9 BUILDING BLOCKS FOR SUCCESS

What’s required for a sustainable blockchain industry

t: @blockstarsiow: BlockStars.ioe: info@blockstars.io

1. Cross-Chain Bridges2. On / Off Ramps3. Roles & Responsibilities4. Identity5. Reputation6. Effective Governance7. Stable token of exchange8. Useable Security9. Economically Viable Processing

• Growing ecosystem of blockchain‘S’• Made up of both increasingly specialised

private blockchains designed for enterprise grade solutions and customisations

• Or Sidechains off core bitcoin blockchain protocol but that link in parallel

• Promises blend of private / public chains• Need for ease of ‘cross-chain’ calls

1. Bridges

2. On / Off Ramps• Regulation highly localised / emotionally led (fear

of crypto / Bitcoin in particular)• Encourages blockchains to start as decentralized

as possible then localise pragmatically• Leverage friendly jurisdictions with history in

innovative financial services industries (e.g. Isle of Man)

• Big opportunity for locales that move first to become epicentre of physical economy

3. Roles & Responsibilities• No clear successful business models for

decentralized economy as yet • If you don’t own code or data how do you

make money in a way you can protect?• Ethical and legal requirement for clear

definitions and responsibilities• Watch out for legal precedents and landmark

prosecutions that define space

4. Identity• Semi / Pseudo Anonymity as current basis of

blockchain is limiting for commercial use without some linkage into real world

• Especially legal requirements like KYC (Know Your Customer) #Finserv

• Identification currently a duplication-of-work for blockchain start-ups

• ID with real world verification for people and possessions a must

• As well as universal ID for DApps login

5. Reputation• Reputation in a ‘trust-less’ marketplace is a challenge• Need strong incentives and disincentives for behaviour. • Currently reputations siloed (best e.g. Dark markets)• Questions around Smart Contracts & their real world

enforcement• Universal reputation; individuals and collectives of

individuals beyond specific purpose• White-listing (building trust networks) vs. black-listing is

central debate

5. Governance• Who drives core development of base layers such as

Ethereum or Bitcoin Blockchain and to what agenda?• How is this financed and what transparency is offered?• Balancing serving libertarian vs. commercial agendas

challenging• How is core development aligned with niche vertical interests

and trade-offs • Is there a role for est. trade organisations to lead dev of

industry side-chain• Untangling Bitcoin 1% interests and broader more diverse

ecosystem

6. Stable Token of Exchange• 99% of Bitcoins are in the hands of 1% of people

making vulnerable to market manipulation• Bitcoins exchanged largely for exchange itself rather

than utility. Increasingly so by VCs and traders• Price volatility exposes merchants treasuries to too

much risk to make viable means of exchange• Need tokens that can be pegged to currency of

business costs at point of transaction

7. Usable Security• Basic tech is extremely secure but history is riddled with hacks &

theft • Why? Largely centralisation. If Bitcoin exchange stores private keys

its Bitcoin addresses in a badly secured database server bad actor obtains access to this server, they can steal the Bitcoin funds.

• The weakest links are in the technologies surrounding the blockchain and the people using them.

• Encrypting all interactions between components and actors, and handling the encryption keys in a secure way.

• We expect to see more user-friendly security principles. E.g. two-factor authentication, multisig transactions and hardware cold storage wallets etc. will become more mainstream.

9. ECONOMICALLY VIABLE PROCESSING

• Economics of Bitcoin mining only make sense at a centralised industrial scale

• Which is in direct opposition to Bitcoins algorithm which seeks to cancel out these efficiencies

• In other words its deliberately wasteful. Which is unsustainable both from a financial and ecological perspective.

• Pressure to reduce costs and increase output could result in sweat shops.

• Possible solutions; 21s putting mining into everyday devices, tapping into existing latent processing networks such as gaming or replacing with P2P distributed systems of users

Follow@blockstarsio