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@ computational professor daniel martin katz danielmartinkatz.com BLOCKCHAIN, CRYPTOCURRENCY AND LAW professor nelson rosario GOVERNANCE THROUGH CROWDS, CONSENSUS AND P2P NETWORKS nelsonmrosario.com @ nelsonmrosario BLOCKCHAINLAWCLASS.COM

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DANIEL MARTIN KATZ E D U | I L L I N O I S T E C H + S TA N F O R D C O D E X B LO G | C O M P U TAT I O N A L L E GA L S T U D I E S . C O M PAG E | DA N I E L M A R T I N K AT Z . C O M C O R P | L E X P R E D I C T. C O M NELSON ROSARIO B LO G | L AWO F C RY P TO C U R R E N C Y. C O M PAG E | N E L S O N M RO S A R I O . C O M F I R M | S M O L I N S K I RO S A R I O L AW P. C . BLOCKCHAINLAWCLASS.COM L A B | T H E L AW L A B . C O M E D U | I L L I N O I S T E C H - C H I C AG O K E N T L AW

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BLOCKCHAINLAWCLASS.COM GOVERNANCE IS A CHALLENGING IN ANY SOCIO, POLITICAL OR TECHNO SYSTEM

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BLOCKCHAINLAWCLASS.COM FOR CORPORATIONS, GOVERNMENTS, AND OTHER ORGANIZATIONS

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BLOCKCHAINLAWCLASS.COM QUESTIONS OF HOW TO OPTIMALLY DESIGN AND DEPLOY VARIOUS INSTITUTIONAL FORMS

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BLOCKCHAINLAWCLASS.COM HAS BEEN A SUBJECT OF INTEREST IN MANY FIELDS OF HUMAN ENDEAVOR …

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BLOCKCHAINLAWCLASS.COM CRYPTO INFRASTRUCTURE OFFERS A UNIQUE GOVERNANCE STRUCTURE

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BLOCKCHAINLAWCLASS.COM THAT NOVELLY CONFIGURES SOME KEY BUILDING BLOCKS

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BLOCKCHAINLAWCLASS.COM AS A REMINDER FROM OUR LAST SESSION …

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BLOCKCHAINLAWCLASS.COM WE REVIEWED THE FIRST THREE BUILDING BLOCKS OF CRYPTO INFRASTRUCTURE

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SO NOW … THE BUILDING BLOCKS OF BLOCKCHAIN TECHNOLOGY (PART 2) BLOCKCHAINLAWCLASS.COM

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LEDGERS CRYPTOGRAPHY NETWORKS + + CONSENSUS + } BLOCKCHAINLAWCLASS.COM BLOCKCHAIN APPLICATIONS = INCENTIVES + {

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LEDGERS CRYPTOGRAPHY NETWORKS + + BLOCKCHAINLAWCLASS.COM LAST SESSION

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THE BUILDING BLOCKS OF BLOCKCHAIN TECHNOLOGY BLOCKCHAINLAWCLASS.COM NETWORKS - ALLOWS US INTERACT / COMMUNICATE LEDGERS - LET US TRACK THINGS CRYPTOGRAPHY - HELPS US SECURE THINGS (*NOTE* NOTHING CAN EVER BE PERFECTLY SECURE)

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LEDGERS CRYPTOGRAPHY NETWORKS + + BLOCKCHAINLAWCLASS.COM LAST SESSION THIS SESSION CONSENSUS INCENTIVES + +

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LEDGERS CRYPTOGRAPHY NETWORKS + + CONSENSUS + } BLOCKCHAINLAWCLASS.COM BLOCKCHAIN APPLICATIONS = INCENTIVES + {

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BLOCKCHAINLAWCLASS.COM LETS TAKE A BIT OF A DEEPER DIVE

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BLOCKCHAINLAWCLASS.COM CONSENSUS JUST MEANS AGREEMENT

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BLOCKCHAINLAWCLASS.COM BUT IN THIS CONTEXT IT TAKES ON A SLIGHTLY DIFFERENT MEANING …

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BLOCKCHAINLAWCLASS.COM ALSO WE WILL USE A RETROFITTED DEFINITION OF ‘INCENTIVE’ AS WELL

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THE BUILDING BLOCKS OF BLOCKCHAIN TECHNOLOGY BLOCKCHAINLAWCLASS.COM CONSENSUS - METHODOLOGY FOR REACHING A COORDINATED DECISION IN A GROUP DECISION MAKING PROCESS INCENTIVES - MECHANISM(S) FOR ENCOURAGING PARTICULAR FORMS OF PARTICIPATION IN SOCIO- TECHNICAL SYSTEMS

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BLOCKCHAINLAWCLASS.COM CONSENSUS

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BLOCKCHAINLAWCLASS.COM INSTITUTIONS (POLITICAL OR OTHERWISE) EXIST IN PART TO REACH CONSENSUS ON ONE OR MORE TOPICS

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BLOCKCHAINLAWCLASS.COM NOTE: CONSENSUS NEED NOT IMPLY UNANIMITY AMONG THE PARTICIPANTS

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BLOCKCHAINLAWCLASS.COM CONSENSUS COULD BE REACH BY RULE OF A DICTATOR OR SINGLE DECISION MAKING AUTHORITY

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BLOCKCHAINLAWCLASS.COM WITHIN THE LAW WE USE CONSENSUS MECHANISMS TO MAKE DECISIONS

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BLOCKCHAINLAWCLASS.COM WITHIN THE LAW WE USE VARIOUS CONSENSUS MECHANISMS TO MAKE DECISIONS

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BLOCKCHAINLAWCLASS.COM THESE INCLUDE DIFFERENT FORMS OF INSTITUTIONAL DECISION MAKING PROTOCOLS SURROUND DIFFERENT FORMS OF DECISION MAKERS

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BLOCKCHAINLAWCLASS.COM JUDGES JURIES ADMINISTRATORS LEGISLATORS EXECUTIVES ETC.

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BLOCKCHAINLAWCLASS.COM BOTH DIRECT DEMOCRACY AND JURIES ATTEMPT TO LEVERAGE THE COLLECTIVE WISDOM OF THE GENERAL PUBLIC

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BLOCKCHAINLAWCLASS.COM IN OTHER REALMS, THIS IS CALLED ‘CROWDSOURCING’

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C R O W D S O U R C I N G I D E A I S T H AT T H E R E I S A L AT E N T ‘ W I S D O M O F C R O W D S ’ AVA I L A B L E T H AT M I G H T M ATC H O R E XC E E D T H E ‘ P E R F O R M A N C E ’ ( H O W E V E R D E F I N E D ) O F I N D I V I D UA L D E C I S I O N M A K E R

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C R O W D S O U R C I N G C R O W D S O U R C I N G D O E S * N OT * R E F E R TO A S P E C I F I C T E C H N I Q U E O R A LG O R I T H M

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C R O W D S O U R C I N G G E N E R A L LY R E F E R S TO A P R O C E S S O F AG G R E G AT I O N A N D / O R S E G M E N TAT I O N O F I N F O R M AT I O N S I G N A L S

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S O H O W D O I CO N ST R U C T A C R O W D ?

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I N T H E C L A S S I C CO N D O R C E T J U R Y S E T T I N G , M O D E L S TY P I CA L LY U S E P R E D I C T I O N S F R O M A L L PA RT I C I PA N T S

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H O W E V E R , M O D E L S CA N A L S O TA K E I N TO ACCO U N T I N F O R M AT I O N ( S I G N A L S ) F R O M S O M E S U B S E T O F PA RT I C I PA N T S ( D E F I N E D U S I N G E I T H E R I N C LU S I O N R U L E S O R E XC LU S I O N R U L E S )

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VA R I O U S S I G N A L TY P E S T H E I N P U T S I G N A L S CA N A S S U M E M A N Y D I F F E R E N T F O R M S I N C LU D I N G F R O M M O D E L S O R I N D I V I D UA L S O R S E N S O R S ( O R S O M E CA S E S E V E N OT H E R C R O W D S )

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S O M E E X A M P L E S

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CROWD OF INDIVIDUALS The most well know approach involves extracting ‘wisdom’ from crowds where crowds are built from individual people

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CROWD OF SENSORS Note crowds need not be composed of humans but could be networked IT systems Decentralized Distributed Ledgers -or- Oracles -or- IOT sensors with Crowdsourcing Validation #Blockchain #InternetofThings #Crypto

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#CRYPTO CROWD Thanks to Team Augur for the Shoutout

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CRYPTO CROWDS? For most applications, crowdsourcing could produce *better* performance but the biggest challenge is the coordination costs

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CRYPTO CROWDS? Sometimes getting even a second opinion in medicine (or any professional service) is very challenging — obtaining a 100th opinion is practically impossible

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CRYPTO CROWDS? Among other things Crypto Infrastructure (Blockchain) might provide the mechanism necessary to lower the coordination costs in crowd construction

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Random Forest Model Breiman, L.(2001). Random forests. Machine learning, 45(1), 5-32. Grow a set of differentiated trees through bagging and random substrates (predict using a consensus mechanism) C R O W D O F M O D E L S

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CROWD PREDICTIONS Thanks to Team Augur for the Shoutout

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C R O W D O F M O D E L S Each Poll has a slightly different methodology and historic performance (can be aggregated in various ways )

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crowd of signals does not always yield success aggregation of similarly biased signals does not work

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Poll Aggregation (note not always successful) C R O W D O F M O D E L S Each Poll has a slightly different methodology and historic performance (can be aggregated in various ways )

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S O H O W D O I CO N ST R U C T A C R O W D ?

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C R O W D S O U R C I N G T H E R E A R E VA R I O U S R U L E S T H AT M I G H T B E CO M B I N E D I N O R D E R TO ‘ CO N ST R U C T ’ A C R O W D

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BLOCKCHAINLAWCLASS.COM THROUGH SOME PROCESS (PROTOCOL) WE WILL SEEK TO OBTAIN CONSENSUS REGARDING SOME EXTERNAL ‘TRUTH’

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BLOCKCHAINLAWCLASS.COM IN CRYPTO (AND IN OTHER APPLICATIONS) CROWD CONSENSUS IS DERIVED FROM PEER TO PEER NETWORKS

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BLOCKCHAINLAWCLASS.COM MOST CRYPTOCURRENCY BLOCKCHAINS ARE PEER TO PEER NETWORKS

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BLOCKCHAINLAWCLASS.COM PEER-TO-PEER NETWORK

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BLOCKCHAINLAWCLASS.COM PEER-TO-PEER NETWORKS EXAMPLES THE FIRST WAVE OF PEER-TO-PEER APPLICATIONS WERE FOCUSED ON FILE-SHARING NAPSTER BITTORRENT GROKSTER

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BLOCKCHAINLAWCLASS.COM PEER-TO-PEER NETWORKS EXAMPLES THE SECOND WAVE OF PEER-TO-PEER APPLICATIONS ARE FOCUSED ON ALL SORTS OF TOPICS FINANCE COMPUTING FILE STORAGE

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BLOCKCHAINLAWCLASS.COM NODES ON PEER TO PEER NETWORKS SERVE AS THE CROWD SOURCED VALIDATORS OF ‘TRUTH’ / ‘TRUST’

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BLOCKCHAINLAWCLASS.COM HOW DOES THE BEHAVIOR OF INDIVIDUAL FACELESS, NAMELESS NODES IN A NETWORK YIELD ‘TRUST’ ?

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BLOCKCHAINLAWCLASS.COM IN OTHER WORDS, HOW DOES TRUST EMERGE FROM THIS CROWD?

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BLOCKCHAINLAWCLASS.COM AGAIN REMEMBER VARIOUS FORMS OF CRYPTO INFRASTRUCTURE OFFER NOVEL COMBINATIONS OF DIFFERENT INGREDIENTS

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BLOCKCHAINLAWCLASS.COM THE FINAL INGREDIENT IS THE CLEVER IMPLEMENTATION OF ECONOMIC INCENTIVES

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BLOCKCHAINLAWCLASS.COM MICRO INCENTIVES AND MACRO TRUST

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BLOCKCHAINLAWCLASS.COM IN THE CASE OF CRYPTO CURRENCY THIS IS WHERE POW VS. POS ENTER THE PICTURE …

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BLOCKCHAINLAWCLASS.COM PROOF OF WORK VS PROOF OF STAKE https://blockgeeks.com/guides/ proof-of-work-vs-proof-of-stake/

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BLOCKCHAINLAWCLASS.COM WE WILL TALK MORE ABOUT ‘MINING’ IN THE NEXT MODULE …

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BLOCKCHAINLAWCLASS.COM BUT THE *KEY* IDEA HERE IS THAT WE USE MICRO LEVEL ECONOMIC INCENTIVES

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BLOCKCHAINLAWCLASS.COM IN ORDER TO BUILD MACRO LEVEL TRUST …

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BLOCKCHAINLAWCLASS.COM FOR MORE MODULES VISIT

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DANIEL MARTIN KATZ E D U | I L L I N O I S T E C H + S TA N F O R D C O D E X B LO G | C O M P U TAT I O N A L L E GA L S T U D I E S . C O M PAG E | DA N I E L M A R T I N K AT Z . C O M C O R P | L E X P R E D I C T. C O M NELSON ROSARIO B LO G | L AWO F C RY P TO C U R R E N C Y. C O M PAG E | N E L S O N M RO S A R I O . C O M F I R M | S M O L I N S K I RO S A R I O L AW P. C . BLOCKCHAINLAWCLASS.COM L A B | T H E L AW L A B . C O M E D U | I L L I N O I S T E C H - C H I C AG O K E N T L AW

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@ computational professor daniel martin katz danielmartinkatz.com BLOCKCHAIN, CRYPTOCURRENCY AND LAW professor nelson rosario nelsonmrosario.com @ nelsonmrosario BLOCKCHAINLAWCLASS.COM GOVERNANCE THROUGH CROWDS, CONSENSUS AND P2P NETWORKS