Group items tagged

A broad statement of the key idea of smart contracts, then, is to say that contracts should be embedded in the world.

And where the vending machine, like electronic mail, implements an asynchronous protocol between the vending company and the customer, some smart contracts entail multiple synchronous steps between two or more parties

POS (Point of Sale)

EDI (Electronic Data Interchange

SWIFT

allocation of public network bandwidth via automated auctions

Smart contracts reference that property in a dynamic, proactively enforced form, and provide much better observation and verification where proactive measures must fall short.

The mechanisms of the world should be structured in such a way as to make the contracts (a) robust against naive vandalism, and (b) robust against sophisticated, incentive compatible (rational) breach.

A third category, (c) sophisticated vandalism (where the vandals can and are willing to sacrifice substantial resources), for example a military attack by third parties, is of a special and difficult kind that doesn't often arise in typical contracting, so that we can place it in a separate category and ignore it here.

The threat of physical force is an obvious way to embed a contract in the world -- have a judicial system decide what physical steps are to be taken out by an enforcement agency (including arrest, confiscation of property, etc.) in response to a breach of contract

It is what I call a reactive form of security.

The need to invoke reactive security can be minimized, but not eliminated, by making contractual arrangements verifiable

Observation of a contract in progress, in order to detect the first sign of breach and minimize losses, also is a reactive form of security

A proactive form of security is a physical mechanism that makes breach expensive

From common law, economic theory, and contractual conditions often found in practice, we can distill four basic objectives of contract design

observability

The disciplines of auditing and investigation roughly correspond with verification of contract performance

verifiability

The field of accounting is, roughly speaking, primarily concerned with making contracts an organization is involved in more observable

privity

This is a generalization of the common law principle of contract privity, which states that third parties, other than the designated arbitrators and intermediaries, should have no say in the enforcement of a contract

The field of security (especially, for smart contracts, computer and network security), roughly corresponds to the goal of privity.

enforceability

Reputation, built-in incentives, "self-enforcing" protocols, and verifiability can all play a strong part in meeting the fourth objective

Smart contracts often involve trusted third parties, exemplified by an intermediary, who is involved in the performance, and an arbitrator, who is invoked to resolve disputes arising out of performance (or lack thereof)

In smart contract design we want to get the most out of intermediaries and arbitrators, while minimizing exposure to them

Legal barriers are the most severe cost of doing business across many jurisdictions. Smart contracts can cut through this Gordian knot of jurisdictions

Where smart contracts can increase privity, they can decrease vulnerability to capricious jurisdictions

Secret sharing

The field of Electronic Data Interchange (EDI), in which elements of traditional business transactions (invoices, receipts, etc.) are exchanged electronically, sometimes including encryption and digital signature capabilities, can be viewed as a primitive forerunner to smart contracts

One important task of smart contracts, that has been largely overlooked by traditional EDI, is critical to "the meeting of the minds" that is at the heart of a contract: communicating the semantics of the protocols to the parties involved

There is ample opportunity in smart contracts for "smart fine print": actions taken by the software hidden from a party to the transaction.

Thus, via hidden action of the software, the customer is giving away information they might consider valuable or confidential, but the contract has been drafted, and transaction has been designed, in such a way as to hide those important parts of that transaction from the customer.

To properly communicate transaction semantics, we need good visual metaphors for the elements of the contract. These would hide the details of the protocol without surrendering control over the knowledge and execution of contract terms

Protocols based on mathematics, called cryptographic protocols, tre the basic building blocks that implement the improved tradeoffs between observability, verifiability, privity, and enforceability in smart contracts

secret key cryptography,

Public key cryptography

digital signatures

blind signature

Where smart contracts can increase observability or verifiability, they can decrease dependence on these obscure local legal codes and enforcement traditions

zero-knowledge interactive proof

digital mix

Keys are not necessarily tied to identities, and the task of doing such binding turns out to be more difficult than at first glance.

All public key operation are are done inside an unreadable hardware board on a machine with a very narrow serial-line connection (ie, it carries only a simple single-use protocol with well-verified security) to a dedicated firewall. Such a board is available, for example, from Kryptor, and I believe Viacrypt may also have a PGP-compatable board. This is economical for central sites, but may be less practical for normal users. Besides better security, it has the added advantage that hardware speeds up the public key computations.

If Mallet's capability is to physically sieze the machine, a weaker form of key protection will suffice. The trick is to hold the keys in volatile memory.

The data is still vulnerable to a "rubber hose attack" where the owner is coerced into revealing the hidden keys. Protection against rubber hose attacks might require some form of Shamir secret sharing which splits the keys between diverse phgsical sites.

How does Alice know she has Bob's key? Who, indeed, can be the parties to a smart contract? Can they be defined just by their keys? Do we need biometrics (such as autographs, typed-in passwords, retina scans, etc.)?

The public key cryptography software package "Pretty Good Privacy" (PGP) uses a model called "the web of trust". Alice chooses introducers whom she trusts to properly identify the map between other people and their public keys. PGP takes it from there, automatically validating any other keys that have been signed by Alice's designated introducers.

1) Does the key actually belong to whom it appears to belong? In other words, has it been certified with a trusted signature?

2) Does it belong to an introducers, someone you can trust to certify other keys?

3) Does the key belong to someone you can trust to introduce other introducers? PGP confuses this with criterion (2). It is not clear that any single person has enough judgement to properly undertake task (3), nor has a reasonable institution been proposed that will do so. This is one of the unsolved problems in smart contracts.

PGP also can be given trust ratings and programmed to compute a weighted score of validity-- for example, two marginally trusted signatures might be considered as credible as one fully trusted signature

Notaries Public Two different acts are often called "notarization". The first is simply where one swears to the truth of some affidavit before a notary or some other officer entitled to take oaths. This does not require the notary to know who the affiant is. The second act is when someone "acknowledges" before a notary that he has executed a document as ``his own act and deed.'' This second act requires the notary to know the person making the acknowledgment.

"Identity" is hardly the only thing we might want map to a key. After all, physical keys we use for our house, car, etc. are not necessarily tied to our identity -- we can loan them to trusted friends and relatives, make copies of them, etc. Indeed, in cyberspace we might create "virtual personae" to reflect such multi-person relationships, or in contrast to reflect different parts of our personality that we do not want others to link. Here is a possible classification scheme for virtual personae, pedagogically presented:

A nym is an identifier that links only a small amount of related information about a person, usually that information deemed by the nym holder to be relevant to a particular organization or community

A nym may gain reputation within its community.

With Chaumian credentials, a nym can take advantage of the positive credentials of the holder's other nyms, as provably linked by the is-a-person credential

A true name is an identifier that links many different kinds of information about an person, such as a full birth name or social security number

As in magick, knowing a true name can confer tremendous power to one's enemies

A persona is any perstient pattern of behavior, along with consistently grouped information such as key(s), name(s), network address(es), writing style, and services provided

A reputable name is a nym or true name that has a good reputation, usually because it carries many positive credentials, has a good credit rating, or is otherwise highly regarded

Reputable names can be difficult to transfer between parties, because reputation assumes persistence of behavior, but such transfer can sometimes occur (for example, the sale of brand names between companies).

Blind signatures can be used to construct digital bearer instruments, objects identified by a unique key, and issued, cleared, and redeemed by a clearing agent.

The clearing agent prevents multiple clearing of particular objects, but can be prevented from linking particular objects one or both of the clearing nyms who transferred that object

These instruments come in an "online" variety, cleared during every transfer, and thus both verifiable and observable, and an "offline" variety, which can be transfered without being cleared, but is only verifiable when finally cleared, by revealing any the clearing nym of any intermediate holder who transfered the object multiple times (a breach of contract).

To implement a full transaction of payment for services, we need more than just the digital cash protocol; we need a protocol that guarantees that service will be rendered if payment is made, and vice versa

A credential is a claim made by one party about another. A positive credential is one the second party would prefer to reveal, such as a degree from a prestigious school, while that party would prefer not to reveal a negative credential such as a bad credit rating.

A Chaumian credential is a cryptographic protocol for proving one possesses claims made about onself by other nyms, without revealing linkages between those nyms. It's based around the is-a-person credential the true name credential, used to prove the linkage of otherwise unlinkable nyms, and to prevent the transfer of nyms between parties.

Another form of credential is bearer credential, a digital bearer instrument where the object is a credential. Here the second party in the claim refers to any bearer -- the claim is tied only to the reputable name of issuing organization, not to the nym or true name of the party holding the credential.

Smart Property We can extend the concept of smart contracts to property. Smart property might be created by embedding smart contracts in physical objects. These embedded protocols would automatically give control of the keys for operating the property to the party who rightfully owns that property, based on the terms of the contract. For example, a car might be rendered inoperable unless the proper challenge-response protocol is completed with its rightful owner, preventing theft. If a loan was taken out to buy that car, and the owner failed to make payments, the smart contract could automatically invoke a lien, which returns control of the car keys to the bank. This "smart lien" might be much cheaper and more effective than a repo man. Also needed is a protocol to provably remove the lien when the loan has been paid off, as well as hardship and operational exceptions. For example, it would be rude to revoke operation of the car while it's doing 75 down the freeway.

Smart property is software or physical devices with the desired characteristics of ownership embedded into them; for example devices that can be rendered of far less value to parties who lack possesion of a key, as demonstrated via a zero knowledge interactive proof

One method of implementing smart property is thru operation necessary data (OND): data necessary to the operation of smart property.

A smart lien is the sharing of a smart property between parties, usually two parties called the owner and the lienholder.

Many parties, especially new entrants, may lack this reputation capital, and will thus need to be able to share their property with the bank via secure liens

What about extending the concept of contract to cover agreement to a prearranged set of tort laws? These tort laws would be defined by contracts between private arbitration and enforcement agencies, while customers would have a choice of jurisdictions in this system of free-market "governments".

If these privately practiced law organizations (PPLs for short) bear ultimate responsibility for the criminal activities of their customers, or need to insure lack of defection or future payments on the part of customers, they may in turn ask for liens against their customers, either in with contractual terms allowing arrest of customers under certain conditions

Other important areas of liability include consumer liability and property damage (including pollution). There need to mechanisms so that, for example, pollution damage to others' persons or property can be assessed, and liens should exist so that the polluter can be properly charged and the victims paid. Where pollution is quantifiable, as with SO2 emissions, markets can be set up to trade emission rights. The PPLs would have liens in place to monitor their customer's emissions and assess fees where emission rights have been exceeded.

There’s an opportunity to disrupt how those organizations work. Intermediaries, though they do a good job, have a few problems — they’re centralized, which makes them vulnerable to attack or failure

They tax the system

They capture data

They exclude billions of people from the global economy

internet of value

With blockchain, we can go from redistributing wealth to distributing value and opportunity value fairly a priori, from cradle to grave.

creating a true sharing economy by replacing service aggregators like Uber with distributed applications on the blockchain

unleashing a new age of entrepreneurship

build accountable governments through transparency, smart contracts and revitalized models of democracy.

The virtual you is owned by large intermediaries

This virtual you knows more about you than you do sometimes

So there’s a strange phenomenon from the first generation of the Internet where the most important asset class that’s been created is data —and we don’t control it or own it.

individuals taking back their identity through your own personal avatar

The financial services industry

antiquated

a complicated machine that does a simple thing

settlement

an opportunity to profoundly change the nature of the entire industry. The Starbucks transaction should be instant.

At the heart of it, the financial services industry moves value.

so this is both an existential threat to the financial services industry and an historic opportunity.

Banks trade on trust

Within the decade, every single financial asset, which is really just a contract

will all move to a blockchain-based format

In the accounting world, a lot of firms rely on costly audits to drive their profits

With blockchain, you could have a third entry time-stamped in a distributed ledger that could be acceptable to any relevant stakeholders from regulators to shareholders, giving you a perfect record of the truth and thus the financial health of an organization.

Nobel-winning economist Ronald Coase argued that firms exist because transaction costs in an open market are greater than the cost of doing things inside the boundaries of the corporation.

four costs — of search, coordination, contracting and establishing trust

Blockchains will profoundly affect all of these.

you can now synthesize trust on an open platform and people who’ve never met can trust each other to do certain things. So this results in a whole number of new business models

It turns out the Internet of Everything needs a Ledger of Everything, because a lightbulb buying power from your neighbor’s solar panel definitely won’t use banks or the Visa network

Right now, governments take tax revenue from corporations, individuals, licenses and so on. All of that can change. We can first of all have transparency in a radical sense because sunlight is the best disinfectant. Secondly, we can open up governments in a different sense of sharing data.

governments can enable self-organization to occur in society where companies, civil society organizations, NGOs, academics, foundations, and government agencies and individual citizens ought to use this data to self-organize and create what we used to call services or forms of public value. The third one has to do with the relationship between citizens and their governments.

There are more opportunities to create government by the people for the people

Electronic voting won’t be delivered by traditional server technology because it won’t be trusted by citizens

we are interested in the resilience that comes from building a rich ecosystem of interoperable currencies

What are the core elements of a modern cryptocurrency?

Digital

Holdings are electronic and only exist and operate by virtue of a community’s agreement about how to interpret digital bits according to rules about operation and accounting of the currency.

Trustless

don’t have to trust a 3rd party central authority

Decentralized

Specifically, access, issuance, transaction accounting, rules & policies, should be collectively visible, known, and held.

Cryptographic

This cryptographic structure is used to enable a variety of people to host the data without being able to alter it.

Identity

there must be a way to associate these bits with some kind of account, wallet, owner, or agent who can use them

Other things that many take for granted in blockchains may not be core but subject to decisions in design and implementation, so they can vary between implementations

It does not have to be stored in a synchronized global ledger

does not have to be money. It may be a reputation currency, or data used for identity, or naming, etc

Its units do not have to be cryptographic tokens or coins

It does not have to protect the anonymity of users, although it may

if you think currency is only money, and that money must be artificially scarce

Then you must tackle the problem of always tracking which coins exist, and which have been spent. That is one approach — the one blockchain takes.

You might optimize for anonymity if you think of cryptocurrency as a tool to escape governments, regulations, and taxes.

if you want to establish and manage membership in new kinds of commons, then identity and accountability for actions may turn out to be necessary ingredients instead of anonymity.

In the case of the MetaCurrency Project, we are trying to support many use cases by building tools to enable a rich ecosystem of communities and current-sees (many are non-monetary) to enhance collective intelligence at all scales.

Managing consensus about a shared reality is a central challenge at the heart of all distributed computing solutions.

If we want to democratize money by having cryptocurrencies become a significant and viable means of transacting on a daily basis, I believe we need fundamentally more scalable approaches that don’t require expensive, dedicated hardware just to participate.

We should not need system wide consensus for two people to do a transaction in a cryptocurrency

Blockchain is about managing a consensus about what was “said.” Ceptr is about distributing a consensus about how to “speak.”

how nature gets the job done in massively scalable systems which require coordination and consistency

Replicate the same processes across all nodes

Empower every node with full agency

Hold this transformed state locally and reliably

Establish protocols for interaction

Each speaker of a language carries the processes to understand sentences they hear, and generate sentences they need

we certainly don’t carry some kind of global ledger of everything that’s ever been said, or require consensus about what has been said

Language IS a communication protocol we learn by emulating the processes of usage.

Dictionaries try to catch up when the usage

there is certainly no global ledger with consensus about the state of trillions of cells. Yet, from a single zygote’s copy of DNA, our cells coordinate in a highly decentralized manner, on scales of trillions, and without the latency or bottlenecks of central control.

Imagine something along the lines of a Java Virtual Machine connected to a distributed version of Github

Every time this JVM runs a program it confirms the hash of the code it is about to execute with the hash signed into the code repository by its developers

This allows each node that intends to be honest to be sure that they’re running the same processes as everyone else. So when two parties want to do a transaction, and each can have confidence their own code, and the results that your code produces

Then you treat it as authoritative and commit it to your local cryptographically self-validating data store

Allowing each node to treat itself as a full authority to process transactions (or interactions via shared protocols) is exactly how you empower each node with full agency. Each node runs its copy of the signed program/processes on its own virtual machine, taking the transaction request combined with the transaction chains of the parties to the transaction. Each node can confirm their counterparty’s integrity by replaying their transactions to produce their current state, while confirming signatures and integrity of the chain

If both nodes are in an appropriate state which allows the current transaction, then they countersign the transaction and append to their respective chains. When you encounter a corrupted or dishonest node (as evidenced by a breach of integrity of their chain — passing through an invalid state, broken signatures, or broken links), your node can reject the transaction you were starting to process. Countersigning allows consensus at the appropriate scale of the decision (two people transacting in this case) to lock data into a tamper-proof state so it can be stored in as many parallel chains as you need.

When your node appends a mutually validated and signed transaction to its chain, it has updated its local state and is able to represent the integrity of its data locally. As long as each transaction (link in the chain) has valid linkages and countersignatures, we can know that it hasn’t been tampered with.

If you can reliably embody the state of the node in the node itself using Intrinsic Data Integrity, then all nodes can interact in parallel, independent of other interactions to maximize scalability and simultaneous processing. Either the node has the credits or it doesn’t. I don’t have to refer to a global ledger to find out, the state of the node is in the countersigned, tamper-proof chain.

Just like any meaningful communication, a protocol needs to be established to make sure that a transaction carries all the information needed for each node to run the processes and produce a new signed and chained state. This could be debits or credits to an account which modify the balance, or recoding courses and grades to a transcript which modify a Grade Point Average, or ratings and feedback contributing to a reputation score, and so on.

By distributing process at the foundation, and leveraging Intrinsic Data Integrity, our approach results in massive improvements in throughput (from parallel simultaneous independent processing), speed, latency, efficiency, and cost of hardware.

You also don’t need to incent people to hold their own record — they already want it.

Another noteworthy observation about humans, cells, and atoms, is that each has a general “container” that gets configured to a specific use.

Likewise, the Receptors we’ve built are a general purpose framework which can load code for different distributed applications. These Receptors are a lightweight processing container for the Ceptr Virtual Machine Host

Ceptr enables a developer to focus on the rules and transactions for their use case instead of building a whole framework for distributed applications.

how units in a currency are issued

Most people think that money is just money, but there are literally hundreds of decisions you can make in designing a currency to target particular needs, niches, communities or patterns of flow.

Blockchain cryptocurrencies are fiat currencies. They create tokens or coins from nothing

These coins are just “spoken into being”

the challenging task of

ensure there is no counterfeiting or double-spending

Blockchain cryptocurrencies are fiat currencies

These coins are just “spoken into being”

the challenging task of tracking all the coins that exist to ensure there is no counterfeiting or double-spending

You wouldn’t need to manage consensus about whether a cryptocoin is spent, if your system created accounts which have normal balances based on summing their transactions.

In a mutual credit system, units of currency are issued when a participant extends credit to another user in a standard spending transaction

Alice pays Bob 20 credits for a haircut. Alice’s account now has -20, and Bob’s has +20.

Alice spent credits she didn’t have! True

Managing the currency supply in a mutual credit system is about managing credit limits — how far people can spend into a negative balance

Notice the net number units in the system remains zero

One elegant approach to managing mutual credit limits is to set them based on actual demand.

concerns about manufacturing fake accounts to game credit limits (Sybil Attacks)

keep in mind there can be different classes of accounts. Easy to create, anonymous accounts may get NO credit limit

What if I alter my code to give myself an unlimited credit limit, then spend as much as I want? As soon as you pass the credit limit encoded in the shared agreements, the next person you transact with will discover you’re in an invalid state and refuse the transaction.

If two people collude to commit an illegal transaction by both hacking their code to allow a normally invalid state, the same still pattern still holds. The next person they try to transact with using untampered code will detect the problem and decline to transact.

Most modern community currency systems have been implemented as mutual credit,

Hawala is a network of merchants and businessmen, which has been operating since the middle ages, performing money transfers on an honor system and typically settling balances through merchandise instead of transferring money

Let’s look at building a minimum viable cryptocurrency with the hawala network as our use case

To minimize key management infrastructure, each hawaladar’s public key is their address or identity on the network. To join the network you get a copy of the software from another hawaladar, generate your public and private keys, and complete your personal profile (name, location, contact info, etc.). You call, fax, or email at least 10 hawaladars who know you, and give them your IP address and ask them to vouch for you.

Once 10 other hawaladars have vouched for you, you can start doing other transactions because the protocol encoded in every node will reject a transaction chain that doesn’t start with at least 10 vouches

seeding your information with those other peers so you can be found by the rest of the network.

As described in the Mutual Credit section, at the time of transaction each party audits the counterparty’s transaction chain.

Our hawala crypto-clearinghouse protocol has two categories of transactions: some used for accounting and others for routing. Accounting transactions change balances. Routing transactions maintain network integrity by recording information about hawaladar

Accounting Transactions create signed data that changes account balances and contains these fields:

The final hash of all of the above fields is used as a unique transaction ID and is what each of party signs with their private keys. Signing indicates a party has agreed to the terms of the transaction. Only transactions signed by both parties are considered valid. Nodes can verify signatures by confirming that decryption of the signature using the public key yields a result which matches the transaction ID.

Routing Transactions sign data that changes the peers list and contain these fields:

As with accounting transactions, the hash of the above fields is used as the transaction’s unique key and the basis for the cryptographic signature of both counterparties.

Remember, instead of making changes to account balances, routing transactions change a node’s local list of peers for finding each other and processing.

a distributed network of mutual trust

operates across national boundaries

everyone already keeps and trusts their own separate records

Hawaladars are not anonymous

“double-spending”

It would be possible for someone to hack the code on their node to “forget” their most recent transaction (drop the head of their chain), and go back to their previous version of the chain before that transaction. Then they could append a new transaction, drop it, and append again.

After both parties have signed the agreed upon transaction, each party submits the transaction to separate notaries. Notaries are a special class of participant who validate transactions (auditing each chain, ensuring nobody passes through an invalid state), and then they sign an outer envelope which includes the signatures of the two parties. Notaries agree to run high-availability servers which collectively manage a Distributed Hash Table (DHT) servicing requests for transaction information. As their incentive for providing this infrastructure, notaries get a small transaction fee.

This approach introduces a few more steps and delays to the transaction process, but because it operates on independent parallel chains, it is still orders of magnitude more efficient and decentralized than reaching consensus on entries in a global ledger

millions of simultaneous transactions could be getting processed by other parties and notaries with no bottlenecks.

There are other solutions to prevent nodes from dropping the head of their transaction chain, but the approach of having notaries serve out a DHT solves a number of common objections to completely distributed accounting. Having access to reliable lookups in a DHT provides a similar big picture view that you get from a global ledger. For example, you may want a way to look up transactions even when the parties to that transaction are offline, or to be able to see the net system balance at a particular moment in time, or identify patterns of activity in the larger system without having to collect data from everyone individually.

By leveraging Intrinsic Data Integrity to run numerous parallel tamper-proof chains you can enable nodes to do various P2P transactions which don’t actually require group consensus. Mutual credit is a great way to implement cryptocurrencies to run in this peered manner. Basic PKI with a DHT is enough additional infrastructure to address main vulnerabilities. You can optimize your solution architecture by reserving reserve consensus work for tasks which need to guarantee uniqueness or actually involve large scale agreement by humans or automated contracts.

It is not only possible, but far more scalable to build cryptocurrencies without a global ledger consensus approach or cryptographic tokens.

nodes in a value network represent people

nodes are connected by interactions that represent tangible and intangible deliverables

Value networks exhibit interdependence

Companies have both internal and external value networks.[1]

customers or recipients, intermediaries, stakeholders, complementary, open innovation networks and suppliers

key activities

processes and relationships that cut across internal boundaries

Value is created through exchange and the relationships between roles

F&S's value networks consists of these components

customers

Some service the customers all use, and enables interaction between the customers

service

contracts that enables access to the service

the network formed by phone users

example

example

car insurance company

how a company understands itself

value creation process

value creating system

all stakeholders co-produce value

systematic social innovation

strategy as

the Value Network to emerge as a mental model

Verna Allee defines value networks [5] as any web of relationships that generates both tangible and intangible value through complex dynamic exchanges between two or more individuals, groups or organizations. Any organization or group of organizations engaged in both tangible and intangible exchanges can be viewed as a value network, whether private industry, government or public sector.

Allee developed Value network analysis, a whole systems mapping and analysis approach to understanding tangible and intangible value creation among participants in an enterprise system

participants, transactions and tangible and intangible deliverables that together form a value network.

knowledge

benefits

favors

know-how

policy

planning

process

biological organisms, including humans, function in a self-organizing mode internally and externally

no central “boss” to control this dynamic activity

The purpose of value networks is to create the most benefit for the people involved in the network (5)