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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
Framework for disruptive innovation
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
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
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
[Link] 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
Copyright © 2018 Po Chi Wu
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,
[Link] – can Amazon, Facebook be far behind?
• Alibaba also a pioneer
Copyright © 2018 Po Chi Wu
> 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.
Copyright © 2018 Po Chi Wu
Copyright © 2018 Po Chi Wu
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)
• [Link]
[Link]
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
