BEGIN BLOCKCHAIN - Module 5 v2.pptx

Co-funded by the
Erasmus+ Programme
of the European Union
ONLINE COURSE
BLOCKCHAIN AND
BUSINESS

e n a b l i n g n e w g r o w t h f o r S M E ’ s
Modules Overview
1.0 – The Basics of Blockchain
2.0 – How can blockchain ecosystems serve entrepreneurs and SME’s?
3.0 – Will Blockchain Work for You?
4.0 – What regulations will impact my business?
5.0 – The Future of Blockchain?

e n a b l i n g n e w g r o w t h f o r S M E s
Module 5
The future of Blockchain

This programme has been funded with support from the European Commission. The author is solely
responsible for this publication (communication) and the Commission accepts no responsibility for any
use that may be made of the information contained therein
Learning
Objectives
Be familiar with current and future
applications of blockchain – NFTs,
DeFi, DAOs, decentralized
metaverse ( the real metaverse)
Understand the role blockchain
could play in future business,
banking, healthcare and voting
Discuss whether it is a valuable new
technology or whether its cons
outweigh its pros
1
2
3
By the end of this module, you
will be able to:
4
Understand the potential scope of
blockchain in the future

Content
5.1 – Blockchain Strategy
5.2 – Current and future applications of blockchain – NFTs, DeFi, DAOs,
decentralized metaverse
5.3 – The role of blockchain in the future of business, banking, healthcare and
voting
5.4 – Blockchain's valuable and potential scope as a new technology in the future

5.1
Blockchain Strategy

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The EU wants to be a leader in
blockchain technology, becoming an
innovator in blockchain and a home to
significant platforms, applications and
companies.
Blockchain technology allows people and
organisations who may not know or
trust each other to collectively agree
on and permanently record
information without a third-party
authority.
By creating trust in data in ways that
were not possible before, blockchain
has the potential to revolutionise how
we share information and carry out
transactions online.
Blockchain Strategy

• Environmental sustainability: Blockchain technology should be sustainable and energy-
efficient.
• Data protection: Blockchain technology should be compatible with, and where possible
support, Europe’s strong data protection and privacy regulations.
• Digital Identity: Blockchain technology should respect and enhance Europe’s
evolving digital Identity framework. This includes being compatible with e-signature
regulations, such as eIDAS, and supporting a sensible, pragmatic decentralised and self-
sovereign identity framework.
• Cybersecurity: Blockchain technology should be able to provide high levels of
cybersecurity.
• Interoperability: Blockchains should be interoperable between themselves and with
legacy systems in the outside world.
European Comission’s Strategy is to support a 'gold
standard' for blockchain technology in Europe

• Building a pan-European public services blockchain
• Promoting legal certainty
• Increasing funding for research and innovation
• Promoting blockchain for sustainability
• Supporting interoperability and standards
• Supporting blockchain skills development
• Interacting with the community
Elements of the European Commission’s blockchain
strategy

5.2
Current and future applications of
blockchain – NFTs, DeFi, DAOs,
decentralized metaverse

Blockchain has a
growing number
of use cases.
Let’s take a look
at the four main
areas:
Smart Contracts
Digital Currency
Record Keeping
Securities
Reminder from
Module 3

More than a decade after its inception,
blockchain technology not only supports
cryptoassets and their trading, but
constitutes the core technology
underlying a series of new advances,
including NFTs, smart contracts and
DeFi.
However, blockchain technology,
especially through the use of smart
contracts, can form the basis of a new
form of organisation – a decentralised
autonomous organisation (or DAO).

So far, one of the most important use cases for blockchain is cryptocurrencies and will
continue to do so for some time. But an even more exciting future is emerging in
blockchain technology: non-fungible tokens (NFTs).
NFTs are a new way to buy and sell digital assets that represent real-world items. Each
NFT is unique, non-substitutable and non-exchangeable - only the original
owner/creator of that asset can buy, sell, trade or gift it.
NFTs can become special digital collectibles, from rare works of art to unique
accessories. They can also be used in blockchain games or other virtual worlds.
Because the possibilities of NFTs are endless, they will have a significant impact on the
future of digital property. It is likely that everything from works of art to cars can be
purchased with NFTs.
Non-Fungible Tokens

Decentralized finance (DeFi) is an umbrella term for a collection of financial products
that rely on smart contracts and blockchain technology. It enables open, peer-to-peer
(P2P) financial services, as well as the automation of specific procedures.
DeFi applications aim for decentralization, although they vary in scope.
Due to its openness, decentralization and P2P nature, DeFi enables so-called "money
legos". This term refers toto the interoperability of applications in different working
spaces. It is also said to act as an acceleratorin the space of innovation.
Decentralised Finance (DeFi)

• Intrinsic characteristics: topography and nature of the underlying systems or
embedded protocols
• Functional differences: occurring as a result of the underlying intrinsic
characteristics.
• Operational differences: exploring interface/platform, including expectations and
the user experience.
• Regulatory landscape: comparing the outlook of policymakers and regulators in
addressing those differences.
Similarities and Differences of DeFi and traditional or
conventional finance (TradFi)

Overview of Intrinsic characteristics
Features TradFi DeFi
Access Permissioned models Permissionless models
Data integrity Read/write access is controlled, managed,
gated, exclusive
Inclusive, immutable
Interoperability Segmented, dependent on multiple
intermediaries
Composability, money Legos
Settlement Timely chain of events, T+day(s) Immediate settlement
Value Uses data to record (nominal) value Data does not record value, but is
value in itself

Overview of functional differences
Feature TradFi DeFi
Accounting Double-entry accounting bookkeeping. Triple-entry accounting bookkeeping
Trust Trusted. Identity-based systems. Mostly trustless.
Data availability Transaction history is private. User is
known.
History of financial transactions is publicly
open. User is (pseudo)anonymous.
History and
characteristics
Established. Slow and rigid in terms of
innovation.
Nascent. Incrementally/radically innovative.
Constantly changing, often faster than
regulation can keep up with.
User experience Easy to use. Embedded in everyday
life.
Often difficult to use. More technical
competency is required.
Risk Risks are managed and thoroughly
regulated.
Requires an individual understanding of the
underlying risks.
Reversibility Reversible transactions. Amend
permissions.
(Mostly) irreversible transactions. Append
only.

Overview of operational differences
Feature TradFi DeFi
Custody Mostly custodial Mostly non-custodial
Entities Involves regulated, supervised and
licensed entities that offer standardised
services to identified users
Involves unregulated, unsupervised,
unlicensed entities. Unknowns offer
unstandardised services to anyone
Access Gated access for supply and demand Inclusive; anybody can offer or receive DeFi
Transparency Mostly operationally opaque Public and transparent operation

Overview of regulatory differences
Feature TradFi DeFi
Regulation Ruled by law Ruled by law and code
Record-keeping Governed by regulation; confidential Openly accessible
Consumer protection Governed by regulation Unclear whether existing regulations apply
or new ones are needed

Differences between DeFi and TradFi
Feature TradFi DeFi
Ideology Efficiently allocate resources and facilitate
commerce, investment and development
Make financial services accessible to
everyone
Infrastructure Private database Open blockchain/DLT
Innovation Incremental and sustaining Radical and disruptive
Human-facing aspects Brick and mortar; Web 2.0 Web 2.0 transitioning to Web 3.0

• The technology stack on which DeFi is built can be separated into five major
components: (1) settlement layer, (2) asset layer, (3) protocol layer, (4) application
layer, and (5) aggregation layer:
DeFi Fundamentals

Decentralized Autonomous Organizations - DAO for short - are growing every day
and could very well become a real alternative for people to act collectively (for
profit or not).
DAOs present unprecedented legal challenges and have the potential to be a
game-changer in 21st century business law. This, in turn, forces corporate
lawyers to rethink what they consider immutable and likely to adapt many
corporate law rules to fit this new reality.
DAOs (decentralized autonomous organizations)

A decentralized autonomous organization consists of a bundle of smart contracts
deployed on a given blockchain.There are hundreds and even thousands of DAOs
or similar blockchain-based decentralized arrangements by other names fully
operational today. As we discussed DeFi above, their recent growth has made
DAOs and similar organizations hard to ignore.
DAOs are forms of human organization based on blockchain technology in which
various affiliates pool money (usually, but not necessarily, cryptocurrencies) to
perform a given activity (not necessarily for profit).
What defines DAO

The governance of the organization is largely automated and decentralised, which
means that the traditional role of the management body is replaced by a mix of
direct management by associates and automated management through smart
contracts.
They are decentralized: there is no centralized management and many important
decisions are taken directly by associates, trying to alleviate the traditional
agency problem between shareholders and management.
They are autonomous: many decision-making rights that traditionally belong to
management can be entrusted to a smart contract. A smart contract defines the
organization's rules and typically holds the DAO's treasury. Imagine a mix
between corporate charter and governing bodies.
What makes DAOs different

The difference is more complicated
On the one hand - just as a traditional company is a set of contracts, a DAO is a
set of smart contracts, but very large and complex.
On the other hand - very few DAOs are alike. Many have management structures
closer to a traditional company, while others operate in completely new ways.
DAO boundaries are porous.
DAO organization vs Cryptocompany

Some DAOs prefer permissionless "token-based membership" by acquiring control
tokens by exchanging or earning a reward for liquidity through proof-of-work;
Other DAOs prefer a more permissive “stake-based membership” where any
prospective member can propose to join the DAO by providing value in return –
either tokens or work.
The membership structure of the DAO organization

• ‘It is a gaming platform, a virtual retail destination, a training tool, an advertising
channel, a digital classroom, a new gateway to digital experiences. The metaverse
seems to be whatever people’s imaginations dream it to be.’
• M c K i n s e y d e c l a r e s , i n a r e p o r t f o c u s i n g o n v a l u e c r e a t i o n i n t h e
m e t a v e r s e .
Decentralized Metaverse

(1) The generalised and significant shift across norms, disciplines, cultures or other
barriers creates new opportunities.
(2) Persistent, cohesive, shared experiences give the sense of a new ‘world’.
(3) Can be immersive and interactive, but users also can interact with it in a limited
capacity. In other words, the metaverse is flexibly immersive.
“The metaverse is the product of a technology-driven shift with generalized impact
through persistent and adaptable digital experiences.”
Metaverse defined

Metaverse – what’s the opportunity

At its most basic, the metaverse will have three features:
• a sen se of immersion
• real - t im e in t eract ivit y
• u ser agen cy
Ultimately, the full vision of the metaverse will also include the following:
• in t eroperabilit y across plat forms an d devices
• con cu rren cy wit h t h ou san ds of people in t eract in g simu lt an eou sly
• u se cases span n in g h u man act ivit y well beyon d gamin g
Metaverse has several foundational characteristics

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The ten
layers of
the
metaverse

e n a b l i n g n e w g r o w t h f o r s m e ’ s
Strategist Matthew Ball defines the
metaverse:
A massively scaled and
interoperable network of real-
time rendered 3D virtual worlds
which can be experienced
synchronously and persistently by
an effectively unlimited number
of users with an individual
sense of presence, and with
continuity of data, such as
identity, history, entitlements,
objects, communications,
and payments

Open vs Closed Metaverse
Closed Metaverse Open Metaverse
Infrastructure Platforms. Serve as the basis for deploying
applications and tools
Networks and platforms. Serve as the basis for
deploying applications and tools, as well as other
platforms (platform for other platforms)
Governance Centrally governed by identifiable entity or
entities.
Provides the ability for decentralised community-
based governance, as well as algorithmic
governance.
Values Decisions are based mainly on adding
shareholder value.
Decisions are based mainly on adding
stakeholder value.

Open vs Closed Metaverse
Closed Metaverse Open Metaverse
Business
models/reve-
nues sources
Advertisements, subscriptions, digital items
and services. Business models must account
for intermediation.
Advertisements, subscriptions, digital items and
Services. Disintermediation will introduce new
business models.
Privacy, data,
ownership,
identity
Stored in centralised databases and managed
by authorised private and public providers.
Limited user control over information
enforceable by law. Digital content is
managed and controlled by providers.
Stored in decentralised and centralised databases
and managed by authorised private and public
providers as well as smart contracts. User control
over information ranges from limited to complete
and is enforceable by law and/or algorithmically.
Some digital content cannot be managed or
controlled by providers.
Assets and
financial
services
Proprietary asset registries, financial
interoperability necessitates intermediation
and is subject to fees and inefficiencies.
Possibility for universally shared registries of
digital and physical assets (NFTs or blockchain).
Intermediated and efficient financial services
which can interoperate with legacy finance.

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Sectors Leading
Metaverse
Adoption

1. Photorealism, i.e. the degree to which the metaverse world resembles the physical
world and is sufficiently indistinguishable from it, to the casual observer;
2. Immersiveness, i.e. the degree to which users can (or must) embed themselves
inside the world to use it, for example by wearing a VR headset;
3. Persistence, i.e. the degree to which the interaction experience ‘follows’ users in
their daily lives in an always-on fashion;
Fully mature metaverse characteristics – technology focused

4. Data ownership, i.e. the degree to which users own the assets they possess in the
virtual world (avatars,objects, land, etc.) and can take them off the metaverse to be
used in other virtual worlds;
5. Openness, i.e. the degree to which the virtual world is open to developers to
create new spaces,experiences, objects and applications;
6. Censorship resistance, i.e. the degree to which users can be prohibited from
accessing the virtual world, restricted in their experiences or expelled from the
metaverse, by a centralised authority who ‘owns’ andcontrols the world.
Fully mature metaverse characteristics- related to governance

Technology is always much easier to analyse. Arguably, it is progressing fast towards
creating solutions that increase the photorealism, immersiveness and persistence of
metaverses, and one can anticipate that all technical challenges will be ultimately
solved.
• By contrast, it is by no means certain whether successful virtual worlds of the future
(successful in the sense of attracting large numbers of users who consistently live,
work and play on them) will be built and owned by centralised organisations (who
exercise various degrees of authority in restricting open Access to developers, users
and competitors), or whether more decentralised designs will prevail, resulting in
open, interoperable and censorship-resistant metaverses.
Centralized versus decentralized metaverse

e n a b l i n g n e w g r o w t h f o r s m e ’ s
We believe that with the
metaverse we can create
higher-quality government
services. Current government
services are demand driven.
However, we believe that in the
future we can provide services in
advance of demand—we can
provide a new form of
government services and, in
that sense, it will be very helpful
to citizens. We also believe this
metaverse platform will help
citizens see Seoul city in a
different perspective.
–Jong-Soo Park, CIO of Seoul’s
Smart City Police Bureau

5.3
The role of blockchain in the
future of financial servises,
government, and healthcare

• Financial services’ core functions of verifying and transferring financial
information and assets very closely align with blockchain’s core transformative
impact.
• Major current pain points, particularly in cross-border payments and trade
finance, can be solved by blockchain-based solutions, which reduce the number of
necessary intermediaries and are geographically agnostic.
• Further savings can be realized in capital markets post-trade settlement and in
regulatory reporting.
Role within Financial Services

• As with banks, governments’ key record-keeping and verifying functions can be
enabled by blockchain infrastructure to achieve large administrative savings.
• Public data is often siloed as well as opaque among government agencies and
across businesses, citizens, and watchdogs. In dealing with data from birth
certificates to taxes, blockchain-based records and smart contracts can simplify
interactions with citizens while increasing data security.
• Many public-sector applications, such as blockchainbased identity records, would
serve as key enabling solutions and standards for the wider economy.
Governments are actively running blockchain pilots supported by start-ups
Role within Public Sector

• Blockchain could be the key to unlocking the value of data availability and
exchange across providers, patients, insurers, and researchers.
• Blockchain-based healthcare records can not only facilitate increased
administrative efficiency, but also give researchers access to the historical, non–
patient-identifiable data sets crucial for advancements in medical research.
• Smart contracts could give patients more control over their data and even the
ability to commercialize data access. For example, patients could charge
pharmaceutical companies to access or use their data in drug research.
• Blockchain is also being combined with IoT sensors to ensure the integrity of the
cold chain (logistics of storage and distribution at low temperatures) for drugs,
blood, and organs
Role within Healthcare

5.4
Blockchain's value and
potential scope as a new
technology in the future

It looks like
blockchain is here to
stay, I think it’s going
to be a powerful
technology for
modern society.
Reid Hoffman, Co-Founder & Executive
Chairman, LinkedIn.

Five common
blockchain myths
create
misconceptions
about the
advantages and
limitations of the
technology.

• Blockchain does not have to be a disintermediator to generate
value, a fact that encourages permissioned commercial
applications.
• Blockchain’s short-term value will be predominantly in reducing
cost before creating transformative business models.
• Blockchain is still three to five years away from feasibility at scale,
primarily because of the difficulty of resolving the
“coopetition” paradox to establish common standards.
(mkinsey.com, 2018)
Key insights on the strategic value of blockchain

• Identify value by pragmatically and skeptically assessing impact and
feasibility at a granular level and focusing on addressing true pain
points with specific use cases within select industries.
• Capture value by tailoring strategic approaches to blockchain to their
market position, with consideration of measures such as ability to
shape the ecosystem, establish standards, and address regulatory
barriers.
Companies should take the following structured
approach in their blockchain strategies

The value at stake
from blockchain
varies across
industries
McKinsey& Company

Blockchain feasibility in
each Industry will
depend on the type of
asset, technology
maturity, standards and
regulation, and the
ecosystem
McKinsey& Company

Elements of the European Commission’s blockchain strategy
European Commission, Directorate-General for Communications Networks, Content and Technology,
Study on copyright and new technologies : copyright data management and artificial intelligence,
Publications Office of the European Union, 2022
Blockchain beyond the hype: What is the strategic business value? (mckinsey.com)
Decentralised Finance (DeFi)A Thematic Report Prepared ByThe European Union Blockchain Observatory
& Forum
https://www.lisbondaoobservatory.cidp.pt/what-is-a-dao
NFTs, DAOs, MobileWeb3, And The Metaverse: Off And Running In 2022
https://www.eublockchainforum.eu/sites/default/files/reports/Metaverse_Report_Final_1.pdf
Value creation in the metaverse. The real business of the virtual world (mckinsey.com)
Key references

BEGIN BLOCKCHAIN - Module 5 v2.pptx

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BEGIN BLOCKCHAIN - Module 5 v2.pptx