The document discusses blockchain economics and why it is important for social sciences. It begins with an overview of what blockchain is and how it works, using distributed ledger technology to securely record transactions across a peer-to-peer network without a central authority. It then explains how blockchain is evolving from simply enabling cryptocurrencies like Bitcoin to also powering smart contracts and the Internet of Things. The document argues that blockchain presents opportunities for new economic models and is thus an important area for social scientists to study.

1. Blockchain
Economics:
Why
it
is
important
for
social
sciences
August
29th,
2016
General
Manager,
Research
Division
Associate
Professor/Execu@ve
Research
Fellow
Center
for
Global
Communica@ons
(GLOCOM)
,
Interna@onal
University
of
Japan
Soichiro
Takagi
1

2. Agenda
p What
is
Blockchain
and
how
it
works
p How
it
is
evolving
and
what
it
realizes
p Why
Blockchain
is
important
for
social
scienitsts
2

3. WHAT
IS
BLOCKCHAIN
AND
HOW
IT
WORKS
3

4. Changing
role
of
Blockchain
Blockchain
Bitcoin
Bitcoin
Blockchain
Database
Smart
Contract
IoT
・・・
Both
of
applicaCons
and
plaEorms
are
evolving
4
Blockchain
1.0
Blockchain
2.0

5. Overview
of
Blockchain
Internet
5
Network
of
Infoma@on
Blockchain
Network
of
EnCCes
and
Assets
• Blockchain
defines
the
rela@ons
between
en@@es,
and
between
en@@es
and
assets.
• Blolckchain
creates
economic
incen@ves
for
informa@on
management
without
central
investors/controllers.
• Blockchain
is
disrup@ve
innova@on
which
creates
various
economic
spaces

6. Defini@ons
of
Blockchain
• A
list
of
validated
blocks,
each
linking
to
its
predecessor
all
the
way
to
the
genesis
block
(Antonopoulos)
• The
blockchain
is
the
public
ledger
of
all
Bitcoin
transac@ons
that
have
ever
been
executed
(Swan)
• A
block
chain
is
a
type
of
database
that
takes
a
number
of
records
and
puts
them
in
a
block
(rather
like
colla@ng
them
on
to
a
single
sheet
of
paper)
(UK
Government
Office
for
Science)
• A
sequence
of
electronic
files
in
which
enCty-­‐linked
transacCon
data
is
gathered
and
condensed.
(Takagi)
There
is
no
single
consensus
on
definiCon.
6

7. Three
major
elements
of
Blockchain
Connec@on
of
Data
Linkage
between
Digital
Assets
and
En@@es
＋
Tamper-­‐proof
Good
for
management
of
owner,
transfer,
usage
of
assets
Data
Management
by
P2P
Network
Fault-­‐tolerance/
System
without
Central
Control
＋
7

8. Distributed
Ledger
8
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Version A
Version C
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Block
Header
TX1
TX2
・・・
Version A
Version B
Consensus
is
important

9. Block
1
Header
Hash
value
of
Previous
Block
Header
Hash
value
of
Previous
Block
Header
Hash
value
of
Previous
Block
Header
Root
of
Hash
Tree
Root
of
Hash
Tree
Root
of
Hash
Tree
Hash
Value
Hash
Value
Hash
Value
Hash
Value
Hash
Value
Hash
Value
Hash
Value
TX2-­‐2
Transac@ons
Blockchain
TX2-­‐1
Coinbase
T
TX2-­‐n
・・・
H
HH
H
H H
TX1-­‐1
TX1-­‐n
TX1-­‐2
TX2-­‐1
TX2-­‐n
TX2-­‐2
TX3-­‐1
TX3-­‐n
TX3-­‐2
H Hash
func@on
Structure of Blockchain
9
10分
10分
Block
2
Header
Block
3
Header
Collec@on
of
Transac@ons
Connec@on
of
Blocks

10. Version
Who
Creates
Blocks?
>
Proof
of
Work
• Node
(computer)
which
could
create
a
new
block
first
can
broadcast
to
the
network
• Designed
to
make
block
crea@on
difficult
and
@me
(and
energy)
consuming
• In
average,
it
takes
10
minutes
on
average
for
one
block
• Node
which
could
create
and
broadcasted
a
new
block
can
take
newly-­‐issued
Bitcoin
(currently
12.5BTC)
Hash
of
the
previous
block
Root
of
the
hash
of
transacCons
Timestanp
Difficulty
Nonce
Detail
of
Block
Header
smaller
larger
H
Change
of
nonce
Previous
Block
Header
Threshold
Broadcast
to
the
Network
10

11. Block
Block
Falsified
Block
Block
Block
Block
Block
Falsified
Block
Block
Block
Falsified
Block
Block
• Falsified
blocks
never
catch
up
the
latest
block
• More
profitable
to
work
on
the
legal
block
than
fraud
Why
proof
of
work?
11

12. Crea@ng
block
=
Mining
=
Money
supply
• Check
and
Verify
transac@on
data
– Data
format
– Check
double
spend,
Nega@ve
balance
• Money
supply
– Miner
gets
12.25BTC(≒$7,000)
per
block
in
exchange
of
crea@ng
blocks
(and
expense
for
facility
and
electricity)
• Network
management
done
without
central
management
– Everything
is
codified(job,
reward,
evalua@on…)
– DAO
(Decentralized
Autonomous
Organiza@ons)
12

13. Input
Output
Input
Output
Input
Output
Input
Output
Input
Output
Input
Output
Input
Output
Transac@on
Data
Linking
“where
you
get”
and
“where
you
will
send
to”
13
Transac@on
取引
Transac@on
Transac@on
Transac@on
Public
key
/
Secret
Key

14. Advantage
and
Challenge
in
Classical
Blockchain
Advantages
• Logically
link
en@ty
and
digital
assets
-­‐
Suitable
for
managing
digital
assets
• Data
management
by
distributed
computers
-­‐
No
single
point
of
failure
• Incen@ves
to
operate
by
P2P
-­‐
No
need
for
organiza@ons,
managers,
bosses
Disadvantages
• Slow
to
confirm
transac@on
-­‐
Proof
of
Work
(10minutes)
• Scalability
-­‐
7tps
(Bitcoin),
2000tps(VISA),
115tps(Paypal)
• Data
Confiden@ality
-­‐
Blockchain
is
open
to
public
14

15. HOW
IT
IS
EVOLVING
AND
WHAT
IT
REALIZES
15

16. Distributed
Ledger
to
Networked
Computer
16
Smart
Contract
Smart
Property
MulC-­‐purpose
Networked
Computer
• Procedure
is
automaCcally
executed
around
assets
• Any
program
can
be
executed
on
Blockchain
• Ethereum,
Hyperledger,
etc.
• A
wide
range
of
assets
are
managed,
not
only
a
currency

17. Smart
Property
• Managing
digital
symbols
which
are
related
to
the
real
asset
• How
to
connect
the
asset
and
digital
symbol
is
the
key.
17
TXID
Input
Output
Output
Index
Signature
Script
(Old
Owner)
Pubkey
Script
(New
Owner)
Transac@on
Data
Digital
Symbol
House
Car
Digital
contents
Concept
Rela@on
to
the
real
assets

18. Smart
Contract
18
TXID
Output
Index
Signature
Script
Mortgage
holder
Pubkey
Script
New
holder
Real
estate
Property
Ledger
Contents
of
Mortgage
TXID
Output
Index
Signature
Script
(Old
owner)
Pubkey
Script
(New
owner)
Mortgage
contract
program
Ex@nguish
mortgage
Mortgage
Ledger
TXID
Output
Index
Signature
Script
(Old
owner)
Amount
Pubkey
Script
(New
Owner)
Mortgage
payment
ledger
Mortgage
status
ledger
Payment
comple@on
Change
the
status
to
“Payment
comple@on”
Automa@c
execu@on
of
the
procedure
which
is
defined
in
contract,
which
is
codified
and
registered
on
Blockchain.

19. Case:
Everledger
19
Digitalize
the
Diamond’s
characteris@cs
and
register
the
owner
on
Blockchain
hlp://www.everledger.io/

20. DAO:
Distributed
Autonomous
Organiza@ons
20
• Suppose
that
Bitcoin
Blockchain
is
a
company
to
register
and
manage
digital
asset
Employee
Employee
Employee
Employee
Employee
Employee
Employee
Employee
Task
is
perfectly
codified
Work
is
evaluated
by
others
based
on
code
Reward
paid
based
on
code
No
Boss,
No
Employment
contract

21. Arcade
City
(Ride
sharing)
21
• Ride
sharing
such
as
Uber
• Driver-­‐owned
ride
sharing
using
Ethereum
(1)
• Enhance
autonomy
of
drivers
to
set
fees
and
services
• A
case
of
DAO（Distributed
Autonomous
Organiza@on）
(1)
hlp://www.prnewswire.com/news-­‐releases/ridesharing-­‐startup-­‐arcade-­‐city-­‐launches-­‐
in-­‐27-­‐states-­‐300235186.html

22. “The
DAO”,
although
hacked…
22
Investor
Investor
Investor
Investor
Investor
Investor
Investor
Investor
No
Boss,
No
Employment
contract
Decide
inves@ng
project
by
vo@ng
Entrepreneur
It
raised
nearly
$150
million
worth
tokens
from
investors,
but
50
million
USD
worth
tokens
were
stolen.

23. The
21
Marketplace
(21.co)
23
Micropayment
for
APIs
using
Bitcoin
which
enables
payment
and
API-­‐connec@on
without
the
pre-­‐nego@ated
contract
hlps://21.co/mkt/

24. WHY
BLOCKCHAIN
IS
IMPORTANT
FOR
ECONOMICS
AND
SOCIAL
SCIENCES.
24

25. Issues
from
Social
Science
• Digital
Currency
– Anybody
can
issue
a
reliable
currency
– Money
with
func@ons
(deriva@ves,
usage,
Gesell
money,
etc)
– Impact
on
monetary
and
fiscal
policy
• Micro-­‐transac@on
Economy
– Automated
contract/execu@on/payment
– Autonomic
transac@on
in
IoT
– Market
small
transac@ons
• New
Forms
of
Organiza@ons
– Replacement
of
planorm
service
by
DAO?（Uber/Arcade
City,
Amazon/Open
Bazaar)
– The
end
of
“Super-­‐star”
economy?
(eg.
GAFA)
• New
Industry
– Massive
Investment
in
Blockchain
Startups
25