9 BUILDING BLOCKS FOR A SUCCESSFUL BLOCKCHAIN INDUSTRY | BLOCKSTARS.IO
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Want to go beyond Bitcoins? We outline what is needed for a successful blockchain industry in 9 simple building blocks. We view each one as critical infrastructure to enable sustainable commercial businesses to operate on a blockchain.
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9 BUILDING BLOCKS FOR A SUCCESSFUL BLOCKCHAIN INDUSTRY | BLOCKSTARS.IO
- 1. 9 BUILDING BLOCKS FOR SUCCESS What’s required for a sustainable blockchain industry t: @blockstarsio w: BlockStars.io e: [email protected]
- 2. 1. Cross-Chain Bridges 2. On / Off Ramps 3. Roles & Responsibilities 4. Identity 5. Reputation 6. Effective Governance 7. Stable token of exchange 8. Usable Security 9. Economically Viable Processing
- 3. • Growing ecosystem of blockchain‘s’ • Made up of both increasingly specialised private blockchains designed for enterprise grade solutions and customisations • Or Sidechains off core bitcoin blockchain protocol but that link in parallel • Promises blend of private / public chains • Need for ease of ‘cross-chain’ calls 1. Bridges
- 4. 2. On / Off Ramps • Regulation highly localised / emotionally led (fear of crypto / Bitcoin in particular) • Encourages blockchains to start as decentralized as possible then localise pragmatically • Leverage friendly jurisdictions with history in innovative financial services industries (e.g. Isle of Man) • Big opportunity for locales that move first to become epicentre of physical economy
- 5. 3. Roles & Responsibilities • No clear successful business models for decentralized economy as yet • If you don’t own code or data how do you make money in a way you can protect? • Ethical and legal requirement for clear definitions and responsibilities • Watch out for legal precedents and landmark prosecutions that define space
- 6. 4. Identity • Semi / Pseudo Anonymity as current basis of blockchain is limiting for commercial use without some linkage into real world • Especially legal requirements like KYC (Know Your Customer) #Finserv • Identification currently a duplication-of-work for blockchain start-ups • ID with real world verification for people and possessions a must • As well as universal ID for DApps login
- 7. 5. Reputation • Reputation in a ‘trust-less’ marketplace is a challenge • Need strong incentives and disincentives for behaviour. • Currently reputations siloed (best e.g. Dark markets) • Questions around Smart Contracts & their real world enforcement • Universal reputation; individuals and collectives of individuals beyond specific purpose • White-listing (building trust networks) vs. black-listing is central debate
- 8. 5. Governance • Who drives core development of base layers such as Ethereum or Bitcoin Blockchain and to what agenda? • How is this financed and what transparency is offered? • Balancing serving libertarian vs. commercial agendas challenging • How is core development aligned with niche vertical interests and trade-offs • Is there a role for est. trade organisations to lead dev of industry side-chain • Untangling Bitcoin 1% interests and broader more diverse ecosystem
- 9. 6. Stable Token of Exchange • 99% of Bitcoins are in the hands of 1% of people making vulnerable to market manipulation • Bitcoins exchanged largely for exchange itself rather than utility. Increasingly so by VCs and traders • Price volatility exposes merchants treasuries to too much risk to make viable means of exchange • Need tokens that can be pegged to currency of business costs at point of transaction
- 10. 7. Usable Security • Basic tech is extremely secure but history is riddled with hacks & theft • Why? Largely centralisation. If Bitcoin exchange stores private keys its Bitcoin addresses in a badly secured database server bad actor obtains access to this server, they can steal the Bitcoin funds. • The weakest links are in the technologies surrounding the blockchain and the people using them. • Encrypting all interactions between components and actors, and handling the encryption keys in a secure way. • We expect to see more user-friendly security principles. E.g. two-factor authentication, multisig transactions and hardware cold storage wallets etc. will become more mainstream.
- 11. 9. ECONOMICALLY VIABLE PROCESSING • Economics of Bitcoin mining only make sense at a centralised industrial scale • Which is in direct opposition to Bitcoins algorithm which seeks to cancel out these efficiencies • In other words its deliberately wasteful. Which is unsustainable both from a financial and ecological perspective. • Pressure to reduce costs and increase output could result in sweat shops. • Possible solutions; 21s putting mining into everyday devices, tapping into existing latent processing networks such as gaming or replacing with P2P distributed systems of users