Innovation potential of the blockchain, and of decentralized applications

Jan Brejcha, Ph.D.User experience consultant/Business developerjan@brejcha.name http://jan.brejcha.name

Contents

• Summary• About• The Blockchain• Consensus Mechanisms• Multisignature (Multisig)• Smart Contracts• DAO: Beyond Smart Contracts• Conclusion• Getting Involved• Resources

Summary

• This presentation aims at providing a brief introduction to distributed ledgers, and their underlying technologies, such as the blockchain, multisignature, and smart contracts.

• Potential use-cases are presented, as well as current applications of the technologies.

• Decentralized applications (DAPPS) promise to innovate the current business models, and create new ones.

• Early adopters or investors should exercise due diligence, as the current platforms are still under heavy development.

About

Jan Brejcha, Ph.D.Jan is an entrepreneur, lecturer, and researcher with a passion for human-centered design and innovation. He has 8 years experience in Business Development, 13 years in Marketing, 8 years in User Experience/User Interface Consulting, 9 years in Human-Computer Interaction Lecturing.

The Blockchain

• In 2008, Satoshi Nakamoto originally defined “an electronic coin as a chain of digital signatures.” The coin transactions are timestamped within a peer-to-peer network “by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”

• The chain of transaction blocks, or blockchain, is a trustless (permissioned or permissionless) shared public ledger of bitcoin transactions, synchronized in a peer-to-peer network. Thanks to decentralization the ledger is immutable.

• The idea has been adopted by other developers (http://ethereum.org or http://rootstock.io – combining the public blockchain with business logic algorithms, or private blockchain initiatives – e.g. http://r3cev.com/ by banks).

• Extending the use of the blockchain beyond finance helps to create new business models, and potentially disrupt the current ones.

Consensus Mechanisms, 1/2

• Proof of work: “The solution to [a difficult mathematical] problem (…) is included in the new block and acts as proof that the miner expended significant computing effort. The competition to solve the proof-of-work algorithm to earn reward and the right to record transactions on the blockchain is the basis for bitcoin's security model.” (Antonopoulos)

• Proof of stake: “Proof of stake is a system by which existing owners of a currency can "stake" currency as interest-bearing collateral.” (Antonopoulos)

• Under this protocol, a string of blocks is deemed valid only if the nodes creating it demonstrate sufficient ownership of the asset represented by the token to give them a compelling motive not to subvert its value. Proof of stake would radically reduce computing and transaction costs, enabling blockchains to facilitate much smaller transactions. (Evans, et al.)

Consensus Mechanisms, 2/2

• Proof of burn: “The idea is that miners should show proof that they burned some coins - that is, sent them to a verifiably unspendable address. This is expensive from their individual point of view, just like proof of work; but it consumes no resources other than the burned underlying asset.” (bitcoin.it)

Multisignature (Multisig)

• Proposed in 2011 by Gavin Andresen, multisig has become a widely-used method to secure bitcoin funds in wallets, or to provide a 3-party escrow (2 of 3 signatures are needed to unlock a transfer, when the buyer, seller and a trusted dispute agent have to come to a consensus.)

• Multisig provides bitcoin transfers with an additional logic layer, which can increase the number of possible use-cases.

• More complex use-cases would require the use of “if-then” algorithms (business logic), which are targeted by smart contracts.

Smart Contracts

• First mentioned by Nick Szabo in 1997, smart contracts are event-driven software applications (using an if-then structure). The execution of the smart contract can be triggered by data on the blockchain (e.g. a bitcoin payment), or data coming from the external world using oracles (e.g. parliament election results).

• From an HCI design perspective, contracts are present in the world in the form of constraints (physical: fences; semantic: traffic lights, cash register readout; logical: at a vending machine enter a number of the item to purchase). Smart contracts add an interaction layer to the constraints (e.g., when inserting a coin into the vending machine, entering a number, and taking the item from the machine).

• From a UX/UI design perspective, the smart contracts should be presented within a UI properly presenting their underlying mechanism.

Smart Contracts on the Blockchain: Ethereum Use-cases• By leveraging the above technologies we can create systems with

no central authority to provide trust, thus minimizing failure points, and costs.

• Some of the areas that could benefit from the new technology: Prediction Markets, Decentralized Exchanges, Crowdfunding, Internet of Things, Voting and Governance, Gaming, Reputation Systems, Social Networking, Chat Messaging, Insurance, Healthcare, Arts, Ridesharing, Distributed Autonomous Organizations, Trading (financial instruments or commodities), Accounting, Communities, eCommerce, Physical Security, File Storage, Ownership Stamping, Content, Microtransactions, Community Management, Cloud Computing, Remittances, Smart Contracts Management, Smart Assets, Wallets, Food, Manufacturing, Data Storage, Messaging, Supply Chain.

• Decentralized applications (DApps), and organizations (DAOs)

Smart Contracts on the Blockchain: Rootstock Use-cases• Some of the areas that could benefit from the new technology:

Micropayment channels and Hub-and-Spoke networks, Peer-to-peer distributed exchange, Retail Payment Systems, Escrow Services, Crypto-assets Creation, Asset Securitization, Decentralized remittances, IP Protection / Registry Voting System Micro-lending, Supply Chain Traceability, Online Reputation & Digital Identity, In-game Global Currency, Internet-gambling and Prediction Markets, Fair-playing

DAO: Beyond Smart Contracts

A Decentralized Autonomous Organization is governed by a set of software rules enacted by smart contracts on a blockchain. The governance rules (voting, rewards, etc.) are then described in an accompanying whitepaper.DAOs can be incorporated for profit, or not for profit. The main use cases would be:• Global non-profit organizations• Crowdfunding campaigns• Political organizations• Ecosystems around token creation and consumption

Conclusion

• Blockchain-based technologies can provide an innovation opportunity of current business models, and can create new ones. In this regard they can help create a blue ocean (uncontested market).

• The DAO is an example of a novel entity that could help lower transaction and information costs, increase member (or token holder) rewards, and improve the quality of the decision-making process by integrating the wisdom of the crowds.

• As these technologies are quite young, they need to be thoroughly tested to find both the most suitable use-cases, and potential vulnerabilities (security, privacy issues).

• On the whole, blockchain-based technologies have a promising potential, when applied to solve real user needs (e.g. financial inclusion), and when presenting such solutions in a useful, usable, and appealing way.

Resources: Online, 1/2

• ADRESEN, Gavin. M-of-N Standard Transactions. 2011-10-18. URL: https://github.com/bitcoin/bips/blob/master/bip-0011.mediawiki

• BITCOIN.IT. Proof of Burn. URL: https://en.bitcoin.it/wiki/Proof_of_burn • BUTERIN, Vitalik. DAOs, DACs, DAs and More: An Incomplete Terminology

Guide. 2014-05-06. URL: https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/

• BUTERIN, Vitalik. An Introduction to Futarchy. 2014-08-21. URL: https://blog.ethereum.org/2014/08/21/introduction-futarchy/

• EVANS, Philip et al. Thinking Outside the Block: A Strategic Perspective on Blockchain and Digital Tokens. URL: https://www.bcg.com/blockchain/thinking-outside-the-blocks.html?linkId=32279022

• GOV.UK. Distributed Ledger Technology: beyond block chain. URL: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/492972/gs-16-1-distributed-ledger-technology.pdf

• IBM. Fast forward: Rethinking enterprises, ecosystems and economies with blockchains”. URL: http://www-935.ibm.com/services/us/gbs/thoughtleadership/blockchain/

Resources: Online, 2/2

• HANSON. Robin. Shall We Vote on Values, But Bet on Beliefs? Journal of Political Philosophy, 2013. URL: http://hanson.gmu.edu/futarchy2013.pdf

• SZABO, Nick. 1997. Formalizing and Securing Relationships on Public Networks. URL: http://firstmonday.org/ojs/index.php/fm/rt/printerFriendly/548/469.

• NAKAMOTO, Satoshi. Bitcoin: A peer-to-peer electronic cash system. 2008. URL: https://bitcoin.org/bitcoin.pdf

• NEEF, A. What the blockchain will mean for the economy and society. URL: http://www.z-punkt.de/en/themen/artikel/blockchain/472

• WEF. What is the blockchain? URL: https://www.youtube.com/watch?v=6WG7D47tGb0

Resources: Books

• ANTONOPOULOS, Andreas M. Mastering Bitcoin: unlocking digital cryptocurrencies. O'Reilly Media, Inc., 2014. ISBN 978-1449374044. Available commercially from Amazon. Czech translation: https://www.bitcoinbook.info/translations/cs/book.pdf

• CHAMPAGNE, Phil. The Book of Satoshi–the Collected Writings of Bitcoin Creator Satoshi Nakamoto. 2014. ISBN 978-0996061315. Available commercially from Amazon.

• MOUGAYAR, William. The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology. 2016. ISBN 978-1119300311. Available commercially from Amazon.

• TAPSCOTT, Don; TAPSCOTT, Alex. Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World. Penguin, 2016. ISBN 978-1101980132. Available commercially from Amazon.

• WATTENHOFER, Roger. The Science of the Blockchain. CreateSpace Independent Publishing Platform, 2016. ISBN 978-1522751830. Available commercially from Amazon.

Getting Involved

• Local meetups:• http://www.meetup.com/Prague-Blockchain-Meetup/ • http://www.meetup.com/Prague-Ethereum-Meetup/• http://www.meetup.com/Bitcoin-meetup-Paralelni-Polis/

• Hackathons:• http://hack.ether.camp• http://ultrahack.com

Hackathon Ideas

• Financial:• https://hack.ether.camp/idea/decentral

ized-insurance-using-prediction-markets-and-game-theory

• https://hack.ether.camp/idea/a-cryptocurrency-credit-union

• https://hack.ether.camp/idea/bill-of-exchange

• Governance:• https://

hack.ether.camp/idea/a-prototype-of-a-decentralized-political-party

• https://hack.ether.camp/idea/dao-4-social-good

• https://hack.ether.camp/idea/animals-unchained

• Retail:• https://hack.ether.camp/idea/trustless-

affiliate-marketing• https://hack.ether.camp/idea/managin

g-personal-data-accessed-by-advertisers

• https://hack.ether.camp/idea/create-a-dao-to-write-a-book-about-the-dao

• https://hack.ether.camp/idea/collaborative-content-creation

• Education:• https://hack.ether.camp/idea/peer-to-p

eer-university

Please, contact me for more information:

Jan Brejcha, Ph.D.User experience consultant/Business developerjan@brejcha.namehttp://jan.brejcha.namehttps://www.linkedin.com/in/janbrejcha https://twitter.com/jbrejcha