LIST OF FIGURES
LIST OF TABLES
LIST OF ABBREVIATIONS
2 BLOCKCHAIN AS ICT
2.1 BACKGROUND: FROM THE FIFTH TECHNO-ECONOMIC PARADIGM TO BITCOIN
2.2 TECHNICAL ASPECTS OF BLOCKCHAIN
2.3 BLOCKCHAIN APPLICATION TYPES
3 BLOCKCHAIN AS INSTITUTIONAL TECHNOLOGY
3.1 BACKGROUND: NEW INSTITUTIONAL ECONOMICS AND GOVERNANCE
4.1 USE CASES OF BLOCKCHAIN ON A MACRO LEVEL
4.2 ROLE OF BLOCKCHAIN IN ECONOMY AND SOCIETY
4.3 IMPACT OF BLOCKCHAIN FROM AN INSTITUTIONAL PERSPECTIVE
4.4 ANALYSIS OF INTERMEDIARIES IN THE BLOCKCHAIN ECOSYSTEM
4.5 CHALLENGES AND RISKS
List of figures
FIGURE 1 VISUALIZED STRUCTURE OF THIS THESIS
FIGURE 2 OVERVIEW TECHNOLOGICAL REVOLUTIONS (SOURCE: AUTHOR, BASED ON PEREZ (2009), N.P.)
FIGURE 3 VISUALIZATION BYZANTINE GENERALS PROBLEM (SOURCE: AUTHOR)
FIGURE 4 VISUALIZATION OF A BLOCKCHAIN (SOURCE: AUTHOR)
FIGURE 5 VISUALIZATION OF MERKLE TREE THAT SUMMARIZES MANY TRANSACTIONS (SOURCE: AUTHOR, BASED ON ANTONOPOULOS (2014), P.172)
FIGURE 6 SUMMARY OF BLOCKCHAIN-APPLICATION TYPES (SOURCE: AUTHOR)
FIGURE 7 OFF-CHAIN GOVERNANCE WITH EXAMPLE BITCOIN AS BRANCHES OF THE TRADITIONAL MODEL ‘US-GOVERNMENT (SOURCE: PERLEY (2018), N.P.)
FIGURE 8 TECHNICAL VISUALIZATION OF FORKS (SOURCE: AUTHOR)
FIGURE 9 PROPERTIES OF TRADITIONAL DATABASES AND BLOCKCHAIN IN COMPARISON (SOURCE: AUTHOR)
FIGURE 10 FRAMEWORK FOR CHOOSING THE APPROPRIATE BLOCKCHAIN-TYPE (SOURCE: AUTHOR, BASED ON WÜST & GERVAIS (2017))
FIGURE 11 VISUALIZATION OF A 2-OF-3 MULTISIG (SOURCE: AUTHOR, BASED ON (HASHTRUST (2018), N.P.)
FIGURE 12 DLT TERMINOLOGY OVERVIEW (SOURCE: KANNENGIESSER ET AL. (2019), P.3).
FIGURE 13 DAI ONE-YEAR PRICE CHART IN US DOLLAR (SOURCE: DIGITALCOINPRICE (2019))
FIGURE 14 ILLUSTRATION OF UTXO-MODEL ON THE EXAMPLE BITCOIN (SOURCE: BITCOIN.ORG (N.D.))
FIGURE 15 PROPERTIES OF PERMISSIONLESS-, PERMISSIONED BLOCKCHAINS AND TRADITIONAL DATABASES IN COMPARISON (SOURCE: WÜST & GERVAIS (2017), P.4)
FIGURE 16 PROPERTIES OF MONGODB 4.0 (SOURCE: MONGODB (2017), N.P.)
List of tables
TABLE 1 OPTIONS TO CLASSIFY BLOCKCHAIN TECHNOLOGY IN THE TECHNO-ECONOMIC PARADIGM APPROACH (SOURCE: AUTHOR)
TABLE 2 NORMAL-FORM PAYOFF-MATRIX OF AN EXEMPLARY BLOCKCHAIN-TRADE WHEN HAVING IRREVERSIBLE TRANSACTIONS (SOURCE: AUTHOR)
List of abbreviations
Abbildung in dieser Leseprobe nicht enthalten
Diese Thesis erkundet und analysiert die technischen und ökonomischen Faktoren, welche das Potenzial der Blockchain-Technologie für Wirtschaft und Gesellschaft ergeben, und deren Zusammenspiel. Auf technischer Ebene wird Blockchain-Technologie als Kombination aus verschiedenen Basis-Technologien hergeleitet. Es wird herausgestellt, dass sie die Grundlage von neuartigen potenziell disruptiven Anwendungen bildet, in dem sie als technisches Framework eine effiziente Lösung für das fundamentale Double-Spending Problem bietet. Basierend auf diesen Ergebnissen wird geprüft, ob Blockchain-Technologie ein neues Techno- ökonomisches Paradigma darstellt. Dies deutet sich jedoch aktuell (noch) nicht an, zumindest aus isolierter Sicht. Auf institutionsökonomischer Ebene wird gezeigt, dass sich Blockchain- Technologie als regel-basiertes System und somit als Grundlage für alternative Institutionen beweist. Diese ermöglichen einerseits neue Formen von ökonomischer Interaktion und Koordination und unterliegen andererseits neuartigen Governance-Mechanismen. Es stellt sich heraus, dass diese dezentralen Blockchain-basierten Formen in Systemen, die bisher auf traditionelle Intermediäre angewiesen sind, aufgrund niedrigerer Transaktionskosten zu höherer Effizienz führen können. Demgegenüber stehen jedoch neu aufkommende zentrale Intermediäre innerhalb des Blockchain-Ökosystems, die an traditionelle Schemata erinnern.
This thesis explores and analyses the technical and economic factors that determine the potential of blockchain technology for economy and society and their interactions. At the technical level, blockchain technology is portrayed as a combination of different base technologies. It enables new, potentially disruptive applications by providing an efficient technical solution for the fundamental double-spending problem. Based on these findings, blockchain technology is analyzed regarding a new Techno-economic paradigm. However, this does not (yet) appear to be the case, at least from an isolated perspective. From an institutional economics perspective, blockchain technology proves to be a rule-based system and thus a basis for alternative institutions. On the one hand, these enable new forms of economic interaction and coordination and, on the other hand, these are subject to novel governance mechanisms. It turns out that these decentralized blockchain-based forms can lead to higher efficiency in systems that have been dependent on traditional intermediaries up to now due to lower transaction costs. In contrast, there emerge new intermediaries within the blockchain ecosystem, which reminds of traditional schemes.
Keywords: blockchain technology, -applications, -governance, transaction costs, Techno- economic paradigm, intermediaries
Blockchain technology 1 could be one of the most disrupting technologies since the Internet. It is unusual, however, that blockchain was not the result of a professional/public research, such as the Internet (Iansiti & Lakhani, 2017, n.p). Instead, its first application Bitcoin2 was implemented by enthusiasts ‘on the edge’ as an escape of traditional (financial) economies (Satoshi Nakamoto, 2008, p.1). It took five more years until in 2013 the term ‘blockchain’ eventually generated interest within the World Wide Web (Google Trends, 2019). By now, it is the underlying technology of hundreds of potentially disruptive applications3. In the academic community, blockchain is promoted as a technology for decentralization, for democratizing value or for coordination (MacDonald et al., 2016; Tapscott & Tapscott, 2017; Wright & De Filippi, 2015). However, the majority of economy and society is still unaware of its disruptive potential, as e.g. the current Google Trends Interest level for ‘blockchain’ does underlie4.
There are multiple potential explanations for this circumstance. Firstly, this topic is difficult to access, because relevant information is highly fragmented and usually either specialized on a specific aspect or too superficial. Furthermore, blockchain is a complex technology building on the knowledge of Internet and communication technologies (ICT) on the one hand, and economic theory, on the other hand. Being able to create opinions actively and evaluate statements within the blockchain environment requires insights of both of these sides. As a result, there is the risk that blockchain is both denounced and hyped for the wrong reasons.
As a solution, this thesis explores the innovative aspects of blockchain from both ICT- and institutional technology perspective5. It aims to explore, summarize, and analyze the technical and economic factors that determine the potential of blockchain for economy and society and their interactions. To solve the mentioned problems of related research, on the one hand, this thesis analyzes the topic without focusing on potentially puzzling details of either discipline. On the other hand, it examines relevant key elements sufficiently deep. This objective translates into the following research questions:
- What characterizes blockchain technology in each discipline?
- On a macro level, which use cases do exist?
- What is the current role of blockchain technology in economy and society?
- What are the implications for institutional economics theory?
- What are the potential challenges and risks?
To answer the questions, this thesis uses three methods. First, selected literature is analyzed. This includes comprehensive works by e.g. Tapscott & Tapscott (2016), Swan (2015), MacDonald et al. (2016), Davidson et al. (2016) and Antonopoulos (2014). A diverse range of smaller research papers or other academic publications complete this method. The second research method is Internet research. This method is indispensable because of the digital nature of the topic. Prior experience of the author ensures its quality. The utilized works of both methods originate from either authors from the scene, from works often referenced in related research, or from recommendation. At last, the opinion of Jürgen Erbeldinger, a professional coming from the blockchain environment, completes the analyses. He also provided the mentioned literature recommendations.
Based on these methods, this thesis expects to generate three results. First, it highlights the technical and economic parameters that enable the disruptive potential of blockchain. Second, it assesses factors which constitute the role of blockchain in economy and society (on an economic level). This point goes hand in hand with discussing existing challenges and risks. Third, it clarifies the differences between blockchain and traditional methods to store data, to organize individuals, and to coordinate individuals.
The results aim at a diverse audience. The first targets are enthusiasts. They are well-informed about technical aspects and typically entering the sphere through cryptocurrencies. This group can utilize this thesis to broaden their blockchain horizon with knowledge from other disciplines, to gather background knowledge that is otherwise considered tedious to accumulate, or to refresh basic knowledge. Another target groups are interested economists or other professionals with an affinity towards technology. This group may already have heard from blockchain from periphery sources like colleagues or media. With this thesis, they can get a profound and neutral overview of the nature of blockchain beside buzzwords. With this overview, they can build the first opinion, evaluate other opinions, and classify further literature.
The research splits into three parts,visualized in Figure 1.Chapter 2 and 3 explore blockchain from a different perspective,respectively. Both chapters begin with a theoretical overview and conclude with the answers to the first research question from the respective perspective. Chapter 4 analyzes the remaining research questions.The following paragraphs describe the structure in detail.
Abbildung in dieser Leseprobe nicht enthalten
Figure 1 Visualized structure of this thesis.
Chapter 2 begins with a summary of historical and technical aspects that are relevant for blockchain as an ICT (section 2.1and 2.2).As a result,blockchain gets defined as a combination of base technologies,mainly Distributed Ledgers,cryptography,consensus mechanisms,and Smart Contracts. An overview of the current state of blockchain applications types in section 2.3 completes the chapter. The investigated applications types are cryptocurrencies, platforms,and token-networks.Each application type has an (economic) purpose becoming relevant in the analyses in chapter 4.
Chapter 3 focuses on the economic perspective of blockchain.The first section 3.1highlights one approach of the New Institutional Economics.This approach focuses on the behavior of agents within markets, which is influenced by the costs of searching, contracting, coordinating, and trust. The second section 3.2 introduces the new economic disciplines 'cryptoeconomics' and 'blockchain governance'. As a result,blockchain gets declared as a framework for alternative institutions.These blockchain-based institutions are governed via new types of mechanism, e.g. off-chain- and on-chain mechanisms. These insights substantiate the analyses of chapter 4 by showcasing the economic capabilities of blockchain.
Within the last and concluding chapter 4, theoretical knowledge of the previous chapters come together. It discusses the remaining research questions. Section 4.1 derives use cases of blockchain by comparing it with traditional databases, which represent traditional intermediaries on data level in this section. Afterward, section 4.2 analyzes the role of blockchain in economy and society by using the Techno-economic paradigm approach. Section 4.3 illustrates the implications for institutional economics theory by applying the transaction cost approach on blockchain. Section 4.4 discusses the emerging of new intermediaries in the blockchain-environment. At last, section 4.5 highlights and discusses selected challenges and risks that came up in the research/literature or through findings in this thesis.
2 Blockchain as ICT
This chapter examines historical and foundational aspects of blockchain technology from an ICT-perspective. What characterizes the current (ICT-)paradigm? What is the story of Bitcoin as the first blockchain application? What are the technical properties of blockchain? What types of blockchain networks and -applications do currently exist?
As a result, this chapter outlines blockchain as a framework for finding decentralized consensus consisting of a combination of base technologies6. Typically, these are distributed ledgers, cryptography, consensus algorithms, and Smart Contracts. This framework provides a technical solution for the double-spending problem and therefore, builds the foundation for various applications, distinguishable into cryptocurrencies, platforms, and token-networks. These factors combined leverage blockchain to a potential key-technology within the Techno- economic paradigm approach further discussed in section 4.2.
2.1 Background: From the fifth Techno-economic paradigm to Bitcoin
This section introduces the theory of technological innovation with a highlight on the current ICT-era. It provides the foundation for the discussion about the role of blockchain in economy and society in section 4.2. In economics, technical progress is one of the driving factors of economic growth. It affects both economy and society in the same way. It affects the way businesses operate, creates new products and services, new revenue streams, lower costs, and new organizational structures (C.f Walport et Al., 2016).
Although innovation is a steady process, radical episodes characterizes it. Joseph Schumpeter (1976) calls this process “creative destruction” and Perez (2009) “Technological Revolution”, whereas Perez’ approach is more common. There are five acknowledged fundamental shifts in economy and society that are classified as a ‘Technological Revolution’, starting from the first ‘Industrial Revolution’ in the late 18th century. Figure 2 gives an overview of the five revolutions in their order, year, and critical innovations.
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Figure 2 Overview Technological Revolutions (Source: Author, based on Perez (2009), n.p.).
According to Perez (2009), these ‘paradigm shifts’7 happen in multiple steps, from disruptive innovation over development to an eventual replacement, causing the typical ‘S’-curve (ibid.). Each of these Technological Revolution has two features: 1) The participating systems are interconnected and interdependent in their technologies, and 2) the impact of transformation reaches to the whole economy and society (ibid.). An example of interconnected and interdependent development is the low-cost production of oil in combination with mass- produced automobiles and a new network of roads in the early 19th century.
When both features emerge simultaneously, a new ‘techno-economic paradigm’ arises (Perez, 2009, n.p.). In scientific terms, a paradigm is characterized by reworked assumptions, propositions, definitions, questions, and methodological approaches (Kuhn, 1962). Economic and sociological implications are typically changed cost structures, opportunities for innovation, and different organizational principles. A new Techno-economic paradigm represents the ‘best practice model’ within the industry, leading to increased efficiency and effectiveness. Thereby, the consequence of such a shift is always an increased way of wealth-creation. Perez (2009) additionally remarks that within the last five ‘meta-systems’, as she calls Techno-economic paradigms alternatively, there were several interrelated breakthroughs in the same period. Therefore, a technological revolution typically can be divided into multiple segments.
The most recent ‘paradigm shift’ led to the era of ICT. Its ‘big bang’ was the first commercially available microprocessor, which first-time enabled computing on a small chip, released in 1971 by Intel (Perez, 2009, n.p.). Analog to the first feature of Technological Revolutions, there has been a system quickly evolving around microprocessors, including specialized suppliers and first use cases like calculators, games, and digital instruments. However, even though microprocessors impacted several industries, they did not yet transform economy and society. The following segment of the revolution was initiated with the leverage of semiconductors into personal computers (semiconductor devices) and thereby indirectly into software for the individual. After, in the early 2000s, the Internet and telecommunication-systems were broadly implemented. The segments are strongly interconnected, which ultimately led to a new Techno-economic paradigm.
Especially in this recent fifth technological revolution, researchers recognized patterns of further development. The first relevant pattern for this thesis is Moore’s first law. He observed in the late 20th century that computing power, which is determined by the number of transistors, doubles in periods of roughly two years (Moore, 1998). Other relevant computing laws are Kryder’s Law for increasing storage capacity and Nielsen’s Law for increasing network capacity (ibid.). These observations indicate that technological limitations are often only short- term. These findings will become important regarding scalability as one of the highlighted challenges in section 4.5.
In addition to these, Bell (2008) provided another significant observation within the ICT- revolution, labeled as Bell’s Law. Bell divided the ICT-paradigm into computer classes, which he defines as a “set of computers in a particular price range with unique or similar programming environments […] that support a variety of applications that communicate with people and/or other systems” (Bell, 2008, p.1). Then, he theorized, a “new computer class forms and approximately doubles each decade, establishing a new industry. A class may be the consequence and combination of a new platform with a new programming environment, a new network, and new interface with people and/or other information processing systems.” (ibid.). The standard computer classes, identifiable by Bell’s approach, are Mainframe (1970s)8, Minicomputers (1980s), Personal computers in networks (1990s), Internet/World Wide Web (2000s), Cloud Computing and mobile devices (2010s). In analogy to the term ‘inter- related breakthroughs’ by Perez (2009), each of the computer classes contributed to the redefinition of economy and society. This observation takes a further role in discussing the role of blockchain in section 4.2.
The emergence of the Internet
Two of these classes are especially relevant for the understanding of blockchain as an ICT: networks and the Internet/World Wide Web. They build the foundation of the Internet protocol suite, providing end-to-end data communication, or in other words, distributed computer networking technology as it is known today. The Internet protocol suite is also termed TCP/IP, due to its main parts, the transmission control protocol (TCP) in combination with the Internet protocol (IP). Iansiti and Lakhani (2017) provide a brief overview of its development. TCP/IP was first applied in the US Department of Defense for efficient communication, under the name ARPAnet. As a technology, TCP/IP replaced the previous communication based on ‘circuit switching’. With the old technology, parties had to be connected through dedicated communication lines by exchanges. In contrast to that, TCP/IP enabled open, shared, public networks, without the need for ‘exchange-authorities’. Information is digitized and transported in small packages that nodes 9 on the network edges can disassemble and reassemble to interpret the data. In the 1990s the TCP/IP technology was ultimately adopted in large scale by firms, with the first use case of e-mail communication, followed by replacing the previous standards for general information exchange (data, messaging, voice, video). The traction of TCP/IP grew when firms acknowledged potential productivity gains due to much higher communication speed. (ibid., n.p.)
To summarize, TCP/IP functions as the network layer of the Internet, as the Internet consists of “interconnected computer networks that interchange data by packet switching using the standardized Internet Protocol Suite (TCP/IP)” (W3C, 2016). For that reason, related research describes the Internet as a network of networks (e.g. Tapscott & Tapscott, 2017, n.p.).
In the 2000s, the World Wide Web (WWW or Web) emerged, based on own protocols/languages, mainly HTTP and HTML. Through the WWW, TCP/IP technologies can be globally and publicly accessed. The Web itself is defined as an “information space” (W3C, 2016), where resources are identified by Uniform Resource Locators (URLs) that, in turn, can be accessed through the Internet. Mainstream adoption was fostered by pioneer technology companies that provided browsers, web servers, and programming languages that serve as a base for Internet services and applications of all variety10. The ever-growing amount of information on the Web induces the title “Internet of Information”. The Web currently connects around 4.1 billion individuals worldwide (Internet Live Stats, n.d.). That said, blockchain technology could potentially leverage the Internet on a comparable extent as the Web did and even initiate a new Techno-economic paradigm. Section 4.2 discusses why it does not (yet).
Excourse: The Internet is entitled as ‘decentralized’ (e.g. Tapscott & Tapscott, 2016). What does (de)centralization mean and how is it related to distribution?
There is no universal definition of these terms. This thesis uses the approach by Buterin (2017). He describes three axes of (de)centralization: architectural-, political- and logical (de)centralization 11 . The Internet is at high-level architectural decentralized because it is physically replicated - It consists of multiple networks (which again can be centralized or decentralized). It is politically decentralized because no individual institutions (authorities) controlling it, but several specialized networks governing it (see section 3.1). It is arguable whether the Internet is logically decentralized. When providers and users would be ‘cut in half’, some parts of it might not fully operate.
In most cases, (de)centralization refers only to the political aspect, and thereby to levels of control, whereas the architectural (de)centralization (the difference in location) is commonly substituted by the concept of distribution (Poenitzsch, 2018). A system can be distributed and at the same time (politically) centralized. However, it cannot be non-distributed and d ecentralized.
Design Parts of distributed networks
Derived from the principles by Tapscott and Tapscott, a network can be tweaked by the following parameters (Tapscott & Tapscott, 2016, p.33 ff.): Integrity: How can participants12 trust each other and how is reliability of the network ensured; Distribution of power between the participants: How many points of control are there and how can the system be shut down; Incentives for stakeholders: How are the incentives aligned for stakeholders, and what are the incentives to behave accordingly to the rules; Degree of privacy: How is privacy handled; Preservation of rights: How are ownership rights preserved (transparent and enforceable); Inclusion: What are the barriers of participation.
The following explains the parameter 'integrity' in more depth because it explains the demand for technologies like blockchain. Whereas other parameters do exist to a certain degree, integrity is rather a condition that a system and participants need to achieve. From a technical perspective, integrity can be substituted with reliability or fault-tolerance. In this context, it relates to the vulnerability of a distributed network to malfunctioning components. Research on this topic is commonly traced to the 'Byzantine Generals Problem' (BGP), which initially was established by Lamport et al. (1982) in their eponymous paper discussing algorithms to neutralize 'traitors' in a network. The research was published back in 1982 already when just a few distributed networks like Arpanet existed.The subject got even more relevant with the advancement and extension of networks. The statement of Lamport et AI. is that a "[...] reliable computer system must be able to cope with the failure of one or more of its components." (Lamport et al., 1982, p.1). The BGP derives from the abstract experiment visualizing the problem: Several imaginary divisions of the Byzantine army 13, each with its general, are separately located around an 'enemy' city;the generals cannot communicate directly but only via messenger (e.g. in this case on horseback); they have to make a plan of action (attack or retreat); some of the generals might be traitors trying to spread evil plans that prevent them from reaching the common goal (see Figure 3).
Abbildung in dieser Leseprobe nicht enthalten
Figure 3 Visualization Byzantine Generals Problem (Source: Author).
The question is,how do generals identify messages that include false information? In addition to the risk of traitors, the messenger could be intercepted or the message changed in the process,etc. As a result of Lamport et AI.,there would be no efficient solution to spot faulty messages, if a certain loyal/traitor-rate is exceeded and the communication is only directly.
The only existing solutions, based on algorithms, imply an exponential number of messages relative to the number of participants (Lamport et al., 1982). These solutions result in high costs when applied in ‘real-life’ and therefore, would be ineffective.
This is relevant for the understanding of blockchain as an innovative technology, as Wright and Filippi (2015) stated: “This problem questioned how distributed computer systems could reach consensus without relying on a central authority, in such a way that the network of computers could resist an attack from ill-intentioned actors.” (p.5). As a result of the research by Lamport et Al. (1982), it was commonly accepted that there is no efficient way to coordinate individual activities via Internet without a central monitor that can detect faulty data, since a “[…] group of unrelated individuals could not confirm that an event had occurred without relying on a central authority to verify that this particular transaction was not fraudulent or invalid.” (Wright & Filippi, 2015, p.5). Section 2.2 explains how blockchain technology offers a technical solution to overcome this problem without the need of a central authority.
In computer sciences, incidents happening through this mechanism of malfunctioning parts are termed as ‘ Byzantine Faults’. These faults do not refer to ‘fail-stop’, when, e.g. a server is unwilling to store a file, but to “subtle, malicious tampering by hackers or unscrupulous employees.” (Mazières & Shasha, 2002, p.1). Systems that are resistant to Byzantine Faults are entitled ‘Byzantine Fault Tolerant’ (BFT). In this context, ‘resistant’ is commonly related to the minimum requirement of at least 2/3 of participants not being malicious14. Section 2.2 explains that due to technical and economic mechanisms, BFT is a common property of blockchain.
That the issue of malfunctioning parts within a network/system severely impacts modern economies, does electronic money (e-money)15 illustrate. E-money acts as a digital substitute for cash but is superior in terms of handling and processing. In Germany, in 2017, the digital monetary transaction volume (e-money) was six times as high as the cash transaction volume (Bundesbank, n.d.). That proves the significance of digital monetary transactions for processes in the economy.
The pivotalfactor for the usage of digitaltransactions is trust in their integrity.A system (and its participants) must answer two central questions to achieve trust in digital transactions: How can e-money be authenticated as not counterfeit and how can ownership of e-money be proved? (Antonopoulos,2014,p.2 ff.).The state as the issuer of e-money efficiently solves the first questions.The solution to the second question is related to the initial question of the Byzantine Generals Problem,how networks can be reliable.Regarding e-money and digital data in general,the BGP can be transferred into the 'double-spending problem". This term refers to the circumstance that any digital information can be copied and thereby,digital money could theoretically spend more than once.Whereas cash can be protected through material features,digital money consists of multipliable bits (computer code) like any other digital information, making security harder to achieve. Therefore, double-spending is traditionally prevented by (financial) institutions that verify each transaction16 • They ensure that the transacted asset leaves one account and is credited to another. The process of verification is also called 'clearing' or 'settlement'17 • By maintaining these centralized so-called 'clearing houses',which can be any trusted third party,a network can assure integrity for its participants.To overview transactions,the institutions maintain a centralized ledger, which is per definition"[...] a value recording and transfer system.N (Davidson et al.,2016,p.22).1n this scheme, the trust of each participant is outsourced to the central authority,which makes transactions seamless.Since blockchain offers a solution for the BGP,it also can be used to mitigate double spending (see section 2.2).The general role of intermediaries gets further examined in section 3.1.
Abbildung in dieser Leseprobe nicht enthalten
Bitcoin as a prototype
Besides intermediaries, there exist approaches to implement digital money based on (computer) cryptography. Cryptographic-algorithms are a method to achieve digital security and privacy and therefore take an essential role in digital systems. There were already first tries in the early 1990s to create digital monetary schemes based on cryptography. The first real breakthrough of cryptographic electronic money was by David Chaum et Al. (1998) and his firm Digicash with ‘eCash’. They aimed to create a kind of monetary system for secure and private micropayments over the Internet, as Chaum stated that the “[…] use of credit cards [...] is an act of faith on part of all concerned. Each party is vulnerable to fraud by the others, and the cardholder in particular has no protection against surveillance.” (Chaum et al., 1998, p.1). They went bankrupt in 1998, because “[…] online shoppers didn’t care about privacy and security online then” (Tapscott & Tapscott, 2016, p.4). Later, Nick Szabo tried to create the decentralized currency ‘Bit Gold’ in 1998, which includes part of the mechanisms of Bitcoin. However, it never got implemented. He based his project on his earlier essay “The God protocol” (Szabo, 1997) that already contained ideas about the possibility of a protocol that takes the role of a ‘deity’ on everybody’s side. This protocol would be “the most trustworthy third party imaginable” (ibid., n.p.). To achieve this, the protocol would need to be decentralized, like a “spreadsheet across the Internet on this virtual computer” (ibid., n.p.). Other noteworthy efforts to create a decentralized currency scheme or at least ensure decentralized integrity between participants were ‘b-money’ in 1998 (Dai, n.d.), ‘Hashcash’ in 1997 (Back, n.d.) and ‘Reusable Proof-of-Work’ in 2005 (Satoshi Nakamoto Institute, n.d.).
That ledgers could be used for tamperproof record of digital information was even known since 1991, where Haber and Stornetta (1991) for the first time described the method of trustless timestamping as a digital service for certifying the creation of documents. Timestamps generally enable a historical order of underlying digital objects, whereas each stamp ensures the integrity of the contents of the previous one. Haber and Stornetta even further developed their method to save checking-time by bundling time-certificates into blocks, where each block represented fully ‘proved’ documents (Narayanan et al., 2016 (draft), n.p.). This bundle was technically the first kind of blockchain. Notable is also further development by Mazières and Shasha (2002) that focused on bringing together blocks as secure data structures and a Byzantine-fault-tolerant protocol in a multi-user network file system.
1 In the following, “blockchain technology” is partially abbreviated with “blockchain” to increase reading flow. Both terms refer to blockchain technology as a (technical) concept.
2 See https://bitcoin.org/en/.
3 See https://coinmarketcap.com/ for a list.
4 The interest level of “blockchain” is like that of “Smartphone” ten years ago. See https://trends.google.de/trends with keywords “blockchain” and “Smartphone”.
5 In this thesis, the term ‘institutional technology’ refers to blockchain from an institutional economics perspective.
6 ‘Base technologies’ are technologies which got established before blockchain.
7 A paradigm shift is a change of basic concepts and practices (Kuhn, 1962).
8 The design came later up again under the term ‘supercomputer’, which is many minicomputers together.
9 A node is a (physical) intersection/processing location of the network, e.g. a computer or mobile device (Beal, n.d.).
10 E.g. Sun, NeXT, HP, Infoseek, Yahoo (Iansiti & Lakhani, 2017, n.p.).
11 Originally, he only refers it to software, but it is applicable to any system.
12 In this thesis, participants are users (individuals or businesses) within a system like a computer network.
13 Byzantine Empire= East Roman Empire.
14 This was one of the results by Lamport et al. (1982). This ratio is dependent from the concrete algorithm.
15 See section 2.3 for further explanation of e-money. Also entitled as ‘digital money’.
16 1n this thesis,key statements are underlined.
17 Technically,clearlna and settlement are separate processes.