Vivatech 2019 : Understanding Blockchain : betwen myth and reality.

J’ai retrouvé cet article qui je pense n’a pas pris une ride, ou pas trop sur la blockchain, à vos commentaires … Ma reflexion a tout de même évoluée en terme de technologie applicative mais peu en terme de « philosophie de la blockchain ». C’était lors de mon intervention en tant que speaker à Vivatech 2019 sur la blockchain. Le thème m’avait été imposé par la communication de mon entreprise de l’époque : blockchain between myth and reality.

(for those who have missed my pitch during the Vivateceh 2019)

Understanding Blockchain: between myth and reality.

It has been 10 years since the first blockchain was created. Much speculation has been made about what has been called the « trust machine ». After the myths, let’s move on to reality. After a brief description of the blockchain, based on several studies and experiments, how can we assess the blockchain applications today? What lessons can we draw from them for the future?

Tout d’abord commençons par voir ce qu’est la blockchain :

Un registre – distribué – Immutable – de données – Sécurisé

Le fonctionnement de la Blockchain

Voici les cinq principes de base qui sous-tendent cette technologie.

1 Decentralized data base

Each user of the blockchain access the entire database and its complete history. No body controls, only the data or Information. Each user can check directly, without any intermediary, the files of his transaction partners.

 2 peer-to-peer transmission

Communication is established directly between peers and not through a central node. Each node stores and transmits information to all other nodes.

3 transparency and anonymity

Each transaction, and its associated value, is visible to anyone with access to the system. Each node or user of a blockchain is identified by an alphanumeric address of more than 30 characters. Users may remain anonymous or provide proof of their identity as they wish. Transactions are made between the addresses of the blockchain.

4 Irreversibility of recordings

Once the transaction has been entered in the database and the accounts updated, it is impossible to modify the records because they are the same as all previous transactions (hence the term << chain »). Various algorithms and procedures are implemented to ensure the permanence of the Registration on the database, its chronological classification and its availability for all other users.

5 Computational Logic

The digital nature of the registry means that transactions on the blockchain can be submitted to the Computer Logic and therefore programmed. Users can thus have algorithms and rules that automatically trigger transactions between network nodes.

The myth implies a fantastic narrative of an idea of how the world is constructed. And this idea is that: the blockchain gives us the opportunity to imagine a world where contracts will be digitally encoded and stored in transparent, shared databases, where they will be protected from any destruction, falsification or modification. In this world, every agreement, every process, every task and every payment will be recorded and provided with a digital signature that can be identified, validated, stored and shared. Intermediaries such as lawyers, brokers and bankers may no longer be necessary. Individuals, companies, machines and algorithms will freely conduct transactions and interactions with minimal friction. This is the huge potential of the blockchain.

THE 5 myth of the blockchain:

1. The myth of immutability

The term « immutable », which in the case of the block chain means « inalterable or cannot be changed », is technically impossible, said the researchers in their report, citing two ways to change the block chain. Such an event had occurred in the early days of Bitcoin. The other solution is to duplicate the chain. This time, the historical code and transactions are kept. But after this operation, the software works differently. The best known example is the Ethereum fork used to restore the platform that collapsed after it was hacked by The DAO (Decentralized Autonomous Organization) in 2016.

The researchers also point out that, from a technical point of view, block chains subject to authorization are easier to modify and have far fewer nodes than public block chains, especially in the early stages. Ecosystem participants need to understand that it is not the technology itself that protects the records in the blockchain from change, but the way the network is designed, implemented and operated. This applies to networks with consensus mechanisms that offer more scalability, but that alone provide little or no protection against malicious attacks.

There are now new tools available to improve the scalability of blockchains such as:

• Sharding into the Ethereum 2.0

2. The myth of disintermediation and decentralization

According to the researchers it is a mistake to believe that there are no longer any trusted intermediaries in block chain networks or that these networks are fully decentralized. As the researchers point out, in practice, blockchain networks never operate completely without intermediaries. They are distributed networks and, as such, they maintain a certain level of centralization. In addition, the chain can bring in new intermediaries and existing intermediaries can disappear without everyone’s knowledge.

It is absolutely true when you are faced with a consortium blockchain. But consortium is just a way of sharing a governance.

3. The myth of zero trust

« The two main block chains – Bitcoin and Ethereum – have demonstrated that it is possible to exchange « value » between people and entities who do not know or trust each other, » the researchers said. But they also showed that it was a myth. Neither of the two networks is totally lacking in trust. « Participants must have confidence in the ongoing functioning of these networks at several levels. For example, they must trust mathematics and cryptography and they must believe that the code will always be executed as intended, » the researchers added.

But we are no longer searching after trust, today what the blockchain bring us: is the proof.

4. The myth that blockchains are « machines of truth »

« Many solutions based on blockchain networks say they can prevent fraud and guarantee the origin of goods in the physical and digital world, » the researchers said. To some extent, this statement is not false, since transactions based on block chains are extremely difficult to manipulate, and any attempt is quickly detected. « But no technology, whether blockchain or any other, can be considered totally dissuasive, » they said. « It is essential to keep in mind that a chain of blocks cannot protect against all frauds, and that a blockchain network alone cannot guarantee the origin of physical goods. According to them, pure traceability must be distinguished from that which provides proof of origin.

5. The myth of transparency

« Making transactions more transparent is one of the main advantages of blockchain networks, » the researchers said. But for most companies, transparency is as much a curse as it is a blessing. « Apart from scale issues, the biggest technical challenge facing developers is confidentiality, » they said. DSIs should keep in mind that in a traditional block chain stack, all the content of the chain is visible to all participants. According to the researchers, it is one thing to provide proof of origin or to guarantee integrity. But it is another to preserve data confidentiality, commercial transparency and traceability. « It is important for business leaders to agree first on confidentiality requirements before choosing the technology, » the researchers said.

The thing is that more and more permissioned blockchain are used today, specifically in industries applications. Because the adoption of blockchain technology by industries, by private organizations implies privates blockchain, permissioned as it is said in the world of new technologies workers

That’s the message we usually get on the blockchain. But what is really going on?

The in-depth study of technological innovations teaches us that, if a blockchain revolution is indeed to take place, many obstacles – technological, organizational, governance, and even societal – will have to be overcome first. It would be a mistake to rush headlong into the innovation of the blockchain without understanding how it is likely to be implemented.

A real transformation of the economy and governance initiated by the blockchain will not, in my opinion, be achieved for another few years. Because it is not a « disruptive » technology, capable of challenging a traditional business model by offering a low-cost solution and thus quickly replacing existing companies. Blockchain is a fundamental technology: it has the potential to create new foundations for our economic and social systems. But even if the repercussions will be enormous, it will take decades for the blockchain to take hold in our economic and social systems. Its adoption will not be sudden, but gradual and steady, as successive waves of technological and institutional change will accelerate.

So, what does really exist?

Financial services.

The emergency of blockchain systems such as Bitcoin and Hyperledger has brought a huge impact on traditional financial and business services. Blockchain technology could be applied to many areas including clearing and settlement of financial assets etc. There are real business cases like collateralization of financial derivatives that could leverage blockchain to reduce costs and risks.

• P2P financial market. Blockchain could also help build a P2P financial market in a secure and reliable way. Blockchain-based MPC market allows offloading computational tasks onto a network of anonymous peer-processors.
•  Risk management. Risk management framework plays a significant role in financial technology (FinTech) and now it can be combined with blockchain to perform better. With the help of blockchain, investments and collaterals can be decided quickly instead of going through long-term consideration. Besides, blockchain-based smart contract enables the decentralized autonomous organizations (DAO) to engage in business-work collaborations

Internet of things (IoT) Internet of things (IoT), one of the most promising information and communication technologies (ICT), is ramping up recently. IoT is proposed to integrate the things (also named smart objects) into the internet and provides users with various .Blockchain technologies can potentially improve the IoT sector.

• E-business. Zhang and Wen (2015) propose a new IoT E-business model and realise the transaction of smart property based on blockchain and smart contract. In this model, distributed autonomous corporations (DAC) is adopted as a decentralised transaction entity. People trade with DACs to obtain coins and exchange sensor data without any third party.
• Safety and privacy. Safety and privacy preservation is another important concern for IoT industry.

Public and social services Blockchain can also be widely used in public and social services.

• Land registration. One of the typical blockchain applications in public services is the land registration (NRI, 2015), in which the land information such as the physical status and related rights can be registered and publicised on blockchains. Besides, any changes made on the land, such as the transfer of land or the establishment of a mortgage can be recorded and managed on blockchains consequently improve the efficiency of public services.
•  Energy saving. blockchains can be used in green energy. to encourage the usage of renewable energies. In particular, solarcoin is a kind of digital currency rewarding solar energy producers.
•  Education. Blockchain is originally devised to enable currency transactions to be carried out in trustless environment. However, if we regard the learning and teaching process as the currency, blockchain technology can potentially be applied to the online educational market. in Devine (2015), blockchain learning was proposed. In blockchain learning, blocks could be packed and placed into blockchain by teachers and the learning achievements could be thought as coins.
• Free-speech right. Moreover, blockchain can be used to secure internet infrastructure such as DNS and identities.

Blockchains can also be used for other public services such as marriage registration, patent management and income taxation systems (Akins et al., 2013). In the new public services integrated with blockchains, mobile devices with digital signature embedded may replace seals to be affixed on documents, which are submitted to administrative departments. In this way, extensive paperwork can be greatly saved. 

Reputation system

The reputation of a person can be evaluated on his or her previous transactions and interactions with the community. There is a rising number of cases of personal reputation records falsification. For example, in e-commerce, many service-providers enroll a huge number of fake customers to achieve a high reputation.

Blockchain can potentially solve this problem.

• Academics. Reputation is important to academics. Sharples and Domingue (2015) proposed a blockchain-based distributed system for educational record and reputation. At the beginning, each institution and intellectual worker would be given an initial award of educational reputation currency. An institution could award a staff by transferring some reputation records to the staff. Since transactions are stored on blockchain, all the reputation change could be detected easily.
• Web community. The ability to assess the reputation of a member in a web community is very important.

Security and privacy

• Security enhancement. We have seen the proliferation of various mobile devices and various mobile services, which are also exhibiting their vulnerability to malicious nodes. Blockchain can potentially help to improve the security of distributed networks. In particular, a novel anti-malware environment named BitAV, in which users can distribute the virus patterns on blockchain. In this way, BitAV can enhance the fault tolerance. BitAV can improve the scanning speed and enhance the fault reliability (i.e., less susceptible to targeted denial-of-service attacks).
• Privacy protection. In addition to the increasing risk of the exposure of our private data to malwares, various mobile services and social network providers are collecting our sensitive data. For example, Facebook has collected more than 300 petabytes of personal data since its inception (Vagata and Wilfong, 2014). Usually, the collected data are stored on central servers of service providers, which are susceptible to malicious attacks.  data ownership

  data transparency and auditability

Now that you have had an Overview of what does exists, let’s move on blockchain that works, and I will tell you after that, why does it work, in my opinion.   

Société Générale and others Banks have created a platform called KOMGO and also participate a lot at his creation.  In international trade, the use of paper is still widespread, with all the possible errors, frauds and ambiguities that can result. The purpose of this platform is to optimize the flow of operations, from the signing of sales and purchase contracts to financing, a service to verify the identity of customers, by exchanging documents in an encrypted manner, without a central database, and a digital letter of credit. It is based on two successful experiments, at the « proof of concept » stage (POC, validation stage), Easy Trading Connect 1 and 2, conducted by several of the partners, whose teams constitute Komgo’s first staff.

Why it is working ?

Because it is truly the expectation and the answer of all the stakeholders at the problem who caused so many troubles: fraud, errors, time loss…

So what have they done ?

They worked together to find a solution. It is important to remember that this is the collaborative work of several banks in a hard world of concurrency that gave birth to “KOMGO”.

The most difficulty of the blockchain isn’t technology, is to make people of different companies working together.

At the first time, it is difficult to understand and to see where are the benefits. People use to ask me : But what is the ROI ?

In this case it is simple to see that in reducing the payment delay they reduced the working capital at the same time. That’s just what is behind the decreasing of the transaction cost. Transactions are more effective (fast and secure) and at the same time this reducing the working capital.

But it’s not the only effect. Lot of specialists evocate the high reducing of the risk thanks to the Blockchain. If you are sure of the signature on the letter of credit, if it is authentified, if everybody is agree on the terms of the contracts, and if you are sure of the quality of the commodities that you are buying or insuring or whatever… there’s no risk then.

I chosen this use case, because it is a sign of what is the future of the blockchain, it represents values ​​that we know well, commitment, collaboration, coordinated work towards a common goal between several bank as in rugby. Beyond what can be heard on the blockchain I believe the blockchain has a goal: that of bringing together different companies without causing them too excessive standardization.

And for me basically two use-cases really prove themselves: the one in which we would like to suppress a central authority and the one I believe in, which is the constitution of a centralizing body usually called consortium, based on the will of everyone to participate.

That‘s the future of the blockchain.

 Thank you.