With concepts that already take all capabilities, structures, resources and processes into account, the implementation phase carries significantly lower risks than with other innovation projects, but still offers opportunity for innovations to be as disruptive as necessary. This way, efficient innovations can be developed in a systematic process that can solve the disruption paradox for large corporations and help them to win the race against disruptive startups.
As the 5C‐process partly uses proven concepts from management science, psychology and neuroscience, but combines them in a new way, each project step has it’s scientific right to exist. Even though a detailed dive into the different sources is not suitable in this context, a few examples can show the breadth of inspiration: The “configuration” is inspired by business planning and the business model canvas, the “customization” resembles a technical spec sheet from IT project management, and the “compilation” partly uses proven trend research, design thinking and market research methods. The “construction” combines various concepts such as lateral thinking, flow‐theory, and creativity techniques with system theory, neuroscience, finance, philosophy and other disciplines, and the “conversion” is partly based on psychological concepts (for idea ownership) and (lean) startup management methods.
18.5 Outlook: Large Corporations Can Lead the Race Against Disruptive Startups!
Large corporations have all advantages at hand to win the race against disruptive startups. The efficient innovation approach aims to help these companies to use and further develop their advantages in the core business instead of ignoring them. Their capabilities, structures, processes and resources make them strong and build a barrier that is hard to overcome for startups, if used properly. This way, instead of being disrupted or disrupting itself, incumbents can disrupt the disruptors.
The digital wave changes marketplaces and brings an ever‐increasing complexity into the business world. This complexity is difficult to tackle for small startups, but can be navigated by large corporations. By focusing their innovation efforts in the right direction with efficient innovations, they can lead the next wave of innovation.
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Ignatius, The disruption conversation, Harvard Business Review, 2015, p. 14.
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J. Gans, The other disruption, 3 Hrsg., Bd. 94, Harvard Business Review, 2016, p. 17 ff.
30.
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31.
Disruptive innovation – but is it?, 6 Hrsg., Bd. 25, Strategic Direction.
32.
The New Yorker, “The disruption machine,” 23 06 2014. [Online]. Available: http://www.newyorker.com/magazine/2014/06/23/the-disruption-machine. [Zugriff am 08 08 2016].
Footnotes
1Zook 2016, When large companies are better at Entrepreneurship than Startups, HBR, https://hbr.org/2016/12/when-large-companies-are-better-at-entrepreneurship-than-startups.
2For some companies or situations, ignoring a disruption or a complete transformation may be gainful. However, this will not be discussed her
e further [2].
3Sauberschwarz & Weiss, 2017: Das Comeback der Konzerne, Vahlen Verlag.
4Sauberschwarz & Weiss, 2017: Das Comeback der Konzerne, Vahlen Verlag.
5Even when a promising new technology is already identified, goals and criteria need to be defined before any ideation and development starts.
© Springer-Verlag GmbH Germany 2018
Claudia Linnhoff-Popien, Ralf Schneider and Michael Zaddach (eds.)Digital Marketplaces Unleashedhttps://doi.org/10.1007/978-3-662-49275-8_19
19. Smart Contracts – Blockchains in the Wings
Thomas Bocek1 and Burkhard Stiller1
(1)University of Zürich UZH, Zurich, Switzerland
Thomas Bocek (Corresponding author)
Email: [email protected]
Burkhard Stiller
Email: [email protected]
19.1 Introduction
Technology has progressed in the past decades. However, the role of disruptive technology may have become even more prominent with “Blockchains” or “Distributed Ledgers”. They pave the path for trustworthy, decentralized applications, and new stakeholder’s relations. As such they have the potential to revolutionize public administration, commercial interactions, and scattered data – all secured, tamper‐proof, and effectively useable with easy to set‐up and fully integrated smart contracts. A smart contract was first introduced in 1994 [1], which is considered an influential work for blockchain‐based cryptographic currencies.
A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of [a] smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs [1].
However, a smart contract alone is not “smart” as it needs an infrastructure that can run, execute, and verify the respective contract’s transaction data. In combination with such an infrastructure and its interaction with the real world, the smart contract becomes “smart”. Recently, smart contracts have gained dedicated attention in the context of blockchains that provide a fully decentralized infrastructure to run, execute, and verify such smart contracts.
Smart contracts can be used for financial transactions and crypto currencies. The first and currently most popular blockchain to address a crypto currency is the Bitcoin blockchain [2], which was publically introduced in the beginning of 2009 by Satoshi Nakamoto, a pseudonym leaving room for speculations about the true identity, still unknown to this date. Although the Bitcoin system uses a scripting language, it is not Turing‐complete, e. g., it does not support loops. However, for smart financial transactions these scripts can create different kinds of financial contracts, such as escrow contracts, multi‐signature contracts, or refund contracts.
Ethereum [3], another current blockchain approach, offers a Turing‐complete scripting language, independent of any dedicated application field. The smart contract in Ethereum runs in a sandboxed Ethereum Virtual Machine (EVM) and every operation executed in the EVM has to be paid for to prevent Denial‐of‐Service (DoS) attacks. Without such a payment, a script with a loop could run forever and, in turn, can overload the EVM so that other scripts cannot be executed. With a general purpose blockchain, new types of contracts compared to the Bitcoin blockchain can be created, e. g., a fully distributed digital organization, such as the DAO (Decentralized Autonomous Organization) [4].
In general, smart contracts need to run on a blockchain to ensure (a) its permanent storage and (b) extremely high obstacles to manipulate the contract’s content. A node participating in the blockchain runs a smart contract by executing its script, validating the result of the script, and storing the contract and its result in a block. A block stores multiple smart contracts and is typically created at a constant time interval. For instance, Bitcoin had chosen to create a block every 10 min [2], while Ethereum blocks are created every 14 s [5]. A block has always a reference to the previous block, forming a chain of blocks, hence the term blockchain (cf. Fig. 19.1). In general, a block contains an increasing block number, a hash, a reference to the previous block, a crypto puzzle’s solution in case of Proof‐of‐Work (PoW), and one or several transaction‐related content information with encoded smart contracts.
Fig. 19.1Blockchain Example
Therefore, blockchains show the following main characteristics: full decentralization, traceability and transparency of transactions, proof of transaction viability, prohibitively high cost to attempt to alter transaction history, i. e. 51% attacks, an automated form of resolution, e. g., avoiding double spending, incentives required to participate, and trust enabling among non‐trusted peers. The key advantages of blockchains are that stakeholders do not have to share a common trust basis, blockchains decentralized data storage, typically in a peer‐to‐peer‐based network structure and replicated to all interested peers, making data loss impossible, besides act‐of‐god situations. Note that the terms blockchain, distributed ledger, and shared ledger are often used interchangeably [6].
The remainder of this chapter is structured as follows. Sect. 19.2 discusses Bitcoin and Ethereum, followed by current blockchain developments and limitations in Sect. 19.3. While Sect. 19.4 classifies blockchains and reviews other blockchains besides Ethereum and Bitcoin, Sect. 19.5 outlines insights into new types of applications and uses cases for the blockchain approach and highlights benefits using a blockchain. Additionally, Sect. 19.6 enlightens economic and legal challenges as well as related pitfalls. Finally, Sect. 19.7 draws conclusions.
19.2 Bitcoin and Ethereum
Once transactions are stored in a block they are considered secure after other blocks have been added to the blockchain. E. g., Bitcoin suggests to wait for 3 to 6 blocks [7], Ethereum suggests to wait for 10 to 12 blocks [8]. Since blocks are created in a distributed manner, two or more blocks can be created at the same time with potentially conflicting transactions. Accepting a conflicting transaction in those blocks created at the same time could result in “double‐spending”, that means the user could spend “coins” in another transaction, leaving the other user with an invalid transaction. Thus, a resolution or consensus protocol is required to discard conflicting blocks. Waiting for a certain amount of blocks practically eliminates this double‐spending possibility.
The creation of a block requires the use of a scarce resource. Currently in Bitcoin and Ethereum this is processing power and electricity. This means that creating a block requires time and energy. To incentivize the creation of blocks, a reward is given to those who created a block. The reward in the Bitcoin system is currently 12.5 bitcoins for creating a block, which has at the time of writing a value of approximately 8125 €, in Ethereum it is 5 ethers with a value of 50 € for every block created. The creation of a block requires the solving of a crypto puzzle, in case of Bitcoin it is the solution of partial SHA256 hash collisions, thus, requiring to invest in processing power and energy. Those who create these blocks are termed miners, as they generate “coins”, which is an analogy to the extraction of valuable minerals. Miners compete with each other to solve respective crypto puzzles, leading in the case of Bitcoin to a specialization and recently to a centralization of miners [9]. As one of the key ideas of Bitcoin is its decentralization, the centralization of miners is considered an unfavorable development. Thus, Ethereum has taken countermeasures in order to keep its system fully decentralized. One of these measures is the change of the crypto puzzle to a Proof‐of‐Stake (PoS) in the near future, making any hardware investment difficult to amortize, since PoS does not need a lot of processing power or electricity.
Fi
g. 19.2 shows the big picture, how the blockchain is used by users, miners, and exchanges – the three key stakeholders in such an approach. When a user sends coins to other users, it creates a smart contract, encodes the contract in a transaction, and broadcasts the transaction. The recipient user may see the transaction broadcasted within seconds, but as this transaction is not yet in the blockchain, double spending is still possible. The miner also will receive the transaction broadcasted and will start to solve the crypto puzzle. Once a puzzle is solved by a miner, the block will be broadcasted to all peers and other miners will know that they have to restart their process and start solving another crypto puzzle.
Fig. 19.2The Big Picture of Blockchain Stakeholders with Miners, Users, Blockchain, and Exchanges
Every block that contains a solved crypto puzzle will be added to the blockchain by each node in the system by applying the consensus mechanism in case of needs. The miner that solved the crypto puzzle gets rewarded and can use these coins or exchange them to a government‐issued currency at an exchange site. This is often required as electricity bills are typically paid with “fiat” currency. Any user receiving bitcoins can also exchange these to fiat currency. Exchange sites, such as Bitstamp, the first EU‐licensed Bitcoin trading site [10], require the user to register and conform to regulations such as Know Your Customer (KYC) [11]. Such regulations are not required when transferring bitcoins, however, as soon as bitcoins are exchanged to a government‐issued currency (e. g., US$ or €), a user can be identified. For Bitcoin and Ethereum Table 19.1 overviews the key technical and design features as well as current statistics as of September 2016. Table 19.1Bitcoin and Ethereum Key Technical and Design Features
Digital Marketplaces Unleashed Page 25
