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Luke Parker, 14 Aug 2016 -Automated Compliance, Proxy Voting, Trade Finance, Wef
The World Economic Forum (WEF) published a comprehensive, 130-page report on Friday titled
'The future of financial infrastructure: An ambitious look at how blockchain can reshape
financial services'.
The entire document speaks to the subject of blockchain’s usefulness and their effects on the
world’s future financial infrastructure. The WEF cited that “Distributed ledger technology will
form the foundation of next generation financial services infrastructure in conjunction with
other existing and emerging technologies.”
“Our findings suggest this technology has the potential to “live-up to the hype” and
reshape financial services, but requires careful collaboration with other emerging
technologies, regulators, incumbents and additional stakeholders to be successful.”
The WEF is a Swiss nonprofit foundation, based in Geneva that is widely recognized as the
premier international institution for cooperation between the public and private sectors. Their
mission is to "improve the state of the world by engaging business, political, academic, and
other leaders of society to shape global, regional, and industry agendas."
In January, the forum was addressed by IMF director Christine Lagarde to describe “Virtual
Currency Schemes” including Bitcoin for the first time. Since that event, the international public
sector has produced paper after paper on blockchain technology.
“Using the existing World Economic Forum’s framework for “Disruptive Innovation in
Financial Services”, the report identifies potential blockchain use cases from across the
industry.”- Jesse McWaters, Project Lead, Disruptive Innovation in Financial Services, World
Economic Forum
The first of the use cases listed, Global Payments, is the one where the most change is likely to
be made; especially in remittances. “The focus of this use case is on low value−high volume
payments from an individual/business to an individual via banks or money transfer
operators,” they said.
A ‘seamless’ Know Your Customer (KYC) process is the first big improvement to existing
payments processes that they predict. Leveraging the digital user profiles of both the sender
and the receiver stored on-blockchain establishes trust and authenticates both parties quickly,
they point out.
Global Payments Future-state benefits
Also, the payments section suggests that “Banks can leverage cryptocurrency on the DLT to
facilitate global payments, eliminating supporting settlement platforms and foreign currency
buffers in nostro accounts,” referring to accounts denominated in foreign currencies.
“The use of cryptocurrency will add to additional volatility and will demand additional
hedging instruments, and Banks would be required to hold cryptocurrency as assets on
their books.”
The section concludes by pointing out that blockchains can enable banks to do real-time
settlement, reduce their fraud, enable micropayments, and eliminate errors using smart
contracts.
Insurance is another use case and the WEF examined property and casualty (P&C) claims
processing. P&C insurance is issued to protect against property losses such as homes or cars
and/or against legal liability resulting from injury or damage to the property of others.
“DLT has the potential to optimize the back-office operational costs of property and casualty
insurers,” the report reads. Through a smart contract, claim submissions are simplified and
automated, the need for brokers will be eliminated and processing time as well as fraud are
reduced.
We tend to regard data as if it were a thing with dimensions and boundaries. A product of the
information age we live in it travels like the cargo of a ship on the virtual ocean that is the
information highway; when in fact the cargo, the ship and the information highway are all data,
there is only ocean.
This ocean of data drives society, determines national budgets, aids decisions in industry and
pigeon holes us into social and economic groups. From the global to the personal level data
plays a significant role in all the decision processes of everyone’s life. Processes that if based on
poor inaccurate, out of date or misleading data risk making decisions that are equally poor,
misleading and out of date.
So, if we are to make good decisions, we need to know the outcomes, the benefits and
consequences of our actions on ourselves, our neighbours and our environment. We need to
understand the relationship between the macro and the micro, the local and the global and the
only way to do that is through the data.
According to some reports we have generated more data in the last five years than in our entire
history and each year we generate more. With this explosion in data comes opportunities for
improving our decision processes and achieving global sustainability objectives. However with
those opportunities come challenges in handling, differentiating and working out just what is and
is not useful. For no data, is better than the wrong data. The right data however, despite what
Mark Twain would aver, makes for good statistics and good statistics support good decision
processes. But what is the ‘right data’ in an information age awash with the stuff.
What Is Data
The internet is data, everything on it and every piece of software on a computer is made up of
Data. However in the context herein data has the more ‘narrow‘ scientific definition of
“a set of values or measurements of qualitative or quantitative variables, records or
information collected together for reference or analysis,” (Wikipedia)
it is the cargo on our ship…
The contents of a telephone book is an example of data collected for reference. Data that can
and is put into databases for analysis. Once entered it can be re-organized and sorted so as to
reveal how the names are distributed, measure their frequency and estimate ethnic or social
economic distributions. The analysis might reveal odd correlations, trends and anomalies, such as
the frequency at which three sixes appear in the telephone numbers of people with double barrel
names, that would otherwise be missed. Such anomalies can fuel conspiracies and are examples
of statistics being used like a drunk uses a lamp post, more for support than illumination. In truth
there is though little one can get from a telephone book other than a telephone number and an
address. That’s not to say that data isn’t useful.
Types Of Data
Data categorisation is very much dependent on purpose; there is no single category structure
applicable to all. With that in mind I propose four Data ‘spheres‘ to initially distinguish data types.
Personal Data
A telephone book is just one source of personal data, as is a mailing list, a club membership, a
bank account or a tax office receipt. Individually these data sources provide limited information
about an individual but contain fields (name,address, etc) that make it easy to link the data so
that collectively it documents extensive details about an individuals personal and financial life.
Scary stuff and whilst it’s the most precious kind of data it similarly makes up an insignificant
fraction of the total data currently held or being generated by the internet.
Economic Data
The state of the nation, the productivity of industry and the movement of goods and services
within and between trading entities relies on the supply of good data. The budget, government
policy and changes to or creation of new laws all rely on good relevant data. Without it there
would be no means to balance the books, to calculate a nations GDP and value it’s currency.
However data collection currently lags behind the policy that relies on it. At best the figures are
for the previous quarter but more often than not are estimates aggregated together from
different sources.
Sociopolitical Data
Domestic government policy on health and education as well as changes to and creation of new
laws all rely on good data. At the regional level Data determines how policy will be implemented
and budgets distributed between schools, policing, refuse collection, etc. National and local
government therefore needs quantitative and qualitative data on the demographics, social
trends, political, cultural and ethnic identities of the people it serves.
Environmental Data
Environmental data includes any lab, field and desktop data from any chemical, physical or
biological discipline from the natural sciences. All data relating to Earth and biological disciplines
from theoretical particle physics to the applied science of agriculture are forms of Environmental
Data.
Non Exclusive Nature Of Data
Within these spheres data can be quantitative/qualitative, spatial/temporal,
deterministic/stochastic or combinations there of. The data may similarly be relevant to a few,
many or have a lasting or fleeting influence, and whilst most data conforms to the categories
above some straddles more than one and all of it interacts with and influences the data in others.
So whilst we can can compartmentalize data we can only understand it in the context of the
whole.
What Is A Database
A database is an application (program) into which data can be input and organised to provide an
indexing system or display statistical information on the data. A simple data set could be a
membership list of a golf club. Each entry containing details on a members name, age, address,
joining/subscription date and details of their achievements (i.e. handicap, or records held). The
database would allow the club to sort the details by any field (name, age, address, joining date,
subscription renewal, handicap, etc) and compile simple statistics (i.e. avg age, length of
membership) or see who hadn’t paid their subs. A database might store values, charts, tables,
files or just the location of the data as with bit torrent file sharing sites or search engines (i.e.
google).
Types Of Database
All databases store information, ideally for easy retrieval. What differentiates one from another is
the way the data is stored (within the database itself, or links to an external location), where the
database is held (central or distributed), and how the data is subsequently accessed (public or
private).
Traditional Database
Whilst limited and not generally regarded as a true database, a spreadsheet performs all the
basic functions of one. MySQL the database in the LAMP (Linux Apache MySQL PHP) stack that
drives the internet is an example of a more complex database. A MySQL database stores the
content and links to a web sites media. This content is accessed though PHP scripts ( i.e. a
Content Management System like WordPress) and then served to the internet by an Apache
server built using Linux.
It is a small step for that hub to widen, to encourage integrated crop production and
management in farms across a region and improved logistics to tackle over and under
production and transport wastage. One more step and farmers could begin to operate in their
own regional network not only to produce and supply food but to create co-operatives to
allocate resources more amicable or developing integrated fertility programs.
My experiment with IRCC Cameroon was an attempt to remotely put such a structure in place.
Supporting The Development Of A Peer To Peer
Economy
As well as farmers retailers and consumers could build co-operatives around a supply chain.
Orders could be automatically coordinated through logistics operators to find the optimum
route, and then tracked to the delivery address. On arrival the order could trigger payment or
payments. It’s a future that relies on the establishment of an authentication and tracking system
as well as the market places to promote and display the wares.
All of us know Bitcoin as a digital currency unit with which we can transfer money from one
anywhere in the world to anywhere else, as long as you have an internet connection. Just like how,
one can make call over internet without the intervention of any third parties.
What if you have 5 bitcoins in your account and execute a spend transaction simultaneously over the
internet for 5 bitcoins to 5 different accounts at the same time? Since there is no central party or
mediators like in the case of a banking transaction who are tallying the accounts on a live basis, it
could well be possible that all the 5 persons would perhaps receive the transaction at the same time
and account for it! This is the classic problem called ‘Double spending; which many Technologists
and digital evangelists have not been able to solve for decades.
In computer science, this problem was formulated as Byzantine General’ Problem in 1982 by Leslie
Lamport, Robert Shostak and Marshall Pease in their 1982 paper. Byzantine refers to the
Byzantine Generals' Problem situation faced by a group of generals encircling and attacking a
city without any reliable communication path among themselves. The challenge is to come to the
right consensus of going with the right majority decision in face of lack of trust amongst
themselves due to the possible infiltration of their camp by the rival kingdom.
In the case of bitcoin, the members are called miners and those who are creating transactions
are the account holders submitting their transactions through their wallets. The pages are
represented by blocks and the transactions are the transfer details of the digital currency unit
from one account to another.
Bitcoin also provides for one level of identity protection for the users by delinking the real names
of the account holders with the transaction and also by ensuring that only authorised persons are
able to create and verify transactions and check balances.
https://medium.com/ipdb-blog/forever-isnt-free-the-cost-of-storage-on-a-blockchain-database-
59003f63e01
This blog post is a deep dive into the numbers that led to a
single per-GB price point — the cost of storing data indefinitely
in a blockchain database.
This kind of analysis has been lacking in the hype around
blockchain technology. There are many problems that could be
addressed with blockchain technology, but without an
understanding of what a blockchain solution will cost, it is
impossible to say whether economic efficiencies can be
achieved. This post is a first step toward understanding which
use cases could truly benefit from the application of
blockchains.
where t is the number of years away from 2017 i.e. t=1 for 2018.
Transaction Size:
The maximum BSON document size in MongoDB is 16 MB.
Since a block is a document and can contain up to 1000
transactions we assume the soft limit for a single transaction to
be 16MB/1000 = 16kB. The size of a single transaction may be
anything smaller than this however, so we consider 1.5kB, 7kB
and 15kB in our calculations. Given usage of the IPDB Test
Network so far, we expect transaction size to trend toward
smaller sizes, likely in the 1.5kB to 7kB range.
The Model
Let’s start with the money coming into the IPDB Foundation.
Revenue
1.1 One Time Payment
Costs
2.1 Storage Costs
Cost Estimate
So what’s the final number?
Financial sustainability is the most important piece of the
puzzle. If we set the price too low, even though we can cover the
cost of storing data for a long time eventually the number of
new transactions each year will wane and yearly revenue will fall
below yearly costs. We need to set the price such that
investment income on the balance, not new fees, can be used to
cover ongoing costs.
That final number is a one time fee of $100 per GB. This
allows us to store data indefinitely while covering the cost of
operating the IPDB Foundation.
Comparison
As a comparison, how much would it cost to
store the same amount of data for an
indefinite period on the Bitcoin or Ethereum
blockchains?
Image by Wit Olszewski via Shutterstock
Bitcoin
Even though it is possible to store data on the Bitcoin
blockchain, the Bitcoin protocol was not designed with data
storage in mind. However, as blockchain use cases expanded
beyond finance, many companies started using the Bitcoin
blockchain as a database all the same.
Ethereum
Transactions in Ethereum work completely differently than in
Bitcoin, requiring “gas” to have data processed.
The gas cost is not just based on how big your data is but also
how complex. The most basic data we could send in a 7KB
message call would be comprised of only zeroed bytes. If the
data included text this would mean the message would have
non-zeroed bytes. According to the Ethereum Yellow Paper each
zeroed 32 byte costs 4 gas and every non-zero 32 byte word of
data requires 68 gas to send so assuming all the bytes are zero
provides a minimum gas cost.
That doesn’t seem like much if that was all you wanted to do,
but storing the sent data is an additional operation. Every 32
byte word costs 20,000 gas. This is one of the largest gas
requirements for any EVM OPCODE, reflecting that this is not a
simple operation but one that is being replicated and stored
across thousands of nodes. To store all 7KB would be: