INTRODUCTION: WHAT DO YOU NEED TO KNOW ABOUT BLOCKCHAIN?JUHO LINDMAN, DIRECTOR OF GU BLOCKCHAIN LAB

ENERGIFORSK: DIGITALISERINGEN INOM ENERGISEKTORNSTOCKHOLM 20 MARCH

Juho Lindman

• Current– Associate Senior Lecturer of Applied IT (Informatics)– Director of Blockchain lab

• Earlier: – Svenska Handelshögskolan HANKEN, Helsinki, Assistant professor in

Information Systems Science (FLO) – Aalto University, Helsinki, Department of Business Technology

• Visiting: – 2010 London School of Economics, UK– 2012, 2015 Stanford (Scancor), US

• Research interests– Blockchain– Software business, software development in organizations. – Especially 3O’s : open source, open data and open access

• Focus on the tension between traditional vs open logic

• Example 1: Blockchain– More of that in what follows

• Example 2: Open source and organizations– Market and non-market mechanisms– Formal vs. informal roles

• Example 3: Open data– Which data sets to release and which to

keep proprietary?– Open data service development

• Example 4: Open access– How electronic publishing is changing

My research

Digitalization

Different domains of social life •structured around digital communication (and media) infrastructure

Not only about from analogic to digital–Not only about specific digital –technologieshowever industries increasingly ICT –intensive

Related trends•Globalization as both a pre– -requisite and a consequenceConvergence. One communication infra –linking all different activities, mediaVirtualisation introduces new (radical) –openenss and decentralisation to organizations

Digitalization of society

Peer and social production on global •scale (Benkler, 2006)Peer production takes over other •market mechanisms in knowledge and cultural production

Falling costs of production and distribution–Individuals need less market incentives –Nor indirect market subsidy of intellectual –property rightThis new non– -market and cooperative labour produces (economic) value that rivals that of nation states and bureaucraciesAnd occur outside formal management –structuresExample areas journalism, book publishing–…and Blockchain ?–

Global cultural production

Blockchain: One history1983 Cryptographically secured digital money (eCash)

1993 The “hashcash” Proof of Work (PoW) algorithm

1996 Smart Contracts

1998 Rewarding miners for PoW

2005 Chained ledgers and digitalized asset registries

2008 Bitcoin: The first cryptocurrency

2014 Ethereum: The first Turing complete blockchain

2015 Permissioned blockchains publically endorsed

2008 Sept

2008 Oct

Technology basics

Decentralized peer to peer (P1. 2P) networkImmutable shared ledger2.Consensus mechanism(s)3.

Fundamentals I: P2P Network

• Stores past data• Verifies validity of added data• No central coordinating authority

Fundamentals II: Immutable shared ledger

• A ledger that records the history of data states• Each node holds a copy of this history• The history cannot be altered, only extended

Fundamentals III: Consensus mechanism

• Ensures that there is only one version of the “truth”• Many different consensus algorithms exist

Hashing check also https://anders.com/blockchain/

Data input of variable size

Hashing algorithm(SHA 256, MD5)

Output of fixed length

Input OutputHello world 64ec88ca00b268e5ba1a35678a1b5316d212f4f366b2477232534a8aeca37f3c

hello 2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b9824

Hello world! c0535e4be2b79ffd93291305436bf889314e4a3faec05ecffcbb7df31ad9e51a

BLOCKCHAIN EXAMPLE

TX 1 TX 2

Hash 1 Hash 2

Hash 12

Merkle Root n

Hash Block n-1…

Block n Block n + 1

Merkle Root n+1

Hash Block n…

TX 3 TX 4

Hash 3 Hash 4

Hash 34

Block n-1 Block n + 2

kassCrypto@gmail.comhttps://medium.com/programmers-blockchain/creating-your-first-blockchain-with-java-part-2-transactions-2cdac335e0ce

Different types of blockchains

Use case From application specific to general purpose programmable

Consensus algorithm

Proof of Work, Proof of Stake, etc. vs Byzantine Fault Tolerance

Openness Permissionless (public). Permissioned (consortium and private)

Decisions Reward / punishments, masternodes, and smart contracts etc.

Interpretation Legitimation Mobilization

Organising vision (Swanson&Ramiller, 1997)

When is a blockchain a blockchain?

Depends on who you ask. What is the focus?Distributed ledgers?–Openness?–Consensus algorithm?–Mechanism design?–

Concerns

• Still: Vagueness of the blockchain design space

• In general: speculation around technology

• ”Must have own blockchain project”

• Technical complexity of solutions

• Technical blockchain talent scarce. – Evaluation of talent.

University of GothenburgBlockchain Lab

Lab

Learn

PlayDo

…an environment thatfacilitates learning throughcourses, modules and keynotes for industry and academia alike.

…an environment thatfacilitates curated and openexperiments for researchers, students and industry alike.

…an environment thatsecures the societal impact ofresearch and education.

University of Gothenburg BlockChain Laboratory is a joint platform for industry-academic collaboration surrounding blockchaintechnologies and their application.

Technical platform

Research Education Collaboration

Learning resources:

Courses, modules and keynotes

Playing resources:Exercises, coaching,

technology

Doing resources:Coaching,

networking, collaboration

Learning outcomes:Increased

competence, new knowledge

Playing outcomes:

POC, increased competence, new

knowledge

Doing outcomes:Applications and

grants, new constellations,

commercialized innovation, tech

transfer

Steps

• Research projects

• Teaching

• Collaboration

Extra material

Blockchain use cases

- What do you see as the most potential usage areas (industries)?

- What are the most potential use cases?

Example project 1

• Research interest: Mandate

• Digitalisation --> democratisation

• Principal vs agent tensions

• Shareholder activism as a solution to this tension– Giving voice to previously neglected owners– Orchestrating micro-owners (crowd) better

Example project 2

• What can open source research teach blockchain?– All blockchain key technology stack open source– Produced in similar, yet different online communities

• Developer communities in key roles– Similar architecture of participation, communities– 90’s “wars” on free vs. open source software

• Forks discussion• Open Source 2.0, hybrid-models, governance issues• My own research on open source business

– Changes in commercial organizations– Community-driven development efforts

Example project 3

Blockchain• solutions for peer-to-peer lending for institutions

What is the design space for P• 2P lending solutions especially for institutional actors?

Focus on concerns, constrains and limitations posed by the •context

Design experiments as methodology•

Further payments readingAu, Y. A. and R. J. Kauffman (2008). "The economics of mobile payments: understanding stakeholder issues for an emerging financial technology application." Electronic Commerce Research and Applications 7(2): 141–164. Avlonitis, G. J., et al. (2001). "An empirically5based typology of product innovativeness for new financial services: Success and failure scenarios " The Journal of Product Innovation Management 18(5): 3245. Bansal, H. S. and S. F. Taylor (1999). "The Service Provider Switching Model (SPSM): A Model of Consumer Switching Behavior in the Services Industry." Journal of Service Research 2(2): 2005 218. Bhattacherjee, A. (2001). "Understanding Information Systems Continuance: An Expectation5 Confirmation Model." MIS Quarterly 25(3): 3515370. Bouwman, H., et al. (2008). "A business model for IPTV service: a dynamic framework." Info: the Journal of Policy, Regulation and Strategy for Telecommunications 10(2): 22538. Brezo, F. and P. G. Bringas (2012). Issues and risks associated with cryptocurrencies such as Bitcoin. SOTICS 2012. Venice, Italy. Dahlberg, T., et al. (2008). "Past, present and future of mobile payments research: a literature review." Electronic Commerce Research and Applications 7(2):

165–181. de Reuver, M., et al. (2015). "Collective action for mobile payment platforms: A case study on collaboration issues between banks and telecom operators." Electronic Commerce Research and Applications 14(5): 3315344. Economides, N. and E. Katsamakas (2006). "Two5Sided Competition of Proprietary vs. Open Source Technology Platforms and the Implications for the Software Industry." Management Science 52(7): 105751071. Eisenmann, T., et al. (2006). "Strategies for Two5Sided Markets." Harvard Business Review(October): 925101. Glaser, F. and L. Bezzenberger (2015). Beyond Cryptocurrencies 5 A Taxonomy of Decentralized Consensus Systems. 23rd European Conference on Information Systems (ECIS). Munster, Germany. Helbing, D. (2012). Systemic Risks in Society and Economics. Social Self5Organization, Agent5 Based Simulations and Experiments to Study Emergent Social Behavior. D. Helbing. Berlin Heidelberg, Springer Ingram, C., et al. (2015). 'A Bad Apple Went Away': Exploring Resilience Among Bitcoin Entrepreneurs 23rd European Conference on Information Systems (ECIS). Munster, Germany. Katz, M. L. and C. Shapiro (1994). "Systems Competition and Network Effects ." Journal of Economic Perspectives 8(2): 935115. Kim, J. O., et al. (2002). "Cross5Cultural ConsumerValues, Needs and Purchase Behavior." Journal of Consumer marketing 19(6): 4815502. Laidler, D. (1969). "The Definition of Money: Theoretical and Empirical Problems " Journal of Money, Credit and Banking 1(3): 5085525

Further payments readingMallat, N., et al. (2009). "The Impact of Use Context on Mobile Services Acceptance: The Case of Mobile Ticketing." Information & Management 46(3): 190–195. Meiklejohn, S., et al. (2013). A Fistful of Bitcoins: Characterizing Payments Among Men with No Names. IMC’13. Barcelona, Spain. Methlie, L. B. and P. E. Pedersen (2007). "Business model choices for value creation of mobile services." info 9(5): 70585. Milgrom, P. and J. Roberts (1992). Economics, Organization and Management. Englewood Cliffs, NJ, Prentice Hall, Inc. Moore, T. and N. Christin (2013). Beware the Middleman: Empirical Analysis of Bitcoin5 Exchange Risk. Financial Cryptography and Data Security, 17th International Conference, FC 2013. Okinawa, Japan. Nakamoto, S. (2008). Bitcoin: A Peer5to5Peer Electronic Cash System. Ondrus, J. and Y. Pigneur (2009). "Near Field Communication: an assessment for future payment systems." Information Systems and E5Business Management 7(3): 3475361. Park, E. J., et al. (2006). "A Structural Model of Fashion5 Oriented Impulse Buying Behavior." Journal of Fashion Marketing and Management: An International Journal 10(4): 4335446. Parker, G. G. and M. W. Van Alstyne (2005). "Two5sided network Effects: A Theory of Information Product Design." Management Science 51(10): 149451504. Paswan, A., et al. (2009). "Toward a Contextually Anchored Service Innovation Typology." Decision Sciences Journal 40(3): 5135540.Rochet, J.5C. and J. Tirole (2003). "Platform Competition in Two5Sided Markets." Journal of the European Economic Association 1(4): 99051029. Schilling, M. A. (2002). "Technology Success and Failure in Winner5Take5All Markets: The Impact of Learning Orientation, Timing, and Network Externalities " The Academy of Management Journal 45(2): 3875398. Teigland, R., et al. (2013). Breaking out of the bank in Europe5exploring collective emergent institutional entrepreneurship through bitcoin. Tilson, D., et al. (2010). "Digital Infrastructures: The Missing IS Research Agenda." Information Systems Research 21(4): 7485759.Tuunainen, V. K., et al. (2012). (Hidden) social influences in switching mobile service platforms. 14th Annual International Conference on Electronic Commerce Singapore. University of Cambridge (2008). Succeeding through services innovation, A service perspective for education, research, business and government. A White Paper. Vargo, S. L. and R. F. Lusch (2004). "Evolving to a new dominant logic for marketing." Journal of Marketing 68(1): 1517. Venkatesh, V., et al. (2012). "Consumer Acceptance and Use of Information Technology: Extending the Unified Theory of Acceptance and Use of Technology." MIS Quarterly 36(1): 1575178. Warren, W. E., et al. (1989). "Adoption of a service innovation> A case study with managerial implications." The journal of Services Marketing 3(1): 21533.

ICO (Initial Coin Offering) aka crowdsales

• Sales of “coins”

• Similar to token sale– Selling of participation (to an emerging economy), ownership or royalties,

coins of the company– Not “shares” of ownership– used for raising funds– Usually (but not always) on Ethereum

• Often ICO as very early stage funding

DAPPs ()

On • Ethereum

Simplification: “• Blockchain enabled website”Website–

Front -end – API – DatabaseDapp–

Front -end – Smart contract – Blockchain

DAO

Set of smart contracts•For governance, funding, decision– -making

“The DAO” •Hub which disperses – ethereum to other startupsFailed in some months in – 2016

Governance idea•Participants receive DAO tokens1.Vote which project to fund, invest with tokens2.Backers get dividends in the future3.

Crypto: Digitalization of money

• Alternative currencies (Teigland at al., 2015):

• Customer loyalty bonus systems (e.g. airlines, retail chains)

• “Village currencies”, other small scale currencies

• Digital currencies– In-game currencies, e.g. Farmville cash, Minecraft diamonds– Currencies of virtual worlds, e.g. Linden dollars – Mobile currencies, e.g. M-pesa– Crypto currencies, e.g. Bitcoin (and hundreds of others)

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APPLIED IT

CryptocurrenciesCryptocurrency system • is a network that utilizes cryptography

to secure transactions in a verifiable database that cannot be changed •without being noticed.

Cryptocurrency system assumes that transactions are •transmitted in a peer-to-peer fashion.

Increasing number of Bitcoin copies emerging•

Peer• -to-peer mobile currencies coming and going+ • 10 % intra day volatility problematicDifficult to use as means of payment • – both for payer and payee

40

APPLIED IT

• Heavy infrastructure

• Centralized database architecture

• Transferring money expensive

4127.3.2018

Current financial system

What is changing and why?

Increasing number of mobile devices and cloud services–About – 2.5 billion people (globally) without access to banking servicesIncreasing number of cross border payments–Needs for anonymity–Decreased trust in traditional payment systems–Proliferation of digital (crypto) currencies–Significant number of new payment services and service providers–Technology for peer– -to-peer payments maturing