Blockchain and distributed ledgers-------

So much more than just bitcoin

Professor Robin Teigland Stockholm School of Economics

www.slideshare.net/eteiglandwww.funnovation.se

robin.teigland@hhs.se @RobinTeigland

Sept 2016www.hhs.se

Time will tell…..

The Blockchain is the glue that is going to drive a productivity revolution across the globe on par with what Henry Ford did with the automobile.— Paul Brody, Americas Strategy Leader, Technology Sector, Ernst & Young

Considerable investments by VCs and Corporates

>USD 1 bln VC investment

Significant attention from established players

What is the blockchain?

A combination of several technologies, arranged in a novel way

• Distributed systems• Peer-to-peer networks• Hashing functions• Public-private key cryptography• Cryptographic signatures• Elliptic curve cryptography

A blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it

among a distributed network of computers.

It uses cryptography to allow each

participant on the network to manipulate the ledger in a secure way

without the need for a central authority.

So again, what is the blockchain?

A means to digitalize trust?

Trust

A belief by one party that the other party will behave in an expected manner in a transaction

Uncertainty about the other’s actions in the future

Control cannot be exerted

Interpersonal trust

Institutional trust - brand

Institutional trust - platform

–What is money?

“Trusted third parties”verify and secure digital payments

http://dataconomy.com/fintech-explained-payments/

How well does the system work?

High fees chargedSlow process Chargebacks

possibleMicrotransactions

cost prohibitive “Walled gardens”,

e.g., SwishFraud not

prevented despite KYC, AML extensive regulations

>USD 200 bln in fines

Trust is the “currency of the sharing economy”

-Botsman

All kinds of digital transactions increasing!

TodayRemittancesSME retailersEcommerce

Online bankingSharing economy

Gig economy

TomorrowInternet of ThingsM2M payments

38% of world are unbanked

But if we were to start over and design for

today’s world of digital transactions….?

Banking is essential,

but banks are not.

-Bill Gates

https://bitcoin.org/bitcoin.pdf

“…an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly

with each other without the need for a trusted third party.”

The beginnings of Bitcoin on the Internet in 2008-2009

Institutions

Emergent Collective VS

E.g., Central Bank~ Long-standing financial

institutions and regulations

E.g., Bitcoin Community ~ Self-organizing community of strangers across globe connected through Internet

Teigland, Yetis, Larsson 2013

Continued growth of Bitcoin

On September 19, 2016• 1 BTC = USD 609 • 15.9 mln bitcoins in circulation• Market capitalization of ≈USD 9.5

bln• ≈245,000 transactions daily

https://blockchain.info/charts

Bitcoin – one of 100s of cryptocurrencies

http://coinmarketcap.com/

- Andreas Antonopolous

Saying that Bitcoin is a currency is like saying that the Internet is email.

Currency is just the first app!

http://startusingbitcoin.com/blog/1-what-is-bitcoin/

http://www.iftf.org/blockchainfutureslab/

Procedural trust

No third party overseeing

• Timestamped, public distributed ledger

• Decentralized, P2P network

• Permanent record of all transactions

• Chronology and integrity enforced by cryptography

Procedural trust

Digitalization of trust?

The practical consequence [..is..] for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that.. the transfer is guaranteed to be safe and

secure, everyone knows that the transfer has taken

place, and nobody can challenge the legitimacy of

the transfer. The consequences of this breakthrough are hard to overstate.

- Marc Andreessen, Inventor of the Internet browser

Benefits of blockchain for financial services

Lower costs through shared infrastructure

Faster settlement that leads to lower capital and liquidity needs

Increased transparency, especially with cross border payments

Greater security through cryptography, transparency

Citi Research, Jan 2016

> 50 financial institutions join forces

Blockchain technology (DLT) vs The Blockchain

http://www.slideshare.net/CoinDesk?utm_campaign=profiletracking&utm_medium=sssite&utm_source=ssslideview

Blockchains represent a trade-off in which disintermediation is gained at

the cost of confidentiality.

Hyperledger: 81 members and counting

Blockchain insurance

Smart contracts

Weather dataalgorithm

Insuranceclaim payout

Software code run on a blockchain that enables external data to modify some other data

DAO: Decentralized autonomous

organization

Democratizing ownership of

organization through smart contracts on

blockchain

Four basic use cases Lightweight financial systems

− Crowdfunding − Gift cards, loyalty points, local currencies − P2P trading between asset managers not in direct

competition− Internal accounting systems

Provenance tracking− Tracking origin and movement of items, e.g., luxury goods,

pharmaceuticals, cosmetics, electronics− Critical items of documentation, e.g., bills of lading, letters

of credit Interorganizational recordkeeping

− Collectively recording and notarizing any type of data, e.g., healthcare, legal documents

Multiparty aggregation− Sharing of databases− IoThttp://www.coindesk.com/four-genuine-blockchain-use-cases/

https://letstalkpayments.com/blockchain-use-cases-comprehensive-analysis-startups-invoved/

Blockchain risks and challengesTechnology risks

−Scalability−Mining centralization−Hacking scandals−Interoperability−Flexibility

Perception risks−Terrorists, criminal activity

Regulatory risks−Government regulation,

bansAdapted from 12 Sep 2016m Blockchain Smartnetworks

Other issues

Competition vs standardization? −R3CEV

Immutability?−Ethereum hard fork

Supply of blockchain plus distributed systems skills?−Hyperledger’s call

Energy usage?−24 billion smart devices by 2020

Will blockchain recede like virtual reality in the 1990s? A technology over-hyped and still decades away

from mainstream?

http://www.coindesk.com/making-sense-blockchains-summer-stupid-perfect-illusions/

In 1996

Enablers of a “true” Collaborative Economy?

IoT/sensors

Sharing/ Collaborative

Economy

Blockchains

P2P/M2M micropayments

Big data

http://bluzelle.com/ripple-versus-the-blockchain/

Robin Teiglandrobin.teigland@hhs.se

www.slideshare.net/eteiglandwww.funnovation.se

@robin.teigland

If you love knowledge, set it free…

If you like this presentation and would like to contribute to our research, we accept bitcoins: 1GJR2kE7ebeWwvefHcGCwP2HRfTTjN9ewG.Thank you!!!!!