Towards Distributed Ledgers, Smart Contracts & the Decentralization of Finance

By Alex Makosz

October 8th, 2016

Explore the Future

What Experts Are Saying

What is Blockchain?

A blockchain, distributed across a network, is a technology that effectively replaces and decentralizes traditional ledger systems.

A Block is:

  • A record of data
  • Contains a digital signature
  • Uses cryptography to ensure authority & identity
  • Contains time information for events

A Blockchain is:

  • A series of blocks of data
  • Ordered chronologically
  • All blocks verified computationally
Blockchain Visualization

How This Changes the System of Ledgers

Centralized

Central authority is holder of main ledger and is ultimate authority.

Federated

Ledger is shared by several authorities who must confirm with each other.

Decentralized

No central authority. Ledger shared by all.

Qualities of Distributed Ledger Using Blockchain

Immutable

Virtually impossible to change or erase data in any block

Shared

All data is shared by every computer in the blockchain network

No Central Authority

No dependence upon any central node or authority

Auditable

Can be audited and confirmed

Scalable

Can be used in networks with many, many nodes

Expanding Use Cases

Bitcoin

Cryptocurrency

Digital cash enabling transactions without financial institutions

Key Features:

  • Peer-to-peer transactions
  • Cryptographic security
  • Mining incentives

Smart Contracts

Self-executing contracts with terms directly written into code

Capabilities:

  • Automated execution
  • No intermediaries
  • Transparent terms

Financial Institutions

Reducing back office costs and settlement times

Benefits:

  • Cost reduction
  • Faster settlements
  • Risk mitigation

Ensuring Authenticity

Tracking precious goods like diamonds and luxury items

Process:

  • Unique digital identifiers
  • Blockchain recording
  • Complete traceability

DAOs

Decentralized Autonomous Organizations with no central control

Features:

  • Web-based administration
  • Smart contract governance
  • High transparency

Digital Identity

Secure identity management and e-residency programs

Applications:

  • E-residency (Estonia)
  • Voting systems
  • IoT identity

Pros and Cons

Pros

  • Massive reduction in bureaucracy
  • Low transaction costs
  • High level of ledger security
  • High level of transparency
  • Fraud prevention
  • Use-specific currencies
  • Privacy

Cons

  • Low uptake/High FUD
  • Lose your key, lose your coins
  • Scaling challenges
  • Regulation uncertainties
  • Volatility

Resources & Further Reading