Risks, Opportunities and Future Scenarios Mark Staples Research - PowerPoint PPT Presentation

Blockchain Risks, Opportunities and Future Scenarios Mark Staples Research Group Leader – Software Systems www.csiro.au

Looking (Back) at Data61 Treasury Projects • Two concurrent projects, Jul 2016 – May 2017 • Funded via National Innovation Science Agenda • With help from The Treasury • Reports available: http://www.data61.csiro.au/blockchain • Today: – What did the projects do, and what did the reports say? – What’s changed, and what’s next? 4 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Distributed Ledgers: Scenarios for the Australian economy over the coming decades Hanson, R. T., Reeson, A. Staples, M. What might plausibly happen, across society & economy? 5 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Foresight – Plausible Scenarios? Aspirational Impact / Benefits Transformative New equilibrium Technology Trigger Collapse Time 6 | Data61: Blockchain Risks, Opportunities and Future Scenarios

DLT Foresight – Methodology • Consultative workshops, panel discussion – Impact on future of audit (and professional services) Inputs – Impact on privacy and identity – Impact on law, especially contracts Analysis Foresight – Draft scenarios Interpretation • Over 100 subject matter experts consulted Prospection – Government Departments – Start-ups Scenarios – Banking and Finance – Academics, and – Professionals after (Voros, 2003) 7 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Four Scenarios 1. Regulation on Rails – Aspirational – Understanding of risk and potential; adoption, innovation, and productivity – Leading and cohesive regulatory support and automation 2. Sherriff on the Digital Superhighway – Transformational – Industry and IoT-led adoption – DLT “deputised” for provenance and internet of trust 3. A Bumpy Ride – New Equilibrium – Proliferation of many DLTs without regulatory acceptance or standards – Lack of trust in technology and regulation cripples full DLT potential 4. A Slippery Slope – Collapse – History of loss, failure, crime, mis- use, “hacks”, and broken trust from DLT – Regulatory barriers installed; Abandonment of blockchain as a “brand” 8 | Data61: Blockchain Risks, Opportunities and Future Scenarios

DLT Foresight – Use Cases and Key Issues Nearer • Digital Currencies • Trade Finance Scalability Term • Provenance (Work • Professional Services Underway) • Intellectual Property Adoption Longer • Auditing • Credentialing Innovation & Term • Identity Management Novelty (More R&D • Internet of Trust • Sharing Economy Needed) 9 | Data61: Blockchain Risks, Opportunities and Future Scenarios

DLT Foresight – What’s Changed, What’s Next?

What’s Changed, What’s Next? • Active interest, good & growing understanding by regulators • Australia leading ISO TC307 standards on Blockchain and DLT • Still yet to get clear indication of widespread adoption & benefit • Cryptocurrencies are a two-edged sword for blockchain/DLT • Massive ongoing technological innovation – Interoperability, Governance, Distributed Exchange, Scalability, Privacy 11 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Risks and Opportunities for Systems Using Blockchain and Smart Contracts Staples, M., Chen, S., Falamaki, S., Ponomarev, A., Rimba, P., Tran, A. B., Weber, I., Xu, X., Zhu, J. What are technical risks & opportunities for use cases? 12 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Study Perspectives and Approach Dependable Software Software Systems Architecture Non-Functional Properties Trusted and Trustworthy Systems Security, Performance, … Risk, Evidence, Assurance, … - - • Blockchain are components in broader systems • Identify plausible use cases • Create some design alternatives, examine trade-offs – Focus on three illustrative contrasting use-cases 13 | Data61: Blockchain Risks, Opportunities and Future Scenarios

What Does a Blockchain Do? • Functionally, blockchains are… Centralised Trust • A database (ledger) using a Third-Party – Record of transactions • A compute platform Distributed Trust – “Smart contracts” using a Blockchain • Distributed, and no central owner 14 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Compared to Conventional Databases • Logically centralised; Physically and administratively decentralised • Trade-offs for Various Non-Functional Properties (+) Integrity, Non-repudiation (-) Confidentiality, Privacy (-) Modifiability (-) Throughput/ Scalability/ Big Data (+ read/ - write) Availability/ Latency 15 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Blockchains are Not Stand-Alone Systems UI for humans Legacy systems Key management Blockchain is a component BIG DATA IoT Auxiliary private integration databases data 16 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Potential Use Cases • Financial Services • Enterprise and Industry – Digital currency – Supply chain – (International) payments – IoT – Reconciliation – Metered access – Settlement – Digital rights 7 IP – Markets – Data management – Trade finance – Attestation – Inter-divisional accounting • Government Services – Corporate Affairs – Registry & Identity • Three Illustrative Cases Selected – Grants & Social Security – Quota management 1. Agricultural supply chain – Taxation 2. Open data registry 3. Remittance payments 17 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Agricultural Supply Chain – Use Case Export Retailer Interoperability Latency Integrity Producer Processor Confidentiality Wholesaler Scalability Import Food service 18 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Agricultural Supply Chain – Designs 3. Supply chain process 1. Conventional Producer Processor Product information coordination on blockchain Point-to-point as smart contracts messaging and Order Pickup details Event event aggregation details Aggregation Payment FF makes booking for Server Producer tasks freight shipment & requests forwarder to initiate container from shipping shipping line Producer server starts export process FF arranges land transport for container (empty and loaded) Delivery FF initiates outgoing customs procedures Transport Provider Retailer details Transport provider FF creates PRA (Pre- Producer picks up empty Receival Advice) to prepares product container from shipping coordinate with for shipment line terminal TP delivers empty container Deliver directly 2. Event Tracking to the warehouse Warehouse Producer Processor Container is packed at not ready yet Product the warehouse (at Store container producer s premises in depot information or outsourced) on Blockchain Point-to-point TP picks up full TP books time Deliver directly Consortium Blockchain, Order container from slot for delivery the warehouse to terminal Pickup details replicated to all participants, messaging and details Delivery time slot storing event data not reached yet TP delivers Payment Store container loaded container in depot at the port to terminal event aggregation on blockchain Delivery Terminal loads FF polls the information P / FF informs container onto ship & Transport Provider Retailer details Ship leaves port that container is loaded receivers of the informs SL and (bill of lading) shipment customs Customs Link to clearance import received process 19 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Supply Chain & Trade Finance • Structure of supply chains similar to blockchain – No centre; highly distributed; many parties; dynamic relationships • Might address limitations in supply chain – Limited visibility & logistics efficiency – Provenance & Supply chain quality • But also enables derived financial services – Trade Finance – Insurance • Attach financial contracts directly to logistics contracts 20 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Open Data Registries – Use Case Integrity Availability Read Latency Interoperability Barriers to access 21 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Open Data Registries – Designs 1. Conventional 3. Registry on public blockchain Registry operated Agency only controls entries by single agency included on official index 2. Consortium across data providers Public access still controlled through a portal 22 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Registries • Blockchains can help to federate registries • Sometimes too much integrity causes problems 23 | Data61: Blockchain Risks, Opportunities and Future Scenarios

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Remittance Payments – Use Case Write Latency Cost Cost transparency Controlled confidentiality Low barriers to entry 25 | Data61: Blockchain Risks, Opportunities and Future Scenarios

Remittance Payments – Designs 1. Conventional 2. Payment through Through bank or MTO blockchain 3. KYC through blockchain 26 | Data61: Blockchain Risks, Opportunities and Future Scenarios