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20190316 - CLBFest - 1337 to legal - Koen Vingerhoets

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Koen Vingerhoets (https://www.slideshare.net/koenvingerhoets) explained (a) the basics of blockchain in its 6 key elements (transparency, ownership, traceability, distributed, trust, smart contracts) and (b) a few technical aspects on blockchain, like hashing, smart and ricardian contracts, bugs in the code, private ledgers, aspects to take into account to govern a (private) blockchain, and the impact of (EU) regulation.

The context was the second (2019) edition of the Computational Law and Blockchain Festival (#CLBFest), Brussels' node.

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20190316 - CLBFest - 1337 to legal - Koen Vingerhoets

  1. 1. Koen Vingerhoets – @IthronKoen on
  2. 2. From 7331 to legal: a selection of blockchain discussion topics
  3. 3. 5 The Studio – a 100% daughter of Belfius Bank & Insurance MONETIZATION OF BELFIUS ASSETS & DIGITAL EXPERTISE Assess opportunity for Belfius to monetize its digital assets and expertise by exporting it to other clients and industries INTERNATIONAL FOOTPRINT Evaluate the opportunity for Belfius to geographically expand its footprint by means of technology ECOSYSTEM STRATEGY Invest in the development of ecosystems via which we can ultimately distribute Belfius products and services INNOVATION Foster an innovative way of working to quickly test and assess the potential of new technologies
  4. 4. 8 On the menu • Hashing • Blockchain for business • From 7331 to legal • Conclusion
  5. 5. 9
  6. 6. A transaction is - Declaration of an incident - Pictures of the accident - Signed contract - A proof of payment - An offer from car repair - Steps in the RDR wizard - … Understanding distributed ledgers Nomen est omen
  7. 7. Understanding distributed ledgers vs 1. Every hash is unique 2. Infinitly reproducable 3. One way traffic Encryption vs hashing When you know a hash is NOT unique
  8. 8. Chance to win 1 in 139.838.160 Chance on collision in bitcoin’s hashing algorithm (sha256): Chance to die in a shark attack: 1 in 300.000.000 Chance to have a meteor land on your house: 1 in 182.000.000.000.000 in 1.460.000.000.000.000.000.000.000.000.000.000.000.000.000.000.000 A hash is NOT unique. How safe is Bitcoin??
  9. 9. Understanding distributed ledgers Encryption vs hashing
  10. 10. Understanding distributed ledgers Encryption vs hashing
  11. 11. Understanding distributed ledgers Encryption vs hashing
  12. 12. Comparing hashes allows validation without knowledge. Transactions / Documents / Data / Identity / …
  13. 13. 17 On the menu • Hashing • Blockchain for business • From 7331 to legal • Conclusion
  14. 14. TrustOwnership Traceability Distributed Smart contracts An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency
  15. 15. Transparency: like a glass bank
  16. 16. Permissioned Public BTC 1984 ? FI’s Permissionless Transparency: public <> private and permissionless <> permissioned Private
  17. 17. Trust Traceability Distributed Smart contracts An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency Ownership
  18. 18. Ownership : identification of owner & actor
  19. 19. IN 0,8 BTC IN 0,6 BTC OUT 1 BTC REST 0,4 BTC Koen receives two payments - 0,8 BTC from Nicki - 0,6 BTC from Wim Koen transfers 1 BTC to Thomas - 0,8 BTC + 0,2 BTC - 0,4 BTC is unspent transaction • (A defined number of) assets are stored on the blockchain • Each asset is identified • Assets are divided • Assets are transferred (not copied) => Clear view on who owns what when. Ownership : how value is stored Koen -> ThomasNicki -> Koen Wim -> Koen
  20. 20. Trust Distributed Smart contracts An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency Ownership Traceability
  21. 21. Traceability : towards the origin of things
  22. 22. Traceability : the sequence is the defence
  23. 23. Trust Smart contracts An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency Ownership Traceability Distributed
  24. 24. Distributed : the “Rai” on the island Yap
  25. 25. Trusted party & Single point of failure One level hierarchy : dictator Several critical points protect each other from failure Two level hierarchy : democracy Everyone is equal Zero level hierarchy : direct representation Distributed : (de)centralized & distributed Architecture Decision making Logical working
  26. 26. Distributed Smart contracts An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency Ownership Traceability Trust
  27. 27. Trust : The Jayrun Water Clock, built by Muhammad al-Sa’ati in 1203 AD
  28. 28. Trust : consensus as a service BTC : 7trx/s +1% power
  29. 29. Trust Distributed An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency Ownership Traceability Smart contracts
  30. 30. Smart Contracts : agreement on how things are done
  31. 31. Definition A smart contract is an agreement whose execution is both automated and enforceable. • The actual “transaction” among parties is expressed through and independently executed by computer code, no party can block it or otherwise tamper with. • It constitutes legally binding rights and obligations of the involved parties. Smart contracts Not smart, not a contract… but it’s code and it runs on the blockchain.
  32. 32. Smart contracts Just code, a workflow or an entire contract? Is code law or not? What could it be now?
  33. 33. Trust Distributed Smart contracts An approach : 6 key elements Combined and used with other parties, they create a single shared source of truth. Transparency Ownership Traceability In collaboration with others, Blockchain is… … the single shared source of truth.
  34. 34. 38 On the menu • Hashing • Blockchain for business • From 7331 to legal • Oracles • Smart contracts • Developers • Private ledgers • Governance • EU regulations • Conclusion
  35. 35. Blockchain versus the world : oracles wanted
  36. 36. FX rate RFID tag Flight time SWIFT Weather Who or what is in charge? Uptime / SLA? Liability? Security? Outsourcing alike?
  37. 37. 42 On the menu • Hashing • Blockchain for business • From 7331 to legal • Oracles • Smart contracts • Developers • Private ledgers • Governance • EU regulations • Conclusion
  38. 38. “A smart contract is an agreement whose execution is both automated and enforceable.” Certainty of execution No one to bribe, call, threaten,… No code to update, append, delete,… No thing to trash, reboot, stop,… Smart contracts & normalized systems The good : it will run
  39. 39. Smart contracts & normalized systems The bad : it will run
  40. 40. Combinatorial effects due to • Technical challenges • Developer challenges • Legal challenges • Systemic challenges • Organizational challenges Smart contracts & normalized systems Why smart contracts are complex and prone to change
  41. 41. Smart contracts : report from the trenches Legal : compliance upfront, justice too Enforced & automated - (All) Exceptions foreseen? - (All) Different scenario’s foreseen? - (All) Atomic / granular? - Oracles export the issues - Fat finger errors? ? How enforced & automated will it be ?
  42. 42. 47 On the menu • Hashing • Blockchain for business • From 7331 to legal • Oracles • Smart contracts • Developers • Private ledgers • Governance • EU regulations • Conclusion
  43. 43. “I’m often asked at conferences and workshops what I consider to be Bitcoin’s greatest challenge in the future. My answer is always the same: avoiding catastrophic software bugs,” he wrote. <…> Part of the problem was that Bitcoin ABC did not have a responsible disclosure policy. Additionally, Fields could not find publicly available encryption keys for the lead developers at Bitcoin ABC to whom he could send encrypted message informing them of the vulnerability without risking it being viewed by others. “Because I used my name for the disclosure, hard proof would exist that I had the knowledge and means to attack the network. I would have no way to prove that I was not the attacker. Then consider that, collectively, billions of dollars could have been lost as a result of this exploit. People have been killed for much less,” wrote Fields.
  44. 44. What is “the code”? The protocol / source code? - Usually open source (quite often under MIT license, all caps clause (“THE SOFTWARE IS PROVIDED "AS IS" etc”)) - (Un)known developers (researchers, policy developers, coders, code reviewers, etc.) - Vetted by the community (but still) What is “the code”? The smart contract? - Not always readable - Where the money is made (DAO, cryptokitties,…) - (Un)known developers - Tests on Ethereum revealed horrendous quality What is “the code”? The blockchain itself? - Data generated by protocol or smart contracts - Unreadable (but not untinkerable) for developers - No liability for what people actually do with the code?
  45. 45. At least one regulator is attempting to provide clarity regarding the potential liability of actors who violate regulations through the use of smart contracts. On October 16, 2018, Commissioner Brian Quintenz of the Commodity Futures Trading Commission explained his belief. Commissioner Quintenz identified the parties essential to the functioning of the smart contract blockchain ecosystem: 1. the core developers of the blockchain software; 2. the miners that validate transactions; 3. the developers of the smart contract applications; and 4. users of the smart contracts.
  46. 46. To ascertain the culpability of the smart contract code developers, the “appropriate question is whether these code developers - could reasonably foresee, - at the time they created the code, that it would likely - be used by U.S. persons in a manner - violative of CFTC regulations.” If such a use is foreseeable, Commissioner Quintenz believes that a “strong case could be made that the code developers aided and abetted violations of CFTC regulations.”
  47. 47. 52 On the menu • Hashing • Blockchain for business • From 7331 to legal • Oracles • Smart contracts • Developers • Private ledgers • Governance • EU regulations • Conclusion
  48. 48. 53 Private ledger Known actors True collaboration Aligned governance Don’t be shy
  49. 49. 54 Finality LiabilityGovernance Regulations Private ledgers and their governance driven benefits
  50. 50. 55 Finality LiabilityGovernance Regulations Private ledgers and their governance driven benefits
  51. 51. 56 Finality LiabilityGovernance Regulations Private ledgers and their governance driven benefits
  52. 52. 57 Finality LiabilityGovernance Regulations Private ledgers and their governance driven benefits
  53. 53. 58 Finality LiabilityGovernance Regulations Private ledgers and their governance driven benefits
  54. 54. 59 Finality LiabilityGovernance Regulations Private ledgers and their governance driven benefits
  55. 55. 60 On the menu • Hashing • Blockchain for business • From 7331 to legal • Oracles • Smart contracts • Developers • Private ledgers • Governance • EU regulations • Conclusion
  56. 56. Decide how to decide How to incorporate? Where to incorporate? Stakes / evaluation of partners Onboarding procedure Offboarding procedure Liability Invoicing Profit distribution Representation Agreements on updates/upgrades Technical demands / downtime Consensus algorithm Outsourcing Cloud data Code security review Audit of the system Code escrow IP ownership …
  57. 57. What if… Multiple projects run on the same infrastructure? Reporting is replaced by real time data access? Is there a need for… A Belgian R&D center? Or an overarching governing entity? Or a regulatory sandbox?
  58. 58. 63 On the menu • Hashing • Blockchain for business • From 7331 to legal • Oracles • Smart contracts • Developers • Private ledgers • Governance • EU regulations • Conclusion
  59. 59. GDPR And other EU initiatives (eIDAS, competition law,…)
  60. 60. 65 On the menu • Hashing • Blockchain for business • From 7331 to legal • Conclusion
  61. 61. 66 *insert evil legal laughter*
  62. 62. 67 Seek first to understand, Then to be understood R. Covey – 7 principles of highly effective people
  63. 63. No one has ever done this before
  64. 64. Koen.Vingerhoets@belfius.be Twitter : @IthronKoen TrustOwnership Transparency Traceability Distributed Smart contracts Blockchain is… … the single shared source of truth.

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