I recently had the privilege of speaking with Jerry Cuomo, vice president of blockchain technologies at IBM (NYSE:IBM), for a wide-ranging interview. Our talk left me extremely interested and excited about blockchain technology, as well as its potential to transform not only businesses, but also our daily lives.
In Part 1, we discussed what blockchain is at a high level, and the types of active networks in use today on IBM's platform. In Part 2 below, we discuss the nuts and bolts of how IBM's blockchain platform came to be, where and how IBM operates its active networks, and the companies involved in the Hyperledger Project. IBM provided the transcript. I edited some quotes for clarity.
A new type of blockchain
While blockchain technology for things like bitcoin are truly open and "unregulated," large corporations obviously have much more stringent protocols in terms of security, privacy, and speed. I asked Cuomo how IBM's expertise in mission-critical business operations helped enable these large "active networks" with many leading corporations participating.
We actually had to work on a new style of blockchain to support the needs of these companies.
This is why in 2015, we collaborated through the Linux Foundation, with initially 20 companies, that's now close to 200 companies, which is the Linux Foundation's Hyperledger Project, and donated the first set of code, which now is the Hyperledger fabric, which is a permission blockchain technology that is being worked on now by 30-plus companies, including IBM. This is the foundation for those 35 networks.
It is also special in the sense that it has two critical features that businesses that need to follow rules and regulations -- things like HIPPA, or GDPR in Europe. There's two things that we had to do to alter the DNA of blockchain.
One is around timely data finality. So that a transaction resolves rather quickly, and definitively. So when you do a get-balance on your account, within a second, you get an answer. And that answer stays the answer until you change your account. You can't fork the network or something like that. So, that was an important, as you can imagine, feature to acquire.
The other feature is around accountability. Because of these regulations, while it's important on the network to transact privately, in an audit scenario, you should be able to divulge who is involved in a particular transaction. It's why we call it a permission blockchain. And we build trust using consensus algorithms where, ultimately, we know -- we have a means to know who those members are.
It also has another interesting side effect: Because of that, you don't have to go through the additional steps that other blockchains have to do, like mining, and because of the fact that there is no mining, performance is one of the positive side effects.
So, we're seeing transaction rates in the thousands -- for several types of transactions -- and we've seen them as high as over 5,000 transactions per second. And that really opens the aperture for the types of applications that you can now apply to these types of networks.
IBM Cloud and "old friend" Z
IBM posted a great third quarter, highlighted by the success of its new Z mainframe and growth in its cloud segment, which is part of the company's strategic imperatives. Given the importance of blockchain technology going forward and the vast amounts of data and computing power needed, I asked Cuomo where these active networks are hosted, and how IBM's technology fits in.
We have free on-ramps for developers to get started on the IBM Cloud, and once you get to a more mature state ... we have what we call Enterprise and Enterprise Plus plans to run the network peers in a more secure environment.
Lower-end blockchain networks, you can kick up on our cloud. We leverage technology like Kubenetes and Docker ... But on the high end, we actually have ways to deploy with an additional level of security, tamper-resistance, and performance by doing that.
We had many ways that we could have done this and implement this within the IBM Cloud, and we decided to bring an old friend back to work here. We put the new mainframe we have, which natively speaks Linux and natively deals with cryptography as a first language, not a second language. So, we brought those technologies to bear. And we've installed mainframes in over half a dozen locations around the world at our cloud data centers, co-located there, to help run some of the higher-end blockchain networks.
The Hyperledger Project
Another piece of the new blockchain technology that struck me was that it is built upon open-source technology. Some may tend to think of older technology companies as hanging onto a proprietary and closed system, in which the company keeps its technology more secret, which also makes it difficult for customers to switch vendors.
However, more and more legacy IT companies like Microsoft and IBM are adapting, and even thriving, in an open-source world, where technology is shared among competitors. A recent example of this is IBM's partnership with Hortonworks, which runs a Hadoop distribution on open-source Apache software. Similarly, the IBM blockchain technology was built at the Hyperledger Project, which hosts about 10 open-source projects that work toward building out blockchain technology for business.
I asked Cuomo about how the project came about, who controls the Hyperledger project, and how it all works.
The Hyperledger Project was conceived in the end of 2014, but it came to life, February 2015. The Hyperledger Project works through the Linux Foundation. The Linux Foundation grew up as a governance body to manage the Linux operating system. And what they started doing over the years is diversifying and including other projects beyond the Linux operating system. And they've become a gold standard of sorts to provide an open governance system-as-a-service, if you would. They've become quite good at bringing companies together to manage technology in an open way. In a way that could survive any single company if we were -- if IBM were to disappear off of the face of the earth, the Hyperledger Project would still endure.
And part of that is because of how they do governance. There's an executive committee, there is a technical committee, there is a fee to join and there's different levels to join. There's premier level, and there's only so many premier seats. IBM holds a premier seat. There's about 20 other premier members. There's a chairman, Blythe Masters from Digital Asset Holdings, is the chair for the Hyperledger Project. There's elections, and that changes from time to time.
There's a set of privileges that you get for being a premier member, but there's also general members and associate members, to kind of have a seat for anyone based on their financial means to join. At some level, the joining gives you rights to steer the project.
To co-market the project, the funding is used, from the members, to help create the website, manage the technology -- like, for example, we have very stringent rules when one of the open-source project graduates, whether it graduates from incubator state to active state, or from active state to Version 1 state, each of these ceremonies is not just a ceremony, but it comes with some very rigorous inspection of the code, which is paid for by the [member] dues. So, we have security mavens checking the code out for penetration, for security vulnerability and stuff like that. And we've participated in many projects with the Linux Foundation. When it came time to really engage our blockchain, us and several others like us in the industry chose the Linux Foundation, created the Hyperledger Project, and that's how we're all working.
I then asked what it is like to both collaborate with your competitors on the technology, and what the advantages are of a "frenemy"-type of arrangement. As the aforementioned Hortonworks and other open-source software companies have shown, you can be both open and financially successful, so I was curious to learn about the current state of competition among companies at the Hyperledger Project, and IBM's place in the consortium.
We at IBM are dedicated contributors to several of [the Hyperledger Projects], including Hyperledger Fabric and Hyperledger Composer. Those are available through the Hyperledger community. They're not owned by IBM, they're owned by the Linux Foundation, through very liberal licensing -- through Apache licensing. So, anyone could take them, download them from GitHub and have at it any which way they want.
We, at IBM, of course we're not doing this solely for the betterment of the world -- although that's part of it -- we think that by doing that, we also reap the benefit of using the technology. So the IBM blockchain platform puts this open-source technology to work in earnest. So, we take the technology verbatim, bring it into the IBM Cloud, and add additional management capabilities around it to help govern the blockchain networks.
So, on Monday morning, we get together and we collaborate, and then, you know, Monday afternoon through Friday, we compete like heck. Oracle and Microsoft also have blockchain as a service -- offerings that leverage the Hyperledger Fabric technology.
And it works well. It's worked well for many technologies in the past... having seen this before, like with Java, where multiple vendors were offering Java-based application environments, it's really great for driving record speed-to-maturity, and also giving the user freedom of choice. So, they can start on IBM and for whatever reason the IBM platform lets them down, which it won't, but they can pick up their wares and move their network to Oracle or Microsoft. And that freedom of action actually generates a very healthy market through competition and leapfrogging and all that kind of good stuff that happens. And that's what we see brewing, and we're very excited about what's happening around Hyperledger. So, game on, as we enter.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Billy Duberstein owns shares of IBM and Microsoft. The Motley Fool owns shares of Oracle. The Motley Fool has a disclosure policy.