Blockchain and Competition – MULLIGAN – June 2018 OECD discussion

Imperial College Centre for Cryptocurrency Research and Engineering 1
Blockchain
OECD
Dr Cathy Mulligan
Visiting Research Fellow Imperial College London
Senior Research Associate, UCL (Computer Science)
Expert and Fellow, World Economic Forum Blockchain Council
@API_Economics
Imperial College
London

Why care about Blockchain?
It is a fundamental transformation for the manner in which we conduct business
1. It provides the opportunity to dramatically reduce cost of operations
2. Provides the opportunity to create new revenue streams
3. Can provide data integrity in an era of increasing cyber risk

DISTRIBUTED LEDGERS ARE PLATFORMS UPON WHICH VARIOUS APPLICATIONS CAN BE BUILT, WELL
BEYOND FINANCIAL SERVICES
Blockchain is much bigger than Bitcoin
Source: Citi Ventures

Today’s transactions
• Separate ledgers in each institution with
no oversight – high risk for human error
and fraud
• Paper-driven processes create delays and
errors
• Dependence on intermediaries to ensure
trust increases transaction costs and time
delays

• Single shared ledger that provides evidence of
tampering
• New records cannot be added without all
parties applying a consensus mechanism
• Records cannot be changed without all parties
seeing it
• Dramatic reduction in paper-based systems and
costs
• Reduced potential for fraud
Tomorrow’s transactions

A Blockchain allows untrusting parties to co-create a
permanent, unchangeable and transparent record of
exchange and processing
without relying on a central authority.
N.B: The terms “blockchain” and “distributed ledger” are often used
interchangeably, but they are not always the same thing!
What is a Blockchain?

DATABASES
Cross Stakeholder Decentralization
Distributed Ledger Technology
PERMISSIONLESS,
PUBLIC, SHARED
SYSTEMS
ETHEREUM/BITCOIN
PERMISSIONED,
PUBLIC, SHARED
SYSTEMS
MICROSOFT
FRAMEWORK
PERMISSIONED,
PRIVATE, SHARED
SYSTEMS
HYPERLEDGER
Types of Distributed Ledgers
“Blockchain”

1 - Consensus
Removes the need for centralization for transaction validity
Biggest Innovation – if your work requires something that lots
of people need to agree on, blockchain might be the solution
Prevents “double spend” or validation of fraudulent
transactions two examples are:
• Proof of work: miners compete to validate blocks by solving
highly processor / RAM intensive cryptographic problems
for rewards
• Proof of Stake: achieves distributed consensus by network
users proving their ownership of the currency

2 - The Ledger
• Often referred to as the “Blockchain”, this is a public
record of all transactions stored across a distributed Peer-
to-Peer (P2P) network of servers.
• Verified transactions are added to “blocks” and the history
provides proof of value or assets “owned”

3 – Reward or Incentives
• A medium for transaction settlement within the network
that rewards miners.
• Examples include “Bitcoin” – so miners are rewarded for
processing transactions and providing a stable network
• Rewards are crytpographically generated and the protocol
rules determine issuance and destruction of the rewards
• Rewards are required for public permissionless DLT such
as Bitcoin to ensure network security. They are not a
necessary part of all DLT

4 – Smart Contracts
• Smart Contracts are neither smart, nor contracts
• They are a new way to created distributed applications
that are secured by the blockchain
• When a pre-determined event happens, the code gets
triggered
• Unlike traditional code living on a server, you do not need
to ‘trust’ the owner of the server
• No single point of failure

Blockchain and the
Boundaries of the Firm

Source: Impact of Datafication on Strategic Landscapes
Digital technology - transforming our world since 1960
DIGITALISATION + DATAFICATION = DISRUPTION OF ECONOMY SOCIETY, EVERYTHING
WWW
Mobile
IoT
Source Mulligan/Ericsson 2014

Previous generations of digital technology have been about
data and information and how to exchange it faster and
more securely
Business Mindset “Apply IT to do the same business processes faster”

Blockchain is about the exchange of value
Instant, decentralized, pseudonymous value transfer is
now possible
Business Mindset “Apply IT to completely redefine business processes”

Blockchain & the boundaries of the firm
• As blockchain solutions are developed, it requires communication
across economic boundaries – namely it increases the exchange of
information between companies
• In addition, it creates the possibilities for ‘micro supply chains’ of
individuals who are able to dynamically deliver goods and services on
demand – without using the boundary of a firm to do so

Example 1: Supply Chains

Provenance in Food Supply Chains
Imperial College Centre for Cryptocurrency Research and Engineering

Example 2: Micro Supply
Chains

Global Supply Chain – Cut Flowers
Ecuador
Columbia
Holland
London
Flower
Market
72kg
712kg
878kg
Florist
Netherlands
Bouquet tying
Customer
72kg
Courier
Tesco
Supply
Chain
72kg Local Stores
?kg
?kg
?kg

Why…?
X

• 1 person micro enterprise, grew up in a rural
area, in London to build the business
• Trying to create an edible flower market
• Currently has stall and is a wedding supplier
• Working with chefs to create edible flower menus
• Has four suppliers in:
• Rural Scotland and England
• Peri-urban
• Companion plants
• Improve quality of soil and are a traditional farming
practice instead of pesticides
• Selling a waste product
• Organic produce
Pretty Delicious

Micro Supply Chain Issues
• Co-ordination of
• What have they got?
• What do I need?
• How quick can they get it to me?
• Business Processes but at a micro
level
• Self-organising supply chain
• How?
• Keen to use technology
• Want to expand the use of
technology in the supply chain
management processes
X
X
X
X
Approximately 173 kg CO2

End to End Lightweight Business Process Management
• Demand and Supply Management at a ‘local’ (small scale) level
• JiTM for connecting rural and urban suppliers
• Smoothing of supply chain processes for small scale suppliers
• No supplier or buyer lock-in
• Free access
Supplier 1 Supplier 2 Supplier 3
Pretty
Delicious

Implications
• Tax?
• Social Protections?
• Labour Law?
• What’s the best way to regulate?

Blockchain and Competition – MULLIGAN – June 2018 OECD discussion

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Blockchain and Competition – MULLIGAN – June 2018 OECD discussion