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State of Blockchain 2017: Smartnetworks and the Blockchain Economy

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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. Blockchain reinvents economics and governance for the digital age. The 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.

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State of Blockchain 2017: Smartnetworks and the Blockchain Economy

  1. 1. Melanie Swan Philosophy & Economic Theory New School for Social Research, NY NY melanie@BlockchainStudies.org Blockchain Keynote UC Berkeley, Berkeley CA, June 8, 2017 Slides: http://slideshare.net/LaBlogga State of Blockchain 2017: Smartnetworks and the Blockchain Economy
  2. 2. 8 June 2017 Blockchain 1 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
  3. 3. 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
  4. 4. 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
  5. 5. 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 4 Source: Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340
  6. 6. 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
  7. 7. 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
  8. 8. 8 June 2017 Blockchain Blockchain revolution is just beginning 7 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 Decentralized Networks BlockchainBitcoin 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
  9. 9. 8 June 2017 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 ofTransfer of  “Rich information” quanta modulated with attributes  Provenance (source), interest level (quadratic voting), relevance (PageRank), remuneration; (like CC license with more parameters) Cash Smart 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
  10. 10. 8 June 2017 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
  11. 11. 8 June 2017 Blockchain Long-tail economics and governance  One size does not fit all  Any two parties can meet and transact on the blockchain 10 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 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
  12. 12. 8 June 2017 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
  13. 13. 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? 12
  14. 14. 8 June 2017 Blockchain 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
  15. 15. 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
  16. 16. 8 June 2017 Blockchain 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:
  17. 17. 8 June 2017 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 players Sample code: Run the software yourself:
  18. 18. 8 June 2017 Blockchain CyptoCurrency Market Capitalizations (6/17) 17 Source: https://coinmarketcap.com  S&P 500: $19tn; Bitcoin: $41bn (over $2500)
  19. 19. 8 June 2017 Blockchain ICOs (Initial Coin Offerings) $36m 18 Sources: http://icorating.com, https://tokenmarket.net/blockchain/all-assets $5m  $200m raised in ICOs 2016 $12m $25m 30 sec 15 min Recent ICOs completed in 2017
  20. 20. 8 June 2017 Blockchain Bitcoin vs. other payment networks 19 Source: Statista / Coinmetrics, http://www.altcointoday.com/bitcoin-ethereum-vs-visa-paypal-transactions-per-second 1,667 7 Average daily transaction volume ($US mn) Average transaction volume per second  Visa: 2,000 transactions/sec; Bitcoin: 7/sec  Visa: $18bn/day; Bitcoin: $300mn/day
  21. 21. 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)
  22. 22. 8 June 2017 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 Scalability Block 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
  23. 23. 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? 22
  24. 24. 8 June 2017 Blockchain 23 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491 Blockchain: Fintech and beyond AssetsImmediate cash transfer Applications Payments Money Remittance Financial instruments Unified ledger Mortgages, loans Titling: house, auto Inventory Commercial trade Payments Financial Services Logistics & Supply Chain Energy, IoT Healthcare Government Humanitarian Non-profit Industry adoption Time Complexity Stocks, bonds Goods transfer Assurance, provenance Identity Driver’s License Passport, Visa Contracts Registries Marriage licenses Public Documents Birth/death registries BoL, Forfeiting Insurance Cash Smart Assets Smart Contracts
  25. 25. 8 June 2017 Blockchain 24 Source: http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html Stock Transaction Real Estate Purchase/Sale Health Insurance Billing 2. 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
  26. 26. 8 June 2017 Blockchain 25  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.
  27. 27. 8 June 2017 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 26 Source: https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments Shared Ledger
  28. 28. 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
  29. 29. 8 June 2017 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 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
  30. 30. 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
  31. 31. 8 June 2017 Blockchain 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
  32. 32. 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
  33. 33. 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? 32
  34. 34. 8 June 2017 Blockchain 33 Better horse or new car? FutureTech
  35. 35. 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 34 Source: Swan, M. Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340
  36. 36. 8 June 2017 Blockchain 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 35 Source: Swan, M. Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340
  37. 37. 8 June 2017 Blockchain 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
  38. 38. 8 June 2017 Blockchain 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
  39. 39. 8 June 2017 Blockchain 38 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
  40. 40. 8 June 2017 Blockchain 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
  41. 41. 8 June 2017 Blockchain 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
  42. 42. 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
  43. 43. 8 June 2017 Blockchain Blockchain Economics and Finance 42 Source: 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
  44. 44. 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? 43
  45. 45. 8 June 2017 Blockchain 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 Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
  46. 46. 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 45 Source: Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340
  47. 47. 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
  48. 48. Melanie Swan Philosophy & Economic Theory New School for Social Research, NY NY melanie@BlockchainStudies.org Blockchain 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?

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