governance - Pwim.Net

Exclusive: Will Everipedia Replace Wikipedia in the Future?

Following Part 1 of our interview, Larry took a deeper dive into Everipedia in terms of governance model, staking mechanism, and public awareness. He also addressed the question that has drawn the widespread curiosity of the public: Will Everipedia replace Wikipedia in the future?

For the governance module of Everipedia, the only viable alternative for updating the module software would be for a trusted party (such as core developers or a foundation) to process off-chain consensus and deploy new updates with their elevated permissions. How this approach eases centralization concerns and prevents malicious intent of core developers?

We’ve discussed this quite a bit. It’s not an issue yet but we need to start working on this. We’ve seriously considered putting blockchain governance in the hands of a fully independent nonprofit. But that would be centralized as well if that body had very much authority. The real answer in my personal opinion is to keep the requirements of getting an article on chain kept very low indeed. When we start incorporating articles from many different publishers, the rules have to be extremely broad and open. For one thing, almost no editorial standards should be blockchain-based. The selection of articles to put in an Everipedia Network-based app will have to be up to the app’s owners.

Are there any measures taken by Everipedia to prevent “Garbage in, Garbage out” recorded on the Everipedia blockchain?

There are two important considerations here. One is that the Everipedia Network will—already does—have a staking mechanism that prevents people from putting garbage data (such as literal random characters, plain copyvios, and other basic failures to upload a legit encyclopedia article). The other is that we will want to be able to support articles from a wide variety of points of view. If we impose anything like stringent standards, the managers of those standards will essentially constitute a central editorial body, even if it’s democratic. This will drive off anyone who disagrees with the standards.

When we start using a “one user, one vote” authentication system, this will make lots of new things possible—stay tuned there.

According to Alexa ranking, Wikipedia ranked 5th globally whereas Everipedia ranked 26707th. It seems that people do not care much whether the encyclopedia is based on blockchain. How would you raise the awareness and adoption of Everipedia?

We haven’t been driving people to develop broad categories of content on the wiki for over a year now, because we’ve been transitioning to the blockchain and developing a complete rewrite of our front-end software.

Just wait—you’ll see, this July, when we’ll be driving boatloads of new traffic to develop articles on the site. After the soon-to-arrive relaunch, the site is going to be extremely easy to use, as easy to edit as Medium and a lot easier to edit, and interact with, than Wikipedia.

Ever tried to edit a Wikipedia article only to get frustrated with the community or the clunky software? Well, you can edit those articles to your heart’s content on Everipedia, and we’ll soon be keeping our copies up-to-the-second current with Wikipedia’s, of course without overwriting your changes. It will be the place to go to view basically the best version of Wikipedia, plus another million articles (in English, and a growing number in other languages as well).

We have some other long-term ideas for getting lots of people on board (and we have the runway to develop them), but I won’t bore you with them now.

How do you view the future of Wikipedia and Everipedia? Will they co-exist or combine as one single encyclopedia platform? Is it possible that Wikipedia will be replaced by Everipedia if blockchain gains mass adoption in the future?

There is an active and very committed core of Wikipedians. They won’t be going away, I’m sure. Everipedia is for the rest of us. The Everipedia Network, as the encyclopedia layer of the Internet, will bring all of this encyclopedic content together and give humanity the means to credibly vote on which is the best article (or the best version of the best article) about each topic.

Exclusive: Did Facebook Copy Hedera Hashgraph's Governance Model?

Exclusive interview with Sami Mian: Part 1

“Imitation is the sincerest form of flattery.”

When Facebook released Libra’s whitepaper, Hedera Hashgraph allegedly “thanks” Facebook for imitating their governance model, what is the story behind?

We spoke exclusively with Sami Mian, the Head of Japan and Korea for Hedera Hashgraph, to reveal the hidden story of the controversy! He also shared with us his blockchain journey and compared how Asian and western enterprises built their blockchains!

You have been previously served as a head of sales in Citi and Deutsche Bank. What makes you tap into the Blockchain industry and become the head of at Hedera Hashgraph?

In my 17 years of finance, there’s one thing that I realized was that technology and finance do not move forward. I used to trade and sell bonds, and you would have thought for sectors like finance, they will have the best technology. Settlement for money, for example, you will be able to do it in a lot more quickly than it was done in the industry. For example, when you trade bonds, the settlement would be in three days, called T+3, and then they improve the settlements and the technology, so now it becomes T+2. While PayPal or other technologies, you have instantaneous transactions going on.

“We’re still using financial systems that are 20 years old, then I realized maybe finance is the sector that’s primed for disruption.”

I left the finance industry and took a deep dive into Bitcoin and blockchain in 2016. Then I noticed four inherent flaws of blockchain technology:

1) Only 5 to 10 transactions per second;

2) Very high transaction costs;

3) Does not have any finality; and

4) It can be easily forked.

Although I thought it progressed from what banking industries had, I still thought it wasn’t enough to be able to get mass adoption. That’s when I ran into Hashgraph, I studied more about Hashgraph and learned that it could process hundreds of thousands of transactions per second. It had finality in three to seven seconds, and it is non-forkable. I was like this can be the technology that would completely disrupt the existing industries. Then I met Mance Harmon, the CEO at Hedera Hashgraph. We had dinner in Tokyo, and he invited me to come on board.

In terms of a Hedera Hashgraph in Japan and Korea, how is the adoption in these two places? How would you compare the market penetration into the Asian market compared to the western market?

That’s an excellent question because corporations in Japan and Korea are definitely working on blockchain technology now. The difference between a lot of the companies in Korea and Japan versus the US is that they are more conservative. Most of the companies that I speak to in those regions are working on some sort of proof of concept on private ledgers, mostly Hyperledger.

For example, a lot of companies are working on their own private chains in Korea. Companies in Korea and Japan are not yet comfortable building something on a public ledger. The reason is privacy because Korean companies don’t want to share their technology with other companies. Moreover, they don’t want their use cases to be forked. There are valid reasons why companies in Japan and Korea are still looking at private ledgers as a platform to build solutions on.

What Hedera can provide is a gateway from what they’re already doing, the private ledger, and we have a consensus as a service that we provide, so they can plug in their existing proof of concepts or applications that they’re building on their private ledger into Hedera and decentralize it. Then they can have the best of both worlds, they can have the privacy and speed of their private ledgers and the trust of a public ledger.

Source: Ethereumworldnews

Does Facebook copy the governance model idea from Hedera Hashgraph, and can you elaborate a little bit more about this?

Hedera Hashgraph has a governing council. The governing council right now has members such as Nomura Holdings, Deutsche Telekom, Swisscom Blockchain AG, DLA Piper, and Magazine Luiza. The biggest companies in the world and the reason why we originally started recruiting these companies in 2017 because we believed that you need to have an expert council that governs public platform.

In 2018, February, Mance Harmon, our CEO went and spoke to David Marcus, the person who’s responsible for Libra at Facebook. It is for the reason of asking them to join our governing council. We spoke to Facebook about how our governing council is, the expectation of the expert council, and how we believe the transition from permissioned to permissionless. We’re very open to how our platform and governance structure will operate.

Facebook at that time in February 2018 was very interested in what we were doing. But they weren’t as forthcoming as to what they were doing. They banned cryptocurrency ads and so forth. There was a talk about they were going to be involved in the crypto world, but the market and we didn’t know that they’re working on this. Then the news came out last week that Facebook released Libra’s whitepaper with the establishment of Libra Association and they’re going from permissioned to permissionless. They have the biggest companies in the world joining their Governing Council.

“We started laughing in the sense that we’re not saying they did anything illegal of course. But it seemed there were a lot of similarities to what we shared with them and what we’re already doing.”

The important thing to notice is that there are a lot of differences, and that’s more important than the similarities.

First of all, it is not as if you want to join our Hedera governing council, you have to pay millions of dollars. On the contrary, you pay $10 million to Facebook in order to join the council. It’s essentially for-profit governing council. Our view was you need this expert council, but you have to find a way so that they don’t profit directly from the platform. For our governing council, we don’t have a director. You don’t get paid to join and receive dividends. The LLC agreement is structured so that these companies are subject to a limited term of 3 years which can be extended to a maximum of six years. Therefore each member can serve a maximum of two terms only.

Their peers will come on the council and that’s because we want a governing council that is as diversified as possible. It’s permissioned, the same way as Facebook is. But we don’t want the governing council members to profit from the network. We don’t want them to stay on indefinitely, because if that happens then they’ll collide. These are the important differences that we’re highlighting now to the market.

When the Facebook Libra association was launched, they received a lot of criticism on the centralization concerns. How about the governing expert council for Hedera Hashgraph? How do you address those centralization concerns?

That’s a very good question. First of all, our governance structure, as well as Facebook, is permissioned. What that means is we have a membership committee. Originally, Swirlds was the original member of the Hedera Hashgraph LLC that decides which companies we bring into the governing council. From August, we’re going to have the membership committee so the members themselves will decide which companies they’re going to invite into the governing council by voting.

It’s permissioned but it’s probably the most diversified governing council that exists. There is a difference. We have the Japanese financial service company, NOMURA, and DLA Piper, which is the top law firm in the world. We have Magazine Luiza based in South America and Brazil and we have Deutsche Telekom in Europe.

We are having more companies from different jurisdictions and industries that are term-limited. These companies don’t have any financial benefits. The finance benefit they get from joining the council completely underweights the damage that will be done to their brand by doing something malicious. If the companies do something malicious, that’s going to hurt their brand a lot more than they will make any financial reward ever.

There are two main differences between the governing council of Hedera Hashgraph and Facebook:

1) Our terms are limited;

2) No financial benefit in terms of dividends and shareholding and so forth.

Exclusive: How Significant is Consensus As-a-service Model?

While Amazon and Microsoft launched the blockchain-as-a-service (BaaS) platform in 1H 2019, Hedera Hashgraph collaborated with IBM to launch a consensus as-a-service model. Is this the next upcoming tech trend for giants to follow?

Sami Mian, Head of Korea, and Japan of Hedera Hashgraph revealed the significance of the consensus as-a-service model! He also explained the consensus algorithm of Hedera Hashgraph and taught us a lesson comparing BFT and aBFT!

Readers are very interested in the collaboration between Hedera Hashgraph with IBM on the consensus as a service model. Can you talk more on this model and how does will transform the development of blockchain?

Hedera Hashgraph joined Hyperledger. We co-authored a whitepaper with IBM and released it in June. We’ve announced a fourth service on the Hedera Hashgraph platform. We had three services before, one was a cryptocurrency service supporting micro-payments. The other was a smart contract using the solidity coding language. Then the third one was file service.

We announced the fourth service called consensus as a service.

Essentially, we’re providing solution for centralized applications or applications built on private ledgers to have the benefit of decentralization.

Imagine you build an application on Hyperledger like Japanese and Korean companies. They’re building applications or proof of concepts on the private ledger. Companies want the privacy of a private ledger in which the data is not available on public ledgers. They have applications or proof of concept (POC), they are building already on Hyperledger. However, they want the benefit of a public ledger which is trust. In public blockchains, nodes are not only run by selected number of people. We heard from the market that they want the benefits of both and they want to run private applications. They want to run applications in a private ledger, but at the same time, they want to gain the trust element from the public ledger. We have a Hedera API. We’re going to allow Hyperledger applications to plug into our consensus as a service and decentralize their trust. You get the best of both worlds.

With regard to the Hedera Hashgraph mechanism, how does the no forking mechanism in Hedera Hashgraph work?

Hashgraph consensus algorithm is a patented algorithm. Dr. Leemon Baird invented the Hashgraph algorithm in 2015. A lot of people asked us why our platform isn’t open-sourced? Because we think stability is very important for the market. Stability means that we think the public platforms should not be allowed to fork. That’s because we’re an enterprise-grade platform.

If a company spends millions of dollars building a decentralized application, then we want that company to not be afraid of the platform itself forks. For example, if you have real estate being tokenized on the public platform and the public platform itself forks, then we don’t know whether the value should be doubled? Is it on one platform or both platforms? It causes a lot of instability. One way that we’re going to disallow forking is through our legal means, which is the patent of the Hashgraph algorithm.

Another way is what we call state proof. State proof is a mechanism that allows the community and the users to identify which ledger is the real ledger. Let’s say, Hedera Beta forked Ledger comes to the market. Then we have a mechanism called state proof that can tell everybody in the world that this is the real ledger, as opposed to the forked ledger.

Hedera Hashgraph began phase two of its community testing on the micro-payment. When would you expect the micro-payment will become a reality and which industry would benefit the most from this?

Micro-payment is one of the value propositions of Hedera, meaning being able to transfer less than a cent of value at hundreds of thousands of transactions per second (TPS) with finality. Up until now, traditional banking industries are not able to do that, because it costs way more to send it. You can’t send a cent in Bitcoin or Ethereum because of gas costs and miners.

Hashgraph allows microtransactions. The biggest use case in micro-transactions is definitely e-Commerce. All the transactions on the internet today are the most important use case. For example, you listen to one second of music, you pay 0.1 cents. For any IoT applications, you consume a little bit of data. For that data, you provide a little bit of value. Facebook came up with this Libra token. Presumably, they will start to pay people to watch their ads using the Libra token. That’s another way the micro-transactions can disseminate the internet. Anything of value whether it’s small pieces of data, two seconds of music, personal information, or putting a value on your identity, you can use microtransactions.

How Hedera Hashgraph will differentiate itself from the existing competitors in public blockchain like Conflux Chain, Algorand, and DFINITY?

The biggest difference between Hedera Hashgraph and everybody else is our split governance model. We have permissioned governance that is provided by the most trusted companies in the world and term-limited. We’re trying to build an enterprise-grade platform that is governed by experts. Yet we provide open consensus at the same time. You have the best of both worlds, the best of permissioned networks and permissionless networks. This is something that we believe no other platform has.

On top of that, we have the Hashgraph consensus algorithm. Now Hashgraph is tech-wise different to any other algorithm by miles, with hundreds of thousands of TPS, latency is three to seven seconds with finality. In terms of security, we have a feature called asynchronous Byzantine Fault Tolerance (aBFT). Facebook is BFT so they’re not aBFT.

What’s the difference between BFT and aBFT?

Because of Libra, now people know what the word BFT is. It basically means that you can reach consensus even when they’re up to one-third malicious nodes. But BFT has vulnerabilities such as distributed denial-of-service (DDoS) attacks. aBFT provides strong assurances against certain classes of attacks, like DDoS attacks. Because each node comes to consensus independently of other nodes. You don’t necessarily need to sync. to come to a consensus, and that’s the difference between BFT and aBFT.

In terms of the blockchain revolution, Hedera Hashgraph refers to itself as the fourth generation of blockchain. Can you share with us the evolution of blockchain, and what are the elements for the fourth generation of blockchain at Hedera?

First, you had Bitcoin. People were like this is fantastic, we can transfer value. The second generation is blockchain which facilitates value transfer. People started to build a lot of stuff using blockchain as the underlying consensus algorithm.

The third generation is smart contracts. When Ethereum came out, people started to build smart contracts on it, programs that automatically run. But you still had the problem of not being able to order transactions in a completely decentralized and fairway. You still had the problem of not being able to create markets. Because a market is essentially where two people transact scarce resources. For example, in a stock market, it’s very important to know which person bought which asset first. You need to order the transactions and auctions are the same. There are many use cases that are not possible to build on existing blockchain platforms. Because there is no fair ordering, and up until third-generation technologies. We call Hedera Hashgraph the fourth generation DLT because it provides the fair ordering capability that allows markets to be built upon the platform.

PwC: Establishing Policies for Blockchain Governance

In a whitepaper published by professional services firm, PricewaterhouseCoopers (PwC), explored the challenges that current distributed ledger technologies (DLTs) face, as well as the strategies that the market is developing to deal with the limitations.

As the DLT space is developing and expanding rapidly, PwC suggested that this space might be currently the fastest growing area of innovation in the entire technology sector. PwC also indicated that “a strategy should be adopted to both foster innovation and control missteps that may occur due to experimentation and some inevitable misuse.”

Strategies suggested could range from the technical aspects, addressing scaling and privacy issuers, to establishing a new policy for creating an environment for technology.

Approaches to blockchain policies

A good policy, according to PwC, “should aim to achieve a stated set of goals, define its scope of operation, be clear on how to operate under it in a compliant manner, and define who the authorities are.” Policies are recommended to evolve continuously to adopt changing technological and regulatory environments.

Navigating the technological landscape

The solutions discussed in the whitepaper aims to establish ground rules to allow organizations to develop governance structures which will help them navigate the technological landscape.

Organizations are encouraged to adopt a technology-agnostic approach when implementing blockchain systems. Flexible policies towards blockchain are also suggested, as rigid policies could quickly become outdated. Innovative approaches are preferred over risk-averse approaches for the goal of launching successful initiatives.

Chaintope Establishes Public Blockchain Protocol to Overcome Governance Challenges

Chaintope, a Japanese blockchain startup, has developed a public blockchain protocol known as Tapyrus to tackle some of the governance issues currently being witnessed in the blockchain space. For instance, some of the challenges noted in public blockchains include privacy concerns and sluggish transaction speeds.

These considerable constraints have, therefore, made many companies opt for private blockchains that have a limitation of permissioned participants. Nevertheless, public blockchains are technically advantageous because they are transparent and resistant to data falsification.

Tapyrus to mitigate governance issues

Tapyrus has been designed in such a way that it will avert governance difficulties. Expressly, it has the capability of instigating data transparency and permissionless participation even if selected federations operate it.

Through the Tapyrus platform, the network participants are able to view and verify transactions stored on blocks. This, therefore, averts federations from manipulating data or protocols within their network.

The public blockchain protocol will also permit new functionality to be incorporated depending on specific business requirements.

Hideki Shoda, Chaintope’s CEO, acknowledged: “We hope that Tapyrus will be a successful model for tackling the long-standing governance issue on public blockchains. Combining Tapyrus with the other tools that Chaintope offers on layers one and two, our focus is on taking a holistic approach to the mass adoption of blockchain technology and overcoming current technical limitations.”

Tapyrus has been developed in such a way that a multi-layer protocol is formed and this improves transaction speeds and traceability, as well as tackling governance challenges.

Image via Shutterstock

Klaytn's Governance Council: Bringing Enterprises and Institutions Together on Blockchain

In part 1 of our interview with Zachary Keats of Klaytn, Kakao’s blockchain development arm, we explored Klaytn and Kakao’s dominance in the online and digital community in South Korea. Although Kakao gives Klaytn a large audience and participant pool in South Korea, what other attributes does Klaytn have that makes it an exceptional blockchain?

Klaytn: The hybrid blockchain with PBFT

While elaborating on the Klaytn blockchain, Keats first mentioned the ‘hybrid design’ of Klaytn, “Klaytn is a hybrid of a public and private blockchain, so we have made some compromises to our decentralization in order to improve scalability and performance.”

Keats also explained the performance improvement brought by Klaytn’s hybrid design, “The transactions and consensus are using the PBFT algorithm which is done privately within when the blocks are confirmed, and then they are sent to the public. The hybrid structure works with private blockchain for achieving consensus propagating blocks, but then relaying it to the public blockchain network.”

Klaytn adopts the trust model of private consensus with public disclosure. A smaller group of consensus nodes (CN) executes BFT consensus in a private network that is surrounded by a larger network of permissionless endpoint nodes (EN) to access block generation results. He added, “With this current hybrid method, I mentioned, achieving one second block time with finality, because we have the node operators that are doing that privately, then reaching transactions per second of about 4000.”

Klaytn’s governance council

Klaytn’s governance is similar to Libra’s consortium governance style. Klaytn is putting together groups of trusted, large enterprises with users and applications to move to the blockchain, where reputation is put on the line.

“We have achieved a very successful result of about 26 different enterprise partners governing our platform,” said Keats. Starting with governance, these large enterprises are running nodes on our platform. “Our 26 enterprise nodes are made up of Kakao companies and other large players such as LG and major gaming companies, including Netmarble.”

Originally, Klaytn did not invite any blockchain or crypto companies to be a part of the governance council. The original idea was that the governance council should have real users that are very trusted have a strong reputation, and are interested in blockchain. Binance is a large brand with many users, fits all the criteria, and is “very ambitious.”

As Binance is also very familiar with blockchain, Klaytn has invited the company to their governance council and is looking to inviting more players to join the council in the future. Keats stated, “With Binance, I believe there are a lot of ways we can collaborate in, including co-investments, perhaps DeFi, and we will be looking into how we can apply these new initiatives to the new markets. We haven’t announced specific projects with Binance yet, but we will be exploring these potentials together.”

“We’re very excited about the governance council that we have put together — having gained validation from other players who are trying to do the same thing, including Libra and Hedera Hashgraph. I believe the future is bridging traditional enterprise to this new technology, and we shouldn’t shy away from the centralized enterprises, because we need them and their users to be taking on blockchain to use on a regular basis. This kind of cooperation model of bringing groups of enterprises and other institutions together is the next way we move forward.”

Klaytn’s transparent evaluation and incentive mechanisms

Keats introduced the Proof of Contribution and Klaytn Improvement Reserve (KIR), Klaytn’s transparent evaluation, and incentive mechanisms and described them as that they are similar to government program models. “If you think about Klaytn as an economy, as the government of that economy, in order to stimulate certain good behaviors, growth, infrastructure improvements, we have to make some programs to encourage people to do those kinds of initiatives.”

Proof of contribution is a growth stimulus package for small businesses or startups and DApps to get certain rewards for showing that they are contributing to the volume of transactions, activities, and new users to the Klaytn chain. This is to ensure that there will be the right amount of services and users to the chain. With this program, Klaytn can provide extra token incentives to those who are contributing to the Klaytn economy.

The KIR is intended to generate positive economic externalities. “As a token-based incentive program, we are focusing on encouraging participants to build services that benefit the ecosystem, with infrastructure layers or wallet layers – this type of improvements to the Klaytn platform, which does come at a cost for a participant’s time and resources,” said Keats. “We strongly encourage the development of these services to improve the experience for all of Klaytn’s users.”

President Xi’s statement on blockchain – what does it mean for the industry?

Keats commented on President Xi’s statement on blockchain and said, “The announcement was virtuous and positive for blockchain technology overall. As there a lot of players and investors in China, any push to bring more awareness to this technology is beneficial. President Xi’s commitment to blockchain for China is nothing but positive as it increases overall awareness.”

“Looking at Libra, it has come out and stumbled a bit, and lost some of their major node operators. Although that is a setback, it still brings greater awareness for blockchain overall.”

Korean Businesses Come Together to Form Massive Blockchain Council Similar to Libra's

Korea’s internet giant Kakao is bringing crypto and blockchain adoption to the Asian markets. A huge consortium of financial giants and big brands have joined together to form a Governance Council relating to all matters blockchain.

Blockchain platform Klaytn has 27 companies in total, forming the council from all types of financial markets, aiming to work closely together to embrace fintech opportunities to work together in emerging markets.

Some of the major players in the council include; LG, UnionBank, CellTrion, and Binance.

Building awareness, the council has exposure to many different user’s data, combining their knowledge for a global scale campaign into all Asian regions. UnionBank bringing vast resources from Southeast Asia and LG, bringing their expertise in technology shows the level of experience and direction that the council could tap into.

Much like Libra, it is possible a crypto ecosystem of some sort could be created, Klaytn has not yet announced the plans for it, but when banks, payment systems, crypto exchanges, and large companies come together to get involved in blockchain, we will likely see much more development into a one-world currency free from cross border restrictions.

Image via Shutterstock

Charles Hoskinson: Elon Musk Could Have an Opinion on the Cardano Network with its Delegated Democracy Governance Model

Input Output (IOHK) CEO and founder of Cardano Charles Hoskinson recently discussed the future of governance on the Cardano network in his YouTube video. The problem with governance is when large actors are able to decide, they could transform a protocol into something that would preserve the monopolies they already have.

Regarding the issues of governance, as explained by Hoskinson, those who pitch in the most money would have the most influence and control over the network. To differentiate the Cardano network to other blockchain networks, Hoskinson said:

“Cardano isn’t just something like the Linux Kernel, not just a network protocol, not just a ledger protocol, not just a consensus protocol, Cardano is you. At the end of the day, it’s your privacy, it’s your money, it’s your voting, it’s your property. It’s been designed to facilitate all kinds of cool stuff in govtech, including normal industries including supply chain, medical records. We built it to be a general-purpose programmable ledger.”

The Voltaire era: Exploration experimentation

Hoskinson mentioned that there should be a good system that decides who pays, who gets to make decisions in a “fair” way. With Voltaire, Cardano’s exploration experimentation phase, it allows the network to explore utilities, concepts, and experiments that allow the network to decide how to decide and spend funds in a “fair” and productive way for Cardano’s cryptocurrency ADA holders.

According to the IOHK CEO, Cardano is aiming to add new concepts every 6-8 weeks. Hoskinson added that Cardano has partnered with Submittable, a company that allows people to submit ballots and proposals, which is used in Cardano’s submission phase, which he will elaborate more on at the end of July.

Cardano is also currently finalizing with another vendor, to process ballots that are to be “scrutinized” by the community and experts, and incentives will be given in return. This phase would be a “soft filter,” where the community and experts would not outright reject ballots but will attach metadata with thoughts. The submission phase would most likely to be ready in late July, early August, while voting and registration would be ready in August or September, according to the Cardano founder.

“This process would rank ballots and would be presented to the end-user in some form of a story. This would enable Cardano to develop an expert class, a community. This allows you to build a reputation, and social credit up with people within the community even if the user does not hold a lot of ADA.”

Elon Musk could have an opinion on the Cardano network

Bitcoin expert Andreas Antonopoulos, who wrote “Mastering Bitcoin,” does not actually hold a lot of BTC. However, he has an enormous amount of influence in the system as a whole and his opinions are well regarded, according to the IOHK CEO.

Hoskinson mentioned, “Similarly, we can build up an expert class within Cardano and use a lot of the delegated democracy systems that Cardano has, where ADA holders can delegate voice and power to various people. These people could include people outside of the ecosystem where the network could incentivize to give his or her opinion.

“For example, maybe we can convince Elon Musk to come in and have an opinion on something especially on the network side, or you know, pick your favorite person.”

After the soft filter, there is a two-stage voting round that Cardano is currently working on which will most probably be available next year. This two-stage process would require a preference vote, and the second, being the threshold vote as part of Cardano’s choice architecture. This would allow the separation of funding priorities and receiving funds.

The Cardano network and the Voltaire side chain

The Cardano network and Voltaire side chain are completely independent systems, Cardano’s data is injected into Voltaire. After the voting is complete on the Voltaire system, the data will be injected into Cardano. This process over time would become fully automated, and over time, will be regulated by a smart contract. The Voltaire side chain can be rapidly updated, including the addition of new capability and exotic voting systems.

Hoskinson argued that exchanges should be excluded as part of the voting system, as they do not own ADA, and they should not be able to just use the fact they have a lot of it to influence the democracy of the system. It’s not up to the exchanges to decide the future of Cardano, it’s the people who own ADA to decide that.

Registration to vote while excluding exchanges can be done through a token locking mechanism, as exchanges are on-demand accounts, which are not allowed to lock their tokens due to regulatory requirements.

Hoskinson said that it is still under consideration whether Voltaire will stay a side chain, off-chain, or Cardano will go through a hard fork where all the voting mechanics will go on-chain.

Beyond becoming the best smart contract platform, and the most decentralized cryptocurrency, Hoskinson added that this governance model could be a major contribution to cryptocurrencies.

“If we can do this, I think Cardano will replace Bitcoin in the long term. […] This is an evolution in a box, we can use this system to be around for 50 years, 100 years, 200 years. […] We don’t know what the world is going to look like in 2030; what matters to us as an ecosystem and as a protocol is we have certainty that whatever evolutionary machinery we have, the system’s going to be able to evolve to meet the needs and stay relevant in 2030.

Bitcoin and Ethereum do not have this property, and no other blockchain nor crypto has this, Hoskinson concluded that this is a “great differentiator.”

The Nascent Primary Market of Security Token Offerings

The years 2017 and 2018 saw an influx of ventures raising substantial amounts of money through initial coin offerings (ICOs). The Ethereum blockchain greatly facilitated the spectacular surge of ICOs, even though utility tokens and cryptocurrencies are not primarily meant for raising external capital for start-up firms. Now that the ICO market bubble ebbed away security token offerings (STOs) have emerged, allowing investment in regulated securities recorded on a blockchain. Blockchain Capital paved the way with its crowd sale of equity tokens on a blockchain in April 2017. In August 2018, tZERO successfully completed the largest STO thus far, raising USD 134 million. More recently, in April 2019, Société Générale SFH issued and settled covered bonds worth over USD 100 million as a security token. While the literature has succeeded in providing many insights about the gains and losses in both ICO and cryptocurrency markets, much less is known about this nascent STO market.

Studying the STO market in its own right

In a recent paper, we look at the STO market in its own right and provide a first empirical evaluation of STO success factors. We argue that STOs are not ICOs or a subset of it, which has important implications for the study of entrepreneurial finance where start-up financing and development are the outcomes under study. Tokens—either security tokens, utility tokens, or cryptocurrencies—are digital assets that are issued on a blockchain. As their names suggest, these tokens do not all serve the same purpose. The specificity of security tokens is that they are investment products (such as stocks, bonds or funds) coming under the purview of securities laws. Security tokens are issued through an STO and, as investment products, represent an alternative way for firms to raise external capital. By contrast, utility tokens (issued through an ICO) are originally aimed at supporting and developing a community-based ecosystem by giving consumptive rights to users, while cryptocurrencies (or payment tokens) are means of payment in a blockchain-based ecosystem. In this view, ICOs can be more than a financing mechanism for start-ups, while STOs are just that.

Our study proceeds by constructing a unique dataset of STOs mainly based on proprietary data. Our perusal of all STOs revealed that one-third of them could not be considered stricto sensu as STOs. Instead, they either turned out to be stablecoins or ICOs disguised as STOs; that is, many ICOs were most likely registered for sale as a security to avoid regulatory uncertainty, while really being utility tokens (eg, Blockstack). The non-negligible number of ICOs (registered as STOs) indicates that security tokens considered as such in many ICO studies should be interpreted with care. Our end sample comprises 185 ‘true’ STOs.

An overview of the primary STO market

We then document three basic facts. The first is that the primary STO market developed after the ICO market bubble concluded: STO activity intensified from the end of 2018 onwards. A second fact we uncover is that the majority of STOs did not successfully raise capital, suggesting that the STO market is nascent and thus still very immature (with many entrepreneurs being likely unprepared to launch an STO). A third fact is the dispersion of STOs across the globe, with clusters in the United States and in jurisdictions with accommodating securities laws or in tax havens.

What determines STO success?

Next, we explore STO success factors. We find that both issuer and offering characteristics, traditionally used in the ICO literature, also matter for STO success and failure. In particular, voluntary information disclosed by issuers—such as source code available on a GitHub repository, Telegram presence, and target amount—affects success outcomes alongside other offering attributes such as the use of a softcap and the planned length of the duration of the STO.

Notably, we also investigate whether corporate governance matters in the STO context. A large body of research in corporate finance documents the effects of separating voting rights (control) from cashflow rights (ownership) on firm value. It shows that firm value falls when the voting rights of insiders exceed their cashflow rights because of the resulting agency costs of concentrated control. The more concentrated control in the hands of insiders (managers and controlling shareholders), the more entrenched they are and the better able they are to extract value—at the expense of the firm’s outside investors (minority shareholders and creditors).

In the STO context, it is, however, unclear whether firms also face such governance issues arising from the separation of ownership and control. On the one hand, STO investors may be reluctant to invest in tokens without voting rights because they anticipate the potentially large (agency) costs associated with concentration of control among insiders. On the other hand, the issuance of securities and subsequent transactions of firms undergoing STOs are recorded on a blockchain. This implies that the use of the blockchain can reduce the cost of accessing and verifying information for outside investors and can also increase transparency in the governance of the firm, which in turn can soften the agency problem between insiders and outside investors. Our regression results show that, even in the STOs’ more ‘transparent’ blockchain-based context, unbundling voting rights and cashflow rights negatively correlates with success outcomes, consistent with the traditional corporate finance view.

Original Release :

Oxford Business Law Blog

About the Authors:

Thomas Lambert is Assistant Professor of Finance at the Rotterdam School of Management.Daniel Liebau is Lecturer in FinTech at the Rotterdam School of Management and Singapore Management University.Peter Roosenboom is Professor of Finance at the Rotterdam School of Management.

Cardano’s Project Catalyst: Building a Decentralized Financial System to Remove "Top-Down" Governance

Following Cardano’s Shelley hard fork and upgrade last week, Cardano has continued its streak of decentralized improvements to the network.

Cardano’s Shelley was successfully forked on July 29, and since its upgrade from Byron, just over a week, 800 stake pools have registered on the network. The Shelley era enables Cardano to take a step further to allow the network to become more decentralized and autonomous. Although the hard fork was a success, there are still many more projects to come, according to IOHK.

IOHK, the blockchain engineering company behind Cardano, mentioned that the coronavirus pandemic has exposed weaknesses in our current economy and that everyone should consider collaborating in times of international crises. IOHK also highlighted the disadvantages of solving challenges in a centralized manner:

“In that governance model, power, authority, and control were decided and exercised at management level. This could be a chief executive, a president, or even a dictator determining the ‘best’ course of action. In this centralized system, once a decision is made, it becomes the law of the land, and new behaviors are enforced.”

IOHK further explained that with a centralized governance model, there would be limited knowledge, expertise, and understanding of a single individual or a boy of actors, leading to an inflexible response to deal with emerging problems.

Voltaire and Project Catalyst

Cardano’s final and last phase, Voltaire, aims to allow the network to explore utilities, concepts, and experiments on how the network will agree on a “fair” and productive way for Cardano’s ADA holders. Voltaire enables the Cardano community to decide of software updates, technical improvements, and project funding.

In order to fulfill the final components for Cardano’s Voltaire, including its evolution into a self-sustainable blockchain, IOHK introduced a new experimental treasury system combining proposal and voting procedures — Project Catalyst. A treasury system would enable a continuous source of funding to develop the Cardano blockchain. Decentralized software updates would guarantee the process is decentralized and will have open participation for fair voting on system updates.

IOHK elaborated that the Project Catalyst would focus on making the treasury stem a reality while sustaining the Cardano community’s democratic culture. IOHK’s blog post said:

“This goal will be achieved by a combination of research, social experiments, and community consent. Catalyst enables the community to make proposals, vote on them, and fund them according to their feasibility, auditability and impact.”

IOHK proposed a ballot submission system where the Cardano community will be able to propose improvements. After the ballots are submitted, the community would be able to vote and decide on which proposals will move forward.

Not only will Project Catalyst promote technological advancements, but it would also enable the community to learn the skills of collaboration, making good decisions, and generating valuable proposals.

Cardano’s Project Catalyst will ensure the funds are used well, and to enable innovation in the decentralized network. IOHK concluded that the company is building a decentralized financial system, to address the world’s needs — starting with Voltaire.