1. What is blockchain?
Blockchain is an emerging technology that consists of an immutable and decentralized digital registry of information.
Immutability is guaranteed by the use of irreversible mathematical functions, known as hash functions, and the records or transactions that are generated are grouped forming blocks that are concatenated chronologically, hence the name of the technology. Although this decentralized registry is immutable, it does not mean that information can’t be amended once registered. You can always generate a new transactions that refers to previous information to rectify it.
Decentralization occurs both in decision-making and in the storage of information. The participants, known as nodes, install the corresponding software and connect to the blockchain. From that moment on, they become synchronized with the rest of the nodes and all share a copy of the ledger that they update with new registers or transactions. At a governance level, ideally all the nodes are at the same hierarchical level, meaning that they all have the same rights it terms of making decisions about the functioning of the network. In some networks it is possible to enable private channels within public networks, where specific roles and permissions are defined.
For a registry of these characteristics to be useful, it is necessary that there are certain rules that determine who can register what information, who can and / or must validate what information and who can see what information. The conjunction of this logic belongs to the governance of the network, and can be seen as a generalization of what is known as the consensus protocol, a term initially used to refer to the process by which blocks are “hashed” in public networks, often with an associated cryptocurrency reward.
Blockchain technology has the potential to become the internet of value, a new concept that can be defined as a network of people and entities that share validated information in which, thanks to digital identity and tokenized fiat money, it is possible to tokenize and transfer any asset in real time, from an academic certification to a real estate asset, in an efficient, safe and reliable way. This network or set of interoperable networks depend on the internet and, in a way, complement it with the features that blockchain technology offers.
2. Why LACChain?
Blockchain technology has evolved a lot since Bitcoin used it for the first time in 2008. It is already mature enough for the development of a large number of applications. However, the ecosystem necessary to enable the scalability of these is not ready to achieve the expected and desired impact. We understand ecosystem as the interaction of elements of public-private association, technological infrastructure, market functioning and impact measurement.
As we have seen from the IDB Group itself, which has participated in the realization of different proof of concepts and pilots since 2017, blockchain is a very useful tool for certain digital processes. However, currently there are thousands of blockchain networks both permissioned and permissionless that do not meet the suitable requirements for the many different use cases.. Some of these networks, generally those that are permissionless, do not offer the desired privacy for registration and sharing of sensitive information, they present an anonymity incompatible with any regulatory attempts and, in many cases, have consensus protocols that imply high transaction fees- and some imply high energetic costs-. On the other hand, the permissioned networks do not present a true decentralization, they are not transparent, and they have problems of governance and scalability and lack transparency.
Specifically, the main causes identified by which the ecosystem hasn’t enabled the scaling of applications with impact on inclusion enabled or empower by the use of blockchain technology are:
- Coordination failures and limited associativity between the actors in the ecosystem to promote governance alternatives with greater potential to universalize access to the benefits of blockchain technology.
- Limited technological capabilities of infrastructure and absence of standards that enable the scaling, predictability of costs and legal validity of blockchain transactions, necessary for the scalability of the applications with impact on inclusion.
- Imperfections in market functioning, including information asymmetries on pricing and availability of technology alternatives and use cases, technological monopolies, few development firms in LAC and lack of regulation.
- The scarcity of information analyzed and made available to public and private decision makers about the impacts on financial, economic and / or social inclusion of this technology, and about the differentials in technological, regulatory and use aspects between the national ecosystems in Latin America and the Caribbean.
3. What is LACChain?
LACChain is a regional program of the IDB Lab that was born with the purpose of accompanying and accelerating the development of the blockchain ecosystem, seeking to maximize the social impact potential that the technology has to offer.
Specifically, the program has as its main objectives:
- The establishment of open and inclusive national consortiums in Latin America and the Caribbean made up of actors from the public sector, the private sector and the academia for the development and adoption of blockchain technology and its potential applications.
- The development, promotion and adoption of standards that allow interoperability of networks and the scalability of the technology and its applications, allowing blockchain to evolve towards the internet of value: an immutable and decentralized network with verified information in which, thanks to the enablement of digital identity and tokenized money, it´s been made possible to access a new concept of digitization, where absolutely everything can be tokenized and transferred efficiently, safely and reliably.
- The development and maintenance of an infrastructure of free, interoperable and regulated blockchain networks, on which to develop applications with high social impact.
For this, the BID Lab has established an Alliance with many of the big entities that work Blockchain technology worldwide, such as Adhara, Alastria, AidTech, Blockchain Research Institute (BRI), Consensys, everis, Grupo Sabra, Idemia, ioBuilders, LegalBlock, Multiledgers, NTT Data, RSK, Tradel, World Data, and the IDB. As a necessary precursor to this regional program and within the framework of the knowledge development work plan of the IDB Lab, several of these entities established and officially inaugurated a Global Alliance in the Foromic 2018 event. Due to its integrating and connecting capacity of interoperable blockchain ecosystems throughout LAC, it was decided that the global alliance would be called LACChain.
4. How is the program structured?
In line with the failures identified in the second section, the program is structured in four main components, which in turn are broken down into several activities.
Component I: Association of public-private actors.The objective of this component is to create a community with the set of actors of the national Blockchain ecosystems in Latin America and the Caribbean, focused on enabling the use of technology to generate impact on inclusion. The program will promote the invigoration of the Global Alliance for awareness raising and the matchmaking of technical advice, technological and market information at the highest level for the development of this type of technology applications. The different departments of the IDB Group that participate in this project will provide advice and will bring good practices in fundamental aspects such as the regulatory framework, standardization and the alignment of technological, financial and market standards, necessary to enable inclusion impacts at scale.
The specific activities that will be developed in this component include:
- Facilitation and promotion of the LACChain Global Alliance for continuous support to the development and scaling of applications with impact on inclusion.
- National workshops for community development and empowerment of national blockchain ecosystems around this purpose.
- Diagnoses of country ecosystems and strategic advice for the execution of plans for the development of national ecosystems that enable impacts on an expected scale.
- Articulation for the development of national consortia of public and private actors as a driving factor for the universal use of the technology and with impact on inclusion.
Component II: Technological infrastructure. The objective of this component is the development of a blockchain network and the establishment of standards and regulation for it, which allows interoperability for its use to impact inclusion. To this end, the program will support the adoption of standards for the development of a basic, multi-sectorial, interoperable blockchain infrastructure adapted to the needs and legal frameworks of each country. This blockchain infrastructure will seek to enable its use in accordance with current regulations, including governance protocols and technological and operational policies. The activities of this component include:
- Technology advisory services for the development of public-permissioned blockchain networks.
- Definition of technological standards for the network and its applications for ensured impact on inclusion.
- Development and maintenance of an inter-regional blockchain testnet for LAC that allows the communication and testing of applications that have impact on the inclusion through the technology.
- Continuous assessment of technological neutrality in the definition of standards for the expansion of opportunities for participation in the development of applications.
- Development of necessary standards and protocols of cybersecurity in blockchain, including the testing and development of standards for the authorization of a quantum-safe blockchain.
- Development and maintenance of an interregional blockchain network regulated and secured in production for LAC, on which the applications of expected impact on inclusion are deployed.
Component III: Development of the application marketplace. The objective of this component is to consolidate a dynamic market with equal access opportunities for the development of blockchain applications that generate impact on inclusion. For this, from the demand side, the program will support the revitalization of the joint commercial space that the blockchain infrastructure enables on the part of the participating companies, foundations, and governments for the proliferation of use cases that generate impact on inclusion. On the supply side, the project will promote the acceleration of the entrepreneurial blockchain ecosystem for the development of applications of this type, with training tools, challenges, and mentoring. The specific activities for this component include:
- Market intelligence, demand studies and workshops with human-centered methodologies for the use of technology with high social impact.
- Creation and maintenance of a platform to connect developers and customers of blockchain solutions with impact on inclusion.
- Development of a catalog of use cases with impact on inclusion.
- Directed call for challenges, curated by experts from the Global Alliance, with rewards for the development of solutions that generate impact on inclusion.
- Training of programming and social entrepreneurship in blockchain.
- Acceleration of startups and development of the blockchain entrepreneur ecosystem for the development of social impact solutions (including mentoring, coaching and business development).
- Academic and professional training.
Component IV: Analysis and use of data. The objective of this component is for the use of information circulating on the platform to demonstrate the impact on inclusion and offer feedback on the progress of ecosystems. To do this, the data and information on the interoperable blockchain will be analyzed and used, in order to highlight the impacts obtained by the set of applications that have high impact on inclusion throughout the region with the objective of taking the pulse and making a comparative analysis of the progress of the national blockchain ecosystems. The specific activities for this component include:
- Network strengthening of the observation capabilities of blockchain ecosystems in LAC through the creation of a public information platform on national blockchain ecosystems.
- Development of a real-time information systems on the impacts of applications in terms of financial, economic and / or social inclusion.
- Development of big data tools and artificial intelligence (AI) for the analysis of entrepreneurship markets and ecosystems in LAC.
- In-depth analysis of emblematic cases of blockchain use cases that generate impact on inclusion.
- Strategic communication based on the information extracted from data analysis to enhance the adhesion and participation of actors necessary to obtain real impact on an expected scale.
5. What are the social impact applications that can be deployed on blockchain?
Blockchain technology, as defined in the first section, is a decentralized register of information. The convenience and usefulness of its implementation is given, therefore, when we have different entities exchanging information, when we want to have immutability of data, when we want to add transparency and trust, or when we want to improve privacy. Once we successfully adopt digital identity and tokenized money, we can deploy a multitude of different applications on blockchain which provide with a high social impact value and a reduction of the gender gap. Some of these include:
Digital identity for poor and vulnerable populations:Blockchain-based digital identity systems that enable the control of private data by citizens and unattended consumers, providing them with a self-sovereign identity.
Remittances and financial inclusion: Foreign currency and / or local currency payment channels provided directly to the beneficiary, in a secure, disintermediated manner, with lower transaction costs and in affordable conditions, with the potential to expand the border to the large-volume market of the unbanked or excluded from the financial system.
Certification of professional skills for employment:Secure registration platforms and decentralized attestation of professional skills, training, experience and reputational capital, aimed at improving employment opportunities for people in vulnerable conditions and facilitate the structural evolution of labor markets.
Agricultural traceability and access of small producers to markets:Incorporation of small producers into agricultural value chains supported by traceability systems based on decentralized records and certifications on provenance, agro-environmental practices, biogenetic characteristics or hiring and payment models.
Fight against harassment and gender violence:Mobile applications to notarize with photographic evidence and / or time-stamp recordings of unwanted behaviors in the household and workplace, in such a way that the corresponding investigation and judicial processes are streamlined.
Conditional transfers based on programmable electronic money:New financial and payment applications developed in fiduciary currency of legal tender, but digitally, cheaply, scalable and secure, making it possible to address spending on education, health or products of first necessity, with a high impact on poverty reduction.
Access to energy:Platforms for the transparent management of supply programs for populations in situations of scarce energy, which avoid errors and facilitate real-time communication between town halls, central administration, electricity companies and end users, providing tools for instantaneous, medium and long term purchases / sales in a way that is traceable allowing to identify agilely, for example, calculating the amount of renewable energies used, a process that nowadays is seen as a very complex task.
Access to health for the unattended population:Registration of medical data with controllable access by users, but universally accessible for use by different medical teams and for the elaboration of advanced and innovative diagnostic methodologies for the benefit of vulnerable populations that are “invisible” to systems aimed at the provision of health services.
Tenure and tokenization of real estate assets:Real-time registration and notarization systems for the possession or habitation of real estate assets in an immutable manner and with public faith, useful as collateral for financial inclusion and open asset tokenization opportunities to develop real estate co-ownership regimes, shared economy or crowd investments with the potential to democratize access to land or housing.
6. What is LACChain’s technological vision?
LACChain has the objective of promoting all those blockchain-related technological tools that are useful for the development of applications with social impact that could contribute to development in Latin America and the Caribbean. In this regard, it is completely agnostic in terms of technology. Its objective and purpose is to work in a cooperative and non-profit framework with allies, members and stakeholders to establish standards. These standards will later allow and facilitate the development of applications and the deployment of transversal and scalable use cases, unlike what happens today in almost all solutions that make use of this technology. The standards developed within the LACChain program will be aligned with those proposed by the World Wide Web Consortium (W3C) such as Verifiable Claims (VC) or Decentralized Identifiers (DIDs) and the Enterprise Ethereum Alliance (EEA).
LACChain is completely agnostic in terms of technology, its objective and purpose being to work in a cooperative and non-profit framework with allies, members and stakeholders to establish standards. These standards will allow and facilitate later the development of applications and the deployment of multidisciplinary and scalable use cases with great potential in terms of social impact.
LACChain seeks to offer new technological alternatives in an ecosystem with thousands of both permissioned and non-permissioned networks that do not offer the characteristics desired by many of the actors. The different networks that are included in the program must be public-permissioned, so that anyone who authenticates and operates within the law respecting the ethical principles of the members can use the network. For this, the networks must offer the following:
Node-level Authentication: From LACChain we want Latin America and the Caribbean to have a single network or a set of interoperable networks where the nodes are known and authorized, and therefore their activity can be monitored by detecting illicit behaviors in accordance with the different regulations by country and the general policies. For this, it is necessary to have authentication at node level with clear and transparent standards for issuance and revocation of certificates and admission of new members.
Regulation: Authentication regulates the use of the network and the deployment of applications since it allows knowing who is operating on it, unlike traditional public networks. Within the framework of the LACChain program, the national committees -composed of regulatory experts from each country- will work with the support of the program’s partners in the definition of network operation policies.
Permission/privacy at the smart contract level: One of the reasons why current networks are not easily scalable or usable for different use cases is derived from the fact that public networks do not offer the privacy necessary to deploy certain types of solutions where information is confidential or sensitive, and federated or private networks often offer this privacy at the level of access to the service (usually offered sometimes by a third party) or at the application level, but rarely at the blockchain level. Node-level authentication also allows us to introduce a permissioned environment at the smart contract level that specifies who can see the transactions or records linked to it. This allows to have a seamless scalable and secure network, since it facilitates the creation of private channels on the same blockchain.
End-user Authentication: In order to offer digital services to citizens or individuals, it is necessary to have them digitally identified, which inevitably leads to the development of digital identity solutions that can operate in the LACChain network. These solutions must be aligned with W3C standards as well as those that will be defined within the framework of the alliance within the working group on digital identity, made up of experts from different disciplines.
Flexibility to adapt to the particularities of each country: The technological infrastructure must be sufficiently flexible to be able to have a network that is used in different countries -both locally and for international solutions- taking into account the regulation and the particularities of each one. Currently, the test-net, which runs in Quorum, proposes an architecture with satellite nodes (also known as regular nodes) that generate transactions, core nodes (also called validators) that hash and maintain a copy of the ledger with the commitment of not disconnecting, and access nodes that manage the permissions of the nodes in the network (also called boot-nodes). This structure eliminates the need for core nodes to be subjected to hard regulatory policies since they do not introduce any data in the network, they only maintain it. On the other hand, satellite nodes, which generate traffic typically from decentralized applications (DAPPs), must behave according to the regulations of the countries in which they run or operate. It also contemplates the possibility of reader nodes that cannot generate traffic nor hash transactions either, but have a copy of the chain and are synchronized with the core nodes so as to receive the ledger updates from it.
Scalability in terms of transactions per second: The network or set of networks cannot be left behind regarding efforts to improve the number of transactions per second.
Ease to add new members: The deployment of new nodes, either satellite, core or readers, must be quick and easy from a technical standpoint.
Guaranteed continuous fail-safe service: The network must operate with a guaranteed up time so that it does not stop working at any time. The current architecture facilitates this because the satellite nodes, which have no commitment not to disconnect, do not participate in the hashing of transactions -the consensus protocol- so that if they do not “do their job” the network does not stop working, since their job is not to maintain the network but to generate traffic. In contrast, the core nodes, which are those that participate in the consensus protocol and maintain copies of the ledger to which the satellite nodes and readers can subscribe, must operate under the commitment of non-disconnection. For the switch to a main-net environment, the possibility of having support entities both at a technological level and at a legal level is being studied, in the undesirable case that something fails.
7. What is LACChain’s organizational structure?
Currently, LACChain is defining the legal form that it will adopt and that will be connected through agreements with both allies and with the different legal entities in which the related institutions are organized at the national level in the different countries of Latin America and the Caribbean. At the same time, different national consortia in several countries are already defining their legal forms; mainly associations.
In any case, the LACChain program will lead to the creation of a non-profit entity or legal individual whose funds will go towards the formation of a working team that will support the ecosystem that the program intends to contribute to developing and/or accelerating. At the national level, each country will define the most convenient organizational structure for its members and will operate with complete independence and flexibility.
The objective of the agreements is for all of us to collaborate in the development so we can benefit from a regional technological infrastructure with universal standards and national policies.
8. What is LACChain’s roadmap?
At LACChain we aspire to develop networks that meet four requirements that no network has yet achieved, and which we believe are key to being able to have highly decentralized blockchain networks around the world. With privacy and transparency at the same time, zero transaction fees that offer the possibility of deploying any use case. These four key components are decentralization, authentication, regulation and reputation.
From LACChain we aspire to the development of networks that meet four requirements that no network has yet achieved: decentralization, authentication, regulation and reputation.
To this purpose, from LACChain we have defined four stages called test-net, pro test-net, pre main-net and main-net. Each of these stages entails minimum requirements both at the legal level and at the technological level that we have just defined and which we will make public as soon as possible. Currently, we have a Quorum-based open network in the test-net stage, whose information is available in GitHub, and in the coming weeks we will enable additional networks with other software.
9. How to participate in LACChain?
There are several ways to participate in LACChain today:
- The program encourages all entities in Latin America and the Caribbean interested in blockchain to contact the organization via e-mail: firstname.lastname@example.org in order to give them access to the relevant communication channels. Currently these are platforms in Mobilize and different social networks, with the Twitter @LACChain and LinkedIn @LACChain Ecosystem accounts. In the coming months a web page will also be online.
- With respect to the development of the ecosystems, the program will support all those entities, whether public, private or academic, that want to form or subscribe to national working groups on different topics, such as regulation, digital identity, technology or use cases.
- Regarding the technological infrastructure, LACChain currently has a Quorum free test-net to which it is possible to connect and start deploying applications. The information is available on GitHub.
Authors: Alejandro Pardo Vegezzi, Marcos Allende Lopez.