Blockchain Supply Chain

Blockchain Supply Chain
Melanie Swan
Philosophy, Purdue University
melanie@BlockchainStudies.orgOvation 2018
27 July 2018, Plymouth MA USA
Slides: http://slideshare.net/LaBlogga

27 Jul 2018
Blockchain 1
Melanie Swan, Technology Theorist
 Philosophy Department, Purdue University,
Indiana USA
 Top enabling technologies of the 21st century
 Blockchain, Deep Learning, and Synthetic Biology
 Founder, Institute for Blockchain Studies
 Singularity University Instructor; Institute for Ethics
and Emerging Technology Affiliate Scholar; EDGE
Essayist; FQXi Advisor
Traditional Markets Background Economics and Financial Theory Leadership
New Economies research group
Source: http://www.melanieswan.com, http://blockchainstudies.org
https://www.facebook.com/groups/NewEconomies

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Blockchain
Blockchain
2
Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
 To inspire us to build
this world
Disclaimer: no substantial
cryptocurrency, ICO, or smart
contract ownership or advising

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Blockchain 3
Blockchain Supply Chain thesis
Blockchain: all assets digitized and
registered to blockchains; instantaneously
transactable on a global basis
Blockchain Supply Chain: all assets exist
in digital inventories, tradeable (pledgeable,
financeable) and more importantly, findable,
in the global digital network economy

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Blockchain 4
“Better horse”
Blockchain’s “New Technology” progression
“Horseless
carriage”
“Car”
3.0
2.0
1.0
New species of technology: Invent new
possibilities that did not exist before
Better internet: the payments layer the
internet never had
Applications: Real-time payments and monetary transactions
(immediate transfer)
invent new possibilities that did not exist before
Basic
Advanced
Future
Internet with value transfer and smart contracts
Applications: Financial contracts (mortgage, insurance); legal contracts;
government documents; voting
Large-scale Collaboration Technology:
superseding previous social collaboration
technologies: corporations, governments,
and open-source communities
Applications: automated fleet management, big health data,
asynchronous space communication

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Blockchain
Collaboration Optimization Problem
5
Source: Coase. (1937). The Nature of the Firm. Penrose (1959). The Theory of the Growth of the Firm.
Takagi, S. forthcoming. Does Blockchain Decentralize Everything? In Blockchain Economics (World Scientific)
 Organizational Economics
 The problem of “the firm” (optimal size at which to
organize activity) in the context of the supply chain
(how to organize activity in the global supply chain)
 What are the right collaboration models in a global supply
chain digital network economy with open business models?
 The firm (Coase, 1937)
 Organization gains scale economies and reduces risk by
foregoing opportunism
 Individuals gain smoother
incomes and benefit from
shared decision-making

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Blockchain
What drives blockchain adoption by industry?
 Two factors leading financial services implementation
6
FinTech, RegTech
Supply Chain
HealthTech
Financial Services
No XML for logging
health attributes and
matching cost-outcome
accountability
TradeTech
Healthcare
No XML for widgetsXML for finance:
interest, principal,
prepayment, ARM/FRM
ARM: Adjustable-rate mortgage; FRM: Fixed-rate mortgage
2. Standard Transaction Language
High Low
1. Product Fungibility

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Blockchain
Supply Chain
Everything is a Liquidity Problem
7
Source: Swan. forthcoming. Theory of Blockchain Digital Contracting. In Blockchain Economics (World Scientific)
re: Information Costs: Allen et al. (2017). Blockchain TradeTech. APEC Study Centres Consortium Conference, May 2018
 Buyers-Sellers
 Deep learning matches Purchasers-Suppliers
 Goods more fungible than requirements-features find
 Deep learning pattern recognition system
 Lack of trustworthy product Information
 Attribute information: quality, characteristics, provenance, and
chain of custody is blockchain-modulated for all goods
 Lack of global digital contracting structures
 Digital product inventories, blockchain-based credit histories,
vendor payment channels, always-on trade finance network
 Fundamental level of organization: item not invoice

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Blockchain 8
1. Blockchain-registered digitized assets
 Ownership confirmed, ready for transfer, instantaneous global
transactability, pre-validated digitally-registered assets
2. Financing Implications
 Digital assets can be pledged as collateral in on-demand
financing with any party (without having to form a vendor-
supplier relationship) in enterprise payment channels
 Invoice factoring, inventory, sales order, purchase order
3. Business Process Implications
 Automated business logic via smart contracts
 Shared business processes in enterprise blockchain networks
 Shared record-keeping in an era of digital ledgers
 Integrated ledgers (accounting and legal processes)
Procurement Blockchain
Sources: http://www.europeanfinancialreview.com/?p=21755, http://timreview.ca/article/1109

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Blockchain
In the Digital Network Economy…
9
re: Information Costs: Allen et al. (2017). Blockchain TradeTech. APEC Study Centres Consortium Conference, May 2018
 The firm becomes an ecology
 Developer community, AppStore revenue sharing model
 User community (new product/feature demand development)
 The supply chain becomes a real-time global market
 Blockchain provides the new economic infrastructure
 Digital assets registered to blockchains (real-time transactable)
 New forms of contracting & financing (automated invoice factoring)
 Single shared business processes, integrated record-keeping
 Information: trusted attribute information about the quality,
characteristics, provenance, and chain of custody of goods

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objectives.
10
1. what is blockchain.
2. technical overview.
3. business use cases.
4. implications for
procurement.

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basics.
11

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internet content.
12
information.
email.
voice.
video.
money.

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Conceptual Definition:
Blockchain is a software protocol;
just as SMTP is a protocol for
sending email, blockchain is a
protocol for sending money
What is Blockchain/Distributed Ledger Tech?

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Blockchain
Blockchain Technology: What is it?
14
 Blockchain technology is the secure distributed ledger
software that underlies cryptocurrencies like Bitcoin
 “Internet of Money” leapfrog technology; Skype is an app allowing
phone calls via Internet without POTS; Bitcoin is an app allowing
money transfer via Internet without banks; ‘decentralized Paypal’
Internet
(decentralized network)
Blockchain
Bitcoin
Application
Layer
Protocol
Layer
Infrastructure
Layer
SMTP
Email
VoIP
Phone
calls
OSI Protocol Stack:

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Blockchain
Adoption
15
Source: http://www.digital-marketing-course.org/growth-of-global-internet-users/, https://wearesocial-net.s3.amazonaws.com/uk/wp-
content/uploads/sites/2/2017/01/Slide007.png
 Information Internet
 20-40 years (50% online, killer app: corporate email)
 Money Internet
 Early stages (2050-2075); could be longer due to sensitivity of
assets and money; shorter due to in-place network infrastructure
 More profound impact: computationally-based society has less
need for traditional brick-and-mortar institutional footprint
Growth in Global Internet users 1995-2015

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novel features.
16
general-purpose technology
that is simultaneously
transparent and private.

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Blockchain
blockchain.
17
software.
secure cryptographic transfer.
internet.

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Blockchain
killer apps.
18
secure transfer of value, of…
money & securities.
property.
contracts.
identity credentials.

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public chains. private chains.
trustless. mined.
p2p software.
trusted. not-mined.
enterprise software.

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Blockchain
How does Bitcoin work?
Use eWallet app to submit transaction
20
Source: https://www.youtube.com/watch?v=t5JGQXCTe3c
Scan recipient’s address
and submit transaction
$ appears in recipient’s eWallet
Wallet has keys not money
Creates PKI Signature address pairs A new PKI signature for each transaction

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Blockchain
P2P network confirms & records transaction
21
Source: https://www.youtube.com/watch?v=t5JGQXCTe3c
Transaction computationally confirmed
Ledger account balances updated
Peer nodes maintain distributed ledger
Transactions submitted to a pool and miners assemble
new batch (block) of transactions each 10 min
Each block includes a cryptographic hash of the last
block, chaining the blocks, hence “Blockchain”

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Blockchain
consensus algorithms.
22
mining and

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Blockchain
23
 Heart of blockchain systems
 Blockchain is automated software, no central authority
 Need a way for distributed peer-to-peer nodes in the network
to agree about updates to the ledger per executed
transactions
 Public blockchains are trustless
 Transactions are executed using “cryptographic proof
instead of trust” (Nakamoto, 2008)

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Blockchain
24
 Public Blockchains
 POW: Proof of Work (Bitcoin)
 POS: Proof of Stake (Nxt, Qtum, Reddcoin)
 Next-gen (scale to Visa-class processing): Practical
Byzantine Fault Tolerance (PBFT) (DFINITY, Algorand)
 Private blockchains
 Enterprise consensus algorithms
Source: dos Santos, forthcoming, Consensus Algorithms: A Matter of Complexity?, in Blockchain Economics (World Scientific)

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25
 Enterprise Blockchains
Source: dos Santos, forthcoming, Consensus Algorithms: A Matter of Complexity?, in Blockchain Economics (World Scientific)

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Blockchain
What is Bitcoin mining?
26
 Mining is the accounting function to record
transactions, fee-based ($103,000/block)
 Mining clients (ASICs) “find new blocks”
 Mining software constantly makes nonce guesses
per specified cryptographic parameters
 At the rate of 2^32 (4 billion) hashes (guesses)/second
 One machine at random guesses a solution
 Winning machine confirms and records the
transactions, and collects the rewards
 All nodes confirm the transactions and append the
new block to their copy of the distributed ledger
 “Wasteful” effort deters malicious players
Sample
code:
Run the software yourself:
Fast because ASICs
represent the hashing
algorithm as hardware

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Blockchain
bitcoin mining.
27
Proof of Work: secure but expensive.

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Blockchain
How changes to the Software are made
 Blockchain is automated software
 No centralized authority
 Open source software community like Linux
 Developers propose changes
 BIP (Bitcoin Improvement Proposals)
 BIP-0199, https://github.com/bitcoin/bips
 Voting process among 5 constituencies
 Developers, miners, exchanges, wallets, merchants
 Watch support for initiatives in real-time online
28
Segregated Witness: move non-critical “witness” data off the blockchain; BIP: Bitcoin Improvement Proposal
Source: http://www.coindesk.com/data/bitcoin-number-transactions-per-block
(https://coin.dance/blocks)

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Blockchain
hype vs value-creation.
29

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Blockchain 30
$2.1 billion 2018 global blockchain
spend (IDC).
($9.2 billion in 2021)
$3.86 trillion IT spend 2018 (Gartner)
(digital transformation, blockchain, IoT, ML, and AI)
57% global corporations (Juniper).
$325 billion USD asset class.
1551 cryptocurrencies.
1722 token projects.
Sources: https://www.cnbc.com/2017/07/31/blockchain-technology-considered-by-57-percent-of-big-corporations-study.html,
https://coinmarketcap.com/all/views/all/, https://www.stateofthedapps.com/,
https://www.blockchaintechnology-news.com/2018/01/26/idc-global-blockchain-hit-9-2-billion-2021/

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Blockchain 31
Source: http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html
Stock Transaction
Real Estate Purchase/Sale
Health Insurance Billing
2. Steps that can be automated with blockchain
1. Steps with human decision-making
Energy Contract
International Trade Shipment
 Business process reengineering
 Any complex transaction has two kinds of activities
 Usability: Apple-type design for user experience
Blockchain Automation Economy

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Blockchain
When to use Blockchain Technology
32
 Blockchain is enterprise
software
 Solid business use case
 How does a decentralized
solution improve over a
centralized one?
 Ideal use case:
 Many parties in the value
chain
 Intensity of information and
monetary exchange
Use Case Example:
Factom: Health insurance
claims billing (overlay to
Bitcoin blockchain)
• Automated claims
billing, validation,
payment, and settlement
• Multi-party value chain:
patient, service provider,
billing agent, insurance
company, payor,
government, collections

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Blockchain
When to use Blockchain Technology
33
 Do multiple parties need access to the same data?
 Do multiple parties need to write to the data store?
 Do all parties need assurance that the data is valid and has not
been tampered with?
 Do you rely on a costly intermediary or a complex,
unreliable process to reconcile the transactions of
multiple parties?
 Available solutions
 What are the available solutions?
 Is there no system available today that meets the requirement?
 Are there good reasons not to have a centralized system?
Source: https://www.basware.com/en-us/blog/september-2017/blockchain-whats-myth-whats-reality

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Blockchain
Blockchain: Middleware in Enterprise IT Stack
34
 Cloud solutions like
docker containers
 Azure, Ariba,
Basware
 Interface to
web/CRM and
ERP/GL/AR/AP
 Interface to data
analytics
 Machine learning
for real-time fraud
detection
Source: https://www.computerworld.com/article/3084674/cloud-computing/with-microsofts-project-bletchley-companies-can-add-
middleware-to-blockchains.html

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Blockchain
sample apps.
35

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Blockchain: Fintech and beyond
AssetsImmediate
cash transfer
Applications
Payments
Money
Remittance
Financial
instruments
Unified ledger
Mortgages, loans
Titling: house, auto
Inventory
Commercial trade
Payments
Financial
Services
Logistics &
Supply Chain
Energy, IoT
Healthcare
Government
Humanitarian
Non-profit
Industry adoption
Time
Complexity
Stocks, bonds
Goods transfer
Assurance, provenance
Identity
Driver’s License
Passport, Visa
Contracts
Registries
Marriage licenses
Public Documents
Birth/death registries
BoL, Forfeiting
Insurance
Cash Smart Assets Smart Contracts

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Blockchain 37
 Secure information exchange
 Asset confirmation and transfer
 Automated coordination
 Example: fleet management of drones,
autonomous driving, robotics, clinical trial
patients, cellular therapeutics
 Blockchain: automated, secure
coordination system with remuneration
and tracking
Key Blockchain Functionality
Source: Swan, M. Philosophy of Social Robotics: Abundance Economics. Sociorobotics, 2016.
http://www.melanieswan.com/documents/SocialRobotics.pdf.

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Blockchain
change.
38
Source: https://www.coindesk.com/bankers-tout-trade-finance-sweet-spot-blockchain/
“We expect to see a reduction of 70 percent
to 80 percent in costs on supply chain
management by using blockchain.“
- Amit Varma, CTO, Citibank, June 2018
Blockchain Summit, London, June
2018

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Blockchain 39
financial services.
quantified risk: 2.5 yr payback (securities
clearing 3-days to 2-days).

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Blockchain 40
food safety.
chain of custody.

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Blockchain 41
vaccine and cold
storage tracking.
 Standard blockchain-registered IoT attributes
 Temperature, pressure, geo-location, custody

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Blockchain 42
 Traceability system for
materials and products
bringing verified
information from supply
chain to the point of sale
 Used by 200 suppliers
 Using IoT, mobile, and
blockchain
 Example
 Smart tags used to track
fish caught by fishermen
with verified social
sustainability claims
Source: Provenance (NL)
sustainability.

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Blockchain 43
 Concept: global inventories of high-value
items: jewels, controlled substances
 Mechanism: registered with digital certificate
 Diamond supply chain projects:
 Everledger (2015)
 Records and tracks the immutable provenance of
an asset with blockchain, IoT, smart contracts
 TrustChain Initiative (2018)
 IBM, precious metals refiner Asahi Refining,
jewelry retailer Helzberg Diamonds, precious
metals supplier LeachGarner, jewelry
manufacturer The Richline Group, and
independent verification service UL
Source: https://diamonds.everledger.io/; https://cointelegraph.com/news/ibm-and-jewelry-industry-leaders-to-use-blockchain-to-
trace-origin-of-diamonds
high-value tracking.

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Blockchain 44
birth registry, QR code resumes.
MIT Digital Certificates (diplomas); Criminal Records

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Blockchain
Global Trade: Maersk
 15.8% of the world's global shipping
fleet traffic ($236bn value, 628 ships)
 On average, 30 people/organizations
involved in the shipment of a product
using a shipping container
 Over 200 separate interactions, each
requiring a new set of documents
 Pilot project (Hyperledger) for
blockchain-based supply chain
management
 Relocating empty containers to available
nearby ships
45
Source: https://www.coindesk.com/worlds-largest-shipping-company-tracking-cargo-blockchain/

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anti-counterfeiting.

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Blockchain 47
blockchain-streamlined supply chain.
 Single shared business logic in blockchain cloud
 Credentials and private views (regulators) issued to
multiple parties in the value chain

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enterprise blockchains.
 General
 IBM Hyperledger Fabric
 Ethereum Private Network
 R3 Corda (HPC)
 Symbiont
 Supply Chain
 IBM Hyperledger Fabric
 Ethereum Private Network
 SKUChain (POPcodes)
 Provenance (sourcing, custody)
 Sweetbridge (collateralization)
HPC: HP high-performance computing

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Blockchain 49
enterprise platform comparison.
Source: https://medium.com/@philippsandner/comparison-of-ethereum-hyperledger-fabric-and-corda-21c1bb9442f6,
https://www.accenture.com/t20171116T081243Z__w__/sg-en/_acnmedia/PDF-66/Accenture-Project-Ubin-Phase-2.pdf

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Blockchain 50
blockchains in space.
Jan. 13, 2018 - NASA has awarded a grant to the University of Akron for
research into data analysis and other topics related to space exploration.
The allocation will help a team led by associate professor Jin Wei to
pioneer a resilient networking system based in part on the Ethereum
blockchain.

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Blockchain
blockchain
economics.
51

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Blockchain
Blockchain Economics
52
Source: Swan, M. Forthcoming. Blockchain Economics Networks. Palgrave Macmillan.

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Blockchain
Blockchain Economics
 New economic model’s distinguishing aspects
1. Open platform business model
 vs. proprietary platform (GOOG, FB, NFLX)
2. Initial Coin Offerings as a novel and
official financing method for projects
3. Token-based money supply
53
Source: Swan, M. Forthcoming. Blockchain Economic Networks. Palgrave Macmillan.
Two-way network effects
(Metcalfe’s Law (n2 ))

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Blockchain
54
participation.
earn money.
access resources.
vote on decisions.
tokens = “money +”.
functions of money.
store of value.
medium of exchange.
unit of account.
+

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Blockchain
participation.
55
information
internet: static
information
social internet:
engage with content
token internet:
participate in the
community economy

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Blockchain
Evolution of Financing Models
Supply Chain becomes Demand Chain
56
1. IPO
2. Crowdfunding
3. ICO
Equity ownership
Product
Token & Platform
 ICO: fundraising method, more liquid than equity
 Conceived as project finance / capital-budgeting solution
 Future: securitized customer demand (from social
networks)
Source: Blockchain Consumer Apps: https://cryptoinsider.21mil.com/blockchain-consumer-apps-next-generation-social-networks-
aka-strategic-advice-facebook/; Doc Searls, personal Vendor RFPs; Casey
Financing Model Pre-sell access to:
4. Securitized Demand Product Development
Future

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Blockchain 57
internet money.
economic collaboration
infrastructure.
blockchain.

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Blockchain 58
Source: http://www.europeanfinancialreview.com/?p=21755
financing.

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Blockchain 59
net settlement.
payment channels.
digital credit systems.
Source: http://timreview.ca/article/1109
rethink financing.

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Blockchain
Payment Channels: the concept
60
 Contractually-obligated relationship
 3-step economic contract executed over time
1. Party A opens a payment channel with Party B and posts a
pre-paid escrow balance, Party B signs a full refund
2. Party A consumes against the escrow credit over the given
time period (activity is tracked)
3. At the end of the period, cumulative activity is booked in one
net transaction to close the contract
 Lightning Network - Bitcoin
 Raiden - Ethereum
Source: https://www.slideshare.net/lablogga/blockchain-economics-payment-channels

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Blockchain
1. Unilateral Payment Channel
61
Source: Extended from https://www.investinblockchain.com/lightning-network-bitcoin-scaling
Opening Transaction:
Broadcast to Network
Interim Transactions: Signed
between Wallets (both parties
agree and are obligated; not
Broadcast to Network)
USD $50
Alice opens $50 “Monthly Payment
Channel” with Starbucks
Closing Transaction:
Alice consumes coffee and
Starbucks adjusts the refund
balance from the initial deposit
USD $5
4/1/18
4/30/18
1
2
Close “Monthly Payment Channel”:
Starbucks broadcasts last refund
amount to network
Starbucks
Coffee
USD $50
USD $45
Starbucks acknowledges with
unbroadcast refund of $50
4/2/18
USD $5
3
4/3/18
USD $5
4
4/4/18
USD $40
USD $35
USD $35
30

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Blockchain
2. Bilateral Payment Channel
62
SBUX Balance Sheet
Assets
Cash $1.2bn
Liabilities
Stored Value
Cards $1.2bn
Interim Transactions:
Signed between Wallets
(not Broadcast to Network)
1 BTC
Open “Monthly Expense”
payment channel: create a new
address, each fund with 1 BTC
1 BTC
Each pays for expenses
from the shared address
during the month
1.2 BTC 0.8 BTC
4/1/18
4/30/18
1
2
3
Close “Monthly Expense” payment
channel: net settle the balance
returned to each
Roommate
Expense Sharing

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Blockchain
3. Community Payment Channel
63
Source: https://solarpowerrocks.com/solar-basics/how-much-electricity-does-a-solar-panel-produce
Interim Transactions: Daily
production and consumption
measured as signed
transactions between Wallets
A, B, C, D ante up monthly dues to
the address to open this month’s
“Community Payment Channel”
Energy Produced
4/1/18
4/30/18
2
Close this month’s “Community
Payment Channel” with net
amount returned to A, B, C, D
0.8 kWh
CSC: Community Solar Coin
Token: ante-up expenses, vote,
governance re: how price per kWh,
smart contract lookups to pricing
oracle; additional capital calls
during the month if necessary
4/2/18
4/3/183 Etc.
30
Sustainable
Energy Production
1 CSC 1 CSCA B
C D
1 CSC 1 CSC
Energy Consumed
1.2 kWhA A
Energy Produced
1.1 kWh
Energy Consumed
0.6 kWhB B
Energy Produced
1.3 kWh
Energy Consumed
0.7 kWhC C
Energy Produced
1.0 kWh
Energy Consumed
1.1 kWhD D
1
A
B
C D
1 CSC 0.8 CSC
1.2 CSC1.1 CSC

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Blockchain
Transactive Grid, President St, Brooklyn NY
 Decentralized DIY energy markets
 Blockchain-based microgrid
 Community:
 Five net-producing homes generating
energy through solar power
 Five net-consuming homes interested
in buying excess energy from
neighbors
 Benefits: no billing components, no
infrastructure losses, no
accounting losses in the system
 Ability for producers to sell or
donate excess
64
Source: https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york

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Blockchain 65
risk.

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Blockchain
reduce risk.
66
blockchain-registered digital assets.
instantaneous transactability.
real-time balance sheets.
shared business processes.
single ledger.

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Blockchain
Programmable Risk
Black Swan Smart Contracts
 Insurance automatically priced into
smart contracts via big data
 User-selected High-Medium-Low
programmable risk dropdown feature
of smart contracts
 Financial options (put/call) used to
control/manufacture exposure
 Convexity (Fig. 1): control down-side
risk, upside gain, anti-fragile (robust)
 Concavity: undesirable risk profile
 Taleb: map event probabilities as
s-curve (Fig. 2) in medicine, etc.
 Convex-linear-concave profile
67
Sources: Swan, M. Submitted. Programmable Risk: Black Swan Smart Contracts, IEEE;
Taleb, Medicine: https://arxiv.org/ftp/arxiv/papers/1208/1208.1189.pdf
Figure 1
Figure 2

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Blockchain
smart contracts.
68
Launched: Nov 2017
500,000 sold, total: USD$40 million
Source: http://fortune.com/2018/02/13/cryptokitties-ethereum-ios-launch-china-ether
cryptokitties.

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Blockchain
inclusion.
69
banking & credit.
land registry.
identity.
electricity.
vaccines & medicine.
Source: https://www.unicef.org.au/blog/unicef-in-action/april-2017/photos-vaccines-reach-most-remote-places-earth
Digital health wallet

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regulation and
competitive advantage.

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Blockchain
government as service
provider.
71
old model.
eResidency.
eBusiness services.
Exclusivity: One default
economic and political
sovereign birth regime.
new model.
Source: https://www.consultancy.eu/news/933/estonia-has-35000-e-residents-most-are-finnish-russian-and-Ukrainian,
https://blog.leapin.eu/e-residency-all-the-numbers-you-wanted-to-know-statistics-9ccc1bee75
Plurality: Entering a world of plurality
in economic and political systems
>35,000 Estonia
e-Residents
(May 2018)

27 Jul 2018
Blockchain 72
risks.

27 Jul 2018
Blockchain
risks.
tech: scalability.
political: regulation.
social: adoption
and collusion.
Rapid
Adoption
Unfavorable
Regulation
Favorable
Regulation
Slow
Adoption
Future Scenarios
73
near-term

27 Jul 2018
Blockchain
risks.
tech: advance.
74
longer-term
 Blockchain (blockchain
deep learning smart
networks) is the vanguard
of computing
 Could define next-
generation computing
architectures, quantum
(expensive error-correction)
or otherwise
 “End of Moore’s law” not a
worry due to new
architectures, lithography
techniques

27 Jul 2018
Blockchain
implications for
procurement.
75

27 Jul 2018
Blockchain 76
 Bitcoin Blockchain
 Real-time payments
 Ethereum
 Smart contracts, DApp platform (distributed applications)
 Ripple
 Real-time cross-border bank transfer and live credit network
 Factom (overlay to Bitcoin blockchain)
 Health insurance claims billing
 Clinical Trials blockchain
 Smart contract consent, privacy, data interop, off-chain EMR
Industry-specific Blockchains
EMR: Electronic Medical Record

27 Jul 2018
Blockchain
Procurement: Sourcing and Purchasing
77
Source: http://www.tendersinfo.com/blogs/what-is-the-difference-between-procurement-purchasing-and-sourcing/

27 Jul 2018
Blockchain 78
 Sourcing and Purchasing
 Real-time exchange
 High through-put
 Global access
 Validated histories
 Digital identity
 Transaction confirmation
 Document management
 Integration
 ERP, GL/AR/AP/Payroll
 CRM systems
 Multi-platform mobile app/web front-ends
Procurement Blockchain requirements
EMR: Electronic Medical Record

27 Jul 2018
Blockchain 79
1. Blockchain-registered digitized assets
 Ownership confirmed, ready for transfer, instantaneous global
transactability, pre-validated digitally-registered assets
2. Financing Implications
 Digital assets can be pledged as collateral in on-demand
financing with any party (without having to form a vendor-
supplier relationship) in enterprise payment channels
 Invoice factoring, inventory, sales order, purchase order
3. Business Process Implications
 Automated business logic via smart contracts
 Shared business processes in enterprise blockchain networks
 Shared record-keeping in an era of digital ledgers
 Integrated ledgers (accounting and legal processes)
Procurement Blockchain

27 Jul 2018
Blockchain
 Findings: Financiers, accountants, and SMEs thought
blockchain-based credit histories could prevent fraud,
minimize the administrative costs of providing credit, and
improve the financing opportunities available to SMEs
Study of Stakeholders in SME Financing
80
Source: Kayal et al., forthcoming, Financing Small & Medium Enterprises with Blockchain: an exploratory research of stakeholders'
attitudes, in Blockchain Economics (World Scientific)
Risk Factors contributing to potential Fraud
(1) The smaller the business entity, the higher the risk
(2) Lack of credit history between the business entity and the financier
(3) Financing a foreign business carries a higher risk than a local one
Blockchain-based Credit Histories to reduce Risk of Fraud
Proposal for Blockchain-based
Inventory Financing Process

27 Jul 2018
Blockchain
objectives.
81
1. what is blockchain.
2. technical overview.
3. business use cases.
4. implications for
procurement.
conclusion

27 Jul 2018
Blockchain 82
internet money.
economic collaboration
infrastructure.
blockchain.

27 Jul 2018
Blockchain
supply chain
blockchain.
83
software for secure internet-based transfer
of assets and information.
business process reengineering
technology.

27 Jul 2018
Blockchain 84
Blockchain: all assets digitized and
registered to blockchains; instantaneously
transactable on a global basis
Blockchain Supply Chain: all assets exist
in digital inventories, tradeable (pledgeable,
financeable) and more importantly, findable,
in the global digital network economy

27 Jul 2018
Blockchain
Procurement leading the path ahead
85
 Procurement already
automating the efficiencies
associated with sourcing
and purchasing
 Global reach, sophisticated
business, technologically-
intense solutions, real-time
exchange
 Challenge is to envision and
continue leading the
modernizing way forward with
strategic acuity

27 Jul 2018
Blockchain
Institute for Blockchain Studies
Blockchain Research Program
 Theoretical research
 Apply quantitative methods from physics (renormalization/path
integrals), complexity science (entropy), and deep learning to
blockchain analysis
 Applied research
 Economics: algorithmic trust, a network mechanism that moderates
credit availability and facilitates blockchain markets to Nash equilibria
more quickly than classical markets
 Payment channels, debt, net-settled capital, programmable risk,
integrated business ledgers, blockchain health economics
 Social theory
 Smart City Cryptopolis and Blockchain Enlightenment
 Automation Economy flourishing of human, algorithm, machine
 Advanced conceptual research
 Blocktime, BCI cloudminds, Brain as a DAC, biocryptoeconomy
87
Source: Swan, M. Forthcoming. Blockchain Economic Networks. Palgrave Macmillan.
Blockchain
Economics
Swan et al.
(World Scientific,
2019)

27 Jul 2018
Blockchain 88
payment channels.

27 Jul 2018
Blockchain
Payment Channel motivation and projects
 Motivation
 Micropayments for video bandwidth
consumption where piecemeal
transactions do not make sense
 Blockchain scalability (offload tx)
 Send payments across p2p network
 Projects
 Bitcoin: Lightning Network
 Time/signature lock parameters:
CheckLockTimeVerify,
CheckSequenceVerify
 Current ~$350 max (4% Btc) for
Lightning Payment channels
 Ethereum: Raiden, Plasma
89

27 Jul 2018
Blockchain
1. Unilateral Payment Channel
90
Interim Transactions: Signed
between Wallets (both parties
agree and are obligated; not
Broadcast to Network)
USD $50
Alice opens $50 “Monthly Payment
Channel” with Starbucks
Alice consumes coffee and
Starbucks adjusts the refund
balance from the initial deposit
USD $5
4/1/18
4/30/18
1
2
Close “Monthly Payment Channel”:
Starbucks broadcasts last refund
amount to network
Starbucks
Coffee
USD $50
USD $45
Starbucks acknowledges with
unbroadcast refund of $50
4/2/18
USD $5
3
4/3/18
USD $5
4
4/4/18
USD $40
USD $35
USD $35
30

27 Jul 2018
Blockchain
1. Unilateral Payment Channels
 Starbucks Example
1. Customer opens $50 monthly payment
channel with Starbucks
2. Daily coffee consumed is tracked and
booked against the $50 credit
3. Activity is netted at the end of the month.
Contracts close and roll over at regular
intervals. Either party may close the
channel early, trigger net settlement
 SBUX: payment channel prototype
 Loyalty program (cards & apps): 41%
purchases, $1.2 bn obligations
91
SBUX Balance Sheet
Assets
Cash $1.2bn
Liabilities
Stored Value
Cards $1.2bn

27 Jul 2018
Blockchain
2. Bilateral Payment Channel
92
SBUX Balance Sheet
Assets
Cash $1.2bn
Liabilities
Stored Value
Cards $1.2bn
Interim Transactions:
Signed between Wallets
(not Broadcast to Network)
1 BTC
Open “Monthly Expense”
payment channel: create a new
address, each fund with 1 BTC
1 BTC
Each pays for expenses
from the shared address
during the month
1.2 BTC 0.8 BTC
4/1/18
4/30/18
1
2
3
Close “Monthly Expense” payment
channel: net settle the balance
returned to each
Roommate
Expense Sharing

27 Jul 2018
Blockchain
3. Community Payment Channel
93
Source: https://solarpowerrocks.com/solar-basics/how-much-electricity-does-a-solar-panel-produce
measured as signed
A, B, C, D ante up monthly dues to
the address to open this month’s
Energy Produced
4/1/18
4/30/18
2
amount returned to A, B, C, D
0.8 kWh
CSC: Community Solar Coin
Token: ante-up expenses, vote,
governance re: how price per kWh,
smart contract lookups to pricing
oracle; additional capital calls
during the month if necessary
4/2/18
4/3/183 Etc.
30
Sustainable
Energy Production
1 CSC 1 CSCA B
C D
1 CSC 1 CSC
Energy Consumed
1.2 kWhA A
Energy Produced
1.1 kWh
Energy Consumed
0.6 kWhB B
Energy Produced
1.3 kWh
Energy Consumed
0.7 kWhC C
Energy Produced
1.0 kWh
Energy Consumed
1.1 kWhD D
1
A
B
C D
1 CSC 0.8 CSC
1.2 CSC1.1 CSC

27 Jul 2018
Blockchain
Transactive Grid, President St, Brooklyn NY
 Decentralized DIY energy markets
 Blockchain-based microgrid
 Community:
 Five net-producing homes generating
energy through solar power
 Five net-consuming homes interested
in buying excess energy from
neighbors
 Benefits: no billing components, no
infrastructure losses, no
accounting losses in the system
 Ability for producers to sell or
donate excess
94
Source: https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york

27 Jul 2018
Blockchain
4. Multi-resource Community
Payment Channel
95
Source: https://www.slideshare.net/lablogga/the-crypto-enlightenment-social-theory-of-blockchains
measured as signed
A, B, C ante up monthly dues to the
address to open this month’s
Energy Produced
4/1/18
4/30/18
2
amount returned to A, B, C
0.8 kWh
CSC: Community Coin
Token: ante-up expenses, voting,
governance, decision-making re:
resource pricing; additional capital
calls; dispute resolution mechanism
4/2/18
4/3/183 Etc.
30
Sustainable
Community
1 CSC 1 CSCA B
C
1 CSC
Energy Consumed
1.2 kWhA
Greens Produced
3 units
Greens Consumed
1 unit
B
Bandwidth
Produced
10 units
Bandwidth
Consumed
3 units
1
A B
C
1 CSC
0.8 CSC
1.1 CSC
B
C
1.2 kWh
A
C
C A
B
2 units
1 unit

27 Jul 2018
Blockchain
Uber for Microgreens
Who’s harvesting today?
96
Source: https://www.slideshare.net/lablogga/the-crypto-enlightenment-social-theory-of-blockchains;
Swan, M. 2017. Technological Unemployment, In Surviving the Machine Age. Springer.
LocalGreens
Kale – SuperGreens
Citizen’s sense of duty to
serve the republic
Civic Duty
Civic Collaboration
Greek Statesman
Self-directed Cryptocitizen
Optional peer infrastructure
provision: Cryptocitizen’s
sense of meaning and
purpose in participating in
community sustainability
Identity Crisis: who are we in the Automation Economy,
Technological Unemployment, and the Future of Work?

27 Jul 2018
Blockchain
5. Small Group Payment Channel
 Local bar: Lynn, Chris, Bartender
 Lynn has $10 tab with bartender, has consumed $6
 Chris has $10 tab with bartender, has consumed $5
 Lynn and Chris play pool, Chris owes Lynn $5
 Current method (gross settlement): each party settles with
each other (3 tx, $16 gross flow)
 New method (net settlement): (2 tx, $11 gross flow)
 Already see implication if less money transfers, more is available
97
Source: Andreas Antonopoulos
Bartender
A/R
Lynn $6
Chris $5
Lynn
A/R
Chris $5 Bar $6
A/P
$1
Chris
Bar $5
A/P
$10
Lynn $5
$11
Current
Method
Tx1 $6-Lynn
Tx2 $5-Chris
Tx3 $5-Lynn
Payment
Channel
Tx1 $10 C-to-B
Tx2 $1 L-to-B

27 Jul 2018
Blockchain
6. MyMonthlyExpense Payment Channel
 My monthly expenses example
 De facto payment channel
 Inflows into bank account:
 Paycheck direct deposit
 Outflows from bank account:
 Auto-pay bills (fixed and variable)
 Formalized into a multi-party payment
contract netting salary against
expenses, any remainder to Schwab
investment account
 Implication: settling net basis frees capital
 Consider business entities on a net basis
98
Source: https://www.psmarketresearch.com/market-analysis/personal-robot-market
My monthly expenses
Salary (direct deposit)
DR CR
$xx
Expenses (auto-pay)
Rent (fixed amount)
Car payment (fixed)
Utilities (variable)
Discretionary (variable)
$xx
$xx
$xx
$xx
Net savings (variable) $xx
$xx
My apartment building
Expected inflows
DR CR
$xx
Expected outflows
Fixed
Variable
Net
$xx
$xx
$xx
My small business
Expected inflows
DR CR
$xx
Expected outflows
Fixed
Variable
Net
$xx
$xx
$xx

27 Jul 2018
Blockchain
7. MySupplyChain Payment Graph Economy
 Blockchains: only sub-registers of the cash
account (Alice, Bob, HSBC, etc.), not a full
suite of general ledger accounts
 Property registries use cash-acct ledger structure
 Property registries where UTXOs are assets
 Birth/death registry: one credit tx, one debit tx
 Supply chain finance: for supply chain net
settling, need integrated account ledgers
 Single set of books with multiple views: by supply
chain (new) + by entity (existing)
 Revenue (WMT); COGS (Deere, Adidas)
99
Source: https://www.psmarketresearch.com/market-analysis/personal-robot-market
My supply chain
Sales Inventory COGS Manufacturing Raw Materials
Cash
Alice
Bob
Carol
Ralph
HSBC
DR CR
$xx
$xx
$xx
$xx
$xx
Payments trajectory
Goods trajectory
Orthogonal trajectories,
different incentives, behavior

27 Jul 2018
Blockchain
Payment Channel implications
 New forms of Digital Credit Systems
 Contractually-obligated payment relationships
 Booked as periodic net activity
 Net settlement
 Digitized payment system for resource consumption that
settles based on net payments instead of gross transfers
 Peer-provided banking services enabled
100

27 Jul 2018
Blockchain
Securities as a Service
101
Source: Blockchain Fintech: Programmable Risk and Securities as a Service,
http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html
CD, DVD
Streaming Music and
Video Services
Entertainment as
a Service
Asset
Service
Auto, Home
Uber, Lyft, Gett, Juno,
Via; Airbnb, VRBO
HomeAway
Transportation,
Domicile as a Service
Securities
Securities as
a Service
 Securities a Service
 Now have to own because uncertain future value of assets
 Access to the consumable benefits of the asset without owning
 Works if trust consumable assets will have future availability
 Need the cash flow the asset provides, not the asset itself
Consumable benefits of
securities: cash flow,
appreciation
Payments as
a Service

27 Jul 2018
Blockchain
Net settlement: Municipal finance example
102
Source: https://www.slideshare.net/lablogga/the-crypto-enlightenment-social-theory-of-blockchains
State ContractorTaxpayer
Bond
State ContractorTaxpayer
Current Method: 15-year IDB Future Method: Smart Contract
Smart Contract monthly payments

27 Jul 2018
Blockchain
Net settlement: Municipal finance example
103
Source: http://www.cabq.gov/economicdevelopment/business-owners/services-programs/bonds
15-year IDB
Bond
Investor
+
-
State
+
-
Contractor
+
+
Taxpayer
-
-
Contractor
+
-
State
++
Taxpayer
+
-
-
2
1
• State borrows full amount in
bond offering
• State chooses contractor and
pays contract in installments
• Contractor receives
installment payments from
State
• Taxpayers pay tax payments
to State
• State pays interest to bond
holders and repays principal at
maturity
Future Method: Smart
Contract Municipal Project
Current Method: 15-year IDB
• State selects contractor and
supervises project
• Smart contract monthly
payments: taxpayers to
contractor

27 Jul 2018
Blockchain
network futures.
104

27 Jul 2018
Blockchain
future-class tech.
105
blockchain networks are a
new class of global
computational infrastructure.

27 Jul 2018
Blockchain
Context of the Blockchain Revolution
106
Source: Expanded from Mark Sigal, http://radar.oreilly.com/2011/10/post-pc-revolution.html
I. Transfer Information II. Transfer Value
6 7
2020s 2030s
Simple networks Smart networks
 Blockchain is fundamentally the next phase of the
Internet, not just Fintech, could impact every industry
 Two fundamental eras of network computing

27 Jul 2018
Blockchain
smart networks.
107
 Future of AI: intelligence “baked in” to smart networks
 Blockchains to confirm authenticity and transfer value
 Deep Learning algorithms for predictive identification
 Attribute information : quality, characteristics, provenance

27 Jul 2018
Blockchain
deep learning
chains. 108
 Autonomous Driving & Drone
Delivery, Social Robotics
 Deep Learning (CNNs): identify
what things are
 Blockchain: secure automation
technology
 Track arbitrarily-many units,
audit, upgrade
 Legal liability, accountability,
remuneration

27 Jul 2018
Blockchain
fleet management.
109
secure automated
Smart city: 3D port, international trade, planning and logistics, supply chain management
Aerial logistics highway (50m virtual tunnel at 150m altitude): autonomous drone delivery,
law enforcement surveillance, biopathogen and epidemic sensors
Source: Suarez, D. (2017). Change Agent. Pp. 79-80.

27 Jul 2018
Blockchain
data.
110
big data ≠ smart data.
clean, standardized,
interoperable.
Source: http://www.oyster-ims.com/media/resources/dealing-information-growth-dark-data-six-practical-steps
40 EB 2020e

27 Jul 2018
Blockchain
scale.
111
Source: https://www.illumina.com/science/technology/next-generation-sequencing.html
Population:
7.5 bn people worldwide
big health data.

27 Jul 2018
Blockchain 112
technological unemployment.
human-machine collaboration.
automation economy.

27 Jul 2018
Blockchain
Problem Diagnosis
Ineffective Supply Chain Market Dynamics
113
 Ineffective meeting of Supply and Demand:
 Reduced liquidity due to search problem
 Purchasers and suppliers cannot find each other
 Reduced fungibility due to matching problem
 Greater requirements-features match is possible
 Reduced liquidity due to lack of information
 Attribute information: quality, characteristics,
provenance, chain of custody of goods
 Market information: price, volume, aggregate activity
 Reduced liquidity due to lack of global digital
network of contracting, financing, and
enforcement structures
Information-rich
Feature-rich
Agent-rich
Simultaneously,
market exploding
to become:
Solution-rich
Harder to find
signal in the noise

27 Jul 2018
Blockchain 114
The future of the supply chain concerns
three factors:
(1) Findability and fungibility of goods (a
human-machine collaboration problem)
(2) Cost of attribute discovery (an
information theoretic search problem)
(3) Vendor payment channels (a digital asset
contracting problem)

Blockchain Supply Chain

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