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Breaking out of Distributed Ledgers

Breaking out of Distributed Ledgers

When thinking about “revolution”, we can picture how a wheel turns. By starting with some momentum, we turn through the first 180 degrees as we accept the status quo.

Then, turning through the next 180 degrees we dissolve the status quo, giving us space to examine and analyze. Finally we arrive back where we started, degree zero, but with the wisdom of 360 degrees of experience.

So how does this perspective apply to the “Blockchain Revolution”?

With the wheel metaphor in mind, we can see how the blockchain is enabling an unfolding of progress that is opening a new paradigm shift in information technology.

Starting with Bitcoin, we saw how a simple protocol could replace some of the core functions of finance and banking. Distributed Ledger Technology (DLT) enables new ideas about how to issue and track the movement of assets.

Moving forward with that momentum, we are now seeing how blockchains could be applied for securing the movement of data. Furthermore, we are seeing its potential in securing processes. However, in these applications, we are seeing evidence that the DLT approach is breaking down. We are arriving at position zero on the wheel with something new to learn.

In this presentation, I would like to examine several aspects of designing blockchain systems that secure processes for the enterprise. We will start by recognizing some of the frames around hype and delusion. Then we will introduce our solution at Stratumn, called Proof of Process Technology, and how it builds on previous notions introduced by the blockchain.

Decentralized Dilemma

Bitcoin has proven how simple protocols can be designed to enable the transfer of digital assets without relying on a centralized trust source. We see how it could enable the disintermediation of many of our payment systems, escrow services and financial contracts.

From these examples, we commonly project forward how the enterprise could be disrupted. If it is no longer necessary to trust an organization for the systems we depend on, why do we need the enterprise at all? To exemplify that question in the context of Bitcoin, we ask: Why are we not seeing everyone rushing to “Be their own bank?”

As it turns out, there is one thing that companies do that decentralized systems cannot: provide service. Coinbase and Blockchain.info both host a large number of the Bitcoin wallets because they provide a better user experience, services to manage your wallets and easier integration with legacy systems. It is an example of how companies compete by providing a better service.

Learning from this, we see that dissolving the enterprise into decentralization is not a viable strategy for digital transformation. Rather, we should find the qualities of decentralization that improve service and bring them into the enterprise.

We easily find two important qualities of decentralization: traceability and transparency. With those two qualities alone, we can significantly improve the conditions for trust between two parties. By adopting them, an organization can provide better service with their partners, customers and regulators, thus giving them a competitive advantage.

This alone can radically change a market or industry.

With the banking and financial industries at an all time low in customer confidence, these two qualities, traceability and transparency, can result in the defining line between the winners and losers.

Asset Ledgers vs Process Graphs

When looking at the world, we see that it is entirely made up of processes. Everything from the business world to the natural world, even your own identity, is one form of a process or another. Therefore, mapping processes on a blockchain offers enormous potential for improving trust in our world.

We have seen many attempts to reconfigure the original Bitcoin ledger for securing the movement of assets between parties. Some companies use the original “unspent transaction output” approach, others use the “color coin” approach and some even have rebuilt new ledgers on top of the blockchain to resemble the traditional accounting ledger.

However, these approaches don’t quite follow the nature of processes very well. Processes are best described as a sequence of steps. Interactions between partners working with different processes could result in these sequences splitting, joining or synchronizing. More importantly, they could be referenced to make a claim that a contractual agreement has been fulfilled.

Using ledgers to track processes is like saying that we can use QuickBooks to track each step of a supply chain. Ledgers are rows and columns, processes are not. Needless to say, they are not the right problem/solution match.

A practical solution would require re-engineering the blockchain to handle “process graphs” and new ways to secure real world data, participants and events in a way that can be mapped to the graph.

Smart Contracts in the Real World

Processes in the real world unfold based on the events and facts of what has happened.

For example, when negotiating the purchase of a car, one needs to look at the facts that prove the ownership. To pay the owner, a buyer may need a loan from a bank. To provide the money, the bank needs to be convinced of past events to verify the creditworthiness of the buyer.

With this perspective, the actual exchange of title become self evident based on the facts presented when the sale’s terms are in agreement. Presenting a secure and provable audit trail of the necessary terms from both parties is an absolute requirement for closing the deal.

Smart Contracts are a powerful tool for automating the execution of code between multiple parties. They rely on consensus to arrive at a provable outcome. Determinism, repeatability and logic are the requirements for executing smart contracts.

We can say that smart contracts are a type of proof of what can happen in the future. Given a well written contract with clean logic, we can arrive at outcomes A, B or C. Thus we can say that smart contracts are a type of “proactive proof”.

However, when we look at the real world, we can see that processes are dynamic, usually not repeatable and often zig-zag, meaning that people can offer different outcomes to satisfy an agreement.

One could imagine the multiple ways that the buyer could provide proof of payment: wire transfer, bitcoin transaction, cash, five cows, etc. These options may not be known at the time when the smart contract was written. Therefore, mapping real world events and possible outcomes to smart contracts results in a very limited set terms and outcomes.

Orthogonal to smart contracts, processes secured by a blockchain should be able to prove that certain events happened in the past beyond a reasonable doubt. Thus, we can say that securing processes are a type of “retroactive proof”.

With this frame, we can begin to imagine how to bring smart contracts, as a mechanism of automation, within the greater context of the process. Because the real world is not so deterministic, as required by a blockchain, we need to re-evaluate the significance of smart contracts and how to properly leverage their use value.

The Jury asks: Is Code Really Law?

In most civilizations, when a dispute arises between parties, facts and evidence are brought to court. In a court of law, an independent judge and jury decide on the outcome.

With the rise of blockchains and smart contracts we have seen the projection that they can replace the court of law for many types of business operations. From this, the idea that “Code is Law” has becomes a popular meme. However, when we actually look at recent events we can find that the idea quickly breaks down.

The DAO hack of 2016 teaches us some strong lessons when trying to apply this type of thinking to the enterprise. After attracting $160m in a crowdfunding contract, a serious exploit was found resulting in a massive loss. The recourse was decided by the miners to fork the blockchain thereby undoing the contract.

The blockchain’s greatest quality was that it functioned as an “immutable ledger”. But in this case, a majority of the Ethereum miners were in agreement to accept the fork. By this account, it is reasonable to suspect that most of the miners had a stake in the DAO contract.

If “Code is Law”, then one must ask, who is the jury?

In this case, it’s hard to argue that the jury was independent and objective. This of course poses a significant risk to any enterprise who wishes to rely on any group of miners to mediate disputes. Furthermore, if there is a significant difference between the opinions of the miners and the intent of the contract holders, the enterprise can easily find themselves in a compromising situation.

To properly work with proofs in the enterprise, they must be classified under laws enforceable in the court of law. These proofs must be presentable to a judge who can carry out a ruling that can be executed. If the enterprise tries to model this in smart contracts on public networks, it runs into the risk that it could find itself with loss in an irreversible situation.

Proof of Process Technology

Now we have arrived at position zero of the “revolution wheel” with new wisdom to work with.

There may be many applications that work well with decentralized systems, distributed ledgers and smart contracts. But, if we want to use these technologies to secure processes in the enterprise we must build platforms that integrate legacy systems, regulations and events in a way that function to serve the stakeholders of any deal.

At Stratumn, the ground of our work is called Proof of Process Technology. It is composed of a stack of tools and services that allows stakeholders to come together to trust a common process. The stack allows any stakeholder to contribute to a cryptographic audit trail in a way that can be used to convince another stakeholder of a step in a process. The cryptographic audit trail secures the following questions for each step of a process:

  • Who was involved?
  • What data, secret or fact is represented?
  • When did this step happen in time?
  • Where did this step occur within the context of the process?
  • Why is this step important in terms of a contract or law?

By re-engineering the blockchain and applying a protocol specific to mapping processes, we can enable enterprises to bring traceability and transparency to any business deal. These are the conditions that enable more trust between stakeholders, resulting in the ability to make better decisions.

In the event of a dispute, the stakeholders can better resolve it through cryptographic proofs that can be presented to the court of law, if needed.

Together, we are starting a new revolution with the blockchain and look forward to the new experiences and wisdom that we will find by working with the enterprise. With this re-revolution we believe that process security is paramount to enabling people and organizations to trust the millions of processes that connect our world.