NYS Forum - Blockchain
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This document discusses blockchain and its potential uses in government. It begins with an overview of bitcoin and how blockchain works at a technical level, ensuring legitimacy of transactions through cryptography and a public ledger. It then explains that blockchain is difficult to understand because it is a new concept and technology still in development. The document defines blockchain as a decentralized ledger for recording transactions across a peer-to-peer network without intermediaries. It discusses controversies around public vs private blockchains and issues of off-chain transactions. Finally, it outlines potential use cases for government, including verification of records and licenses, movement of assets, tracking of physical goods, and automated execution of contracts.
NYS Forum - Blockchain
- 1. The NYS Forum, Inc. BLOCKCHAIN and its use in Government NYC Innovation & Emerging Technologies 1
- 2. Presenting Workgroup 2 NYC Innovation & Emerging Technologies Agenda • A Minute on Bitcoin • Why is Blockchain hard to understand • What is Blockchain • Blockchain Controversy • Using Blockchain • Use Cases
- 3. Presenting WorkgroupNYC Innovation & Emerging Technologies 3 Before we can discuss Blockchain, we need to spend a moment on Bitcoin. Bitcoin is a crypto currency … Bitcoin is electronic cash Daily transactions of Bitcoin are over 300k/day and growing geometrically (2016, about 200k, 2015 about 150k …)
- 4. Presenting Workgroup 4 NYC Innovation & Emerging Technologies Like cash - payments are irrevocable. Security - Two level verification: - Source is legitimate - Coins are legitimate Public/private cryptographic key verification ensures the legitimacy Prevents double spend: - Timestamps - Hashes - Public Leger - Activity is recorded in a community-built Ledger that has a proof-of-work. Computers connected to the network all accept the longest chain as accurate (inhibits hacking).
- 5. Presenting Workgroup 5 NYC Innovation & Emerging Technologies Blockchain Why is it Hard to Understand? • The main reason Blockchain is hard to understand is because it doesn't really exist • It's origin was a 'hack' from another model: Bitcoin- - The creation of Bitcoin was soon followed by the concept that it could do more than simply transfer money (Bitcoins). Many companies started developing a way to use the basis of Bitcoin’s technology, and created a new model that could be used in a variety of other ways. The technology this operates under this model is called Blockchain. • Bitcoin was a great innovation because it solved two fundamental problems in a decentralized manner — preventing double spend and decentralized trust! • Blockchain does not work . . . Yet • The technology is new and does not have the decades of history behind it, such as the internet, information systems, or even basic programming languages. • Value movement requires a new paradigm – Bitcoin uniquely performs the movement of value as part of the transaction. Most Blockchain transactions require what is called an ‘’off-chain” portion. If you create a Blockchain service to buy a pen, then payment could be in Bitcoin, but the pen still needs to be transferred in the ‘real’ world. Same for most stock transfers, energy, and other material movements. • The actualization of designing such an architecture is still in flux - no standard exists – Hyperledger, Etheruem, Ripple, R3 … each have their own style and methods. • Identity management is still cloudy – protecting your credentials is not a solid science.
- 6. Presenting Workgroup 6 NYC Innovation & Emerging Technologies What is Blockchain? • Blockchain is a decentralized ledger, or list, of all transactions across a peer-to-peer network. • If the Internet is the foundation for digital innovation of all kinds, Blockchain technology is the underpinning of a radical rethinking of how we pay for things—as well as how we verify who owns what and who has the right to buy and sell it. • Participants can transfer value across the Internet. The buyer and seller can interact directly without needing verification by a trusted third-party intermediary. Shared Contract CryptographyShared Ledger Consensus Ensuring secure, authenticated & verifiable transactions Business terms embedded in transaction database & executed with transactions All parties agree to network verified transaction Append-only system of record shared across business network
- 7. Presenting Workgroup 7 NYC Innovation & Emerging Technologies Distributed Ledger Independent permissioned Blockchain Distributed virtual machine (Turing- complete) Smart contracts* govern off- chain assets Network achieves settlement finality Blockchain – The Distributed Ledger NOTE: Transactions are not anonymous, but they are pseudonymous: a transaction record is created, but identifying information is encrypted, and no personal information is shared. *Smart Contract: Automated version of a legal contact. Not well defined at this time. http://www.coindesk.com/m aking-sense-smart-contracts/ http://www.ofnumbers.com/wp-content/uploads/2015/04/Permissioned-distributed-ledgers.pdf
- 8. Presenting Workgroup 8 NYC Innovation & Emerging Technologies Blockchain Controversy Public vs Private Blockchain • There are models called Private Blockchain – This is seen as protection against ‘inappropriate’ exchange participants. For example: If you are a broker trading securities, you may feel that participants that are not brokers could corrupt the process. Or a bank may want only other banks to be included in the exchanges. • Public Blockchain is like Bitcoin – anyone can participate as a holder/verifier of the open ledger. To protect this process, you require large numbers of participants (who do get a payment as a small percentage of the transaction value). Small numbers leave a public exchange open to groups that can corrupt the ‘proof’ by overriding legitimate transactions – after all it is a totally democratic process of majority rules. • The problem is both methods have problems. • Private Blockchains have limited value over traditional systems - - - If you know each other, and have encrypted transactions, why use Blockchain at all? • Public Blockchains – Need a large number of participants or its verification process can be overridden by a relatively small number of players acting in concert to put in a false ledger.
- 9. Presenting Workgroup 9 NYC Innovation & Emerging Technologies Blockchain Controversy Public vs Private Blockchain Public Network Fabric Business Adoption Challenges 1. Designed for public network 2. Slow and inefficient 3. Built-in virtual currency 4. Difficult to push upgrades 5. Heavily forked 6. Lack enterprise support Private Network Fabric Business Adoption Challenges 1. Incomplete & usually untested 2. Usually too simple & inflexible 3. Still lack critical enterprise features, such as identity management system 4. Generally lack community support 5. Not standardized
- 10. Presenting Workgroup 10 NYC Innovation & Emerging Technologies Blockchain Controversy Off Chain transactions • Blockchain, like Bitcoin, has a standard of the immutable transaction. To date, there have been instances where this was reversed due to a need to fix hacked entries into the public ledger. For example the DAO (Decentralized Autonomous Organization) using the Ethereum platform was breached and $60mm in illegal value movement was performed. Ethereum undid the transaction (created what is called a fork in the transaction history), but the DAO did not survive due to loss of trust by clients. • Currently few transactions can be completely conducted on Blockchain. Bitcoin is totally Blockchain. SMART Contracts, for the most part are not. Itbit, for example, performs credit swaps on Blockchain, but uses SWIFT to complete the actual transfer. Companies like Solarcoin create tokens that represent value (e.g. 1 MWH per token/solarcoin). Still Solarcoins represent value, they are not the asset. This needs to change (e.g., stock ownership records on Blockchain), before you can fully develop a true Blockchain application. Today’s reality: Over $900bil has been invested in building Blockchain applications most of which are these hybrid on/off chain models.
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- 12. Presenting Workgroup 12 NYC Innovation & Emerging Technologies Why Blockchain? Transferring Assets, Building Value • Anything that is capable of being owned or controlled to produce value is considered an asset • can be tangible or intangible • value can be converted into cash. • Cash also an asset. • Asset examples: • Cars, value clothes (physical) • Bonds, securities, repurchase agreements (intangible) • Licenses & patents (intangible assets) • Music, video, games (intangible, digital) • Energy (renewables, production, sustainability – carbon credits) • Records (property ownership, health records, etc.)
- 13. Presenting Workgroup 13 NYC Innovation & Emerging Technologies Why Blockchain? • A participant is a member of a business network • Customers, Suppliers, Governments, Regulators • Usually reside in an organization • Have specific identities and roles • A transaction is an asset transfer between two or more participants, for example: • John gives a car to Anthony (simple) • John gives a car to Anthony, Anthony gives money to John (more complex) • A contract is set of conditions under which transactions occur, for example: • If Anthony pays John money, then car passes from John to Anthony (simple) • If car won't start, funds do not pass to John (as decided by an independent third party arbitrator) $
- 14. Presenting Workgroup 14 NYC Innovation & Emerging Technologies Why Blockchain? Reduces Cost and Complexity Participant Participant Centralized Repository (today’s system): since most participants are disconnected from their asset depository, settling transactions would require participants to collaborate in a flow that is slow, inefficient, and expensive ….. … Blockchain technology offers a way for market participants to access dematerialized assets directly without always going through other participants needlessly ParticipantDepository Depository (assets dematerialized on shared ledger) Trading Platform Trade Repository Custodian Bank ….. …CCP Shared Repository: all participants can interact with depository directly without involving third parties, potentially making post trade operations cheaper and faster
- 15. Presenting Workgroup 15 NYC Innovation & Emerging Technologies Blockchain Use Cases Government: As a government entity, what can you do with the blockchain? Generically, there are four categories of activity: • Verification. Licenses, proofs of records, transactions, processes or events. Did this event take place? Was this service performed on this piece of equipment? Does this person have the right permit? • Movement of assets. Transferring money from one person/entity to another. Enabling direct payments, once a work condition has been performed. • Ownerships. Land registries, property titles, and any type of real estate ownership. The blockchain is a perfect keeper of the chain of custody for any physical asset. • Identities. Government, cities should issue blockchain e-identities to its citizens, enabling them to securely use services like voting. An e- identity could become similar to a passport, allowing its holder access to a variety of services and rights. • Potential applications include secure e-voting, patient-controlled Electronic Health Records (EHR), and digital property titles. In Ghana, a pilot program is already underway that is enabling citizens to file and digitize land titles via GPS coordinates, register property disputes, and more. • One potential application is DHS’ interest in using blockchain as an advanced analytics aid for quickly resolving identity issues and protecting national security. Another potential application is intra-agency identity management of people, goods, and services • Federal Reserve Governor proposes use of blockchain technology by the central bank – Central banks in countries such as Ukraine are already implementing blockchain banking systems. • NASDAQ inches closer to full blockchain integration for equity trades, files patents. Supported by Government Regulators. Better transparency and auditability. • The Singapore government is developing a system with the local banks focused on preventing invoice fraud by using the blockchain to create a unique cryptographic hash (a unique fingerprint) of every invoice.
- 16. Presenting Workgroup 16 NYC Innovation & Emerging Technologies Blockchain Use Cases The following is a list of key events in the 2016 Wild West Frontier of blockchain • 2016 marked the year that Delaware became the first US state to implement blockchain technology, 2017 will mark another first - we expect companies will be able to file documents on our distributed ledger, in addition to current filing procedures. Delaware Governor Jack Markell launched these initiatives. • Dubai’s Initiatives to go completely blockchain by 2020 – SMART CITIES In late 2016, the Crown Prince of Dubai announced the UAE’s intention to transfer all official documents and perform all government transactions on a blockchain by 2020. Identity management is still cloudy – protecting your credentials is not a solid science. • In the UK, blockchain is currently being tested as a tax collection and remittance dispersal platform. • China and Russia’s central security depositories move to transfer cross-border • In mid-2016, Overstock became the first company in history to sell a bond that was issued on a blockchain. • China announces that it will implement blockchain into its Social Security System to help manage its 1.9 trillion yuan • Republic of Georgia - April last year, the government and bitcoin hardware and software firm Bitfury Group launched a project to register land titles via a private blockchain, which is a tamper-proof ledger, and then to make those transactions verifiable using bitcoin’s blockchain
- 17. Presenter Joel S Binn Sr Director, DSNY 212-437-4281 jbinn@dsny.nyc.gov NYC Innovation & Emerging Technologies 17
- 18. Presenting Workgroup 18 NYC Innovation & Emerging Technologies The End Backup Slides
- 19. Presenting Workgroup 19 NYC Innovation & Emerging Technologies
- 20. Presenting Workgroup 20 NYC Innovation & Emerging Technologies Blockchain Use Cases Auditing: While most public companies around the globe are required by law to perform audits via external auditors, most medium-to-large companies, whether public or private, perform regular audits for the purposes of ensuring stakeholder expectations are met by management and operational teams. Blockchain technology has become increasing popular among the “Big 4” auditing firms, with special attention from Deloitte, PwC and mostly recently, Ernst & Young