Blockchain is already disrupting many industries, and its governance is often cited as a critical issue as the technology achieves wider use.

1. Blockchain Governance:
Opportunities and
Challenges
Rachid Meziani, PhD
Fintech - Kuwait: 23 - 25 October 2018

2. Agenda
● Positioning Blockchain
● Governance models and challenges
● How does it help finance?
● Summary
2

3. The Technological
Revolution
3

4. Anything that you can
conceive of as a supply
chain, blockchain can
vastly improve its efficiency
- it doesn't matter if its
people, numbers, data,
money" Ginni Rometty, CEO IBM
4
The blockchain is an
incorruptible digital ledger of
economic transactions that can
be programmed to record not just
financial transactions but virtually
everything of value.” Don & Alex
Tapscott, authors Blockchain Revolution
(2016)

5. Moving toward the Internet of value
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6. 6
Blockchain History

7. 10% de GDP will be stored in blockchain by 2027
Source: Gartner, World Economic Forum 7

8. Blockchain in numbers
$600 billion: The size of the entire cryptocurrency market by
the end of 2017 - source: CoinMarketCap
$2.1 billion: Global spending on blockchain solutions in 2018
source: IDC
42.8 percent: The expansion of the blockchain space every
year to 2022 - source: Netscribes prediction
13 percent: Senior IT leaders who have clear and current
plans to implement blockchain
source:DG Connect research. 8

9. – Business Networks benefit from connectivity
● Participants are customers, suppliers,
banks, partners
● Cross geography & regulatory boundary
– Wealth is generated by the flow of
goods & services across business
network in transactions and contracts
– Markets are central to this process:
● Public (fruit market, car auction), or
● Private (supply chain financing, bonds)
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10. Ledger is THE system of record for a business.
Business will have multiple ledgers for multiple
business networks in which they participate.
– Transaction – an asset transfer onto or off the
ledger
● John gives a car to Anthony (simple)
– Contract – conditions for transaction to occur
● If Anthony pays John money, then car
passes from John to Anthony (simple)
● If car won't start, funds do not pass to John
(as decided by third party arbitrator) (more
complex) 10

11. Blockchain ...
11

12. Problem ...
Inefficient, expensive, vulnerable 12

13. A shared, replicated, permissioned ledger ...
With consensus, provenance, immutability and finality 13

14. Requirement for blockchain for business ...
14

15. ❖ Shared between participants
❖ Participants have own copy through replication
❖ Permissioned, so participants see only appropriate
transactions
❖ THE shared system of record
Records all transactions across business network
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16. ❖ Verifiable, signed
❖ Encoded in programming language
❖ Example:
➢ Defines contractual conditions under which a bond
transfer occurs
Business rules associated with the transaction
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17. ❖ Participants need:
➢ Appropriate confidentiality between subsets of participants
➢ Identity not linked to a transaction
❖ Transactions need to be authenticated
❖ Cryptography central to these processes
The ledger is shared, but participants require privacy
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18. ❖ Participants endorse transactions
➢ Business network decides who will endorse transactions
➢ Endorsed transactions are added to the ledger with appropriate
confidentiality
❖ Assets have a verifiable audit trail
➢ Transactions cannot be modified, inserted or deleted
❖ Achieved through consensus, provenance, immutability and finality
The ledger is a trusted source of information
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19. Transactions are added to the ledger as
new blocks on a chain
Copies are replicated by each
transaction agent or validator
Transactions' validators operate through
consensus mechanism = self-policing,
verifiable, trustable
Validation resilient to malicious attacks
System is consistent and failure tolerant
Essentials of Blockchain
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20. The benefits of blockchain
Increased transparency
Accurate risk tracking
Permanent ledger system
Reduced operating costs
Complex technology
Regulatory implications
Implementation challenges
Competing platforms
The great unknowns
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21. How does it work?
21Nolan Bauerle

22. proof-of-work scheme makes
altering historical data in a
blockchain prohibitively costly,
since a potential thief or forger
would have to alter not only the
transaction record they wished to
divert, but also all subsequent
blocks up to the current one.
Integrity of data on a
proof-of-work blockchain
source: IEEE Spectrum
22

23. Governance of blockchains is often cited
as a critical issue as the technology
achieves wider use in different
industries.
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24. 24
Enterprise Governance is a balance between
Performance and Conformity

25. purposes of corporate governance against the
basic properties of blockchain technology
Purposes of Corporate
Governance
❖ Transparency
❖ Accountability
❖ Responsibility
❖ Fairness
Properties of Blockchain
❖ Shared distributed ledgers
❖ Irreversibility of records
❖ Peer-to-Peer communication
❖ Smart contracts
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26. Blockchain has the potential
to link corporations,
industries, and governments
but the technology is still in its
relative infancy, and must overcome
the barriers of incumbent legacy
systems
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27. Current Challenges to Blockchain Governance
Scalability: How big can you grow
without sacrificing efficiency?
Privacy: How secure is
secure?
Interoperability: Will your blockchain play
nicely with other blockchains?
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28. Speed
Lowers scalability obstacles
by allowing blockchains to
function faster
Standards
Provides organizations with a foundation for shared
standards, so they can explore opportunities for
interoperability without sacrificing the privacy of their
data.
Privacy
Provides a framework for
adaptability, so projects
can act quickly when
inevitable problems and
security issues come up.
How Blockchain
Governance Help?
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29. Types of Blockchains
Operates under the leadership
of a group
Access is limited to only
members of the group
Due to limited membership,
they are faster, can scale
higher, and offer more
transaction privacy
Distant cousin of intranets of
1990s
Federated
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30. Permissionless / Private
Access might be public or restricted,
but only a few users are given
permission to view and verify
transactions
Ideal for database management or
auditing services, where data
privacy is an issue
Compliance can be automated, as
the organization has control over
the code 30

31. Open-source and available to the
public
Transactions are transparent to
anyone on the network with a block
viewer, but anonymous.
The ultimate democracy – this fully
distributed ledger disrupts current
business models by removing the
middleman
Minimal costs involved: no need to
maintain servers or system admins
Permissionless / Public
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32. Hybrid
A public blockchain, which hosts a
private network with restricted
participation
The private network generates
blocks of hashed data stored on the
public blockchain, but without
sacrificing data privacy
Flexible control over what data is kept private and what is shared on the
public ledger
Hybrid blockchains offer the benefits of decentralisation and scalability,
without requiring consensus from every single node on the network
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33. Nodes are the powerful
computers that host copies of
the ledger, and must validate
each transaction.
Nodes protect the integrity of the
blockchain by allowing the
ledger to remain decentralized,
making it resilient to hacks
Governance Models
Address the roles of three key players
Nodes
Miners are powerful nodes who
group transactions into blocks
and add them to the blockchain.
Because of the hardware and
the expertise involved miners
are compensated for each block
they successfully add to the
chain.
Miners
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34. All nodes vote to elect a limited number of nodes who
they trust to validate transactions on their behalf.
These elected nodes - or Witnesses - function like
elected of officials, and have the power to validate a
transaction on behalf of others.
Voting is ongoing, and Elected Nodes can be replaced
any time if other users deem them untrustworthy.
Governance Models
Delegated Proof of Stake
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35. 35
Decentralized
Autonomous
Organizations (DAO)
Each member has an equal stake,
so corporate corruption can be
minimized
DAOs use Smart Contracts to auto-
complete several business
decisions without human
interference
A DAO is an Organization that runs itself.

36. “What the internet did for communications, blockchain will do
for trusted transactions.”– Ginni Rometty, CEO of IBM
How Blockchain can help finance?
1) Simplified Cross-Border
Payments:
36
❖ Everex Wallet
❖ RippleNet

37. How Blockchain can help finance?
2) Fraud & Cyber Crime Reduction:
❖ 45% of financial intermediaries suffer from fraud and cybercrime every year
3) Less Reliance on Cash :
❖ Blockchain technology - Compliance regulations = blockchain-based digital
currencies for notes and coins
❖ Bank of England and the central bank of Norway, are already discussing
discontinuing use of notes and coins entirely
37

38. How Blockchain can help Finance?
4) Easy KYC (Know Your Customer):
❖ Financial institutions spend $60 million to
$500 million per year to keep up with
Know your Customer (KYC) - Thomson
Reuters
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39. How Blockchain can help Finance
5) Easier and Cost Effective Payments:
❖ Enable higher security and lower costs for banks to process
payment between organizations and their clients and even between
banks themselves
❖ blockchain would eliminate the need for a lot of intermediaries
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40. How Blockchain can help Finance
6) Remove Intermediaries
with Smart Contracts :
Traditional Contracts Smart Contracts
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❖ Bank of America Merrill
Lynch, Citi, Credit Suisse
and J.P. Morgan
❖ Healthcare
❖ Agriculture

41. How Blockchain can help Finance?
7) Seamless Identity
Management :
❖ Users can choose how to
identify themselves and who will
be informed
❖ Users register their identity on
the blockchain, but can re-use
that identification for other
services
❖ identity is safe inside a digital
network and creates a seamless
access
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42. Summary
❖ Internet foundations were laid in the 1960s, but it wasn’t
until the 1990s when it became mainstream.
❖ Building governance structures for blockchain
applications is still in the very early stages, but has a
striking amount of potential.
❖ If blockchain technology can overcome its scalability
issues with dynamic governance systems, the potential
applications are limitless.
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