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Cambridge CentreforAlternativeFinance
FACTORSDRIVINGTHECRYPTOCURRENCYANDBLOCKCHAIN(R)EVOLUTION
MichelRauchsIDEALondon11December2017
PUBLICBLOCKCHAINS
Whatarepublicblockchains?
Ledgerstructuredaschainofblocks(‘blockchain’)
P2Pnetwork
Nativeasset/tokenDistributedconsensus(‘mining’)
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Whataretheyspecificallydesignedfor?
Censorship-resistance
Payments Computations/’contracts’ Storage
• Nosinglepartycanprevent/censoraspecificoperation
• Nosinglepartycanconfiscateaparticularresource
Achievedthroughdecentralisation:nocentralauthorityincontrol
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Decentralisationisnofreelunch
Thecostofdecentralisationishigh:publicblockchainsare…
• Inefficient:dataisreplicatedandcomputationsareperformedbyeverysinglenode
• Slow: blocktimes>0seconds
• Expensive: costofminingandnetworkinfrastructure
• ‘Uncertain’: nosettlementfinality
• Difficulttoscale: growingusageleadstoscalingissues
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Whywouldyouuseapublicblockchainthen?
Twomainreasons:
1) Usecases/applicationsthatrequirecensorship-resistance
2) Lackofworkingalternative(s) inagivensituation/context
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Where/wheniscensorship-resistanceneeded?
Assets
a)Financialsovereignty(unseizable)
Payments
Circumventsanctions/blockades
b)Wealthtransferability
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Lackofpracticalalternative(s)inagivensituation
‘Store’ofvalue Cross-borderpayments
Alternativeassetclass ‘Consumer’payments
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Twokeyquestionstoask
b)Whenusinganexistingpublicblockchainsystem(orthetoken):
• Q:Doestheuseofthesystem/tokenprovidegreaterutilitythanusinganexisting(traditional)alternative?
• A:Context-dependent- widelydiffersbetweengeographiesandindividuals(verysubjectiveandtiedtoaparticularsituation)
-->Thischanges/evolvesovertimeasthecostsslowlyoutweighthebenefits
a) Whendesigninganewpublicblockchainsystem:
• Q:Dothe(potential)benefitsofdecentralisationoutweighthe(long-term)costs?
• A:InmostcasesNO
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PERMISSIONEDBLOCKCHAINS(’DLT’)
Sowhatifwejustkeep‘theblockchain’?
LedgerstructuredaschainofblocksP2Pnetwork Nativeasset/token ‘Mining’(PoW)
• Idea:haveasharedledgerbetweenknownandvettedparticipants(regulatedentities):‘Iseewhatyousee… andIknowthatwhatIseeiswhatyousee’(RichardGendalBrown,R3)
• Goal:Preservethecharacteristicsofpublicblockchainswithordersofmagnitudehigherperformanceandefficiency
• Security:basedonaccesscontrolsandlegal’off-chain’contractsinsteadofeconomicincentivedesign
Blockchainsareallabouttrade-offs!
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Enormoushypearoundpotential‘blockchain’usecases
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Threewaysofusingablockchain
a) Issuanceofnew(native)assets:
Anasset(e.g.,bond)isissuedonadistributedledger(‘primaryissuance’)à digitalbearerasset
b) Tokenisationofexistingassets:
Anexistingasset(e.g.,goldheldincustody)isdigitallyrepresentedonadistributedledger(‘tokenised’)
c) Record-keepingofexternal‘events’:
Externalevents/factsarebeingrecordedontheblockchain(e.g.,supplychaintracking)
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Permissionedblockchainsarenotapanacea
Ablockchaincannotenforcesomethingthatisoutsideofitsreach!
Therearecommonmisconceptionsaboutwhattheycando:
Whenblockchainsinteractwiththe’real’world,atrustedthirdpartyisgenerallyrequiredtomakethatconnection
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Sowhatabout adoption?
Quietmovefrom’blockchain’todistributedledgers
• Realisedthatachainofblocksisnotthemostefficientorusefuldatastructureinmanycases
• Noteverynodeshouldbebotheredwithrunningeverysingleoperation
Lotsofhigh-profileprojectsannounced
• Havenotmaterialisedyet
• Manyprojectsstuckattheproof-of-conceptstage
• Onlysmall-scalenetworksrunninginproduction– ofteninparallelwithexistingsystem(s)
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Keyreasonsforlaggingadoption
1. Protocolandplatformselectionisdifficult:nointeroperability
2. Lackoflarge-scalenetworkdeploymenttodate
3. Buildingandtransitioningtosharedmarketinfrastructuretakestime
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Conclusion
• Publicblockchainsarespecificallydesignedforcensorship-resistance
• Theycanalsoconstituteabettersolutionthanexistingalternativesforsomeusecasesinaspecificsituation
• Permissionedblockchainstakedifferentdesignchoicestoincreaseperformanceandefficiency:involvestrade-offs
• Blockchainsarenotasilverbullet:manyusecasesrequiretrustedthirdparties
• Laggingadoptionamongcorporates:mostprojectshaveyettomaterialise
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