1 September 2019
For many, the promise of blockchain lies in the idea of a truly open source platform, designed in such a way that it opens up the potential for innovation and healthy competition in an ecosystem free from centralized control. In this model, blockchain is a trust machine, built on transparent, decentralized governance. Proponents of this idea like to contrast blockchain with the centralizing tendencies of incumbent platforms, such as Twitter and Facebook. But a danger lurks in the attitude shown by some leading blockchain networks toward governance. That danger is that certain initiatives, which profess to follow principles of transparency and accountability, in fact collapse into opaque, consortia-based governance models and create, at best, a ‘synthetic trust’ – partially decentralized, but unsupported by any solid principles.
In this age, tech giants are the incumbent trust providers. Platform businesses – scalable networks of users and resources – have a near-monopoly on the interchange of information that connects consumers to producers. This was previously most obvious in retail marketing on social media, where Facebook, Twitter, and others have grown to wield huge influence over consumer spending habits. But it is increasingly clear that a new economic paradigm is emerging, in which the platform model itself facilitates the exchange of digitized goods and services (including both information and physical goods) between producers and consumers. For the distribution of news media, a case in point is the personalized newsfeeds delivered by Facebook. In this economic paradigm, the digital platforms are becoming the keepers of our digital identities and the focal point of trust between market participants.
But recently, they have lost credibility as repositories of trust. Most obviously, a series of high profile hacks and data leaks from the likes of Facebook, Experian, and others have damaged consumer faith in the security of our digital identities, a trend which has been exacerbated by frequent allegations of surveillance and data misuse against many of these same platforms. In some cases this activity is compounded by platforms acquiring potential challengers before they become a threat, preventing the emergence of a healthier market for innovations in users’ data privacy. At the same time, the network effects of platforms have accelerated the centralization of information flows across the internet. This often manifests in limits being placed on what kind of content users can (and do) interact with online, these limits attracting a spectrum of labels from “content curation” to “internet censorship”. The result is power being concentrated in a few dominant platforms, who act as gatekeepers to the digital market. This is a model that requires us to put our trust in Facebook, Twitter and others to provide us with commercially and politically impartial digital products.
Is blockchain a solution? The idea of blockchain as a “trust machine” views the foundations of DLT as being (i) transparency, and (ii) decentralized governance. With these two qualities comes the possibility of an open source innovation platform designed such that everyone can build on it applications and products, and add value through their services. Where this model is successfully implemented it can provide an answer to Hobson’s choice, between entrenched private monopolies and state-controlled platforms: the third way is an ecosystem that is decentralized by design, where users control both their data and their power to choose between producers (of content, news, goods, services, etc.), all without any commitment to a centralized authority.
But is this achievable? Blockchain faces a conundrum: in decentralized markets, trust and growth are at odds with one another. This closely relates to the well-known ‘trilemma’, which suggests that blockchain can maintain only two characteristics out of decentralization, scalability, and security. The success of network business models depends on there being a growing number of users (for which scalability is key), and the implication is that either security or decentralization must be compromised in a blockchain’s attempt to scale toward mass adoption. Either way, the more a network grows, the less trust each user can be said to have invested in the network.
A compromise on decentralization can already be seen in some leading blockchain networks, manifesting as governance models that lack transparency and concentrate power in the hands of select individuals who have no direct obligations to the users of the system. Some of these are accidental: for instance, the fact that the top five largest ETH pools secure around 80% of transactions on the Ethereum ledger is a consequence of market forces, not of code design. In other cases, a lack of transparency is clearly intentional. In Hyperledger’s Open Governance Model, the Governing Board’s meeting minutes are confidential and voting power is allocated according to financial contributions to the initiative. Libra’s governance model is centralized and controlled by invested members who meet certain eligibility criteria, including a market valuation of at least $1 billion USD and a consumer reach greater than 20 million people per year. These are two examples where control over the ledger protocol is restricted to just a few individual entities.
These factors combine to increase the risk of collusion in blockchain networks; and where there is a real risk of collusion, the promise of blockchain as a “trust machine” has not been realised. It is, at best, a synthetic trust, unsupported by the principles of open, transparent, free-to-use and universally accessible blockchains. Until the decentralized model is fully realised, trust in the digital market will continue to face a dilemma: either we bargain away our privacy to centralized, but commercially accountable trust providers (the ‘platforms’ of the current model); or we keep direct control over our data in a trust machine designed and run by anonymous entities who are unaccountable to users of the network.
By Paolo Tasca
Consumer awareness of matters such as the sourcing, authenticity and the value chain of specific products is constantly growing and evolving. We are in particular witnessing a change in consumers habits driven primarily by two cohorts: Millennials and Generation Z. These days, topics such as corporate social responsibility and corporate ethics are on everyone’s lips – a reflection of the widespread desire to consume more responsibly and more ethically. So much so, in fact, that these notions have begun to seem very relevant to a company’s bottom line. As Millennials and Generation Z become an ever more influential consumer group and employee demographic, the demand for environmental and social sustainability is likely to increase.
It sometimes happens that discrepancies appear between the product information that is made available to consumers, and the producers’ own knowledge of the supply chain or the manufacturing process. When this kind of mismatch occurs, economic and legal (or even technological) developments do not always improve the transparency of the market. The fundamental information asymmetry between producer and consumer remains, and it leaves the responsible consumer reliant only on traditional, indirect methods to value a given product. The responsible consumer has little power to control the process behind a product and might, for instance, purchase a fancy garment completely unaware of the labour exploitation involved in the upstream process to produce that garment.
Any technology that ensures more reliable and more transparent information will accelerate consumer awareness around responsible consumption. Indeed, blockchain has a prime opportunity to position itself as a new technological infrastructure on top of which the new age of responsible consumption can flourish.
Although blockchain-based systems can differ in their architectural configurations, at their core they offer the means to store information in a shared registry called a “ledger”, with the right to read or update that ledger being distributed among a network of users rather than being controlled by a single entity.
Records are transparent because they are auditable by a predefined group of participants. That group can be more or less open, or even completely public as is the case, for instance, with Bitcoin. In this way, anyone with an Internet connection and with access rights to a given blockchain can inspect the ledger at any time without the need for an intermediary service provider. Once stored on the ledger, records are immutable: they cannot be changed, and can be overwritten or cancelled only if the majority of users agree. Moreover, to add new records to the ledger, users must use a personal private key, this being used to generate a unique cryptographically-protected signature for each new transaction.
At the beginning of the 20th century, the two major innovations in the supply chain were the container and the barcode. These two extremely simple yet effective standards were highly complementary, and enabled the growth of global supply chains across different industries. Where global supply/value chains are primarily concerned with data (as opposed to goods), new requirements will need to determine what standards must be met by a smart (data) container, or data facility.
In this sense, some 80% of total value creation still waits on the qualities of independence and interoperability which the combination of the container and the bar code has already made possible for physical goods. Blockchain may be the technology to provide those qualities for smart (data) containers.
Despite recent hype, blockchain should not be seen as a solution to all problems. But it can bring significantly greater transparency to the consumer market along the whole supply chain.
Crucially, blockchain provides:
- Decentralisation, taking control of data out of the hands of one single administrator, which often becomes a single point of failure or corruption;
- Auditability and Traceability, guaranteeing that each step in a supply chain can be verified for the benefit of end consumers or to ensure the integrity of agreements between supply chain participants. Moreover, traceability enables provenance detection and a full transaction history to be established based on a single source of truth;
- Transparency, allowing all suppliers and other stake holders to monitor in real-time goods stored in the ledger, the records for which are updated at each subsequent step along the supply chain;
- Immutability, preventing any user taking part to the supply chain to backward manipulate the data. The history of each product record in the ledger is visible and immutable.
CALL for PAPERS
Economic and Financial Track – Crypto Valley Conference
Zug, 25th June 2019
The “Economic and Financial Track” of the 2019 Crypto Valley Conference will bring together scholars, regulators and practitioners interested in exploring opportunities and risks of emerging blockchain-based systems and distributed Ledger technologies.
The aim is to merge the gap between academics, technologists, policy makers and regulators engaged in the new field of distributed and peer-to-peer systems, by providing a unique cross-sectoral perspective which allows to exhaustively address questions of practical importance from an economic, financial and business perspective.
Submissions should focus on (but are not limited to) the following topics:
- Monetary aspects of P2P systems
- Stable coins and digital fiat
- Incentive mechanisms in emerging blockchain networks
- Individual and group decision-making
- Principles of the decentralised crypto-economy
- Implications of blockchain for income inequality
- DLTs, transaction costs and externalities
- Market stability and systemic risk of distributed systems
- Financial inclusion
- Regulation of distributed systems
- Fraud detection and financial crime prevention
- Tokenisation of assets, pricing and new derivatives
- The future of ICOs/STOs: opportunities and threats
- Blockchain and accounting systems
- Decentralised hedge funds
- Price discovery and deep liquidity on distributed exchanges
- Blockchain and new business models
- Decentralised Autonomous Organisations
- Metcalfe’s law applied to digital asset ecosystems
- Corporate governance under the blockhain paradigm
- Creative destruction in the digital era
Authors wishing to contribute a paper to the conference should do it via the submission system using the following link: https://ecosubmit19.cryptovalleyconference.com/
Full papers must be submitted in PDF format. The deadline for submission is midnight GMT 15th April, 2019.
Accepted papers will be considered for a publication into Frontiers in Blockchain journal – Financial Blockchain; the editorial guidelines must thus follow the standard requested by the journal (please refer to the following link: https://www.frontiersin.org/journals/blockchain#author-guidelines)
Submitted papers will be blindly reviewed by the Crypto Valley Scientific Committee for the Economic and Financial Track. Any mention of the author’s names or affiliations should be removed from the submitted paper.
Corresponding authors will be notified of acceptance by 31st May, 2019. For any questions regarding the call for papers and the submission, please write to the following address: firstname.lastname@example.org
CALL FOR PAPERS
Topics and submission instructions
We welcome submissions covering the following topics:
- Digital currencies and Blockchain technologies;
- P2P lending and Crowdfunding;
Submissions should focus on (but are not limited to):
- Cryptographic protocols and P2P networks
- Central bank digital currencies (payment and monetary aspects)
- Threats / attacks / defences / security engineering of P2P systems
- Systemic risk of P2P systems
- Digital identification
- Fraud detection and financial crime prevention
- Legal aspects and regulatory issues
- Financial inclusion and market stability
- Socio-economic and monetary aspects of P2P systems
- Technology adoption and market dynamics
- New business models and novel applications
- Automatic Regulation and Automatic Compliance (RegTech)
- Innovative technology applied to the insurance industry model (InsurTech)
- Internet of Things, smart energy & utilities
- Smart contracts and decentralized government
Authors wishing to contribute a paper to the conference should do it via the EasyChair submission system using the following link.
Full papers and extended abstracts must be submitted in PDF format.
The deadline for submission is midnight GMT 07th June, 2018.
Any mention of the author’s names or affiliations should be removed from the submitted paper.Submitted papers will be reviewed by the P2PFISY 2018 Workshop Scientific Committee. Corresponding authors will be notified of acceptance by 23rd June, 2018.
Publication in a special issue of Journal of Digital Banking
Authors whose papers are accepted will also have the opportunity to submit their papers for publication in a special issue of Journal of Digital Banking, the major new professional journal publishing in-depth, peer-reviewed articles and case studies on FinTech innovation, digital disruption and how to develop a profitable, customer-focused digital banking strategy.