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Blockchains and Distributed Ledger Technology

Blockchains and Distributed Ledger Technology

Slides I used for a guest lecture at "Introduction to the Internet" class at SFC (Shonan Fujisawa Campus), Keio University, on December 5, 2016

Kenji Saito
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December 05, 2016
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  1. What if promises can be fixed in the air? Blockchains

    and Distributed Ledger Technology ∼ A True Story ∼ Kenji Saito Senior Researcher, Keio Research Institute at SFC, Keio University ks91@sfc.wide.ad.jp Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.1/29
  2. Self Introduction Kenji Saito Senior Researcher, Keio Research Institute at

    SFC, Keio University (Murai Lab) CSO (Chief Science Officer), BlockchainHub Inc. Representative Director, Academy Camp Bio 1988∼1997 : Hitachi Solutions (“Hitachi Software” then) 1993 : Received M.Eng in Computer Science from Cornell University 2006 : Received Ph.D. in Media and Governance from Keio University Conducting research in P2P and digital currencies for over 16 years at Graduate School of Media and Governance, Keio Research Institute at SFC, etc., in Keio University Representing Academy Camp for children in Fukushima since 2011 ⇒ One and the same in my mind Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.2/29
  3. First of All, A Question To which we will return

    in the end Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.3/29
  4. Q. What would you do if digital promises can be

    fixed in any defined (cyber)space? The promises can be viewed and verified by anyone in such space If you can provide a proof that you have a right to do so, you can have the promises automatically executed Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.4/29
  5. Overview of Blockchain A blockchain is a democratized newspaper It

    is a promise-fixation device in the air Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.5/29
  6. What is a Blockchain? A chain of blocks (so it

    is a bad name for a concept) Block ← A collection of transactions Transaction (TX) ← Description of a state transfer (e.g. money transfer) Usually associated with rights ⇒ Promise A publishing platform (substituting newspaper) “A timestamp server works by taking a hash of a block of items to be timestamped and widely publishing the hash, such as in a newspaper or Usenet post” “To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof-of-work system similar to Adam Back’s Hashcash, rather than newspaper or Usenet posts” – Satoshi Nakamoto (2008) Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.6/29
  7. Why Newspaper? Bitcoin’s Question “How do I create a system

    where nobody can stop me spending my own money?” (according to R3 Corda) Bitcoin’s Answer Transfer digital coins in a P2P manner Use digital signatures (to ensure verifiability) Need to prevent “double spending” ⇒ Put proofs (digests) of transactions on a “newspaper” that crowd publish Blockchain is a “Medium for Public Notice” by crowd, for crowd Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.7/29
  8. Overview of Blockchain (in case of Bitcoin) 1. Each “miner”

    collects transaction data from past around 10 minutes, put them in a block, and participate in a lottery 2. If they win, they broadcast the block 3. Each miner, if they admit that the received block is the final block in the chain, goes back to 1 to continue Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.8/29
  9. Understanding Blockchains or DLT Blockchain (or Distributed Ledger Technology) is

    a “promise-fixation device in the air” to (try to) manifest the End-to-End philosophy of the Internet in controlling digital assets Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.9/29
  10. Possibilities of Blockchains Why they can be disruptive Blockchains and

    Distributed Ledger Technology – A True Story – 2016-12-05 – p.10/29
  11. Applications that are Talked About (by Hyperledger) Financial Assets Direct

    access (without intermediaries), settlement in agreed real-time, business rules, control confidentiality Corporate Actions Real-time execution with controlled confidentiality of stock split, capital reduction, merger, equity transfer, etc. Supply Chains Track sourcing of raw materials, record and search all aspects of production, storage and sale Master Data Management Authorized parties can submit changes, and the designated validators accept those changes Sharing Economy and IoT (Internet of Things) Smart cities/towns, transportation, healthcare/fitness, retailing, construction, education, etc., while their stake holders do not always trust one another (implicitly real-time problems) Those features Bitcoin Blockchain is not good at are written in red Among the problems we want to solve, we see problems unsolved by the technology Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.11/29
  12. Actual Applications So Far Monetary Transfer E.g. Bitcoin, . .

    . Monetary transfer that bypasses banking networks Huge impact by itself Proof of Existence E.g. Proof of Existence (name of a service) Embed arbitrary digests in Bitcoin Blockchain Proof that they existed in their exact forms Within the intention of the original design (“newspaper” substitute) Name Service E.g. Namecoin Fix name-value pair in the air Only within the digital domain Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.12/29
  13. By the way, What are companies remembered in human history?

    Examples? Will they still appear in history textbooks in year 3000? Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.13/29
  14. Companies Remembered in Human History? Example : British East India

    Company (1600) One of the first join-stock companies Companies remembered in human history today are the ones that began corporations as we know today What are the next companies to be remembered in human history? Ones that end corporations as we know today Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.14/29
  15. DAO (general noun) Distributed Autonomous Organization Which is automatically administered

    E.g. Bitcoin Suppose that users are shareholders, coins are stocks and miners are employees . . . Then Bitcoin’s program code describes how to administer the organization that transfer stocks If we generalize, how we form and enforce “laws” will change Computer software has such a power anyways Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.15/29
  16. Earth-Scale Operating System (2007) Blockchains and Distributed Ledger Technology –

    A True Story – 2016-12-05 – p.16/29
  17. Earth-Scale OS as a Platform Makes the monetary financial system

    obsolete Includes settlement systems Includes programming languages and environments Accounting of resources on the earth, including human resources Can define new “laws” Platform on which people can start new activities For profit-making organizations, governments and NPO/NGOs Blockchains are not unrelated with building such a platform Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.17/29
  18. Ethereum Vitalik Buterin, “Ethereum White Paper: A NEXT GENERATION SMART

    CONTRACT & DECENTRALIZED APPLICATION PLATFORM” An enhanced blockchain With a programming language (virtual machine language) Application platform for smart contracts Smart contract : A mechanism to automatically transfer digital assets according to predefined rules Designed to make the monetary financial system obsolete To be a platform for many different DAOs Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.18/29
  19. Impossibilities and Problems of Blockchains A transient technology with trials

    and errors Lots of new technology are getting tried Unusable in society unless evolution can be governed Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.19/29
  20. Protection by Proof Of Work? Transactions are immutable because of

    digital signatures, but they may be removed from blocks Can “Proof Of Work” deter falsification? Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.20/29
  21. Hash-Rate for 2 Years before January 2016 Blockchains and Distributed

    Ledger Technology – A True Story – 2016-12-05 – p.21/29
  22. Reality vs. Blockchains Thought experiment Suppose we create a service

    where a drone carries drinks, and drops them when paid by Bitcoin When does the drone drop a drink? Reality that goes in real-time and the blockchain are so different However, the business operator can decide to drop the drink as soon as they sense the payment, as part of business design Applications can be disruptive as long as businesses can make use of social infrastructure such as insurances Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.22/29
  23. The DAO Incident (Exposed Problem of Governance) Distributed autonomous investment

    fund “The DAO” on Ethereum 3.6 million ETH (5∼6 billion yen) were stolen by recursively calling Split (Jun. 17) Options Do nothing Soft Fork (freeze the account) Stolen fund is not returned Hard Fork (rewrite history; Who controls the present controls the past) Worst manifestation of “ONENESS Trap” Community chose “Hard Fork” (Jul. 20) Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.23/29
  24. ONENESS Trap Bitcoin-like blockchain does not work unless “The world

    is one” Does not work under partitioned networks by natural disasters or political changes Governance is difficult for evolving technology Cannot try something different locally and later apply to the whole Impossibility of Governance : Consensus of the “whole” must be maintained, but the “whole” cannot be defined ⇒ Paradoxically invoking authoritarian power Weakness by structure that disallows decentralization Therefore, truly decentralized “promise-fixation device in the air” has big possibilities Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.24/29
  25. Overview of Technological Problems Evaluation of 3 layers of blockchain

    technology 1. UTXO data structure with digital signatures (Ledger Structure) Ends have control and anyone can verify ⇒ Useful (no confidentiality) 2. Hash-chained blocks (Distributed Timestamp) Basis of proof by ordering events ⇒ Not as robust as thought 3. Nakamoto Consensus (Consensus Mechanism) Trial for finalization of transactions ⇒ Cannot synchronize with reality Solutions to these problems, and pursuit of applications assuming that those problems will be solved, must go side by side Both require more people to join Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.25/29
  26. Think About Questions Satoshi Nakamoto’s question “How do I create

    a system where nobody can stop me spending my own money?” ⇓ A lemma “How do we fix promises in the air?” ← Blockchain is an incomplete answer ⇑ Applicable to? “How do we provide proofs of existence?”← “OP_RETURN hack” Only within digital domain ⇒ We need new and right questions Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.26/29
  27. Example : R3 Corda A new distributed ledger technology To

    manage financial agreements among institutions Using industry-standard tools Interoperability, incremental deployment, confidentiality Corda’ question : “How do I create a system where what I see is what you see and we both know that we see the same thing and we both know that this is what has been reported to the regulator?” Starting with a different question from Bitcoin Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.27/29
  28. Now, Back to Our Question Blockchains and Distributed Ledger Technology

    – A True Story – 2016-12-05 – p.28/29
  29. Q. What would you do if digital promises can be

    fixed in any defined (cyber)space? The promises can be viewed and verified by anyone in such space If you can provide a proof that you have a right to do so, you can have the promises automatically executed Blockchains and Distributed Ledger Technology – A True Story – 2016-12-05 – p.29/29