Blockchain Technology: Landscape & Future...
Transcript of Blockchain Technology: Landscape & Future...
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Jeremy Clark
Blockchain Technology: Landscape & Future Directions
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Jeremy Clark • Assistant Professor at the Concordia Institute for Information Systems
Engineering (CIISE) in Montreal • PhD from the University of Waterloo (2009) • Team of eight graduate students • Numerous academic papers on Bitcoin/Blockchain, including one of the
earliest • Contributed to courses (Princeton, MIT) & textbook on Bitcoin/blockchain • Testified to Senate and House committees on Bitcoin/blockchain
Where I Am
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Digital RevolutionBlockchain
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Digital Revolution
For business processes based on paper records, digitization increases efficiency
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Digital Revolution
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Database
Digital Revolution
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Who Owns the Database? Privileged Position Availability Manage Access
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Who Owns the Database? Privileged Position Availability Manage Access
Reconciliation
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Disintermediation
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Blockchain
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Blockchain
Data is shared across participants Network is resilient and secure No reconciliation Data redundancy Data is validated & can activate processes
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• Securities: stocks, bonds, derivatives, swaps, repos and post-trade settlement
• Markets: land deeds, carbon credits • Banking: inter-bank settlement, international
payments, remittances, micropayments, loyalty • Provenance: luxury goods, organic certifications,
supply chain management • Government: voting, registries • Coordination: internet of things • Identity management: KYC, PKI • Fun: gambling, prediction markets
Use Cases
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• Securities: stocks, bonds, derivatives, swaps, repos and post-trade settlement
• Markets: land deeds, carbon credits • Banking: inter-bank settlement, international
payments, remittances, micropayments, loyalty • Provenance: luxury goods, organic certifications,
supply chain management • Government: voting, registries • Coordination: internet of things • Identity management: KYC, PKI • Fun: gambling, prediction markets
Use Cases
Blockchain systems can interact
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Frequently Asked Questions& common misconceptions
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Relation to Bitcoin
Bitcoin is designed to be a currency (BTC)
Bitcoin is not a digital form of an existing currency
Thus not like Paypal, EFTs, interact-by-email
Bitcoin is decentralized: no central bank
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The term blockchain 1) Bitcoin’s protocol for achieving a distributed
ledger maintained by an open network of profit-seeking nodes
2) Any distributed ledger
3) The philosophy behind Bitcoin: digitizing commodities, securities, deeds, contracts…
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• Blockchains and (distributed) databases are similar and somewhat interchangeable
• The emphasis is on different things • Blockchains are for small data (1MB every 10 min) • Blockchains are for validated data • Blockchains are not about complex queries (you
download everything) • Blockchains are secure against malicious nodes
Blockchain v. Database
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• CAC-ISO-TC307: Blockchain and electronic distributed ledger technologies
• Industry Consortiums: Various
Standards
Regulation• Use-Case Specific: Mostly pertains to Bitcoin • Taxation: capital gain • Accounting (IFRS): intangible asset • KYC/AML: Fintrac given authority • ICOs/Trusts/Exchanges: Securities authorities
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• By default, blockchains have no confidential transactions
• Confidentiality can be added on with encryption but non-trivial
• By default, blockchains have no identities associated to transactions
• Identities can be added (or conversely, anonymity strengthened)
Confidentiality & Privacy
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Consistency?Consensus through voting
Proof of Work
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Consistency?Consensus through voting
Honest majority
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Consistency?Consensus through voting One vote per ________?
Honest majority
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Consistency?Consensus through voting One vote per ________?
1) Entity: trusted list of entities, closed network
Honest majority
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Consistency?Consensus through voting One vote per ________?
1) Entity: trusted list of entities, closed network
2) Unit of computational effort: Bitcoin’s blockchain No trust, open network
Honest majority
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Use Casesreal & imagined
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Supply chain management Asset tracking Payments Transaction
processing
Identity management
Internet of Things / Smart property Data sharing Fine-grained
access control
Interoperation between systems
Regulation / sanctions
Permanent record storage
Decentralized timestamping
Auctions Voting Gambling Insurance
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Bitcoin
FinTech•Payments •Insurance •Assets
Data•Supply Chain •Voting •Identity •IoT
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$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
October November December
Cum
ulat
ive
Qua
rterly
Fun
ding
($, m
illio
ns)
2017
Q4 2017 Blockchain FundingCumulative ICO Cumulative VC
ICO Funding Raised $3.2bn in Q4ICOs Exceeded VC by Over 16x
State of Blockchain – Q4 2017 | 101
Top ICO Deals:Sirin Labs - $157.9mnPolkadot - $144.6mnQash - $107.3mnCOMSA - $95.4mn
Data Sources: CoinDesk venture capital database, CoinDesk ICO TrackerNotes: Deals under $100,000 excluded, $ amount at time raised, including only fundraisers ending in 'Q4 2017’ (10/1/17 – 12/31/17)
VC$200mn
ICO$3,231mn
Top VC Deals:BitGo - $42.5mnBitPay - $30mnOKCoin - $27.2mnAbra - $16mn
Q2
ICO$797mn
VC$235mn
Q3
ICO$1,316mn
VC$156mn
ICO
VC
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Detailed Use Case:Decentralized Order Books
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ExchangesHundreds of projects on decentralized exchanges
Zoom in on core technical component: order book
An order book is a ledger and blockchains give you distributed ledgers, so easy right?
Goal: understand the landscape of options
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Original Order Book
Type Price Volume
Offer 155.00 300
Offer 152.50 120
Offer (Best) 152.00 100
Bid (Best) 148.00 75
Bid 147.00 200
Bid 146.60 100
Bid 146.50 50
Digital assets being sold for digital money (both on same blockchain)
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Original Order Book Updated Order Book
Type Price Volume Type Price Volume
Offer 155.00 300 Offer 155.00 300
Offer 152.50 120 Offer (Best) 152.50 120
Offer (Best) 152.00 100 Bid (Best) 152.10 400
Bid (Best) 148.00 75 Bid 148.00 75
Bid 147.00 200 Bid 147.00 200
Bid 146.60 100 Bid 146.60 100
Bid 146.50 50 Bid 146.50 50
New Order
Bid 152.10 500
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Order BookGoal: continuous, price-time priority
Issues:
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Order BookGoal: continuous, price-time priority
Issues: • Nodes drop competitive orders
Sent transactions propagate around a P2P network before being added to blockchain
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Order BookGoal: continuous, price-time priority
Issues: • Nodes drop competitive orders • No way to establish time
Each node has unsynchronized clock, transactions can enter at different ends of the network
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Order BookGoal: continuous, price-time priority
Issues: • Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches and slow
Bitcoin updates every 10m, LiteCoin 2.5m, Ethereum 17s
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Order BookGoal: continuous, price-time priority
Issues: • Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches and slow • Miners drop competitive orders
In a blockchain, miners are free to compose their block any way they want
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Order BookGoal: continuous, price-time priority
Issues: • Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches and slow • Miners drop competitive orders • Miners front-run well-priced orders
Miners can see the future and have final word
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Order Book
Open Blockchain Order Book
Trusted Blockchain (90s) Order Book
Open Blockchain Functional Equivalent
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Order Book• Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches • Miners drop competitive orders • Miners front-run well-priced orders
Broadcast to all known neighbours
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Order Book• Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches • Miners drop competitive orders • Miners front-run well-priced orders
Call markets: open/closing cross, crossing networks, etc.
Market opens, orders pile up, randomly close (lit) market, match orders
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Order Book• Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches • Miners drop competitive orders • Miners front-run well-priced orders
Matching: Lowest ask matched to highest bid until no more matching possible
Report the market clearing price
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Order Book• Nodes drop competitive orders • No way to establish time • Blockchain: updated in batches • Miners drop competitive orders • Miners front-run well-priced orders
Miners keep spread: spreads can replace fees & miners can execute at best price
Miners commit to orders before solving and cannot stuff orders into solved block
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Our Researchillustrated
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Provisions: Privacy-preserving proofs of solvency for Bitcoin exchanges.G Dagher, B Bünz, J Bonneau, J Clark, D Boneh. CCS 2015
Liabilities (user verifiable)
Equity
Assets (on blockchain)
ZKP: Equity = Assets - Liabilities >= 0
Solvency Proofs
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There is very little lending in cryptocurrencies
We show how a lending market could be designed for peer-to-peer lending up to commercial paper
We provide a variety of instruments for mitigating counter-party risk including collateral, insurance, & credit default swaps
Toward Cryptocurrency Lending. Chidinma Okoye, Jeremy Clark. WTSC 2018
Lending
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Excitement around replacing post-trade settlement for securities with a blockchain
We designed a decentralized order book based on a call market design
Nuances play a large roll: timing, speed, front-running, incentives
Markets
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Bitcoin and Cryptocurrency Technologies
Arvind Narayanan, Joseph Bonneau, Edward Felten,
Andrew Miller, Steven Goldfeder
with a preface by Jeremy Clark
Draft — Feb 9, 2016
Feedback welcome! Email [email protected]
For the latest draft and supplementary materials including programming assignments,
see our Coursera course.
The official version of this book will be published by Princeton University Press in 2016.
If you’d like to be notified when it’s available, please sign up here.
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@PulpSpy
Q
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How it works
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Alice Bob
Bank
Digital Monetary Unit
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Alice Bob
Bank
Issued by Bank
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Alice Bob
Bank
Spent without Bank
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTC
Alice Bob
Ledger
Ledger-based System
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTC
Alice Bob15 BTC 18 BTC
Ledger
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTC
Alice Bob15 BTC 18 BTC
Ledger
5 BTC
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTCAlice Bob 5 BTC
Alice Bob15 BTC 18 BTC
Ledger
5 BTC
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTCAlice Bob 5 BTC
Alice Bob10 BTC 23 BTC
Ledger
5 BTC
15 BTC 18 BTC
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTCAlice Bob 5 BTC
Alice Bob10 BTC 23 BTC
Ledger
Access Control
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTCAlice Bob 5 BTC
{Alice, KA} {Bob, KB}10 BTC 23 BTC
Ledger
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTCAlice Bob 5 BTC
{Alice, KA} {Bob, KB}10 BTC 23 BTC
Ledger
SigA(5 BTC)
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Bob Alice 10 BTCCarol Alice 5 BTCCarol Bob 18 BTCAlice Bob 5 BTC
{Alice, KA} {Bob, KB}10 BTC 23 BTC
Ledger
PKI
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KB KA 10 BTCKC KA 5 BTCKC KB 18 BTCKA KB 5 BTC
KA KB10 BTC 23 BTC
Ledger
Pseudonymity
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KB KA 10 BTCKC KA 5 BTCKC KB 18 BTCKA KB 5 BTC
Ledger
Transaction: T-9833
Inputs: {T-5292, KA1, 3.5} {T-3928, KA2, 2.5}
Outputs: {KB1, 5.0} {KA3, 0.99}
Signature: {SigA1} {SigA2}
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KB KA 10 BTCKC KA 5 BTCKC KB 18 BTCKA KB 5 BTC
Ledger
Transaction: T-9833
Inputs: {T-5292, KA1, 3.5} {T-3928, KA2, 2.5}
Outputs: {K=Script(In), 5.0} {K=Script(In), 0.99}
Signature: {SigA1} {SigA2}
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KA KB10 BTC 23 BTC
Ledger
T-2351T-4528T-9636T-9833
Decentralize?
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KA KB10 BTC 23 BTC
Ledger
T-2351T-4528T-9636T-9833
T-9833
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KA KB10 BTC 23 BTC
Ledger
T-2351T-4528T-9636T-9833
T-9833
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KA KB10 BTC 23 BTC
Ledger
T-2351T-4528T-9636T-9833
T-9833
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KA KB10 BTC 23 BTC
Ledger
T-2351T-4528T-9636T-9833
T-9833
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KA KB10 BTC 23 BTC
Ledger
T-2351T-4528T-9636T-9833
T-9833 T-9833
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Ledger
T-2351T-4528T-9636T-9833
Agreement & Append-Only
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Ledger
T-2351T-4528T-9636T-9833
Block 11
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Ledger
T-2351T-4528T-9636T-9833
Block 11
Hash Chain
T-0032T-4528T-2348T-8218
Block 10 Block 12
T-3421T-4832T-0341T-3499
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Ledger
T-2351T-4528T-9636T-9833
Block 11
Rate-Limit Block Creation
T-0032T-4528T-2348T-8218
Block 10 Block 12
T-3421T-4832T-0341T-3499
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B10 B11 B12 B13 B14
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B10 B11 B12 B13
B11
B14
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B10 B11 B12 B13 B14
B11 B12
B15
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B10 B11 B12 B13 B14
B11 B12
B15
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T-3421T-4832T-0341T-3499
Block 12
H(Ti)} nB-11} B-12
T-2351T-4528T-9636T-9833
Block 11
H(Ti)} nB-10} B-11
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T-3421T-4832T-0341T-3499
Block 12
H(Ti)} nB-11} B-12
T-2351T-4528T-9636T-9833
Block 11
H(Ti)} nB-10} B-11
B-12 = H( H(Ti) || n || B-11) = 00000000000XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX}
Work = (2n)
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T-3421T-4832T-0341T-3499
Block 12
H(Ti)} nB-11} B-12
T-2351T-4528T-9636T-9833
Block 11
H(Ti)} nB-10} B-11
B-12 = H( H(Ti) || n || B-11) = 00000000000XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Random Node
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Incentive Compatibility
B10 B11 B12 B13 B14
Fees Fees Fees Fees Fees
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B10 B11 B12 B13 B14
✓ ✓ ✓ ✓ ?
Fees Fees Fees Fees Fees
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B10 B11 B12 B13 B14 B15
B14
✓ ✓ ✓ ✓ ?
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B10 B11 B12 B13 B14 B15
B14
✓ ✓ ✓ ✓ X
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B10 B11 B12 B13 B14 B15
B14
✓ ✓ ✓ ✓ X
It pays to verify
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Initial Distribution (Minting)
B10 B11 B12 B13 B14
Fees Fees Fees Fees Fees
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Initial Distribution (Minting)
B10 B11 B12 B13 B14
Fees Fees Fees Fees Fees
Mint Mint Mint Mint Mint
Nodes = “Miners”
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Initial Distribution (Minting)Newly minted coins offset expenses (seignorage)
This allows lower fees
Effectively: minted coins are distributed to the users in the form of lower fees
Circulation limited to 21M BTC (~Year 2140)
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Challenge: Double SpendConsider: two transactions are broadcast & both spend the same BTC
Which one will be included in blockchain?
Consensus will form but will take ~6 blocks (~1 hour) for high assurance. Too long to wait in some cases.
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Detailed Use Case:Proof of Solvency
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Joint WorkGaby Dagher - Boise State University Benedikt Bünz - Stanford Joe Bonneau - Stanford & EFF Dan Boneh - Stanford
ACM CCS 2015
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Balance Sheet
Liabilities
Equity
Assets (on blockchain)
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Balance Sheet
Liabilities
Equity
Assets (on blockchain)
Solvent? Proof for private corporations directly to the customers with no auditors (P2P auditing)
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Exchange ServicesProvide mechanisms for depositing Bitcoin and fiat currency into an account
Provide an order book where you can buy/sell Bitcoin
Trades are cleared/settled automatically
You can withdrawal at any time, but for Bitcoin, users like keeping money on an exchange
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A Recent Headline
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$480,000,000
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Theft Unnoticed for Years
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Proof of SolvencyWe cannot stop thefts
We can require exchanges’ solvency to be proven
With some crypto, we can even prove solvency without revealing:
• Customer information • Exchanges’ total holdings • Exchanges’ addresses
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Liabilities
Equity
Assets
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Liabilities
Equity
Assets
Liabilities: customers can check correct inclusion of their liabilities in a total “encrypted” amount
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Liabilities
Equity
Assets
Liabilities: everyone can check that no listed encrypted liability is a negative number
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Liabilities
Equity
Assets
Assert an encrypted amount of total assets owned on a blockchain
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Liabilities
Equity
Assets
Prove ownership of assets totalling this amount (by knowledge of signing key) without specifying the set
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Liabilities
Equity
Assets
Show: [[Assets]] - [[Liabilities]] >= 0
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DiscussionHaving assets on a blockchain enable new applications
Possible do feed blockchain information into interesting protocols, whether on-blockchain or off-blockchain
Generalizable to a traditional commercial bank? • Nobody does loans in digital currency • If so, loan amounts could be included as assets • Assumes loans are safe: how to quantify actual loan
value in an agreeable way? (yield, credit risk, etc)