Blockchain for IBMers

2018 Market and Competitive Outlook

Blockchain for IBMers series

Engagement Model Design Thinking Workshops Differentiators

1 March 2018 – Donald Thibeau

© 2017 IBM Corporation

2018 Blockchain Market and Competitive View
Cryptocurrency
Interoperability
Commoditization of hosting
New economic models
Competitor details
Digital asset view

© 2017 IBM Corporation 2

Cryptocurrency

Mainstream adoption of cryptocurrency, primarily bitcoin, ethereum, ripple, and stellar, will diversify use-
cases and drive continued interest in blockchain technology
– “The combined market cap rocketed from $15 billion in January to over $600 billion by year's end.”
– Increased enterprise adoption
• Payments (Stellar, Ripple)
• Stock/bond issuance (Overstock)
• Regulated ICOs (ConsenSys Token Foundry)
– Gartner token framework

Impact on Competition Impact on IBM

• Journey
• ConsenSys
• Increased Interest in EEA
• Payments
• Potential increased interest in universal payments and
• Gitcoin developer incentives
central bank digital currency
• Microsoft
• Adoption of Ethereum
• Fabcoin
• Additional exploration of initial research concept
• GSIs • Native token issuance
• New cryptocurrency services
• Greater support for crypto-based protocols
• Platform interoperability
• Use-case driven use of cryptocurrency ledgers

© 2017 IBM Corporation 3

Interoperability

Interoperability will occur at the protocol layer when driven by a specific business use-case
– Payments and identity use-cases requires solutions supporting both cloud and protocol interoperability
• Payments requires interoperability between Fabric and other cryptocurrency networks (Stellar)
• Decentralized identity frameworks dictate common naming scheme for attestations across protocols (Sovrin)
– Emergence of open-source interoperability projects
• Hyperledger Burrow
• Hyperledger Quilt
– Cloud-agnostic deployment a requirement

Impact on Competition Impact on IBM

• ConsenSys • Requirement driven from solution areas (payments

• “In 2018, I predict IBM and ConsenSys will team up to and identity)
unify the best of the permissioned Fabric blockchain • Open source innovation and “future proofing”
with the best of permissionless Ethereum.” – Andrew • Sovrin integration
Keys • Stellar integration

© 2017 IBM Corporation 4

Commoditization of hosting

Platform providers begin to provide same hosted versions of Hyperledger Fabric and will compete at the
network governance and operation layer
– Entrance of traditional cloud service providers with secure and scalable hosting infrastructure
– Oracle, Microsoft, AWS, HPE, SAP, etc. all offering or likely to offer dedicated blockchain environments
– Customers will chose hosting environment based on availability of application, availability of network, or incumbency
• Emergence of multi-cloud platforms
– Oracle, BlockApps, etc.

Impact on Competition Impact on IBM

• Oracle • Increased price competition

• Release of Oracle Blockchain Cloud Service • Value driven to developer tooling, application
• Dedicated Fabric environments
services, and network management tools
• Microsoft
• Specializing development and deployment • Differentiation opportunity through interoperability
environments (Project Lexington and Coco • Multi-cloud strategy
Framework) • IBP value proposition defined as mission control for
• AWS blockchain networks
• Incumbent strength as cloud service provider • Awareness of exposing our current value proposition

© 2017 IBM Corporation 5

Segregation of solution roles

Unique blockchain network economic models which can’t be left to the solution layer
– Emergence of new financial flows within networks driven by changes in consensus
– Segregation of network roles
– Disintermediation?
• Promised but not yet delivered
• Change primarily being driven by those worried about getting disintermediated
– Exposure of governance failures

Impact on Competition Impact on IBM

• Ethereum
• ICO-driven innovation to attempt disintermediation
• Shift to proof of stake changing existing proof of work
compensation/ incentives model
• R3
• Modeling financial roles in blockchain context
• Enablement for complex network models
• Account Services
• Align to and build capabilities for network roles
• Enable compensation for provision of services within
network

© 2017 IBM Corporation 6

Where are our key competitors going in 2018?
• Microsoft
• Oracle
• ConsenSys
• R3

© 2017 IBM Corporation 7

Microsoft
• 1Q release of dedicated blockchain network
offering
– Multi-protocol
– Dedicated compute (TEEs)

• 1Q release of Project Lexington

– Smart contract + network definition
programming model
– Simplified application generator

• Key strategic concerns: Platform

– Digital pipeline enablement
– Multi-cloud deployment
– Application acceleration

© 2017 IBM Corporation 8

Oracle
• Dedicated Hyperledger Fabric platform
– Human readable smart contracts
– Multi-channel chaincode configuration
and governance
– Dynamic chaincode creation

• Focus on integration
– Sales strategy
– REST APIs
– Cloud service integration
– Multi-cloud deployment options

• Key strategic concerns: Platform

– Price competitive
– Challenging network services value
proposition
© 2017 IBM Corporation 9
ConsenSys
• Core component priorities
– Ethereum Enterprise likely a dedicated
enterprise platform offering
– Protocol Engineering Group and Systems
(PegaSys)
– ConsenSys Labs

• Ethereum ecosystem support

– BlockApps
– Crypto-driven developer and network
operator incentives
– ICO driven adoption

• Key strategic concerns: Platform

– Mainnet adoption
– Application marketplace
© 2017 IBM Corporation – Shift to enterprise space 10
Developers
• “Ethereum already has a thriving developer community. Truffle, the smart contract
developer framework, has 250,000+ developer downloads. Infura, which can be
seen as an Akamai for Ethereum and IPFS, now handles over 2 billion requests per
day and smoothly scaled to peak at 4.5 billion requests per day one day in December.
MetaMask, which brings Ethereum seamlessly to browsers, has over 500,000 active
users.”

© 2017 IBM Corporation 11

R3
• Corda
– Continue to mature Corda protocol
internally
– Specialization for financial services
use-case through concept of flows
– Likely support for digital assets

• Partner enablement
– Focus on ISV application enablement
– Consortium serves as network
governance

• Key strategic concerns: Platform

– Open-source enabled innovation
– Expanded capabilities in financial
services
© 2017 IBM Corporation – Test network 12
Movers to keep an eye on
• Chain
• Symbiont
• AWS
• HPE
• Intel
• Others?

© 2017 IBM Corporation 13

Digital Currency
Perspective

14
Cryptocurrency

Mainstream adoption of cryptocurrency, primarily bitcoin, ethereum, ripple, and stellar, will diversify use-
cases and drive continued interest in blockchain technology
– “The combined market cap rocketed from $15 billion in January to over $600 billion by year's end.”
– Increased enterprise adoption
• Payments (Stellar, Ripple)
• Stock/bond issuance (Overstock)
• Regulated ICOs (ConsenSys Token Foundry)
– Gartner token framework

Impact on Competition Impact on IBM

• ConsenSys • Payments
• Increased Interest in EEA • Potential increased interest in universal payments and
• Gitcoin developer incentives central bank digital currency
• Microsoft • Fabcoin
• Adoption of Ethereum • Additional exploration of initial research concept
• GSIs • Native token issuance
• New cryptocurrency services • Platform interoperability
• Greater support for crypto-based protocols • Use-case driven use of cryptocurrency ledgers

© 2017 IBM Corporation 15

 (MD&I Analysis) In a market moving at warp speed, opportunities exhibiting the following
characteristics are leading the pack and defining the digital currency landscape winners and losers
Creation of stable,
digital collateralized
assets leveraging
Key broader and more
Characteristics innovative forms of
collateral
 Central Bank Digital Currency
 Commodity-based coins e.g.,
Bilur – Crude Oil, ZrCoin –
Examples:
Zirconium Dioxide, Royal Mint
Gold – Gold
 Central Banks
Winners  Institutions
“Beneficiaries”  Energy & Utilities
 Industrial Products
 Commercial Banks
Losers  Commodity Exchanges
© 2017 IBM Corporation
Real-time payments
and FX services,
extending across all
major countries and
currencies and
underbanked markets
 GFTN / Lumens (IBM,
Stellar, KlickEx)
 Ripple / XRP
 Consumers
 Institutions
 Central Banks
 Payment/FX related
Fintechs
 Commercial Banks –
payments represent 38% of
bank revenue globally. Could
shift away from banks. At a
minimum will shift role
Market Progression
Post-trade optimization
delivering low-risk, low-
cost, real-time
settlement (T+0
nirvana)
 Bank- backed tokens , e.g.,
- Utility Settlement Coin:
UBS with a 12-member
bank consortium
- Bullion Settlement Coin:
Euroclear w/5 banks
 Banks and Market Infra.
Players (e.g., CSDs,
counterparty clearinghouses)
investing in private networks
 Potential to set early industry
standard, and hedge potential
Central Bank impact
 Commercial Banks and
Market Infra not considering
some form of alternative
settlement standard
Rapid access to global,
decentralized funding
well beyond early-stage
VC / PE firms
 ICO only platforms (e.g.,
icobox.io, Blockstarter)
 ICO platform / token
exchange (e.g., Waves,
TokenMarket, TokenHub)
 Startups/SMEs
 Corporates /
Manufacturers
 Privately held firms
 Venture Capital Firms
 Private Equity
 Investment Banks
Digital asset
exchange backed by
secure custody
(vault) and virtual
wallet for retail and
institutional clients
 Coinbase
 CME and Nasdaq
cryptocurrency futures
announcements
 Cryptocurrency hedge funds
 Other potential institutional
investors
 Exchanges considering
digital assets
 Traditional exchanges (timing
/ extent of impact unclear)
 Custodians
(MD&I Analysis) Of the opportunities IBM could potentially own, two clear winners emerge; three
additional merit further investigation
RI SK RETURN
Competitive Current
Financial Regulatory Pressure Market Brand Partnership
MARKET OPPORTUNI TY OPPORTUNI TY DESCRI PTI ON Liability Uncertainty (Mkt, Clients) Oppty I mpact Opportunity

Validated GFTN Cross border Multi-ledger, GFTN network for real-time clearing and
Opportunity Payments and FX settlement supporting cross-border payments, 3 3 1 >$100B 3 1
services demand funding and access to FX services

Digital Token Open-source technology used to facilitate regulatory- $100 -

Attractive Extension of
Platform / I CO compliant initial coin offerings across asset classes. 3 1 3 3 3
WINNERS GFTN Factory Allows businesses to launch their own I COs on Stellar $250M1

Further Extension of Cryptocurrency

Create secure online platform for buying, selling,
GFTN Exchange / Wallet
transferring, and storing cryptocurrency, including a 2 1 1 $3.5-$5B2 3 1
virtual, secure wallet

Blockchain-based securities processing (DvP) and

REQUIRES Utility Settlement collateral management services for commercial bank 3 2 1 TBD 3 3
FURTHER Coin on Hyperledger funded coins on Hyperledger fabric
POTENTIAL investigation
Coin engineering and launch of I BM-branded asset-
NEXT WAVE KEY I BM Asset - backed
backed coin. Potential use as a utility coin (e.g., for 2 1 3 TBD 2 N/A
DEPENDENCIES Token / I CO cloud usage)
(E.G., REG,
Exhibit substantial
FABCOIN) Digital Asset Trusted body for safekeeping of cryptocurrency or
Custodian digital assets, similar to Coinbase Custody service
1 3 3 $40.0M3 3 3
financial, REG, client
and execution risk
for ibm FX/ Currency Potential extension of role with Stellar to include FX
services / market making
1 3 2 >$100B 2 TBD
OFF THE Exchange Services

TABLE
Current Market Opportunity Source: MD&I
1Based on (ICO launch fee * # 2017 ICOs) + % success fee on # ICOs

2 Based on DGAX’s fee on annual CC volume (Coinbase’s Global Digital Asset Exchange for institutional trading)

3Based on Coinbase custody setup fee * 124 accounts (# CC hedge funds) + Coinbase monthly AUM fee (.10%) * hedge fund AUM * 12. Given nascent number of hedge funds (124 * 10K today), figure is conservative. Estimates of $10B of

institutional money waiting to invest in digital currency today, pending secure option for digital asset custody
© 2017 IBM Corporation
DRAFT