 From Las Vegas, it's theCUBE. Covering InterConnect 2017, brought to you by IBM. Hey, welcome back, everyone. Live here in Las Vegas at the Mandalay Bay, IBM InterConnect 2017. It's theCUBE's exclusive coverage. I'm John Perth, my co-host, Dave Vellante. Our next guest is Ramesh Kopenath, who's the VP of Blockchain Solutions and Research here. Welcome to theCUBE. Thank you. Blockchain front and center. We're super exciting. It's been trending pretty much throughout the conference. Really, this is the main story. Big props from the CEO, engineer Rometti and a variety of executives. Blockchain is instrumental in the future of business. We had Don Tapscott on yesterday, really talking about the revolution of what this is all about. And he has, he's the author of the book, The Blockchain Revolution. But Blockchain is a game changer shift to how the businesses will be operating in the future. So, just to level set, give us the 101 on Blockchain versus Bitcoin and why IBM is going in this direction and where it came from. So, Blockchain is all about increase and get trust in business transactions. This is something we recognized about a couple of years ago when a small team of us started playing around with the technology behind Bitcoin, right? And we looked at it and said, hey, look, here is an opportunity for the first time for companies to share some information in a secure fashion with each other. And in addition, run some workflows or business processes on top. That was an eye-opener for us. It immediately told us this could have applications in all industries, right? And so what do we do first? So we said, let's play around with this a little bit. We looked at existing technologies out there for Blockchain and took, picked a platform. You tried a few use cases and realized, oh my God, there is a whole lot to be done to get a Blockchain for business, right? And that's how we started this journey, almost a year and a half, two years ago, and we decided to explore it. And the key distinction remesh is that, and I mean, I'm just highlighting it here for the folks, is Bitcoin is a currency that has a Blockchain. So it's powering Bitcoin. You're talking about something more fundamental for business, which is using the Blockchain technology for businesses. So what Bitcoin is to Blockchain, business is to Blockchain from your standpoint. That's right. And also I think the Blockchain is really, the inspiration for it comes from Bitcoin, perhaps. That's a good way of thinking about it. But today, for example, the Hyperledger version, one that was announced earlier this week, you know, at this conference, is dramatically different from the underlying Blockchain in Bitcoin or in other platforms out there, right? Because it's really built primarily based on requirements that we have gathered by working with hundreds of clients, right? In financial services, in supply chain, in public sector, et cetera, and realizing what levels of confidentiality, what levels of privacy, what level of permissioning, meaning you know who participates in the transaction. All of that is what is led to, you know, what we call the Hyperledger version. Okay, so I know Dave's got a question. I got a follow-up on that. Yeah, please. Go ahead. Just one more point on this, because you can follow up on my point. Give us the status of Blockchain today for IBM, because lay out the solution, because you move from research now into the Solutions Group. You have customer action going on, sales motions, solutions motions. What is the architecture? What does it look like? What is the solution today from a Blockchain standpoint? Yeah, so, step back, you asked what are we doing at a high level, right? Essentially, we have three broad big investments. One is everything to do with in an open source, you know, Hyperledger project, I mentioned that. Then there is your package that into a platform, IBM Blockchain, high security business network that was also announced earlier this week. And the third layer is, again, what you asked about solutions, right? What we have been doing over the last year, plus is, in fact, it's an interesting journey. We started out with what I would call Blockchain Tourism. There were a whole bunch of POCs, if you want to call it that, starting with financial services initially, but gradually other areas like supply chain and in healthcare, et cetera. Towards the middle of 2016, we saw a transition, right? At least on the financial services, people were starting to talk about, hey, now I understand this technology and what it's capable of. Let's talk about production deployments, right? And I'll give you a few examples as we go on. So I want to go back, if I can, a little bit and just get somewhat didactic for a moment. So my understanding is there's three attributes, I'm sure there are many more of Blockchain, which are sort of really relevant. And especially as it relates to the security, if I may. It's distributed, obviously. And it's been said it's virtually unhackable, unless 50% of the stakeholders agree to collude. And then there's no need for a trusted third party, so it reduces the threat space. Are those sort of accurate statements? And when somebody says, well, it's virtually unhackable, you know, you tweet that and somebody says, well, everything's hackable. Help us understand sort of those fundamentals of Blockchain and why they're relevant. That's right. So the way I think about it is, a Blockchain is a trusted database. Now, why is it trusted? There are three properties, I'll get to it, kind of overlaps with what you mentioned. The first one is, any transaction you do onto the database, anything that goes in, it basically is done in a non-repudiable fashion. If I do something, I can't say I didn't do that. So that helps. What goes in, you know, you have that property. The second piece is, whatever goes in, goes in through a vetting process. People call it the consensus. There is some sort of chat between parties before something goes in. Therefore, I can't unilaterally do something onto the Blockchain, right? I can't, somebody else vetted what I did. That increases trust. And the third piece is, once it gets in there, it cannot be tampered with. We say it's immutable sometimes, right? And what is that based on? There's a whole lot of cryptographic math behind it, but at a high level, there are two aspects to it. One is, there are multiple copies. So if I change something, if I hack into mine, I'm inconsistent with what others have, right? So that's one. The second is, the transactions are chained together, blocks of transactions are chained together, where a fingerprint of one block is put into the next. What that means is, if I tamper with a block, say 15, a long blockchain, all transactions after that are invalid. I have to do a lot of work to fix it. So it's very, very hard to tamper with. Of course, as with security, there's no such thing as nothing that is hackable, right? So collusions, et cetera, potentially can happen. But the key is, significant increase in the level of trust is the way I would put it. Okay, and so now, if we can get into sort of how people are specifically applying this technology. You guys started with the Hyperledger open project, but can we get more specific in terms of how organizations are actually deploying blockchain? So we are still running a blockchain in production since September 6th, right? We've been running for months. In fact, that blockchain is more than a half a million blocks today. So let me tell you what that solution is, so you get a sense of, and it's very prototypical in terms of all solutions that I've dealt with so far across industries. The use case is the following. So you have a buyer, you have a seller, and you have a financier, that's IBM. We basically finance short-term financing of, think of it as channel financing or inventory financing, right? What happens typically is, the buyer basically orders something, and the seller essentially gets approval from us to say, okay, yeah, we can basically send it to the buyer. A few days go by, and IBM has already paid the seller, basically. It's just like credit cards, right, and consumers. A month later, basically we go and say, hey, look, guys, time for you to pay up. And they say, look, we didn't even receive the goods. So this entire process, what I just described, you can think of as a workflow where these three parties are sending messages back and forth. The way we do it in a blockchain is this entire workflow is captured as a sequence of transactions that are registered on the blockchain. Now, how does this help us? Take the example, again, proof of delivery. If when the logistics company delivers it at the buyer's site, it's recorded on the blockchain, there is no need for a dispute. And typically disputes basically puts a lot of capital, you know, it holds up a lot of capital, right? This capital inefficiency is the problem we're after. In fact, after six months of deployment, I can tell you essentially a significant improvement in terms of the time savings as well as elimination of disputes. That's a great efficiency. It's an efficiency angle. Who's buying, who's actually implementing it? Customers wise, can you name names or? Yeah, so examples are the... Let me give you an example of financial services, right? So we are working with CLS Bank, which does $5 trillion worth of forex transactions every day. They are building a netting engine called CLS Net, a solution called CLS Net, and we are working with them on that. Another example is the work that we are doing with Northern Trust, where basically they have a private equity administration blockchain. In fact, it's a very interesting one because it also involves the regulators as part of the blockchain. So that's a second example. A third one is the one we announced in January with the depository trading and clearing cooperation DTCC. And that one is for credit derivatives, life cycle management. In fact, all the examples we noticed, there is a life cycle, like I gave in that example earlier, of buying to all the way goods are delivered, payment is made. Those life cycles, those processes are captured as trusted processes on a trusted data store. That's basically blockchain for you, right? That's financial services. Maybe I'll touch upon two more examples to complete the story. Supply chain. I walk into a store and buy some sliced mangoes at Walmart. Is it safe to eat? To answer that question, you need to know the provenance which farm in Mexico did come from. Who all touched it? Who washed it? Who processed it? It's all the way till it got to the store. That sort of information sharing does not happen today in the supply chain. We believe with a blockchain that is possible that allows us to get a good sense of where things came from, making consumers more comfortable. Similar story you can do with pharma too. I pop a pill. I want to be sure that it's safe to have. In fact, as a world health organization says in Africa, every 100,000 kids die of counterfeit malaria drugs alone. So imagine, if you could capture these sorts of supply chain flows on a blockchain, you could make dramatic improvements. Diamonds, provenance is the other way. And it's not just blood diamonds, you mentioned that the other day. I'm more excited by the provenance of food and pharma, but diamonds too. But there's tons of fraud in the diamond supply chain and that's really where they're, it's accurate. Well this brings up the whole business model disruption. So what are you guys seeing for the kinds of conversations because you're getting at the business model impact significantly. One, you're reducing costs of transactional costs through new measurement systems, AKA blockchain, and then all the methodology behind it. But everything from music to art to content. Payments, this is like a game changer. Absolutely. And I think from the point of view of, in all of the use cases I've seen, the sort of value to the ecosystem is clean and obvious, right? And so you can immediately say, oh, this is going to happen overnight. But the reality is basically it's a complex ecosystem play, though. So for example, in the supply chain use case, food safety, you need to have the farmers, the entire value chain involved, participating in some fashion on the blockchain. That is not easy to do, right? So there is, so how do you sort of set up ecosystems as a key part of- What's your strategy there? I mean, we're going to answer Marie when she comes on, but what's the strategy of the ecosystem? Because you want to jumpstart this, you got to prime the pump. Absolutely. Big time. So there are many ways to solve this, but one approach we have taken so far, and it's obvious in all the sort of partnerships that we're working on. Take for example, food safety. One way to start with is you start with a big retailer, like a Walmart. They bring in the suppliers, right? And the suppliers bring in the farmers. Take the case of what we're doing in container shipping, right? Basically movement of containers from point A to point B. We're trying to completely digitize that process. This is a project that we're doing with Merisk. Why Merisk? They're 20% of the container shipping market, right? So if just we start, by the way, in all of these cases, I've got to be very clear. We're not building a solution for Merisk or for Walmart. We're really building something for the industry, because food safety, you want to solve it for the industry just by helping Walmart alone. And you're open, that's why the open source thing is critical here. That's right. And the update on that, it's all open source on which components, or is it all open source? So the open source is all about at the platform layer, right? The solution itself, not everything in the solution is going to be open source, right? But the key point I was trying to make is that you go after sort of significant anchor tenants in the ecosystem that draws others into the picture, but that's still not enough. You need to have make sure that economic incentives, excuse me, for others to join in. So to put it together, tie it together, the ecosystem strategy is to take an industry scope and try the rising tide floats all boats kind of approach. So that adoption is critical. Absolutely correct, absolutely correct. And I think that is, and again, I can use the food safety to make that point. Think about it, right? So there is, let's say a spinach problem. We had it in 2006, right? So you find a problem, you trace it back to a source. Let's say Walmart is a store in which somebody bought it and it was traced from there. That's not good enough. From the source, it went to many other retailers, right? So you need to be able to track down and pull all of them off the shelves. Therefore you have to go for an industry solution. I can imagine the healthcare thing would be even more impactful too. I mean, financial service is pretty obvious, transactional stuff there, but healthcare, so many different variations of supply chain and transactions. Absolutely, so in a way, the way I think about it is in a financial service everybody had a hunch this could be big, but supply chain, it really long way, I think this is going to be the space which we'll have the most disruption. And it's interesting considering when we started my first conversation with folks like whether it'd be a Walmart or a Merse, first question is what is blockchain? We've come a long way in the last, say, nine months. You guys get so excited where you're kind of pinching yourselves because you can be euphoric about some of the disruption impact. I mean, look at just mind-blowing to think when you're talking about food, the food industry and healthcare. You got to get tampered down a little bit in some realism, like you get to, I mean, is there that IBM excitement internally? Share some color internally within IBM, the excitement. And then you got to get realistic, a lot of the clients rolling it out to kind of got to walk before they can run. Yeah, so the way I would state it is if you had asked me a year ago, do you expect to have been in the shape you are in today? I would have said no way. I've been shocked at the pace at which this has been moving both from the point of the technology itself, maturing of the technology. In fact, we say blockchain is here now, so that's at the technology layer level. But in terms of use cases, right? You know, think about it, right? There are a number of financial services institutions that are talking about production deployments late this year early next year. In fact, when we did our own IBM Institute for Business Value Survey, came back with fully 15% of those who were surveyed. They were like founder of banks plus capital market institutions are going to be in production at the end of this year. When I heard that in September, I still didn't believe it, but I'm beginning to believe it now. What's interesting, I think the cultural shift is that technologists from computer scientists to practitioners that are technologists, they get it. They can see what blockchain does. So I think as people get more momentum, that's the flywheel that you guys are hoping for and it's happening, sounds like. That's right. In fact, I'm also techie at heart, but in terms of conversations with clients, I never talk about technology anymore because the thing is, there are only two concepts in blockchain. It's trusted data across companies, trusted business process. Everything else is detailed. Got it. Ramesh, thanks so much for sharing great conversation. Formerly with IBM Research. Now Vice President of Blockchain Solutions at IBM, great interview, great insight, Blockchain Revolution is here and check out our interview with Dom Tapscott yesterday on YouTube, the Blockchain Revolution in his book, really kind of lays out some of the big disruptive game changers. Mr. Cube, doing our share of blockchain right now bringing content in blocks and chunks, not yet blockchain enabled. I'm John Furrier, Dave Vellante. We'll be back with more after this short break.