Wednesday, 27 July 2016

Blockchain : threat or opportunity?

  J’ai eu récemment l’occasion d’assister à une conférence privée sur le thème  Blockchain: Threat or Opportunity? Il s’agissait de réunir des invités et le public d'une entreprise autour d’un sujet qui fait le « buzz » dans le monde des nouvelles technologies et de réfléchir à leur impact. Un certain nombre de cas d’utilisation de cette technologie du blockchain était également exposée, premiers prototypes d’applications développées au sein de l’entreprise avec des partenaires extérieurs. Il va de soi que je resterai assez vague lorsqu’il s’agira de donner des précisions sur ces exemples d’applications. Je me permettrai toutefois de citer le nom d’un des conférenciers et de la société pour laquelle il travaille, pour la simple raison qu’il s’agit de quelqu’un qui tient un blog et qui livre à qui veut bien l’entendre sa vision de l’avenir.
  Le lendemain de la conférence j’ai mis par écrit mes notes prises à la volée, que j’ai fait circuler auprès d’un certain nombre de collègues. Je reproduit ce résumé ci-dessous, rédigé en anglais, en ayant pris soin d’éliminer toutes les références permettant d’identifier des personnes ou des activités précises.
 J’avais enfin estimé que les questions issues de cette conférence méritaient un début d’examen approfondi et me suis donc mis au travail en essayant de mieux comprendre le sujet et en remontant à la source de la technologie du blockchain, c'est-à-dire le bitcoin, la devise numérique et à la cryptographie. Après quelques lectures et une période de réflexion assez soutenue pendant laquelle j'ai notamment essayé de rendre la chose concrète, i.e. acheter un bitcoin (ou plutôt une fraction de celui-ci), j'ai mis le dossier de côté. En y retournant aujourd'hui je me suis dit que le résumé de la conférence constituait malgré tout un bon début et c'est la raison pour laquelle je le mets sur le blog.
  Ce texte sera peut-être suivi d’autres sur le même sujet dans les mois et peut-être, qui sait, les années qui viennent, puisqu’on nous a expliqué que nous étions à la veille d’une révolution technologique qui allait bouleverser en profondeur la manière dont l’Internet est construit et dont les entreprises dans les domaines de la finance, de la logistique et du commerce, pour citer les champs d’applications les plus évidents, allaient travailler, ce qui en soit est déjà suffisamment important pour qu’on y prête attention. Mais si l’on tient compte également des impacts politiques de ces technologies, alors il y va peut-être de notre devoir de citoyen de nous y intéresser. Dans mes notes complémentaires au résumé de la conférence, j'avais avancé l'idée de "souveraineté numérique", un concept dont le point de départ consistait en une réflexion sur les monnaies alternatives et plus précisément sur le bitcoin, première devise entièrement fondée sur les principes de la cryptographie et qui me semblait en effet pouvoir incarner un défi ou une alternative crédible à l'émission des monnaies par les banques centrales et les Etats. 


Abstract

Blockchain (BC) started out of Bitcoin. It is at the same time a “currency” (i.e. any kind of asset), a platform and a technology.

In a nutshell: Blockchain is a public distributed ledger transaction based technology.
More precisely: it is a consensus system establishing which facts are true trough a protocol guaranteeing validity, uniqueness, immutability and authentication on the information shared by the ledger.

Traceability of goods and services represented in the ledger provides benefits, with less check (less control or no additional control required), reduced costs (less intermediation or no intermediation required) and reduced delays (being reduced as a consequence of previous benefits) in economic transactions of any kind.

The generic benefits of Blockchain can also be described as: sharing ledgers between different organizations agreeing on a single version of the truth; providing a full system of record allowing to go back in time until the origin of the ledger (the very first transaction being recorded); being compliant with regulatory requirements due to evidence being produced by the ledger and last but not least: providing “smart contracts” to manage any kind of assets over time, not only by being able to register fully past transactions but also by providing the same mechanism to register future rights & obligations over the assets. Finally, Blockchain provides a new way to execute business logic at large.
Therefore, the scope of use of this technology is huge and what is important for a company (like ING) is to learn two things: how to make use of the technology (through use cases and prototypes) and to ask the right questions on how to make sense of it in terms of grabbing opportunities and / or reducing risks.

Breaking down into BC, we can analyze it, going from the big picture to the detailed components, as: a digital, distributed ledger; a group of “blocks” sequentially linked one to another through a unique reference; a block being a container for a Sender, a Receiver, a Content and a Timestamp information. Going further into the details of a block, we see it contains the output of hash functions applied to all collection of data and a public and private key. BC is all about cryptography.

The protocol provides a unique way to address + 1018 addresses, making it suitable for the “internet of things”.

There are however issues and limitations with BC: privacy, identity, scalability and performance; one big issue could be the unintended consequences of its exponential growth when adopted in a massive scale, because this technology has the potential to transform entire markets and organizations.
First candidates for BC applications are in finance: reduce settlement times and risks; reduce number of intermediaries in asset transactions (in complex products such as: bonds, repos, syndicated loans, commercial paper); optimize payment systems and in trade finance (letters of credit) where huge benefits could be seen.

Examples of other applications being developed with BC are in diamond transactions (control the origin of mining products, easy transfer of assets), digital music micro-payments and vote counting processes.

Example of Use Cases
1.     Cross-currency payments: the challenge is to select the proper monetary scheme which will underlie BC based transfers: based on IOUs (mimicking LOSTRO and NOSTRO bank accounts as per current regime of international payments) or based on a centralized emission of a crypto-currency.
2.     Smart Asset Distribution

Different flavors of BC
BC firms and technologies can be represented in a matrix crossing Asset types (Coins, Standard Assets, Smart Contracts, Private Contracts) with “permissioned” or “permissionless” ledgers.
Another way to look at BC implementations is going from Currencies, to “Pegged Services”, to “Smart Contracts”, to “Decentralized Autonomous Organizations”.

A use case with smart contract
The idea was to build a trade finance application using Ethereum implementation of BC but the experience failed. Learning the lessons of it, the speaker provides some useful thinking to the audience: first we need to choose the type of organization we want to build around the application, is it Consortium based or Public; next we need to rethink what is an organization. A definition could be the following: an organization is the sum of all previous contracts, rights & obligations plus people. A DAO (Decentralized Autonomous Organization) entity is the same thing as a traditional organization except it resides entirely in code (as a sum of smart contracts). There is also an hybrid way of modeling the BC organization: putting private and public networks together, combining permissioned and permissionless ledgers in creative ways.

A vision of the future (presented by Ethereum lead Dapp developper, Fabian Vogelsteller)
The speaker first redefines what is BC: it is a platform based upon decentralized (peer to peer) nodes, managing immutable data (consensus algorithms) with verified signatures, then he delivers his vision:  “The internet of Blockchain is the internet of structure” (with privacy and scalability being the major issues). One day what we call “the Cloud” will become a Blockchain.

Q&A
The majority of comments concerned the practical uses of BC for the company, the question of issues, the attitude towards this technology: should we embrace it or not (threat or opportunity), plus a few comments on the importance on prototyping and building a few ideas from scratch to learn from the concepts, the tools, the technology.