Why BlockChain: The disruptive disintermediation of infrastructure with blockchain technology. Samuel M. Smith Ph.D.
Founder ProSapien sam@prosapien.com
What is BlockChain Technology? Euphemism for a host of related technologies and concepts of which blockchains are not the most important
Diffuse Trust , + Cellular distributed topology. i @r{\‘@-‘__ “Think clandestine spy ring or resistance organization” (] C lg? {;,‘N + Defeating each node (cell, element) requires an %"l i[ BT g P independent exploit. - W No single point of failure. “Universal root privileges" No common mode failures. “Exploit to attain root privileges” vs * Aslong as the majority or super majority of nodes are not exploited the system is trustworthy. @ + Cooperation between peers vs. authoritarian hierarchy \ & « Distributed consensus is a way to achieve diffuse trust f)(’ f G S
Why Distributed Consensus e+ Enables diffuse trust systems using de-centralized computing infrastructure + Allows secure infrastructure outside a firewall by distributing the attack surface. *Enables the replacement of strongly controlled computing infrastructure with weakly controlled computing infrastructure that may be more secure. ¢ Enables computation in the “fog” vs computation in the “cloud”. *Enables new disruptive business models
Distributed Consensus Applications ¢ Settlement, and other FinTech *Exchanges °loT *Neighborhood computing *Open Platforms ¢ Smart Contracts o Distributed Al
A platform is a business based on enabling value-creating interactions between external producers and consumers.
A platform provides an open, participative infrastructure and sets governance conditions for these interactions. Aplatform consummates matches among users that facilitate the exchange of goods, services, or social currency, thereby enabling value creation or co-creation for all participants.
Aplatformis the antithesis of a pipeline.
( See Platform Revolution 2016, Platform Scale 2015)
Platforms vs Pipelines
A pipeline is a business that directly creates and moves value from ...
producers at one end to consumers at the other end. Platforms eat pipelines because platforms unlock new sources of value creation and supply not-even-mine replaces just-in-time Primary activity shifts from ... internal mechanisms of control of the value chain to... external orchestration/coordination of interactions between third parties
Platform Network Effects Supply economies of scale (production efficiency) replaced with Demand econormies of scale (network effect multipliers of value) Two-sided network effects Core Interaction = Participants + Value unit + Filter - - ) / ""' ~N Platform = pull + match + facilitate [ | 7 { T \ |
Platform Manifesto External eco-system is the new warehouse and supply chain Network effect is the new driver for scale Data is the new dollar Community management is the new human resource management Liquidity management is the new inventory control Curation and reputation are the new quality control User journeys are the new sales funnels Distribution is the new destination Behavior design is the new loyalty program Data science is the new business process optimization Social feedback is the new sales commission Algorithms are the new decision-makers Real-time customization is the new market research Plug-n-play (APIs) is the new business development Invisible hand is the new iron fist
Enablement Platforms disintermediate pipelines Distributed network computation enables platforms Distributed consensus enables trustworthy platforms Governance matters Super-efficient re-intermediation with distributed Al platforms
Disintermediation Theory
Selectorate: Those in power to make decisions for others as intermediaries/agents.
Nominal, influential, essential.
How distributed/centralized is the agency? (democratic——despotic)
Distribution of agency increases the ratio of selectorate to total population
Typically better outcomes arise overall when agency is more distributed
Increased agency results in increased autonomy (happiness) and meritocracy (performance) The mechanism for distributing agency (increasing the selectorate) is disintermediation. To change outcomes, don’t ask those in power to be nicer, fairer, or more responsive, just disintermediate them. Seek disintermediation, not justice.
Disintermediation Opportunities Whenever producers and consumers of value interact through intermediaries. Example: Social media on Facebook/Google is intermediated by Facebook/Google. Facebook/Google is the sole intermediary. Facebook/Google owns all content and controls all interactions in order to extract value. What if users could interact without the value tax of Facebook/Google?
Radical Disruptive Disintermediation Make the governance of the interaction more distributed. Allow users (producers and consumers) to interact without despotic control. Allow user ownership of their content and control of their interactions. Enable users to extract more value from their content and interactions. Closed pipelinesfplatforms are opportune for disruptive disintermediation via blockchain technology.
Distributed Consensus Types « Proof of Work: Simple, highly inefficient, high latency, low throughput « Proof of Stake: More complex, more efficient, lower latency, higher throughput (Asymmetric Proof of Work) * Byzantine Agreement: Most complex, most efficient, lowest latency, highest throughput. (Byzantine Fault Tolerant) « Hybrid: Side chains, anchoring,
- BitCoin: A Peer-to-Peer Electronic Cash System hitps:/fbitcain.org/bitcoin.pdf Header Header Heaser i eosgmue | Gl G i " [ooereo ] Loer] | [ B G b e
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«Analogy to war in the Byzantine era where generals were prone to duplicitous acts «The Byzantine Generals Problem: http:/fresearch.microsoft.com/en-us/umipeopleflamport/pubs/byz.pdf 17 Separated generals agree to attack a city. If they unite they win. If not the attacker(s) Attnck @ diinckd lose. ‘The communication of intent to attack and confirmation of intent to attack is subject to el delay and error. Attueld «Byzantine agreement: Avalid consensus is guaranteed despite a fraction of the participants behaving in a malicious andjor erroneous manner. reatt «Consensus despite “Byzantine” faults: Dropped, erroneous, o malicious Packets. Partitioning. Sybil attacks. A consensus algorithm that achieves agreement despite the presence of Byzantine faults is called Byzantine fault tolerant (BFT).
BA Enables High Performance, Application Specific, Distributed Consensus Which Can Manage * Transactions * Settlement * Smart Contracts * Databases, DHTs, Open Storage * Identity * Reputation
Permissioned Distributed Consensus AKA XBFT or Byzantine Agreement (BA)
- Permissioned Distributed Ledgers Swanson 2105 http://www.ofnumbers.com/wp-content/uploads/2015/04/Permissioned- distributed-ledgers.pdf
« Permissioned governance to address Sybil attack. Censorship.
Chainmail or Mesh Anchoring ,fll‘k\:; W | Wy = ,/‘ ) o \‘)\,, ‘-‘“‘a“m —y
Modern Crypto: Elliptic Curves y=x+ax+b modp R=P+Q R=P+P=2P
Modern Crypto: ECC Diffie-Hellman Key Exchange Given ellptic curve polynomial coefficients a, b, mod prime lice and Bob exchange public keys A and 5. p and, Generator point G on curve. Alice generates shared secret key S, point on curve, from (Public, private) key pair (K, k) where K =kG, Alice’s private key a and Bob's public key B. kis random number, means ECC scalar multiplication by adding G, k times S=aB=abG scalar multiplication is commutative Kis another point on the curve Bob generates shared secret key S, point on curve, from Bob’s private key b and Alice’s public key A. Alice picks private key , random number, and generates public key A, point on curve. A =aG S=bA=baG Bob pick private key b, random number, and generates 5=baG=abG public key B, point on curve. B = bG Now S can be used as source of shared secret to encrypt/ decrypt messages between Alice and Bob.
KEY MANAGEMENT * Hierarchical Deterministic Keys P e « Multi-Signature a% * Key Recovery R ‘ % | O ) * Secret Sharing \ % * Revocation « Group Key Anonymity * EPID Enhanced Privacy ID + SoftwareGuardExtension, Sawtooth
SECRET SHARING Split secret into pieces and distributed them. N of M pieces needed to reconstruct secret. Analogy = Voldemort Horcrux. Key Recovery. Data Storage.
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Modern Crypto: Zero Knowledge Trusted first party Prover, proves to second party, Verifier that a statement is true in such a way that secret information upon which the proof of the statement is based is not conveyed to the Verifier. The Verifier cannot then prove to a third party that the statement is true.