Blockworks conference shows off the present and future of blockchain

Theta’s Innovation Lab has been looking into blockchain applications, so Blockworks was an ideal place to go and hear from industry experts, to help us assess what application areas we could look at in the future.

>> Jump to the TL;DR at the end if you’re short of time

In two weeks’ time it will be 10 years since the release of the enigmatic Satoshi Nakamoto’s now famous whitepaper describing a “purely peer-to-peer version of electronic cash” called Bitcoin. The technology underlying this new currency came to be known as blockchain (or Distributed Ledger Technology/DLT), a distributed, transparent, timestamped and supposedly tamperproof ledger of transactions. Blockchain has been hyped as the next big thing since the internet – people said it would revolutionise the financial system, and could even allow cryptocurrency to replace cash. That hasn’t happened, and likely won’t anytime soon, but there are now around 2000 different cryptocurrencies in circulation. Some commentators suggest the technology is entering the “slope of enlightenment” phase of the hype cycle (others are still feeling disillusioned). The reality is that blockchain will probably make the exchange of anything (eg currency, goods, data, agreements…) more reliable and efficient - so improvements rather than new solutions.

[Blockchain] is to bitcoin what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one” - Sally Davies, Financial Times

In recent years, blockchain’s potential for applications beyond cryptocurrency and finance have been discovered; supply chain, healthcare, insurance, transportation, voting, and contract management (“smart” contracts) are a few examples. Despite new and more flexible forms of blockchain technology like Ethereum emerging (Blockchain 2.0), successful real world implementations are still few and far between. This may be due to some major constraints of current blockchain technology: scalability and energy efficiency. Scalability is constrained by the need for every node on the network to validate every transaction, and the high energy consumption required to run a large blockchain network is due to the proof-of-work (mining) algorithm which consumes massive amounts of computing power. This means it is currently unfeasible for mass adoption – if blockchain was used to run the world’s Visa transactions, for example, it would require 5000 nuclear reactors to be built to handle the energy needs.

So what CAN we do with blockchain at this point – what applications are currently being used, or are in development? And how will the constraints, as well as legal and regulatory issues related to blockchain use be overcome? I hoped the Blockworks conference would answer some of these questions…

The day kicked off with introductions from Justin Flitter, the conference founder, and MC Savannah Peterson. The optimism for blockchain was immediately obvious in the room, with predictions that the introduction of blockchain would be a paradigm shift, disrupting our current systems, making the world more efficient, and making personal data more secure due to instant transactions and the benefits of decentralisation and immutability.

Mark Pascall, president of the Blockchain Association of NZ, was the first speaker, giving an overview of the history and state of play of blockchain. He spoke about the legalities and declining hype around ICOs (Initial Coin Offerings), the funding model generally used for blockchain start-ups. ICOs are like IPOs, but instead of shares, an investor gets the projects’ tokens (cryptographic assets) in exchange for another cryptocurrency (generally bitcoin or ether). 2018 has seen ICO prices stabilise, and innovators and regulators are working more closely to ensure ICOs comply with international law (there has been much contention over whether tokens should be treated as securities or not). However, Pascall contends that because lawmakers are slow, blockchain ecosystems will create their own regulations. He spoke about a “blockchain future” where the opportunity to tackle big problems like global warming exists, and that key trends now in blockchain are new smart contract engines with different architecture decisions, less decentralisation, better security and better throughput (think Blockchain 3.0). DApps (decentralised apps built on blockchain foundations) are an emerging trend, as well as the development of constitutions or ethical codes of governance, dispute resolution and voting on the consensus rules for how individual blockchains operate. In other words, blockchain based products and ecosystems seem to be maturing.

Digital identities and privacy

Next up was Aaron McDonald, CEO of Centrality, an NZ based blockchain venture studio. Centrality is in the all-time top 10 ICOs – they raised more than $265,000,000USD during their offering. The company has built a platform, services and a library of applications that can be used as building blocks to create DApps – in other words, it’s a development ecosystem that startups can use to fast track their products.

But as McDonald explained in his talk, Centrality has a wider vision for their platform – they want to replace the growing data economy which is run by massive companies who exploit users’ data, and aim for a true sharing and privacy-based economy. They believe that digital identities - that the individual has the power to grant access to (and revoke at any time) - will be at the heart of the transformation of how the digital world operates. To show how these digital identities would work, he demonstrated SingleSource, the identity verification part of the Centrality stack. SingleSource allows individuals to control their personal data, while organisations they want to interact with get a risk score for the individual so they can determine their trustworthiness. This could reduce repetitive, manual identity verifications, as well as reducing the risks of breaches of customer data. Privacy protection will be increased, we’ll have more control over our data, and the risk and cost of security breaches will be reduced.

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Blockchain for Supply Chain

Several of the day’s talks focused on how blockchain was being used to improve supply chain processes, and food safety was a big focus. This is a topic close to NZ’s heart, with the dominant proportion of our exports being food. The value of those exports is based largely on the perception of them as high quality and from trustworthy sources. So how can we further guarantee the journey of food from our farms to international tables and protect our exports in the future?

Dene Green, the General Manager of International Strategy and Partnerships at NZ Post is leading a blockchain program to do just that. The program is focused primarily on our exports to China, where there is currently little to no consumer trust in the authenticity and safety of food products due to the massive prevalence of counterfeiting. Counterfeit products are a 1.2 trillion dollar industry globally. NZ Manuka honey has become a prime target, with twice as much sold in China as we actually produce in total. Similarly with NZ wine, only 60% of that sold is genuine.

To overcome these challenges, NZ Post is building a new business model for cross border e-commerce to China. They have partnered with AsureQuality and NZTE to build a food verification platform. The platform will provide digitised verification of food products from fully-vetted producers, using blockchain to manage smart contracts and post tracking. The initial stages of the program have just been launched with 11 premium food producers, combined as the HUI Māori Collective. NZ Post believes that consumers are prepared to pay a premium to get assured products, and this platform will help provide that assurance.

Trackback is another NZ company investing in blockchain-secured supply chain solutions. Head of Sales, Semanie Cato explained that the company wants to provide a platform which can be used by suppliers and operations teams to create a visible product journey from farm to table. Under their system, every touchpoint in a product’s journey to a consumer is captured and written to the blockchain. Smart contracts will reduce duplication, and the visibility, accuracy and security of their platform will foster trust. Currently their systems rely on a QR code scan on the outside of the package as well as a scan of the internal products to  certify them. Upon scanning, the consumer can access all of the associated delivery chain and product information via an app, allowing them to instantly check authenticity on arrival at their doorstep. QR codes could be later replaced by more secure CryptoSeals which could also reveal any tampering with the product - if the container is opened, the connection to the blockchain is broken.

Samantha Ray-Jones from Origins also showcased their supply chain solution for the garment industry. Using NEM blockchain combined with QR code scanning at every point of the supply chain, Origins hopes to be able to provide the consumer with easily accessible supply chain information via an app. Ultimately this information could help consumers to make better choices about the garments they buy, which could encourage producers to improve working conditions in the industry, and reduce environmental impacts.

What about that paradigm shift?

Alex Sims, Associate Professor at University of Auckland was up next. She agrees that blockchain will cause a paradigm shift, but that it will take some time. With blockchain you can definitely make things more efficient but you could also perform a radical transformation of how large systems operate. Sims gave several examples of practical applications like:

• in the medical industry to access our health records in a secure and efficient way
• in carbon trading to reduce corruption
• in eco-projects to provide payment systems for microdonations
• in distributed computing platforms to facilitate trading of computational capacity on decentralized, GPU-based machines

She warned that adoption of blockchain will need the backing of governments to ensure that barriers aren’t in the way of innovation.

Adam Lyness of Cryptopia, NZ’s cryptocurrency exchange, also weighed in on predictions for where blockchain is headed. He says that cryptocurrencies and ICOs are distractions from blockchain growth – most ICOs fail and ICO hype has diverted investment capital. However, major cryptocurrencies are now established assets. He predicts that blockchain will be disruptive over the next 5-10 years. There will be consolidation of the industry, more hybrid ecosystems, a move to permissioned consortium-based blockchains, and the value of ICOs will eventually start to reflect their actual ROI. To facilitate this it will require a tokenised fiat  (cryptocurrency is still too volatile), industry standards, and interoperable, cross-industry protocols.

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The future of blockchain is a decentralised internet combining data storage, smart contracts, cloud nodes, and open chain networks. - Victoria Hoete-Dodd, BitPrime

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One of the major changes that blockchain might enable is the building of a ‘decentralised web’. One NZ-based company is hoping to become a leading player in this area. Michael Proper of ClearFoundation was at Blockworks to share his company’s vision. They are in the process of creating an entire platform, including hardware, their own OS, a DApp marketplace as well as other software and security services for decentralised web and cryptocurrency. This will all be managed through ClearNODE, which is a product line of managed hardware, software, and security services. Users will be able to use their ClearNODE for decentralised storage, as a hybrid hardware/software wallet, to farm tokens, and to protect their local network and devices.

And what about blockchain for enterprise?

Michael Williams from Microsoft Sydney gave some good examples of blockchain in enterprise settings, like Webjet’s blockchain-as-a-service for the hotel industry, and talked about Microsoft’s blockchain development platform, the Azure Blockchain Workbench. Williams believes that enterprise applications of blockchain will be in situations involving asset transfer, cross organisational exchange, and where auditing is required. He says blockchain wasn’t built for enterprise – it lacks performance, confidentiality and governance capabilities needed for commercial use. It also isn’t designed to leverage existing enterprise tools and skills, and connecting to existing IT architecture is difficult and costly.

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The Azure Blockchain Workbench was designed to overcome these challenges and make the development process easier. It offers preconfigured templates and networks, integrated cloud services like Active Directory, and a simple user interface. It will simplify development, and enable getting prototypes into production in a much shorter time. Williams didn’t mention anything about the costs of the service, but the benefits in terms of reducing some of the heavy lifting required for blockchain app development seem clear.

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Just because it’s blockchain doesn’t mean it’s legally binding…

Agreements between businesses that need to be legally binding are not yet possible using blockchain smart contracts because they do not have a legal framework around them. Another problem is that projects are isolated – they can’t reflect interactions between separate contracts. There is a need to be able to interconnect projects and create networks. It is also difficult to change a smart contract when legislation changes, or when the contract or relationship is amended.

Natasha Blycha, blockchain and Smart Legal Contract lead from Herbert Smith Freehills and IBM's Paul Hutchison were at Blockworks to discuss the ‘Australian National Blockchain’ (ANB), a joint initiative between IBM, CSIRO and two legal firms. The ANB is designed to be an enterprise-grade, legally binding platform for management of smart contracts. Organisations will be able to exchange data and confirm the authenticity and status of legal contracts using the platform.

Although the platform uses IBM Blockchain, they assured the audience that this was not an attempt to build an IBM-controlled system, but that instead it would help standardise the product so that all organisations can use it. It would also be an accelerator for blockchain development. The legal framework the ANB is being built around adheres to Australian regulations, but they envisage the model being extended to other countries, with NZ a likely next candidate. They called for interested parties to set up an NZ consortium in the near future.

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Can blockchain transform how cities operate?

Boyd Cohen, a smart cities and mobility expert and Executive Director of the Blockchain Cities Alliance, was up next to talk about how blockchain could help us evolve our cities to be ‘Smart Cities 3.0’. Early smart cites were led by large ICT companies and council/government – citizens did not have a direct say in how spending was directed, and infrastructure was developed. The new generation of smart cities will be ones where citizens identify problems and co-create the solutions – this will create a more decentralised, democratic and socially responsible operating model. Blockchain will be the key enabler for this to evolve and some early use cases have been identified:

• Economy: city-specific token that supports investment in municipal infrastructure
• Environment: power ledger for p2p renewable energy trading to shift away from fossil fuels
• Smart government: Dubai has 20 active projects in development and expects to save billions in administration and other related costs.

Cohen is currently working on iomob (Internet of Mobility), an open mobility marketplace that runs on blockchain, with an ‘iomob’ protocol layer on top to interconnect apps and services. It aims to be available in any city, and will interconnect public and private transport modes. Cohen envisages this new transportation system will be cheaper for the consumer, and fairer for the provider - mobility operators can get running faster using iomob’s open source hubs to handle booking, payments, and customer registration, while customers get the advantage of easy access to a vast array of interconnected mobility choices.

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Where does NZ sit with blockchain?

This year, Josh Vial of Enspiral researched and wrote a report for Callaghan Innovation and MBIE on the opportunities blockchain provides for New Zealand. The report has not yet been released, but he was able to share a few key insights from his research:

• There is a growing blockchain sector in NZ, but in general the projects are isolated from each other and from the global blockchain community
• Because of this, NZ is falling behind
• NZ legislation is mostly up to scratch for blockchain, so it will rarely get in the way of blockchain development. An advantage is that our legislation allows for companies to apply for exemptions.
• Banking is a pain point - Cryptopia had its accounts closed by its bank earlier this year. NZ blockchain companies are small, so there is little incentive for banks to spend the money to ensure their blockchain customers are complying with anti-money laundering laws.
• There is opportunity for high paid tech jobs and rapid growth, but we are short of talent
• There is huge potential for regional NZ to benefit from blockchain innovation. Westport is leading the way, becoming an NEM blockchain hub.
• We are in a unique position with our small and agile government
• NZ is good at adoption of new technology (e.g. EFTPOS). Here would be an ideal testing place for a digital ID. If we drive this it would be great for the sector.

Overall, Vial thinks the biggest opportunity created by blockchain is to create consensus rules to track access to common resources. This would help to develop community and individual responsibility for natural resources and encourage them to be nurtured rather than exploited. His recommendations to potential blockchain developers were:

1. Build useful stuff that people want
2. Repeat
3. Show don’t tell - talk about real examples to get people on board
4. Build for everybody – ensure your product is inclusive
5. Build stuff that matters – try to address big problems

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TL;DR

Blockworks was a great showcase of the innovative applications of blockchain happening right now, globally and within NZ. The organisers did a great job of gathering a diverse range of speakers, from academics to industry trailblazers. The day was packed with information and it was great to hear predictions for the future of blockchain.

StateOfTheDApps Apr 2015 – Sep 2018

StateOfTheDApps Apr 2015 – Sep 2018

2018 has seen a stabilisation of both cryptocurrency prices and ICO investments, but that doesn’t mean there’s a lack of optimism and excitement for blockchain development. Just judging by the exponential growth curve of the number of DApps registered on stateofthedapps.com, there is definitely no sign of blockchain going away anytime soon.

In NZ innovation is increasing in the sector, with companies trying to tackle some of the big problems that could be addressed using decentralised platforms and services. Maybe blockchain really is set to become the next biggest thing since the internet, but first the technology has a way to go to mature into a fully functioning, responsible member of society. It will require proven solutions to the scalability problems, standardisation to allow interoperability, and better governance and regulatory frameworks to be developed.

If you want to know more about Blockworks and blockchain in general here are some links I’d recommend checking out:

• Blockchain 101 with Savannah Peterson
• The Wired guide to Blockchain
• The Blockchain Association of NZ
• Bitcoin Magazine’s guides