2. A Talk for Blockchainers • This talk will focus on the role of blockchain in the new digital economy and the characteristics of a sustainable blockchain company. Professor Lee will talk about the 4Ds and LASIC, Hinternet and the type of deep business skill and strategy that are needed to excel in the blockchain industry. Those who are looking into fundraising by ICO/ITS’s and investing in Blockchain technology will find this talk interesting.
3. Who Invented the Term Blockchain？ • Satoshi Nakamoto (2008) did not use the word blockchain in the seminar paper but there were a few sentences linked to blockchain such as Chain of Blocks • The concept of Cipher Block Chaining was first mentioned by Ehrsam, Meyer, Smith and Tuchman (1976). Basically, the encryption of the message or information is sequential. • It is suspected that the original word for blockchain was separated as two words Block Chain. • Hal Finnay wrote in a note to Satoshi on Nov 9 2008 as archived in The Cryptography Mailing List with three reference to Block Chain. • http://ethereum.stackexchange.com/questions/4454/who-coined-the-term-block-chain/4455
4. Satoshi’s White Paper On Page 3 • “As later blocks are chained after it, the work to change the block would include redoing all the blocks after it." 01 On Page 7 • "This prevents the sender from preparing a chain of blocks ahead of time by working on it continuously until he is lucky enough to get far enough ahead, then executing the transaction at "that moment. 02
5. The Late Hal Finnay wrote to Satoshi in 2008 • “it is mentioned that if a broadcast transaction does not reach all nodes, it is OK, as it will get into the block chain before long.” • “Does she need to go back through the coin's entire history of transfers, and make sure that every transaction on the list is indeed linked into the "timestamp" block chain?” • “The recipient just needs to verify it back to a depth that is sufficiently far back in the block chain, which will often only require a depth of 2 transactions. • See http://satoshi.nakamotoinstitute.org/emails/cryptograp hy/6/
6. The 4Ds: Digitalization, Disintermediation, Democratization, and Decentralization The New Digital Economy
7. The Future Thinking 1. “It is not the economy that is in trouble, it is your business that is in trouble.” 2. “Failure is an option here. If things are not failing, you are not innovating enough.” 3. “The red pill and its opposite, the blue pill, are popular culture symbols representing the choice between embracing the sometimes painful truth of reality (red pill) and the blissful ignorance of illusion (blue pill).” http://www.inc.com/larry-kim/50-innovation-amp;-success-quotes-from-spacex- founder-elon-musk.html
8. Factors of Production Old Economy: • Land, Labour and Capital New Economy: • Data, Time and Ability to Raise Fund
9. The Essential Factors of Production • The 4th industrial revolution, evolved from the digital innovation, has rewritten the entire production function with emphasis on different factors. • Data, Time and Capital Raising Ability are now more important than land, labour and capital. • Geographical location and hard infrastructure are less important because the computational powerful server that occupies a small area can be located far away in the cloud. • Labour is less important as they can be replaced by Robots powered by Artificial Intelligence. • Ability to raise funds has become more important than merely capital stock. • Perhaps there is little point in making distinction between primary or secondary factors of production and more important to focus on the essential factors of production.
10. Data, Time and Ability to Raise Capital • Data that have the characteristics of being voluminous, high velocity, collected in various forms, with veracity is an essential production factor. • Time Compression, measured as Computational Power or otherwise (such as drones for delivery time) that are harnessed from hard- and soft- wares, is also essential for production. • Finally, the ability for fund raising/capital will ensure that companies with negative cashflow can be sustained for a longer period. https://www.forbes.com/sites/ciocentral/2011/10/31/the-new-factors-of- production-and-the-rise-of-data-driven-applications/2/#690bea4c795a
11. LASIC PRINCIPLES Start Low to: • Attract & Build Critical Mass • Prevent CompetitionLOW MARGINS Ride on Existing Infrastructure • Internet • E-Commerce • Telecom Companies ASSET LIGHT • Expandable without Exponential Costs • Technology allows for Large Scale Adoption and Changes SCALABLE • Use of Technology such as Social Media to find Untapped Markets • Disruptive & Inclusive (NOT Exclusive) • Solves Real Issues/Problems INNOVATIVE • Great Likelihood for Govt Support • Lowly Regulated COMPLIANCE EASY CHARACTERISTICS Lee, David K.C. and Teo, Ernie G. S., Emergence of Fintech and the Lasic Principles (September 30, 2015). Available at SSRN: http://ssrn.com/abstract=2668049 DESCRIPTION
12. Do you need a blockchain to build a Hinternet? • Hinternet is a large population of sticky customers using a service in the virtual space such as the Internet. • Alipay and Grab have a large LASIC Hinternet that they can sell a wider range of products to the sticky customers. • Blockchain is not needed to build a Hinternet business but to sustain growth, you may need the last D, i.e., Decentralization. • Digitalization + Disintermediation + Democratization is enough to build a Hinternet of sharing services. • Decentralization builds a higher barrier so that a monopoly and oligopoly market structure will not take shape easily.
13. Why does Satoshism flourish? • Lack of Transparency • Transactions Fees • Transaction Details • High Cross Border Fees • Lack of Resilience • Lack of continuity with a single point of attack • Lack of protection of historical record • Lack of Distribution of Wealth • Lack of decentralized and super- divisible money (10^-8 BTC=1 Satoshi but theoretically higher precision is possible) • Lack of technology to distribute wealth and assets over time • Lack of Individual Control of Privacy • Lack of control of encrypted personal data
14. Weakness of Satoshism Inefficient • Computation (Transactions Per Sec, POW, Latency) • Storage (Multiple Copies, Block Size, Block Storage) • Energy Consumption (POW) 01 Lack of Privacy of Ledger 02 Lack of Guidance • First mover advantage in ownership (No Expiry Date of Ownership) • Technology can do bad 03
15. Essential Features of Successful Blockchain • LASIC • Resilience • Transparency of transactions • Personal control of privacy • An enabler for 4Ds • An enabler for collaboration of untrusted parties globally • An enabler for asset ownership sharing globally
17. Private Blockchain • Reality vs Hype • A new form of database that allow shared ownerships across organizational boundaries. • Between Private Blockchains with Public Blockchains • Similar in design but worlds apart in use cases. • Between Private Blockchains and databases • Similar in use cases but worlds apart in design. http://www.infocorp.io | [email protected] | Copyright 2017 Roy Lai SUSS Fellow Multichain Guru What is a Private Blockchain?
18. Private Blockchain vs Public Blockchain Conditions Private Blockchain Public Blockchain Centralization / Purpose Semi-Decentralized Business-to-Business Decentralized Peer-to-Peer Authentication Authenticated Not-Authenticated Permissions Permissioned Permission-less Advantages • Support legal entities • Higher performance • Better scalability • Support anonymity • High immutability • Trustless environment http://www.infocorp.io | [email protected] | Copyright 2017
19. Private Blockchain vs Traditional Database Conditions Private Blockchain Traditional Database Ownership Designed for shared ownership Not designed for shared ownership Performance Slower Faster Scalability Easier and Cheaper Harder and Expensive Immutability Append-only Editable http://www.infocorp.io | [email protected] | Copyright 2017
21. MultiChain Private Blockchain Platform • Light-weight - only 3 files • Easy to use – create blockchain network in 5 minutes • Strength of Bitcoin protocol • Used By: • Wolfram Language for Mathematica users. • Seal Software as a shared data layer for contract document tracking. Designed for Off-The-Shelf http://www.infocorp.io | [email protected] | Copyright 2017
25. 2. Digitization and Democratization: Now 6 People can own a cow via a ledger or blockchain on the smart phone. The cow is identified, verified alive, located by GPS with a chip injected into the ear or using a wearable device. Each person or farmer owns a cow token digitized on the blockchain. 1. Old Economy: Previously, one has to form a company at the company registrar, and owns the cow through this legal entity, followed by issuing shares to the shareholders ($20 x 6 shareholders = paid-up capital of $120 = the initial investment). 3. Disintermediation and Decentralization: Now, we can trade Peer-to- Peer using the cow token anywhere in the world. We can pledge the token to another crypto bank as collateral. We don’t need an exchange to sell or buy. 4. Bounty and Network Economy: The 4Ds apply to music, video, picture, land, collector items, and any other form of ownership with a chip or digitized certificate. Online crowd sourced wisdom can be rewarded by a bounty, global crowd funding can be done via borderless cryptocurrency, and usage can be charged using micropayments. Activities are on a Hinternet!
26. 1. Old Economy: Previously, one has to form a company at the company registrar, and owns the cow through this legal entity, followed by issuing shares to the shareholders ($20 x 6 shareholders = paid- up capital of $120 = the initial investment).
27. 2. Digitization and Democratization: Now 6 People can own a cow via a ledger or blockchain on the smart phone. The cow is identified, verified alive, located by GPS with a chip injected into the ear or using a wearable device. Each person or farmer owns a cow token digitized on the blockchain.
28. 3. Disintermediation and Decentralization: Now, we can trade Peer-to-Peer using the cow token anywhere in the world. We can pledge the token to another crypto bank as collateral. We don’t need an exchange to sell or buy.
29. 4. Bounty and Network Economy: The 4Ds apply to music, video, picture, land, collector items, and any other form of ownership with a chip or a digitized certificate. Online crowd sourced wisdom can be rewarded by a bounty, global crowd funding can be done via borderless cryptocurrency, and usage can be charged using micropayments. Activities are on a Hinternet!
30. The Future • Blockchain will likely be the main driver for the 4th industrial revolution. • A peep into the future world will invariably be looking into the storage of data, smart contracts, IoT, AI and computing power. • The most powerful feature of blockchain is sharing of asset ownership.
31. With e-commerce itself rapidly becoming a “traditional business,” pure e- commerce players will soon face tremendous challenges. Over the next 30 years, with computing power as the new “technology breakthrough” and data as the new “natural resource,” the landscape of retail, financial services, manufacturing and entertainment will be transformed. Jack Ma, http://www.alizila.com/letter-to-shareholders-from-executive- chairman-jack-ma/ Oct 13 2016, Letter to shareholders
32. At the beginning of Singapore's independence, the then Prime Minister Lee Kuan Yew said that in 20 years’ time, Singapore would have caught up with Burma "I think we have to change that a bit and say: In 20 years’ time, Myanmar will have overtaken Singapore.” Aung San Suu Kyi, 30 Nov 2016, IE Singapore’s Global Conversations business dialogue http://www.channelnewsasia.com/news/singapore/myanmar-hopes-to- overtake-singapore-economically-in-20-years/3330330.html
33. The Leapfrog Economy Low margin, asset light, scalable, innovative and compliance easy (LASIC) It is about large sparsely populated area connected by digital devices It is about areas with low income and currently excluded from the system Real Time Transparency will lead to more Investment and philanthropic acts! It is about digitalization, democratization, disintermediation, and decentralization! Myanmar is the Leapfrog Economy https://www.google.com.sg/url?sa=t&...&ved=0ahUKEwil986I9KfSAhWFqo8KHUi1D_gQFggYMAA &url=http%3A%2F%2Fskbi.smu.edu.sg%2Fsites%2Fdefault%2Ffiles%2Fskbife%2Fresearch_papers%2FEmergence%2520of%2520FinTech%2520and%25 20the%2520LASIC%2520Principles.pdf&usg=AFQjCNED32eC-IIy6Ro-e_tA97N9d7ZQzg
34. Initial Coin Offerings Initial Token Sales An Invite to the world of like-minded experts to participate? Where technology can do good? Not an IPO in local currency?
35. Source: Matt Chwierut SUSS Fellow ICO/ITS Guru
37. Initial Coin Offerings Initial Token Sales • Online Identity • Standing in the Community (Community, Creativity, Compassion) • Whitepaper • Technology and Source Codes • Pre Sales and Reward/Incentives Structure • Use of Proceeds and Valuation • Governance Structure • Advisors and Governors
38. What is the role of the tokens being sold? • User Tokens or App coins or Protocol Tokens: to access the service provided by the distributed network. • Commodity Tokens: to finance the development of the network, but are not needed to access the services provided by the underlying protocol. • Debt Tokens: As a 'short term loan' to the network, in exchange for an interest rate on the amount. (Alarm bell?) • Both user and commodity tokens • Only user tokens • Only commodity tokens • User, commodity and debt tokensSource: http://www.coindesk.com/tokens- crowdsales-startups/ and D Lee
39. More Questions • Voting Rights? • Distribution of Cash Flow Predetermined by Algorithm? • No Legal Rights and Recourse? • No Group Decision? • Not Shares or Debts? • No Avenue to Remove the Management? • Building Users or Investors Base?
40. Matt Chwierut SUSS Fellow ICO/ITS Guru Token Economics: Rights
41. Token Economics: Hybrid Legal or Crypto Structure • US Security Regulation: Under the Howey test four-pronged test, an instrument is a security if it A) involves an investment of money or other tangible or definable consideration used in B) a common enterprise with C) a reasonable expectation of profits to be D) derived primarily from the entrepreneurial or managerial efforts of others. • Another US legal question: Is Blockchain a transfer agent? http://www.casebriefs.com/blog/law/...es-regulation-keyed-to-coffee/definitions-of- security-and-exempted-securities/securities-and-exchange-commission-v-w-j-howey-co/
42. Token Economics: Creating Legal Air Gap • In countries where tokens are not securities: • Award of Contract: A legal entity (e.g. Pte Ltd) awarded a contract by a client (blockchain) to write the code for the blockchain, and subsequently have an ICO/ITS of the resulting blockchain with tokens. • Commodity Sales: A foundation (e.g. Swiss GmbH-LLC) initiates a sale of a commodity (Fuel/Token) required to run the blockchain on an open source platform. • CODE: Centralized Organized (CO) legal entity spends the tokens collected from the Decentralized Entity (DE) blockchain ICO/ITS and the CO also collects the revenue generated after the project of building the app as an example. • Plain Vanilla Token Allocation: Tokens are first mined by allocators and allocated via a computer algorithm that does not specify any specific public addresses to receive funds.
43. Is ITS & DAO Structure all Bad? – Lior Zysman • Flows of funds are recorded real-time on an open blockchain. • The new JOBS Act Title 3, which opens investment in startups to individuals, requires startups to publish financials once a year; in contrast, blockchain accounting guarantees their investors financial reporting all year long. Lior Zysman is a crypto legal advisor to Wings.ai and a legal contributor to Smith+Crown. He is a practicing lawyer in Israel. https://www.smithandcrown.com/daos-securities-regulation/
44. Is ITS Structure all Bad? – Lior Zysman • The Act also requires businesses to publish a business plan once a year. • In contrast, some ITS’s are powered by transparent open-source code that any machine on a distributed network can run. • The funds the ITS directs are also published on the blockchain, and the by- laws themselves that determines the relationship between the ICO/ITS participants are embedded in the code. • The execution of those bylaws and the ITS’s accounting don’t depend on familiar figures, like the CEO or an auditor, although the status of humans on the edges of the network or curators has never been debated in case law and might be replaced using formal verification methods. • Given all this, investor expectations, a big concern for lawmakers and regulators, are being met directly by the ITS’s code, perhaps for the first time in corporate history. Amended from https://www.smithandcrown.com/daos-securities-regulation/
45. Initial Token Sales (ITS’s) or Initial Con Offerings (ICO’s) • Many Scams! Buyers Beware! • Risk and Complexity Classification • High Risk? • High Complexity? • Definitely high uncertainty of outcome! • Who should invest? • Certainly not for widows and orphans • Definitely not for speculators • Absolutely not a traditional instrument and not advisable for the public or even sophisticated investors • Who? Members of the community that know the community well • Who? Those who understand that these are experiments • Who? Those who can mentor the companies and blockchain angel investors • How much allocation to one’s portfolio? • Prepare for zero return of capital • A learning portfolio • It is not part of the traditional portfolio but possibly the new alternatives
46. For those Launching a Initial Token Sales • Advice given by Lior Zysman • Communication is key • Transparency is essential • No over promise of product goals • No promise of Returns on Investment • Emphasize that it is an Experiment • Be Aware of Fiduciary Duties
47. Conclusion and Final Observations • Blockchain is not needed in many use cases that need only a database • For sustainability and network effect, blockchain has to scale to serve the underserved for easy compliance • Blockchain will scale faster if it is open, engages AI, Big data, and IoT • Watch and plugged into China which has mastered the skills of scaling, financial inclusion, and user experience • The business strategies of combining economies of scales and economies of scope in Fintech will spill over to blockchain in China with emphasis on financial inclusion and green finance • China will dominate the blockchain industry because of its size and capital expenditure on R&D • ITS’s are for those interested in the technology and its associated experiments • Online identity with community spirit, good understanding of fiduciary duties, transparent communication, under promise in technology goals, no promise of ROI, assisting communities to serve the underserved are key success factors.
48. Seriously, do you need a blockchain? Most probably not unless you are into financial inclusion and green finance!
49. The most powerful feature of blockchain is sharing of asset ownership in a currently centralized environment without full trust and in need of democratization of information, technology and services, as well as micro ownership!
4DS Price at posting:
7.9¢ Sentiment: Buy Disclosure: Held
(20min delay)