The Blockchain as a New Architecture of Trust

KMWlogo_Stacked_Session Description:

Companies and organizations are popping up every day to enter the blockchain technology revolution.  Others have been experimenting with the technology for many years. Hear from an academic who studies blockchain applications.

Speaker:  Kevin Werbach, Wharton School, University of Pennsylvania

[These are my notes from the new Blockchain in Government conference, which is part of the KMWorld 2018 Conference. I’m publishing them as soon as possible after the end of a session, so they may contain the occasional typographical or grammatical error. Please excuse those. To the extent I’ve made any editorial comments, I’ve shown those in brackets.]

NOTES:

  • Blockchain and the Architecture of Trust.
    • His new book (by this title) will be available on November 20, 2019.
    • Here’s the Amazon link: https://amzn.to/2D7JWaC
  • Trust Architectures.
    • Peer-to-Peer:
      • works well in close-knit communities
      • not scalable
    • Leviathan:
      • this concept comes from Thomas Hobbes
      • trust in government as a backstop
      • we are willing to engage in private transactions, documented by contract, knowing that we can run to the courts (the government) to help us enforce those contracts
    • Intermediary:
      • we trust the platform (e.g., Uber) that intermediates our transaction (with the driver)
    • Blockchain
  • Blockchain = Distributed Trust.
    • Trust the system without (apparently) trysting any actor within it.
    • This trust is based on a consensus derived from a history of consistent behavior across a network without central control.
    • You can trust the promised value exchange without having to trust any particular actor within the system
  • Blockchain’s Value Proposition.
    • Trust Minimization
      • No dependence on the state
      • No single point of failure — you can trust the entire system without worrying about individual participant
        • when a single organization or actor controls the information  and that actor is breached, you have a single point of failure.  Think Equifax, think FaceBook.
    • Trust Expansion
      • Avoid reconciliation
        • currently, everyone keeps their own books and must create processes for settlement and reconciliation between each party’s books.
          • this runs the risk of duplication and error
          • this leads to increased cost and effort
      • Automated execution
        • smart contracts enable automated action, thereby reducing the cost and effort of human intervention
      • Integral auditability
  • Three largely distinct blockchain phenomena.
    • Cryptocurrencies — transactions asnd decentralized apps
    • Distributed ledger — tracking and accountability
    • Cryptoassets — trading
      • currently, Wall Street is swallowing up cryptocurrencies and creating new, decentralized markets to trade these assets.
  • Why Blockchain for Government?
    • Environment:
      • low trust in governments
      • governments tend not to have vast resources to invest so they have to use open source software and shared infrastructure
    • Requirements:
      • it’s critical that we develp strong security for government applciations
        •  it is an attribute of blockchains that they are designed at their core to be secure
      • blockchain provides transaction transparency that enables monitoring and accountability
        • it is an attribute of blockchains that they are designed at their core to be transparent
    • Benefits:
      • blockchain creates the opportunity for “government as platform” that can support a wide range of other applications and operations
      • it can spur economic development
      • it signals that the government is “tech-savvy”
  • Accurate Recordkeeping.
    • This is a central aspect of blockchain
    • It is a really hard problem to solve
    • Cook County in Chicago is trying to use the Bitcoin Blockchain to support their land title registry. In turn, this will support decisions by mortgage providers.
    • Delaware has changed its laws to allow companies to issue their shares on the blockchain.
    • The World Food Program is using blockchain to track which refugees in a Jordanian refugee camp are receiving benefits.
      • they use biometrics to validate identity.
    • Streamlined compliance
      • helps gather in one central place information that normally is housed in a variety of repositories.
    • Berkeley City Council has launched a pilot program for issuing city bonds on the blockchain.
    • West Virginia is experimenting with secured voting absentee voters.
  • Do you need a blockchain?
    • Can the assests involved by digitized securely?
    • Are the assets or activities outside the control of a single entity?
      • if not, then the transaction should be viewed as centralized within that organization, therefore, you shouldn’t need to centralize again on the blockchain.
      • one exception: some companies are using the blockchain to reconcile among the various ERP systems used by each of their divisions
    • Do you want to share data wihtout giving u p control?
    • Are you mre concerned about attacks (security) than crashes (availability?
    • Doe you want an immutable record of transactions?
  • Immutability isn’t always a good thing!
    • if it looks like a legitimate transaction, it cannot be undone — even if fraud/theft is involved.
  • Werbach’s Triangle. It is hard to have all three:
    • Trust
    • Scalability
      • if you optimize scale,  you sacrifice trust and get Facebook
    • Decentralization
      • Vlad’s conundrum:  if you take decentralization seriously, you have to give up on regulation (at least at the extreme edge)
      • Vlad = Vlad Zamfir (Ethereum)
  • What’s its future?.
    • go where the smart folks are going
    • go where the most interesting experimentation is happening
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