How Plasma Enhances Enterprise Apps, Exchanges, Stablecoins, and More

In late 2017, decentralized applications first exposed the throughput limitations of the Ethereum blockchain. At approximately 20,000 daily active users Ethereum clogged — skyrocketing transaction fees to upwards of 16x their usual rate.

Going forward, it is abundantly clear that if we want to build “adoptable” blockchain applications, we are going to need better, more scalable infrastructure to build on.

With 11 days remaining in 2018, we want to take some time to share 11 use cases for how Plasma can be used to enhance blockchain networks in 2019 — discussing applications across everything from decentralized applications to enterprise blockchain.

If any of these use cases spur thought, or if you’d like to learn more about building on Plasma with FourthState Labs, please give us a shout at team@fourthstate.network or @wesatbab/@allam_hamdi.

Plasma Intro

For those still unfamiliar on the basics of Plasma, I would highly recommend first reading this article written by Hamdi Allam and I last month.

In short, Plasma allows application developers to support the transactional throughput of centralized infrastructure while still leveraging the security and tamper-resistance of decentralized systems. This is accomplished through the use of “Plasma sidechains,” which move transactions off of the Ethereum blockchain onto trustless, independently managed infrastructure. These Plasma sidechains provide operators with customizable control over block production, node management, transaction fees, and more.

Plasma Use Cases

Peer to Peer Transactions 💸

1. PayPal

Presently, Paypal generates ~5M transactions a day (or ~57 transactions/second). With the present state of the Ethereum network, this simple P2P payment infrastructure would permanently clog the entire Ethereum blockchain (10–15 transactions/second).

Using Plasma (1000+ transactions/second), these issues are solved, as individuals will have the means to send cryptocurrency to others at low costs with high throughput. Plasma infrastructure can even be coupled with tools like Cred and Dharma to provide new, unique financial infrastructure to end users (including P2P loans and more).

Enterprise Blockchain 🗃

The core innovation of Plasma in Enterprise comes from enabling secure, connected, decentralized databases that can interoperate with one another. These databases can be connected through the public Ethereum network or a private Ethereum fork, depending on data visibility and value transfer preferences.

2. Trade Finance

$9T globally is presently tied up in outstanding accounts receivable. This is especially crippling for small businesses and startups, who can be destroyed by delayed payments. The Trade Finance industry is made to address this issue, however it demands tight integration with every industry’s supply/value chains.

Using Plasma, enterprises have the ability to scalably and transparently trace the ownership of their assets throughout their entire supply chain — enhancing visibility and integration.

Additionally, rather than dealing with their own internal accounting infrastructure on these sidechains, businesses can bootstrap value transfer through the use of digital currencies like stablecoins, which provide them with a unit of currency backed by real dollars.

The transactors on this Plasma infrastructure can be permissioned to any subset of users through the Plasma smart contract (think “supply chain stakeholders or trade finance participants”), and governance can be controlled modularly — i.e validators can be legislators/standards agencies, and only approve transactions which are compliant in each business’ operating jurisdiction.

3. Royalties

Royalty payments are found in almost any IP-heavy industry. One of the core issues facing Royalties are their difficulty of enforcement, due to the nature of supply chain obscurity and difficulties associated with cross border payment.

Using Plasma and other digital infrastructure, enterprises have the ability to digitize almost any industry’s royalty payments and transact them across stakeholders at low cost. Rather than delegating arbitration to miners (who are unfamiliar with the industry and its regulations), sidechain operators could include enforcement agencies, artists, production agencies, and more — and could approve transactions with far more compliance rigour than any Ethereum validator.

4. Energy Trading

One of the great inefficiencies of today’s utility companies are their inability to predict which communities need what exact amounts of energy at which specific times. Massive amounts of data, which can be used to provide these insights, is currently being generated by smart meter devices, but is not shared amongst utilities or made readily accessible to third parties. This is due to a lack of database connectivity and provisioning issues.

Using Plasma, enterprises have the ability to transact energy data amongst one another in exchange for low-fee compensation of any structure. This includes micropayments associated with daily streaming, and batch payments associated with large scale usage. In the future, Enterprises will be able to spin up Plasma chains that connect and interoperate across each relevant jurisdiction, and allow for cross-jurisdiction data transfer to be arbitrated through the Ethereum network.

Stablecoins & Financial Markets 📈

5. Compliant Securities Trading

Over the last year we have seen a meteoric rise in the development of digital securities (“security tokens”). These tokens demand full compliance with SEC regulations, and are permissioned to include only accredited investors.

Using Plasma-based permissioning, securities owners have the ability to build fully compliant, high throughput security token exchanges. KYC approval can be baked in to each address on the network, and transaction fees can be abstracted away by validating parties.

6. Multi-Collateral Stablecoins

Nearly every one of today’s decentralized stablecoin implementations are backed by a single digital currency. This poses risks in the case of a “collateral crash,” wherein the value of the collateral underpinning each stablecoin depreciates significantly in value.

Using Plasma, stablecoin projects have the ability to interact and pool liquidity from tokens across blockchain networks — diversifying their collateral portfolio to any supported asset of their choosing. This comes without sacrificing speed or ease of transaction for end users.

Decentralized Exchanges ⚖️

7. High Throughput Exchanges

Centralized exchanges currently account for nearly $1.22T in annual transaction volume. Decentralized exchanges provide transactors much of the same functionality as centralized exchanges (with added custody benefits), however are presently facilitating only ~$8B. This is largely resultant of a lack of scalability.

As proxy assets and synthetic tokens, which allow assets like BTC to appear as ERC20’s on the Ethereum blockchain, begin to enter the Ethereum ecosystem, the need for scalable infrastructure that supports high-throughput decentralized exchanges will become ever more acute.

Using Plasma sidechains, Decentralized exchanges can scale their settlement by orders of magnitude (we presently estimate a 50x increase over the Ethereum network with full security preservation), as well as cut fees associated with transaction validation by Ethereum miners. This creates an exchange ecosystem that is much more attractive for industrial-scale usage.

8. Liquidity Pools

Plasma offers exchanges the ability to pool liquidity onto a single, decentralized sidechain. This allows DEX’s to operate with less on-chain overhead and potential revenue/governance benefits. Additionally, using FourthState’s Plasma implementation, exchanges can decentralize their sidechains — distributing governance across all stakeholders in the pool sidechain.

*Author’s note — For those tools which offer continuous liquidity (i.e — Bancor) Plasma is especially applicable.

9. Interoperable Order Book

Because Plasma chains are deployed through Solidity smart contracts, Plasma chains can theoretically be made replicable/interoperable across and EVM supporting platforms. In the long term, we see Plasma as the infrastructure that will facilitate cross-chain DEX interoperability. This will enable new trading pair offerings and forms of decentralized business models.

10. Dark Pool Exchanges

With SNARK/STARK integration, DEX operators have the ability to support “Dark Pool Exchanges”, or exchanges in which transactors have no knowledge of the order book makeup (This prevents arbitrage and other front-running attacks in the context of the Ethereum ecosystem).

In this use case, DEX’s can collect fees for supporting this service and can control governance (i.e what the throughput/trade limit is) by hosting this on a Plasma sidechain.

11. Collision Resistant Exchange

The Ethereum blockchain presently publishes blocks every ~5–10 seconds. This is a problem if two individuals decide to fill the same specific order within that 5–10 second frame.

Using Plasma, DEX’s have the ability to speed up block publishing and production, reducing the 5–10 second time frame significantly. This decreases collisions, and enhances user experience for transactors.

Conclusion

One of the core innovations of Plasma is its ability to provide creators with secure, connected, scalable databasing infrastructure. We see Plasma creating value across the domains of DEX’s, Enterprise Databasing, Stablecoins, and more — and believe strongly that Plasma can be the infrastructure that powers the next wave of blockchain adoption.

If you are looking for more outlook from the perspectives of Plasma implementers or wanted to learn more about how Plasma can be used in your business check out Wesley and Hamdi’s medium blogs or reach out to us at team@fourthstate.network — and, as always, if you like what you read, be sure to clap it below :)

*Special thanks to Eric Hou and others for conversations that influenced use case selection in this article.

11 Compelling Use Cases For Plasma was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.

By: Hamdi Allam and Wesley Graham

Background: Four days ago Coindesk published an article speaking to the “stalling” of the Plasma scaling solution. This article, written by plasma implementation team, FourthState Labs, reflects upon Coindesk’s claims from an implementors perspective.

What is Plasma?

With confusion arising over the multitude of plasma implementations present in the Ethereum ecosystem today, we believe it is first important to step back and redefine Plasma for the uninformed reader.

Plasma is a scalability solution that allows decentralized applications to move transactions off of a root blockchain. These transactions are migrated onto other blockchains, called “sidechains” or “plasma chains”, that are operated by individuals or small validator sets (rather than the entire underlying network).

What is unique about Plasma’s construction is that it allows for secure operation of sidechains, even in the presence of malicious activity. This is done through the use of unique exit mechanisms and crypto-economic protocols, which allow users to move their money even in the face of operator censorship or tampering.

As a simple example of Plasma’s application, imagine a scenario where decentralized exchanges provide their order matching on their own sidechains. These chains can possess 100x scalability over the Ethereum network.

Plasma’s Misconceptions

1. Plasma Chains are Centralized (and subject to regulation)

The first misconception that most have regarding Plasma is the association of independently managed sidechains as “centralized entities”.

As Gnosis CTO Stefan George states in the above Coindesk article:

“You have this operator, it is trustless not decentralized. It’s pretty centralized, it is prone to regulation and so on.”

It is true that most Plasma implementations only provide single operators, however, we have shown that there are ways to bring multiple validators to a single Plasma chain.

By using the Cosmos SDK, we are able to decentralize the validation process on Plasma chains, instead creating Proof-of-Stake based sidechains operated by a network of validators. These validators can use any stake-based consensus mechanism and reward validators according to pre-defined criteria.

2) Nobody is Building this Infrastructure

In the above article, CoinDesk states: “within multiple [Plasma] iterations, there’s evidence that work isn’t proceeding as originally hoped, with little actionable code being put together well over a year since its inception”.

This claim represents the view that pushed code and progress are directly correlated with one another. This is a naive thought. Any missed attack vector on a Plasma implementation will lead to catastrophic financial consequences. The correct focus should not be to quickly ship production ready code or be first to market, but to release a well designed and secure solution.

Here are just a few references that illustrate the research and thought that we have put into a secure Plasma implementation:

1. Sybil Attack vulnerability that can drain a plasma contract with an incorrect construction of the plasma chain. https://ethresear.ch/t/plasma-vulnerabiltity-sybil-txs-drained-contract/1654
2. Aligning economic incentives and protection agaisnt DDoS attacks through “watch tower” services and exit bonds https://ethresear.ch/t/how-to-protect-plasma-against-dos-attacks/1967/13
3. Safe deposits into the plasma contracts avoiding race conditions with the operator
   https://github.com/FourthState/plasma-research/blob/master/PlasmaMVP/safeDeposit.md
4. Preventing a Withdrawal delay attack with old utxo’s on the plasma chain. https://github.com/FourthState/plasma-research/blob/master/PlasmaMVP/exitOrdering.md
5. Dealing with Ethereum blockchain finality with a decentralized plasma chain
   https://github.com/FourthState/plasma-research/blob/master/PlasmaAnchor/anchor.md

FourthState Labs and Kyokan (Plasma implementers) have also partnered to standardize the Plasma smart contract interface that can be used by different Plasma sidechain implementations. This contract is looking to be audited and production ready by Jan 1, 2019.

Remaining Issues

1. Mass exit scenarios

In the presence of malicious activity, the flooding of transactions associated with Plasma Chain exits on the main network at on once is an area of concern. While there have been no fool-proof solutions proposed to date, there are several approaches proposed to mitigate this risk:

• 1) A multi-validator set for a decentralized Plasma chain which reduces the probability of a malicious block from being submitted. At least ⅔ of the validator set would have to sign off on a malicious block for the submission to be approved on the main chain.
• 2) Batched exits triggered by incentivized watchtowers. With the right economic incentives, users can delegate the ability to exit on their behalf to a validator for some reward in the presence of malicious activity. With slight modifications in the smart contract spec, the validator can batch these exits into 1 transaction.
• 3) Addition to the Plasma chain to continually merge UTXOs of the same address. This greatly reduces the number of UTXO’s each user would have to exit in the case of malicious validating.
• 4) Scaling on the layer 1 level. Techniques like sharding and casper are currently being worked on for the Ethereum blockchain. With the Ethereum 2.0 release, the throughput increase at the layer 1 level in combination with the above tactics should be sufficient enough to facilitate a mass exit successfully.

2. “Plasma terminology is confusing”

This is true. The community has not done a good job in this regard. Rather than optimally coordinating research we have instead seen arguments as to which Plasma “flavor” is the best.

That being said, there is no win-all Plasma.

Plasma MVP and Plasma Cash have their own respective use cases, and should be treated as such. The only common thing in these flavors is our core definition of Plasma above.

dApps should spend time understanding both implementations, and how these solutions can plug into problems they are solving.

SNARKs as an Alternative

To be realistic, Plasma is not and should not be the only solution that solves the blockchain scalability problem.

As CoinDesk states in its article, there are merits in exploring the use of tools like SNARKs and STARKs, which can provide scalability benefits associated with verifiable off-chain computation.

In the future SNARKs can be coupled nicely with Plasma MVP to minimize sidechain storage requirements, enable fast syncs, and improve light client infrastructure (providing security benefits to sidechain users).

That being said, it is important to note that both technologies are still in their experimental phase, and should strongly be treated as such. By no means are crypto-economic or cryptographic assumptions encompassing of all real-world attack vectors, meaning that we still need to see demonstration of validity before committing to any solution.

Additionally, with SNARKs, it is unclear whether the cost of generating and verifying proofs on-chain make SNARK-based scaling solutions infeasible.

Do your research. Play with the tech. And work collaboratively rather than dismissing each other’s approaches :)

Conclusion

As we continue to advance the development of plasma sidechains, we believe more applications will begin to leverage this infrastructure on decentralized networks.

This discussion serves as a starting point for a deeper discussion on plasma’s role in this space, and will be amended as better definitions and implementations make their way into the mainstream. We at FourthState have thought deeply about Plasma-enabled business models, and have a number of ideas for decentralized applications looking to create new opportunities.

If you are looking for more outlook from plasma implementers check out Hamdi and Wesley’s medium blogs and the FourthState Twitter Page — and, as always, if you like what you read be sure to clap it below!

Hamdi’s Twitter: @allam_hamdi

Wesley’s Twitter: @wesatbab

Plasma isn’t Dead. was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.

Major Discoveries

• Blockchain hubs are emerging in the Bay Area (UC Berkeley & Stanford) and Internationally (Israel & Singapore)
• Computing platforms have received major interest from professors and investors
• Privacy & Scalability remain as key concerns

The Importance of Academia

By: Wesley Graham and Ronen Kirsh

Technological limitations associated with scalability, privacy, and interoperability currently limit much of today’s most important blockchain infrastructure. Many investors believe that the solutions to these limitations will be sourced from the world of academia: home of cutting-edge discoveries and many leading cryptography and distributed systems experts.

As such, this article provides a glimpse into the progress being made by the world’s most talented blockchain researchers, academics, and thought leaders. We clarify what projects are being built, what schools are leading the charge, and where some of the next waves of contributions will be emerging.

What is an “Academic” Project?

We consider an academic blockchain project to be:

a) A qualitative contribution towards addressing one or more pain points currently present in the blockchain ecosystem

b) An effort led and guided by university graduate students and professors

c) A project that has successfully completed its initial round of funding

Academic projects traditionally encompass projects founded by professors and researchers, but can also include active PhD’s and others with high levels of domain expertise. Academic projects in the context of this article are additionally considered to be projects that funds or other investors can invest in, built using distributed ledger technology.

The Academic Ecosystem — What Projects are Being Built Thus Far?

Most of today’s influential academic-led projects fall under the realm of “payment infrastructure” (i.e — liquidity networks), “protocols” (i.e — privacy-preserving technologies), or “platforms” (i.e — digital currencies/smart contract solutions). The range of solutions primarily resides in the fields of scalability and privacy, with other notable projects addressing the problems of storage, security, and distributed consensus.

One of the more active areas of investment in today’s academic ecosystem is smart contract platforms. Projects like Dfinity ($61M), Zilliqa ($22M), and Spacemesh have garnered significant media attention alongside their success in raising capital.

This increase in smart contract investment is likely a result of Ethereum’s continued battle to solve scalability and security issues, which has led to a search for alternative platforms better suited for large-scale adoption (see this well-written article by StopAndDecrypt for more context on this issue).

Projects like Oasis Labs, which raised $45M earlier this year, aim to address Ethereum’s drawbacks, with the goal “to overcome the performance, security, and privacy limitations [of smart contract platforms] that have hampered blockchain adoption to date.” The project’s combination of “smart enclaves” and performant smart contract execution uniquely positions the venture to address both privacy and scalability concerns, leading to traction in the greater blockchain community.

Outside of smart contract platforms, notable work has occurred in the realm of key “infrastructural layers” — low-level storage, payment, and privacy tools useful for real world applications.

Projects like Filecoin, a decentralized storage network, made headlines over the last year with record breaking raises ($257M), while projects like Starkware, a team researching and implementing zkSTARKs, have led pioneering research and development on existing projects like Ethereum and ZCash.

The Professors — What Schools Have Projects Been Coming From

Many academic-driven developments come from an eclectic mix of professors from traditional “prestigious” universities as well as technology hubs. These include active developments from professors at schools like Cornell (Thunder Core, Spacemesh, & IC3), and MIT (Algorand, Enigma, & Zerocoin), as well as international schools like the National University of Singapore (Zilliqa & the Kyber Network) and the University of Oxford (IOHK).

Over the last twelve months in particular, a substantial amount of development has occurred in the Bay Area, with schools like UC Berkeley (home to the founders of Oasis Labs, ZCash, Starkware, and Coda) and Stanford (creators of Stellar, Filecoin, Bloom, and Cognito) establishing a considerable presence in the space.

Recently, many projects have been emerging from academic hubs in Israel, primarily due to the efforts of researchers from ZCash, Starkware, and Phantom. Projects like Spacemesh, led by faculty at the Interdisciplinary Center (IDC) Herzliya, and DAG Labs, led by faculty at the Hebrew University of Jerusalem, have proposed unique approaches to scalability through the lens of both novel consensus algorithms (Spacemesh’s Proof of Space Time) and data structures (DAG Labs’ Directed Acyclic Graphs).

It is also interesting to note that angel investors, VC’s, and hedge funds alike have begun actively pursuing investment in this field, and has joined Dekrypt Capital as early-stage investors in a number of the projects listed above.

The Role of Academia Going Forward

Going forward, we are excited about the role of academia in building future blockchain infrastructure.

In order to place cutting edge tools in the hands of billions of people, the underlying technology supporting these tools must be as close to perfection as possible. The intense public scrutiny and revision that academics face can be considered one of the most effective screening factors when cultivating the next wave of blockchain pioneers.

As academics begin to perfect their technology and “scale up” we encourage founders to reach out and seek entrepreneurial expertise. We believe academics who onboard experienced entrepreneurs and seek assistance from proven early-stage investors possess a strong competitive advantage over those who do not. Dekrypt actively supports academic teams, and have been impressed by the innovative projects emerging from college campuses to date.

Summary

As we continue to see interest in academia-driven projects grow, we believe more usable infrastructure will make its way into future application.

These graphics serve as starting points for a deeper discussion on academia’s role in this space, and will be amended with suggestions of other emerging projects (please comment your schools and projects below!!).

Thank you to Jon Allen, Howard Wu and the rest of the Dekrypt team for valuable insights and input on this article.

About Wesley

Wesley Graham is the Head of Consulting at Blockchain at Berkeley. He has previously led blockchain projects with ExxonMobil and the DoC, and is presently focused on research pertaining to Oracles and Fee Markets.

About Dekrypt

Dekrypt Capital is a leading investment firm focused on blockchain infrastructure, privacy-preserving technologies, and early-stage ventures. We invest in, mentor, and accelerate teams developing novel solutions to address the core issues of scalability, privacy, and interoperability for decentralized protocols and applications.

Disclaimer: This article does not constitute investment advice, nor does it contain any recommendation or solicitation to buy or sell any securities, tokens, or other interests in the companies discussed. Dekrypt has both direct and indirect interests in some of the companies and projects discussed.

All views expressed on this post are our own and do not represent the opinions of any entities with which we are affiliated.

An Overview of Academia & Blockchain was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.

Getting listed on a crypto exchange can be a make-or-brake moment in the widespread adoption of your token.

Exchanges are often the on-ramp for users to access your ecosystem, and dictate how widespread the distribution and utility of your token will be. They also mark an important signifier of community acceptance and project validity — as if you can pass an exchange’s screening and due diligence procedures you will often significantly increase public perception of your token.

Simply put (if you have a great project), getting listed on an exchange = increasing your valuation.

The problem, however, with getting listed on an exchange is that everyone in the crypto world already knows of their importance. Gone are the days of top exchanges actively looking to add new tokens; we are now seeing armageddon ensue for a spot on any of the worlds most popular exchanges.

With that in mind, Block 16 CEO Kingsley Edwards and I have put together a concise, high-level piece on the top tips for getting listed on a crypto exchange. For more intricate details as well as a customized exchange-listing plan, please reach out to Kingsley or I here for personalized input based on your business needs.

Tip 1: Start Yesterday

When going about developing your exchange listing strategy it is important to start the process as soon as possible.

One of the most difficult aspects about dealing with exchanges is that they are facing such a significant project demand — which results in significant delays in the listing process.

At Block 16 we recommend beginning exchange strategy as early as even during your token sale, in order to open lines of communication and jump ahead of the pack the second your sale is completed.

On top of this, we recommend that clients actively keep communication with exchanges as alive as possible (I.e respond to responses immediately, circle back to check for updates), as issues with exchange listing will inevitably arise and delays on the exchange’s end be significant enough to slow operations.

Go through all paperwork that the exchange asks for as soon as possible — most notably the legal letters explaining why you view your token as a utility/security — and seek legal guidance on how you can position you documentation to pass through the exchange system with minimal calls for edits. Additionally be prepared to pay an exchange fee depending on which exchange you are talking to. Ultimately, in the long run, a pay-to-play listing may be costly for your project, but in the long term it will often provide a kickback in liquidity and adoption that will change your valuation for the better.

Tip 2: Pick Smart

All exchanges were not created equal. Oftentimes, one of the fatal flaws of token projects is their immediate desire to be listed on major players like Binance or Bittrex, without a rooting or presence in any mid-tier or lower-tier exchanges.

Just because your project may have raised a lot of money does not mean that Binance would like to take the steps necessary to list it, which is why it is important to first develop a strong presence on smaller, less competitive exchanges.

Each exchange has its own tendencies, habits, connections, and preferences of types of tokens listed, which is why it is important to seek the guidance of an experienced professional in going about this process.

Tip 3: Know the Right People

The cliche “your network is your net worth” cannot be understated enough in the listing process. Your best entry point to any potential listing is through a mutual connection, or a warm lead provided by someone in your network. Exchanges are being approached and pitched all the time, which is why it is important to differentiate yourself with a personal introduction to higher-ups at the platform.

Oftentimes these connections can be provided by consultancies, community members, and your investors — which is why it is incredibly important to find well-connected individuals and begin to sell them on your project vision.

That being said, exchanges are no dummies. Before being listed on any exchange significant rounds of due diligence will be done on your company, which is why it is important to come to an exchange with your house in order. Initial communications with exchanges should be centered around both your project vision as well as a comprehensive achievement list and business plan, as exchanges will often not go near projects that have not garnered specific achievements or traction.

Tip 4: Time the Market

Exchange listings are most impactful when they are timed on the precipice of a bull market. When planning to approach major exchanges keep this in mind, as a listing on a big exchange when nobody wants to buy will not garner nearly as much attraction as a listing when volume is high.

It is important to take a look at the crypto market sentiment before making any significants, and devise a thorough strategy that will still allow for impactful action to be taken when the market is cooling down. Given the recent scrutiny exchanges have faced regarding lax on regulations the listing process on average takes on around 2 months or so to complete, so starting early and timing the market right is key in order to maximize impact on a successful listing goal.

Conclusion:

There are many difficult decisions to be made when embarking on the process of listing your token on exchanges. If you can do it right, you possess the chance to instantly increase your token liquidity, adoption, and valuation — however, if you don’t, you can be stuck two months into a project that yields no significant returns.

For strategic insight and 1:1 consultation on your token listing strategy don’t hesitate to reach out to Kingsley, myself, or anyone at Block 16.

Our in-house team of experts that have worked with notable players like Bittrex, Kraken, Binance, Uphold, DDEX, and Qcoin, and is able work closely with your team to build a custom strategy that is right for your project.

If you are looking for more outlook from the perspectives of a Token Sale Experts check out Wesley and Kingsley’s medium blogs — and, as always, if you like what you read be sure to clap it below :)

By Wesley Graham and Robert Greenfield

In an industry where diversity of thought and infrastructure are foundational to success it is awfully difficult to onboard someone into the blockchain world.

Even at the most basic level, infrastructure components like dApps and exchanges are simply “too complicated”, “too technical”, and “too volatile” to allow for any semblance of mainstream adoption.

For example, if you told your parents or grandparents to set up a bitcoin wallet and send you their address right now what would their answer be?

What Robby and I would like to propose are a series of “things” needed to solve blockchain’s ‘commercial adoption’ problem — centered around developing usable infrastructure that solves specific purposes in scaling the token economy.

Proposed Infrastructure Improvements

◼ Bridge 1: No-knowledge wallets, interfaces, and exchanges

A general discussion on infrastructure improvements should first begin at the on-ramp.

At the best of times, the experience of non-technical users on most blockchain platforms can be described as “highly confusing”, with most interactions described as “bewildering”, “off-putting”, or “overwhelming”.

For some reason, crypto applications always feel like crypto applications, with oftentimes very little consideration for the lack of technical knowledge of most non-traditional users.

When logging on to many of today’s common blockchain interfaces those who believe that the technology is “too technical” or “too volatile” are often given the chance to see first hand why they are right. And rightly so, as there is no reason why anyone in their right mind would want to deviate from traditional systems if this is greeting them on the other side.

As a result, the first (and most simple) infrastructure improvement necessary for blockchain systems is….. the creation of a user experience that doesn’t mention blockchain — or cryptocurrency for that matter.

It is now more important than ever to disassociate user experience language from ‘cryptocurrency’ and ‘blockchain’ as they both serve as adoption buffers that cause user trepidation of false risk.

Glancing at the above photo from the perspective of someone who has never interacted with the technology before can largely explain why there is a perception of volatility and exclusivity to these platforms, which hampers mainstream adoption for those simply looking for another asset class to use or invest in.

Adding to this motif comes a demand for the creation of tools that allow for easy and secure private key management, more akin to the convenience of managing common day passwords.

The importance of being able to interact with a blockchain without ever seeing a key is massively understated, as the creation of systems that allow users to gain value without requiring knowledge is essential to the widespread adoptability of these platforms.

Another key “bridge” required alongside user-centric infrastructure is the need for organic, frictionless custodial services, especially for non-commercial consumers. When logging onto services like Coinbase the user experience often coincides with a distinct feeling of “investment-platform” navigation, with inherent design and messaging that conflates purchase of cryptocurrencies with the purchase of securities.

Instead, exchanges should promote unencumbered access to assets like stablecoins, or cryptocurrencies that are more culturally akin to what consumers are used to dealing with in finance — a relatively good store of value.

◼ Bridge 2: A Centralized Solution to Interoperability, Scalability, and Liquidity

Ideally, with the creation of user-friendly interfaces we now have something that anyone can use and manage, and we can open the doors for people to begin using it.

Now, what’s the problem?

Well, first and most importantly there is an immediate demand for scalability that can withstand high volumes of user adoption.

The fact and the matter in today’s blockchain ecosystem is that the path towards long-term, complete decentralization is often started with the creation of a hybridized service; able to leverage the scalable features of central solutions and the accountability mechanisms of decentralized networks (like blockchains).

Once hybridized solutions are developed, the beginnings of a scalable platform begin to appear, upon which systems would need the following:

• Interoperable standards that allow for user activity across supporting blockchains and decentralized applications
• Friendly marketing language to incentivize legacy players to join the system
• Portable reputation systems for people, contracts, and exchanges to ensure honest behaviour and accountability
• Liquidity accessible to the public, to allow users the ability to easily purchase cryptocurrencies (like stablecoins) and onboard into the blockchain community with low risk

Seen in practice:

For example, say we are attempting to create a widely adopted blockchain equivalent of today’s central bank. Well, for starters, as a user on this bank platform, I am going to want to be able to take my money and use it on other platforms (vs just buying cheque books or transacting with solely bank-sponsored vendors).

This means being able to communicate with and transact across other applications, and even other blockchains.

I also will want to have some sort of familiarity with the terminology being used when I am transacting on this platform, so I still have some awareness of what is going on in the back end of these systems.

If I complete a transaction on this platform, I should expect that my transaction hashes should be akin to the format of my traditional ‘Deposit Confirmation #s’, and that the mappings of these items are made clear and apparent to me as a user.

Once I hit the open market, I want to have some native mechanism in place to tell me (pseudonymously) who I am transacting with, and whether I should be worried by transacting with them.

I then want to be able to pull money out of this platform whenever I see fit, so that I am not trapped in this system and disincentivized to put in significant capital.

This Fiat-crypto liquidity is a massive piece of functionality that always needs to be accessible to the public. Assets like stablecoins will be a necessary step toward this direction, but there need to be standards set in place (or user experiences) that coerce one of the following:

• (1) that banks recognize stablecoins like DAI in a manner through which they settle liquidity between the digital currency and fiat money, and/or that startups build with stablecoin frameworks to mature how these assets are collateralized
• (2) that blockchain developers create ways in which fiat-to-crypto conversions occur on the backend of their applications, so that a debit card transaction can be processed on the front-end, fund converted to DAI in the backend, and then converted back into whichever currency (digital or fiat) that the seller or service desires on the other end of the transaction
• (3) that consumers naturally become more confident about the usage of cryptocurrencies through institutional usage. This can take shape through (a) Wall Street usage, (b) governmental acceptance (i.e accepting crypto for tax payments), or (c) redemption in global trade (i.e acceptance of crypto for carbon credits). This, however, is unlikely for the usage of stablecoins, and since the vast majority of commercial transactions take place with a recognized viable store of value, there really is no other choice than to either keep using fiat or use some bastardized CBDC

With the upcoming advent of tokenized fiat, or central bank digital currencies (CBDCs), we will likely see a flurry of bank-backed and decentralized digital currencies coexisting, unless international regulations dictate that the public must used ‘recognized’ currencies in all transactions.

◼ Bridge 3: Digital Reserves — taking people out of the “exchange” game into the “convert” game

If we expect users to create marketplaces and move crypto or other digital assets around seamlessly we need to have a system in place that takes the arbitrage out of exchanging.

Let’s return to the digital bank example.

If I am using this platform as a tool store and convert wealth between a number of different currencies I should not feel as if I am susceptible to losing my capital to market makers and arbitrageurs. As a crypto user I want a simple tool (i.e a bank) to exist to help me with conversions in a manner where I don’t feel taken advantage of every time I transact.

With upcoming innovations in reserve management, interoperability, and atomic swaps we will likely see a diversion of interactions away from the long-term holding of poorly designed utilities; thus rendering the holding value of most “medium-of-exchange” tokens that are masquerading as stores of value obsolete.

◼ Bridge 4: A Functional Stablecoin that Supports Economic Growth

With the above procedures in place we have taken much of the scalability and ease-of-use out of the equation — however, we are still subject to one major area of discussion: volatility.

If we expect global adoption (including crypto use from the ~50% of people in the world who are used to living on $1 a day), we need some native asset that these people can use that they can have faith in vs their native fiat currency.

The process of taking those living on an income of less than $1 per day to $1 in DAI per day is not a big one, but there certainly is a problem asking users to take that dollar and place it in a more volatile digital currency that fluctuates over 10–15% every week.

However, one core economic issue to stablecoins is that they focus so much on maintaining stability as a transactional store of value that they forget to foster mechanisms for economic growth (at least in the sense of how economic growth is generated today with the usage of moderate inflation via money creation using tools like the federal reserve and credit schemes).

New age economic policy needs to be theorized to account for how we’re going to redefine economic growth given the usage of stable digital currencies in a world desperate for decentralization and monopoly disruption.

Leveraging the DAI system, we have the potential to see unbanked and underbanked populations diverge from the common, westernized savior mentality of ‘banking the unbanked.’

With the proper trust and user experience, these new age consumers will no longer need to rely on systems that charge ‘a cost of banking’; which in turn leads to the processes of accruing savings, making transactions, and accessing integral financial services becoming simpler, fairer, and more transparent.

Once platforms develop intuitive schemes for taking out loans in a stablecoin, using that stablecoin across normal vendor transactions, and, overall, integrating the use of cryptocurrency within the current, legacy system to minimize transactional friction, we’ll start to see our ‘modern’ economy operationalize in ways that promote a level playing field; whereby financial services will not be issued in accordance with a predefined set of biases, but will be rather instituted based upon the pure merit of the participating parties.

Standards like a portable, blockchain based FICO also need to be established in tangent to protocols like Dharma and stablecoins like DAI so that ‘value on credit’ can persist in traditional economies into the new cashless age.

A Conclusion on Infrastructure Improvements

As we continue to explore the bridges needing to be built for widespread blockchain adoption we will find better ways to distill and generalize these concepts into actionable items.

By bringing these matters into discussion we hope to see a level of “project accountability” begin to develop and best practices come to fruition. In our minds, the next iteration of crypto breaking into the mainstream will come from the advent of usable tools, the leveraging of hybrid, scalable solutions, and the creation of a functional stablecoin that supports economic growth.

If you are looking for more outlook from the perspectives of a VC/consultant and a social good expert check out Wesley and Robert’s medium blogs — and, as always, if you like what you read be sure to clap it below :)

PS — Thanks to Petros Ring for thoughts and comments on this article.

The Four Major Things Missing in The Blockchain Industry was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.

This article continues from my prior “Best Of” Blockchain series. It’s 1 part analysis, 1 part synthesis, and 1 part strategy for any and all looking to capitalize on the blockchain revolution — both today, tomorrow, and for years to come.

The Prelude: Pioneers and their importance in defining generational progress

“The person who follows the crowd will usually go no further than the crowd. The person who walks alone is likely to find himself in places no one has ever seen before.” — Albert Einstein

Today’s “generational” progress doesn’t come from where it used to. Gone are the days of earth-shattering revelations coming from the desks of grey-haired businessmen — we are now seeing a redistribution of innovation stemming from those we expect it from least: cryptographers, futurists, and libertarians.

That being said, it’s hard to say honestly that we couldn’t see it coming. Pioneers have always been those who were never worried about conforming to the system set upon them, and the above groups can certainly say they fit that description.

As one with a penchant for abnormal innovation, I was naturally curious to seek out some of these untraditional pioneers bold enough to try and redefine some of today’s most complex industries — leading me to stumble upon the modern-day blockchain space.

Fast forward 15 months of experiences, activity, and immersion amongst a number of the industry’s “OG’s” (or new-school thought leaders) and I still consider myself no closer to achieving the generational change that pioneers like Satoshi Nakamoto and Vitalik Buterin have envisioned.

What I believe I have discovered, however, is a fundamental understanding of how a group of libertarians were able to craft a movement capable of terrifying the modern-day central bank, as well as an understanding of how the blockchain space must be interpreted to the uninformed individual in order to warrant buy-in, investment, development, and future adoption.

There are several articles online explaining how blockchain works along with articles glossing over a wide array of use cases (some good, some bad). This article doesn’t touch on any of this.

Instead, this post is focused on guiding investors, VC’s, founders, and community members through an intuitive understanding of the conception of the blockchain industry, as well as a framing of the outlook that should be possessed when searching for pioneering blockchain projects.

Voice & Exit: The Thesis Behind the Creation of a Decentralized Society

“Any technological innovation, whether it was the wheel, the steam engine, the personal computer, or the iPhone is born from one of two innate human responses to any societal shortcoming: 1) The use of voice as a means to share one’s opinion, or 2) the use of an ‘exit,’ or withdrawal from the failing relationship entirely.” — Albert O. Hirschman

Before thinking about the blockchain space I challenge you to read the above statement, and think about it in both its broadness and specificity.

This statement is the underlying process that explains everything, from why we choose to revolt against governments that no longer act in our interest to why we tend to leave our jobs when we don’t get a raise. It explains the life cycles of political movements, technological advancements, and grocery store choices, acting as the intricate logic behind some of our both our most impactful and basic daily decisions.

The cycle, most importantly, explains why it is not in fact random that those who are spearheading the modern-day blockchain movement are those who felt like they were getting “pooched” by central banks.

The advent of the Cypherpunk movement and creation of the decentralized currency Bitcoin perfectly demonstrate the pervasiveness of voice and exit in our society; marking the starting-place for understanding of the core concepts that can be abstracted to create revolutionary blockchain use cases.

Libertarian Roots: The attempt at voice as a means to spark revolution

The mid to late 1900’s were a time of great turnover and experimentation in the world economy.

Following the second world war the decision on interest rates of many countries was placed in the hands of respective finance ministries, leaving central banks ultimately responsible for maintaining financial stability and exchange rates worldwide.

While the majority of society saw great comfort in having a central entity manage monetary policy, a group of libertarians and futurists saw the opportunity for unprecedented greed and power imbalance.

This group, formed at my alma mater UC Berkeley, came together to form a libertarian organization entitled “The Cypherpunks,” dedicated to pushing society towards the use of strong cryptography and privacy-enhancing technologies as a means to replace central entities and achieve social and political change.

This movement, decentralized by nature, began with activists around the world voicing their displeasure in the ability for central banks and governments to possess power and ownership over citizen’s private information.

The organization then proceeded to organize private mailing lists, panel discussions, publications, software & hardware projects, civil disobedience, and protesting rallies, but ultimately fell short of their desired goal of mass awareness and adoption.

The inability for a group of privacy-cherishing computer scientists and futurists to coordinate a vocal social movement does not surprise anyone. What is more interesting, however, is the role that exit played as an alternative to voice in the formation of the Cypherpunk movement.

When integration with existing systems fails to succeed, an effective alternative vehicle for change can be chosen — involving the complete detachment of the presumed system entirely.

Satoshi’s Innovation: The role of Bitcoin as the first true “exit” from centralized society

“The next Bill Gates will not start an operating system. The next Larry Page won’t start a search engine. The next Mark Zuckerberg won’t start a social network company. If you are copying these people, you are not learning from them.” — Peter Thiel

At the end of the day, the Cypherpunks were not able get their greatest win by speaking out to the conventional governmental system that oppressed their ideals to date. The Cypherpunk’s greatest decision was instead to step beyond the realms of protest into the realms of “exit”: adopting, promoting, and utilizing an innovative new platform that provided stakeholders with the means to store and transfer value independently from central oversight.

This pioneering platform, in modern day, is known as Bitcoin.

With the publishing of the world’s first adopted decentralized ledger, Bitcoin’s creator Satoshi Nakamoto successfully transcended the bounds of the suppressive centralized systems that the Cypherpunks had been fighting since conception. This solution was a pure 180 from attempting to push for governmental privacy regulation; instead acting as a departure from the system the Cypherpunks were fighting entirely.

Fast forward 10 years and we are seeing Bitcoin have more success than anyone could have initially imagined; acting as the first pioneer in a greater breed of innovative blockchain platforms.

By exiting the centralized frameworks that were designed to prevent certain systems from developing, blockchain technology has been able to craft a market and movement that has the potential to disrupt any industry — all while maintaining the ideals of the computer scientist libertarians that were told “no” a million times before their breakthrough.

Reinventing the future: Understanding the role of the exit in imagining our future

“I want to put a ding in the universe.” — Steve Jobs

Bitcoin’s disruption of the online transaction, asset management, and value industries is just scratching the surface of the greater capabilities of blockchain technology. Due to the ability of blockchains to act as a tool for exit in a variety of verticals I believe we are on the way to a paradigm shift, in which interactions between stakeholders in all industries are no longer shaped by centralized borders but can rather be shaped by utility, practicality, and commonality of thought.

Due to the aforementioned shortcomings of governments and other central entities and the rise of platforms like Bitcoin and Ethereum it can be hypothesized that we are well on our way to exiting today’s society from “neighbour-based interactions” into more of a “borderless value economy,” whereby people and networks are no longer connected by proximity but are rather connected by passion, interest and like-mindedness. (i.e platforms to bring value and utility to Chihuahua lovers vs programs for citizens of China).

This is why I believe it to be critical to step beyond the realms of blockchains as tools for digitization & data integrity into the realms of blockchains as tools to allow for massive incentivized collaboration and globalization.

At the end of the day blockchain is as much about connecting those who don’t have the autonomy and liberty to make and own decisions of their own as it is about optimizing existing processes.

This is why the citizens of countries like Argentina, Ecuador, and Tunisia are so excited by the prospect of adopting blockchain use cases like digital currencies — it not only allows them to leverage the privacy and security associated with the management of their own digital identity, but also “exits” globally oppressed citizens who have spent years working for a living from being subject to the poor monetary management skills of their governments.

Most importantly - this concept of voice & exit can be extended beyond the realms of blockchain.

Take the Tesla movement for example. With this train of thinking it can be hypothesized that something like Elon Musk’s electric cars aren’t really about shifting the automotive industry from fossil fuels to electric — the real “exit” in the industry is the creation of a transportation industry not-susceptible to human interaction and destruction.

This can explain why Musk has experimented with reusable rockets, self-driving cars, and fully automated supply chains — to position Tesla as the first step to a fully connected and self-adjusting network of sustainable flying, floating, and rolling vehicles.

As we progress on with this mindset of searching for investment opportunities through the lens of finding the next successful exits I cannot express enough the importance of thinking of blockchains as tools that allow for collaboration and globalization on a massive level.

The next unicorn will not be found by looking for systems that can be made more efficient — instead look for the team, the vision, and the idea that turns a system on its end, exiting an existing industry to provide a global solution never previously possible.

Finding ideas that are “too big” and “too wild” can often be the only way to truly find the cutting edge.

Closing the argument: A reiteration of the importance of voice & exit in shaping global movements

“Life can only be understood backwards; but it must be lived forwards.” — Søren Kierkgaard

As we have seen in prior examples, many of the ideas behind the technological innovations of today were deeply rooted in the frameworks of the past. Since the dawn of time members of societies have been convinced that voice is the key means to spark societal change, which unknowingly has led to all-too-familiar cycles of complacency and contempt.

When thinking of the ways in which we can disrupt existing systems and place power back in the hands of individuals it is critical to remind ourselves of the cycle of voice and exit that can be undertaken as a means to refresh the industry standard.

Blockchains inherently provide a tremendous opportunity for a societal exit and thus value creation, which is why the industry is seeing so much attention and attraction from investors, inventors, and individuals at the moment.

As we progress forward in the pursuit of impactful blockchain projects we must make sure to the fundamental “exit-centric” ideals in mind, avoiding the all-familiar ability to sell the capabilities of the technology short and produce solutions devoid of impact and meaning.

Keep this in mind when evaluating or pursuing any blockchain (or-related) projects, and, as always, if you have any questions, feel free to reach out :)

—

Follow me on Medium or LinkedIn for more insight on how to invest in and understand blockchain projects from a VC, investor, and founder’s perspective.

WHY is Blockchain? was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.

According to the Wall Street Journal, in 2017 more than $4 billion was raised through means of ICO. This number is growing daily, with reports of upwards of $2.3 billion being raised over the last 3 months alone.

These numbers to any traditional investors are staggering: VC’s, Fund Managers, and Angel Investors everywhere are scrambling to understand exactly how to define and find the winners in this new, tokenized economy.

As this scramble has progressed the ICO market has began to face heightening levels of uncertainty and doubt, with notable cases of scams, frauds, and ponzi-schemes plaguing the news and crowding the ICO space for genuine, well thought out projects.

This article aims to address some of the first steps that any average techie or crypto enthusiast can take when evaluating new ICO projects — starting from the most basic document of any tokenized service: the whitepaper.

The article provides a high level insight into the basic, ground level due diligence that must be performed on any token project, as well as some of the questions that must be asked by any ICO enthusiast before taking the next step towards an opinion regarding a project.

The Problem

After a preliminary glance through any whitepaper we must first start by asking and answering the most important question facing any new business: does this project solve a real world problem?

Due to an overall lack of investor knowledge in the blockchain space many projects are able to secure support and funding without a clear, concise explanation of what the problem is that they are trying to solve. Projects often instead present their product in a solution-first fashion; solely focusing on the innovative, game-changing properties of the project’s token.

Before being able to make any judgement towards the success of a project one must be able to understand and answer whether the project is fundamentally a good blockchain use case, as well as exactly how a project’s blockchain solution will solve a problem that a centralized service cannot resolve (which is the real key here).

Oftentimes in whitepapers you see the words “trustless”, “disintermediated”, and “efficient” all over the place — it is critical to understand that these are not necessarily properties of many blockchain projects (especially in their early stages), and that these words can just be considered buzzwords/nonsense if there is no justification as to how these features will be attained or provided.

For those who are looking for a more detailed introduction to blockchain use cases I would highly recommend reading my prior article on the matter.

Concisely put, if a product or project does not enable the ability for multiple mutually untrusting parties to coordinate on complex issues, there is a high likelihood that a blockchain is not needed and the project will face long term adoptability issues, or, post ICO boom, will be replaced by a more efficient centralized service.

The Team

After evaluating an ICO’s use case, it is vitally important to analyze the strength of the team executing on the project’s vision. Ask yourself: is the team working on the product qualified? Do they have prior industry experience? And do they have at least one member with experience in the blockchain space?

You would be shocked as to how many projects feature team members with no blockchain experience who have yet to even update their Linkedin’s with their involvement in the venture: an immediate red flag to any investor. When digging through whitepapers it is important to almost act as your own private investigator, sleuthing for information on both the team and the company — as the founders past body of work is almost as important as the idea being proposed.

The Product

The product: the meat of any blockchain project. This is where ICO’s often differentiate themselves, with some ICO’s nearly launched and ready for adoption, and others months away from any sort of solution.

Investment/due diligence theses differ greatly on this matter, but I am personally of the opinion that the further that a product is along in its development, the better likelihood is that the product will be brought to market/will have success in the industry.

Oftentimes whitepapers display and highlight the long term potential of a project with little information as to the current state of the solution, leveraging a “fear of missing out”, or FOMO, while providing very little insight into timeline, roadmap, and development. It is often important to thoroughly analyze any whitepaper’s “roadmap” and “product development” sections before making any decisions on a project, understanding just how close or far away a product may be from a being rolled out to market.

If you are more technical it is also highly valuable to analyze and audit flow charts describing the solution proposed, as the charts and images within the paper provide insight into the approach a company is taking to develop their product.

Ask yourself: does this project have a blockchain layer built already? Or does it still rely on centralized services? How much of this project’s vision is attainable with current blockchain technology? And how much development of blockchain technology must take place in order for their simplest vision to be attained? If an approach looks wrong or inefficient it is worth re-considering one’s opinion on a project.

Note: Securities vs Utilities

In this turbulent day and age of legality regarding ICO’s it is critically important to understand what kind of investment vehicle any token sale is offering. If a whitepaper is offering a “security token” centred around offering shares of equity in an ICO’s company one’s evaluation is completely different than if a whitepaper is offering a “utility token”, where the value of the token is associated with the inherent unique functionality of a platform, app, or service.

With the SEC cracking down on some projects for mislabeling themselves as utilities it is critically important to understand this difference, as this mislabeling can lead to serious charges that can instantly cripple an ICO’s business. For more information into classifying securities vs utilities I would highly recommend checking out this article from Crypto Law Group.

The Code

Has this project’s code been audited? And who was the code written by? This is an extremely important aspect of the evaluation of the process, as if a product hasn’t been audited or developed thoughtfully it can be extremely vulnerable to a number of crippling attack vectors (see: the DAO hack).

The autonomous nature of smart contracts makes them vulnerable to a number of different exploitations; potentially resulting in the theft of funds, data, or any other form of value. Typically whitepapers feature a technical portion where they mention these audits — it is worth seeking this section out to understand just how rigorously the project’s code has been tested.

The Community

The last and one of the most important portions of a whitepaper to evaluate is the project’s community. As much as it is important to focus on an ICO’s product it is also critical to evaluate who the project’s adopters are.

What generation is being targeted? Who are their stakeholders? Who are they partnered with? What will those partners offer? Is there a proven demand for blockchain solutions amongst the target demographic?

These questions can start to give you an idea of what incentivization people will have to use the product, and can be extrapolated to gain insight into who the product SHOULD be tailored to.

The ideals, design, and priorities of a project’s target user base should always be aligned with the functionality of a product, as, no matter whether a company is looking for immediate funds or a broad investor base, they will always need long-term users and adopters to provide their platform with any substantial value.

Summary

Congratulations, we are now well on our way to understanding what goes into a good ICO whitepaper! Despite the contrarian tone of this article, there are actually still a number of quality projects and whitepapers out there that are leading well thought-out token sales that greatly improve the quality of the blockchain community. Before jumping the gun and deciding that a project is one of these cases, however, it is important to ask ourselves some of the questions listed in this article.

More whitepaper principles (business plans, community engagement, token economics, incentivization schemes) to evaluate are still to come, however, if we are able to progress our way through all of the headers listed in the article above we are well on our way to discovering a sound ICO project — increasing our likelihood of developing and fostering the exponentially expanding ICO market.

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

About the Author: Wesley works in business Development at Block 16, a full service token sale accelerator. Block 16 offers services in token design, network syndication, marketing, advisory, and blockchain development. If you would like a consultation on your ICO/token project please email wesley@block16.io!

According to a recent study by Deloitte, 92% of the 26,000 blockchain-based projects that have been created over the last two years are now dead.

After first hearing of this, I had to ask myself: how did this number get so out of hand?

This article attempts to articulate exactly what caused this issue, aiming to help us passionate blockchain enthusiasts avoid starting a project that becomes a part of the 92%.

Building a Good Blockchain Use Case From the Ground Up

For those who are still unfamiliar on the basics of how blockchains function, I would highly recommend first reading the “Blockchains, Cryptocurrencies & the New Decentralized Economy: Part 1 — A Gentle Introduction” article written by Blockchain at Berkeley’s Ashley Lannquist last year.

For those with familiarity with the subject, we can begin to dive into core capabilities of blockchains that can be applied to create meaningful use cases.

With distributed ledger technology (like blockchain), users are able to create database environments where multiple mutually untrusting users can exchange value or append records without a central coordinator.

By combining concepts from cryptography and game theory, blockchains remove the need for trust in a system, ensuring that users are able to transparently interact with reduced reliance on third party authorities.

This inherent “decentralization” of blockchain systems is important, as it eliminates the negative effects of central points of failure: breaches in security, network downtime, or network outages. Additionally, as long as safety and liveness guarantees are intact, blockchains will rid networks of transaction censorship or malicious action from untrustworthy actors.

These distributed ledger systems have already been successfully implemented in fields like “Finance” or “Dispute Settlement”, where transacting parties historically have needed to trust a central authority to oversee transaction data and ensure that past agreements will be obeyed.

Companies like Hyperledger have created private enterprise blockchains designed to decentralize these transaction ecosystems, supporting the global business transactions of major technological, financial and supply chain companies. It is important to note that these implementations are exceptional — not ordinary — uses of blockchain technology, as evidenced by the fact that 92% of blockchain-based projects have failed to date.

Below is a flowchart that acts as a checklist for those who are looking to implement a blockchain solution, as well as an outline on what steps we should consider before making the jump towards Distributed Ledger Technology (DLT).

Criteria to Consider When Deciding on a Blockchain Use Case

1. Database

First off, when trying to establish a blockchain use case we must ask whether we possess a database that is fundamentally secure at all endpoints.

If we attempt to implement a blockchain on a system that is susceptible to tampering or alteration from the outside world we lose the ability to have things like trustlessness and decentralization in our system, resulting in a relatively limited blockchain use case.

An example of this type of issue can be seen in use cases like “Blood Diamond Tracking,” where companies utilize blockchains to track the flow of legal diamonds along a supply chain from producers to consumers. Although a blockchain may be a good solution for tracking the transactions associated with that diamond, the solution still places a great deal of trust in the employees or nodes that are entering these diamonds into the blockchain system. In this case the “database endpoint” is not secure, leading to trust issues that plague the blockchain use case.

2. Transactors

The next most important question to ask before utilizing a blockchain is whether or not there will be multiple parties coordinating action on our database.

If our database does not require coordination between a large number of stakeholders and can function with the usage of one key “writer” then we should be using a centralized database. Blockchains are, by nature, “Distributed Ledger Technology,” and if there is no need to “distribute” the ownership of the database then we should be using a different databasing structure.

This point, simple as it is, often gets forgotten in the process of constructing a quality blockchain use case. In reality, centralized software like Oracle Database or MySQL has far more robust transaction infrastructures than existing decentralized blockchain systems, meaning that we should only be using DLT if decentralization is absolutely necessary to our project.

A classic example of where centralization tends to make more sense is the use case of existing tech giants like Facebook or Google, who manage Exabytes of user data.

Although it would be nice for Google to be able to decentralize their users transactions, a blockchain use case doesn’t make sense. This is because it is much easier to track information in a centralized system, where all information goes through a single point.

Centralized systems fundamentally are able to have far more cohesive internal integration than decentralized systems, and as a result are far more likely to capitalize on things like economies of scale than DLTs. In fact, Google products like Gmail are only able to have features like “smart spam filters” because Google is able to easily see into almost everyone’s emails.

3. Trust

After determining whether or not centralization is important to your use case, it is crucial to ask who we need to trust in order for this system to operate and what would happen in the outcome where trust is breached.

In any centralized system, malicious action can take shape in a number of forms. Not only can a central authority try to edit existing transactions, but it can also withhold information, report inconsistent transactions across the network, or censor users from accessing specific transactions. If there is any incentive for a central authority to take these actions in our existing system we must at least consider implementing a security measure like blockchain into our use case.

If trust amongst users is not a significant issue, then one can simply utilize a distributed database, in which each user maintains a copy of the database and is free to edit and update the state of the database as they please. This is far easier to implement, as blockchain security features like “Byzantine Fault Tolerance” (resistance to tampering & inconsistency) will not need to be considered.

Special Case: Public vs Permissioned Blockchains

It is also important to note that there are ways to utilize blockchain systems that merge concepts from centralized databases, distributed databases, and distributed ledger technologies.

“Permissioned Blockchains” are one example of this marriage of concepts, combining centralized user authorization with a decentralized blockchain transaction ecosystem.

By having the ability to control the users allowed on the blockchain network, we are able to decrease the likelihood of malicious action and increase control over what the system is trying to manage — creating a system that does not require as much fault tolerance, security, and maintenance as a traditional “Public” blockchain.

The downside of this blockchain structure is that it is far less “trustless” than Public blockchains, as users still have to place trust in the authority granting permissions as well as the consensus mechanism being utilized by the system.

JP Morgan’s Quorum is a great example of a permissioned blockchain use case, as they have created a product that empowers the financial industry with high-speed transactions (dozens to hundreds per second) by taking advantage of the reduced need for BFT that transacting amongst a permissioned set of users allows (see QuorumChain).

4. Disintermediation

Before embarking on a blockchain use case it is additionally important to determine whether disintermediation is necessary to our transaction system.

If our pre-blockchain solution is subject to large middleman fees or confirmation time delays blockchains are a natural fit to expedite this process, cutting down on costs for all users.

If disintermediation is not essential to our transaction system, it is much easier to assign the task of verifying transactions to a middle man or central authority, removing the need for distributed validators on the blockchain network.

A great example of a use case that utilizes disintermediation at the moment is slock.it, who has built a digital business around the concept of creating smart contracts for individualized IOT devices, removing the need for human intervention or adjustment. With slock.it’s technology, any IOT device can have its own identity and can enter into complex agreements (including the agreement to receive payments) — all without using intermediaries.

5. Transaction Dependence

The final question to ask ourselves before implementing a blockchain use case is whether or not our transactions are dependent on one another.

Transaction dependance is a feature that can be seen in all kinds of database systems, particularly in multi-user systems involving numerous parties or systems involving the exchange of assets or goods (like real estate or retail for example).

If our transactions do not need to interact with one another it is much more effective to utilize a “master/slave” database structure, in which one “master” node acts as the champion of validation and approval for a certain subset of transactions which “slave” nodes do the work of carrying out.

If our transactions do rely on one another, determining how to distribute corresponding transactions amongst master nodes becomes quite difficult, resulting in the need for something like a blockchain to alter the collective state of the database.

Blockchains additionally offer atomicity (the ability to prevent partial updates to a database) to its users, ensuring that transactions that are contingent on each other will be executed immediately without the possibility for cancellation or tampering mid-trade. This ensures that no wealth will be created or destroyed as a result of any complicated transaction structures on the system.

Summary

Congratulations, we are now well on our way to building a proper use case! Despite the contrarian tone of this article, there are actually numerous applications of blockchain technologies that can greatly affect existing transaction systems for the better. Before becoming one of these applications, however, it is important to ask ourselves what our use case needs to function before deciding on blockchain as the proper solution.

If we are able to progress our way down the above-pictured flow chart we are well on our way to having a sound blockchain use case, increasing our likelihood of becoming one of the 8% of blockchain projects that will be able to withstand the test of time.

Addendum

In the spirit of the article I thought I would add some of my favourite blockchain use cases below — I encourage everyone to take them as an exercise to think about the factors that make use cases valuable!

i) Gnosis — Decentralized prediction market built on Ethereum platform

ii) Blocknotary — Decentralized Notary service with timestamp verification

iii) Zcash — Open, permissionless cryptocurrency that fully protects the privacy of transactions using zero-knowledge cryptography.

Building it Better: A Simple Guide to Blockchain Use Cases was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.