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Tag: cryptography

The Mechanics of Blockchains

rubrik-fridge The Mechaics of Blockchains

Blockchain technology is like a three-trick pony. It essentially combines three slightly clumsy computer tricks to mimic decisions that a human administrator routinely makes. The difference is that, if done correctly, the computer can perform some of these decisions with great speed, accuracy and scalability. The peril is that, if done incorrectly, the computer can propagate an incorrect outcome with the same stunning efficiency.

1: The Byzantine General’s Dilemma

A scenario first described in 1982 at SRI International models the first trick. This problem simulation refers to a hypothetical group of military generals, each commanding a portion of the Byzantine Army, who have encircled a city that they intend to conquer. They have determined that: 1. They all must attack together, or 2. They all must retreat together. Any other combination would result in annihilation.

The problem is complicated by two conditions: 1. There may be one or more traitors among the leadership, 2. The messengers carrying the votes about whether to attack or retreat are subject to being intercepted. So, for instance, a traitorous general could send a tie-breaking vote in favor of attack to those who support the attack, and a no vote to those who support a retreat, intentionally causing disunity and a rout.

See also: Can Blockchains Be Insured?  

A Byzantine Fault Tolerant system may be achieved with a simple test for unanimity. After the vote is called, each general then “votes on the vote,” verifying that their own vote was registered correctly. The second vote must be unanimous. Any other outcome would trigger a default order to retreat.

Modern examples of Byzantine Fault Tolerant Systems:

The analogy for networks is that computers are the generals and the instruction “packet” is the messenger. To secure the general is to secure the system. Similar strategies are commonplace in engineering applications from aircraft to robotics to any autonomous vehicle where computers vote, and then “vote on the vote.” The Boeing 777 and 787 use byzantine proof algorithms that convert environmental data to movements of, say, a flight control surface. Each is clearly insurable in a highly regulated industry of commercial aviation. So this is good news for blockchains.

2: Multi-Key Cryptography

While the Byzantine Fault Tolerant strategy is useful for securing the nodes in a network (the generals), multi-key cryptography is for securing the packets of information that they exchange. On a decentralized ledger, it is important that the people who are authorized to access information and the people who are authorized to send the information are secured. It is also important that the information cannot be tampered with in transit. Society now expends a great deal of energy in bureaucratic systems that perform these essential functions to prevent theft, fraud, spoofing and malicious attacks. Trick #2 allows this to be done with software.

Assume for a moment that a cryptographic key is like any typical key for opening locks. The computer can fabricate sets of keys that recognize each other. Each party to the transaction has a public key and a private key. The public key may be widely distributed because it is indiscernible by anyone without the related private key.

Suppose that Alice has a secret to share with Bob. She can put the secret in a little digital vault and seal it using her private key + Bob’s public key. She then sends the package to Bob over email. Bob can open the packet with his private key + Alice’s public key. This ensures that the sender and receiver are both authorized and that the package is secured during transit.

3: The Time Keeper

Einstein once said, the only reason for time is so that everything doesn’t happen at once. There are several ways to establish order in a set of data. The first is for everyone to synchronize their clocks relative to Greenwich, England, and embed each and every package with dates of creation, access records, revisions, dates of exchange, etc. Then we must try to manage these individual positions, revisions and copies moving through digital space and time.

The other way is to create a moving background (like in the old TV cartoons) and indelibly attach the contracts as the background passes by. To corrupt one package, you would need to hijack the whole train. The theory is that it would be prohibitively expensive, far in excess of the value of the single package, to do so.

Computer software of the blockchain performs the following routine to accomplish the effective equivalent process: Consider for a moment a long line of bank vaults. Inside each vault is the key or combination to the vault immediately to the right. There are only two rules: 1. Each key can only be used once, and 2. No two vaults can be open at the same time. Acting this out physically is a bit of a chore, but security is assured, and there is no way to go backwards to corrupt the earlier frames. The only question now is: Who is going to perform this chore for the benefit of everyone else, and why?

Finally, here is why the coin is valuable

There are several ways to push this train along. Bitcoin uses something called a proof-of-work algorithm. Rather than hiding the combinations inside each vault, a bunch of computers in a worldwide network all compete to guess the combination to the lock by solving a puzzle that is difficult to crack but easy to verify. It’s like solving a Rubik Cube; the task is hard to do, but everyone can easily see a solution – that is sufficient proof that work has been done and therefore the solved block is unique and valid, thereby establishing consensus.

Whoever solves the puzzle is awarded electronic tokens called bitcoin (with a lower case b). This is sort of like those little blue ticket that kids get at the arcade and can be exchanged for fun prizes on the way out. These bitcoins simply act as an incentive for people to run computers that solve puzzles that keep the train rolling.

Bitcoins (all crypto currencies) MUST have value, because, if they did not, their respective blockchain would stop cold.

A stalled blockchain would be the crypto-currency equivalent of bankruptcy. This may account for some amount of hype-fueled speculation surrounding the value of such digital tokens. Not surprisingly, the higher the price, the better the blockchain operates.

While all of this seems a bit confusing, keep in mind that we are describing the thought patterns of a computer, not necessarily a human.

The important thing is that we can analyze the mathematics. From an insurability standpoint, most of the essential ingredients needed to offer blockchain-related insurance products exist as follows.

1. The insurer can identify the risk exposures associated with generals, traitors, locks, vaults, trains and puzzles.

2. The insurer can calculate probability of failure by observing:

  • The degree of Byzantine fault tolerance.
  • The strength of the cryptography
  • The relative value of the coins (digital tokens)

3. The consequences of failure are readily foreseeable by traditional accounting where the physical nature of the value can be assessed, such as a legal contract.

We can therefore conclude that each of the tricks performed by this fine little pony are individually insurable. Therefore, the whole rodeo is also insurable if, and only if, full transparency is provided to all stakeholders and the contract has physical implications.

Markets are most efficient when everyone has equal access to information – the same is essential for blockchains. So much so that any effort to control decentralized networks may, in fact, render the whole blockchain uninsurable. It is fundamentally important that the insurer is vigilant toward the mechanics of the blockchain enterprise that they seek to insure, especially where attempting to apply blockchain to its own internal processes.

Adapted from: Insurance: The Highest and Best Use of Blockchain Technology, July 2016 National Center for Insurance Policy and Research/National Association of Insurance Commissioners Newsletter: http://www.naic.org/cipr_newsletter_archive/vol19_blockchain.pdf

The Future Is Common Knowledge

Common Knowledge

Image Credit

Few people recognize the true economic potential of Wikipedia. Obviously, Wikipedia is an important resource for individuals and profit making companies.  It would take Billions of dollars to recreate it from scratch. But the true value of Wikipedia does not end here.

Wikipedia is a really huge set of interconnecting nodes – a massive dynamic database in the commons. When two points are connected, the magnitude and direction of the resulting line provides information about the data and proximity to other data.  Wikipedia is a venerable roadmap of connections between significant people, places, things, and ideas. Not unlike the Facebook social graph, Wikipedia in aggregate is a knowledge graph of humanity.  It is therefore as perfect a representation of humanity because it was created by humanity.

Mass Encryption

One of the more effective ways to encrypt data is to hide it among other data. In fact, your personal knowledge graph, stripped of  personally identifiable information can be hidden – like a needle in a haystack – among the wikipedia knowledge graph.  Your knowledge graph can then extrapolated along the nodes, edges, and paths of Wikipedia to draw inferences, make decisions, or set priorities for yourself and your interaction with the community.  It’s like your own private Big Data engine that only you can see.

The idea behind Curiosumé is to develop that vehicle from which a person can interpret actionable information when they overlay a persona (or Proxy) of themselves on the Wikipedia commons.  When many people overlay their personas to the Public Wikipedia Haystack, they can specify criteria out of nodes and branches of the wikipedia knowledge graph to find each other, to work together, to learn and teach.

Enter Block Chain

Each owner holds a private key in a cryptographic vault to their proxy that they can share, rent, or retract from others. The Private key is the only way to associate the owner with their proxy and with the commons. Mutual private key exchange will define a market for intangible assets among owners of such assets.  This exchange device would be ideally suited for a cryptographic platform such as Maidsafe protocol or Bitcoin Protocol.

Connections, intersections, and resultant “vectors” will reveal patterns from which decisions can be made.  The future economy may include the exchange of private keys.

Level Playing Field

As long as proxies – or personas – are anonymized, it would be OK for everyone to have access to them in the commons.  In fact, the quantity and the quality of the personas in the commons for a community or location could underwrite the currency of that community.  Everyone would have the ability to test their persona in the public domain upon any market to reveal their greatest economic potential.  Such a community currency would have a relative value to other communities not unlike, say, Forex.

The community can even test their own combined personas against a host of scenario proxies such as job proxies, investment proxies, etc., all without committing personal information. However, when two or more parties engage in transaction and/or interface with a regulatory agency, they will need to reveal their private key in order for a transaction to pass a pre-established compliance proxy that is also comprised of nodes and branches in the commons.

The Art of War

It would be very difficulty for people to violate another person because they will need access to the other person’s private key as well as a change in the commons in order to formulate a deception. If they modify the commons, they will in fact reveal themselves as a transaction.   If a perpetrator can somehow change the other person’s proxy, then they will notify others connected to that proxy of that change. Further, the perpetrator may be unwittingly doing more harm to themselves than good in their own connection to other proxies when attacking a particular persona – any action, except the truthful action, could have implications that are unknowable.

As such, there is little incentive to cheat.

Cloud Wars  

As such, any disputes will be fought in the commons and not at each individual node where the world engages in wars, competition, and oppression today. Wars would be fought in the info commons rather than being shrouded in the fog of ground ops.

The Future of Common Knowledge

 The future of common knowledge is the “commons”.  If every person, corporation, or institution were to index to a commons based data source, we could all observe each other while maintaining our privacy.  Economic scenarios could be run without expending money.  Disputes could be handled in the cloud.  The maintenance of the commons could become a new form of governance.

Introduction To Curiosumé

(Editors note:  We are publishing the documentation and tutorial for the Curiosumé application for review and comment)9233187-large

Introduction To Curiosumé

Curiosumé is an open source specification for the analog-to-digital conversion of knowledge asset objects.  Designed as a system to replace the résumé as a means for describing the interests, skills, and abilities of people, things, and ideas —  it functions as a personal digital API for the trade and exchange of actionable knowledge.

Since semantic knowledge assets are machine-readable, they generate matches, proximity measurements, relevance and importance rankings, and predicted probabilities of various outcomes.  As such, the economics of “intangibles” becomes computable and meaningful.

By activating knowledge assets within an economic system, social entrepreneurs may readily trade and exchange intangible assets much as they do with tangible assets.   Curiosumé facilitates trade of intangibles through a unique distributed network of objects and assigned attributes.

  • Ownership of one’s Personal API
  • Anonymity until point of transaction
  • Deploying multiple personas
  • Combining multiple personae
  • Imaginary personae
  • Measuring proxies for economic output, matching, assessing, scenario testing
  • Anonymity and privacy

Use Cases:

The use cases for Curiosumé will be a numerous as the number of entrepreneurs who can articulate the protocol in a market.  Since Curiosumé eliminates “Competition” from the onset,  there is little or no economic incentive to lie, deceive, or cheat.  This allows the market an opportunity to defer vetting mechanisms to downstream applications that can compare (for example) a submitted persona against a control personal as a cryptographic key to unlock a transaction or block chain, etc.  In essence, making cheating too expensive to sustain.

  • Individuals may overlay their own persona on any dataset to visualize and discover adjacencies, paths, and connections.
  • Individuals may interact with the web using a Personal API
  • Protegé and Mentors may find each other in close proximity in community or within an organization.
  • People with special skills can find worthy and productive collaborations in communities or within the organization.
  • Trade in knowledge assets is facilitated through “anonymous until point of transaction” protocol.  People will provide better data knowing that they have complete control over their personal identities.
  • Build Social Currency; multiple personas may combine Curiosumés to establish the knowledge inventory for a team or to discover the probability that a group of friends may produce any mutual affinity efficiently together.
  • Any product or service may be described in Curiosumé format and compared to a community listing to discover customers, partners, and employees.
  • Curiosume data is pre-normalized allowing any user to make predictive assessments about any collection of personas relative to a project, product, event, itinerary,  or interaction with any physical asset.
  • Cryptographic; a personal API may be used as a private key in unlocking smart contracts on the block chain protocol
  • Toll Booth on Big Data; marketers, employers, or data aggregators would pay individuals for access to their persona.
  • Instead of advertising to a demographic, marketers may identify specific knowledge assets and may offset prices based on the social values or proclivities of the persona.
  • Economic development agencies can take a knowledge asset survey of a region to identify what institutions or industries they have a strategic advantage.  Or, they may retrain or import specific knowledge assets in order to grow into new industries – with great precision.
  • Philanthropic  institutions can assess need and impact prior to committing to directed giving by assembling strategic knowledge assets around a specific philanthropic goal.
  • Corporations may assess their ability to enter a develop a new products or enter a new market based on a Curiosumé survey
  • Competitors may assess the ability, and cost to defend against their competition disrupting a new product initiative.
  • Corporations can better tailor their products to what customers actually want to buy rather than trying to “market” what the company already knows how to produce.
  • Corporations can make hiring vs training decisions with better clarity based on a Curiosumé survey.
  • The college “degree” system may evolve in favor of boutique personas designed for innovation in an industry.
  • The financial industry (from the NYSE, Banks to VC) can determine the probability that a company may be able to execute a business plan given their Curiosumé survey
  • The Insurance industry can mitigate risk exposures by assuring that the right collection of knowledge assets are deployed to, say, a construction project.

Community Organization On The Block Chain

chain linkThe potential for articulating smart contracts between local business entities using the Block Chain Protocol (BCP) is truly staggering. While the BCP may not be ready for general population and would be largely unnecessary within a corporation, certain contract types and certain business structures may offer an excellent environment for widespread development. 

Cooperative businesses (Co-ops) may be the “more able” organization structure to introduce smart contracts because of specialized governance that allows for the pre-sale of goods and services for the purpose of general financing.  The pre-sale agreement may take the form of products, services, cash, or shares of future production.  For the purpose of this discussion, let’s consider “shares” as a community commercial currency between co-ops.

Block ChainCommunity Currency

The objective would be to circulate shares between co-ops as widespread and comprehensively as possible only converting back to dollars when necessary.  The incentive would be that shares, in many cases, may be exchanged tax-free as long as certain conditions are met.  Further, by eliminating transaction costs, speed and efficiency may be achieved without banks or double entry account reconciliation, until necessary for interacting with the end user.     

Most people are familiar with Electronic Data Interchange (EDI) contracts from observing services such as Amazon.com, WalMart, or Zappos.com.  Electronic Data Exchange can be formally defined as the transfer of structured data, by agreed message standards, from one computer system to another without human intervention. Companies have used EDI since the mid-1990s to execute orders, renew inventory, warehousing, tracking, and even merchant banking.  The EDI acts primarily within the structure of the corporation and their contracted suppliers. 

The trick now, would be to use EDI protocols outside the construct of the corporation. The Block Chain protocol provides an important set of tools, which may allow organizations to interact with each other in a secure form of EDI that can be articulated among a community of integrated cooperatives. 

The 3 Building Blocks of Smart Contracts

There are 3 basic types of contract protocols that may be deployed through the Block Chain; these form the basis of smart contracts:

  1.  “Self-enforcing” protocol, which is like an electronic P2P handshake agreement that is fully activated between two parties.
  2.  “Mediated” contract that would include a third part intermediary such as an escrow or an oracle that would verify compliance with the agreement and pass the transaction between parties (or not).
  3. “Adjudicated contract” which places the oracle either in front of or behind the electronic handshake to filter or check transactions based on certain conditions.

An example given by Nick Szabo (reference article) would be that of, say, keys to an automobile where the owner could selectively allow access to family members but exclude other third parties.  There would be a backdoor to let in a creditor that is algorithmically switched on upon non-payment during a specific time (for repossession), or permanently switched off after the final payment is cleared.

The 3 Fundamental Particles of Cryptography:

Cryptographic keys that act in a variety of ways may activate each of these smart contract protocols.

  1. “Secret key” encryption, which is loosely analogous to common passwords that most people use.
  2. “Public key” encryption device acts like a one-way trap door that moves an agreement in only one direction.
  3. “— bit key generators” create keys that unlock transactions after a task is completed.

Controls: 

In order to duplicate the controls that large corporations hold over EDI processes, smart contract protocols should be structured in such a way as to make agreements:

  1. Robust against naive vandalism such as accounting errors,
  2. Robust against sophisticated, rational attack such as intentional fraud.

Cooperatives are quite adept at deciding how “shares” (thus, smart contracts) are activated using different types of authentication devices such as digital stamp, public signature, blind signatures, etc.  Likewise, “Privy Authentication” means that certain persons have the privilege of interacting with the contract.  Additionally, quorum control refers to a condition where a group of people may interact with the contract by election, threshold (like a kickstarter) or almost any quantitative function such as algorithm or time function.

Common electronic contracts (EDI’s) include the following (1): 

Administrative functions:

  • Product code and price catalogs
  • Catalog updates
  • Forecasts and plans
  • Deals and promotions
  • Statements

Pre-purchasing:

  • Requests for quote (& response)
  • Inventory inquiry/advice Purchasing
  • Purchase order & acknowledgment
  • Purchase order change & acknowledgment of change
  • Material release
  • Point of sale/inventory on hand Shipping and Receiving
  • Shipment status inquiry & response
  • Advance shipment notification
  • Bill of Lading
  • Freight bill Warehouse
  • Inventory inquiry & status
  • Shipping notice
  • Receipt confirmation
  • Shipment order
  • Shipment confirmation

Customs

  • Declaration
  • Release Billing and Paying
  • Invoice
  • Payment remittance
  • Credit and debit memos
  • Receipts

Conclusion:

The Boogie man of the Co-op movement is Big Box Corporate America such as WalMart and their digital siblings such as Amazon who provide consumption value often at the cost of community resilience.  Corporations have the resources to automate internal processes, suppliers, and labor.  Co-operatives, and localized producers in general, are at a severe disadvantage every time they must cross the transaction gap.  Large corporations can easily trade value within their systems paying taxes only when necessary.    

The knowledge and technology exists today for Cooperatives to accomplish the same thing using smart contracts and the Block Chain protocol.  To do so would create similar economies of scale with the added benefit of improving the distribution of wealth, manufacturing social capital, and storing value in resilient communities.  Further, crypto-currencies in general still suffer from that fatal flaw where they are not backed by any form of productivity.  To give the crypto-currencies a place to store value backed by community productivity would benefit all who anticipate such technologies.    

Primary reference for this article is from: Formalizing and Securing Relationships on Public Networks – Nick Szabo

 

 

 

 

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