the applications of

blockchainand crypto currencies

Grzegorz GawronArini Labs

marketics at arini.biz

Agenda- RIP bitcoin, long live the blockchain?- crypto protocols

- escrow, offline payments-green addresses, micropayments- timestamping, but no clairvoyance- smart property - using OpenAssets- cryptographic randomness beacon- multi party lotteries- prediction markets- financial uses

- smart coins- bonds

- Stellar

RIP bitcoin long live the underlying

tech: blockchain?

“...It’s time to admit that the current Bitcoin needs to be scrapped and to take advantage of the innovations behind the technology that underlies Bitcoin, the blockchain...”

* [6]

bitcoin ‘experiment’

* [7], [5]

● (Mike Hearn) would you use a payment system which: ○ Couldn’t move your existing money○ Had wildly unpredictable fees that were high and rising fast

○ Allowed buyers to take back payments they’d made after walking out of shops, by simply pressing a button (...) RBF/scorched earth

○ Is suffering large backlogs and flaky payments○ … which is controlled by China

○ … and in which the companies and people building it were in open civil war?

● main cause = community failure?○ miner concentration○ limited throughput

blockchainand

“crypto protocols”

bitcoin scripts’ applications● escrow● green addresses● efficient micro-payments

* [3]

TRANSACTION

10 BTC

from Alice

to MULTISIG(2 out of 3)

Escrow

Arbitrator

Alice

2x sign

Bob

sign

2x sign

1 2a

2c 2b

Bob

TRANSACTION

10 BTC

from Bank

to Bob

Green Addresses

Alice

‘Bank’

1

sign2

3

4

Bob

TRANSACTION B<lock time>

1 BTC

from TRANS A

to Alice

Micropayments

Alice

2asign

TRANSACTION k

0.0001 BTC

from TRANS A

to Bob

TRANSACTION 2

0.0002 BTC

from TRANS A

to Bob

TRANSACTION 3

0.0003 BTC

from TRANS A

to Bob

TRANSACTION A

1 BTC

from Alice

to MULTISIG (2 out of 2)

1sign

sign

2b

3signsignsign

4 5

6

Timestamping- proof of something without revealing it

- Alice and Bob both sign a hash of a patent

- not proof of clairvoyance- corrupt FIFA case

Timestamp bitcoin implementation- ‘burn’ coins by sending to the time-hash

- but you burn coins and the output needs to be tracked forever, not good

- encode the time-hash in the private key- send back money 2x with the same randomness key- this allows reconstructing the private key- but a bit complex

- ‘burn’ using OP_RETURN with the time-hash- it costs (<1GBp), but you can batch the commitments in a merkle tree

for instance

side note: illicit content: eg illegal links embedded

Smart property- ownership of any real-world property

- tickets, cars, stocks, domain names

- OpenAssets protocol- based on OP_RETURN with instructions

- pass the coin through a special publicised P2SH address

splitting/combining the coins in a tx with a burned bitcoin encoding the split config

- downsides- burn

- need to validate the full history of a coin to make sure it’s really ‘coloured’

Cryptographic beacon- the need: envelopes

- bent edges- cold envelope- video rigged

- bitcoin beacon- treat the hash found as a random bit- miner can withhold (<4000$)

Multiparty lotteries

Secure, multi-party lotteries

● untrusting counterparties● sensitive inputs● and yet - auto transfer money according to rules

The lottery rounds- round 1

- everyone picks a random value- everyone shares hash of their random value

- round 2- everyone shares the random value- all the values are combined into one (eg sum mod n)

How to make a fair lotterywhat if alice got all the real numbers in round 2 and knows she lost? a collateral should help here

● alice creates tx in round 1:○ to alice/bob OR to alice (with hash)

● alice/bob sign time-locked collateral transaction● alice reclaims collateral by providing the data

Prediction Markets

Prediction markets● let people earn from their ‘dispersed’ knowledge● get a prediction at the same time● proposed operation

○ create/buy/sell○ arbitration○ data feeds

Prediction markets in bitcoin● simple wager

○ with Reality Keys ○ tx to: < bob&YES OR alice&NO >

■ YES/NO - a private key for the yes/no-scenario

● market API○ OpenMarket/Close_○ BuyCompleteSet/Sell_○ BuySingle/Sell_

Deal structures● go long:

○ enter: buySingle (buyComplete/sellSingle*)○ exit: sellSingle (buySingle*/sellComplete)

● go short: ○ enter: buyCompleteSet/sellSingle○ exit: buySingle/sellComplete

● arbitrage○ if (sum sellSingle* < complete price)○ buy all / sellComplete○ ... and vice versa

External exchange - need a broker

* 20/1/2016 http://www.jbonneau.com/doc/CBEKMN14-WEIS-decentralizing_prediction_markets.pdf

Bitshares

Bitshares - a bit more finance● smart coins

○ long: spend BTx, get BTgold○ short: put collateral margin, produce BTgold

● smart bonds○ put BTx as collateral○ produce a BTbond, get BTS○ pay BTS interest○ if not: your collateral gets paid to BTbond buyer

Stellar

Stellar - blockchain platform● comparison to bitcoin

○ no POW, Federated Byzantine Agreement instead■ 2 seconds between ‘blocks’

○ ledger of accounts, not transactions

● life cycle○ client: create tx, sign, submit○ core: preliminary checks, propagate, scp

Multi-signatures● security thresholds

○ low - allow trust○ medium○ high - modify signers, options

● eg - any 3 employees can sign anything○ thresholds: low/medium/high: 3/3/3○ master key weight: 0○ Employee x key weight: 1

Stellar consensus protocol

* 20/1/2016 https://www.stellar.org/

Consensus based on ‘federated’ trust

* 20/1/2016 https://www.stellar.org/

References[1] http://www.jbonneau.com/doc/CBEKMN14-WEIS-decentralizing_prediction_markets.pdf

[2] https://www.stellar.org/papers/stellar-consensus-protocol.pdf

[3] Princeton University: ‘Bitcoin and cryptocurrency technologies’ https://www.coursera.org/course/bitcointech

[4] https://bitshares.org/

[5] https://medium.com/@octskyward/replace-by-fee-43edd9a1dd6d

[6] https://www.washingtonpost.com/news/innovations/wp/2016/01/19/r-i-p-bitcoin-its-time-to-move-on/

[7] https://medium.com/@octskyward/the-resolution-of-the-bitcoin-experiment-dabb30201f7

THANK YOU