Blockchain Primer December 2017
Parul Singh, Principal @Founder Collective
@parulia - 12-01-17
1.
Context Why talk about blockchain?
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In June 2017, the cryptocurrency market cap grew 4X to break@parulia $100B. - 12-01-17 3
$345,777,000,000 Nov 29, 2017, Total Cryptocurrency Market Cap (55% is BTC)
Source: Coinmarketcap.com
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Here are the “early adopters” in blockchain technology between 2014-2017.
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“Are ICOs the new VC?”
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Meanwhile, ICO fundraising speeds past “traditional” VC investment in June 2017.
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Regulation is coming too. In Nov 2017, the SEC took the unusual step of warning against celebrity endorsements for ICOs. @parulia - 12-01-17 7
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Blockchain use cases seem compelling enough to warrant investment from organizations as diverse as Deloitte, the FDA and Maersk. @parulia - 12-01-17 8
Startups are preparing. In April 2016 - AirBnB acquihired a bitcoin payments team to help them keep up. @parulia - 12-01-17 9
In October 2017 - MIT adds blockchain verified digital diplomas @parulia - 12-01-17 10
2.
Fundamentals Let’s review what’s under the hood.
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“
Blockchain will do for transactions what the internet did for information. Gina Rometti, CEO IBM
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From an internet of bits we are moving toward the internet of value. @parulia - 12-01-17 13
Evolution of the network: from internet > decentralized blockchain. Put another way: blockchain makes it possible for p2p communication to be secure enough for transactions. @parulia - 12-01-17 14
Key concepts Blockchain
Cryptocurrency
Bitcoin
The underlying technology
Application of blockchain for digital currency
A specific cryptocurrency
Distributed database (aka ledger)
Decentralized using blockchain, secured using cryptographic hashes (aka fancy math)
The first fully-implemented decentralized cryptocurrency @parulia - 12-01-17 15
Blockchain Stack ●
● ● ●
●
Consensus layer: a protocol that describes the format of a ledger that is publicly visible and a consensus function that anyone can use to determine which of multiple candidate ledgers is the consensus ledger. The protocol must also allow new blocks to be added to the ledger. Mining layer: a protocol that incentivizes parties to maintain the consensus and add blocks to the ledger. Propagation layer: a protocol that determines how the ledger and blocks are transmitted between nodes in the network. Semantic layer: a specification of how new blocks must relate to previous blocks and a protocol for verifying conformity with the specification. Application layer: application code that implements some desired functionality. @parulia - 12-01-17 16
How a blockchain transaction works
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That said, understanding how the technology works is like understanding MySQL replication - it @parulia - 12-01-17 17 doesn’t help you appreciate Pinterest or Uber. The use cases are what matters.
3.
Use Cases We don’t invest in technologies, we prefer to invest in use cases - and that filter applies here. @parulia - 12-01-17 18
Blockchain has four key functions
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Key sectors and blockchain use cases
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Some anticipate the biggest impact in fintech
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But all of these industries/use cases may be disrupted
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Joe wires money to a company Current way:
Problems:
New way:
1) 2)
1)
1)
3)
Joe gets wire info Joe sends the wire command to the bank The bank sends the money to the receiving bank
2) 3)
Everything has to go through the bank The bank charges a fee You can spoof the wire command
2) 3) 4)
Joe gets wallet address (public key) of company Joe sends amount to recipient The blockchain records the transaction The company receives the payment (verified via ledger) @parulia - 12-01-17 23
Noah applies for a mortgage Current way:
Problems:
New way:
1) Noah fills out an application 2) Lender checks Noah’s credit score
1)
1)
2) 3) 4)
The system of record is massively insecure (equifax) Transactions require verification Many parts can be spoofed Escrow is expensive
2)
3)
Noah fills out an application Digital identity & verification for: credit rating, original asset ownership, transfer of ownership, payment Faster & cutting out govt. / intermediaries @parulia - 12-01-17 24
Parul goes to the doctor Current way: 1) 2) 3)
4)
Parul contacts a doctor who is preapproved by my insurer Parul visits dr who enters notes into an EHR Parul visits another dr who must get written permission for EHR access Insurers need to verify every procedure before payment
Problems: 1) 2)
Slow and inefficient Multiple (sometimes written!) confirmations needed for insurer approval, transfer of medical records, and payments
New way: 1) 2) 3)
EHR is replaced by a secure blockchain Insurer approvals are verified by blockchain Payments are sent more quickly via blockchain
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4.
Blockchain 102 Going deeper
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“
“Every large paradigm in the history of the human species thus far narrowed or completely closed some large gap; blockchain will narrow or completely close a large gap as well. The printing press closed the knowledge gap, the steam engine closed the power gap, and the Internet is closing the distance gap. Blockchain stands to close the exponentially expanding trust gap.” — Richie Etwaru
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Five Key Takeaways 1.
Blockchain will do for transactions what the internet did for information.
2.
Just like the internet, we can expect to see disruptive business models, “picks & shovels” / infrastructure businesses, and existing industries incorporating new technologies into their models.
3.
Financial institutions are heavily investing in blockchain technologies (maybe the way the military invested in early internet). IBM estimates that 65% of large financial companies will have blockchain systems in production by 2019.
4.
Open information, frictionless / costless / near instantaneous transactions & smart contracts will engender business models we probably can’t envision yet.
5.
Increasingly, blockchain companies are going directly to insiders via ICOs and bypassing traditional VC. @parulia - 12-01-17 28
Blockchain 101 key concepts ▪ ▪ ▪ ▪
Contracts, records and transactions Decentralized ledger fixes many problems of the internet - reducing single point of failure scenarios Enabling p2p transactions - beyond file sharing Cutting out intermediaries - increasing speed + transparency
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Blockchain 102 key concepts ▪
▪ ▪ ▪
Transparency + disintermediation + trusted transactions - companies will be disrupted by new trust models Network effects on steroids - tokens create incentives to stay within a network that you partially own Early adopter incentives - generating froth Looking around corners □ Government & currency □ Disrupting VC itself
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Five Significant Obstacles to Adoption 1. This stuff is hard to explain. 2. Blockchain technology is immature. (Doesn’t scale yet, buggy, incomplete) 3. Adoption takes time. As a parallel, TCP/IP took 30 years. 4. Single use and localized applications will emerge first, even so, we are at *early, early* adopter phase. 5. Trust, coordination, and technology becoming invisible to consumers have to happen before this widely takes hold. @parulia - 12-01-17 31
Key Blockchain Risk Factors ▪
▪ ▪ ▪ ▪ ▪ ▪ ▪
Lack of scalability: decentralized design require that every node fully participate in every transaction which serves as a throttle on total transactions for major blockchains High cost per transaction: as is, this makes blockchain impractical for certain use cases Vulnerability to hacks and bugs: high-profile + expensive examples include DAO ($50M stolen) and Mt Gox ($470M stolen) Tech immaturity: interoperability doesn’t exist, standards are being devised, all the v.0.x problems of any nascent technology exist now Regulatory environment: has not caught up to innovations in the field “Burning bank”: participation based distributed ledger systems may face the same problem as a bank experiencing a “run” “Fake news” / mob rule: if a distributed system uses consensus to say what’s true, what happens if 90% of the people are lying? Inertia: getting enterprises and individuals to switch over to a new system requires overcoming “good enough” bias @parulia - 12-01-17 32
5.
Representative Startups We’re in the early activity period
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OpenBazaar Sector: P2P Marketplace Description: Decentralized cryptocurrency marketplace that enables its users to trade online Location: Washington DC Founded: 2014 Funding to date: $4.2M Investors: Digital Currency Group Andreessen Horowitz BlueYard Capital Union Square Ventures William Mougayar Andreessen Horowitz
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MedRec Sector: EMR via Blockchain Description: Decentralized record management system for EMRs that uses blockchain technology to manage authentication, confidentiality, accountability, and data sharing. A modular design integrates with providers' existing, local data-storage solutions, enabling interoperability. Location: Cambridge, MA No investors or funding raised - MIT Media Lab project https://www.media.mit.edu/research/grou ps/1454/medrec @parulia - 12-01-17 35
The DAO Sector: Finance / VC Description: Largest ever crowd-sourced venture-like fund Funding: raised $150M between April-May 2016. Later was hacked & shut down by exchanges in September 2016 Investors: 11,000 crowdfunders, none of whom owned more than 4% of fund Competitors: us?? Notes: DAO failed but it’s successors will learn from it’s mistakes. The SEC also later ruled that they were selling securities, so path forward is unclear. @parulia - 12-01-17 36
Lightning Network Sector: Infrastructure Description: Software to allow crypto holders to transfer funds w/o publishing to the blockchain, possibly a solution to the bitcoin scalability problem Funding: Will raise soon? Investors: N/A Location: San Francisco Founded: 2017
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Fintech + Blockchain
Company
Description
SETL
Platform for settlements and payments
clearmatics
Decentralized clearing machines for financial OTC markets
Symbiont
Abra
LedgerX
Coinbase
Proprietary Smart Security® technology allows complex financial instruments to be modeled in an easy to understand programming language and fully digitized onto a distributed ledger
Consumer digital wallet supporting payments and transfers for bitcoin and over 50 fiat currencies
Institutional derivatives exchange platform for digital currencies
Largest dgital currency wallet service to buy and sell bitcoin
Location
URL
Use Case
UK
setl.io
Settlements Payments
UK
Clearing Settlements clearmatics.com Payments
NY
Mountain View
NY
SF
symbiont.io
abra.com
ledgerx.com
coinbase.com
Clearing Settlements Payments Smart Contracts
Payments Transfers
Trading Clearing
Payments Transfers
Year Founded Funding Raised 2015
Funded By
$39,000,000 Deloitte
2015
Nyca Partners $1,000,000 Route 66 Ventures
2015
Medici Ventures Hudson Technologies Celeridem Capital Management Wicklow Capital Kayon Partners SenaHill Partners DHVC $7,000,000 Atlantic Merchant
2014
Jungle Ventures Silver8 Capital RRE Ventures Foxconn Technology Group Arbor Ventures IGNIA American Express Business Travel Lerer Hippeau Ventures $30,000,000 First Round Capital
2014
Digital Finance Group GV TechU Angels SV Angel Blockchain Capital Lightspeed Venture Partners Jeremy Liew Eric Kagan Funders Club $12,900,000 Cross Pacific Capital Partners
2012
Draper Associates Expanding Capital Battery Ventures Greylock Partners IVP (Institutional Venture Partners) Todd Chaffee Tusk Ventures Jordan Nof $217,000,000 Spark Capital
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Supply chain + Blockchain
Company
Description
Provenance
Provide transparency tools that assemble image, identity and location to create profile, product and story pages; provide traceability system confirms identities and product attributes in tracking items through supply chains UK
Chronicled
Location
Secures IoT device identities, data, and event logs and automates IoT-dependent business logic through smart contracts and offers a blockchain as a service platform for supply chain ecosystems SF
Mojix
Patended RFID technology for real-time asset tracking and supply chain management
URL
provenance.org
chronicled.com
Use Case
Year Founded Funding Raised
Tracking for all stakeholders Transparency for end users
Crypto identity for physical goods Tracking via IoT Smart Contracts
Tracking via IoT Analytics platform
LA
mojix.com
Context Labs
Secured distributed ledger technologies, network graph analytics, data interoperability and visualization for supply chain
Cambridge, MA
Crypto identity for physical goods contextlabs.com tracking
Bext360
Develops technologies that streamline critical supply chains in emerging economies
Denver, CO
bext360.com
Tracking via IoT Analytics platform
Skuchain
Offers a universal, secure ledger by which SKUs can attest to digitally to their orgins and attributes. Products include cryptographically secure smart contracts governing an entire purchase cycle and Proof of Provenance codes, a crypto-serialization solution to track flow of goods on SKU level. Mountain View
skuchain.com
Tracking via IoT Trade Finance Smart Contracts
Funded By
2014
Digital Currency Group Plug and Play Tech Center John Taysom Omidyar Group Merian Ventures $1,000,000 Humanity United
2014
Iterative Capital Management, L.P. Vinny Lingham Pantera Capital Dr. Steven (Seven) Waterhouse Colbeck Capital Solon Mack Capital Mandra Capital Social Starts $9,000,000 Seattle Seahawks Mercury Partners LLC Rainer Busch Oak Investment Partners Bandel Carano, Tom Huseby OMERS Ventures Jim Orlando Tom Huseby InnoCal Venture Capital $85,500,000 Red Rock Ventures
2004
N/A
N/A
2016
2014 N/A
N/A
$1,200,000 SKS Venture Partners
Amino Capital Fenbushi Capital Digital Currency Group
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Marketplaces + Blockchain (1/2) Company
Description
Location
URL
Use Case
Year Founded
Funding Raised
OpenBazaar
Decentralized cryptocurrency marketplace that enables its users to trade online
Washington DC
openbazaar.or g/ P2P Marketplace
2014
Arcade City
P2P ridesharing platform connecting drivers to riders
Austin, TX
arcade.city
P2P Marketplace
2016 N/A
lemonway.co m
Ecommerce Marketplace Crowdfunding Payments
2007
Lemonway
Payment solution technology for marketplaces, ecommerce, crowdfunding
Stratumn
Proof of Process Technology enables traceability, transparency and data integrity, thus reducing costs and complexity of the interactions between partners, customers, auditors, and regulators. The solution offers a common audit trail, secured by blockchains and cryptography, where stakeholders can collaborate without revealing their private and confidential data France
LO3 Energy
France
Launched Brooklyn Microgrid, a community-powered microgrid here in Brooklyn. This means our participants can engage in a sustainable energy network and choose their preferred energy sources, locally. Brooklyn, NY
stratumn.com
Peer-to-Peer Network Proof of Process Protocol
lo3energy.co m
Transactive grid (hybrid device that measures a building’s energy production and use, and communicates with the network to collectively manage energy) DTL
2015
2012 N/A
Funded By
Digital Currency Group Andreessen Horowitz BlueYard Capital Union Square Ventures William Mougayar Andreessen Horowitz $4,200,000 Union Square Ventures N/A
$600,000 N/A BNP Paribas Cardif NASDAQ Otium Capital Bruno Raillard, Pierre Entremont Digital Currency Group Open CNP $9,667,000 Otium Capital
Centrica Braemar Energy Ventures ConsenSys
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Marketplaces + Blockchain (2/2) Company
Description
Location
URL
Use Case
Year Founded
21.co
21.co built first computer with native hardware and software support for the Bitcoin protocol. Developers use it to build bitcoin-payable apps and services. 21.co rebranded to launch Earn.com, a token-based social network, where senders pay users San Francisco, in digital currency to complete tasks CA earn.com
Marketplace
2013
Civil
Ethereum-based decentralized platform that can be used to create “newsrooms” and “stations” — blockchain-based marketplaces where citizens and journalists form communities around a shared purpose and set of standards, financially support factual reporting, nd investigative work, and substantially limit misinformation through effective collaborative-editing methods NY
joincivil.com
Smart Contracts Marketplace
2017
Funding Raised
Funded By
Yuan Capital Clarissa Zhang RRE Ventures Peter Thiel Andreessen Horowitz Mark Pincus Khosla Ventures $121,050,000 Qualcomm Ventures
$5,000,000 ConsenSys
CyberMiles is a blockchain protocol being developed and optimized for business and marketplace applications. CM is being developed as a “fat protocol”, consisting of a blockchain-based “virtual machine”, and defined modules of middle-layer software stacks operating outside the chain, to support decentralized processes governed by smart contracts implemented on the network.CM is working closely with 5miles, a leading c2c marketplace operator with more than 12 million users in the US. 5miles is expected to be the first platform to utilize CyberMiles’ CyberMiles blockchain protocol.
N/A
cm.5miles.co m
Smart Contracts Marketplace
2017 ICO
bitJob
P2P MarketPlace for students, freelancers and employers.
Tel Aviv
bitjob.io
Marketplace
2016
Storiqa
Full and comprehensive combination of e-commerce services – such as smart contracts, cryptocurrency payments, integration with third-party services and 24/7 support Switzerland
iico.storiqa.co m
Ecommerce Payments
4 425 ETH 2017 ($1.6M USD)
ICO (+ partnership with 5Miles) $2,000,000 ICO
ICO
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Healthcare + Blockchain Company
Description
MedRec
Decentralized record management system for EMRs that uses blockchain technology to manage authentication, confidentiality, accountability, and data sharing. A modular design integrates with providers' existing, local data-storage solutions, enabling interoperability.
Gem Google DeepMind
Partner with industry leaders (Philips) to identify problems they want to solve for their network, and then launch a federated blockchain to support the pilot running on GemOS (OS enables connecting to any blockchain, data store, access controls)
Building an auditing system for healthcare data
HashedHealth
Consortium of healthcare companies focused on ausing blockchain and DLT
Tierion
Engine for collecting data and recording it in the blockchain
YouBase
Individual-centric data store for health information, owned & controlled by the patient, built for security & privacy with blockchain
Use Case
Year Founded
Location
URL
Cambridge, MA
https://www.media.mit. edu/research/groups/1 454/medrec EMR via Blockchain N/A
LA
gem.com
UK
https://deepmind.com/ applied/deepmind-heal th/ EMR via Blockchain
Nashville, TN Hartford, CT
Englewood, CO
Funding Raised
Funded By
N/A
N/A
2013
2010 N/A
hashedhealth.com
Payments Identity ERP IoT Clinical Trials
2016
tierion.com/
Data Collection Hash API
2015
youbase.io
Personal Record Management via Blockchain Wallet
2016
KEC Ventures Jeff Parkinson Pelion Venture Partners Ben Dahl Digital Currency Group RRE Ventures Tiller Partners Fenbushi Capital Blockchain Capital Danmar Capital Amplify.LA $12,500,000 Robert Wolfson
Google
$1,000,000 Martin Ventures $26,000,000 ICO
N/A (raised $500K $1,000,000 10/2017)
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6.
Cryptomania ...
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“
“At its core, bitcoin is a smart currency, designed by very forward-thinking engineers. It eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transitions… all good things.” Peter Diamandis Founder and chairman of the X Prize Foundation
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7.
Appendix Other stuff you should probably know
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“
Blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value — money, but also titles, deeds, identities, even votes — can be moved, stored and managed securely and privately. Trust is established through mass collaboration and clever code rather than by powerful intermediaries like governments and banks. Alex Tapscott, Author of the Blockchain Revolution
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Supply chain use cases (1 / 5) Use Case Cold Chain Monitoring
Problem ●
●
●
Shipments needing constant refrigeration are spoiled if they lose temperature Cause of temperature loss and liability is unclear in complex global supply chains Regulation requires securing of the "event logs" in the cold chain inability to take corrective actions in a timely manner
Chronicled Solution ●
● ● ● ●
● ●
Temperature monitoring via low cost, disposable and reusable sensors Regulatory compliance by design, including CFR 21 Part 11 Position tracking Real-time alerts Easy deployment option based on SmartPhone and NFC/BLE communication Large scale implementations supported via IoT gateways Integration with ERP and supply chain solutions
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Supply chain use cases (2 / 5) Use Case
Tamper Proof Sealing
Problem
●
Packaging can be copied or tampered and counterfeits sold High-precision products, devices, machines, and hardware can fail if tampered Banker's boxes with archival documents are difficult to seal
Chronicled Solution
●
CryptoSeal provides strong cryptographic identity to a physical item with a tamperproof sticker Produced in various shapes and sizes, round, thermometer-shaped, etc. Tamper-evident adhesive sticker similar to registration sticker on license plate and breaks into tiny pieces
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Supply chain use cases (3 / 5) Use Case
Supply Chain Compliance
Problem
●
Inability to establish the legitimacy of inter-party event logs Traditional tracking solutions are hosted in private databases and not interoperable High integration costs because multi-party data exchange Centralized solutions create vendor lock-in
Chronicled Solution
●
Decentralized, blockchain-based back end Hub and spoke data exchange to minimize integration costs Truthful and legit by design via an immutable ledger Easy integration with existing ERP and SCM systems, packaging line solutions, and hardware scanners
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Supply chain use cases (4 / 5) Use Case
Supply Chain Automation
Problem
●
Goods, documents, and money flows in supply chain are all manual processes (e.g., payments are made upon manual verification of delivery) The friction between IoT platforms, ERP, supply chain, MS Word, and financial record-keeping systems results in a slow digitization of supply chain Untrusted data from IoT devices (e.g., GPS, temperature loggers) cripple the ability to automate business processes and is not secure enough to support financial flows
Chronicled Solution
●
●
Smart contracts, i.e. business contracts codified on the blockchain, can support multiple-parties including shipper, receiver, and also third-party insurance and financing parties When a shipment with a trusted IoT chip arrives, and signs a random string sent from the hardware scanner, this can be used as evidence of arrival in the smart contract, and money flow can be automated
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Supply chain use cases (5 / 5) Use Case
Secure Product Identity
Problem
●
●
●
Serial number, QR code, UPC code, and barcode systems are all easily cloned and copied The security is insufficient to support supply chain automation or M2M identity verification and payments Approximately $2 trillion per year of luxury products are counterfeited
Chronicled Solution
●
●
NFC or BLE "identity chips" are embedded into products at time of manufacture The chip can be used to power identity verification, authentication, as well as consumer engagement experiences Smart phone-based experiences include, buy-it-now, operating manual, warranty claim card, etc
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Further reading: ▪ ▪ ▪ ▪ ▪
CoinDesk State of Blockchain Q3 2017 CB Insights Bitcoin & Blockchain reports Total Cryptocurrency Market Capitalization Blockgeeks - community & additional resources on technical topics Ty Danco’s Introductory Syllabus
Essays: ▪ ▪ ▪ ▪ ▪ ▪
The Truth About Blockchain - Harvard Business Review, Jan 2017 We Already Know Blockchain's Killer Apps - Hackernoon Making Sense of Smart Contracts - Coindesk Blockchain - Why Care - Russ Wilcox @Pillar Blockchain Massively Simplified - Richie Etwaru, TedX Talk Stop Defining Blockchain in Terms of Today's Commercial Internet - Fast Company @parulia - 12-01-17 57
