Fritz HengleinUniversity of Copenhagen, henglein@diku.dkDeon Digital, henglein@deondigital.com

FMAIL 2019Bergen

December 2nd, 2019

Smart digital contracts for next-generation distributed ledger

technology

Professor of Programming Languages and SystemsUniversity of Copenhagen

Head of ResearchDeon Digital AG

Fritz Henglein

Related background

• Partner, European Blockchain Center (ebcc.eu)

• Steering committee chair, Danish Innovation Network for

Finance IT (-2018),

• Principal investigator, Functional technology for high-

performance architectures (FUTHARK)

Academic background, affiliations, guest positions

Areas of interest• Programming language technology• Theoretical computer science

(algorithms, semantics, logic)• Blockchain technology• Contract management• Financial technology• Enterprise systems

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Why blockchain?

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Blockchain: orthodox view • Hash-linked chain of blocks of Merkle trees.• Contains a single log of all transactions worldwide.• A logged transaction constitutes a validated transfer of a

built-in cryptocurrency. • Implemented by open distributed network of replicated state

machines with atomic broadcast (total event order consensus)• Nodes and users are pseudonymous, have multiple self-

issued identities (public keys).• Nodes in the network employ a peer-to-peer gossip

protocol for sending new blocks to each other.• New blocks are proposed by nodes elected by probabilistic

decentralized one-dollar-one-vote mechanism. Successful proposer is paid in cryptocurrency.

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Bitcoin: Replicated state machine + gossip protocol + total event order consensus

Blockchain: generalized distributed ledger view

• behaving like a single reliable virtual computer, but with decentralized governance,

• performing tamper-proof recording of digitallysigned (real-world) events and their evidence;

• securely managing economic resources:• digital storage, transfer, transportation and transformation of

economic resources (money, assets, goods, rights, etc.)

It provides• consistent, nonrepudiable history across all principals

(suppliers, partners, customers, regulators, etc.)• economic resource preservation (duplication impossible)• (possibly) authentication, privacy and confidentiality

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A dynamic peer-to-peer computer network characterized by

Democratic, egalitarian access and control

behaves like

server-based system

Secure tracking & tracing

No forging or double spending

Blockchain/DL systems: Current favorites

• Nonpermissioned (self-authenticating users and node operators):

• Bitcoin

• Ethereum

• Permissioned (externally authenticated users and node operators):

• Hyperledger

• Corda

• Build Your Own (since no single system can be best at everything)

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Standard blockchain application architecture

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• Private front-end program (private key management, trading strategy, etc.)

• Public smart contracts (programs tied to particular blockchain system)

• Public settlement layer (resource and information manager) with smart contract execution engine(single blockchain system)

Ethereum-style smart contracts are neither smart nor contracts.

They are single-threaded, sequentially scheduled programs.

Distributed application (“dapp”)

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Resource manager/settlement layer (blockchain/DL system)

Strategy Contract Strategy Strategy Contract Strategy

Company A

Shared (public, governed, trusted party)

Company CCompany B

Contract manager

Contract manager

Decentralized business ecosystem: Contracts and multiple trusted third parties

Trusted third parties:

Exchanges, brokers, clearing

houses,..;IT service and

platform providers; government institutions,...

Contract-oriented systems architecture with multiple contract and resource managers

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multiple resource managers

• Private systems (ERP etc)• Confidential digital contracts

• permissions and obligations

• Confidential contract managers• monitoring, arbitration, escrow,

collateral management, etc.

• Shared resource managers• Centralized and decentralized

multiple contract managers

confidential contract

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Contract specification language comparison

2/12/2019 All Rights Reserved © 2019 Deon Digital AG www.deondigital.com

Criteria CSL(Deon Digital)

Solidity(Ethereum)

DAML(Digital Assets)

Kotlin/Java(Fabric/Corda)

Plutus(Cardano)

adjoint(Adjoint.io)

Pact(Kadena)

Legally binding digital contract YES No (Yes) No No No No

Human and machine readable YES Limited Yes No Limited Limited No

Contract/strategy separation YES No No No No No No

Reporting capabilities YES No No No No

Formal semantics/ verification YES No (Yes) No Yes No No

Compositional YES No No No No No No

Deterministic YES Yes Yes No/Yes Yes Yes Yes

Type safe YES No Yes No Yes Yes

Ledger-agnostic YES No No No No No No

WARNING: Marketing slide

Use case: Dynamic multimodal mobility

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Bus company(public cloud

hosted)

Web app Sales system

Passenger Tour operator

Contract manager (private blockchain)

Banking system

Peer-to-peer last-mile car service

(blockchain)

Custom API adapter Smart contract API Payment API (via PSD2 or payment

provider)

Custom ticket for trip A->B

Train company(private data center)

Custom API adapter

Contract manager (cloud hosted)

• Monitors specified multimodal journey• Collects payments for legs taken• Reschedules connections dynamically

EXAMPLE TRAVEL BOOKING

Relation 1:n Relation 1:1:n

• Blockchain replaces aggregators

• Each player canrepresent customer interface into the entire ecosystem

• Resilient network can compensate temporary failures of one element

Relation 1:1

Collaborating services

Conventionalway

Blockchain wayPlatform way

Today

“Do it yourself” “Pay the platform to do it” & build & maintain hundreds interfaces yourself

“Let the ecosystem do it”

Use case: Dynamic multimodal mobility (illustration)

Illustration by Sabine Reppert

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CCPRepository

Pre-Trade

Trading

Post-Trade

Expiry

Pre-Trade

Trading

Post-Trade

Expiry

Regulatory

Platform

Action

Reaction

✗ Paper based legal documentation✗ Transaction validations is prone to errors✗ Asynchronous business states

✓ Digitalized legal documentation✓ Contract based, safe transaction validation✓ Synchronous business states

Client Projects

Automation of OTC derivatives contracts

Pre-Trade

Trading

Post-Trade

Expiry

Pre-Trade

Trading

Post-Trade

Expiry

Digital OTCContract

CCPRepository Regulator

y

2/12/2019 All Rights Reserved © 2019 Deon Digital AG www.deondigital.com

Smart digital contract management vs. Ethereum-style smart contracts

• Separation of contracts from contract life cycle management• Contracts portable, analyzable, domain-oriented (e.g. Deon Digital CSL)• Contract life cycle managers generic (can manage any contract), in any implementation

language (Kotlin, Go, Java, Haskell,...), instrumentable, changeable (adding escrow, collateral management, etc., without changing contracts)

• Separation of resource management from contract management• Increased scalability 1: Consensus per contract, global consensus not required• Increased scalability 2: Aggressive partitioning of resources (sharding, channels, etc.)• Increased privacy: contract and contract state disclosed only to contract parties

• Precise, mathematical semantics of contracts• Mathematical guarantees, formal verification• Guaranteed security• Ex-ante analytics (price/value, risk numbers, counterparty default exposure, strategy

synthesis, etc)

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Blockchain, IoT, contracts: Past, present, future

time

Alternative state 1

Alternative state 2e'

Contract

Physical evidence frameworkPhysical world

History in Blockchain

e

now

Physical assetsand

physical events

Illustration by Boris Düdder

Blockchain/DL systems:Record consistent, nonrepudiable

history of events

IoT devices:Digitally certify current

events

Digital contracts:Specify admissible

future events

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A peak at some of the computer science theory behind it

CSL syntax: Composing subcontracts

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Deon Digital CSL: Based on generalized events, with expressive constraint language P

Relational CSL semantics: Contracts as event sequence classifiers

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CSL formalization (mechanization) and reasoning

• CSL semantics: Operational, denotational, relational• 3 different induction principles for reasoning

• Metatheory results: Equivalence of semantics• Use any of the three induction principles

• CSL static semantics: Abstract interpretation framework• Based on and proved correct wrt. relational semantics

• Mechanization of semantics, metatheory, static semantics in Coq• Identified and eliminated bugs in original CSL paper (2006) • Prepared for automatic code extraction from constructive (Coq) proofs

• Examples: Participation, fairness

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Christian Kjær Larsen, Agata Murawska, FH (2019)

Algebraic resource accounting

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Algebraic resource accounting: Why?• Transfers = finite records whose entries sum to 0 (in resource vector space)

• guarantee resource preservation: no double spending, no losing • no discrete ‘coins’ or ‘tokens’ necessary, account-based

• fully fungible (`50 dollars is 50 dollars’)• untraceable

• arbitrary number of resource types, can be user-specified• transfers closed under scaling, inverse and addition• netting of pairwise transfers = addition of transfers (in vector space)

• Multi-dimensional decomposition (``sharding’’) of resource managers• Divide resource managers by agents (e.g. countries)• Divide resource managers by resources (an agent can have multiple

• Transactional resource transfers • Any number of transfers, not just `atomic swap’• All transfers succeed or none have effect• Guaranteed rollback by automated (optimal) escrow management

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What’s next?

• Secure high-performance distributed ledger systems:• Authenticated nodes (no cost for proof of work or proof of stake)• Sparse replication instead of full replication (less redundancy, less message traffic)• Parallel contract management (global consensus not necessary)• Composable resource managers (parallelization by sharding, state channels, etc)• Privacy and confidentiality (by advanced cryptography and trusted execution environments)• Formally verified code bases

• Secure digital contracts: • Formally verified contracts and contract analytics (for pricing, risk, production planning,...)• Multiple resource managers, both central/existing (banks, land registries,...) and

decentralized/new (unlisted shares registry, crowdfunded projects, artistic designs,...)• Ecosystem of contracts managers (clearing house, mobility service provider,) both central

and decentralized

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Why blockchain?25

Tamper-prooflogging?

Decentralize?

Store and transfer

resources?

Server-/data center hosted system (trusted/privileged system provider)

Point-to-point communicating systems: RPC, REST, micro services

(trusted/privileged data managers)

Structured P2P storage systems with hash pointers

Blockchain/distributed ledger system

no

no

no

yes

yes

yes Digital contracts: protocols for resource transfersRobotic contract managers/smart contracts: guarantee

correct and fair execution of contracts

Thank you!henglein@diku.dk

henglein@deondigital.com

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