The roundtable discussion "Blockchain and Fundamental Science" Novosibirsk State University

Oct, 2017 Goncharov SS Academician of Russian Academy of Science, Director of The SL Sobolev Institute of Mathematics Boldirev I

A Director of Novosibirsk Department of Russian Academy of Engineering Marchuk AG Director of The AP

Ershov Institute of Informatics Systems SB RAS, DSc in Physics and Mathematics, Professor Moroz S G Director of «The Siberian Law Agency» Tokareva N N PhD of Physico-Mathematical Sciences, Senior Research Officer of The S

L Sobolev Institute of Mathematics Discrete Analysis Department Sviridenko D I DSc in Physics and Mathematics, Professor Marchuk I V

Dean of Department of Mechanics and Mathematics, DSc in Physics and Mathematics, Professor Diev V S Doctor of Philosophy, Professor, Dean of Institute for the Philosophy and Law of the Novosibirsk State University MiniApps СEO and Founder Vitaly Gumirov Speech Hello to everyone, my name is Vitaly Gumirov I represent two organizations – MiniAppspro and Eyeline Roughly speaking, these are two organizations, led by the same team

I am a graduate of mechanical-mathematical faculty Sviridenko Dmitry Ivanovich and Sergey Sevastianovich Goncharov were my academic supervisors in the past I used to study applied mathematical logic after that it became clear that I had to earn money and feed my family, as usual We’ve started working with blockchain quite recently, approximately half a year ago Before that, we had been working on software for telecommunications I guess almost a half of all who are here today use our soft

*100# on “MTS”, *111#, receiving ads on “MTS” – these are all our creations, so to speak So, we supplied them with technologies, which performed advertisement targeting and messaging, among other features When ICOs went mainstream, we started working with blockchain Probably, all of you heard what ICOs are Roughly speaking, all that buzz and hype around cryptocurrencies started growing significantly last year mainly due to ICOs’ appearance

Sure, there are various viewpoints on the subject: some say those are “tulips”, others say they are economics themselves I stick to an average approach I think they are a mixture of both “tulips” and real economics The point is, there are companies with real businesses which try to collect money with the help of ICOs’ crowdfunding This is more effective than using traditional investment funds

Moreover, it is not simpler, but much quicker Technically, it is simpler than using common crowdfunding platforms like Kickstarter etc When they realized that Ethereum could be used to create tokens, not coins, for ICOs, these tokens started bringing additional economical value into core platform itself, into Ethereum That’s why Ethereum is now worth 300$, though last November it was worth 10$ You see that its price has increased 30 times a year

Keep in mind that the quantity of ICOs is rapidly growing: during the last year the ICOs’ volume has reached over a billion dollars, a year ago it was approximately 160-200 million dollars For instance, in 2016 an ethereum worth of 15 million dollars was considered a huge ICO, nowadays it is considered minor In general, every ICO worth less than 50 million dollars is considered small- or medium-sized ICO When we began digging deeper into this sphere, a few curious moments turned out The Ethereum platform is a decentralized hosting of narrow-specialized apps, called smart-contracts

Our lawyer-colleague has figured out that the word “contract” here is used symbolically Roughly speaking, those are just code fragments or special apps In Ethereum field they were first called D-apps (distributed or decentralized apps) These apps can be used while building protocols of interaction between users Looking at smart-contracts in terms of legal framework, there must be a “bridge” between these two subjects

Unfortunately, from a technical point of view, Ethereum has its drawbacks (In Russian, Ethereum is “эфир” [efir]) There is a thing called “gas price” When you want to place your smart-contract and give other clients an opportunity to use your contract, these clients have to pay for its use This payment goes to miners, so they receive profit from the usage of a certain smart-contract

The price of this payment is called “gas price” Unfortunately, gas price depends on the currency exchange rate Therefore, there are certain consequences For example, you can’t freely create highly-developed apps If you want to create a billing for an inner platform, the unit economics will significantly decline and your app will not work out

There is a risk for the gas price to rise 5, or 10, or 20, or 100 times higher after which you are likely to run out of money Nowadays you have to pay approximately a dollar to write a kilobyte in Ethereum You are talking about the other … It is already a prohibitive price I agree, it is not suitable for micropayments The second problem is Ethereum itself

It is built on a distributed register called “blockchain” It means that you have a chain of blocks and, therefore, a limit on the speed of transaction So, you can put lots of transactions into one block, the average speed is like the average patient’s temperature in hospital In fact, the speed of your transaction will be 2 or 10 minutes, or 5 hours Now Bitcoin has 250 000 … No, it’s faster nowadays… Well, yes

If you perform a minimum value transaction in Bitcoin, its processing can take up to 5 hours, which is rather long Ethereum has this problem as well If you look at the situation from a technical perspective, the question pops up: where is the money? It is clear that the money is where there are certain needs In practice, technologies and needs have to find each other so that so-called “business case” would appear For distributed registers’ technologies, good business cases are those which are connected with “ecosystem tasks”, as I put it, or “platform tasks’

Fragmented markets are an appropriate example of such tasks Those are markets which contain lots of clients of various classes, with their own specified needs Moreover, those needs vary, so one supplier can’t satisfy all of them Consequently, you have to use a platform approach to work with such markets AppStore is a perfect example

Also, MSMEs’ services’ market, mobile apps’ market and clothes market are well-known examples Even a common market suits here When you shop clothes, you don’t buy them in factories, you go to aggregators, like Zara or, I don’t know, AliExpress or whatever, where various types of clothes are aggregated from various suppliers Like Uber, right? No, Uber is not the case, it’s quite different It’s a kind of “dispatcherization”

In Uber needs are very much similar: everyone wants to travel from point A to point B But in your example I also want to buy a common jacket, or something else which is common… Jackets are diverse, red, green, with or without Goretex etc There are lots of jackets and needs for wearing each type of them Games and entertainment, chatbots are great examples as well We can come up with many examples; It is obvious that a platform approach has been developing centrally; all of what we have seen yet have been traditional centralized models

They involve a central platform operator who creates certain rules in this ecosystem, in which everyone else works In general terms, history knows that decentralized models have enough advantages in certain situations Like, the members of the model have more trust to the ecosystem itself, whereas in the centralized model the operator of a platform is likely to have his/her significant advantages That’s the reason for the buzz around blockchain Everyone remembers the situation during the USSR’s collapse: Sberbank just privatized money on people’s accounts

In my personal opinion, if you want to save money, you should better use blockchain technologies People also give an example: “Apple receives lots of money, it must be fooling everybody” There is an example with the Google’s operator as well We know they display ads In 2012 in America Google was sued

Accusers demanded 10 billion dollars because Google was believed to artificially increase a click’s rate (they work in a “selling clicks” model) Then the case was solved outside the court and everyone was happy People got the 10 billion dollars they wanted and calmed down, in my view These examples show that decentralized models have significant advantages There is another situation with centralized ecosystems, in terms of their drawbacks

I can even list their drawbacks from my paper sheet First, there is a problem of regulatory and juridical assaults When you create a ecosystem, you risk to get attacked For example, European SEC can come to Google and say: “You owe us” Raider seizures can also be the case

Second, there are risks of decreasing management efficiency within the corporate structure Everyone knows that huge enterprises can consume more than enough resources Third, there are always points of no-purpose funds’ expenditure, which is also an important factor of efficiency decrease Moreover, these models have low speed of structural adaptation when compared to decentralized models The point is, these systems can be rather conservative

In a decentralized-system, like the Internet, anyone can come up with his own version of domain server Nonetheless, decentralized-systems have their own drawbacks connected with smart-contracts Dmitry Ivanovich will explain further We have deeply explored this aspect The main problem with the existing smart-contract platforms is that they use procedural or functional languages

Tezos serves as an example, they use a functional programming language Another problem is well-known – Turing completeness There is a famous Godel’s incompleteness theorem, which puts certain serious limits on analyzing opportunities in automatic mode You see, I have been speaking about registersin short In common understanding, blockchain is a type of systems, which are better called decentralized registers, something like a decentralized notariate There are certain examples, where they don’t use blockchain in its original form There is a project Iota – I-O-T-A Judging by CoinMarketCap, their capitalization is more than one billion dollars

The project is quite curious, because one of the members, who created it is, allegedly, a Belarus citizen from Minsk No one has ever seen him alive As far as I remember, Sergey Ivanchegla "Every Japanese has his own Belorussian" Right This is more of an anecdote

A mathematician named Sergey Popov wrote the Iota’s whitepaper He is working somewhere in Brazil When I talked to him, he told me: “No one has ever seen this Ivanchegla, he is a pure genius, yet he knows nothing about maths’ Sergey Popov himself mathematically proved all their “tangle”, as they put it A knot

A knot, right? I’d say it’s a block net They don’t have a chain blocks Each block there is a separate transaction It is a classical “proof of work” It’s not a proof of work

Why? It is I create my own transaction, then someone else signs it Well, we can discuss a lot on this aspect They have a different system Their consensus system is not “proof of work” it is a directed acyclic graph instead of a chain

That is all the difference Well, at least it is not a “proof of state” In order to make your own transaction there, you have to work additionally Well, not exactly To sign it? There is a system of electronic signature

Well, this guy will tell you more about Iota’s structure Actually, this is quite exciting, because this thing does not require linear time Do I understand it right? Well, let’s move on OK This is a curious example of what examples of decentralized registers exist

The advantage of such systems is high transaction speed In terms of business, this feature is in huge demand Various attempts of performing “sidechains”, in my opinions, are not as revolutionary as a “tangle” approach In my view, it is quite a perspective You don’t have to waste electricity supplies, you just calculate hash from two previous transactions, put an electronic signature – and that’s all the job done

In conclusion, it is sensible to work with things you can monetize – something which society needs It is clear that some part of the society needs is just hype Another part evolves from certain real needs These needs, in my view, are connected with the opportunities, which decentralized registers provide for business D-models In traditional opinion, those models significantly transform business

I believe that in 10 years economics will not be the in the same state, as we understand it today Maybe I am exaggerating a bit, but I believe it is true