Blockchain Technology: Introduction

Ashley Lannquist World Economic Forum

0 Technology

• A record log with distributed ownership that can host and record transactions between multiple parties in a peer-to-peer, verifiable, and permanent way.

1 Features

• Distributed and synchronized • Peer-to-Peer Transmission • Transparency • Traceability • Irreversibility of Records • Automated “” execution Features

• Globally Shared Record Log

➢ Transactions continually synced across participants

➢ Common, shared view of transaction history

➢ Facilitates interparty reconciliation, agreement on transaction activity Transactions = transfer / sending of value, information, records, etc.

~ Main mode of interaction in blockchain networks Features

• Distributed/decentralized functionality & data storage

➢ Record logs stored in distributed manner across computer “nodes”

➢ No single party controls data/info

➢ Reduces risk of fraud, corruption, other misbehavior by centralized database owners

➢ Database robustness from redundancy Features

• Transaction Transparency

➢ Transactions visible to all network participants

➢ (Network can be public or permissioned)

➢ (Can overlay privacy features for confidentiality) Features

• Transaction & Asset Traceability

➢ Movement of funds and goods across transactions visible and traceable

➢ Provenance/origin/supply chain tracking capability Features

• Irreversibility of Records (“Immutability”)

➢ Using cryptography, data is tamper- proof

➢ Multiple parties can access and write to the but no one can manipulate or delete written data Features

• Automated contract-like functionality (“smart contracts”)

➢ “Smart contracts” can automate transactions between parties

➢ Digital, self-enforcing

➢ Pre-arranged terms

➢ Smart contracts: code that facilitates, verifies, or enforces the negotiation or execution of a digital contract Blockchain Technology: Key Potential Capabilities

1. Transparency 3. Censorship and fraud resistance

• Records, transaction details and processes viewable • Absence of central administrator reduces censorship and fraud opportunity

2. Coordination over shared database 4. Database Resilience

• Parties can share database as single source of • Data redundancy on thousands of nodes truth • Provides data storage and process continuity in • Cryptography provides confidence in data case of hardware fault or external attacks record integrity

• Coordination among competitors, industry providers, regulators, etc. on same system 10 Blockchain Technology: Technical Downsides

1. Slow transaction times 3. Access Management

• "Consensus” mechanism underlying • “Private keys” may be required as “passwords” to decentralized databases inherently slower use accounts and send transactions • Key management difficult • Data redundancy: All/many “nodes” • Key revocation, dissemination difficult independently process, sync, download all/many transactions 4. Readiness 2. Data Confidentiality/Privacy • DLTs very much in-development to meet security, scalability, transaction speed needs • Reduced data privacy and increased transparency vs centralized databases (potential/risk for more access by others) 11 Public, Permissionless ---- Public, Permissioned ---- Private, Permissioned

Decentralized TRADE-OFFS Centralized

• Participation open, public • Participation by invite-only

• Transparent records • Private records

• Participants unknown: High security • Participants known: against malicious actions Low security against malicious actions • Slower • Faster • Needs • Does not need cryptocurrency • More proof-of-work, proof-of- stake, federated, etc. • More proof-of-authority, etc. 12 Consensus Mechanisms • Federated BFT • Greener, faster • Proof-of-work • Ripple, Stellar • Energy intensive, slow • , (for next 1-2 yrs), , , MimbleWimble, etc. • Paxos/Raft • Greener, faster • JPM Quorum, IPFS • Proof-of-stake • Greener, faster • Proof-of-space/capacity • EOS, Lisk, , Ethereum (later), etc. (including • Greener delegated PoS) • CyberVein, Chia, etc.

• Proof-of-authority • DAGs • Greener, faster • Greener, faster • Gossip protocols (, Avalanche) • VeChain, etc. • Cybervein, IOT (tangle) 13 APPENDIX

14 Potential use cases in development to solve long- standing problems

• Healthcare pharmaceutical supply chain • Tracking vehicle odometer & data history • International aid flows • Personal digital identity • Tracking government complaints • Interbank clearing and settlements • Register land/real estate ownership • Track conflict minerals and stones in supply chain

15 Potential use cases in development to solve long- standing problems

Observations • Healthcare pharmaceutical supply chain • Coordination of multiple parties around • Tracking vehicle odometer & data history trusted ledger • International aid flows • Improves transparency, reduce fraud or • Personal digital identity abuse • Tracking government complaints • Blockchain solves dilemma of where data sits and who can control it • Interbank clearing and settlements • Register land/real estate ownership • Not about cryptocurrency • Track conflict minerals and stones in supply chain

16 Almost all industry applications are in prototype or pilot mode; important weaknesses to be worked out

Blockchain is a *tool* and must be designed and implemented carefully

Not sufficient as off-the-shelf solution in most cases

• Security • Scalability • Privacy • Inclusiveness • Usability • Multi-party approach

17 Quantum Cryptography and Blockchain Networks

• Shor’s Algorithm • ~2027, 10-minute time to solve ECDSA • Factors numbers quickly (also relevant for RSA cryptography)

• Grover’s Algorithm • Reverse hashes to find inputs (“pre-image attack”)

• must pursue secure transition to quantum-resistant signature schemes • Post-quantum cryptography rapidly expanding but still uncertain and in-development

Solutions: • Short-term: Longer keys to resist growth in computational power • Medium-term: Shift to quantum-resistant cryptographic schemes • Long-term: Leverage quantum computing and cryptography within blockchains directly

18 General Data Protection Regulation (GDPR): Threat or Opportunity?

• GDPR: Any company doing business with EU countries must comply by May 2018 • ”Digital declaration of rights” for citizens • Encourages firms to architect solutions with: • Built-in data privacy, protection, and user revocation capabilities • Considerations and capabilities for user control of data • Common data standards to facilitate transfer and sharing of data between individuals, agencies • Complication: “global right to be forgotten” article

• Challenges to comply with GDPR? • Many articles aligned with use of blockchain • Challenge: Storing personal identifying information on permanent databases • Solutions: • A: Store personal details on-chain within a cryptographic hash plus pointer • B: Do not store PII on-chain, but on off-chain centralized database • C (hybrid - BEST): Store details on-chain but hashed, and off-chain in user-owned device and account 19