Blockchain Technology: Introduction Ashley Lannquist World Economic Forum 0 Blockchain 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 “smart contract” 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 ledger 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 cryptocurrency • 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 • Bitcoin, Ethereum (for next 1-2 yrs), Litecoin, Monero, MimbleWimble, etc. • Paxos/Raft • Greener, faster • JPM Quorum, IPFS • Proof-of-stake • Greener, faster • Proof-of-space/capacity • EOS, Lisk, Steemit, Ethereum (later), etc. (including • Greener delegated PoS) • CyberVein, Chia, etc. • Proof-of-authority • DAGs • Greener, faster • Greener, faster • Gossip protocols (HashGraph, 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”) • Blockchains 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.