itCoin 2.0IS THIS THE FUTURE?

Supratika CHAKRAPANIGUO ZongrenNG Wen YingWONG See Wei Nina

Move over Bitcoin 1.0!

Little incentive to run a node – limit of 21 million coins

Problems with the intermediaries

Regulatory Issues Anonymity – a weapon

Bitcoin’s Blockchain Technology –

Most Valuable

3

Smart ContractsComputer protocols that facilitate, verify, or enforce the negotiation or performance of a contract

All sorts of property that is valuable and controlled by digital means Property Car Rentals Smart Houses Employee HR Contracts Business Contracts

Provide much better observation and verification where proactive measures must fall short

Reduced transaction cost with contracting

Lock to selectively let in the owner and exclude third parties

Back door to let in the creditor

Creditor back door switched on only upon non-payment

Final payment permanently switches off the back door

4

Smart Contracts on Car

Tim defaults on car loan

Bank contacts “Repo Man”

Repo Man contacts Tim to confiscate

car & keys

Tim defaults on car loan

Smart contract invokes lien – key

transferred to bank

Tim cannot enter his car

5

Autonomous AgentsMinimal Human Effort

• Build Hardware

• No need to be aware of agent’s existence

Hardest to Create

• Navigate in dynamic environment

• Account for complexity and hostility

Fraud Manageme

nt

• Detect cheating nodes

• Remove/Neutralize

6

DAO: Decentralized Autonomous Organizations

An entity that lives on the internet and exists autonomously

Heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do

Decentralized Applications (DA)

No internal property –

reputation not saleable asset

Decentralized Autonomous

Organizations (DAO)

Has internal capital – used as

reward

Makes decisions for itself

Collusions attacks treated

as a bug

Decentralized Organizations (DO)

Humans make decisions

Collusion attacks are a

feature

7

Future of Finance

Artificial Intelligence DAO

Robotics Current Company

Humans at the EdgesAutomation at the Edges

Automation at the Centre

Humans at the Centre

8

Final PointsKey objective is value creation or production

◦ Specific linkage between user actions and the resulting effects of those actions on the overall value to the organization

◦ Value growth via internal capital appreciation in the form of cryptocurrency or cryptographically secure tokenization of some sort

Like a start up - Requires a product/ market fit, business model realization and a lot of users/ customers

Blockchain and cryptocurrency-based protocols and platforms are just enablers for the consensus mechanism

◦ General Purpose – Ethereum, Bitcoin

◦ Specific Purpose – La’Zooz, Maidsafe

Block chainWhat is it?◦ A shared public ledger – A bookkeeping system that shows all confirmed

transactions

◦ Only confirmed transactions are included in the block chain

◦ Once each block chain is established, the contents cannot be deleted.

◦ Block chains are added onto existing block chains.

Transactions and Additions to the Block chain

Nodes in the Bitcoin Network

Transaction XYZ

Transaction XYZYES

Broadcast

Transaction ABEYES

Existing Block chain

Transactions and Additions to the Block chain

Bitcoin Miner

Transaction Block

Transaction ABEYES

Winning Block

Winning Bitcoin Miner

Challenge and the Proof of Work

Existing Block chainTransaction Block

Challenge

Bitcoin Miner X

Proof

Cryptographic Hash

Function00000002123which =< X. If X has more zeros: greater difficulty to find the proof

Winning Block

Nodes in the Bitcoin Network

Broadcast

Bitcoin Miner X

Reward

Transaction ABEYES

Choosing between blocks that simultaneously solve the proof of work

• Block that has the longest chain –required the most amount of computational work is the block that gets added to the existing chain.

Motivation

Background

A for-profit Bitcoin technology company that has secured c.

USD 15 million fund

Developing

Sidechain

Sidechain, a technology focused on improving on the blockchain:

- Interoperability- Smooth upgrade path for Bitcoin

1

Introduce interoperability between different currencies;

Allows user to seamlessly transfer bitcoins between an ecosystem of

sidechains and the main blockchain

2

Allow experimentation of improvement / additional features on Bitcoin system, on a sidechain separated

from main Blockchain. Bitcoin can be replicated in a sidechain where new

features are build on top of the original blockchain No need to create an alternative currency to test out

Will not risk damaging existing system

Sidechain

How it Works?

SidechainTwo-way peg – Means assets / coins are transferred at a fixed or deterministic exchange rateSidechain Extension – After transferring coins to the sidechain, this sidechain can be enhanced with better performance or privacy protections or add-on new extensions that supports other asset classes like stocks / bonds / smart contracts etc….Ecosystem of sidechains – Sidechains can have other sidechains for things like micropayments. They allow for experimentation and pre-release versions of future sidechains / beta version of Bitcoin itself

Application

1

User-friendly applications of sidechains

Change features of Bitcoins that are not ideal now e.gBlock reward diminishing

2

Issue asset chains that can be transferred amongst

blockchains e.g. Issue shares / bonds

Creation of a peer-to-peer marketplace for asset

exchange and innovation of a better coin system

CounterpartyThe equivalent of a digital currency exchange for anyone and everyone (decentralised)

Bitcoin

Counterparty

XBitcoin facilitates peer-to-peer payment network without the

need for a centralised financial institution

XCounterparty eliminates the need for not just banks but e.g. Audit / Investment Banks / Brokers / Stock exchanges / Clearing houses, and connect you with the

public Full fledge peer-to-peer financial platform

• Build on top of Bitcoin’s blockchain to tap on the hashing power that secures the Bitcoin network

• Free and open platform for everyone• Works by storing extra data in regular

Bitcoin transaction

CounterpartyHow it Works?

1

Get Bitcoins: because the platform operates upon Bitcoin’s capabilities

3 Create a Counterwallet: To store your currencies and perform actions - List “asset”- Give out dividends - Place bets etc…

2

Get XCP: The internal currency used to perform your actions.

Benefits and Uses____________________________________________________________1 Create Tokens: Almost like

creating a stock and list it. Public can buy a share into it and you can issue dividends, confer voting rights etc

2 Fundraising: Fund raise from public without a Bank hence it’s the same nature as crowdfunding

3 Access global market: Unbounded by exchanges; e.g. issuing equity on Counterparty anyone can buy vs issue on SGX

4 Automated Clearing-house: The system records and clears every transaction immediately, no need for clearing-house cost & time saving

5 Peer=to-peer Derivatives & Trades: self-executing all sorts of smart contracts such as asset exchange / binary options etc.

HyperledgerA platform that allows Real time settlement of transactions

Values can be moved across the globe in real-timejust like sending an email.- No transaction time and fees- Little settlement risk- Increase liquidity

Decentralised Settlement: Instead of having a centralised institution hold the ledgers (records of account value), ledgers are shared, replicated to multiple parties in the system Hyperledger

Decentralised Settlement

Ethereum

Why?

Aim?

Failure of Bitcoin 1.0’s applications to

scalability Scalable as cryptocurrency; ‘light clients’

Not scalable for coloredcoins etc

Superior foundational protocol

Allow other decentralized applications to build on top

of it instead of Bitcoin

Improvements on existing

cryptocurrency

Fees to prevent abuse eg loops

Transaction fee for each computational step of script

execution; Higher fees for expensive operations eg

storage accesses

Mining Algorithm

Dagger: more memory hard than Scrypt

Block propagation

Faster block confirmation times

Basis for trust-less interaction

Ethereum Smart ContractsAutonomous agent

simulated by the blockchain

More possible transaction types

Multi-signature escrows

Authorize a withdrawal

asynchronously

Savings accounts

Peer-to-peer gambling

Creating your own currency

What can it do?

Owner: max 1%‘Bank’: 0.05%

Owner+bank: 100%

Allows any P2P gambling protocol

Incentivizing P2P protocols

Decentralized ‘Dropbox’

Human-friendly

addresses

BitMessage, Tor

Web of trust

Identity and reputation systems

Web 3.0

Content and name resolution (“DNS 2.0″) will exist in the distributed P2P

realm

Net Neutrality

Content moves faster and grows stronger with demand instead of

straining under load

Ethereum – current statusMay 2014 - Regulations: Digital Finance Compliance Association was created with the purpose of interfacing

with the Swiss authorities and providing guidance while also providing assistance and advice for current and new members

Ether sale: lasted 42 days, July-Sep 2014, and collected a total of 31,531 BTC, worth $18,439,086 at the time of the sale, in exchange for about 60,102,216 ETH.

Going forward: Web 3.0: anonymous, decentralized. HTML/Javascript based engine and Ehereum bindings: can tie together contracts with HTML/Javascript

based front-ends

Nov 2014: MIST – decentralized app browser

Feb 2015: Whisper group chat

Asked to join the World Wide Web Consortium (W3C) and participate in the Web Payments Interest Group. The membership includes some of the largest banks, payments companies, tech companies and telecoms in the world.

- Example of Ethereum applicationTarget Applications without servers by enlisting users to participate in the management and security of these

applications’ data

Data-driven interactions which are both autonomous and legally compliant

Decerver: Distributed Application Server Developers can build distributed applications which easily interact with a diverse set of blockchain and

peer-to-peer protocols, all of which have been harmonized in an interactive layer that can be accessed via a JavaScript runtime

Thelonious Customizable, smart-contract enabled, smart-contract controlled blockchain design

Derived from the Ethereum protocol

Gives developers the control to define their own state-of-the-art blockchain

ConclusionInvest in technology, not the reward (coins) Cannot tell which coin will be more accepted in relation to fiat currency in the future

Invest in companies that are developing applications that are monetizable Venture capital aspect

Need for technological specialist who is able to advise on viability of product (eg proprietary code, demand, scalability)

Investment in supporting infrastructure E.g. storage, smart contracts for employees

R&D aspect: prepare for regulations in future

Smart-contract enabled ownership

Eg electronic hotel doors, cutting out middleman etc

Potential for government-issued coins Ability of government to fix exchange rate

Loss of centralization & anonymity

Nick Szabo -- The Idea of Smart Contracts (Nick Szabo -- The Idea of Smart Contracts) (Last Accessed: 15th April 2015) http://szabo.best.vwh.net/smart_contracts_idea.html

What Does it Take to Succeed as a Decentralized Autonomous Organization? (Coin Desk RSS) (Last Accessed:15th April 2015) http://www.coindesk.com/succeed-as-decentralized-autonomous-organization/

Vitalik Buterin. (Last Accessed: 22nd March 2015, Created on 19th September 2013). Retrieved from https://bitcoinmagazine.com/7050/bootstrapping-a-decentralized-autonomous-corporation-part-i/

Adam Hofman (Last Accessed: 22nd March 2015, Created on 5th June 2014). Retrieved from https://bitcoinmagazine.com/13763/swarm-redefines-crowdfunding/

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References