Blockchain, Ethereum and ConsenSys

Blockchain, Ethereum and
ConsenSys
Joseph Lubin
With the Best Online Conference – June 11, 2016

What is Blockchain & Ethereum?

Bitcoin
November 2008 – a paper was
posted on the Internet under
the pseudonym Satoshi
Nakamoto titled:
Bitcoin: A Peer-to-Peer
Electronic Cash System
January 3, 2009 – the Bitcoin
genesis block was created and
decentralized money was
born.

From Genesis to Genesis
Bitcoin implemented the use case of
decentralized money, but the implications
were far more profound.
November 2013 – after working on various
Bitcoin and Bitcoin 2.0 projects, Vitalik
Buterin wrote Version 1 of the Ethereum
White Paper.
January 25, 2014 -- Ethereum was publicly
announced at a Bitcoin conference in Miami.

From Genesis to Genesis
On July 30, 2015 the Ethereum 1.0
client was ready for launch and a tool
was made available to construct the
genesis block.
Many people around the world
constructed their own genesis blocks,
fired up the client they downloaded and
watched in amazement as this tool which
embodied a new organizing principle for
humanity organized itself into
existence.

Six Months Later…
Price:
• ~ $14 USD
• (up from $0.20
at genesis sale)
Monetary base:
• > $1,100,000,000

Six Months Later…
#2 in size of
monetary base
and transaction
volume behind
Bitcoin.

World Computer
The Ethereum Project has built
the most capable blockchain
platform and the public
network is the first general
purpose World Computer.
Its dynamics and capabilities
arise from a synergy of 5
interacting technological
elements that are common
between the Bitcoin and
Ethereum Protocols.

Element 1: The Blockchain Database
A next-generation database
structure called the blockchain.
– A block is a set of transactions that have been validated by
peers on the network.
– The blockchain is chain of blocks linked to one another,
constituting a time-stamped, shared, non-repudiable database
that contains the entire logged history of the system.
– Each transaction processor on the system maintains their own
local copy of this database and consensus formation
algorithms enable every copy to stay in sync.

Element 2:ACryptographic Token
A cryptographic token, the bitcoin (BTC) in the Bitcoin protocol, and ether (ETH) for
Ethereum.
• BTC serves as the cryptographically secured unit of value, numeraire and
currency in the case of the Bitcoin protocol.
• ETH serves as the cryptographically secured unit of value, numeraire and hybrid
fuel/currency for the Ethereum protocol.
– Tiny amounts of this fuel are required to pay for computational steps and storage operations
on the platform.

Element 3: Peer-to-peer Network
A peer-to-peer network for peer discovery and data transmission.
– This turns the traditional client-server architecture of the web into the peer-to-peer
architecture of the new decentralized web in which every node is both client and
server.
– This diffuses information silos and removes single points of control or vulnerability.

Element 4: Consensus Formation Algorithm
In Bitcoin, all transaction processors
(miners) come to consensus about what
happened and when with respect to
transmission and storage of the bitcoin
value token.
– This happens approximately every 10 minutes.
– This requires a slim majority of honest processors.

Element 4: Consensus Formation Algorithm
In Ethereum, all transaction processors (miners) come
to consensus about what happened and when with
respect to transmission and storage of the ether
value token as well as coming to an agreement about
all of the processing that is done in all of the
shared programs on the Ethereum World Computer.
– This happens approximately every 15 seconds.
– This requires a slim majority of honest processors.

Element 5: Virtual Machine & Prog Lang
The Bitcoin virtual machine enables narrowly programmable money.
• It is like a pocket calculator at each node of the network.
• Data is decentralized; program operating on that data are not.
The Ethereum virtual machine and powerful high-level programming
language enables fully decentralized applications.
• It is like a general purpose computer at each node of the network.
• Data and their programs are decentralized.

Element 5: Virtual Machine & Prog Lang
Partially decentralized apps on Bitcoin may be built by specialist
programmers who have expertise in cryptography.
– Data storage requires stuffing optimized data into a few bytes in transactions;
this is 1970’s style development.
– Most programmatic capability must be achieved outside of the narrow protocol.
– If security is required, cryptographic primitives must be configured by specialist
programmers.
– Building functionality on top of Bitcoin is probably a couple orders of magnitude
slower and more difficult than in Ethereum.

Ethereum’s Core Value Prop wrt Bitcoin
• Arbitrarily complex decentralized apps in Ethereum can be built by non-
specialist programmers entirely within the full security of the protocol.

Better foundation on which to build
systems
The Ethereum World Computer is a substrate for building global economic, social
and political systems that can be:
– Deeply secure
– Non-repudiable
– Uncensorable
– Natively interoperable
– Transparent (auditable) yet configurably private in certain circumstances.
The Ethereum World Computer represents a strong cryptographic or mathematical
foundation on which to build all of our information and decision making systems,
rather than the subjective and centralized legal, business, and information
systems foundations that lead to siloing and improper manipulation of information
and the consequent over-concentrations of power.

Simplest view: Next generation database
Next generation database architecture and DBMS
• Societal structure partly determined by information storage and processing
technologies of the era
• 60 years of database models and management systems
– flat file, hierarchical, relational, object, No SQL or non-relational
– non-relational was required by entities like Facebook, Netflix, Twitter, Amazon, google, ...
• built systems so large that they had to shard their databases (split into pieces)
• replication became very important to keep the shards somewhat up-to-date
• Blockchain makes replication a first class citizen and consensus mechanisms
enabling this breakthrough are responsible for ushering in a new era of
computing: Veridical or Trust Minimized computing

Trust Minimized Computing
When every stakeholder on a blockchain-based peer-to-peer network has their own
copy of the data and their own copy of the rules (smart contracts) by which the
state of the data may be affected
• Everyone can feel assured that there is no opportunity for improper
manipulation of the system
– Rogue system administrators
– Corrupt CFOs
– Hackers

Force for Universal Disintermediation
More Secure IT Infrastructure (everything is a crypto xaction) +
Veridical Computing (trustworthiness) +
peer-to-peer network =
Universal
Disintermediation

What is a Decentralized Application?
• A dApp is a set of smart contracts serving as a shared database back end, with
code built into the smart contracts that operates on the data stored in those
smart contracts.
• Some sort of user interface serves as the front end to these smart contracts.
• dApps are deployed into a blockchain, by loading the executable code into a
transaction and injecting it into the network.

Blockchain & Ethereum:
Challenges and Roadmap

Challenges and Roadmap:
Adoption – 1000s of Developers

Adoption – 1000s of Companies

Adoption – 1000s of Consumers ???

Scalability – A Roadmap

Challenge: Ethereum Version 1.0  2.0
Ethereum Version 1.0 is largely feature complete,
released and running beautifully.
It was important to get it out into the world ASAP so that devs (like you) can
start figuring out how to effectively build decentralized applications and
how to build businesses or decentralized businesses in this space.
The roadmap and technologies that will enable the first truly scalable version
of Ethereum -- version 2.0 -- have been under development for a year already
and are looking promising.
– These include moving to a Proof of Stake consensus algorithm and Sharding
of Address Space.
– Scalability is probably the winner-take-all holy grail.

History of ConsenSys
• Formed 21 months ago.
• Initial Mission: To build products and services for the Ethereum Ecosystem.
• Develop MVPs and seek external funding for most of them.

• Because we formed 10 months before Ethereum 1.0 was released, we had to
build lots of deep infrastructure.
– BlockApps’ EthereumH: Haskell Ethereum Client
– EtherCamp’s EthereumJ: Haskell Ethereum Client
– Truffle
– MS Visual Studio Solidity Project Template
– Infura

• About 11 months ago: ConsenSys Enterprise Was Formed
• Mission:
– Help enterprises formulate their blockchain strategy
– Build custom blockchain-based software solutions for enterprise
– Currently building solutions in:
• Financial Services Industry
– Securities, Tokenized Currency, Insurance
• Energy Industry
• Music Industry
• Healthcare Industry
• Supply Chain Management and Provenance Tracking

Economic Social Political “Operating
System”
• Because we started before an Ethereum ecosystem existed: ConsenSys and
many other devs are building, at the foundation of the application layer of
Ethereum, an economic, social and political "operating system”
– a set of core components or building blocks on which we can all build applications that will enable the world
to run itself according to a horizontal, consensus-driven organizational principle as opposed to the traditional
top-down command and control paradigm.

• Wallet (uPort)
• Identity / Persona (uPort)
• Multifaceted and multi-
layered Reputation System
(RepSys / uPort)
• Registries System
– ConsenSys's Regis
– Ethereum Foundation
NameReg
– Nexus's Ethereum Name
System
Core Components / Building Blocks

• Token Factory
– Token Issuance & Management
• EtherEx Token Exchange System
(Native and Subtoken)
• Price-stable Token Systems
• Voting Systems (Parametrized,
Liquid Democracy)

• Glue Systems for linking
blockchains
– Joseph Chow's BTC Relay
• Cron Systems
– Piper Merriam's Ether-Alarm
• Computation Markets
– Piper Merriam's ethereum-
computation-market

• State Channels / Off-chain
Transaction Adjustment
Channels
– Micropayments
• dApp Store
• Libraries (math, ...)
• MetaMask EtherBrowser

• Balanc3 -- Triple Entry
Accounting System
• eSign -- Smart Document
Creation and Management
System
• Noncense -- Decentralized
Reddit
• BoardRoom -- Org
Governance System
• WeiFund -- (Equity)
Crowdfunding System
Standalone dApps

• Gnosis Prediction Markets Platform
• ujo Music/Film/Art Industry Platform
– and other modalities on the way: images, words, code, ...
• Inflekt -- Event and Community Management System
• EtherPoker
• EtherLoan
• SafeMarket (OpenBazaar / Amazon-like market)
Open (Industry) Platforms

Financial Instruments (demos
or consulting projects)
• Total Return Swap
• Call Spread
• Syndicated Loans
• Bond Issuance
• Tokenized Securities
• Tokenized Fiat Currencies
Standalone dApps

• Resource generation platforms
– TransActiveGrid Open Energy Markets Platform
• Brooklyn-based microgrid
– FarmShare Community Supported Agriculture Platform
• Calicoon -- NY rural community
Open (Industry) Platforms

Resource generation platforms
– TransActiveGrid & FarmShare
• Same underlying pattern
• Generators (PV arrays, farms)
– generate a resource (kWh, apples, potatoes)
– optionally store the resource (Batteries, refrigeration containers)
– issue tokens against the resource (kWhToken, AppleToken)
– sell the tokens into the open market which can be redeemed on a spot
market for in-the-moment generated product or from storage
– also issue futures and options so generators can hedge and consumers
can plan and provision their resource requirements for specific spans of
time
Resource Generation Platforms

• Imagine a day, in a year or two, when Alice can trade her kWh
Tokens and Potato Tokens for Bob's Apple Tokens on the
EtherEx exchange based on ubiquitously available exchange
rates.
Tokenization and Financialization of
Resources (all the things)

Next Generation in ITArchitecture
The future of IT will be many private enterprise blockchains, many private
consortium blockchains and some public blockchains and other decentralized
resources (e.g. storage, bandwidth, compute).
• Business processes embodied as state transition graphs in smart contracts.
• Business processes will be splayed across these chains, based on use case.
• Access to these business processes will be from an identity portal that each
actor controls with their private keys.
– Employees
– Customers
– Vendors / Service providers

Next Generation in Secure IT Infrastruct
• Every interaction with all business processes will be strongly cryptographically
authenticated with granular authorization based on roles and privileges.
• No more traditional vulnerable IT security architectures: firewall-fenced soft
targets.
– Security issues move to periphery: protection of private keys

Next Generation Identity & Reputation
• uPort: Self-sovereign Identity
• Persistent portable reputation
• Enfranchise the entire world's
population in the emerging decentralized
global economy

Foundations: Open financial industry
infrastructure
• Foundationally, people should be able to have control of their own identity
elements and valuable assets
• Avail self of financial services offered in different jurisdictions
– Establish financial relationship
• We are building KYC on top of identity and reputation, which will enable:
– Next Gen Financial Industry Infrastructure

Efficiencies that blockchain-based
systems bring to financial services
• Clearing and settlement (especially for tokenized instruments)
• Issuance of securities as tokens
– dematerialization of securities into tokens
– And rematerialization (bidirectional bridge)
• Tokenization of fiat currencies
• Constructing and complete life cycle management of complex multiparty
structure like syndicated loans

Next GenAccounting/Compliance
Infrastructure
Real-time compliance, accounting and monitoring:
• Real-time comprehensive auditing, not sampled.
• Real-time risk metrics and sensitivity analyses.
• Real-time overview dashboard for companies.
• Real-time overview dashboard for regulators.
• Views and aggregated views of companies, sectors, regions, countries .....
• Compliance is baked into the logic or the smart contracts that underlie all processes.
• Regulators will write software specs and develop tests that compliant software must
pass.
• Organizations using certified software will not be able to break or bend any rules. For
99.999% of transactions, there will be no room for interpretation of words. Code is law.
• When exceptional conditions arise outside of the anticipated scenarios, the situation can be
handled using conventional regulatory and legal mechanisms.

Marketplace/crowd capital formation for
• Lending (EtherLoan)
• Investing (The DAO)
• Insurance
Processing of all aspects of these flows.

Imagine trade finance as
• state transition network embodied in smart contracts
– main path is less expensive
– no emails or pieces of paper; all docs in place
– everything is logically centralized and accessible by appropriate parties
– Regulation is in place
• States
– Offer, acceptance, invoicing, downpayment, letter of credit, bill of lading. shipment tracking, reception of
shipments, payment, warrantee tracking
• other elements
– Insurance
– factoring

Thank you for watching
This was a ConsenSys.net presentation

Blockchain, Ethereum and ConsenSys

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