[audience applauding]
- So a quick question to the audience,
how many of you have heard of Bitcoin?
Blockchain?
How many of you building something with blockchain?
I see it's a lot less.
How many of you are gonna retire
on your Bitcoin investments?
None? Okay, fabulous.
So here, actually, in terms of myth busting,
is one of the first master's projects we actually got
the Center, one of the students to do at the Center.
So the Center was founded in about 2014 and we decided,
you know, we thought we were gonna be a random bunch
of academics sitting around discussing something cool
called distributed systems and distributed ledgers
and blockchain.
And by the end of 2015, we were basically inundated
with requests, it was actually just way too much.
This, however, is one of the first visualizations
that was ever done of what a transaction
on the Bitcoin network looks like.
And one of our master's students did that.
And one of the key things to understand, obviously,
the thing I really like about blockchain
is the transparency.
So you couldn't do this sort of analysis
of any other transactions in the financial system
because they're behind closed doors.
So without having a wallet, we were able
to just take every single transaction that had been done
on the network and visualize what was happening.
And actually, what you see here, this big snake that we have
is actually the first attempted 51% attack
on the Bitcoin network.
So we caught it at a really exciting time,
and from then on, I was hooked at least, but.
So let's have a think. What is a blockchain?
So many of you here already know what this is.
From a very simplistic perspective,
we can think about a blockchain as something
that allows untrusting parties
to co-create a permanent transaction record
without relying on a central authority.
So obviously, in the Bitcoin's case,
we can remove the intermediary of the central bank.
The idea is that we no longer need a bank
to do our transactions and we can do it ourselves
peer-to-peer.
Another thing to note is blockchain and distributed ledger,
first myth, people often use these interchangeably,
they're not, at least for me, a blockchain is a subset
of a distributed ledger technology base.
So why care about blockchain?
So for my sins, I'm both an economist
and a computer scientist, so I've studied both,
which means I'm equally bad at both, no, I'm joking.
No, one of the reasons I really like blockchain, obviously,
is it brings those two things together.
You can't understand the technology without understanding
the economics and you can't understand the economics
without really understanding the technology.
So it's a really exciting time
to be doing research in this space.
But basically, blockchain really is about a lot more
than just money or cryptocurrencies.
It's a fundamental transformation in the way
that we do business or it could represent that
in many industries.
You know, it gives us the opportunity
to dramatically reduce the cost of operations,
where we have traditionally got paper-based systems,
we can create new revenue streams.
And the other thing that it does
is it can create data integrity.
So many people say that blockchain is inherently secure.
That, to me, is just completely wrong.
It's actually a bit of a misnomer or a lie.
It can provide data integrity,
it is not more secure than any other solution out there.
So that's the second myth I'd like to bust.
So if you make a blockchain solution, you need
to implement all of the traditional security mechanisms
that you would in any other system.
So as I was saying, blockchain is really much bigger
than just cryptocurrencies.
We have in the Center done about 35 proofs-of-concept
in a very broad range of industries.
It's been extremely exciting, a lot of fun, very dramatic,
very fast-paced, a little bit more than we as academics
were expecting, to be honest, it's been great fun.
We've had a lot of students actually spin out companies
from their research, so it's been great.
But we have looked here, so if we got,
if you think about blockchain as a way
to manage transactions, then we think
about the different types of records
that we can disrupt using this transaction base.
So the records are currency, assets, contracts data,
and then peer-to-peer.
And there are just a bunch of different types
of use case applications that you will see on top.
So some examples, cross-border payments,
you can do a lot in supply chain, logistics, smart contracts
for the the legal industry are a really interesting space
as well.
The one thing that I think is really very, very important
to remember or realize is that, in order to do blockchain,
you don't necessarily just wanna be a disruptive startup.
The most best applications
and the most successful applications of blockchain
that I have seen have come from people
who have significant industry experience
and know how to apply this technology
into a particular industry.
So the example would be R3, which is a consortium
of banks who have hijacked, shall we say, the approach
of blockchain and put it into their way of doing business.
Another one which we'll go into is Everledger.
So as I said, distributed ledgers,
there's, for us, three different types.
The very traditional one on the far right,
permissionless, public, shared systems,
commonly known as Ethereum and Bitcoin, really.
Everyone can read the transaction,
everyone can write the transaction,
and anyone can become a member of the network.
So anyone has access to these networks.
As a result of that very transparent system
and great openness of the system, we also have to put in
a credible amount of mathematical stability underneath
to create the robustness in the network to make sure
that fake transactions can't be put in.
As a result, it also has quite
a significant transaction delay, it's very, very slow,
for good reason.
On the other side, we have permissioned, private,
shared systems, an example is the Hyperledger consortium
from The Linux Foundation.
And they are permissioned, private, and shared systems.
The idea being that you have to have permission
to join the network, you have to have permission to write
to the network, and also to read from the network.
In the middle we have what I refer to as hybrid systems.
And those are systems where quite often,
the regulator might want to have overview
of what's happening in the network.
An example of that is a piece of work we did
for the insurance industry where the regulator was saying,
"Well, it's okay for you to share information
on this blockchain, but we need oversight in order
to make sure there's no price collusion
and there's no, you know, sort of antitrust issues."
So those hybrid systems are where you would,
only a certain number of people are allowed to write
to the network, but the regulator or another body
might be able to come in and view
what is happening on the network.
So some examples.
Here's an example of supply chains.
So anyone in the UK must remember the horse meat scandal
is the big thing we were worried about before Brexit.
So we had a bit of a problem with our food supply chain
and the provenance of where things were coming from.
There's also the big issue of counterfeit goods.
So the Chinese government have actually been looking
at using blockchain to try and reduce the number
of counterfeit goods in their country.
And also really high-end products like expensive wines
needs provenance, and apparently,
there's a huge amount of fraud in the wine industry.
So one of our groups of students put together
something called Plinius, which was the provenance
of food and supply chains.
I won't go into great detail here,
but they used the Bitcoin network
to record every single transaction across the network,
as grapes became must, became a bottle of wine,
became a crate of wine, and actually became a product
for sale in the store.
And the customer, the idea was the customer would be able
to go in, scan the tag, and actually,
this is a ham sandwich for some reason, okay?
So if you scanned your ham sandwich, you would be able
to be told, yes, here's where the bread has come from,
it's been baked in Waitrose, and here,
the ham has come from a particular farm.
And then we would go be able to drill down
and say, well, the wheat has been grown
in a particular place by this farmer,
and maybe you have a story about the farmer at the end.
So what is the problem with this particular installation?
It sounds great, it's one of the beautiful examples
that everyone always uses for blockchain.
The biggest issue with this
is how many transactions are you going to record?
You're gonna need a wallet at every single point
of transaction along the supply chain.
That's an incredible number of Bitcoin wallets
if you do it this way, right,
so it's not particularly efficient, shall we say.
It's a great proof-of-concept,
but it's not very efficient way to do it.
And the second thing is cost.
So if you're gonna do this for a ham sandwich,
it's incredibly expensive.
And it's prohibitively expensive to do it
this particular way unless you get forced to by Walmart.
And then here, we have the regulatory perspective
where let's say there's an E. coli outbreak on tomatoes,
you can track and trace very quickly and shut down
that part of the supply chain until it's fixed.
As an example, here's a more sensible way
to do supply chain tracking, which is Everledger,
as I mentioned, a really interesting company tracking
and tracing the provenance of diamonds and, you know,
proved a dramatic reduction in fraud,
but also has a lot of other supply chain applications.
One of the key things to think about when you're using it
for supply chains, however, is that just putting something
onto the blockchain doesn't mean the physical object
is what it says it is.
So there's an issue here around ensuring
what is on the blockchain is really truly representative
of the physical product.
So Everledger came up with some very clever solutions
to that whereby they create a unique fingerprint
for the physical diamond and they register that
on the blockchain.
So it's not just putting the serial number
of the diamond into the blockchain.
It's a very important point
when you're using physical goods on a blockchain.
Simple one that I will talk a little bit more about,
identity.
This was an example from Gradbase.
We have a lot of issues with students lying
about their degrees.
They're not lying that they got a degree from college,
they're lying that they got a first instead of a 2:1.
So they lie slightly in their job applications.
Another problem is that employers
have to pay 80 quid every time they get this check.
And more importantly, sometimes, universities
are so overloaded, it's taken three to four weeks
to get the reference back.
And so students will miss out on a job
because they haven't got their reference in time
from the university.
So the idea is put it onto the blockchain.
This is a QR code that actually works and you verify it.
And you get, yes, this person got a master of engineering
and computing in first class honors.
The idea being that it's verified
by Imperial College in this particular case.
The final one is an integrity solution that we did,
looking at how you would provide protection
to energy networks to ensure that the systems themselves
haven't been hacked.
And we did that with a company called Guard Time,
and we just basically took a hash of the firmware,
put that onto the blockchain.
If the firmware hash changes,
we know that something has happened on that system.
Again, it doesn't solve a security problem,
it gives you an early warning system that you need to go out
and check somethings on or do your final checks.
Finally, if you are really interested
in when and where to use blockchain,
we did a paper with the World Economic Forum
where we developed a C-suite framework, basically,
that helps you decide when to use blockchain
and when not to use it.
So my final conclusion is basically, yes,
this is a very useful technology, it's great fun,
it's really fun to use and work with,
but it's not useful everywhere.
And sometimes, actually implementing a blockchain
costs you significantly more money
than just using a database.
So there can be false economies with this technology.
And this is the very clear 11 steps
that you would go through to check
whether you would use a permissionless blockchain,
so if you're gonna use Bitcoin or Ethereum,
or whether you would just use a database,
whether there aren't solutions available for this yet,
or where you would be able to use
a private permissioned blockchain.
That's publicly available, you just Google it
and you'll get the WEF paper.
And we have one coming up, which is looking at crypto assets
as well, which digs a lot deeper
into what crypto assets look like
and mean for the world's economy.
And that's it, thank you.
[audience applauding]
- Thank you so much, Kathy, that was great.
So we've got time for a couple questions.
Anybody? Yes.
- [Audience Member] Hello, hey.
So in the Everledger example,
at what stage in the supply chain
is the diamonds being registered with its qualities?
Because as I understand it, the diamond supply chain
is very complex, so you have, it's rough
and then it's traded in batches and retraded
and then it's polished and then that's traded in batches,
so just very complicated and protracted.
So is that at the very last stage, high-value diamonds
are measured and registered so you can prevent fraud,
or is that a proper mine-to-market solution
for transparency?
- Okay, so I haven't really looked tremendously deeply
into their technology since last year,
but from my understanding, it's mine-to-market.
So, and it's actually quite in depth,
they've done quite a lot of understanding
of how it transforms.
And so, you know, it's a good example of Leanne,
who is the CEO, she knew the industry extremely well,
and that's why they've been successful
using blockchain there because obviously,
it is extremely complex and, you know,
as consumers, a lot of these supply chains
that we work with look actually pretty simple.
And so, you know, hey, we can disrupt that
with a blockchain.
It's a lot harder than that, actually, so yeah.
- Gentleman there.
Just behind, yeah.
- [Audience Member] Earlier, you said
that it's not necessarily more secure.
But I thought that the whole, I mean, one of the big point
of having blockchain is that it's decentralized
and therefore, you know, if somebody wanted to hack,
instead of hacking a centralized entity,
the individual or the group of individual will have
to hack at the same time a decentralized system,
which in term of computer power, time,
and so on and so forth, is just much more expensive
than just trying to hack a single point of entry.
So I thought that one of the thing of blockchain is that
it is actually more secure because of decentralization.
- Yeah, that's one of the myths.
It's, let me put it this way.
When you're building a blockchain solution,
saying blockchain is more secure
doesn't actually give you more security.
So my point is, yes, what you have is data integrity,
but it doesn't necessarily mean it's more secure.
It's given you a higher level of data integrity,
it's harder to hack those solutions.
What you would need to do, for example,
if you're building a blockchain solution, is to ensure
that you're still running the same security processes
that you would on any other system.
And not to do that is crazy, is one of the, you know,
a lot of people have said blockchain is more secure.
Well, firstly, more secure than what?
They always just say it's more secure.
- [Audience Member] It's just decentralized,
just it's decentralized.
- Yeah, but decentralized doesn't give you security,
and that's why I think it's a myth.
Decentralization doesn't necessarily give you security.
We've had decentralized databases for over 30 years.
The consensus protocols that are actually used
within blockchain are pretty much a more advanced version
of the stuff we already have had for 30 years.
The unique thing about blockchain, in particular,
the Bitcoin blockchain, is the way
that it was put together and combined.
So I'll finish that off for saying one thing,
yes, no one has ever hacked a blockchain,
but every single thing in the ecosystem
around a blockchain has been hacked.
And that's why I say it's not necessarily more secure.
Sorry, I'm being quite pedantic about that, I guess.
- Thank you very much, Kathy, that's great.
- Thank you. - Thank you.
[audience applauding]