CIMA Future of Finance Festival Blockchain - How it works ... of... · transaction using blockchain...

© Extropy.io 2018

CIMA Future of Finance Festival

Blockchain - How it works and how to use it.

© Extropy.io 2018

Website : http://extropy.io

Email : [email protected]

Twitter : @extropy

Oxford Based Consultancy

Providing Blockchain solutions

DApp development and customised blockchains

Security Audits

http://extropy.io

https://twitter.com/extropyDev

© Extropy.io 2018

Agenda● Introduction● Blockchain Technology

○ A low tech blockchain○ Blockchain concepts○ Bitcoin and Ethereum

● Blockchain Applications ○ Suitability○ Use cases and funding

● The future of blockchains

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TLDR

The blockchain provides a trust layer without a central

authority

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Low Tech Blockchain

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Gossip Network

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Shared Public Ledger

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Adapting for the Internet

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Cryptography - Asymmetric Keys

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Cryptography - Hash Functions

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Components of the Blockchain

● Shared public ledger updated by consensus

● P2P Network● Cryptography

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These components give a blockchain system

● Transparency and verifiable state based on consensus● Resilience ● Censorship resistance● Tamper proof interactions

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Blockchain or Database

Blockchain Ideal Database

Bitcoin

EthereumHyperledger

R3

Cassandra

Couchbase

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Bitcoin and Ethereum How do they work ?

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Many of these components already existed, but were brought together in Bitcoin

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Blockchain Data structure

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Sending a transaction - Updating state

ALICE

BOB

ALICE 10BOB 20

ALICE 10BOB 20

ALICE 5BOB 25

Tx

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Tx

Tx

Tx

Tx

Tx

NETWORK POV

ALICE

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Building a consensus

Tx

Tx

Tx

Tx

Tx

Tx

Tx

Tx

Tx

?

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Ethereum Blockchain Viewer

http://ethviewer.live/

http://ethviewer.live/

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ALT COINS

Blockchain 2.0 - Ethereum The World Computer

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Smart Contracts

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What are smart contracts ?

Smart contracts are computer protocols intended to facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts were first proposed by Nick Szabo in 1996 - Wikipedia

A Ricardian contract places the defining elements of a legal agreement in a format that can be expressed and executed in software - Wikipedia

https://en.wikipedia.org/wiki/Contract

https://en.wikipedia.org/wiki/Nick_Szabo

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What are Ethereum smart contracts ?

● Pieces of code running in the Ethereum Virtual Machine● The environment is highly restricted for security and determinism● Each contract has code, state and optionally a balance of Ether● They may be written to represent a contract between parties but they need not.● They are written in a high level language then compiled into bytecode to run in

the EVM.

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contract MyToken { /* This creates an array with all balances */ mapping (address => uint256) public balanceOf;

/* Initializes contract with initial supply tokens to the creator of the contract */ function MyToken( uint256 initialSupply ) { balanceOf[msg.sender] = initialSupply; // Give the creator all initial tokens }

/* Send coins */ function transfer(address _to, uint256 _value) { if (balanceOf[msg.sender] < _value) throw; // Check if the sender has enough if (balanceOf[_to] + _value < balanceOf[_to]) throw; // Check for overflows balanceOf[msg.sender] -= _value; // Subtract from the sender balanceOf[_to] += _value; // Add the same to the recipient }}

6060604052341561000c57fe5b60405160208061085b833981016040528080519060200190919050505b336000600…..

06101000a81548173fff

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Contract Creation

ALICE

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A function call

ALICE

(Call function (arg1,arg2...) )

BOB

Create Transaction

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Restrictions● Gas● Determinism● Oracles

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Gas

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Determinism is important, so no

● Random numbers● Access to networks● Access to the local operating system

getWeather() getWeather()

getWeather()

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Oracles

Other blockchainsAnd

Private blockchains

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Hyperledger is an umbrella project of open source blockchains and related tools, started in December 2015 by the Linux Foundation

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Comparing Hyperledger, Ethereum and Corda

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Public - Consortium - Private

Permissioned - Permissionless

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Advantages of Private Chains

● Rules can be changed and transactions revoked easily● Validators are known, so no chance of a 51% attack.● Transactions are cheaper, since we do not rely on

economic incentives for consensus● Privacy is possible

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Advantages of Public Chains

● Users are protected from the developers of the system● Being open they benefit from network effects● They have the potential to radically change the way we

work, rather than just improving efficiency

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Permissioned / Permissionless

The argument here are more nuanced and dependent on the use case and its actors

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Questions and Break

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Blockchain Applications

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Blockchain Applicability Framework

How Important is :

Trust between unknown parties

Transfer of value

System availability (at no cost)

Censorship resistance

Fraud Resistance

Publicly Available Data

Immutable Data

Multiple Unknown parties can write

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Blockchain Use Cases

● Manufacturing ● Healthcare● Energy● Supply Chain● Insurance, Identity ● Funding

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Manufacturing


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Automotive

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Blockchain and Additive Manufacturing

Traditional value chains will be deconstructed as more players will be able to flexibly plug in and out of the manufacturing process, such as “borrowing” parts of a factory on short notice for only as much production capacity as they need at a given time.

Our pilot will use blockchain technology to protect high-value design files from theft or tampering through end-to-end encryption. Blockchain-enabled smart contracts will allow these files to automatically negotiate terms and conditions (such as price, quality level and delivery date) without the need for a middleman.

Cognizant

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Healthcare


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Healthcare and the blockchain

This technology could provide a new model for health information exchanges (HIE) by making electronic medical records more efficient, disintermediated, and secure. - Deloitte

Healthcare needs1. Ubiquitous, secure network infrastructure

2. Verifiable identity and authentication of all participants

3. Consistent representation of authorization to access electronic health information, and several other

requirements.

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Where Big Data, AI, IOT and Blockchain meet, solving the big problems securely

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Energy


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● The Energy sector is seeing an ever increasing fragmentation of energy producers

● Sometimes generating an energy surplus

Energy Prosumers

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● A place to record the amount of excess energy to be sold

● A place to discover the available energy

● A mechanism for matching the bids and offers

Blockchain Energy Marketplace

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● “Registering meter details on a blockchain”● Used a private Ethereum blockchain to simulate 53m Smart

Contracts to represent meters in the UK ● Demand side response

Companies are starting to move into this space

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Grid Singularity (http://gridsingularity.com/)

Grid + (https://gridplus.io/)

Poseidon (https://poseidon.eco)

PowerLedger https://powerledger.io/

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Supply Chain

Trusted suppliers must be thoughtfully selected, managed, monitored and certified for quality, reliability and consistency.

Providing these assurances in today’s manufacturing world imposes a hidden (and growing) “trust tax” on worldwide supply chain participants.

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Provenance Features

Increase brand trust

Share your business impact and values through an easy-to-use framework.Open up your supply chain and showcase the people, places and processes behind your products.

Verification● Back your brand with data● Verify your business and supplier profiles for greater supply chain integrity.● Turn your certifications into data-backed marks.● Substantiate your claims with data gathered from across the supply chain.

TRACK AND TRACE● Ensure supply chain integrity● Demonstrate your social and environmental impact at every point in the chain.● Reduce risk by proving the authenticity of your goods and their corresponding claims.● Create a digital passport for every product, linked to batch or individual item.

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UK Food Standard Agency Completes Blockchain Pilot for Food Supply Chain

UK food regulator the Food Standard Agency (FSA) has successfully accomplished a pilot using blockchain technology according to an announcement published July 2.

“It's the first time blockchain has been used as a regulatory tool to ensure

compliance in the food sector.”

Food supply chain

https://www.food.gov.uk/news-alerts/news/fsa-trials-first-use-of-blockchain

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Trade Finance

Barclays and innovative start-up company Wave have become the first organisations to execute a global trade transaction using blockchain technology.

The letter of credit transaction between Ornua (formerly the Irish Dairy Board) and Seychelles Trading Company is the first to have trade documentation handled on the new Wave platform, with funds sent via Swift. It is hoped this landmark transaction could herald a new era of simpler, safer and faster trade finance.

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Digital Asset Management

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Diversifying risk

● Portfolio Managers look for diversification when creating Portfolios

● Equities and Bonds have become more closely correlated

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Bitcoin low correlation

● Bitcoin has a very low correlation with existing financial assets and therefore might make a good addition to traditional portfolios

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Etoro

● A social trading platform - allows you to get exposure to Cryptocurrencies and has created a “CryptoFund”

● Individual cryptocurrencies● Create your own baskets● Synthetic (CFD)

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ICONOMI

● “Digital Assets Management Platform that allows anyone from beginners to blockchain experts to invest in and manage digital assets”

● Raised funding via ETH● Invest in managed funds or

index of cryptocurrencies● The token represents

performance of the company

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Melonport

● Melonport - “Blockchain Software for Asset Management”

● A protocol and suite of tools to automate Portfolio Management tasks

● “Asset management track-records are transparent and auditable by everyone everywhere at any time”

● Raised funding via ETH

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● Real-time gross settlement system, currency exchange and remittance network

● It supports tokens representing fiat currency, cryptocurrency, commodity or any other unit of value such as frequent flier miles or mobile minutes

● Bridge to bitcoin

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Insurance

B3i provides insurance solutions on a blockchain platform offering opportunities for efficiency, growth and quality across the value chain to benefit all participants including end customers.

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● ICOs are a mechanism for crowdfunding Blockchain-related projects

● Unregulated ?● Donations in

Cryptocurrencies

What is an ICO?

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● A Smart Contract on Ethereum

● Code following a standard protocol (ERC20)

● A ledger recording ownership amounts

● Additional, coded, specific business logic [optional]

What is a Token?

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● Use of resources on a platform.

● The rights to a digital item in an application / game.

● A store of value.● An interest in a company /

project.● A promise for tokens on a

competing platform.● ...

What does a Token represent?

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● U.S. SEC ruled, in July, that The DAO tokens were Securities and should have been registered.

● No retrospective repercussions.

● Tokens must be reviewed on a case-by-case basis

SEC Ruling

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● How much should we regulate ICOs?

● SEC limiting US citizens in primary markets?

● Should other countries follow?● Does the pseudo-anonymity of

cryptocurrencies make it harder to enforce?

● With such a broad range of tokens how easy will it be to determine whether the ICO should have been registered?

Regulation good or bad?

CIMA Future of Finance Festival Blockchain - How it works ... of... · transaction using blockchain...

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