Blockchain Platform From the Advent and Evolution of Ethereum To Financial Innovation Model Through Ethereum

1. The Advent and Evolution of Ethereum, Blockchain Platform

What is Ethereum?

Ethereum is an open-source, public Blockchain platform developed in 2014 by Vitalik Buterin, a 19-year-old man from Russia who was inspired by Bitcoin. The two are similar in that they have a distributed ledger system in which all participants of transactions share the same transaction records and use their own cryptocurrency unit used in the network.

However, there are some significant technical differences between them. Unlike Bitcoin the blocks of which are limited to 1MB in size, Ethereum doesn’t limit the size. Also, block generation time of Ethereum is reduced to about 12 sec.—that of Bitcoin is once every 10 min.— thereby enabling much faster data verification.

The most remarkable development of Ethereum compared to Bitcoin is adoption of smart contracts. Ethereum Blockchains include executable code such as conditions and repeated statement, as well as data in blocks, enabling automation of logic execution. The contract code to implement the smart contract runs in an independent execution environment called the Ethereum Virtual Machine (EVM).

Evolution of the Ethereum Platform

Since the Ethereum platform is open to all users, anyone can develop etherium-based applications using open source code. With this openness and rapid increase in value of Ether, development and sharing of Ethereum applications gained momentum.

As of December 2016, there were 327 Etherium applications in total2). This was a 35% increase compared to September 2016 when the study had started. The proportion of applications that have entered the actual service stage has increased significantly compared to applications that were in the concept phase or prototype stage. Besides, early applications of Ethereum were focused on implementing gambling and games, while the number of applications with business logic was noticeably increased, indicating growing maturity of Ethereum.

2. Use Case Analysis

Through follow-up survey of 327 Ethereum applications, 8 use cases are selected for in-depth analysis in terms of feasibility, impact, and expandability. Research of each use case shows applicability of Blockchain technology in a wide range of industries.

La'Zooz demonstrated the service expandability leveraging user operation information, and WeiFund & Etherplan were highly innovative in that the legal contract was coded and automated in the financial transaction. Provenance and EthIdent both focused on irreversible transaction records management of Blockchain and could be quickly applied to relevant business areas. Otonomos and Augur are the models that actively require the participation of the members and ideas that can fundamentally change existing decision making and information gathering process. Lastly, EtherEx is a platform for exchanging heterogeneous value storage media in a standardized way, and thus has a huge impact on market and high scalability.

3. Discovering Financial Innovation Models

Significance of Digital Innovation Created by Ethereum

Ethereum’s use cases leveraging the nature of Blockchain based on open ecosystem propose new possibilities to transcend various constraints that have been fixed for long time. They also provide an opportunity to contemplate the future of finance that will be materialized through digital innovation.

Ethereum—which is convenient for mutual cooperation compared to the existing centralized system, where the systems were cut off from each other, making it difficult to connect services—shows the importance of opening technology for cross-industry conversion/integration or platform business. Furthermore, it is a milestone for the digital economy in that a true P2P network can be formed without intermediaries. If Bitcoin suggests the possibility of 'economic power decentralization' by currency issuance by the consensus of its members, then Etherium is aiming for genuine digital democratization securing the safety and reliability of transactions.

Business Value of Blockchain Smart Contract

The true characteristic of the Blockchain smart contracts is that it can lead to the destruction of thinking that can surpass a variety of restrictions solidified by business practices for a long period of time and to further create new value. The business value of smart contracts stands out in terms of cost, time and risk.

The matrix with features for finding applicable areas of Blockchain smart contracts can be designed by investigating and materializing various attempts to solve the pending issues through the characteristics of the Blockchain. Basically, fields where value can be generated through application of Blockchain smart contracts have frequent mutual transactions and verification, are very sensitive about data ownership and security, and can be processed through formal process.

Blockchain function matrix is a tool that can classify innovation opportunities by New Value Network, Shared Truth, Business Innovation, and Process Automation based on the range of value creation and process characteristic.

  • Shared Truth : Provenance, Ethldent
    Utilize records of personal or public information, storage of rights, and certification

  • Process Automation : Otonomos
    Automate tasks that require data integrity and mutual verification of integrity in a standardized process

  • Business Innovation : Etherplan, EtherEx
    Innovation of the transaction structure through exclusion of intermediaries ,or securing information visibility of all value chains including suppliers and service partners

  • New Value Network : La’Zooz, Augur, WeiFund
    Expand ecosystem and create new business and service by combining with new technology

Discovering Financial Innovation Models

So far, we have reviewed the features of Etherium, the major use cases, the technical potentials, and the approach to discover innovation opportunities. Given the technological nature of the Blockchain, the impact on the business domain is indisputable, and the possibility of innovation can be realized by reflecting realistic issues in the real business area.

Now, based on the matrix derived from the Blockchain function type classification, it is necessary to analyze the financial reality and to reflect on practical use cases that can create new value. Finally, we will present some financial smart contract application models that can provide customers with new financial experiences by reflecting financial reality and environment.

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consultant, Sehyeong Kim, Daeyeon Park
consultant, Sehyeong Kim, Daeyeon Park Blockchain
Samsung SDS

Kim Sehyeong works as a chief consultant at Samsung SDS's Financial Consulting Team. He has successfully conducted various consulting projects such as process improvement, system implementation strategy, and establishment of new technology application for financial customers.Currently, with his extensive experience and knowledge in the financial industry, he is discovering innovative models that use digital technologies, including Blockchain and analytics, and is making their use cases.

Park Daeyeon is a consultant at Samsung SDS's Financial Consulting Team and has been engaged in research activities and related consulting projects to find new ways to innovate the financial industry based on IT technology. Recently, he has been focusing on finding business models that can create new value through Blockchain technology.