Working Groups 2018-2019

Abstract:

In this paper, we develop a framework that allows a company to evaluate different enterprise blockchain offerings when looking to procure a solution that addresses solves their supply chain challenges. We recommend companies to consider business factors, technical factors, and implementation factors.

The business factors to consider are the vision and purpose of the blockchain’s creation, the governance and track record of the blockchain, and the blockchain’s business model. For technical factors, we recommend looking at a blockchain solution in terms of four layers (the fundamental, smart-contract, data storage, and interface layer), and then comparing the nuances of those across the offerings. Finally, we highlight certain implementation considerations for companies.

Along the way, we also evaluate the landscape of supply chain challenges that could be solved by blockchain. We see these challenges as in three main categories - traceability, low digitization, and trust & costly intermediaries. Our evaluation of these problems and the solutions presents a primer for companies who have decided to implement a blockchain solution and are evaluating different offerings.

Executive Summary:

Over the past decade, significant breakthroughs in gene sequencing has allowed gene analysis and therefore data to become readily available. However, with an influx of genetic data, another problem arose: the problem of data stewardship and governance. As of today, an individual donor who has his DNA analyzed through 23andMe or Ancestry.com has no way of knowing where the data goes and for what purposes the data is used for. We believe that a blockchain solution, leveraging non-fungible tokens, will enable an individual donor to become a better steward of his own genetic data by enabling him to trace where the genetic data goes, and will strengthen the privacy of the individual’s identity. By doing so, we hope to peel off any stigma around the donation of genetic data, regain the trust of individual donors, and thereby empower a community of citizens to adopt the practice of donating genetic data for the greater good of society.

Abstract:

The structure of the US financial system deserves modifying. In the 10 years since the financial crisis, technological advancements and regulatory tools have laid the foundation for Central Bank Digital Currencies to emerge as an economic resolution. Our paper illustrates that introducing Central Bank Digital Currencies (CBDCs) can improve financial stability without degrading credit availability in the long term. We show this by focusing on the effects in a single credit market, namely, the U.S. student loan market. Our analysis showcases that by introducing CBDCs, market participants can subsequently remove two types of market subsidies that promote poor risk practices and improper pricing. These two subsidies are FDIC deposit insurance as well as risk-free deposit rent. We calculate the effect of introducing CBDCs by focusing on historical market examples when similar fundamental market shifts happened, both in the student loan market as well as in other advanced economies. Our conclusion is that CBDCs diminish credit availability within one-year, but this effect is ameliorated as financial stability improves in subsequent years. Accordingly, we recommend a roadmap for rolling out CBDCs in the least disruptive fashion.

Excerpt from Executive Summary:

In computer science “distributed consensus is the problem of how multiple, independently run computers can reliably agree on a set of common data in the presence of faults (i.e. in the case that one computer intentionally or unintentionally is programmed to introduce false information).”1

Ledger technologies - known as Blockchain – are based on cryptographic locks and computational algorithms that record and verify transactions and engagement terms under distributed consensus protocols. The consensus protocol creates an append-only log (transaction ledger) which then creates an auditable database. “This database is constructed by multiple, possibly distrusting participants and is secured using cryptography so that every entry can be audited and verified.”2

The consensus protocol is the center of the blockchain based system as it is the mechanism that creates the ledger and maintains the legitimacy of the database. In evaluating different consensus protocols, it is important to assess different dimensions such as scalability3; latency4; costs5; privacy and reliability. The reliability is the likelihood that the distributed consensus will produce the correct output in the presence of faults. The objective of the project is to develop a framework to assess the reliability of permissionless blockchain consensus protocols6. …

Introduction:

In this paper, we discuss the definition of interoperability and blockchain interoperability, we identify three interoperability solutions and discuss their risks and risk mitigation methods, and we provide a market landscape of the shipping industry, all to suggest a framework for addressing interoperability issues. This paper serves as an initial approach to blockchain interoperability from both tech and business perspectives, and more research should accompany this paper to assess the challenges and solutions for blockchain interoperability in other industries, as well as further the research in the shipping industry.

Executive Summary:

Cryptographic accumulators have been explored for decades, but in Bitcoin’s 10 year existence, no viable solution has been identified to apply accumulators to produce a representation of the Bitcoin current state and reduce the data requirements of nodes. The primary reason for this is the need for proofs to identify membership to the accumulator, bridge nodes to communicate with non accumulator aware transactions and updating proofs in the accumulator as the state changes. UTreeXO is a solution developed by Tadge Dryja of the MIT Media Lab’s Digital Currency Initiative that has designed a solution that seemingly has met a lot of these requirements in an efficient way.

UTreeXO is a dynamic hash based solution to reducing the data requirements of running a fully validating UTXO blockchain node (e.g. Bitcoin). Through a novel approach to swaping deleted leaves or branches with new leaves and branches within Merkle Trees, UTreeXO manages to reduce a Bitcoin full node data requirements from 3GB to under 1KB.

If Bitcoin full nodes can be run in under 1KB it significantly improves the ability of users to run their own full node on mobile devices, rather than downloading SPV wallets or third party provider wallets. This has significant implications for the distribution and decentralization of UTXO blockchains, with the potential to attract thousands of customers that otherwise would not have owned and operated full nodes. Further, by owning and operating a full node, users will benefit from improved security and privacy when compared to SPV or third party wallets.

It is worth noting that UTreeXO is still a code in development. There are significant hurdles that are required to be overcome before it is operational and functioning to its potential. Some of these include the existence of multiple bridge nodes to protect the network, the existence of many UTreeXO aware nodes to fully benefit from storing proofs, increased peer review of the UTreeXO code and greater stability of the code (still many improvements that can be made).

Executive Summary:

The following research investigates the application of security tokenization to commercial real estate assets. Primary research through interviews was conducted to uncover some of the most salient use cases and blockchain benefits for the space. The report explores three domains of blockchain application to real estate: (1) the application of blockchain to securities issuance and trading, (2) the application of blockchain to the real estate investment value chain, and (3) the application of blockchain to the representation of the physical assets themselves. Overall, we find that the value creation provided by tokenization can come in several layers, with some standalone benefits emerging by applying tokenization to each of the three domains in isolation. However, significant synergies can arise from combining these layers. As integration increases, additional features become possible. Our conclusion offers a general framework that can be used to perform future research on the tokenization of other types of assets and their related securities.

This research was conducted as a part of the MIT Digital Currency Initiative and was sponsored by Fidelity Center for Applied Technology (FCAT). The authors take full responsibility for the content and views in this paper.

Abstract:

The economics of mining Bitcoin are investigated from the perspective of the miner. First, the protability of the entire ecosystem is studied. For this, global estimates of hardware price, electricity rates, depreciation ex- penses, and mining rewards are derived and the global prots arising from mining Bitcoin are calculated. According to the estimates used, Bitcoin mining has not been protable since mid 2018, even with a depreciation schedule as long as 24 months. In addition, the overall hashrate of the Bitcoin network is studied and its relationship to the BTC/USD exchange price is analysed. It is observed that there is a lag between the hashrate and the exchange price of the order of about 200 days. Moreover, a linear model is constructed to reproduce the hashrate from lagged information on the top-pools mean hashrate and the BTC/USD exchange price.

Excerpt from Executive Summary:

“This report aims to document the process of use case assessment, business case development and pilot planning of a blockchain-based protocol application for a public sector organization. More specifically, the team focused on building a pilot of the b_verify protocol for a financial inclusion solution on the agricultural credit sector in Peru … The opportunity to use a blockchain based solution in the context of Agrobanco’s situation is clear, however, developing the underlying software infrastructure also involves a non-trivial investment of resources. B_verify provides an opportunity to tackle the challenge of providing Agrobanco with a blockchain based solution without the need to jumpstart a whole network. The effort necessary to create the product is closer to a regular centralized implementation than developing an independent blockchain solution.”

Executive Summary

The project – Traceability of Agricultural Products in Latin America – was commenced by Inter-American Development Bank (IDB) to evaluate the potential of blockchain technology in improving the traceability of agricultural produce in Latin America, with an aim of reducing the waste that is generated at different points in the supply chain.

As part of the project, we first started looking into the applicability of blockchain as a traceability solution. Our aim was to determine if the technical complexity of blockchain solutions make them too complex for a use case such as traceability. After reviewing a host of literature on the usage of blockchain in supply chain systems and evaluating few real life blockchain-traceability prototypes, we arrived at the conclusion that blockchain as a transparent, immutable and distributed database can be a good tool for improving traceability across food supply chains.

Once we established the case for blockchain as a potential traceability solution, and explored the use case – avocado supply chain in Colombia. This is an extremely scattered, low tech, low trust, complex supply chain with many actors that presents unique challenges for traceability. While we were not able to discover data about food waste and loss at various points of the supply chain, we were able to come up with criteria to identify traceability targets in this supply chain. We suggested warehouses as the starting point, as they are often the first instance of formality in a fragmented supply chain.

Next we created a framework to help IDB think about how they implement the solutions on ground, and the pre-requisites and conditions they need to account for, before implementing a solution…

Excerpt from Executive Summary:

Oracles and smart contracts can create and deliver value for parametric insurance by eliminating current transactional frictions and opening up new opportunities. The challenges are both technical and behavioral. The key to success is in navigating these challenges methodically and making the right decisions in system design and specification.

In basic contract law, a judicial system adjudicates contractual disputes and enforces terms of the agreement. Meanwhile, smart contracts are enforced by built-in code or in other words, “code is law.” Smart contracts have the potential to speed up contract execution (i.e. transactions) and empower individuals to become independent from bureaucracies while maintaining the reliability of these institutions.

One potential use-case of these smart contracts is in parametric insurance. Parametric insurance, unlike traditional insurance, revolves around a pre-agreed payout based on projected loss and probability that is automatically triggered when a parameter is met (e.g. flight delay) based on inputs from a trusted source. It has logical applications in the flight delay use case because it can easily be purchased digitally, separately or bundled with tickets, and there are limited hassles to claim the benefits since it’s paid out to travelers as soon as the delay is confirmed. Thanks to logical alignment, it also stands to benefit greatly from the use of smart contracts, which is why this was selected as our focus use case in collaboration with MAS…

Abstract:

With interest in cryptocurrencies booming since the introduction of Bitcoin in 2008 [1], billions of dollars have been invested in the vast landscape of tokens and cryptocurrencies. This enthusiasm also comes with a number of scams that prey on lack of technical understanding in order to exploit the waves of hype in this space. We build on prior research by looking into open-source repositories to give insight into varying dimensions of quality. By looking at a cryptocurrencies’ foundation from the perspective of code base, we investigate developer dynamic.

For our definition of cryptocurrency health, we have chosen to exclude monetary value and other associated characteristics such as initial distribution, current supply, max supply. Instead, we gather Github metadata, which provides information associated with github repositories of open-source cryptocurrencies and tokens [2]. Building on previous work around implementation of cryptographically-secure code [3] , we infer a set of patterns that categorize different dimensions of a cryptocurrency project. Many cryptocurrencies list tokens that are built on existing cryptocurrencies, the most common of those being ERC20 tokens built on Ethereum. We assess only those tokens with which have files that are publically available. Upon inferring these patterns for what constitutes a ‘quality’ token, we use the defined features as signals to train our machine learning model.

Background:

The report tries to address a premise that there are many people in remote areas/ from economically weaker sections who are creditworthy. Latest world bank data shows that over 3 Billion people around the world remain unbanked. The unbanked do not have adequate availability to formal means of finance and many people do not have records that allow them to prove their credit worthiness. It is a known fact that financial inclusion uplifts the quality of life of people and increases their opportunities to gain livelihood. However, the current methods of finance are not suitable for people from low economic backgrounds and many first time bankers/borrowers. The preponderance of technology, mobile phones and internet has created new means to onboard people who have not been able to participate in the formal economy so far.