Blockchain Demystified

Po Chi Wu, Ph.D.

Adjunct Professor
HKUST
Visiting Professor
UC Berkeley
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
 AUTOMATION
VERIFICATION CRYPTOGRAPHY

DISTRIBUTED LEDGERS
DECENTRALIZED
IMMUTABLE
CROWDFUNDING

WHAT CAN WE TRUST?

PSEUDONYMITY
SECURITY

AUDITABLE
TRUSTLESS
REAL-TIME MONITORING OPEN SOURCE

ACCOUNTABILITY INITIAL COIN OFFERING (ICO) COST SAVINGS

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Copyright © 2018 Po Chi Wu
Distributed Ledger Technology

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 What excites me

• First tool ever invented whose features give

advantages to good actors, undesirable to bad actors
• Immutable record
• Accountability
• Transparency
• Decentralized control of data

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Impact - value

• Introduces new (alternative) trust layer in network

• Enhances process efficiency in a network
• Enhances collaboration in ecosystem
• Excites imagination

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 Blockchain

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Big talk

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Big money

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Why the hype?

• A powerful new narrative of empowerment

• Next-generation “open source software”
• Peer-to-peer file sharing => Internet
• Peer-to-peer accountability => Blockchain
• Social network => Social Media
• Community-building => Tokenization

Endless variety of stories/applications

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Framework for disruptive innovation

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Copyright © 2018 Po Chi Wu
 Origin – 1st Generation

• Objective: Peer-to-peer exchange of monetary value = Bitcoin

• Blockchain invented as tool for process
• Key concepts: decentralized (public), distributed ledger
• Cryptography and hash function => unique identity for each block
• Challenges: identity, verification, security

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Proof of concept - Bitcoin

• > 250,000 transactions/day

• $195-378 Million in transactions/day
• Manages close to $20 Billion of value
• > 5,400 active nodes (open to public)
• Is Bitcoin a digital asset or a currency?

Copyright © 2018 Po Chi Wu

Cryptocurrencies

• When is a digital currency “equivalent” to fiat currency?

• Government policies/regulation
• Uncertainties - Stability, predictability?
• Interconvertibility?
• Rules & structure of the economy
• Tokens/coins  cryptocurrencies and/or utility value
• Building communities => next-generation affinity programs

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2nd Generation

• Thousands of blockchains - ICOs

• Business logic layer: Smart Contracts (“If…Then…”)
• Multi-party, multi-step activities
• Different consensus mechanisms
• Permissioned (private, closed) vs Permissionless
(public, open)

Powerful imagination => more interesting questions

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Copyright © 2018 Po Chi Wu
Banks

• JP Morgan, Bank of America, NYSE, Fidelity Investments,

Standard Chartered –
• Replacing paper-based/manual transaction processing in
trade finance, foreign exchange, cross-border settlement,
securities settlement
• NASDAQ – processing and validating financial transactions
• Bank of Canada – CAD-coin for interbank transfers
• Major banks all over the world

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Operational impact

• 70% savings on central financial reporting

• 30-50% savings on compliance
• 50% savings on centralized operations
• 50% savings on business operations
• => $8-12 BILLION/year
• Data from Accenture on top 10 banks

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Worldwide consortia

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Equity funding

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 Where’s the money going?

• The tech is literally evolving day-by-day

• Global teams (diverse tech, perspectives)
• Unlimited imagination - Big and small projects
• Playground for Millennials
• “New money” vs “old money” – power shifts
• Reducing friction, middlemen

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Practical reality
IBM: potential savings of $100 BILLION/year

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Logistics

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Ecosystem

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Participants since 2016

• DuPont, Dow Chemical, Tetra Pak, Port Houston,

Rotterdam Port Community System, Portbase, the
Customs Administration of the Netherlands, U.S.
Customs and Border Protection
• General Motors, Procter & Gamble, Agility Logistics
• Singapore Customs, Peruvian Customs
• APM Terminals, PSA International
• Guangdong Inspection & Quarantine Bureau for its
Global Quality Traceability System

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Enterprise examples

• Maersrk + IBM Joint Venture

• UPS + FEDEX + BNSF Railway + Schneider Trucking + 200
others => BITA Alliance
• PEMEX + PetroTeq => PetroBloq
• UBS, Barclays, Credit Suisse, others => Compliance platform
on Ethereum
• IBM – over 400 projects in: trade and supply chain finance,
carbon credit management, person and owner-mediated
health data exchange, payment and digital currency for cross-
border transactions

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Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
300cubits.tech in HK

Tokens (TEU) as an
incentive for a
collaborative solution to
booking inefficiencies
- Communication channel

TEU is an industry acronym

for Twenty-foot Equivalent
Unit, a standard unit size for
containers.

Advisor: Prof. Kai-Lung Hui, ISOM, HKUST

Copyright © 2018 Po Chi Wu
3rd Generation

• Challenge: reimagine data sharing

• Industry standards (privacy, security)
• Interoperability (cross-chain)
• “Trust Objects”, verifiable claims
• Decentralized Identity
• Real-time monitoring
• => IP policy servers for collaboration
• => National/global innovation platforms

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Signs of the future

• Significant investment of human capital

• Experiments worldwide
• Multiple blockchains (specific functionalities)
• Regulatory, legal exploration
• Government endorsements
• Pilot programs – sandboxes, incubators
• Blockchain-as-a-Service (BaaS) – Tencent, Baidu,
JD.com – can Amazon, Facebook be far behind?
• Alibaba also a pioneer

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> 2500 Patents to-date

• China - 225 blockchain patents in 2017 (59 in 2016)

• US - 91 in 2017 (21 in 2016)
• Australia – 13 in 2017 (19 in 2016)

• Of the top 9 filers of blockchain patents in 2012-

2017, six were Chinese, led by Beijing Technology
Development.

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Copyright © 2018 Po Chi Wu
HKMA – trade finance

• Smart contracts
• Tracking transaction status
• Matching invoices to purchase orders

Copyright © 2018 Po Chi Wu

References

• The Truth About Blockchain, by Marco Iansiti and Karim R. Lakhani, HBR,
January-February 2017
• Blockchain – Blueprint for a New Economy (2015), by Melanie Swan
(O’Reilly Media)
• Blockchain Investment Trends in Review – CB Insights (2017)
• Banking is Only The Beginning: 36 Big Industries Blockchain Could
Transform, CB Insights (2018)
• 19 Corporations Working On Blockchain And Distributed Ledgers – CB
Insights (February, 2018)
• https://media.coindesk.com/uploads/2017/09/state_of_blockchain_q2_2
017.pdf

Copyright © 2018 Po Chi Wu

Po Chi Wu Bio
• Dr. Po Chi Wu is an Innovation Provocateur & Evangelist and an Investor in
Human Capital. Venture capitalist and entrepreneur based in Silicon Valley
and Asia for more than 30 years
• Educator: University of California at Berkeley, Carnegie Mellon’s Silicon
Valley campus, The Hong Kong University of Science & Technology, Sun
Yat-Sen University (Guangzhou) and Peking University (Beijing).
• Recent books: “Angel Financing in Asia Pacific” (which he co-edited,
Emerald Publishing, 2016) and “Agile Innovation: The Revolutionary
Approach to Accelerate Success, Inspire Engagement, and Ignite
Creativity” (Wiley & Sons, 2014), which he co-authored with his partners
at Futurelab Consulting.
• Education: PhD from Princeton University and a BA from the University of
California at Berkeley.

Copyright © 2018 Po Chi Wu