Building Trust Into Blockchain

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What is the future of blockchain innovation? And how might blockchain technologies enable new models for business and governance?  The topic of building trust back into the blockchain was examined at length OODAcon 2023.

The following captures insights from a discussion between Angela Dalton, CEO and Founder, Signum Growth; David Ackerman, CCO MobileCoin; and Mohsan Farid, Co-Founder, LedgerOps. 

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Summary of the Panel Discussion 

Blockchain technologies have experienced a period of Creative Destruction as fraudsters and opportunists exploited an environment with lots of misaligned economic incentives and lagging regulatory oversight.  Despite the hurdles, blockchain technologies continue to be incredibly disruptive in the market and offer new opportunities in both the public and private sectors.  

“Overall, the future of blockchain and web3 technologies seems bright – with ongoing advancements and the potential for transformative impact.” 

Forming Relationships Through Videogames:  A recent Deloitte survey was discussed which captured responses on various aspects of personal relationships and videogames.  The survey highlighted: 

  • Security and trust issues in user-generated content spaces.
  • The exploitation of logic flaws in smart contracts and the importance of compliance measures
  • The need for educating the market and behavior change in relation to videogames.
  • The presence of bad actors and the lack of transparency in web3 technology; and
  • The importance of a leadership mindset and the education for users, developers, and operations. 

Security and Trust in Web3 User Generated Content (UGC) Spaces:  In Web3 user-generated content (UGC) spaces, there are several issues regarding security and trust. Deloitte’s survey highlights the concerns of logic flaws, exploitation, and the presence of bad actors.  The panel did not that there has been “some maturation in the smart contract exploit space, the lack of transparency, inadequate tooling, and the need for more cybersecurity professionals contribute to these challenges.”   Furthermore, educating users, developers, and operations personnel is crucial.  Regulatory arbitrage and jurisdictional issues affect the trustworthiness of these spaces.  It is essential to design for response and spell out threats to ensure agile and effective security measures.  Overall, these issues necessitate improved measures, education, and regulatory clarity to enhance security and trust in Web3 UGC spaces.

The Old Ways are the Best Ways – The Human Factor and Social Engineering:  This technology is used by bad actors.  Full stop:  “There is a slew of bad actors and it is kind of like the Wild Wild West.  Hacking humans is suggested to be easier than hacking computers.  The human factor and social engineering were discussed in various contexts. One aspect highlighted the need to recruit and retain diverse talent, especially those with technical know-how and social intelligence.  It was emphasized that private sector innovation, public-private partnerships, and trust-building with technology were crucial  Overall, the human factor and social engineering were recognized as a part of the attack surface in the Web3 space.   Compliance measures that “go where we want them to go with optimal market friction” were discussed as a response to these threats – as well as educating the market on how best to enact behavioral change and determine the root cause of motivation of Web3-based bad actors. 

 “Spell out the threat with a baseline understanding – and your team will be able to respond to evolving variables.”

Blockchain can Learn Several Lessons from Traditional Capital Markets:  One important lesson is the need for compliance measures to ensure that transactions follow regulations and go where intended.  Additionally, the presence of bad actors in traditional markets highlights the importance of addressing security and trust issues in blockchain.  The maturation of smart contract exploits suggests the need for improved tooling and cybersecurity expertise in the blockchain space.  Furthermore, education for users, developers, and operators is crucial to enhance understanding and mitigate risks.  The concept of regulatory arbitrage, where entities may seek more favorable jurisdictions, should also be considered.  Overall, blockchain can benefit from the experience and insights gained from the traditional capital markets to enhance its functionality and security. But the tooling is not great so far and more cyber pros need to enter the space

Is Web3 Transparency a Marketing-driven Fallacy?:   Transparency in web3 may be a fallacy despite marketing claims.  As discussed, the Deloitte survey highlights security and trust issues, emphasizing that this technology is used by bad actors. The lack of a leadership mindset and education, along with regulatory arbitrage, contribute to the fallacy of transparency.   Additionally, centralization can promote visibility, but the paradigm shift and lack of roadmap make it challenging to achieve true transparency. While the marketing may assert transparency in web3, there are various factors that challenge its actual realization.

Jurisdiction of the Crypto Wallet, Content Delivery Networks (CDN), and Digital Assets Regulation:  Crypto regulation gets especially tricky when the currency is CDN-based. Digital asset regulations are still very fuzzy for web3-based CDNs.

You do not stop being Mission Driven When you go to the Private Sector:  Design for response –  and agile.   Spell out the threat with a baseline understanding – and your team will be able to respond to evolving variables. 

“While media and boardroom discussions have shifted focus towards AI, builders and developers in the Web3 world continue to innovate.”

Good Things for Web3: Web3, the next generation of the internet, offers several positive aspects. Developers are continuously innovating and delivering value. It enables novel approaches to distributed finance, scientific research, and ownership assertion across physical and virtual environments, Good things for Web3 include increased disintermediation, mass-market applications in entertainment and gaming, improved trust and security through blockchain technology, and potential applications in digital collectibles, data custody, and supply chain validation.  However, the regulatory environment and lack of clear guidelines pose challenges.  Despite the quieting of media attention, Web3 builders remain dedicated to advancing this technology.  The panelists did note that in the current marketplace,  “anything short of a win is viewed as a loss.  We need to keep improving incrementally regardless of the current perception of wins and losses.”  

The National Security Risks of Offshore Operations: National security risks of operations offshore include regulatory arbitrage, which drives critical innovation offshore.  Offshore operations can lead to a suboptimal regulatory environment and lack of control, posing challenges for national and economic security.  There are concerns about bad actors exploiting smart contract vulnerabilities and the use of technology for malicious purposes   Additionally, the jurisdiction of wallets and the potential lack of regulatory clarity can pose risks. 

The future of decentralized governmental services holds potential for various applications: Digital collectibles, validating and verifying transactions, and providing custody of patient data and goods could all be applied technologies in a government context. The use of blockchain technology, for example, could enable secure and transparent voting systems.  Additionally, decentralization could address issues like regulatory clarity and reduce dependence on middlemen within the government.  However, scalability remains an obstacle – Overall, the future of decentralized governmental services is promising, but challenges and collaborations with the private sector need to be addressed.  While there is caution and concerns about government regulations and enforcement, the potential for transformation in the public sectors exists.  the upside is, like the lessons learned from the traditional financial setor, the traditional compliance space within the governments also offers many l esson learned ans lean towards action:  “Government agencies should pick a problem  – and start going after it.”

AI and Blockchain: The future of AI and Blockchain involves various aspects. While media and boardroom discussions have shifted focus towards AI, builders and developers in the Web3 world continue to innovate. Blockchain technology offers potential in areas like voting, government applications, and traditional compliance. The emergence of economies within gaming communities and the potential for mass-market applications are also noted. In all the application and economy case studies,  the integration of blockchain and AI can bring about efficiency gains. However, concerns exist about the negative perception of NFTs and the need for addressing geopolitical risks. Overall, the future holds promise for AI and Blockchain, with ongoing advancements and exploration in various domains. 

What Next?

  • Blockchain and web3 technologies are poised for further disruption and innovation in various sectors. 
  • Despite past challenges, blockchain continues to offer new opportunities in both public and private domains.
  • Puerto Rico, for example, has emerged as a huge crypto hub. 
  • The negative perception of NFTs (Non-Fungible Tokens) continues – along with the potential for mass-market applications.
  • The continued emergence of economies within gaming communities was noted, like “Walmart Roblox” in the context of virtual reality (VR).  
  • The technology enables new models for business and governance and has the potential to revolutionize finance, scientific research, and ownership verification.
  • The focus is shifting towards increased use in entertainment, gaming, digital collectibles, and even in the ground crisis, humanitarian and disaster platforms and ecosystems  
  • However, regulatory clarity and scalability remain important considerations.
  • The adoption of blockchain and web3 can lead to disintermediation, removing middlemen and allowing individuals to have custody over their own data and assets. 
  • Individual custody of patient data and provenance of goods/luxury items  – “validate and verify” – were both discussed as already existent killer apps on the blockchain.
  • Money transfer overseas  – without a 40% charge –  was discussed as a future forward possibility. 
  • While the technology may face hurdles such as cybersecurity risks and the need for more skilled professionals, it holds promise for mass-market applications and solving real-world challenges. Scalability, as mentioned, remains an issue.. 

Overall, the future of blockchain and web3 technologies seems bright – with ongoing advancements and the potential for transformative impact. 

For the program notes for this session, see Building Trust Back into Blockchain

The full agenda for OODacon 2023 can be found here – Welcome to OODAcon 2023: Final Agenda and Event Details – including a a full description of each session, expanded speakers bios (with links to current projects and articles about the speakers) and additional OODA Loop resources on the theme of each panel.