KW 25 – Weekly Blockchainers Recap

Swenden Land Registry
One of the first serious ideas to use blockchains and smart contracts was the land registry use case. We heard about projects in Greece and Honduras. Now Sweden do some research, it has high potential to show the applicability of this approach. 

more projects
During the last weeks we saw more and more interesting Blockchain activities.
Polish Gouvernance 
Dutch Central Bank 
Kazakhstan Central Bank 
– ……
It seems more or less every institution works on this technology. 

KW 24 – Weekly Blockchainers Recap

The DAO under attack 
Today it was a really importand day for the DAO and Ethereum. The DAO was hacked and everything looks a little bit like the Mt.Gox horror. The positiv view of this event is, the community works fast and constructive on this exception. At the moment not all facts are on the table, but it looks like the situation is under control. 

IMG_2016-06-17 21:08:48

See also the reddit thread for this event. 
Ethereum is not the DOA, but the trust in Ether as a currency was reduced.  

Allianz Blockchain experiments 
The German Insurance bets on blockchain for catastrophe bond trading. It sounds macabre and logical. It should only be used with institutional customers, nothing for retail customers. 

 

 

 

 

Gambling with Oracles

[casino kurhaus*]
[casino kurhaus*]

 

How to create a provably-fair high risk financial product with live data feeds provided by oracles.

Introducing Binary Options

This time, we gonna gamble. We will construct a financial product, more specifcally: a binary option, European style, cash-or-nothing.

[binary*]

Binary options are “a type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money” [1], therefore cash-or-nothing. European style means the option “can only be exercised at the end of its life, at its maturity” [2].

This is a high risk product which is “most likely traded over the Internet on platforms existing outside of regulations” [1], so “the customer is betting against the broker, who is acting as a bucket shop.” [3]

In general, this means that “because these platforms operate outside of regulations, investors are at greater risk of fraud” [1] and “manipulation of price data to cause customers to lose is common” [1].

BinaryOption (3)So, in contrast to common regulated financial products we have a really comprehensible option, which is mostly valued as high-risk, because there is a real clash of interests if the broker also evaluates the stock against the strike price and thus is highly motivated to manipulate this evaluation.

Smart Contracts to the Rescue

So, can smart contracts help here? You bet! The blockchain is trust-less, so you just don’t have to trust anyone, be it broker or bucket shop or both, but you can just prove if everything’s ok.

If a smart contract guarantees you that you will get 195% if you predict correctly and 0% if not, this rule has to be implemented in the contract.

Meeting the Oracle

Given that we can trust the contract, it should be easy to implement a binary option like this:

After deploying the contract, you have 1 hour to invest Ether on calls or puts on the contracts conditions (eg. DAX is above the strike price in 1 hour). After the 1 hour offering period, it's rien ne va plus, no purchase of calls or puts are possible. At this point of time, the current value of the DAX is stored. After exactly 1 hour the DAX is evaluated against the stored DAX value.
  • if the value is above or equal to the stored value, all calls are returned 195% of their investment, all puts lose all invested money
  • if the value is below the stored value, all puts are returned 195% of their investment, all calls lose all invested money

Sounds simple? It is!

[oracle*]
[oracle*]

You can easily prove that the contract actually implements the described rules, but there are two problems: how does the contract know the DAX spot? Contracts in Ethereum intentionally cannot connect to the outside world, therefore the outside world has to call the contract and provide the necessary data. Who tells the contract the exact time it has to retrieve the DAX spot? There must be some callback mechanism, since Ethereum smart contracts are not able to call themselves, have a Daemon, Threading etc.

Let’s gonna oraclize.it

There is a startup solving this problems in a elegant way: oraclize.it

You should look up and understand how oraclize.it works and helps us to solve our problems. In short, callbacks are used by oraclize.it and you can determine the exact data feed of the data which oraclize.it will provide at a certain point of time to our contract.BinaryOptionOrale (1)Here the two problems are addressed:

  1. The contract has to provide a callback for the oracle to call. The data feed is configured when the callback is provided, as well as the time interval.
  2. The oracle facilitates a scheduling to call the provided smart contract callback at the configured time interval.

Both solutions require the user and the contract owner to actually trust the “trusted datasource” (the contract’s user can decide if he trusts this datasource) and the oracle itself to have a working scheduling and not to manipulate the data. In contrast to the “broker” above, the oracle has no interest in manipulating the data.

However, oraclize.it not only offers a service, but even more defines a protocol, so there will most likely be more than one oracle to choose from to offer redundancy in the future.

Building Binary Options in Ethereum Studio

…in the next post.

Realizing how long this post already is, we decided to split the tutorial and the theoretical part. The tutorial will follow soon! Please let us know in the comments if you’d like to have this tutorial and what you expect of it.

Meanwhile, try out this ether.camp tutorial which describes the integration of oraclize.it into Ethereum Studio.

images:
[casino kurhaus] Kurhaus Casino by fr4dd under CC
[binary] binary by christine592 under CC
[
oracle] Oracle by Bob Doran under CC

icons:
icons made by Freepik from www.flaticon.com 

KW 22 – Weekly Blockchainers Recap

R3 Ethereum Review 
R3 published an Ethereum review, written by Vitalik Buterin. In the managed summary written by the R3 CTO, he highlights the challenges of Ethereum for financial marked requirements. From our perspective it just emphasizes the fact that one blockchain concept doesn’t fit all requirements. Ethereum has the first mover advantage for smart contracts development and DApps, like Bitcoin for crypto currencies, both is unstoppable.

Santander Introduce Blockchain Technology for International Payments
Most institutes still discuss the Blockchain like the car industry the electric engines. Santander UK starts with international payment based on blockchain. The Santander solution works with Ripple (!!!), it works well for this kind of use cases. During the last months, with everybody looking at Ethereum, it’s a good idea to look little bit more left and right.

First salary offers for Blockchain developers
As there are almost all institutes of the financial service industry, but also companies from health care, real estate and music, evaluating the blockchain and starting first proof-of-concepts, it becomes obvious that there is a huge demand meeting a real scarcity of developers, with probably “…less than 100 true blockchain experts in the world”.
Obviously, this mismatch raises the salary offers, and the first official offers are about $250.000 at Wall Street (free German Jaxenter-Post).
So, if the blockchain still doesn’t impress you, here’s one argument more for dealing with it more closely in the future.