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Blockchain Economics

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Crypto tokens imply optionality and the ability to better manage risk. The thesis of this talk is that smart contracts are options, and as such, can be used to control risk (unwanted future uncertainty) in a wider range of areas than has been possible previously, in finance, and in other areas too such as medicine. Options as a financial market instrument have long been used to control the amount and timing of risk in specific ways and tailor exposure with granularity. Smart contracts are an even more flexible species of options because they are programmable contracts that can be used to confer the right to buy or sell any blockchain-based asset or liability at a future moment in time (blocktime or “fiat” (regular) time) per certain terms and consideration. Therefore, smart contracts allow a greater variety in the degree and type of risks that might be brought under management. The impact of having greater control over risk is that intangible social goods are produced such as surety, confidence, and reliability, which help to engender a more trustful society.

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Blockchain Economics

  1. 1. Fullerton CA, April 16, 2018 Slides: http://slideshare.net/LaBlogga Blockchain Economics Building Societies of Trust Melanie Swan Philosophy, Purdue University melanie@BlockchainStudies.org
  2. 2. 16 Apr 2018 Blockchain 1 Melanie Swan, Technology Theorist  Philosophy and Economic Theory, Purdue University, Indiana, USA  Founder, Institute for Blockchain Studies  Singularity University Instructor; Institute for Ethics and Emerging Technology Affiliate Scholar; EDGE Essayist; FQXi Advisor Traditional Markets Background Economics and Financial 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
  3. 3. 16 Apr 2018 Blockchain Blockchain 2 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491  To inspire us to build this vision of the world
  4. 4. 16 Apr 2018 Blockchain Agenda  Blockchain Economics  Blockchain Basics  ICOnomics  Tokens  Sample Apps  Blockchain Economic Theory  Future: smart Network Convergence  Blockchain and Deep Learning 3
  5. 5. 16 Apr 2018 Blockchain Blockchain Economics  New economic model emerging in the blockchain economy with distinguishing aspects  Open platform business model (network effect valuations)  Token system for monetary transfer  Initial Coin Offerings as financing mechanism  Large-scale global participative communities  Economics: study of resource discovery and propagation to fulfill needs (supply and demand) 1. Classical Economics (material goods) 2. Network Economics (digital goods) 3. Blockchain Economics (cryptographic assets, smart contracts, and DApps/DACs) 4 DApp: decentralized application; DAC: decentralized autonomous corporation
  6. 6. 16 Apr 2018 Blockchain Open Platform Economics business model  M&A 10x return VC exit model gives way to open platform for value creation  Past: proprietary database and network  Goal: maximize users and content generation on proprietary platform; monetize by selling information  Examples: Facebook, Instagram, Netflix  Future: open platform  Goal: maximize user participation and return rewards to participants  Royalty payments for software, content use  Beneficial network effects without monopolist market power inefficiencies 5 Source: https://medium.com/mit-cryptoeconomics-lab/the-blockchain-effect-86bd01006ec2
  7. 7. 16 Apr 2018 Blockchain Blockchain Economics books 6 2015 2016 2017
  8. 8. 16 Apr 2018 Blockchain Network Economics: Metcalfe’s Law  The effect of a network is proportional to the square of the number of connected users (n2)  Two telephones can make only one connection  Five can make 10 connections  Twelve can make 66 connections  Bootstrapping effect threshold 7
  9. 9. 16 Apr 2018 Blockchain Economic Wealth  Adam Smith (1776)  Invisible hand automatically regulates markets  John Stuart Mill (1848)  A society’s wealth is its productive capacity, not its specie capital reserves (mercantilist debate) 8 Sources: Adam Smith, 1776, Wealth of Nations; John Stuart Mill, 1848, Principles of Political Economy
  10. 10. 16 Apr 2018 Blockchain MV=PQ  Hume (1748): quantity theory of money  Quantity = GDP  The general price level of goods and services is directly proportional to the amount of money in circulation, or money supply  Money Supply x velocity of turnover = Price x Quantity of goods/services bought/sold 9 Source: David Hume, 1748, Of Interest, in Essays Moral and Political
  11. 11. 16 Apr 2018 Blockchain Examples of MV=PQ 10 Fed Country X (Brasil) Cryptocurrency X USD Real TitanCoin  Fed adjusts M per V and PQ  V of M1 = 5.5-6x/yr  ~$5000 per person of USD currency circulating  Lower velocity = contraction (less transactions), but raising M can mean creating inflation (more money chasing fewer goods) MV=PQ MV=PQ MV=PQ Source: https://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2014/01/24/FX_Market_Size.html
  12. 12. 16 Apr 2018 Blockchain Crypto asset valuation frameworks 11 Source: https://blockchainatberkeley.blog/todays-crypto-asset-valuation-frameworks-573a38eda27e (Monetary Eqn of Exchange)
  13. 13. 16 Apr 2018 Blockchain 1. Project Total Addressable Market (TAM)  TAM for 2014 remittances was $436 billion 2. Estimate potential percent penetration of TAM  10% (Bitcoin’s blockchain could transact 10% of the market)  10% x $436 billion = $43.6 billion market 3. Project coin velocity: 1.5 times per year  The “same bitcoin” could be used multiple times in the transmission of value for remittances  $43.6B / 1.5 = $30 billion value bitcoin would need to store 4. Calculate coin valuation  14.7 million coins outstanding  $30B / 14.7M = $2,000 per bitcoin 12 Oversimplified: not all btc spent on remittances Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7 Bitcoin Valuation example (C. Burniske) $30 bn x 1.5=$43.6 bn Mx1.5=$43.6 bn MV=$43.6 bn M=$30 bn $30 bn M / 14.7 m coins = $2,000 per coin MV=PQ
  14. 14. 16 Apr 2018 Blockchain Bitcoin Valuation example (C. Burniske) 13 Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7
  15. 15. 16 Apr 2018 Blockchain Programmable Risk Black Swan Smart Contracts  Financial options (put/call) used to control/manufacture exposure  Convexity (Fig. 1): control down-side risk, upside gain, anti-fragile (robust)  Concavity: undesirable risk profile  Taleb: map event probabilities as s-curve (Fig. 2) in medicine, etc.  Convex-linear-concave profile  Use programmable risk dropdown feature of smart contracts to manage risk in more domains 14 Sources: Swan, M. Submitted. Programmable Risk: Black Swan Smart Contracts, IEEE; Taleb, Medicine: https://arxiv.org/ftp/arxiv/papers/1208/1208.1189.pdf Figure 1 Figure 2
  16. 16. 16 Apr 2018 Blockchain adoption. 15 57% global corporations (Juniper). $2.1 billion 2018 global spend (IDC). $325 billion USD asset class. 1551 cryptocurrencies. 1206 token projects. Sources: https://www.cnbc.com/2017/07/31/blockchain-technology-considered-by-57-percent-of-big-corporations-study.html, https://coinmarketcap.com/all/views/all/, https://www.stateofthedapps.com/, https://blogs.wsj.com/cio/2018/02/06/business-interest-in-blockchain-picks-up-while-cryptocurrency-causes-conniptions/
  17. 17. 16 Apr 2018 Blockchain 16 Source: http://timreview.ca/article/1109  Blockchain business networks  Single shared business processes  Multiple private views
  18. 18. 16 Apr 2018 Blockchain business networks. 17 digitized assets. instantaneous transactability. shared business processes. the world is your VPN Source: http://timreview.ca/article/1109
  19. 19. 16 Apr 2018 Blockchain 18 real-time balance sheets. off-balance sheet obligations disappear. diminished risk. Source: http://www.europeanfinancialreview.com/?p=21755 rethink risk.
  20. 20. 16 Apr 2018 Blockchain 19  HFT = program trading, automated execution 1. Higher volume since 2008  Institutional investor volume fixed (3-4 bn shares/day)  Total volume: 2x higher  50-70% total volume = HFT 2. Higher volatility 3. Tighter bid-ask spreads 4. Greater price efficiency (no price gaps) HFT (high-frequency trading) Sources: Chaparro, F. 2017. Credit Suisse: Here's how high-frequency trading has changed the stock market. Business Insider. https://speedtrader.com/how-algorithms-and-high-frequency-trading-programs-affect-your-trading/ https://snipethetrade.com/us/high-frequency-trading US Equity markets
  21. 21. 16 Apr 2018 Blockchain 20 net settlement. payment channels. digital credit systems. Source: http://timreview.ca/article/1109 rethink debt.
  22. 22. 16 Apr 2018 Blockchain Payment Channels 21 Source: https://www.investinblockchain.com/lightning-network-bitcoin-scaling/ SBUX Balance Sheet Assets Cash $1.2bn Liabilities Stored Value Cards $1.2bn  Levels  Unilateral  Bilateral (pictured)  Community  Multi-party  Multi-resource
  23. 23. 16 Apr 2018 Blockchain basics. 22
  24. 24. 16 Apr 2018 Blockchain 23 Conceptual Definition: Blockchain is a software protocol; just as SMTP is a protocol for sending email, blockchain is a protocol for sending money Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 What is Blockchain/Distributed Ledger Tech?
  25. 25. 16 Apr 2018 Blockchain 24 Technical Definition: Blockchain is the tamper-resistant distributed ledger software underlying cryptocurrencies such as Bitcoin, for recording and transferring data and assets such as financial transactions and real estate titles, via the Internet without needing a third-party intermediary Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 What is Blockchain/Distributed Ledger Tech?
  26. 26. 16 Apr 2018 Blockchain 25 Distributed Ledger (general form of DLT): (1) shared transaction database among network members, (2) updated by consensus, (3) records timestamped with a unique cryptographic signature, (4) in a tamper-proof auditable history all transactions Distributed Ledger Technology vs. Blockchain Blockchain (specific DLT w additional feature): (5) Sequential updating of database records per chained cryptographic hash-linked blocks Source: restatement of https://www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/index.html Ledger: a file that keeps track of who owns what
  27. 27. 16 Apr 2018 Blockchain internet content. 26 information. email. voice. video. money.
  28. 28. 16 Apr 2018 Blockchain 27 Internet Blockchain Bitcoin Application Protocol Infrastructure SMTP Email VoIP Phone calls What is Blockchain? Blockchain technology is a software; a protocol for the secure transfer of unique instances of value (e.g. money, property, contracts, and identity credentials) via the internet without requiring a third-party intermediary such as a bank or government (examples: Email over IP, Voice over IP, Money over IP)
  29. 29. 16 Apr 2018 Blockchain networks. 28 value (money). intelligence (brains). information.
  30. 30. 16 Apr 2018 Blockchain smart networks. 29
  31. 31. 16 Apr 2018 Blockchain blockchain. 30 software. secure cryptographic transfer. internet.
  32. 32. 16 Apr 2018 Blockchain killer apps. 31 secure transfer of value, of… money & securities. property. contracts. identity credentials.
  33. 33. 16 Apr 2018 Blockchain computer science problems solved. 32 (1) double-spending. (2) Byzantine Fault Tolerance (agreement in a distributed network).
  34. 34. 16 Apr 2018 Blockchain ledger. 33  A ledger is like a database, a Google or Excel spreadsheet  Add new records by appending rows  Each row contains information  Account balances  Property, who owns certain assets  Contracts  Memory and execution state of a computer program
  35. 35. 16 Apr 2018 Blockchain How does Bitcoin work? Use eWallet app to submit transaction 34 Source: https://www.youtube.com/watch?v=t5JGQXCTe3c Scan recipient’s address and submit transaction $ appears in recipient’s eWallet Wallet has keys not money Creates PKI Signature address pairs A new PKI signature for each transaction
  36. 36. 16 Apr 2018 Blockchain P2P network confirms & records transaction 35 Source: https://www.youtube.com/watch?v=t5JGQXCTe3c Transaction computationally confirmed Ledger account balances updated Peer nodes maintain distributed ledger Transactions submitted to a pool and miners assemble new batch (block) of transactions each 10 min Each block includes a cryptographic hash of the last block, chaining the blocks, hence “Blockchain”
  37. 37. 16 Apr 2018 Blockchain mining. Source: https://www.illumina.com/science/technology/next-generation-sequencing.html 36 Proof of Work: secure but expensive.
  38. 38. 16 Apr 2018 Blockchain What is Bitcoin mining? 37  Mining: accounting function to record tx, fee- based (12.5 btc x $8400 = $105,000/block)  Mining ASICs “find new blocks” (proof of work)  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 the transactions and append the new block to their copy of the distributed ledger  “Wasteful” effort deters malicious players Sample code: Run the software yourself: Fast because ASICs represent the hashing algorithm as hardware
  39. 39. 16 Apr 2018 Blockchain ICOnomics. 38
  40. 40. 16 Apr 2018 Blockchain In the news: Blockchain ICOnomics 39 Source: https://cointelegraph.com/news/why-bitcoin-continues-to-be-on-the-top-of-its-game
  41. 41. 16 Apr 2018 Blockchain Evolution of financing models 40 Financing model: Pre-sell access to: IPO Crowdfunding ICO Equity ownership Product Platform  ICO: fundraising method, more liquid than equity  Conceived as project finance / capital-budgeting solution
  42. 42. 16 Apr 2018 Blockchain ICOs (Initial Coin Offerings)  ICOs 4x size of VC funding 1H2017 (PitchBook)  ICOs: $1.3 bn, VC funding: $358 mn 41 Source: https://www.coindesk.com/ico-tracker Cumulative ICO Funding 2/3/14 - 2/28/18
  43. 43. 16 Apr 2018 Blockchain 42 Mar 2018 $8.84 bn total Source: https://www.coindesk.com/ico-tracker ICOnomics.
  44. 44. 16 Apr 2018 Blockchain High-profile ICOs  Telegram $850 mn, 2018e  Filecoin $186 mn, Aug 2017  Registered (exempt) small offering CoinList (AngelList); Reg D 506(c)  Tezos $232 mn, Jul 2017  Brave, BATs, $35 mn, 30 seconds  Gnosis; $12.5 mn, Apr 2017  Self-regulating mechanisms  Known % of money supply in the ICO offering  Risk: no standards  Lock-up: No lock-up on ICO founders coins (usually 1 year IPO), could have time-lock-up 43 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
  45. 45. 16 Apr 2018 Blockchain ICO Regulatory Stance  US: investor protection; regulated (Jul 2017)  ICOs and exchanges; what about smart contracts?  ICOs vs token sales (network utility) vs crowdfunding  Howey Test: is it a security? 1. Investment of money 2. Expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit comes from the efforts of a promoter or third party  UK: caveat emptor; safer if regulated, not regulated  China: banned, exchanges ordered to close (Sep 2017)  Russia: regulation expected by end 2017 (Sep 2017)  Gibraltar DLT Regulated Entities (to launch 2018) 44 Source: https://www.coindesk.com/ico-tracker, https://www.coindesk.com/china-outlaws-icos-financial-regulators-order-halt-token- trading/
  46. 46. 16 Apr 2018 Blockchain Bigger context of Institutional Markets  Global capital allocation to institutional investment-class products  Institutional exposure to cryptographic assets  Current value: $125 billion  Estimated value in 10 years: $2 trillion  Market becoming more institutional 1. ICO and exchanges: regulated entities 2. Cryptocurrency option approval 3. Institutional exchanges handling large customer orders ($20m+)  Genesis Trading, Cumberland Mining, Circle, Gemini Exchange, Project Omni 45 Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order, https://www.coindesk.com/standpoint-founder-bitcoin-asset-class-will-grow-2-trillion-market/
  47. 47. 16 Apr 2018 Blockchain Cryptocurrency Market Capitalizations (4/18) 46 Source: https://coinmarketcap.com, http://us.spindices.com/indices/equity/sp-500; List of countries by GDP (nominal) - Wikipedia  S&P 500: $22.2 tn; US GDP $18.8 tn  Crypto market cap: $256 bn (≃ top 50th of 200 countries)
  48. 48. 16 Apr 2018 Blockchain Cryptocurrency Options & Swaps  NY-based LedgerX: CFTC-regulated Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO)  Swap execution facility, clearing Bitcoin options  Sep 2017 began providing physically-settled put and call options and day-ahead swaps trading  Private trading for large customers  LedgerX options possibly to trade on the CBOE  Significance: cryptocurrency exposure in an institutional product, demand could be huge 47 Source: https://www.bloomberg.com/news/articles/2017-07-24/bitcoin-options-to-become-available-in-fall-after-cftc-approval
  49. 49. 16 Apr 2018 Blockchain Cryptocurrency Futures 48 Source: http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
  50. 50. 16 Apr 2018 Blockchain tokens. 49 software.
  51. 51. 16 Apr 2018 Blockchain 50  Money: three functions  Medium of exchange, store of value, unit of account  Token: a more complicated and feature-rich form of money, and a tool for enabling participants  Programmable functions built into tokens: access, voting, action-taking, fundraising, dividends, notification, participation, liquidity (tradability, exchangeability)  Tokenization: process of turning an asset, right, or digital good into an interchangeable unit to power an ecosystem Tokenomics
  52. 52. 16 Apr 2018 Blockchain 51 participation. voting. choosing. resource access. tokens.
  53. 53. 16 Apr 2018 Blockchain participation. 52 Information Internet: 1991-2005 static information Social Internet: 2005-Present engage with content Token Internet: 2016-Present participate in the community economy
  54. 54. 16 Apr 2018 Blockchain 53  Token types  CarbonCoin: staked coin, proof of sequestering units of CO2 (measured by IoTa chain + CPE) Tokenomics
  55. 55. 16 Apr 2018 Blockchain 54  Co-working 1 Token = 1 Seat Tokenomics
  56. 56. 16 Apr 2018 Blockchain 55  Example: LTB Coin (Let’s Talk Bitcoin coin)  Facilitates the economic system of this media property and podcast network  Economic inflows and outflows, sources and uses of capital, are denominated in the community token  Providing listener rewards  Accepting advertising revenue  Pricing premium services  Bug bounties  Royalty payments to musicians  MyNeighborhoodBabysittingToken might be just as viable as MyWorkplacePaymentToken Tokenomics
  57. 57. 16 Apr 2018 Blockchain cryptokitties. 56
  58. 58. 16 Apr 2018 Blockchain smart contracts. 57 Launched: Nov 2017 500,000 sold, total: $40 mn Source: http://fortune.com/2018/02/13/cryptokitties-ethereum-ios-launch-china-ether
  59. 59. 16 Apr 2018 Blockchain cats lead tech. 58 Source: https://www.wired.com/2012/06/google-x-neural-network/ Google Artificial Brain 2012 Supervised Learning
  60. 60. 16 Apr 2018 Blockchain network futures. 59
  61. 61. 16 Apr 2018 Blockchain peer-hosted. Source: https://bitnodes.21.co 60 Bitcoin: 11,108 nodes.
  62. 62. 16 Apr 2018 Blockchain peer-hosted. Source: https://www.ethernodes.org/network/1 61 Ethereum: 15,619 nodes.
  63. 63. 16 Apr 2018 Blockchain 62 public chains. private chains. trustless. mined. p2p software. trusted. not-mined. enterprise software.
  64. 64. 16 Apr 2018 Blockchain store money. 63 old model. networks. banks. new model.
  65. 65. 16 Apr 2018 Blockchain toast. 64 https://www.coindesk.com/jpmorgan-says-it-may-have-to-adapt-to-counter-crypto-adoption “…financial institutions…face the risk that payment processing and other services could be disrupted by technologies such as cryptocurrencies that require no intermediation” Annual 10K, Mar 2018
  66. 66. 16 Apr 2018 Blockchain power of the press. 65 old model. networks. newspapers. new model.
  67. 67. 16 Apr 2018 Blockchain power of the wallet. 66 old model. peer networks. banks. new model.
  68. 68. 16 Apr 2018 Blockchain Distributed Networks 67 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 Decentralized (based on hubs) Centralized Distributed (based on peers)  Radical implication: every node is a peer who can provide services to other peers
  69. 69. 16 Apr 2018 Blockchain P2P Network Nodes provide services 68 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 Centralized bank tracks payments between clients “Classic” Banking Peer Banking  Nodes deliver services to others, for a small fee  Transaction ledger hosting (~11,000 Bitcoind nodes)  Transaction confirmation and logging (mining)  News services (“decentralized Reddit”: Steemit, Yours)  Banking services (payment channels (netting offsets)) Network nodes store transaction record settled by many individuals
  70. 70. 16 Apr 2018 Blockchain cryptocitizen. 69 “One ought to think autonomously, free of the dictates of external authority” - Immanuel Kant “Multiple private currencies should compete for customer business” - Friedrich Hayek
  71. 71. 16 Apr 2018 Blockchain economic theory. 70
  72. 72. 16 Apr 2018 Blockchain What is Economics?  Study of the production, distribution, and consumption of goods and services  Individual and group decision-making about goods and services and the consequences  Fundamental dynamics do not change  Wants are bigger than resources, cost of decision-making, opportunity cost, scarcity (material or intangible)  Same in all forms of economies  Classical Economics (material goods)  Network Economics (digital goods)  Blockchain Economics (automated smart contracts exchanging cryptographic assets) 71 Source: http://blockchainstudies.org/Blockchain_Economics_CFP.pdf
  73. 73. 16 Apr 2018 Blockchain Economics: Basic Design Principles 72 Economic Principles  Traditional Deployment  Markets  Blockchain Deployment  Any interaction is a discovery and exchange process  Abundance mindset and overcoming scarcity  Decentralized models supplement hierarchy  Demurrage incitatory potential and resource redistribution across network nodes  Reciprocal mining communities Blockchain technology is prompting us to rethink economic principles in markets, and apply them much more extensibly to other situations in a non-monetary sense
  74. 74. 16 Apr 2018 Blockchain Reinventing Economics and Government 73  Traditional physical goods markets, big box retailers  80/20 rule (Pareto distribution)  Stock 20% of the items that comprise 80% of sales) Source: Anderson; Brynjolfsson et al., 2006, 2010 Long Tail Effect 2006  Digital markets: Long Tail  70/30 not 80/20 (power laws not Pareto distributions)  Amazon: niche books account for 36.7% of sales  Power laws not Pareto distributions in etailing (books, music), software downloads (70/30 not 80/20)  Look at the long tail as a market itself: sell less quantity of more items  Key point: personalized markets work
  75. 75. 16 Apr 2018 Blockchain Complexity Economics 74  Power laws not Pareto (normal) distributions imply a different economic model Source: https://www.coursera.org/learn/network-biology/lecture/gUKhL/small-world-and-scale-free-networks  Random Networks  Normal distribution  Scale-free and Small-World Networks  Power law distribution  Low number of hops to reach any node
  76. 76. 16 Apr 2018 Blockchain Long Tail Financial & Government Services  One size does not fit all  Any two parties can meet and transact on a blockchain 75 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 One size fits all Personalized Long Tail Systems  Long Tail financial services  “Amazon or eBay of money”  Personalized banking, credit, mortgages, securities  Long Tail governance services  “Amazon or eBay of government”  Personalized governance services, pay for consumption Rethink debt with small-chunk capital
  77. 77. 16 Apr 2018 Blockchain inclusion. 76 banking & credit. land registry. identity. electricity. vaccines & medicine. Source: https://www.unicef.org.au/blog/unicef-in-action/april-2017/photos-vaccines-reach-most-remote-places-earth Digital health wallet
  78. 78. 16 Apr 2018 Blockchain Financial Inclusion  Blockchain: leapfrog technology  2 billion under-banked  70% lack access to land registries  Need decentralized networks because hierarchy does not scale  Does not make sense to build out brick-and-mortar bank branches and medical clinics to every last mile in a world of digital services  Like cell phones, digital solutions could be the answer  eWallets and deep learning diagnostic apps for global inclusion 77 Source: Pricewaterhouse Coopers. 2016. The un(der)banked is FinTech's largest opportunity. DeNovo Q2 2016 FinTech ReCap and Funding ReView., Heider, Caroline, and Connelly, April. 2016. Why Land Administration Matters for Development. World Bank. http://ieg.worldbankgroup.org/blog/why-land-administration-matters-development
  79. 79. 16 Apr 2018 Blockchain Monetary Economics and Financial Economics 78 Cryptocurrencies: Spot Market Smart Contracts: Futures & Options Market  Systems for organizing access to resources Economics FinancePast, Present Future Time
  80. 80. 16 Apr 2018 Blockchain Hayek: Financial Institution Currencies 79 “Multiple private currencies should compete for customer business” - Friedrich Hayek Source: Hayek, F. The De Nationalization of Money. 1976. (paraphrased); https://www.statista.com/topics/1552/banks-in-china Tier 1 Capital: equity capital + disclosed reserves (measure of banking strength) Top Global Banks based on Tier 1 Capital (2014) Top Investment Banks
  81. 81. 16 Apr 2018 Blockchain New Economic World Order 80 Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order  Not just cryptofinance, every company own coin issue  Cryptocurrencies and storage, banking, healthcare, financial services, technology platforms, fundraising firms
  82. 82. 16 Apr 2018 Blockchain Securities as a Service 81 Source: Blockchain Fintech: Programmable Risk and Securities as a Service, http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html CD, DVD Streaming Music and Video Services Entertainment as a Service Asset Service Auto, Home Uber, Lyft, Gett, Juno, Via; Airbnb, VRBO HomeAway Transportation, Domicile as a Service Securities Securities as a Service  Securities a Service  Now have to own because uncertain future value of assets  Access to the consumable benefits of the asset without owning  Works if trust consumable assets will have future availability  Need the cash flow the asset provides, not the asset itself Consumable benefits of securities: cash flow, appreciation Payments as a Service
  83. 83. 16 Apr 2018 Blockchain Future of Institutions 82 Historical Contemporary Future Church Crown DMV Law Bank Government Police Healthcare Academia Corporation Church Data pillars: library of all society’s memory and public records Building - Website Columbus’s VCs: Ferdinand and Isabella Building – Website – CredentialBuilding Farther Future  Role: organize life and manage contention  Influence persists but more choice about belonging
  84. 84. 16 Apr 2018 Blockchain Future of Nation States  Regulatory Arbitrage and Crypto-Specialization  DE-based C corporations  Swiss & Cayman banking laws  Estonia eResidency Program  Gibraltar DLT Registered Entities (ICO response)  Malta online casinos & Bitcoin  Transnational boundaries  ICANN & decentralized DNS/ENS  Namecoin (.bit domains)  Ether (.eth domains)  Human Rights, Refugees 83
  85. 85. 16 Apr 2018 Blockchain 84 net neutrality. censorship-resistance. self-governance. political.
  86. 86. 16 Apr 2018 Blockchain government as service provider. 85 old model. eResidency. Exclusivity: One default economic and political sovereign birth regime. new model. Source: http://blockchainstudies.org/Blockchain_Economics_CFP.pdf Plurality: Plug and play economic and political services regimes.
  87. 87. 16 Apr 2018 Blockchain Blockchain Economic Theory  Production, distribution, and consumption of goods and services in a Blockchain Economy…  Same as a Classical Economy  Underlying dynamics do not change: wants outweigh resources, cost to decisions, scarcity of valued resources  Institutions, Money, Nation States persist, change in form  Assets, identity, & information now become cryptographic  Different than a Classical Economy  Hybrid economy of human and computational agents  Leapfrog technology: financial inclusion and rethink debt  New economic design principles: long tail, decentralization, assets as a service, smart contracts 86 Source: http://blockchainstudies.org/Blockchain_Economics_CFP.pdf
  88. 88. 16 Apr 2018 Blockchain Blockchain Economic Theory 87 Elements of Economic Theory Not Changing Changing Basic Definition Production, distribution, consumption of goods and services X Individual and group decision-making and consequences X Wants exceed resources, opportunity cost, scarcity X Shift: material goods to intangible goods and services X Employment Technological Unemployment (Automation Economy) X Multi-Agent Economy (Computational Agents) X Institutions and Nation States Role and Influence X Form and Choice about Joining X Money, Capital, and Debt Importance and Role X Form and Access X Principles Long Tail Markets (Personalized Services) X Decentralization/Financial Inclusion X Drivers: Regulation and Technology Adoption X Time Frame Focus: Present to Future X Source: http://blockchainstudies.org/Blockchain_Economics_CFP.pdf
  89. 89. 16 Apr 2018 Blockchain sample apps. 88
  90. 90. 16 Apr 2018 Blockchain 89 peer-to-peer clearing in financial services.
  91. 91. 16 Apr 2018 Blockchain 90 food supply chain contamination.
  92. 92. 16 Apr 2018 Blockchain 91 vaccine cold storage tracking.
  93. 93. 16 Apr 2018 Blockchain 92 QR code resumes. MIT Digital Certificates (diplomas); Criminal Records
  94. 94. 16 Apr 2018 Blockchain 93 vehicle information chains.
  95. 95. 16 Apr 2018 Blockchain 94 blockchains in space. Jan. 13, 2018 - NASA has awarded a grant to the University of Akron for research into data analysis and other topics related to space exploration. The allocation will help a team led by associate professor Jin Wei to pioneer a resilient networking system based in part on the Ethereum blockchain
  96. 96. 16 Apr 2018 Blockchain future. 95
  97. 97. 16 Apr 2018 Blockchain Why is blockchain DLT needed? Larger Scale Tiers of Projects  The reason blockchain is needed is to work on the next larger slate of challenges  Key features: secure value transfer, automation, trackability 96 Previous Projects Current Projects Next Projects Railroads, steam engines, interstate roads Energy farms, global comms. networks Medicine, Energy, Risk, Poverty Telegraph Internet Blockchain Kardashev scaling Key Enabling Technology Deep Learning Chains Future Projects Space settlement
  98. 98. 16 Apr 2018 Blockchain future-class tech. 97 blockchain networks are a new class of global computational infrastructure.
  99. 99. 16 Apr 2018 Blockchain smart networks. 98  Future of AI: intelligence “baked in” to smart networks  Blockchains to confirm authenticity and transfer value  Deep Learning algorithms for predictive identification
  100. 100. 16 Apr 2018 Blockchain deep learning chains. 99  Autonomous Driving & Drone Delivery, Social Robotics  Deep Learning (CNNs): identify what things are  Blockchain: secure automation technology  Track arbitrarily-many units, audit, upgrade  Legal liability, accountability, remuneration
  101. 101. 16 Apr 2018 Blockchain fleet management. 100 secure automated
  102. 102. 16 Apr 2018 Blockchain scale. 101 Source: https://www.illumina.com/science/technology/next-generation-sequencing.html Population: 7.5 bn people worldwide big health data.
  103. 103. 16 Apr 2018 Blockchain data. 102 big data ≠ smart data. clean, standardized, interoperable. Source: http://www.oyster-ims.com/media/resources/dealing-information-growth-dark-data-six-practical-steps 40 EB 2020e
  104. 104. 16 Apr 2018 Blockchain blocktime. 103 own time regime. speed-ups. multiplicity. synchronization.
  105. 105. 16 Apr 2018 Blockchain collaboration. 104 human-machine
  106. 106. 16 Apr 2018 Blockchain Technological Unemployment  Challenge: facilitate an orderly transition to Automation Economy  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 105 Source: Swan, M. (2017). Is Technological Unemployment Real? Abundance Economics. In Surviving the Machine Age: Intelligent Technology and the Transformation of Human Work. Hughes & LaGrandeur, Eds. London: Palgrave Macmillan. 19-33.
  107. 107. 16 Apr 2018 Blockchain risks. tech: scalability. political: regulation. social: adoption. Rapid Adoption Unfavorable Regulation Favorable Regulation Slow Adoption Future Scenarios 106
  108. 108. 16 Apr 2018 Blockchain Scalability Risk: attain Visa-class processing Bitcoin vs. other payment networks 107 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
  109. 109. 16 Apr 2018 Blockchain future. 108 Source: http://www.bbc.com/future/story/20170313-the-biggest-energy-challenges-facing-humanity space. energy (1 mn terajoules/day global consumption). autonomous driving. cellular genomics. blockchain needed as secure automation technology for next-generation projects
  110. 110. 16 Apr 2018 Blockchain Agenda  Introduction  Technical Overview  Blockchain ICOs  Blockchain Economic Theory  Why do we need Blockchain?  Smart Network Convergence  Blockchain and Deep Learning 109
  111. 111. 16 Apr 2018 Blockchain Blockchain Strategies Opportunity: Low-hanging Fruit  Information confirmation, not monetary transfer: 1. Cryptographic asset registries 2. Investor information services 3. Supply chain, logistics 4. CRM, Business Logic 5. Energy quoting, transmission  Automate administrative steps 110 Stock Transaction Real Estate Purchase/Sale Health Insurance Billing Steps that can be automated with blockchain Steps with human decision-making Energy Contract Supply Chain Shipment
  112. 112. 16 Apr 2018 Blockchain Blockchain Strategies Opportunity: Cryptographic Registries  Asset Registries  Land, auto, home titles  Stocks, bonds, insurance  Sales quotes, RFP  Public Documents  Driver’s license, permit  Business registration  Regulatory & QA compliance  Diploma, credential  Passport, identity document  Voter registration, census  Birth and death certificates 111 Illinois, Arizona, Delaware, Idaho Finland, Dubai, Georgia, Estonia, Sweden, Denmark
  113. 113. 16 Apr 2018 Blockchain Blockchain Strategies Opportunity: 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 functions 112 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
  114. 114. 16 Apr 2018 Blockchain Research Agenda 113 Source: https://www.census.gov/fsrdc  Federal Research Data Centers  Big data analytics, AI, deep learning, blockchain
  115. 115. 16 Apr 2018 Blockchain Research Agenda – Higher Ed  Using blockchain technologies in research (scientific and humanities fields)  Emerging research disciplines: data science institutes, cybersecurity, blockchain, AI/Machine Learning , digital humanities, computational social science  Research on blockchain technology as a research topic (users, methods, use cases for blockchain technology)  Using blockchain technologies to modernize publishing, citations, digital artifact creation  Using blockchain technologies in higher education for digital diplomas, credentials, transcripts; admissions applications 114
  116. 116. 16 Apr 2018 Blockchain Research Agenda: gamification example 115 Source: https://pdfs.semanticscholar.org/7bcf/9f783ca25f5e7f8ae2cabf18ba3d18c3762e.pdf  Defining academic vs industry research
  117. 117. 16 Apr 2018 Blockchain Blockchain Economics  New economic model emerging in the blockchain economy with distinguishing aspects  Open platform business model  Token system for monetary transfer  Initial Coin Offerings as financing mechanism  Large-scale global participative communities  Economics: study of resource discovery and propagation to fulfill needs (supply and demand) 1. Classical Economics (material goods) 2. Network Economics (digital goods) 3. Blockchain Economics (cryptographic assets, smart contracts, and DApps/DACs) 116 DApp: decentralized application; DAC: decentralized autonomous corporation
  118. 118. 16 Apr 2018 Blockchain Conclusion  Blockchain is a fundamental information technology for secure value transfer over networks  For any asset registered in a cryptographic ledger, the Internet is a VPN for its confirmation, surety, and transfer  Reinvent economics and government for the digital age  Long tail structure of digital networks allows personalized services 117 Personalized Long Tail Systems One size fits all
  119. 119. 16 Apr 2018 Blockchain Conclusion (continued)  A technology like blockchain is needed for next-generation challenges  Financial inclusion, big health data, global energy markets, and space  Smart networks: a new form of automated global infrastructure  Identify (deep learning)  Validate, confirm, and route transactions (blockchain) 118
  120. 120. 16 Apr 2018 Blockchain collaboration. 119 blockchainstudies.org
  121. 121. 16 Apr 2018 Blockchain collaboration. 120 blockchainstudies.slack.com
  122. 122. 16 Apr 2018 Blockchain collaboration. 121 Felix M. and Daniel K. present token heat map project, Nairobi Kenya Mar 2018
  123. 123. Fullerton CA, April 16, 2018 Slides: http://slideshare.net/LaBlogga Blockchain Economics Melanie Swan Philosophy, Purdue University melanie@BlockchainStudies.org Blockchain Economics Building Societies of Trust
  124. 124. 16 Apr 2018 Blockchain Great Pools of Capital 123 Source: https://www.investinblockchain.com/lightning-network-bitcoin-scaling/ SBUX Balance Sheet Assets Cash $1.2bn Liabilities Stored Value Cards $1.2bn  Levels  Unilateral  Bilateral (pictured)  Community  Multi-party  Multi-resource
  125. 125. 16 Apr 2018 Blockchain Global FX market 124  $5.3 trillion daily market  Ripple: Payments as a Service Source: https://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2014/01/24/FX_Market_Size.html
  126. 126. 16 Apr 2018 Blockchain 125 Conceptual Definition: Blockchain is the tamper-resistant distributed ledger software underlying cryptocurrencies such as Bitcoin, for the secure transfer of money, assets, and information via the Internet without a third- party intermediary Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 What is a Blockchain/Distributed Ledger?
  127. 127. 16 Apr 2018 Blockchain 126 Distributed ledgers are a new form of distributed software architecture where agreements on the ‘shared state’ of decentralized and transactional data can be established in a network of untrusted and anonymous participants holding a replica of the data which is ‘append-only’ updated in chronological order through one-way hash function encryption Technical Definition What is a Distributed Ledger? Source: Paolo Tasca, Executive Director, Centre for Blockchain Technologies, University College London
  128. 128. 16 Apr 2018 Blockchain 127  Each transaction or event, before permanently recorded in the ledger, is verified by a group of participants under a pre-specified set of consensus rules  Once entered, information can never be erased as a result of the timestamp included in it  The ledger contains all the transaction history and each transaction is tamper-proof, publicly or privately auditable (traceable) and no-reversible  Thus a distributed ledger is a ‘trust machine’ with which people can share value, such as currency, directly and securely without any intermediary Technical Definition (continued) What is a Distributed Ledger? Source: Paolo Tasca, Executive Director, Centre for Blockchain Technologies, University College London
  129. 129. 16 Apr 2018 Blockchain What is a Ledger?  A file keeping track of who owns what  Double-entry bookkeeping  Korea Goryeo dynasty (918-1392)  Republic of Genoa (1340) 128 Marco Polo Kublai Khan Cash $100 $100 Assets $50 $50 Kublai Khan sells Marco Polo $10 assets Cash $90 $110 Assets $60 $40
  130. 130. 16 Apr 2018 Blockchain History of Ledgers 129 Source: https://www.coindesk.com/information/what-is-a-distributed-ledger
  131. 131. 16 Apr 2018 Blockchain 130 A blockchain is a type of distributed ledger technology in which confirmed and validated batches of transactions are held in blocks, and the blocks are linked (chained) in a tamper-resistant append-only chain which starts with a genesis block and where each block contains a hash of the prior block in the chain Technical Definition What is a Blockchain? Source: Paolo Tasca, Executive Director, Centre for Blockchain Technologies, University College London
  132. 132. 16 Apr 2018 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 131 Source: Satoshi Nakamoto whitepaper: https://bitcoin.org/bitcoin.pdf, https://blockexplorer.com Block 10 Block 11 Block 12
  133. 133. 16 Apr 2018 Blockchain Agenda  Distributed Ledger Applications 132
  134. 134. 16 Apr 2018 Blockchain 133  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.
  135. 135. 16 Apr 2018 Blockchain 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 134 Source: https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments Shared Ledger
  136. 136. 16 Apr 2018 Blockchain Supply Chain and Logistics  $54 trillion global supply chain, $23 trillion tied up in receivables  Sweetbridge Bridgecoin cryptocurrency (US CFTC-compliant commodity)  Tamper-proof record-keeping  SKU chain PopCodes (proof of provenance codes)  Confirmation, notification, payment  Register assets and inventory  Assure provenance, custody  Track quantity and transfer of assets (pallets, trailers, containers) moving through supply chain nodes 135
  137. 137. 16 Apr 2018 Blockchain 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 136 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
  138. 138. 16 Apr 2018 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 137 Source: http://futurememes.blogspot.fr/2014/09/blockchain-health-remunerative-health.html Healthcare Digital health wallet
  139. 139. 16 Apr 2018 Blockchain Politics: governance services 138  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
  140. 140. 16 Apr 2018 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 139
  141. 141. 16 Apr 2018 Blockchain The Farther Future Swan’s Theory of Computation 140 Newton (1687) Difference Engine (1786) Transistor (1947)  Basic physics discovery drives computation paradigms  Gravity: emergent space, time, geometry & dynamics Quantum Mechanics (1905) Quantum Gravity (2016) ?? (2075e) Planck scale (1×10−35) Atomic scale (1×10−9) Classical scale (1×101) Scale Physics Discovery Computation Device Quantum Computing Source: “There’s plenty of room at the bottom” – Feynman; the other bottom, the Planck scale
  142. 142. 16 Apr 2018 Blockchain Agenda  Smart Network Convergence  Blockchain and Deep Learning 141
  143. 143. 16 Apr 2018 Blockchain 142 Better horse AND new car New Technology
  144. 144. 16 Apr 2018 Blockchain 143 Smart networks are computing networks with intelligence built in such that identification and transfer is performed by the network itself through protocols that automatically identify (deep learning), and validate, confirm, and route transactions (blockchain) within the network Smart Network Convergence Theory Source: Swan, M. & de Filippi, P. (2017). Introduction, In Toward a Philosophy of Blockchain. Swan, M. & de Filippi, P., Eds. Metaphilosophy. New York: Wiley & Sons. 48(5).
  145. 145. 16 Apr 2018 Blockchain Smart Network Convergence Theory  Network intelligence “baked in” to smart networks  Blockchains to transfer value, confirm authenticity  Deep Learning algorithms for predictive identification 144 Source: Expanded from Mark Sigal, http://radar.oreilly.com/2011/10/post-pc-revolution.html Two Fundamental Eras of Network Computing
  146. 146. 16 Apr 2018 Blockchain 145 Conceptual Definition: Deep learning is a computer program that can identify what something is Technical Definition: Deep learning is a class of machine learning algorithms in the form of a neural network that uses a cascade of layers (tiers) of processing units to extract features from data and make predictive guesses about new data Source: Swan, M., (2017)., Philosophy of Deep Learning, https://www.slideshare.net/lablogga/deep-learning-explained What is Deep Learning?
  147. 147. 16 Apr 2018 Blockchain Next Phase  Put Deep Learning systems on the Internet  Need blockchain registration, security, and audit tracking  Immediate Application: Autonomous Driving  Smart networks: deep learning + blockchain  Deep Learning: identify what things are  Blockchain: secure automation technology  Track arbitrarily-many units, audit, upgrade  Legal liability, accountability, remuneration 146

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