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UNBLOCKED: The Power of Blockchain Technology to Establish Trust, Build Brands & Transform Business


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UNBLOCKED: The Power of Blockchain Technology to Establish Trust, Build Brands & Transform Business shines light on the myriad capabilities, applications and benefits of blockchain technology for enterprises. It frames key questions for business leaders that open paths to unlock the value of the technology. It places the customer at the center of business strategy development. And it focuses on the ultimate end game, leveraging blockchain to prevent disruption and provide competitive advantage.

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UNBLOCKED: The Power of Blockchain Technology to Establish Trust, Build Brands & Transform Business

  1. 1. 1 U N B L O C K E D OGILVYRED THINK SERIES JUNE 2017 LAURA MASSE GlobalConsultingPartner BY The Power of Blockchain Technology to ESTABLISH TRUST, BUILD BRANDS & TRANSFORM BUSINESS
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  3. 3. 3 If you understood in 1995 the opportunities and threats that the internet would ultimately present to your company, or industry, what would you have done differently? That is where we are with blockchain today.” – Ginni Rometty, CEO, IBM “BLOCKCHAIN TECHNOLOGY WILL TRANSFORM THE WORLD.
  4. 4. 4 Nearly two-thirds of CEOs globally say they are concerned about the speed of technological advances and their ability to keep up.1 In the midst of this technological tsunami, it would be easy, and convenient, to gloss over blockchain technology. But it would be a mistake. Blockchain is a technology of consequence. It has tremendous transformative potential for individuals, for society, and for businesses. Most people with any knowledge of it at all have a limited perspective circumscribed to the digital currency Bitcoin. Bitcoin is really just the tip of the iceberg. Overlooking the full potential of the transformative blockchain technology that lies beneath Bitcoin is a major risk for companies and the executives who lead them. EXECUTIVES ACROSS ALL INDUSTRIES ARE BUFFETED BY NTRODUCTIO RELENTLESS CHANGE.
  5. 5. 5 … propel your innovation strategy? … disrupt your business model? … create new revenue streams? HOW WILL BLOCKCHAIN TECHNOLOGY …
  6. 6. 6 shines light on the myriad capabilities, applications and benefits of blockchain technology for businesses. It frames key questions for business leaders that open paths to unlock the value of the technology. It places the customer at the center of business strategy development. And it focuses on the ultimate end game, leveraging the blockchain to prevent disruption and provide competitive advantage. Blockchain technology itself can be understood relatively easily. The hard work is figuring out how to successfully apply it to your business. This paper provides inspiration for that heavy lifting. THE POWER OF BLOCKCHAIN TECHNOLOGY TO ESTABLISH TRUST, BUILD BRANDS & TRANSFORM BUSINESS” "UNBLOCKED:
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  8. 8. 8 1TRUST The MACHINE
  9. 9. 9 1 “The blockchain lets people who have no particular confidence in each other collaborate without having to go through a central authority. SIMPLY PUT, IT IS A MACHINE FOR CREATING TRUST."² – The Economist
  10. 10. 10 and its most prominent application, the digital currency Bitcoin, were introduced in 2009 when cryptographer and computer scientist Satoshi Nakamoto published technical protocols that enable peer-to-peer transfer of digital assets. As the internet allows us to digitally transfer information, so the blockchain allows us to digitally transfer items of worth. Some have christened it “The Internet of Value.” 3 At its most basic, the blockchain is a decentralized digital ledger. The protocols that govern it guarantee security, transparency, authenticity, and credibility. Trust is built into this “machine.” Satoshi Nakamoto Solves the Problem of Double Spending The internet allows us to share documents, video, and photos but not items of value. When a document is shared over the internet it is a copy; the originator retains the original. Obviously, this won’t work with money because if I owe you ten dollars it’s really important that the ten dollars transfers from me to you and that I don’t have the ten dollars to send to someone else. That would be a “double spend.” Through the internet we have been able to transfer value only through middlemen who verify possession of funds and clear transactions for a fee (PayPal, Visa, Western Union). Through blockchain technology, Satoshi Nakamoto solved the problem of double spending with decentralized verification protocols. BLOCKCHAIN TECHNOLOGY
  11. 11. 11 HERE’S HOW IT WORKS Encrypted transactions are initiated and accepted peer to peer. There is no financial middleman or bank that establishes trust between the parties. Instead, trust is established through the decentralized distributed ledger that is visible to anyone within the network. When a transaction is initiated, this worldwide network of computers race to validate the transaction by solving complex algorithms. When the network reaches consensus that the digital ledger reflects that the transferring party actually has the asset to transfer, the transaction is validated and executed. And the digital ledger is updated, simultaneously, across the network. Anyone with the necessary computer power can participate in the verification process (aka become a network “node”). The network is able to validate, timestamp and clear a transaction instantly because that activity happens immediately within the digital ledger itself, not between institutions. After the transaction is cleared, the network cryptographically links it to the prior transaction and publishes them in blocks. Each block is linked to the previous block and so an immutable chain is established. (Hence, the name blockchain technology.) No information in a block can be altered without changing all of the blocks prior to it, making it virtually impossible to hack. The protocols of blockchain technology ensure immutable trust. Security is guaranteed through encrypted transactions that are pseudonymous and sealed into blocks. Transparency is ensured through the open, public decentralized ledger that anyone can view. Authenticity and credibility are established through a permanent, unalterable record of events.
  12. 12. 12 Jenny wants to send Mark $100. The transaction request is sent to every node in the network. The nodes reach consensus that Jenny has the $100. The transaction is approved. The money moves on the digital ledger and the transaction is sealed into a block. The block is cryptographically and permanently linked to the previous blocks of transactions. TRANSACTION SUMMARY
  14. 14. 14 As noted, anyone with the requisite computer processing power can establish a “node” on the worldwide network that validates transactions on the distributed ledger. People that run nodes are called “miners.” Each time a miner solves the complex math problems necessary to authenticate an entire block of transactions, the miner is rewarded with a newly-minted, pre-determined amount of Bitcoin. This Bitcoin reward is important. It acts as an incentive for miners to contribute their considerable computing power and energy to validate transactions. It is the distributed authority of miners to validate transactions that sustains the self-governing nature of the public decentralized ledger. Right now, a miner’s reward for authenticating an entire block of transactions is 12.5 Bitcoin per block, or about $33,000. Not bad. But it takes a lot of expensive computing power and energy to support a mining operation. The majority of miners are actually big companies with acres of data centers – not guys operating out of their basements. A WORD ABOUT “NODES” “MINERS”
  15. 15. 15 However, a centralized institution is actually more vulnerable to hacking because a perpetrator need only creep into one main system, as we have so alarmingly learned with the hacking of VISA, JPMorgan Chase, Target and others. A single point of control is also a single point of failure that can expose companies and their customers to disastrous security breaches. Distributing the blockchain digital ledger across tens of thousands of participating nodes who are anonymous protects the data. It’s impossible to hack all of the nodes at one time. And if any one node is attacked, the intrusion can be detected by the rest of the nodes and the activity associated with the attack invalidated. to think that a It’s counter-intuitive IS MORE SECURE THAN ONE TIGHTLY CONTROLLED BY ONE ENTITY IN ONE PLACE. DECENTRALIZED, DISTRIBUTED LEDGER
  17. 17. 17 the ease and convenience of transferring digital currency on the blockchain to the complexity of an ordinary credit card transaction. In a credit card transaction there are a number of banking intermediaries, fees are incurred at various stages and settlements take days. A wants to send money to B. The transaction request is sent to every node in the worldwide network The network nodes validate that, according to the digital ledger, A actually has the money to send to B The transaction is approved and is sealed into a secure block and the block is linked to all previous blocks, forming an immutable chain. The money moves on the digital ledger from A to B. The transaction and settlement are instantaneous. Customer pays with credit card Merchant captures credit card information and sends to the merchant’s bank The merchant’s bank forwards the transaction to the credit card company (VISA, Mastercard, etc.) The credit card company requests payment authorization from the bank that issued the credit card The card-issuing bank approves the transaction through the credit card company and the merchant’s bank Up to 48 hours later the transaction is posted to the cardholder’s monthly statement by the issuing bank and to the merchant’s statement by the merchant’s bank BLOCKCHAIN TRANSACTIONS COMPARE ARE STREAMLINED CREDIT CARD TRANSACTIONS ARE COMPLEX & TAKE DAYS TO SETTLE O1 O1 O2 O2 O3 O3 O4 O4 O5 O6
  18. 18. 18 There are two basic types of blockchains: public and private. A public blockchain is just that: open to everyone and anyone who wants to transact and/or verify as part of the network. It is permissionless, meaning there are no barriers to participation. A private blockchain is one that is restricted within a company or limited to a group of cooperating companies. It is permissioned as one needs credentials to participate. There are many public and private blockchains acting simultaneously and independently of each other. ECOSYSTEM BLOCKCHAIN The
  19. 19. 19 BITCOINand the The Bitcoin Blockchain is an example of a public blockchain and is so called because it is the blockchain on which the digital currency Bitcoin rides. Gartner calls it “the only proven blockchain.” Bitcoin is one example of a digital asset that can be transferred across the blockchain. It is not a national fiat currency backed by any one government. Part of what makes Bitcoin valuable is that there is a finite supply. Supply is limited by virtue of the way it is “mined” and by the fact that Satoshi Nakamoto capped the number of Bitcoin at 21 million to counteract inflationary pressure. As of this writing, every day around the globe, there are over 300,000 Bitcoin transactions. The government of Japan has just recognized Bitcoin as a legal form of payment. And one Bitcoin is worth $2,645. That’s more than an ounce of gold, valued at $1,270. BITCOIN BLOCKCHAIN PUBLIC BLOCKCHAINS
  20. 20. 20 Bitcoin Price Index PUBLIC BLOCKCHAINS June 12, 2016 - June 12, 2017 JUL ‘16 JAN ‘17 APR ‘17OCT ‘16 $3000 $2500 $2000 $1500 $1000 $1000
  21. 21. 21 Ethereum is another public blockchain with its own digital currency, Ether. Ethereum is a powerful development platform on which innovators can build a diverse array of applications due to its core innovation, the Ethereum Virtual Machine. The EVM streamlines the process and increases the efficiency of creating blockchain applications. Ethereum can be used to codify, decentralize and trade almost anything. Ethereum pioneered the concept of “smart contracts,” programmable conditions that run automatically, without censorship, fraud or third-party interference. In 2016, Ethereum showcased the ultimate expression of smart contracts at work with the formation of a company that completely self-regulated through code: the Decentralized Autonomous Organization, or DAO. ETHEREUM PUBLIC BLOCKCHAINS
  22. 22. 22 Ethereum Price Index PUBLIC BLOCKCHAINS JUL ‘16 JAN ‘17 APR ‘17OCT ‘16 $200 $300 $100 $0 June 12, 2016 - June 12, 2017
  23. 23. 23 BITCOIN AND ETHEREUM are the two leading digital currencies with their own blockchains but there are other prominent digital currencies such as Ripple, Litecoin, and Dash. In the future, there are likely to be many simultaneously functioning digital currencies, tokens and public blockchains. MULTIPLE INDEPENDENT PUBLIC BLOCKCHAINS Bitcoin Protocol Ripple ProtocolEthereum Protocol NEM Protocol Litecoin Protocol TOKEN Bitcoin Blockchain Ripple Blockchain Bitcoin Ethereum Ripple Dash Litecoin Ethereum NEM Blockchain Litecoin BlockchainBLOCKCHAIN PROTOCOL
  24. 24. 24 1 2 3 4 5 Bitcoin Ethereum Ripple NEM Litecoin $48,670,358,405 $22,867,367,463 $11,023,365,261 $2,016,468,000 $1,591,941,697 $2972.34 $247.91 $0.285419 $0.224052 $30.95 NAME MARKET CAP PRICE PRICE GAP (7d)# DIGITAL CURRENCIES & MARKET CAPITALIZATION (As of June 5, 2017) 5 TOP
  25. 25. 25 Established financial institutions and large corporations are enamored of blockchain technology and its potential to help cut costs and increase efficiencies. They are, however, pursuing the development of private, or permissioned, blockchains as opposed to a globally open publicly distributed ledger. A prominent example of a private blockchain is Hyperledger. Formed in 2015, Hyperledger is a global collaboration hosted by The Linux Foundation and includes partners such as IBM, American Express, Intel, SAP and JPMorgan. “I believe 2017 is the year we see live networks versus proof of concepts,” said Jerry Cuomo, fellow and vice president of blockchain technologies at IBM. “I think we’re seeing the real evidence that blockchain is not going to come, it’s here.” 4 The World Economic Forum estimates that 80% of banks are working on private blockchain applications and that they will spend $200 million on developing blockchain technologies in 2017. PRIVATE BLOCKCHAINS
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  29. 29. 29 2– Don Tapscott The Blockchain Revolution to BLOCKCHAIN TECHNOLOGY REPRESENTS AN OPPORTUNITY REWRITE THE ECONOMIC POWER GRID and old order of things to solve some of the world’s most difficult problems.” “
  30. 30. 30 OF THE GLOBAL POPULATION OWNS HALF OF THE WORLD’S WEALTH WHILE 3.5 BILLION PEOPLE EARN FEWER THAN TWO DOLLARS A DAY.⁵ There are 2.5 billion people who are “unbanked,” living entirely outside financial institutions, without bank accounts, credit lines, documented assets or financial instruments of any kind. Established financial institutions do not have financial incentive to make services available to populations with very little cash. Without access, billions of people are limited in the ways they can start small businesses, increase their standard of living and contribute to the overall global economy. The creation of an open, modern, integrated, peer-to-peer, global economy based on a decentralized, distributed blockchain ledger has the power to change that. For developing countries, inclusion in the global economy is the first step to better and more robust economic development, better healthcare, and better education. Integration into this economy via blockchain technology requires only a cellphone and a connection to the internet. OPPORTUNITY TO CREATE A MORE INCLUSIVE ECONOMY — eMarketer, March 2017 Sub-Saharan Africa East Asia South Asia Latin America 66% 31% 54% 49% 93% 64% 64% 65% UNBANKED POPULATION CELLPHONE OWNERSHIP 1%
  31. 31. 31 “Blockchain technology could unleash the biggest untapped pool of human capital in history, bringing billions of engaged, prospering entrepreneurs into the global economy.” 4 THAT’S GOOD NEWS FOR DEVELOPED AND UNDERDEVELOPED COUNTRIES ALIKE. – Don Tapscott
  32. 32. 32 LOCAL ECONOMIES WORLDWIDE WILL RETAIN THE BENEFITS OF THEIR LABOR The largest flow of capital from the developed world to the developing world is not foreign aid or corporate investment. It’s the $600 billion sent home by emigrants in the form of remittances. Currently that transfer of fiat currency goes though a middleman, be it a bank or Western Union, charging anywhere from 5% to 25% in remittance fees depending on where in the world the money is being sent. And it takes several days to clear. Imagine if that transfer were instant. Imagine if it were peer-to-peer, with no middleman fees. Goldman Sachs estimates that $100 billion annually could be saved and plowed back into local economies.
  33. 33. 33 A significant number of governments around the world are applying blockchain technology to solve their most pressing problems. In Estonia, to combat healthcare fraud, the government has adopted blockchain technology to secure one million health records, accelerating transparency and auditability. 6 The UK government’s Department of Work and Pensions is partnering with Barclays to use the blockchain to distribute welfare payments, significantly reducing waste and fraud. 7 The Republic of Georgia is piloting a blockchain land- titling project. An estimated 70% of people around the world who own land have tenuous title to it. Without a valid title, the land can’t be borrowed against or sold. Documenting ownership of land, registering it as a verifiable asset on the blockchain, opens up new value for the owners. 8 SOCIETIES WORLDWIDE WILL BE SERVED BY MORE EFFICIENT GOVERNMENTS
  34. 34. 34 ON A PERSONAL LEVEL The impact of blockchain technology will be significant for individuals in countless ways. It will change not only the way we transact, but also the way we manage our privacy, create new value, and the way we participate in self-governance.
  35. 35. 35 RECAPTURE OUR IDENTITIES … And Maybe Make Some Money Every day, we reveal personal information and display behaviors online, through transactions and surfing, which add up to a virtual ID that others monetize. For instance, Facebook sells advertisers the ability to target their ads to you based on the demographic and psychographic information Facebook has compiled about you. Facebook made $26 billion dollars in advertising revenue in 2016. How much did you make from giving those ads your time and attention? Blockchain technology enables a “black box” virtual identity that consumers can control. The only personal information revealed is the minimum needed for any transaction. And no data or behavior is accumulated or stored. A consumer could choose, however, to disclose parts of their identity to companies in return for specific benefits. Imagine electing to reveal your demographics and preferences directly to a brand or company and having them pay you for your attention to their ads.
  36. 36. 36 ENSURE COMPENSATION FOR THOSE WHO CREATE VALUE It seems fair that people who create value be compensated for it. Think of artists, writers and musicians and the contributions they make to individuals and society. Now think of the way their content is distributed through middlemen taking fees. Imagine they could sell peer-to-peer and realize full compensation for the value they create. And imagine they could participate in the lifetime value of their work. Let’s say an artist sells a painting for $1000. Over time, the artist becomes more popular and the buyer of that painting sells it to someone else for $50,000. The artist has created real value over time but realizes only the initial $1000. Through blockchain technology and smart contracts, a pre-determined percentage could be attributed to the artist each time the work is sold. So, blockchain technology enables those who create value to not only control the conditions under which their work is accessed and sold but to realize fair compensation for it over time.
  37. 37. 37 SECURE DEMOCRACY Trust is an issue in the political realm. Blockchain technology enables transparent, immutable records that can increase levels of trust in government. Jamie Smith, CCO of BitFury Group, says, “Imagine an election where citizens can vote with their phones from the factory floor, where campaign finance disclosures are immediate and transparent, and where polling data is verifiably accurate, secure and easier than ever to share.”
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  39. 39. 39 3 SPLASHof COLD WATER
  41. 41. 41 HYPE CYCLE FOR EMERGING TECHNOLOGIES Gartner observes that, in keeping with patterns that other emerging technologies have followed, blockchain technology is poised at the “peak of inflated expectations” ready to descend into the “trough of disillusionment” before it ever reaches “the slope of enlightenment.” Ultimately they predict it is five to ten years away from mainstream adoption. – Gartner (July 2016)
  42. 42. 42 Don Tapscott, an influential thinker in the space, acknowledges a bevy of implementation challenges for blockchain technology that will need to be overcome in order to move forward.9 Four are most pressing. IN THE “TROUGH OF DISILLUSIONMENT” AN EMERGING TECHNOLOGY BEGINS TO DEAL WITH IMPLEMENTATION CHALLENGES.
  43. 43. 43 The size of the transaction “blocks” determine the speed at which blockchains can process transactions. Currently, the speed at which blockchains process transactions are substantially slower compared to that of other, more traditional players like VISA and PayPal. And the various blockchains themselves process transactions at different speeds. Assuming that to be “ready for primetime” a blockchain will need to process at least as fast as the dominant traditional player, there is work to be done to scale the technology. Within the Bitcoin blockchain community there is currently considerable debate about how to increase speed and capacity. One camp proposes doubling the size of each block under existing protocols. The other advocates eliminating any limits by adopting new protocols. If agreement is not reached, the Bitcoin blockchain will “hard fork” into two separate blockchains much as Ethereum did in 2016. TRANSACTIONS PROCESSED PER SECOND (TPS) – April 2017 VISA – 2000 TPS PayPal – 193 TPS Ethereum – 20TPS Bitcoin blockchain – 7 TPS THE TECHNOLOGY IS NOT READY FOR PRIMETIME O1
  44. 44. 44 On the Bitcoin blockchain, the computing power necessary to mine digital tokens is enormous as is the attendant energy needed to run and cool the machines. The New Republic has reported “Processing and protecting the more than $3 billion worth of bitcoins in circulation requires more than $100 million in electricity each year, generating a volume of carbon emissions to match.”10 In order to overcome this implementation challenge, many in the industry including BitFury Group are working on solutions including developing more energy efficient computers and relocating computing centers to geographies where alternative energy sources such as hydro or geothermal are available. THE ENERGY CONSUMED IS UNSUSTAINABLE O2
  45. 45. 45 Regulatory attention is increasing. Governments the world over are grappling with how to handle issues surrounding digital currency and the blockchain. And those in the blockchain ecosystem are racing to educate policymakers on the technology. Their concern is that a lack of understanding of the technology will lead governments to regulate too soon and/or too much, resulting in slower adoption and/ or limiting the potential of the technology. In the U.S., policymakers are most concerned about consumer protection, securities and commodities regulation, financial surveillance and privacy. And the U.S. Financial Oversight Committee has noted, in its first reference to blockchain in 2016, “Since the set of market participants which makes use of a distributed ledger system may well span regulatory jurisdictions or national boundaries, a considerable degree of coordination among regulators may be required to effectively identify and address risks associated with distributed ledger systems.” 11 GOVERNMENTS WILL STIFLE IT O3
  46. 46. 46 To own and transfer Bitcoin you need to open a digital wallet. There is considerable security around digital wallets. Passwords must be complex to be strong. And, for ultimate security, they are not stored digitally in any central location. So the users have the responsibility to maintain and protect their passwords offline. Something many of us are not currently used to doing. Real-time and historical transaction data on the Bitcoin blockchain can be accessed through the internet at such sites as and blockchain. info. The data is searchable by Bitcoin wallet addresses, but they are clunky, unrecognizable strings of letters and numbers. You cannot, for instance, search on activity for Target. Using the blockchain today is akin to using the internet pre- Netscape browser. O4 THE EXPERIENCE NOT YET is USER-FRIENDLY
  47. 47. 47 So it’s wise to keep our feet on the ground. Appreciate the profound transformational power of blockchain technology yet with a rational, tempered enthusiasm. And recognize that although the technology is five to ten years away from mainstream adoption, THE TIME FOR BUSINESSES TO DEVELOP THEIR BLOCKCHAIN STRATEGIES IS NOW.
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  50. 50. 50 ” 4 “Blockchain is not a ‘disruptive’ technology, which can attack a traditional business model with a lower- cost solution and overtake incumbent firms quickly. Blockchain is a POTENTIAL TO CREATE NEW FOUNDATIONS FOR OUR ECONOMIC AND SOCIAL SYSTEMS. it has the - Harvard Business Review ‘FOUNDATIONAL’ TECHNOLOGY; ¹²
  51. 51. 51 Viewing blockchain technology as simplyatechnicalprotocolthatenables only the transfer of digital assets masks its wider strategic business application. Examining the specific functionality and characteristics of blockchain technology, separately and in combination, gives us a broader perspective on its potential value. TO IMAGINING POSSIBILITIES UNDERSTANDING “UNPACKING” THE BLOCKCHAIN IS KEY Essentially THE FUNDAMENTAL IMPACT IT CAN HAVE ON YOUR BUSINESS.
  53. 53. 53 THE BLOCKCHAIN DECENTRALIZED LEDGER Blockchain technology enables the transfer of digital currency through digital tokens on a digital ledger. As activity in the digital currency arena grows, and more businesses are blockchain- enabled, movement toward a global crypto- economy will accelerate. A crypto-economy opens potential for new value creation and new revenue streams. Micro-Transaction Economy Consider that digital tokens are divisible out to eight decimal points. They can easily be used for micro-transactions, transactions that would be too small to warrant the expense of transferring fiat currency by traditional means. Imagine a new micro-transaction economy that opens new revenue streams and monetizes products and services in new ways. 01 as a Imagine a publisher who sells online subscriptions. By traditional means, it only makes sense to sell an “all or nothing” subscription as small payments per article would cost more to transact than the revenue they generate. With low- cost, frictionless micro-transactions, a publisher could sell individual sections of a paper, individual articles, photographs, videos, stock prices, etc., generating incremental income with the same amount of content. MAKING MONEY THROUGH MICRO-TRANSACTIONS
  54. 54. 54 Investment Vehicle Digital currencies are coming to be seen by many as an investment vehicle rather than as a means of purchasing goods and services. Many of the large digital currency mining companies are making money by holding their currency, not by spending it. And the SEC has twice considered establishing an Exchange Traded Fund based on Bitcoin. So in some ways, a crypto-currency economy has established a new investment vehicle, like gold or stocks. Value Beyond Currency Transfer Digital tokens can also be programmed to carry other units of value, not just currency. Any asset or piece of unique value that can be digitized can be transferred on the blockchain: land and building titles, deeds, a shareholder vote. In December 2016, became the first publicly traded company to issue stock over the Bitcoin blockchain. Overstock’s CEO, Patrick Byrne, called it a “Sputnik Moment,” meaning that it’s a first, but largely symbolic. NASDAQ has also played a leadership role in exploring the benefits of blockchain technology beyond currency transfer. They’ve launched a solution called Linq on the Bitcoin blockchain that enables private companies to digitally represent share ownership. 01
  55. 55. 55 THE BLOCKCHAIN DISTRIBUTED BASE The blockchain can time stamp, notarize and permanently record information other than transactions of value. So in addition to it being a distributed ledger, it is also a distributed database that can house unchangeable records of all kinds: health records, land titles, provenance documentation, and the like. This opens tremendous opportunity for businesses in areas outside transactions on a decentralized digital ledger. Blythe Masters, one of the most powerful people on Wall Street and now CEO of start- up Digital Asset Holdings says, “I had an ‘aha moment’ where I began to appreciate the potential implications of the technology. While the cryptocurrency application of the distributed ledgers technology was interesting, the underlying database technology itself had far broader implications.“13 Healthcare is one industry that can be dramatically improved and made more efficient and effective for all parties through blockchain technology and its unique functionality as a distributed database. At the most personal level, patient records can be uploaded, updated and immutably stored on private blockchains. At a routine doctor’s visit, for example, blood pressure readings, weight, and EKG results could be recorded as “transactions” that the physician validates and time-stamps onto the blockchain. Patients themselves can control the access to their records by doctors and hospitals of their choosing. Communication between patients and healthcare providers becomes frictionless, saving time and improving efficiency in delivering necessary care. 02 as a
  56. 56. 56 02 These new processes and interoperability will dramatically improve the health insurance industry. Bruce Broussard, President & CEO, Humana says, “ With (blockchain) transparency and automation, greater efficiencies will lead to lower administration costs, faster claims and less money wasted.”14 And health research can be dramatically transformed. Consider that the pseudonymous nature of the blockchain would enable vast pools of patient data to be aggregated. These pools could be mined for factors that impact outcomes, determining optimal treatment options based on genetic markers, and identifying behaviors that influence preventative medicine.
  57. 57. 57 THE BLOCKCHAIN “SMART CONTRACT” PLATFORM “Smart” contracts are an essential and unique functionality of the blockchain and innumerable possibilities open up through their power. Smart contracts are contracts that can be programmed directly onto the blockchain and automatically executed as terms are met. Simply put, smart contracts program trust, translating it into use for specific business circumstances. A smart contract is not the same as a contractual agreement. It is enabling software code that enforces and executes terms of legal agreements as stipulated by contracting parties. It is dynamic, as opposed to static, in that it can be programmed to automatically interact with databases and other sources of information to make determinations on whether terms have been met and a contract should be executed. It is this dynamic agency which differentiates smart contracts from the online password protected contractual agreements available through the internet today. 03 as a
  58. 58. 58 For example, one could sell a piece of manufacturing equipment through a smart contract on the blockchain. The parties agree to the terms and program them into a smart contract. They agree that, for the protection of each party, they will use multi-signature authentication (multisig), meaning a third party will need to verify that terms have been satisfied if the parties disagree in the future. Each party has an encrypted public key, two of the three are needed to access the assets: digital currency from one party, title to the equipment from the other. The buyer transfers the purchase price in digital currency to the public address of the seller on the blockchain and the seller transfers the title to the public address of the buyer. The smart contract verifies that the terms have been fulfilled, releases keys to each party so that each can access their asset. Had there been a disagreement on the fulfillment of the terms, the third party would be called in as arbiter to determine if the contract terms had been met. “SMART CONTRACTS”AT WORK
  59. 59. 59 03 Because smart contracts are peer-to-peer and instantaneously settled, they have a huge role to play in increasing the efficiencies and lowering costs in such industries as Real Estate, Automotive and Manufacturing. At present software developers are the primary coders of smart contracts but user-friendly interfaces are being built and will enable lawyers and others to write them. Importantly, because smart contracts are transparent on the blockchain, it is public record that the contracting parties have met their terms. The details of the transaction cannot be accessed, but the fact that each party fulfilled their obligation can. In this way, blockchain transparency acts to establish the reputations of individuals and businesses. In fact, transparency in meeting one’s business obligations over time, as immutably recorded by the blockchain, will be a major lever of control for corporations wishing to build or restore their reputations.
  60. 60. 60 THE BLOCKCHAIN AS A DECENTRALIZED DIGITAL LEDGER. THE BLOCKCHAIN AS A DECENTRALIZED DATABASE. THE BLOCKCHAIN AS A PLATFORM FOR SMART CONTRACTS. “This is the ‘aha’ for me. Blockchain technology is not really about digital payments, but establishing trust in transactions in general. It’s a technology that can change the world.”15 – Arvind Krishna, SVP, Director of Research, IBM Each of these functions enable businesses to imagine new paths to innovation and growth based on peer-to-peer trust.
  61. 61. 61 Immutable trust is a rare opportunity. 58% CEO’s worry that a lack of trust in business will harm their company’s growth. And in an increasingly digitized world, 69% of CEOs think it’s harder for businesses to gain – and retain – people’s trust.16 VW, Uber, Chipotle and Wells Fargo have all learned the hard way about the value of trust to the bottom line. IMMUTABLE TRUST? FROM A PLACE OF What can you do
  62. 62. 62 IMMUTABLE TRUST THE MOST EMPOWERING CHARACTERISTIC OF THE BLOCKCHAIN IS IMMUTABLE TRUST and it is built on the characteristics of security, transparency, authenticity and credibility. It can be unpacked to illuminate real business opportunity.
  63. 63. 63 IMAGINE Develop open platform for demonstrating corporate values to customers Inspire loyalty Ensure customer privacy Inspire customer confidence Drive preference & lifetime value Differentiate products & services Establish superior value Amplify brand relevance Improve & maintain corporate reputation Vet potential partners & suppliers IMAGINE a national jewelry chain is able to authenticate that every gem has been mined responsibly, establishing superior value and brand preference by “doing good.” IMAGINE a health insurance company is able to establish a “healthy living” program that offers discounts as members achieve key metrics and irrefutably notarize them on the blockchain. Then imagine the cost efficiencies as the process is automated through smart contracts. IMAGINE an automobile company has been faulted and fined for using flawed parts. Then imagine going forward they vet suppliers on the blockchain and re- establish a reputation for responsible sourcing. IMAGINE a non-profit aid organization is able to establish its integrity and increase donations to disaster victims because donors can trace the flow of their dollars directly into the hands of those in need. Then imagine those dollars get there swiftly, without friction, and at low cost. SECURITY TRANSPARENCY AUTHENTICITY CREDIBILITY IMMUTABLE TRUST BUSINESSBENEFTIS
  64. 64. 64 IMMUTABLE TRUST can empower significant business transformation, transformation that can increase productivity, improve cost efficiency, enhance revenue, establish brand preference, and create new value. And it is being put to work right now, today, across industries and across functions by an increasing number of companies worldwide. Walmart partnering with IBM to track food on the blockchain. With blockchain, Walmart will be able to obtain crucial data from a single receipt, including suppliers’ details on how and where food was grown and who inspected it. Everledger using blockchain for counterfeit diamond detection & insurance fraud. Everledger uses the blockchain to track individual diamonds, from the mine to the consumer and beyond. Spotify partnering with Mediachain Labs to help solve their music licensing issues. Spotify and Mediachain Labs are working together on developing better technology for connecting artists and other rights holders with the tracks hosted on Spotify’s service. JPMorgan Chase replacing complicated databases with blockchain ledger. The hope among Quorum’s developers is that blockchain can solve some banks’ most intractable problems including long and expensive settlement times, systems breakdowns and lack of clarity about risk exposures. SUPPLY CHAIN SOURCINGATTRIBUTION OPERATIONS Solar Change uses blockchain to increase the use of solar energy worldwide. Solar Change introduces SolarCoin - a revolutionary digital currency reward program designed to improve and increase the use of solar energy worldwide. ING set to improve customer experience using blockchain. Working with 10 other banks, ING showed it could simplify the ‘Know Your Customer’ process so customers only have to submit identity documents once rather than each time they open a new account. This increases transparency, security and cost-efficiencies for banks. ENERGY DISTRIBUTIONCUSTOMER EXPERIENCE 17 20 21 22 18 19
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  67. 67. 67 5TRUSTIS THE FOUNDATION OF A BRAND. THE BLOCKCHAIN IS A TRUST MACHINE. Trust in the experience a brand promises. Trust that the experience will be consistent. Trust that the brand expresses and shares our values.
  68. 68. 68 INCREASINGLY, consumers and customers are attracted to brands that meet their needs not only on rational and emotional levels, but on a social level as well. From Toms to UnderArmour, brands that do, and do good, are able to establish and increase brand relevance. They become brands that matter. Image Credit: Toms Shoes CREATING A BRAND THAT MATTERS IS THE NUMBER ONE CONCERN OF MARKETERS.
  69. 69. 69 Irrefutably trace the provenance of materials and ingredients to their sources Securely transact in ways that put customers in control of their personal data Instantly verify that a brand is environmentally, socially and economically responsible Indisputably document that a brand’s supply partners employ workers under acceptable conditions Transparently display the charitable giving and activities of the brand CONSIDER THE WAYS BLOCKCHAIN-ENABLED TRUST CAN HELP MARKETERS BUILD BRANDS THAT MATTER:
  70. 70. 70 THE BLOCKCHAIN CAN HELP YOU Figuring out ways to irrefutably prove that your brand is trustworthy is critical to establishing and maintaining a brand that matters. GET THERE
  71. 71. 71 A national women’s fashion retailer is struggling to update their image and become a brand that matters among younger Millennials. They’ve done their research and carefully considered their customer’s journey. They understand that younger Millenial women favor brands that express individuality and authenticity as well as brands that have a positive social agenda, brands that “do.” So they’ve created a new line of scarves sourced entirely with fabrics from Bhujodi, India where the one-of-a-kind fabrics are hand-loomed. So far, so good. The retailer could tell this story across social and traditional media and hope their customer receives and believes the message. to transparently prove their authenticity, to connect with their audience from a single source of immutable truth in order to build trust and brand relevance. The tag on each scarf carries the retailer’s blockchain address whose immutable records confirm Bhujodi as the origin of the fabric and verifies that all-natural dyes were used to create the fabric. Further, it validates that the company of hand-loomers has a reputation of employing their workers under better than average conditions. Through the blockchain, the product carries a transparent extended brand narrative of authenticity and trust directly to the Millennial consumer. Moreover, knowing that “brands that do” are important to Millennials, the retailer’s marketing department has developed a cause-related campaign to benefit Bhujodi. The village’s electrical grid is unreliable and frequentlythereareextendedpoweroutages. The retailer has decided to donate up to 10 generators, based on the enthusiasm of its customers to interact with its brand. IMAGINE ESTABLISHING A BRAND THAT MATTERS WITH THE BLOCKCHAIN OR, THE RETAILER COULD PUT THE BRAND INTO ACTION ON THE BLOCKCHAIN
  72. 72. 72 Each time a customer interacts with the retailer’s brand – through a purchase, a social media share, interacting with promotional materials – an agreed upon Bitcoin micro-donation is made by the company to the manufacturer. When the total price of the generators is aggregated and verified through the smart contract, the funds are released to the manufacturer who automatically ships the generators directly to Bhujodi. The trail of donations and the progress against objectives is fully transparent to customers on the blockchain. Their actions are advancing a cause. And the retailer is building trust, becoming a brand that matters. A SMART CONTRACT IS CREATED ON THE BLOCKCHAIN. THE TERMS BETWEEN THE RETAILER AND A MANUFACTURER OF ELECTRICAL GENERATORS ARE PROGRAMMED INTO IT.
  73. 73. 73 IN SUMMARY: UNPACKED BLOCKCHAINTHE POWERFUL FUNCTIONS Blockchain as Decentralized Digital Ledger Blockchain as Distributed Database Blockchain as a “Smart Contract” Platform Immutable Trust Security Transparency Authenticity Credibility Transfer digital currency & assets Enable microtransactions Time-stamp & notarize documents Create an immutable record-of-events Verify authenticity of data, assets, ownership ENABLING CHARACTERISTICS UNIQUE CAPABILITIES
  74. 74. 74 ADOPTION SCENARIO It’s early days for blockchain technology. Developing business strategies that generate learning, support iteration and create a deliberate path toward innovation while avoiding unnecessary risks is critical to success. Understanding the likely adoption scenario for the technology will inform solid decision- making. Marco Iansiti and Karim R. Lakhani of Harvard University have likened the emergence of blockchain technology to that of the internet. Companies first used TCP/IP protocols to develop single-use and localized internal applications that were entirely within their control before moving on to bolder new substitute business models and transformational services. Blockchain technology seems to be following this path as many companies are currently focused on private blockchains vs. public blockchains. BLOCKCHAIN TECHNOLOGY for A LIKELY
  75. 75. 75 HOW FOUNDATIONAL TECHNOLOGIES TAKE HOLD “The adoption of foundational technologies typically happens in four phases. Each phase is defined by the novelty of the applications and the complexity of the coordination efforts needed to make them workable. Applications low in novelty and complexity gain acceptance first. Applications high in novelty and complexity take decades to evolve but can transform the economy. TCP/IP technology, introduced on ARPAnet in 1972 (in black), has already reached the transformation phase, but blockchain applications (in red) are in their early days.” 23 From “The Truth About Blockchain,” by Marco Iansiti and Karim R. Lakhani, HBR, Jan-Feb 2017 SUBSTITUTION TRANSFORMATION SINGLE USE LOCALIZATION Retailer gift cards based on bitcoin Amazon online bookstore Bitcoin payments E-mail on ARPAnet Self-executing smart contracts Skype Private online ledgers to process financial transactions Internet corporate e-mail networks LOW LOW HIGH AmountofComplexityandCoordination Degree of Novelty HIGH
  76. 76. 76 Adoption is also fundamentally influenced by the pace at which an organization is able educate its management teams, enlist and enroll its business partners, and influence overall participation in the technology. How quickly executives begin to understand the right questions to ask to form strategic plans determines how nimble they and their organizations will be in exploiting the opportunities inherent in blockchain technology.
  77. 77. 77 AQUESTION good A good question is not concerned with a correct answer. A good question cannot be answered immediately. A good question challenges existing answers. A good question is one you badly want answered once you hear it, but had no inkling that you cared before it was asked. A good question creates new territory of thinking. A good question is the seed of innovation in science, technology, art, politics, and business. –Kevin Kelly, Former Executive Editor, WIRED 24
  78. 78. 78 GOOD QUESTIONS THAT on the blockchain 12 UNLEASH IMAGINATION
  80. 80. 80 YOUR INNOVATION STRATEGY? How will blockchain technology SUPPORT AND/OR PROPEL O2
  82. 82. 82 YOUR BUSINESS AND HOW DO YOU GUARD AGAINST IT? How can blockchain technology DISRUPT O4
  86. 86. 86 OPEN UP How will using blockchain technology NEW REVENUE STREAMS? O8
  88. 88. 88 (Single use, localization, substitution, and transformation) How will you use 1O TO INFORM YOUR IDEATION AND IMPLEMENTATION STRATEGIES? THE PHASES OF BLOCKCHAIN ADOPTION –
  89. 89. 89 WITH YOUR DIGITAL TRANSFORMATION STRATEGY? How does the adoption of blockchain technology 11 DOVETAIL
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  92. 92. 92 6CONCLUSION
  93. 93. 93 6 “Over the next decade, what the Internet did to communications, blockchain is going to do to about 150 industries." 25 - Patrick Byrne, CEO Overstock
  94. 94. 94 Blockchain technology unleashes tremendous potential for business transformation, innovation, and growth. Harnessing that potential is an imperative for every business leader. Not next month or next quarter, but now, while the technology is emerging and there is latitude to experiment and to learn. Creating a “critical mass” of blockchain- educated strategists within your organization is the first step. Inspiring them to imagine how its unique capabilities can be applied across the enterprise to drive growth is the second. Building a strategic roadmap for adoption is the third. HAVE YOU BEGUN TO HARNESS THE POTENTIAL OF BLOCKCHAIN TECHNOLOGY?
  95. 95. 95 OgilvyRED runs tailored blockchain technology workshops. PARTNER WITH US TO UNPACK THE POWER OF THE BLOCKCHAIN FOR YOUR BUSINESS.
  96. 96. 96 GLOSSARY BLOCKCHAIN A distributed ledger and database that is used to maintain a continuously growing list of records, stored in blocks, which are secure from tampering and revision BLOCKCHAIN TECHNOLOGY The protocols that govern how data is encrypted, packetized, addressed, transmitted, verified, routed and stored on the blockchain BLOCKS Groups of immutably linked transactions on the blockchain. BITCOIN Digital token representing digital currency that operates on the Bitcoin Blockchain. BITCOIN BLOCKCHAIN Distributed ledger and database designed to facilitate transfer of digital assets including but not limited to Bitcoin. Any item of value that can be digitized can be transferred on the Bitcoin Blockchain – a land title, a share of stock, a vote DECENTRALIZED AUTONOMOUS ORGANIZATION A virtual organization that is governed entirely by smart contracts on the Ethereum blockchain. DECENTRALIZED DIGITAL LEDGER An open, public accounting of transactions that forms the backbone of the blockchain. DECENTRALIZED VERIFICATION PROTOCOLS The technical standards that govern how digital transactions are authenticated on a public, decentralized ledger DIGITAL CURRENCY A balance of money stored on the blockchain. Digital currency is not under control of any one central national government. DIGITAL TOKENS A digital file that carries indication of digitized value. DISRUPTIVE TECHNOLOGY A technology that attacks a traditional business model with lower-cost, higher value propositions and can overtake incumbent businesses quickly.
  97. 97. 97 ENCRYPTION The process of encoding a message or information in such a way that only authorized parties can access it. ETHER A digital token representing digital currency that rides on the Ethereum blockchain. ETHEREUM A public blockchain known for its flexible development platform. FOUNDATIONAL TECHNOLOGY A technology with broad potential to change the fundamental underpinnings of our economic and social systems. HARD FORK The adoption of a change in blockchain protocol that results in the creation of a second blockchain, or “hard fork” off of the original blockchain. MINERS Companies or people who establish nodes on the worldwide network of computers that govern decentralized blockchains. In return for solving the complex algorithms that verify transactions, they are awarded freshly-minted, predetermined amounts of digital currency. MULTI-SIGNATURE AUTHENTICATION A process whereby the execution of smart contracts is independently verified by a party other than the contracting parties. NATIONAL FIAT CURRENCY Currency established as money by a government. NODE A single participant computer on the world wide network of computers that govern decentralized blockchains PRIVATE BLOCKCHAIN A blockchain that is exclusive to specified members and requires permission to join.
  98. 98. 98 PROTOCOLS Technical standards that govern operations and capabilities of technology. PSEUDONYMOUS Representation of personal and transactional data with minimal attributable information and in such a way as to protect the identity of the parties. While not anonymous, pseudonymous information can only be revealed through an enormous amount of triangulation of data. PUBLIC BLOCKCHAIN A blockchain that is open and public and requires no permission to join. REMITTANCES Money sent from emigres to their families in their native countries. REMITTANCE FEES Fees charged by financial middlemen to transfer money from emigres to their families in their native countries. SMART CONTRACTS Software code, programmed directly onto the blockchain, which enforces and executes terms of legal agreements. Smart contracts are dynamic in that they can interact with databases and other sources of information to make determinations TCP/IP PROTOCOLS Transmission Control Protocol (TCP) and Internet Protocol (IP) specify how data should be packetized, addressed, transmitted, routed and received on the Internet
  99. 99. 99 FOOTNOTES 1. PwC, 2016 CEO Survey 2. “The Trust Machine.” The Economist. 31 Oct 2015 3. Tapscott, Don and Tapscott, Alex, Blockchain Revolution, How the Technology Behind Bitcoin is Changing Money, Business, and the World. Penguin Random House, 2016. Page 6 4. Popper, Nathaniel, and Steve Lohr. "Blockchain: A Better Way to Track Pork Chops, Bonds, and Peanut Butter?" The New York Times. 4 Mar. 2017 5. Tapscott, page 173 6. Aru, Iyke. “Estonian Government Adopts Blockchain To Secure 1 Million Health Records.” 24 Mar 2017 7. Das, Samburaj. “UK Trials Blockchain-Based Social Welfare Payments.” 7 Jul 2016 8. Shin, Laura. “Republic of Georgia To Pilot Land Titling On Blockchain with Economist Hernando de Soto, BitFury.” 21 Apr 2017 9. Tapscott, page 254 -263 10. Schneider, Nathan. “After The Bitcoin Goldrush.” The New Republic. 24 Feb 2015 11. US Financial Stability Oversight Council. 2016 Annual Report. page 127 12. Iansiti, Marco, and Lakhani, Karim R. “The Truth About Blockchain.” Harvard Business Review. Jan-Feb 2017 13. Tapscott, page 65 14. Broussard, Bruce. “Blockchain, Transformational Technology for Healthcare.” 8 Aug 2106 15. Popper, Nathaniel, and Steve Lohr. "Blockchain: A Better Way to Track Pork Chops, Bonds, and Peanut Butter?" The New York Times. 4 Mar 2017 16. PwC. 2017 CEO Survey 17. Perez, Sarah. "Spotify Acquires Blockchain Startup Mediachain To Solve Music’s Attribution Problem." TechCrunch. 26 Apr. 2017 18. Popper, Nathaniel, and Steve Lohr. "Blockchain: A Better Way to Track Pork Chops, Bonds, Bad Peanut Butter?" The New York Times. 4 Mar. 2017 19. Lomas, Natasha. "Everledger Is Using Blockchain To Combat Fraud, Starting With Diamonds." TechCrunch. 29 Jun 2015. Web 20. "Quorum™." Quorum | J.P. Morgan. Web 21. "ING Set To Improve Customer Experience Using Blockchain." The Paypers. 31 Jan 2017. Web 22. "17 Blockchain Disruptive Use Cases." Everis NEXT. NTT Data, 31 May 2016. Web 23. Iansiti, Marco, and Lakhani, Karim R. “The Truth About Blockchain.” Harvard Business Review. Jan-Feb 2017 24. Kelly, Kevin The Inevitable, Understanding The 12 Technological Forces That Will Shape Our Future. Viking, 2016 25. del Castillo, Michael, "Overstock Just Closed It's First Day of Blockchain Stock Trading", 16 Dec 2016
  100. 100. 100 CREDITSOGILVY CONTRIBUTORS: Susan Machtiger Thomas Crampton Manoj Gopalan Spencer Schrage Eric Tsytsylin Hayley Brown DESIGN: Lori Argyle AUTHOR: Laura Masse Global Consulting Partner, OgilvyRED 212-237-6316
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