state of blockchain 2017: smartnetworks and the blockchain economy

Melanie Swan

Philosophy & Economic Theory

New School for Social Research, NY NY

[email protected] Keynote

UC Berkeley, Berkeley CA, June 8, 2017

Slides: http://slideshare.net/LaBlogga

State of Blockchain 2017: Smartnetworks and the Blockchain Economy

8 June 2017

Blockchain1

Melanie Swan

Philosophy and Economic Theory, New School for Social Research, New York NY Founder, Institute for Blockchain Studies

Singularity University Instructor; Institute for Ethics and Emerging Technology Affiliate Scholar; EDGE Essayist; FQXi Advisor

Financial Markets Background Economic Theory Leadership

New Economies research group

Source: http://www.melanieswan.com, http://blockchainstudies.org/NSNE.pdf, http://blockchainstudies.org/Metaphilosophy_CFP.pdf

https://www.facebook.com/groups/NewEconomies

8 June 2017

Blockchain

Blockchain

2

Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491

To inspire us to build

this world

8 June 2017

Blockchain

Agenda

1. What is blockchain?

2. What is happening now?

Bitcoin/blockchain networks

Blockchain applications

3. What is the (possible) future?

3

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Thesis

Blockchain: no other technology can

1. Uplift 2 billion people out of

poverty overnight

Intermediary-free remittances

2. Produce an orderly transition to

the automation economy

Humans and machines in

collaboration

3. Transform the only sectors not yet

re-engineered for the Internet era

Economics and governance

4Source: Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340

8 June 2017

Blockchain

Two fundamental eras of network computing

5

Source: Expanded from Mark Sigal, http://radar.oreilly.com/2011/10/post-pc-revolution.html

I. Transfer Information II. Transfer Value

6 7

2020s 2030s

Simple networks Smart networks

8 June 2017

Blockchain

What is Blockchain? Software

eWallet software: send money via web

Digital payment system like Paypal

Secure data transfer: better VPN, EDI

Register or ledger of money/account

balances: giant google doc on the web

Permanent Internet-based ledger system

for executing transactions

Secure-write access, all-read access

Secure transfer of assets (like money

and information), computationally,

without an institutional intermediary

6

Source: VPN: Virtual Private Network EDI: Electronic Data Interchange

Email protocol (SMTP)

tells the web how to send

email, blockchain tells the

web how to send money

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Blockchain

Blockchain revolution is just beginning

7


Decentralized

NetworksBlockchainBitcoin

Application Software Protocol Secure Value Transfer

Risk of change over time

30-40 years for “Information Internet” roll-out

15 years alone for email as a wide=spread enterprise application

Longer for the “Money Internet” given the sensitivities of

money and asset transfer

LowHigh

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Blockchain

Smartnetworks

Pushing more complexity through the Internet pipes

8

Information

Smartnetworks: high-performance intelligent scalable network computing

CC: Creative Commons license; Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491

Distribution of Transfer of

“Rich information” quanta modulated with attributes

Provenance (source), interest level (quadratic voting), relevance

(PageRank), remuneration; (like CC license with more parameters)

CashSmart

Assets

20171990 2025e 2050e 2075e

Instantiation of

Smart

Resources

Smart

Entities

2090e

Simple networks Smartnetworks

Applications

Transfer of Value, Confirmation of Identity,

Registration of Preference (Voting)

Smart

Contracts

Economics Governance

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Blockchain

Scalability and financial inclusion

Hierarchy does not scale

Next leap-frog tech: fintech

Like cell phones vs. POTS, it

does not make sense to build

out brick-and-mortar banks in a

world of digital finance

Decentralized networks +

digital finance = the power of

the printing press in banking,

credit, and money

Access to credit and financial

services as a basic human right

(4 billion under-banked)

9

Source: POTS: Plain Old Telephone Service, http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491

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Long-tail economics and governance

One size does not fit all

Any two parties can meet and transact on the blockchain

10


One size

fits all

Personalized

Long-tail Systems

Long-tail economics

“Amazon or eBay of money”

Personalized banking, credit,

mortgages, securities

Long-tail governance

“Amazon or eBay of government”

Personalized governance

services, pay for consumption

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Blockchain

Personalized

governance

services

Crypto-enlightenment

11

“One ought to think autonomously,

free of the dictates of external

authority” - Immanuel Kant

Kant, I. "Answering the Question: What Is Enlightenment?" (German: Beantwortung der Frage: Was ist Aufklärung?). 1784.

Hayek, F. The De Nationalization of Money. 1976. (paraphrased)

“Multiple private currencies should

compete for customer business”- Friedreich Hayek

Personalized

economic

services

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Agenda






12

8 June 2017

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How does blockchain work?

13

eWallet app: holds keys, not money

Using PKI (public key infrastructure): electronic wallet

software issues a public-private key pair (public address is a

32-character alphanumeric code)

Scan public address (QR Code) & submit transaction

Private key confirms access and funds availability,

transaction validated and posted to blockchain

8 June 2017

Blockchain

Why is it called blockchain?

Ledger (chain) of sequential transaction blocks

Each new block starts by calling the last block, so a

cryptographic chain of transactions is created

Every 10 minutes, the latest block of submitted

transactions is validated (by cryptographic mining) and

posted to a single distributed ledger

14

Source: Satoshi Nakamoto whitepaper: https://bitcoin.org/bitcoin.pdf, https://blockexplorer.com

Block 10 Block 11 Block 12

8 June 2017

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How robust is the p2p software network?

15

p2p: peer to peer; Source: https://bitnodes.21.co, https://github.com/bitcoin/bitcoin

7340 Global Nodes running full Bitcoind (6/17); 100 gb

Run the software yourself:

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Blockchain

What is Bitcoin mining?

16

Mining is the software-based accounting

function to record transactions, fee-based

Mining hardware/software “finds new blocks”

Network regularly issues random 32-bit nonces

(numbers) per specified cryptographic parameters

Mining software constantly makes nonce guesses

At the rate of 2^32 (4 billion) hashes (guesses)/second

One machine at random guesses the 32-bit nonce

Winning machine confirms and records the

transactions, and collects the rewards

All nodes confirm and append the new block of

transactions to their copy of the distributed ledger

“Wasteful” effort deters malicious playersSample

code:

Run the software yourself:

8 June 2017

Blockchain

CyptoCurrency Market Capitalizations (6/17)

17

Source: https://coinmarketcap.com

S&P 500: $19tn; Bitcoin: $41bn (over $2500)

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ICOs (Initial Coin Offerings)

$36m

18

Sources: http://icorating.com, https://tokenmarket.net/blockchain/all-assets

$5m

$200m raised in ICOs 2016

$12m

$25m

30 sec

15 min

Recent ICOs completed in 2017

8 June 2017

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Bitcoin vs. other payment networks

19

Source: Statista / Coinmetrics, http://www.altcointoday.com/bitcoin-ethereum-vs-visa-paypal-transactions-per-second

1,667

7

Average daily transaction volume ($US mn)

Average

transaction

volume per

second

Visa: 2,000 transactions/sec; Bitcoin: 7/sec

Visa: $18bn/day; Bitcoin: $300mn/day

8 June 2017

Blockchain

Scalability

Transactions/block: 400 (2014) vs 2,000 (2017)

Current Bitcoin block size limit: 1 mb

Change proposals

SegWit (Segregated Witness): 2-4 mb

Emergent Consensus / Bitcoin Unlimited: no limit

(Former): BIP 100 (adjustable block size), BIP 101 (8 mb)

Second-layer solutions: batch posting to blockchain

Factom, Storj, Lightening Network

Democracy: 5 constituencies decide

Developers, miners, exchanges, wallets, merchants

20

Segregated Witness: move non-critical “witness” data off the blockchain; BIP: Bitcoin Improvement Proposal

Source: http://www.coindesk.com/data/bitcoin-number-transactions-per-block

Bitcoin

transactions

per block

(https://coin.dance/blocks)

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Blockchain

Blockchain risks?

ISSUE

21

Regular global technical meetings (Satoshi Roundtable);

vociferous debate/proposals (democratic power struggle)

PoW: not scalable, PoS: validator model too complicated

Cybersecurity Hacks Mt Gox, Ethereum DAO, Bitfinex

Silk Road, drug dealers,

terrorists, criminals

ScalabilityBlock size, Consensus method

Mining Centralization 51% Attack

RESPONSE

Temporary; mining is collusive; attack unsustainable, cannot

steal coins, confirm transactions or change protocols

Building resilient system constantly under open

attack 24/7 (remember early Internet DNS attacks)

Blockchains are a universal technology available to

all; non-criminal activity predominates

PoW: Proof of Work (mining), PoS: Proof of Stake (validated voting) – mechanisms for establishing ledger state consensus

Early Internet: “this will never scale, insecure, not resilient;” Yahoo, AltaVista down for days due to DNS attacks

Technology Risk

Perception Risk

Regulatory Risk, Economic Risk

Government regulation,

bans; Exchange rules

Governments modernizing economic infrastructure

with blockchains too; licensing, open dialogue

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Agenda






22

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Blockchain: Fintech and beyond

AssetsImmediate

cash transfer

Applications

PaymentsMoney

Remittance

Financial

instrumentsUnified ledger

Mortgages, loans

Titling: house, auto

Inventory

Commercial trade

PaymentsFinancial

Services

Logistics &

Supply Chain

Energy, IoT

Healthcare

Government

Humanitarian

Non-profit

Industry adoptionTime

Complexity

Stocks, bonds

Goods transfer

Assurance, provenance

IdentityDriver’s License

Passport, Visa

Contracts

Registries

Marriage licenses

Public Documents

Birth/death registries

BoL, Forfeiting

Insurance

Cash Smart Assets Smart Contracts

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Source: http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html

Stock Transaction

Real Estate Purchase/Sale

Health Insurance Billing2. Steps that can be automated with blockchain

1. Steps with human decision-making

Energy Contract

International Trade Shipment

Reengineering economics and governance

Any complex transaction has two kinds of activities

Blockchain automation economy

Economics Governance

8 June 2017

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Secure information exchange

Asset confirmation and transfer

Automated coordination

Example: fleet management of drones,

autonomous driving, robotics, clinical trial

patients, cellular therapeutics

Blockchain: automated, secure

coordination system with remuneration

and tracking

Key blockchain functionality

Source: Swan, M. Philosophy of Social Robotics: Abundance Economics. Sociorobotics, 2016.

http://www.melanieswan.com/documents/SocialRobotics.pdf.

8 June 2017

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Financial services

Shared ledger

Instantaneous transaction

validation (t=0, not t+3)

Settlement, clearing,

Custody, insurance

Secure, lower risk, cheaper

Financial assurity

Securities asset registries

Automated clearing

Quoting, deal placement

Billing, settlement

26

Source: https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments

Shared Ledger

8 June 2017

Blockchain

Supply chain and logistics

Asset transfer and customs clearing

Provenance, assurance, release

Inventory management

Custody, insurance, damage

Automated tracking and notification

Pallets, trailers, containers

Trade finance and documentation

Track purchase orders, change orders,

receipts, shipment notifications

Custody and product certification

Link physical goods to serial numbers,

bar codes, RFID tags

27

8 June 2017

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Energy

Blockchain energy projects

Enerchain: trading (NE Europe)

BTL Interbit blockchain energy

platform: trading (Vancouver CA)

PONTON: DSO, TSO, aggregator,

generation power-balancing (Austria)

Automatic markets

“Energy Internet” - smart buildings

on regional energy smartgrids

Smart resource self-pricing

Load-balancing

Source fungibility: wind, solar power

Energy price and trade validation

28

Sources: https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york,

https://enerchain.ponton.de/index.php/16-gridchain-blockchain-based-process-integration-for-the-smart-grids-of-the-future

8 June 2017

Blockchain

EMR (electronic medical record)

Personal health records

Users key-permission doctors to records

Digital health wallet

Identity + EMR + health insurance + payment

Health insurance billing chains

Automated claims processing

Price-quoting for medical services

Health Data Research Commons

Biobanks, QS (DNA.bits), genome files

29

Source: http://futurememes.blogspot.fr/2014/09/blockchain-health-remunerative-health.html

Healthcare

Digital health wallet

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Politics: governance services

30

Blockchain weddings (Bitcoin, Ethereum)

Public document registries

Titling Registries

Local government RFPs for home, auto, land

Legal services: register and attest

Contracts, IP, agreements, wills registries

Proof of Existence: hash + timestamp + blockchain record

Voting

Quadratic voting (interest), PageRank (relevance)

Delegative democracy, random sample elections

Opt-in personalized governance services

Composting vs education

Sources: http://merkle.com/papers/DAOdemocracyDraft.pdf, http://www.proofofexistence.com/, https://bitnation.co/ , World’s First

Blockchain Marriage: David Mondrus and Joyce Bayo, 10/5/14, ConsenSys wedding : Kim Jackson and Zach LeBeau, 11/2/15

8 June 2017

Blockchain

Humanitarian

Refugee identity system

Phone access: smartphone eWallet, SMS

Object access: card, paper wallet, pendant,

ring, keychain, tattoo, implantable chip

Biometric access: word phrase, fingerprint,

iris, facial scan

Financial inclusion, access to learning

Smart contracts for literacy

Bitcoin MOOCs “Kiva for literacy”

Open-source FICO scores

Decentralized credit bureaus

Remittance, blockchain-tracked aid

31

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Agenda






32

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Better horse or new car?

FutureTech

8 June 2017

Blockchain

Blockchain smartnetworks thesis

High-performance intelligent

scalable network computing

Any complex operation in the future

performed via smartnetwork

Some kind of technology like

blockchain required

Key blockchain properties

Secure authentication of participants

Conduct of transactions

Automated coordination of arbitrarily-

many items

Remuneration, tracking, auditability

34Source: Swan, M. Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340

8 June 2017

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Smartnetworks

Advanced applications

Friendly AI

Deep thinker registries

Thinking chains

Brain-computer interface cloudminds

Bio-cryptoeconomy

A nanorobot in every cell

Medical nanorobotic cell repair

Runaway nanotech and synbio plagues

Unavoidable “signing” per detectable origins

Blockchains in space

Terraforming, asteroid mining, cargo tracking

35Source: Swan, M. Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340

8 June 2017

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Reinventing economics and governance

How to redesign industry

sectors not yet reinvented

for the Internet era?

Economics

Finance

Governance

Need smartnetworks for

secure value transfer

Information

Assets

Money

Contracts

36

Personalized governance services

Personalized economic services

One size

fits all

Personalized

Long-tail Systems

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Economics and Finance

37

Economics Finance

Source: http://www.slideshare.net/lablogga/blockchain-payment-systems, http://www.slideshare.net/lablogga/blockchain-financial-

networks

Organizing assumption:

uncertain future value of assets

Finance = access to

capital, credit, assets

Organizing assumption:

production and consumption of

scarce material goods

Economics = access to

producing and consuming goods

Past, Present Future

Time

Systems for organizing access to resources

Organizing assumptions no longer true in the world of

zero marginal cost, rival goods, and digital distribution

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Reinventing Economics

Technological Unemployment

Definition: jobs outsourced to technology

Estimate: Half (47%) of employment is at risk of automation in

the next two decades – Carl Frey, Oxford, 2015

Why are there still so many jobs in a world that could be

automating more quickly? – David Autor, MIT, 2015

Blockchain Economics challenge: orderly transition to

the Automation Economy

UBI + access to education, opportunity, fulfillment

UBI: Universal Basic Income; Source: Swan, M. "Automation Economy: An Abundance Philosophy of Economics" In

Surviving the Machine Economy. Eds. Hughes, LaGrandeur, Palgrave Macmillan. 2017.

Economics

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Reinventing Economics

Blockchain Economics

39

Economies of the Future: Production and consumption

of intangible social goods in addition to material goods

Trust, recognition, freedom, belonging, acknowledgement

A

B

C

Source: Swan, M. "Automation Economy: An Abundance Philosophy of Economics" In Surviving the Machine Economy. Eds.

Hughes, LaGrandeur, Palgrave Macmillan. 2017. UBI: Universal Basic Income

Survive

Thrive

Economics

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Reinventing Finance

Any asset as a service

40

Source: Blockchain Fintech: Programmable Risk and Securities as a Service, http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html

CD, DVD

ownership

Music and video

streaming

Entertainment as

a Service

Hard

Asset

Service

Auto, home ownership

Uber, Lyft, Gett, Juno, Via

Airbnb, HomeAway, VRBO

Transportation, Living

Space as a Service

Securities ownership

Securities as a service:

Rent access to

consumable benefits of

owning securities:

dividends, capital

appreciation

Securities as

a Service

“Assets as a Service”

Access to the consumable benefits of

the asset, without the requirement of

ownership

Works if trust that the asset will have

future availability

Finance

8 June 2017

Blockchain

Reinventing Finance

Risk asymmetries

41

Finance

Source: Blockchain Fintech: Programmable Risk and Securities as a Service, http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html

HFT (high-frequency trading,

hedge funds, securities, FX)

RTB (real-time bidding for

advertising)

Energy Markets (automatic

load-balancing)

Logistics (automated freight

networks)

No risk-return recalibration of

systemic and non-systemic risk

Need to reassess risk-return

parameters

• No UBI mechanism

including full population

Tighter risk correlation means entire

global economy as giant HFT

Automated control of cryptographic

assets on smartnetworks

Automatic Markets Concentrated Risk

Automatic markets trade together and concentrate risk

Programmable risk, not just programmable instruments

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Blockchain Economics and Finance

42Source: http://www.slideshare.net/lablogga/blockchain-payment-systems, http://www.slideshare.net/lablogga/blockchain-financial-

networks

1. Abundance instead of Scarcity

2. Fulfillment economy instead of

Labor economy

3. Intangible assets instead of

Tangible goods

1. Assurity instead of Insufficiency

2. Access instead of Ownership

3. Programmable risk instead of

Monolithic risk

Mindset shifts for rethinking economics and finance

Economics FinancePast, Present Future

Time

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Agenda






43

8 June 2017

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Blockchain Strategies

Leadership Edge

Start or join industry consortium

Implement digital ledgers

Automate transfer of money, assets, bids,

quotes, RFPs, ERP, supply chain

Value chain process mapping

Revenue-generating

Offer blockchain-based services to clients

Example: banks targeting larger customer base

through blockchain-based eWallet solutions

Cost-saving

Finance, treasury, accounting, GL/AR/AP

Quality assurance, regulation, compliance,

audit

44


8 June 2017

Blockchain

Thesis

Blockchain: no other technology can

1. Uplift 2 billion people out of

poverty overnight

Intermediary-free remittances

2. Produce an orderly transition to

the automation economy

Humans and machines in

collaboration

3. Transform the only sectors not yet

re-engineered for the Internet era

Economics and governance

45Source: Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340

8 June 2017

Blockchain

Conclusion

Blockchain is a fundamental IT for

secure value transfer over networks

For any asset registered in a cryptographic

ledger, the whole Internet is a VPN for its

confirmation, assurity, and transfer

Reinvent economics and governance

for the digital age

Long-tail structure of digital networks

allows personalized economic and

governance services

Smartnetworks are a new form of

automated global infrastructure for

large-scale next-generation projects

46

Personalized

Long-tail Systems

One size

fits all

IT: Information Technology

Melanie Swan

Philosophy & Economic Theory

New School for Social Research, NY NY

[email protected] Keynote

UC Berkeley, Berkeley CA, June 8, 2017

Slides: http://slideshare.net/LaBlogga

State of Blockchain 2017: Smartnetworks and the Blockchain Economy

Thank you! Questions?