Blockchain Economic Theory

Brooklyn Futurists
Brooklyn NY, September 14, 2017
Slides: http://slideshare.net/LaBlogga
Blockchain Economics:
Implications of Distributed Ledger Technology
Melanie Swan
Philosophy Department, Purdue University
melanie@BlockchainStudies.org

14 Sep 2017
Blockchain 1
Melanie Swan, Technology Theorist
 Philosophy and Economic Theory, Purdue
University, Indiana, USA
 Founder, Institute for Blockchain Studies
 Singularity University Instructor; Institute for Ethics and
Emerging Technology Affiliate Scholar; EDGE
Essayist; FQXi Advisor
Traditional Markets Background
Economics and Financial
Theory Leadership
New Economies research group
Source: http://www.melanieswan.com, http://blockchainstudies.org/NSNE.pdf, http://blockchainstudies.org/Metaphilosophy_CFP.pdf
https://www.facebook.com/groups/NewEconomies

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Blockchain
Blockchain
2
Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
 To inspire us to build
this vision of the
world

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Blockchain
Agenda
 Introduction
 Technical Overview
 Blockchain ICOs
 Blockchain Economic Theory
 Why do we need Blockchain?
 Smart Network Convergence
 Blockchain and Deep Learning
3

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Blockchain 4
Conceptual Definition:
Blockchain is a software protocol;
just as SMTP is a protocol for
sending email, blockchain is a
protocol for sending money
What is Blockchain/Distributed Ledger Tech?

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Blockchain 5
Technical Definition:
Blockchain is the tamper-resistant
distributed ledger software underlying
cryptocurrencies such as Bitcoin, for
recording and transferring data and assets
such as financial transactions and real
estate titles, via the Internet without needing
a third-party intermediary
What is Blockchain/Distributed Ledger Tech?

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Blockchain 6
Distributed Ledger (general form of DLT):
(1) shared transaction database among network
members, (2) updated by consensus, (3) records
timestamped with a unique cryptographic signature,
(4) in a tamper-proof auditable history all transactions
Distributed Ledger Technology vs. Blockchain
Blockchain (specific DLT w additional feature):
(5) Sequential updating of database records per
chained cryptographic hash-linked blocks
Source: restatement of https://www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/index.html
Ledger: a file that keeps track of who owns what

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Blockchain
Public and Private Ledgers
7
Source: Adapted from https://www.linkedin.com/pulse/making-blockchain-safe-government-merged-mining-chains-tori-adams
 Private: approved users
(“permissioned”)
 Identity known, for enterprise
 Approved credentials
 Controlled access
 Public: open to anyone
(“permissionless”)
 Identity unknown, for individuals
 Ex: Zcash zero-knowledge proofs
 Open access
Transactions logged
on public Blockchains
Transactions logged
on private Blockchains
Any user Financial Inst, Industry
Consortia, Gov’t Agency
Examples:
Bitcoin
Ethereum
Examples:
R3
Hyperledger

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Blockchain
Context of the Blockchain Revolution
8
Source: Expanded from Mark Sigal, http://radar.oreilly.com/2011/10/post-pc-revolution.html
I. Transfer Information II. Transfer Value
6 7
2020s 2030s
Simple networks Smart networks
 Blockchain is fundamentally the next phase of the
Internet, not just a FinTech, could impact every industry
 Two fundamental eras of network computing

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Blockchain
Four Blockchain Application Domains
9
Source: http://www.blockchaintechnologies.com
Smart Property
Cryptographic
Asset Registries
Smart Contracts
IP Registration
Money, Payments,
Financial Clearing
Identity
Confirmation

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Blockchain
Slower Adoption than the Internet
10
Source: http://www.digital-marketing-course.org/growth-of-global-internet-users/, https://wearesocial-net.s3.amazonaws.com/uk/wp-
content/uploads/sites/2/2017/01/Slide007.png
 Internet all over again, but since involves money and
assets, likely to take longer
 Information Internet: 20-40 years (50% online, corporate email)
 Money Internet: could take longer (2050-2075)
 More profound impact
 Computationally-based society has less need for a brick-and-
mortar institutional footprint
Growth in Global Internet users 1995-2015

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Blockchain
Crypto-enlightenment
11
“One ought to think autonomously,
free of the dictates of external
authority” - Immanuel Kant
“Multiple private currencies should
compete for customer business”
- Friedrich Hayek
 At stake: redesign the only sectors not yet reinvented for
the Internet era: Economics, Law, and Government
Source: Kant, I. "Answering the Question: What Is Enlightenment?" (German: Beantwortung der Frage: Was ist Aufklärung?). 1784.
Hayek, F. The De Nationalization of Money. 1976. (paraphrased)

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Blockchain
Agenda
 Introduction
 Blockchain ICOs
12

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Blockchain
How does a blockchain work?
13
 eWallet app: holds keys, not money
 Using PKI (public key infrastructure): electronic wallet
software issues a public-private key pair (public address is a
32-character alphanumeric code)
 Scan public address (QR Code) & submit transaction
 Private key confirms access and funds availability,
transaction validated, executed & posted to blockchain

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Blockchain
How robust is the p2p software network?
14
p2p: peer to peer; Source: https://bitnodes.21.co, https://github.com/bitcoin/bitcoin
 9607 Global Nodes running full Bitcoind (9/17); 100 gb
Run the software yourself:

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Blockchain
What is Bitcoin mining?
15
 Mining is the accounting function to record
transactions, fee-based
 Mining ASICs “find new blocks” (proof of work)
 Network regularly issues random 32-bit nonces
(numbers) per specified cryptographic parameters
 Mining software constantly makes nonce guesses
 At the rate of 2^32 (4 billion) hashes (guesses)/second
 One machine at random guesses the 32-bit nonce
 Winning machine confirms and records the
transactions, and collects the rewards
 All nodes confirm the transactions and append the
new block to their copy of the distributed ledger
 “Wasteful” effort deters malicious players
Sample
code:
Run the software yourself:
Fast because ASICs
represent the hashing
algorithm as hardware

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Blockchain
Agenda
 Introduction
 Blockchain ICOs
16

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Blockchain
In the news: Blockchain ICOs
17
Source: https://cointelegraph.com/news/why-bitcoin-continues-to-be-on-the-top-of-its-game

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Blockchain
ICOs (Initial Coin Offerings)
 ICO: fundraising method, more liquid than equity
 Conceived as project finance / capital-budgeting solution
 $1.74 bn cumulative ICO funding (Coindesk)
 ICOs 4x size of VC funding 1H2017 (PitchBook)
 ICOs: $1.3 bn, VC funding: $358 mn
18
Source: https://www.coindesk.com/ico-tracker
Cumulative ICO Funding
2/3/14 - 7/31/17

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Blockchain
High-profile ICOs
 Filecoin; $186 mn, Aug 2017
 Registered (exempt) small offering CoinList (AngelList);
Reg D 506(c)
 Tezos $232 mn, Jul 2017
 Brave, BATs (basic attention tokens), $35 mn, 30
seconds
 Gnosis; $12.5 mn, Apr 2017
 Self-regulating mechanisms
 Known % of money supply in the ICO offering
 Lock-up: No lock-up on ICO founders coins (usually 1
year IPO), could have time-lock-up
19

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Blockchain
ICO Regulatory Stance
 US: investor protection; regulated (Jul 2017)
 ICOs and exchanges; what about smart contracts?
 ICOs vs token sales (network utility) vs crowdfunding
 Howey Test: is it a security?
1. Investment of money
2. Expectation of profits from the investment
3. The investment of money is in a common enterprise
4. Any profit comes from the efforts of a promoter or third party
 UK: caveat emptor; safer if regulated, not regulated
 China: banned, exchanges ordered to close (Sep 2017)
 Russia: regulation expected by end 2017 (Sep 2017)
 Gibraltar DLT Regulated Entities (to launch 2018)
20
Source: https://www.coindesk.com/ico-tracker, https://www.coindesk.com/china-outlaws-icos-financial-regulators-order-halt-token-
trading/

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Blockchain
Bigger context of Institutional Markets
 Global capital allocation to institutional
investment-class products
 Institutional exposure to cryptographic assets
 Current value: $150 billion
 Estimated value in 10 years: $2 trillion
 Market becoming more institutional
1. ICO and exchanges: regulated entities
2. Cryptocurrency option approval
3. Institutional exchanges handling large
customer orders ($20m+)
 Genesis Trading, Cumberland Mining,
Circle, Gemini Exchange, Project Omni
21
Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order,
https://www.coindesk.com/standpoint-founder-bitcoin-asset-class-will-grow-2-trillion-market/

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Blockchain
Cryptocurrency Market Capitalizations (9/17)
22
Source: https://coinmarketcap.com, http://us.spindices.com/indices/equity/sp-500; List of countries by GDP (nominal) - Wikipedia
 S&P 500: $22.2 tn; US GDP $18.8 tn
 Crypto market cap: $150 bn (≃ top 50th of 200 countries)

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Blockchain
Cryptocurrency Options & Swaps
 NY-based LedgerX: CFTC-regulated Swap
Execution Facility (SEF) and Derivatives
Clearing Organization (DCO)
 Swap execution facility, clearing Bitcoin options
 Sep 2017 began providing physically-settled put and
call options and day-ahead swaps trading
 Private trading for large customers
 LedgerX options possibly to trade on the CBOE
 Significance: cryptocurrency exposure in an
institutional product, demand could be huge
23
Source: https://www.bloomberg.com/news/articles/2017-07-24/bitcoin-options-to-become-available-in-fall-after-cftc-approval

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Blockchain
 Blockchain is a software protocol
 Issue: no one wants to fund basic infrastructure build-out,
but “shiny new” network apps will fail without it
 Like the Dotcom Economy, the Blockchain Economy
could have cycles of bubbles
 Time lag before infrastructure is ready
 Involves money so takes longer
Investment Risk #1: Infrastructure Risk
Blockchain Network Infrastructure Immature
24
TCP/IP, SMTP Blockchain
BitcoinEmailApplication Layer
Protocol Layer

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Blockchain
Investment Risk #2: Visa-class Processing Risk
Bitcoin vs. other payment networks
25
Source: Statista / Coinmetrics, http://www.altcointoday.com/bitcoin-ethereum-vs-visa-paypal-transactions-per-second
1,667
7
Average daily transaction volume ($US mn)
Average
transaction
volume per
second
 Visa: 2,000 transactions/sec; Bitcoin: 7/sec
 Visa: $18bn/day; Bitcoin: $300mn/day

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Blockchain
Investment Risk #2: Visa-class Processing Risk
Consensus Algorithms (BFT)
 Expect: diverse industry chains & consensus methods
 Factom (HC billing), supply chain DLs (A/R financing coin)
 Different levels of security: information, money, identity
 Proof of Work
 Bitcoin blockchain
 Proof of Stake
 Ethereum, Tezos, DFINITY, Tendermint/Cosmos, Stellar
 Complicated scheme of tiered voting by staked participants
 Worry: recreation of agent-based power structures?
 Other “Proof of” solutions
 Proof of Computational Completeness
26
Source: BFT; Byzantine fault tolerance; https://www.slideshare.net/lablogga/blockchain-consensus-protocols
Nov 2017

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Blockchain
Agenda
 Introduction
 Blockchain ICOs
 Economic Transformation Story
27

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Blockchain
What is Economics?
 Study of the production, distribution, and
consumption of goods and services
 Individual and group decision-making about
goods and services and the consequences
 Fundamental dynamics do not change
 Wants are bigger than resources, cost of
decision-making, opportunity cost, scarcity
(material or intangible)
 Same in all forms of economies
 Classical Economics (material goods)
 Network Economics (digital goods)
 Smart Network Economics (automated smart
contracts exchanging cryptographic assets)
28
Source: http://blockchainstudies.org/Blockchain_Economics_CFP.pdf

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Blockchain
Technological Unemployment
 Challenge: facilitate an orderly transition to
Automation Economy
 Half (47%) of employment is at risk of automation in the
next two decades – Carl Frey, Oxford, 2015
 Why are there still so many jobs in a world that could be
automating more quickly? – David Autor, MIT, 2015
29
Source: Swan, M. (2017). Is Technological Unemployment Real? Abundance Economics. In Surviving the Machine Age: Intelligent
Technology and the Transformation of Human Work. Hughes & LaGrandeur, Eds. London: Palgrave Macmillan. 19-33.

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Blockchain
Multi-agent Computational Economy
 Challenge: economic agent behavior modeling
 Human agent: maximization of self-interest, rational
choice theory, game theory, the agency problem,
monopolies, cartels, and cronyism
 Computational agent behavior: externalities,
complexities, interrelations even if open code
30
Human-Machine Collaboration
Ingenuity + Analysis
M2M EconomyHuman-Human Economy
Industries of the
Future:
Machine Ethics,
and Modeling of
Computational
Economic Agent
Behavior
 Increasing presence of computational agents

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Blockchain
Economics: Basic Design Principles
31
Economic Principles
 Traditional Deployment
 Markets
 Blockchain Deployment
 Any interaction is a discovery
and exchange process
 Abundance mindset and
overcoming scarcity
 Decentralized models
supplement hierarchy
 Demurrage incitatory potential
and resource redistribution
across network nodes
 Reciprocal mining communities
Blockchain technology is
prompting us to rethink
economic principles in markets,
and apply them much more
extensibly to other situations in
a non-monetary sense

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Blockchain
Reinventing Economics and Government
32
 Long Tail premise
 80/20 rule false in digital markets
 Sell less of more items
 Look at the long tail as a market itself
Source: Anderson; Brynjolfsson; Elberse
Long Tail Effect
2006
 Analysis (Brynjolfsson et al., 2006, 2010)
 Amazon: niche books account for 36.7% of sales
 Power laws not Pareto distributions in etailing (books,
music), software downloads (70/30 not 80/20)
 Critique (Elberse, 2008)
 Pareto distribution not power laws in some markets
 Evolving market: feedback effect of online reviews
 Key point: personal preference markets work

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Blockchain
Long Tail Financial & Government Services
 One size does not fit all
 Any two parties can meet and transact on a blockchain
33
One size
fits all
Personalized
Long Tail Systems
 Long Tail financial services
 “Amazon or eBay of money”
 Personalized banking, credit,
mortgages, securities
 Long Tail governance services
 “Amazon or eBay of government”
 Personalized governance
services, pay for consumption
Rethink debt with
small-chunk capital

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Blockchain
Financial Inclusion
 Blockchain: leapfrog technology
 2 billion under-banked
 70% lack access to land registries
 Need decentralized networks
because hierarchy does not scale
 Does not make sense to build out
brick-and-mortar bank branches and
medical clinics to every last mile in a
world of digital services
 Like cell phones, digital solutions
could be the answer
 eWallets and deep learning
diagnostic apps for global inclusion
34
Source: Pricewaterhouse Coopers. 2016. The un(der)banked is FinTech's largest opportunity. DeNovo Q2 2016 FinTech ReCap
and Funding ReView., Heider, Caroline, and Connelly, April. 2016. Why Land Administration Matters for Development. World Bank.
http://ieg.worldbankgroup.org/blog/why-land-administration-matters-development

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Blockchain
Framework for future uncertainty
Blockchain Scenario Planning
 Identify two biggest drivers: government regulation
and rate of adoption
 Assess news
35
Highly Regulated
Rapid Adoption
Unregulated
Slow Adoption
Source: GBN Scenario Planning technique
A
B

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Blockchain
Economics and Finance
36
Cryptocurrencies:
Spot Market
Smart Contracts:
Futures & Options
Market
 Systems for organizing access to resources
Economics FinancePast, Present Future
Time

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Blockchain
Hayek: Financial Institution Currencies
37
“Multiple private currencies should
compete for customer business”
- Friedrich Hayek
Source: Hayek, F. The De Nationalization of Money. 1976. (paraphrased); https://www.statista.com/topics/1552/banks-in-china
Tier 1 Capital: equity capital + disclosed reserves (measure of banking strength)
Top Global Banks based on Tier 1 Capital (2014) Top Investment Banks

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Blockchain
New Economic World Order
38
Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order
 Not just cryptofinance, every company own coin issue
 Cryptocurrencies and storage, banking, healthcare, financial
services, technology platforms, fundraising firms

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Blockchain
Securities as a Service
39
Source: Blockchain Fintech: Programmable Risk and Securities as a Service, http://futurememes.blogspot.com/2016/10/blockchain-fintech-
programmable-risk.html
CD, DVD
Streaming Music and
Video Services
Entertainment as
a Service
Asset
Service
Auto, Home
Uber, Lyft, Gett, Juno,
Via; Airbnb, VRBO
HomeAway
Transportation,
Domicile as a Service
Securities
Securities as
a Service
 Securities a Service
 Now have to own because uncertain future value of assets
 Access to the consumable benefits of the asset without owning
 Works if trust consumable assets will have future availability
 Need the cash flow the asset provides, not the asset itself
Consumable benefits of
securities: cash flow,
appreciation

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Blockchain
Future of Institutions
40
Historical Contemporary Future
Church Crown
DMV
Law
Bank Government Police
Healthcare Academia
Corporation Church
Data pillars: library of all
society’s memory and
public records
Building - Website
Columbus’s VCs: Ferdinand
and Isabella
Building – Website – CredentialBuilding
Farther Future
 Role: facilitate life and manage contention
 Influence persists but more choice about belonging

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Blockchain
Future of Nation States
 Regulatory Arbitrage and
Specialization
 DE-based C corporations
 Swiss & Cayman banking laws
 Estonia eResidency Program
 Gibraltar DLT Registered Entities
(ICO response)
 Malta online casinos & Bitcoin
 Transnational boundaries
 ICANN & decentralized DNS/ENS
 Namecoin (.bit domains)
 Ether (.eth domains)
 Human Rights, Refugees
41

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Blockchain
Blockchain Economic Theory
 Production, distribution, and consumption of goods
and services in a Blockchain Economy…
 Same as a Classical Economy
 Underlying dynamics do not change: wants outweigh
resources, opportunity cost, scarcity of valued resources
 Institutions, Money, Nation States persist, role & form change
 Assets, identity, & information now become cryptographic
 Different than a Classical Economy
 Hybrid economy of human and computational agents
 Leapfrog technology: financial inclusion and rethink debt
 New economic design principles: long tail, decentralization,
assets as a service, smart contracts
42

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Blockchain
Blockchain Economic Theory
43
Elements of Economic Theory Not
Changing
Changing
Basic Definition
Production, distribution, consumption of goods and services X
Individual and group decision-making and consequences X
Wants exceed resources, opportunity cost, scarcity X
Shift: material goods to intangible goods and services X
Employment
Technological Unemployment (Automation Economy) X
Multi-Agent Economy (Computational Agents) X
Institutions and Nation States
Role and Influence X
Form and Choice about Joining X
Money, Capital, and Debt
Importance and Role X
Form and Access X
Principles
Long Tail Markets (Personalized Services) X
Decentralization/Financial Inclusion X
Drivers: Regulation and Technology Adoption X
Time Frame Focus: Present to Future X

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Blockchain
Agenda
 Introduction
 Blockchain ICOs
 Big health data, global energy markets,
risk modeling, space, financial inclusion
44

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Blockchain
Why is blockchain DLT needed?
Larger Scale Tiers of Projects
 The reason blockchain is needed is to work on the next
larger slate of challenges
 Key features: secure value transfer, automation, trackability
45
Previous Projects
Current Projects
Next Projects
Railroads, steam
engines, interstate roads
Energy farms, global
comms. networks
Medicine, Energy,
Risk, Poverty
Telegraph
Internet
Blockchain
Kardashev
scaling
Key Enabling Technology
Deep Learning Chains
Future Projects
Space settlement

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Blockchain
Medicine: Big Health Data
46
Source: https://www.illumina.com/science/technology/next-generation-sequencing.html
 Lack understanding of many biological
mechanisms of disease and prevention
Vs. 7.5 bn
people
worldwide

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Blockchain
Global Energy production, storage, transmission
47
Source: http://www.ichorcoal.com/our-business/market-research, https://archinect.com/news/article/137952923/animated-3d-data-
maps-of-new-york-city-beyond
Estimated Demand 2035Growth 1971-2012

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Blockchain
Global Risk Modeling
48

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Blockchain
Smart City Modeling & Simulation
49
Building AgeUber Pick-ups (Apr-Sep 2014)
 Data provenance, secure sharing, auditability

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Blockchain
Space: secure automated systems
50
 Minerals and Energy
 Asteroid mining
 Space-based energy production
 Habitat management
 Settlement, tourism, terraforming
 Launch
 Payload, small rockets, cargo drops,
microstats, construction materials
 Astronomical observation and
experimentation
 Debris monitoring and notification
 Communications
Source: Blockchain Singularities :http://www.slideshare.net/lablogga/blockchain-singularities-65443340

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Blockchain
Agenda
 Introduction
 Blockchain ICOs
51

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Blockchain 52
Better horse AND new car
New Technology

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Blockchain 53
Smart networks are computing networks with
intelligence built in such that identification
and transfer is performed by the network
itself through protocols that automatically
identify (deep learning), and validate,
confirm, and route transactions (blockchain)
within the network
Smart Network Convergence Theory
Source: Swan, M. & de Filippi, P. (2017). Introduction, In Toward a Philosophy of Blockchain. Swan, M. & de Filippi, P., Eds.
Metaphilosophy. New York: Wiley & Sons. 48(5).

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Blockchain
Smart Network Convergence Theory
 Network intelligence “baked in” to smart networks
 Deep Learning algorithms for predictive identification
 Blockchains to transfer value, confirm authenticity
54
Source: Expanded from Mark Sigal, http://radar.oreilly.com/2011/10/post-pc-revolution.html
Two Fundamental Eras of Network Computing

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Blockchain 55
Deep learning is a computer program that can
identify what something is
Technical Definition:
Deep learning is a class of machine learning
algorithms in the form of a neural network that
uses a cascade of layers (tiers) of processing
units to extract features from data and make
predictive guesses about new data
Source: Swan, M., (2017)., Philosophy of Deep Learning, https://www.slideshare.net/lablogga/deep-learning-explained
What is Deep Learning?

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Blockchain
Next Phase
 Put Deep Learning systems on the Internet
 Need blockchain registration, security, and audit tracking
 Example Application: Autonomous Driving
 Smart networks: deep learning + blockchain
 Deep Learning: identify what things are
 Blockchain: secure automation technology
 Track arbitrarily-many units, audit, upgrade
 Legal liability, accountability, remuneration
56

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Blockchain
Agenda
 Introduction
 Blockchain ICOs
57

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Blockchain
Blockchain Strategies
Opportunity: Low-hanging Fruit
 Information confirmation, not
monetary transfer:
1. Cryptographic asset registries
2. Investor information services
3. Supply chain, logistics
4. CRM, Business Logic
5. Energy quoting, transmission
 Automate administrative steps
58
Stock Transaction
Real Estate Purchase/Sale
Health Insurance Billing
Steps that can be automated with blockchain
Steps with human decision-making
Energy Contract
Supply Chain Shipment

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Blockchain
Opportunity: Cryptographic Registries
 Asset Registries
 Land, auto, home titles
 Stocks, bonds, insurance
 Sales quotes, RFP
 Public Documents
 Driver’s license, permit
 Business registration
 Regulatory & QA compliance
 Diploma, credential
 Passport, identity document
 Voter registration, census
 Birth and death certificates
59
Illinois,
Arizona,
Delaware,
Idaho
Finland,
Dubai,
Georgia,
Estonia,
Sweden,
Denmark

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Blockchain
Opportunity: Leadership Edge
 Start or join industry consortium
 Implement digital ledgers
 Automate transfer of money, assets, bids,
quotes, RFPs, ERP, supply chain
 Value chain process mapping
 Revenue-generating
 Offer blockchain-based services to clients
 Example: banks targeting larger customer base
through blockchain-based eWallet solutions
 Cost-saving
 Finance, treasury, accounting, GL/AR/AP
 Quality assurance, regulation, compliance,
audit
60

14 Sep 2017
Blockchain
Conclusion
 Blockchain is a fundamental
information technology for secure
value transfer over networks
 For any asset registered in a
cryptographic ledger, the Internet is
a VPN for its confirmation, assurity,
and transfer
 Reinvent economics and
governance for the digital age
 Long tail structure of digital networks
allows personalized economic and
governance services
61
Personalized
Long Tail Systems
One size
fits all

14 Sep 2017
Blockchain
Conclusion (continued)
 A technology like blockchain is
needed to work on next-generation
challenges
 Financial inclusion, big health data,
global energy production and storage,
risk modeling, and space
 Smart networks: a new form of
automated global infrastructure
 Identify (deep learning)
 Validate, confirm, and route
transactions (blockchain)
62

14 Sep 2017
Blockchain
The Farther Future
Swan’s Theory of Computation
63
Newton
(1687)
Difference Engine
(1786)
Transistor
(1947)
 Basic physics discovery drives computation paradigms
 Gravity: emergent space, time, geometry, & dynamics
Quantum Mechanics
(1905)
Quantum Gravity
(2016)
??
(2075e)
Planck scale
(1×10−35)
Atomic scale
(1×10−9)
Classical scale
(1×101)
Scale Physics Discovery Computation Device
Quantum Computing
Source: “There’s plenty of room at the bottom” – Feynman; the other bottom, the Planck scale

Brooklyn Futurists
Brooklyn NY, September 14, 2017
Slides: http://slideshare.net/LaBlogga
Blockchain Economics:
Implications of Distributed Ledger Technology
Melanie Swan
Philosophy Department, Purdue University
melanie@BlockchainStudies.org
Thank you! Questions?

14 Sep 2017
Blockchain
Agenda
 Definitions
65

14 Sep 2017
Blockchain 66
Blockchain is the tamper-resistant
distributed ledger software underlying
cryptocurrencies such as Bitcoin, for the
secure transfer of money, assets, and
information via the Internet without a third-
party intermediary
What is a Blockchain/Distributed Ledger?

14 Sep 2017
Blockchain 67
Distributed ledgers are a new form of
distributed software architecture where
agreements on the ‘shared state’ of
decentralized and transactional data can be
established in a network of untrusted and
anonymous participants holding a replica of
the data which is ‘append-only’ updated in
chronological order through one-way hash
function encryption
Technical Definition
What is a Distributed Ledger?
Source: Paolo Tasca, Executive Director, Centre for Blockchain Technologies, University College London

14 Sep 2017
Blockchain 68
 Each transaction or event, before permanently recorded
in the ledger, is verified by a group of participants under
a pre-specified set of consensus rules
 Once entered, information can never be erased as a
result of the timestamp included in it
 The ledger contains all the transaction history and each
transaction is tamper-proof, publicly or privately
auditable (traceable) and no-reversible
 Thus a distributed ledger is a ‘trust machine’ with which
people can share value, such as currency, directly and
securely without any intermediary
Technical Definition (continued)
What is a Distributed Ledger?

14 Sep 2017
Blockchain
What is a Ledger?
 A file keeping track of who owns what
 Double-entry bookkeeping
 Korea Goryeo dynasty (918-1392)
 Republic of Genoa (1340)
69
Marco
Polo
Kublai
Khan
Cash $100 $100
Assets $50 $50
Kublai Khan sells Marco
Polo $10 assets
Cash $90 $110
Assets $60 $40

14 Sep 2017
Blockchain
History of Ledgers
70
Source: https://www.coindesk.com/information/what-is-a-distributed-ledger

14 Sep 2017
Blockchain 71
A blockchain is a type of distributed ledger
technology in which confirmed and validated
batches of transactions are held in blocks,
and the blocks are linked (chained) in a
tamper-resistant append-only chain which
starts with a genesis block and where each
block contains a hash of the prior block in
the chain
Technical Definition
What is a Blockchain?

14 Sep 2017
Blockchain
Why is it called blockchain?
Ledger (chain) of sequential transaction blocks
 Each new block starts by calling the last block, so a
cryptographic chain of transactions is created
 Every 10 minutes, the latest block of submitted
transactions is validated (by cryptographic mining) and
posted to a single distributed ledger
72
Source: Satoshi Nakamoto whitepaper: https://bitcoin.org/bitcoin.pdf, https://blockexplorer.com
Block 10 Block 11 Block 12

14 Sep 2017
Blockchain
Agenda
 Distributed Ledger Applications
73

14 Sep 2017
Blockchain 74
 Secure information exchange
 Asset confirmation and transfer
 Automated coordination
 Example: fleet management of drones,
autonomous driving, robotics, clinical trial
patients, cellular therapeutics
 Blockchain: automated, secure
coordination system with remuneration
and tracking
Key blockchain functionality
Source: Swan, M. Philosophy of Social Robotics: Abundance Economics. Sociorobotics, 2016.
http://www.melanieswan.com/documents/SocialRobotics.pdf.

14 Sep 2017
Blockchain
Financial Services
 Shared ledger
 Instantaneous transaction
validation (t=0, not t+3)
 Settlement, clearing,
 Custody, insurance
 Secure, lower risk, cheaper
 Financial assurity
 Securities asset registries
 Automated clearing
 Quoting, deal placement
 Billing, settlement
75
Source: https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments
Shared Ledger

14 Sep 2017
Blockchain
Supply Chain and Logistics
 $54 trillion global supply chain, $23
trillion tied up in receivables
 Sweetbridge Bridgecoin cryptocurrency
(US CFTC-compliant commodity)
 Tamper-proof record-keeping
 SKU chain PopCodes (proof of
provenance codes)
 Confirmation, notification, payment
 Register assets and inventory
 Assure provenance, custody
 Track quantity and transfer of assets
(pallets, trailers, containers) moving
through supply chain nodes
76

14 Sep 2017
Blockchain
Energy
 Blockchain energy projects
 Enerchain: trading (NE Europe)
 BTL Interbit blockchain energy
platform: trading (Vancouver CA)
 PONTON: DSO, TSO, aggregator,
generation power-balancing (Austria)
 Automatic markets
 “Energy Internet” - smart buildings
on regional energy smartgrids
 Smart resource self-pricing
 Load-balancing
 Source fungibility: wind, solar power
 Energy price and trade validation
77
Sources: https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york,
https://enerchain.ponton.de/index.php/16-gridchain-blockchain-based-process-integration-for-the-smart-grids-of-the-future

14 Sep 2017
Blockchain
 EMR (electronic medical record)
 Personal health records
 Users key-permission doctors to records
 Digital health wallet
 Identity + EMR + health insurance + payment
 Health insurance billing chains
 Automated claims processing
 Price-quoting for medical services
 Health Data Research Commons
 Biobanks, QS (DNA.bits), genome files
78
Source: http://futurememes.blogspot.fr/2014/09/blockchain-health-remunerative-health.html
Healthcare
Digital health wallet

14 Sep 2017
Blockchain
Politics: governance services
79
 Blockchain weddings (Bitcoin, Ethereum)
 Public document registries
 Titling Registries
 Local government RFPs for home, auto, land
 Legal services: register and attest
 Contracts, IP, agreements, wills registries
 Proof of Existence: hash + timestamp + blockchain record
 Voting
 Quadratic voting (interest), PageRank (relevance)
 Delegative democracy, random sample elections
 Opt-in personalized governance services
 Composting vs education
Sources: http://merkle.com/papers/DAOdemocracyDraft.pdf, http://www.proofofexistence.com/, https://bitnation.co/ , World’s First
Blockchain Marriage: David Mondrus and Joyce Bayo, 10/5/14, ConsenSys wedding : Kim Jackson and Zach LeBeau, 11/2/15

14 Sep 2017
Blockchain
Humanitarian
 Refugee identity system
 Phone access: smartphone eWallet, SMS
 Object access: card, paper wallet, pendant,
ring, keychain, tattoo, implantable chip
 Biometric access: word phrase, fingerprint,
iris, facial scan
 Financial inclusion, access to learning
 Smart contracts for literacy
 Bitcoin MOOCs “Kiva for literacy”
 Open-source FICO scores
 Decentralized credit bureaus
 Remittance, blockchain-tracked aid
80

Blockchain Economic Theory

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