will be used as reference material, a handbook of sorts, and aid in making informed design decisions. We encountered various challenges while writing this book, including our own demanding schedule, but ensured that we deliver up-to date information at the time of release of this content. Blockchain technology landscape is in flux and keeping up with evolution and innovation is a challenge. We have attempted to distill a model that will benefit the reader to create a framework to methodically consume blockchain-related update and build upon the foundation laid out in this book. We have also expended a lot of energy in addressing business design and resulting technology design choices, because unlike other pure technology platforms Blockchain (powered business network), is a very business-specific and technology-centric discipline. We hope the findings and documented considerations from practitioners will arm business leaders and technology managers in making informed decisions and minimizing the failures experienced by the authors.

The technical content covered in this book, aims to provide a solid foundation to a diverse set of skills, including IT professionals, blockchain novices, and

advanced blockchain developers. Modeled after a real-world use case, the application development story weaves in various steps from infrastructure creation to Dev-Ops models and model-driven development, covering various enterprise technology management challenges with a focus on the blockchain network-centric impact of application deployment. We have provided a framework for security and performance design, which we hope the technical audience find particularly helpful and establish a solid foundation as a technology design consideration.

We'll conclude the book with a pragmatic view of various challenges and related opportunities, and call for the community of readers to rise up to the challenges and reap the rewards of the resulting opportunities. While this book focuses on and targets Hyperledger projects, we expect the core topics covered in this book to be universally applicable to the blockchain technology discipline. We sincerely hope that our effort in time and acumen is well received by our readers and arm them with a strong foundation to make impactful contributions to progressing the blockchain innovation agenda.

Who this book is for The book benefits business leaders as it provides a comprehensive view on blockchain business models, governance structure, and business design considerations of blockchain solutions. Technology leaders stand to gain a lot from the detailed discussion around the technology landscape, technology design, and architecture considerations in the book. With model-driven application development, this guide will speed up understanding and concept development for blockchain application developers. The simple and well organized content will put novices at ease with blockchain concepts and constructs.

What this book covers Chapter 1, Blockchain - Enterprise and Industry Perspective, you've heard about blockchain and you are wondering, What is all the fuss about? In this chapter, we explore why blockchain is a game changer, what innovation it brings, and what the technology landscape is.

Chapter 2, Exploring Hyperledger Fabric, with an understanding of the blockchain landscape, we turn our attention to Hyperledger Fabric. The aim of this chapter is to walk you through the deployment of each component of Hyperledger Fabric while unveiling/building the architecture.

Chapter 3, Setting the Stage with a Business Scenario, describes a business use case and then focuses on understanding the process of creating a good business network using blockchain from requirements to design.

Chapter 4, Designing a Data and Transaction Model with Golang, aims to define what makes up a smart contract in Hyperledger Fabric. It will also introduce you to some terms regarding smart contracts and get you to experience the development of a chaincode using the Go language.

Chapter 5, Exposing Network Assets and Transactions, leveraging the smart contract written in the previous chapter, this chapter looks at the required integration of application to the network. It takes the readers through the process of configuring a channel, and installing and invoking chaincode, from a client application and considers the various integration patterns that might be used.

Chapter 6, Business Networks, has an objective to introduce and uncover the skills and tools needed to model a business network. Working at a higher level of abstraction, the foundation, tools, and framework will provide the reader with a way to quickly model, design, and deploy a complete end-to-end business network.

Chapter 7, A Business Network Example, putting the concepts of Chapter 6 into practice, this chapter walks through the steps to deploy a full business network from end user application to smart contracts.

Chapter 8, Agility in a Blockchain Network, focuses on the aspects required to maintain agility in a blockchain network. Applying DevOps concepts, the reader is presented with a continuous integration / continuous delivery pipeline.

Chapter 9, Life in a Blockchain Network, aims to raise the reader's awareness on the key activities and challenges that organizations and consortium may face when adopting a distributed ledger solution, ranging from management of application changes to maintenance of adequate performance levels. A successful network deployment will hopefully see many organizations join it and the number of transactions increase.

Chapter 10, Governance –The Necessary Evil of Regulated Industries, governance is a necessary evil for regulated industries, but governance is not required only for business network that deal with use cases for regulated industries. It is also a good practice to ensure longevity and scalability of a business network. This chapter explores vital considerations for production readiness for any founder-led blockchain network.

Chapter 11, Hyperledger Fabric Security, lays the foundation for security design of blockchain networks. Various security constructs are discussed and Hyperledger Fabric security is explained in detail. An essential chapter to understand security design considerations.

Chapter 12, The Future of Blockchain and the Challenges Ahead, looks ahead and discusses the challenges and opportunities that lie ahead. Through the use of open technologies, it invites readers to engage in and promote the blockchain innovation agenda.

To get the most out of this book 1. We've focused on organization and flow. The content is made to ensure not

only an easy-to-follow and natural flow but also topical modularity. 2. Each chapter explores a facet of blockchain. While Hyperledger projects

are specifically discussed, the core areas of focus are universal to blockchain technology discipline.

3. Explore the summary and tips in each chapter to get an essence of topics covered.

4. There are chapters that provide general blockchain business and technology landscape discussions, and there are chapters that go into specific technical how-to. Both are important topics to broaden your knowledge base.

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Conventions used There are a number of text conventions used throughout this book.

CodeInText: Indicates code words in text, database table names, folder names, filenames, file extensions, path names, dummy URLs, user input, and Twitter handles. Here is an example: "The orderer belongs to its own organization called TradeOrdererOrg."

A block of code is set as follows:

- &ExporterOrg Name: ExporterOrgMSP ID: ExporterOrgMSP MSPDir: crypto-config/peerOrganizations/exporterorg.trade.com/msp AnchorPeers: - Host: peer0.exporterorg.trade.com Port: 7051

Any command-line input or output is written as follows:

CONTAINER ID IMAGE COMMAND CREATED STATUS PORTS NAMES 4e636f0054fc hyperledger/fabric-peer:latest "peer node start" 3 minutes ago Up 3 minutes 0.0.0.0:9051->7051/tcp, 0.0.0.0:9053->7053/tcp peer0.carrierorg.trade.com 28c18b76dbe8 hyperledger/fabric-peer:latest "peer node start" 3 minutes ago Up 3 minutes 0.0.0.0:8051->7051/tcp, 0.0.0.0:8053->7053/tcp peer0.importerorg.trade.com 9308ad203362 hyperledger/fabric-ca:latest "sh -c 'fabric-ca-se..." 3 minutes ago Up 3 minutes 0.0.0.0:7054->7054/tcp ca_peerExporterOrg

Bold: Indicates a new term, an important word, or words that you see onscreen. For example, words in menus or dialog boxes appear in the text like this. Here is an example: "You can apply for a letter of credit by clicking on the Apply button."

Warnings or important notes appear like this.

Tips and tricks appear like this.

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Blockchain - Enterprise and Industry Perspective Blockchain promises to fundamentally solve the issues of time and trust to address inefficiencies and costs in industries such as financial services, supply chains, logistics, and healthcare. Blockchain's key features include immutability and a shared ledger where transactional updates are performed by a consensus- driven trust system, which can facilitate a truly digital interaction between multiple parties.

This digital interaction is not only bound by systemic trust, but ensures that the provenance of the transactional record maintains an immutable track record of interaction between parties. This very characteristic lends itself to culpability and non-repudiation, and incentivizes fair play. With the blockchain system design, we are attempting to build a system that has implied trust. This trust system leads to reduced risks, and various applied technology constructs such as a cryptography, encryption, smart contracts, and consensus essentially create gates to not only reduce risk but to also infuse added security into the transaction system.

We will be covering the following aspects of blockchain in our discussion for this chapter:

Defining a blockchain Building blocks of blockchain solutions Fundamentals of the secure transaction processing protocol Applications of blockchain Blockchain in an enterprise Enterprise design principles Business considerations for choosing a blockchain framework Considerations for choosing a blockchain framework

Defining the terms – what is a blockchain? At a technical level, a blockchain can be defined as an immutable ledger for recording transactions, maintained within a distributed network of mutually untrusting peers. Every peer maintains a copy of the ledger. The peers execute a consensus protocol to validate transactions, group them into blocks, and build a hash chain over the blocks. This process forms the ledger by ordering the transactions as is necessary for consistency. Blockchains have emerged with bitcoin (http:// bitcoin.org/) and are widely regarded as a promising technology to run trusted exchanges in the digital world.

A blockchain supporting a cryptocurrency is public, or permissionless, in the sense that anyone can participate without a specific identity. Such blockchains typically use a consensus protocol based on proof of work (PoW) and economic incentives. In contrast, permissioned blockchains have evolved as an alternative way to run a blockchain between a group of known, identified participants. A permissioned blockchain provides a way to secure interactions between a group of entities who share a mutual goal but don't fully trust each other, such as businesses that exchange funds, goods, or information. A permissioned blockchain relies on the identities of its peers, and in so doing can use the traditional Byzantine-fault tolerant (BFT) consensus. BFT is a protocol that has been widely used in IT solutions to reach a consensus on the state of faulty nodes of a network. This protocol is based on the Byzantine General's Problem, whereby a group of general need to reach a consensus on their strategy but one of them maybe treacherous.

Blockchains may execute arbitrary, programmable transaction logic in the form of smart contracts, as exemplified by Ethereum (http://ethereum.org/). The scripts in bitcoin were predecessors of this concept. A smart contract functions as a trusted, distributed application and gains its security from the blockchain and underlying consensus among its peers.

Discerning permissions from a permissionless blockchain is vital for enterprises

https://bitcoin.org/en/
http://ethereum.org/
looking to utilize the blockchain platform. The use case dictates the choice of technology, which depends on consensus systems, governance models, data structure, and so on. With permissioned blockchains, we can do some of the things we already do but in an incrementally better way, which can be significant. In the chart that follows, you can see how a consortium of banks could use Hyperledger, a type of permissioned blockchain, for clearing and settlement without relying on a central clearing house:

Clearing house have been created because banks do not fully trust each other and thus as the intermediary between trades, reduces the risk the one party does not honor his terms leads to a never-ending debate around permissioned versus permissionless blockchains, and while this chapter will not address the debate, blockchain can present a way to either transform or disrupt the current business and business models. Most use cases in regulated industries embark on permissioned blockchain models.

This is due to regulatory requirements and the economic viability of transaction processing, and while permissionless blockchains provide a platform for new business models such as Peer-to-Peer (P2P) transactions and disintermediation- led models, by definition permissionless blockchain architecture relies on a very compute-intensive compute model to ensure transactional integrity. Regardless of the choice in blockchain models, blockchain provides a lot of possibilities for transformation and disruption.

Blockchain has extraordinary potential as a technology platform. In the enterprise, blockchain can provide:

A design approach that keeps transaction data, value, and state inherently close to the business logic Secure execution of business transactions, validated through a community, in a secure process that facilities the trust and robust transaction processing that are foundational to blockchain An alternative, permissioned technology that conforms to existing regulations

Blockchain promises to solve longstanding industry concerns—and this is where its potential can really be seen, with issues such as modernizing financial and trade systems, and speeding up securities and trade settlements.

Four core building blocks of blockchain framworks Blockchain frameworks typically include the following four building blocks:

A shared ledger: The shared ledger appends only the distributed transaction record. Bitcoin blockchain was designed with the intent to democratize visibility; however, with blockchain, consumer data regulations also need to be considered. Using a properly configured SQL or noSQL distributed database can achieve immutability, or append-only semantics. Cryptography: Cryptography in a blockchain ensures authentication and verifiable transactions. Blockchain design includes this imperative because of the focus on assuming computational hardness and making encryption harder for an adversary to break. This is an interesting challenge with bitcoin blockchain because of the economic incentive and its system design. When you're working in a less democratic or permissioned business ledger network, considerations around cryptography change. Trust systems or consensus: Trust systems refer to using the power of the network to verify transactions. Trust systems are central to blockchain systems in my view; they are at the heart of blockchain applications, and we believe trust system is the preferred term over consensus system since not all validation is done through consensus. This foundational element of trust dictates the overall design and investment in a blockchain infrastructure. With every new entrant in the blockchain space, the trust system is modified, forming variations that are specialized for specific blockchain use cases. Trust, trade, and ownership are staples of blockchain technology. For inter- company transactions, the trust system governs transactions for trade between participating companies. Much work still needs to be done to define the best trust system for specific use cases, such as P2P and sharing economy models with B2B models.

Business rules or smart contracts: Smart contracts are the business terms that are embedded in a blockchain transaction database and executed with

transactions. This is also the rules component of a blockchain solution. It is needed to define the flow of value and state of each transaction.

The following use diagram gives a good idea of these concepts:

The four building blocks are generally accepted and well understood. They have existed for decades prior to blockchain. Shared ledgers are an evolutionary change, similar to the move to computer-based spreadsheets, but the underlying business rules have stayed the same.

Additional capabilities to consider What else should be included in enterprise blockchain proposals? Here is a non- exhaustive list of other capabilities to consider:

Auditing and logging: Including auditing and logging in a blockchain solution can help with addressing regulations for the purposes of non- repudiation, technology root cause analysis, fraud analysis, and other enterprise needs. Enterprise integration: It's also worth considering how the solution will be integrated into the enterprise:

Integration with the incumbent Systems of Record (SoR): The goal here is to ensure that the blockchain solution supports your existing systems such as CRM, business intelligence, reporting and analytics, and so forth Integration as a transaction processing system: If you want to preserve the system of record as an interim approach to adopting blockchain, integrating it as a transaction processing system makes sense Design with the intent to include blockchain: The path of least disruption to your existing systems will accelerate enterprise adoption of blockchain

Monitoring: Monitoring is an important capability for addressing regulations and ensuring high availability, capacity planning, pattern recognition, and fault identification. Reporting and regulatory requirements: Being prepared to address regulatory issues is also very important, even for interim adoption of a blockchain as a transaction processing system. It's recommended that you make connectors to your existing SoR to offload reporting and regulatory requirements until blockchain is enterprise-aware, or the enterprise software is blockchain-aware. Enterprise authentication, authorization, and accounting requirements: In a permissioned enterprise world (unlike permissionless bitcoin blockchains), all blockchain network participants should be identified and tracked. Their roles need to be defined if they are to play a part in the ecosystem.

Fundamentals of the secure transaction processing protocol We mentioned previously that cryptography is one of the core building blocks of a blockchain solution. The fundamental security of the bitcoin blockchain is the elegant cryptographical linkage of all major components of the ledger. Specifically, transactions are linked to each other, mainly through the Merkle tree. A Merkle tree is based on the concept of a tree data structure where every leaf node has a hash calculated of its data and where the non-leaf node have a hash of all of their underlying child. This method provides a way to ensure the integrity of the data, but also provides privacy characteristics by allowing one to remove a leaf that is deemed private but leave the hash, thereby preserving the integrity of the tree. The Merkle tree has its roots incorporated into the block header. The block header includes a reference to the block headers that precede it.

That cryptographically enforced interconnectivity fosters the stability and security of distributed ledgers. At any point, if a link between any of the components is broken, it leaves them exposed to malicious attacks:

Transactions are also cryptographically connected to the rest of the blockchain structure, mainly through the Merkle tree. Once a transaction is modified within

a block, with all other parts remaining stable, the link between all transactions of the block and its header are broken:

The new resulting Merkle tree root does not match the one already in the block header, hence providing no connectivity to the rest of the blockchain. If we proceed to change the Merkle tree root in the block's header, we will in turn break the chain of headers and thus the security model of the blockchain itself. Therefore, if we only change the contents of a block, the rest of the blockchain components remain stable and secure, especially as the block headers provide the connecting links by including a hash of the previous block header in the header of the next block.

Where blockchain technology has been and where it's going Blockchain has already been a business disruptor, and I expect it to significantly transform industries, the government, and our lives in the near future.

The great divide A significant divided exists between the cryptocurrency and Initial Coin Offering (ICO) world, and the world of regulated business. The latter consists of banks and financial institutions working collectively to assess market potential and operational efficiencies.

Both sides of this division have taken advantage of the momentum around blockchain to further their interests. The blockchain ecosystem has challenged the status quo and defied all odds to make a point—often behaving like an adolescent. It is driven by new business models, promises of disintermediation, and interesting technological innovations. As blockchain gains momentum, the value of bitcoin and other cryptoassets is seeing a meteoric rise, and now that ICO has emerged, it has defied the traditional regulatory framework around fundraising.

On the enterprise side, there are a growing number of industry initiatives around clearing and settlement to enable faster settlement and interbank transfers, transparency through digitization, symmetric dissemination of information in supply chains, and creating adhoc trust between Internet of Things (IoT) devices.

There's a common theme here—that blockchain is here to stay. As it continues to evolve and generate innovative solutions for industry use cases, it will keep inching towards maturity and deliver on its promises of efficiency and significant cost savings built on the foundation of trust.

An economic model for blockchain delivery Business networks, underpinned by blockchain technology, may bring transformation or disruption to industries, but in any case, in order to thrive, blockchain needs an economic model. If disruption is the aim, investments in technology, talent, and market synergy can be combined with the lure of economic incentives. ICOs, for example, typically rely on tokenomics, a term that describes the economic system of value generation in those networks. The token is the unit of value created by the system or network, either through making a platform for providers or consumers, or through co-creating a self- governing value network in its business model that various entities can use to their advantage for creating, distributing, and sharing rewards that benefit all stakeholders.

The ICO front, largely funded by cryptocurrencies, has defied current fundraising mechanisms in venture capitalism (led by crowdfunding projects), and, importantly, the struggle to discern the difference between a security and utility coin is disruptive in principle.

ICOs are looking to create an economic system built on the principles of decentralization, open governance (or self-governance), and transparency, a system that rewards innovation and eradicates disintermediation. ICOs saw some initial failures and some successes, but they nevertheless provided a preview of the future, where cryptoassets will become a basic unit of value—with valuation and fungibility defined by the network they originate from—fueling an economy built for and around innovation.

On the enterprise front, there's been more focus on understanding the technology and reimagining ecosystems, business networks, regulations, confidentiality and privacy, and the business models that impact blockchain networks in various industries. Enterprises looking to explore blockchain want to see quick proof points, use cases that can demonstrate results quickly and help them innovate with blockchain.

Blockchain is helping industries move to a more symmetric dissemination of information by providing built-in control of transactional data, provenance, and historical context. This can lead to more efficient workflows and transformed business processes. Many early projects, however, didn't focus on the core tenets of blockchain, leading to disintermediation, decentralization, and robust self- governance models. There's a good reason for it, though: industries and conventional businesses tend to be focused on their current business agenda, models, growth, and preceding all, regulatory compliance and adherence. This emphasis on current business operations means they're not naturally inclined towards disruptive models.

Learning as we go With any new technology, there is always a learning curve. As blockchain evolved and we began to work with regulated industries, we quickly recognized that in such industries, there are important design considerations to address, things such as confidentiality, privacy, scalability, and performance. These elements can have significant cost implications when it comes to designing blockchain networks, as well as the business models that govern these networks. These challenges have not only been interesting to solve; they've had a positive effect on conventional, regulated industries and businesses by re-energizing innovation in these organizations and inviting the best talent to join in tackling these challenges. Businesses are seeing that ecosystems and networks driven by blockchain technology will contribute to progress and success.

Permissioned networks (regulated, conventional, and enterprise business networks) may also need to begin uncovering an incentive model to motivate organizations to join a platform that promotes the idea of creation, distribution, and sharing of rewards, benefiting all stakeholders. The economic incentives behind tokenomics can't be blindly adopted by a lot of conventional businesses and industries, but that doesn't mean those industries shouldn't start the journey of exploring possible business models that will enable value creation and elevate some desperately needed modernization efforts.

The promise of trust and accountability Blockchain technology promises to be the foundation for a secure transaction network that can induce trust and security in many industries that are plagued with systemic issues around trust and accountability. From a technology point of view, blockchain facilitates a system of processing and recording transactions that is secure, transparent, auditable, efficient, and immutable. These technology characteristics lend themselves to addressing the time and trust issues that current-day distributed transaction systems are plagued with.

Blockchain fundamentally shifts the multi-tier model to a flat-tier transaction processing model. This carries the promise to fundamentally disrupt industries by disintermediation, by inducing efficacy in new system design or simply by creating new business models.

Disintermediation indicates reducing the use of intermediaries between producers and consumers, such as by investing directly in the securities market rather than going through a bank. In the financial industry, every transaction has historically required a counter party to process the transaction. Disintermediation involves removing the middleman, which by definition disrupts the business models and incentive economies that are based on mediation. There's been a wave of disruption in recent years as a result of digital technologies, which have, in turn, been driven by marketing insights and the desire for organizations to provide a richer user experience.

Blockchain is a technology that aims to catapult this disruption by introducing trade, trust, and ownership into the equation. The technology pattern represented by blockchain databases and records has the potential to radically improve banking, supply chains, and other transaction networks, providing new opportunities for innovation and growth while reducing cost and risk.

Industries putting blockchain technology to work Let's briefly look into blockchain use cases:

Blockchain in the enterprise Now that we've looked at where blockchain is emerging in various industries, let's talk about what principles should guide the use of blockchains in an enterprise. Why would an enterprise want to apply blockchain technology to one of its systems or applications?

What applications are a good fit? Organizations will need to establish criteria for use during the application design process to help them assess where they can best apply blockchain technology. The following are some examples of criteria that could help an enterprise determine which applications or systems would benefit from it:

Applications that adhere to trade, trust, and ownership: As described previously, these three tenets—trade, trust and ownership—are fundamental to any blockchain system. Trade and ownership imply the churn and the transfer of ledger entries, while trust points to the trustless nature of a transaction system. Applications that are fundamentally transactional in nature: There is often a debate about why we can't achieve the benefits of blockchain from a distributed database, that is, a no-SQL or a relational database. But a multi- party transaction is what makes an application suitable for blockchain. There needs to be long-running processes with numerous micro- transactions that will be verified and validated by the blockchain-powered transaction system. However, databases can still be used for persistence or replication to fit enterprise systems. Other considerations include small data set sizes that could increase over time, logging overhead, and so on. Business networks that are comprised of non-monopolistic participants: This third criteria addresses distributed versus decentralized computation models. Blockchain trust systems can work within any model; however, the trust aspect of a blockchain business network comes from multi-party participants with non-monopolistic participation (the consortium permissioned network model). Oligopolistic participation might be acceptable (the private permissioned network model), but it's essential to devise a trust model that assures the prevention of centralized control, even with rational behavior of the participants. Many internal use cases do not adhere to this principle and are more for distributed application models.