8 Nov 2018
Blockchain Networks
Agenda
 Readings Summary
 Blockchain Overview
 Network Overview
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8 Nov 2018
Blockchain Networks
Readings #1: Bitcoin & Network Science
2
 Nakamoto, S. (2008). Bitcoin: P2P Electronic Cash
 Original white paper for blockchain concept: having an
always-on Internet-based system checking in real-time 24-7
anytime anyone tries to spend digital cash, to control that it is
only being spent once (solution to double-spending problem)
 Brandes et al. (2013). What is network science?
 A network connects nodes, resource flow is not necessary
(example: Purdue alumni network)
 A network is a model of a real-life phenomenon
Core-periphery:
densely-connected
core, sparsely-
connected periphery
Ego Network:
focal node (“ego”) and
directly-connected
nodes ( “alters”)

8 Nov 2018
Blockchain Networks
Readings #2: Blockchain & Network Intro
3
 Morabito. (2017). Blockchain for Business Innovation
 Decentralized database: all peer nodes have a copy
 Public blockchains vs. private blockchains (for business)
 Proof of work and proof of stake consensus algorithms
 Smart contracts: two or more parties, terms, consideration
 Jackson. (2008). Social and Economic Networks Intro
 General measures of network utility, efficiency, stability
 Trade-offs in network design: stability vs. efficiency
 Homophily: tendency of individuals to associate and bond with
others that are similar, “birds of a feather flock together”
 Preferential attachment: “rich get richer”

8 Nov 2018
Blockchain Networks
Readings #3: Water Industry & Scale-free
4
 Lin et al. (2017). Blockchain and ICT E-Agriculture
 IOT and blockchain networks (Bitcoin, Ripple, Monero)
indicate complex network behavior: small-world & scale-free
 Interpretation: replicating the “regular” way of doing things
 Sohn. (2017). Small-World and Scale-Free Network
Models for IoT Systems
 Random networks (Erdős–Rényi, PMI,
1959): Normally-distributed; Gaussian
 Small-world networks (Watts & Strogatz,
Nature, 1998): Power law; 80-20 pareto
distribution
 Scale-free networks (Barabási & Albert,
Science, 1999): Fat-tailed distribution;
six degrees of separation; rich get richer

8 Nov 2018
Blockchain Networks
Readings #4: Agriculture & Network Trust
5
 Kim and Laskowski. (2017). Agriculture & Blockchain:
Sustainable Solutions for Food, Farmers, & Financing
 Blockchain enables new models of local organizing: farmers
cooperatives, recourse against players with market power
 Food safety, product traceability (salmonella outbreak)
 Sustainability: financial, crop genetics, micro-insurance
 Sherchan et al. (2013). Trust in Social Networks.
 Humanity is good at producing material goods (“widgets”),
how can we also excel at producing intangible resources?
 Social capital (trust, autonomy, inclusion, recognition, peace)
 Incentive structures that promote social capital production

8 Nov 2018
Blockchain Networks
Readings #5: Solar Energy & Network Stack
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 Adjeleian et al. (2018). How blockchain is
disrupting the Solar Energy industry
 Incentives for transitioning to renewable resources
 IOT carbon sequestration blockchain for carbon credits
 Implied political power shift due to energy independence
 Orlikowski and Scott. (2015). The algorithm and the
crowd: considering the materiality of service innovation
 Digital services: shift to practice of buying airline tickets online
 Building the trust stack: design structures to create social
capital in a digital network environment
 Layers in the trust stack: infrastructure, interface,
application, network resources (trust, liquidity)

8 Nov 2018
Blockchain Networks
Agenda
7

8 Nov 2018
Blockchain Networks 8
“Better
horse”
Progression of a New Technology
“Horseless
carriage”
“Car” 3.0
2.0
1.0 Better internet: payments and
secure information transfer,
privacy-protected computing
Assets digitized and
registered to blockchains,
real-time valuation and
transfer, smart contracts
Large-scale social collaboration
technology: supplementing and
replacing governments, corporations,
and open-source communities
Source: Swan, M. (2015). Blockchain: Blueprint for a New Economy
Blockchain

8 Nov 2018
Blockchain Networks
basics.
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8 Nov 2018
Blockchain Networks
internet content.
10
information.
email.
voice.
video.
money.

8 Nov 2018
Conceptual Definition:
Blockchain is a software protocol;
just as SMTP is a protocol for
sending email, blockchain is a
protocol for sending money
Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
What is Blockchain/Distributed Ledger Tech?

8 Nov 2018
Blockchain Networks
Blockchain Technology: What is it?
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 Blockchain technology is the secure distributed ledger
software that underlies cryptocurrencies like Bitcoin
 “Internet of Money” leapfrog technology; Skype is an app allowing
phone calls via Internet without POTS; Bitcoin is an app allowing
money transfer via Internet without banks; ‘decentralized Paypal’
Internet
(decentralized network)
Blockchain
Bitcoin
Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
Application
Layer
Protocol
Layer
Infrastructure
Layer
SMTP
Email
VoIP
Phone
calls
OSI Protocol Stack:

8 Nov 2018
Blockchain Networks
Chain of linked blocks = a “blockchain”
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Source: GREG/Smart Energy Meeting PWC, Blockchain101, Nov 2016
Each block stores information and contains a validated pointer (called a hash) to the
previous block. Each block is thus linked or “chained” to the last one
The chaining of blocks is tamper-proof, creating a immutable record of
events that is resistant to fraud and corruption

8 Nov 2018
Blockchain Networks
blockchain.
14
software.
secure cryptographic transfer.
internet.

8 Nov 2018
Blockchain Networks
killer apps.
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secure transfer of value, of…
money & securities.
property.
contracts.
identity credentials.

8 Nov 2018
Blockchain Networks
How does Bitcoin work?
Use eWallet app to submit transaction
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Source: https://www.youtube.com/watch?v=t5JGQXCTe3c
Scan recipient’s address
and submit transaction
$ appears in recipient’s eWallet
Wallet has keys not money
Creates PKI Signature address pairs A new PKI signature for each transaction

8 Nov 2018
Blockchain Networks
P2P network confirms & records transaction
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Source: https://www.youtube.com/watch?v=t5JGQXCTe3c
Transaction computationally confirmed
Ledger account balances updated
Peer nodes maintain distributed ledger
Transactions submitted to a pool and miners assemble
new batch (block) of transactions each 10 min
Each block includes a cryptographic hash of the last
block, chaining the blocks, hence “Blockchain”

8 Nov 2018
public chains. private chains.
trustless. mined.
p2p software.
trusted. not-mined.
enterprise software.

8 Nov 2018
Blockchain Networks
What is blockchain? Conceptual overview
1. Digital money (better version of PayPal/Venmo)
2. Enterprise software (digital asset inventories)
3. Inclusion technology (unbanked, credit, literacy)
4. Emerging legal jurisdiction (game theory not police)
5. Web 3.0: large-scale collaboration technology
 (Web 3.0 = smart network, “Internet's new pipes”)
6. Truth verification method (rich information attributes)
19
Smart networks: intelligent autonomously-operating
networks, a new form of global computational
infrastructure that includes technologies such as
blockchain economic networks, deep learning pattern-
recognition networks, autonomous-strike UAVs, and high-
frequency trading networks

8 Nov 2018
Blockchain Networks
Agenda
20

8 Nov 2018
Blockchain Networks
Complex Systems
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 Can often characterize the macrostate and the
microstate, but what happens in the middle?
Macrostate:
GDP
Microstate: Rate of new
businesses formation,
new auto loans
Middle: Complexity
Source: Schweitzer, F., et al. 2009. Economic Networks: The New Challenges. Science. 325:422-5.
Simon, H.A. 1996. The Sciences of the Artificial. Third edition. MIT Press, Cambridge, MA.
Simon (1996): small groups of parts make up larger
assemblies (modules) from which the whole is built; the
parts of the module interact strongly
Whole
Assemblies
or Modules
Parts
Simon (1996)Schweitzer (2009)

8 Nov 2018
Blockchain Networks
 Huntington’s disease (0.0002% deaths, 2.27 per million)
 Heart disease (30%/22% U.S./global deaths), Cancer (24% U.S. deaths)
 “Natural Causes” attributed due to lack of causal model
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Solving Disease and Health Challenges
Hard problems: probabilistic not deterministic
Genomics
100%
Behavior
33%
Genomics
33%
Environment
33%
Source: Pagidipati. 2013. Estimating Deaths From Cardiovascular Disease. Circulation. 127(6):749–756; National Cancer Institute.
2018. Cancer Statistics. https://www.cancer.gov/about-cancer/understanding/statistics
Deterministic
Probabilistic
40+ CAG repeats in
the HTT gene

8 Nov 2018
Blockchain Networks
Problem: Prediction in Complex Systems
 How are these events similar? different?
 Is the Turkish coup an example in this trajectory?
 How can networks be used to map the underlying
factors that give rise to macro-level formations?
23
1789 2010 ???
French
Revolution
Tiananmen
Square
Next
event
Arab
Spring
Turkish
coup?
1989 2016
Source: Handbook of Cliometrics. 2016. Editors: Diebolt, Claude, Haupert, Michael (Eds.)

8 Nov 2018
Blockchain Networks
Claim:
Networks are a way to analyze “the middle”
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 Map relationships between agents to see intermediate
structure, dynamic emergence

8 Nov 2018
Blockchain Networks
Drawing the Graph
1. What is the domain?
2. What are the entities in this domain? (nodes)
3. What are the relationships between them? (edges)
25
Simple Graph of
Entities and
Relationships
Domain: Social Network Domain: Financial System
Nodes: People
Edges: Know one another Edges: Financial obligation
(1: cash deposits, 2: loans)
Nodes: Banks

8 Nov 2018
Blockchain Networks
Network Science
 Network Science = The study of graphs as a
representation of relations between entities
 Nodes and edges (entities and relationships between them)
 Seven Bridges of Königsberg (Euler, 1736, graph theory)
26
node or

8 Nov 2018
Blockchain Networks
Network Science
 Seven Bridges of Königsberg (Euler, 1736, graph theory)
 Problem: walk around the city, crossing each bridge only once
 Euler: mathematical proof that it cannot be done, using
(inventing) graph theory; shifting math from ‘science of quantity’
to more abstract structures such as topology
27
node or
Kant’s Tomb, Kaliningrad
Cathedral (formerly Königsberg)

8 Nov 2018
Blockchain Networks
Example: Social Networks
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8 Nov 2018
Blockchain Networks
Example: Food Web and Trade Network
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8 Nov 2018
Blockchain Networks
Example: Systemic Financial Risk
 Risk of financial contagion (how “catching” the collapse
of one bank would be to others given linked exposure)
30
Source: IMF, June 2016, Systemic Risk Among Deutsche Bank and Global Systemically Important Banks
Legend:
• Blue, purple and green nodes
correspond to European, US and
Asian banks
• Arrow thickness captures total
linkages (both inward and outward),
• Arrow direction is net spillover
• Node size corresponds to asset value

8 Nov 2018
Blockchain Networks
Example: How are brain and body linked?
31
Sources: Murphy, Bassett, et al. 2018. Structure, function, and control of the human musculoskeletal network. PLOS Biology.
Davies, J.A. 2014. Life Unfolding: How the Human Body Creates Itself. Oxford: Oxford University Press.
Summary:
Employ network theory methods
to map neural control mechanisms
to the musculoskeletal system
Summary: study biological
networks: larger patterns of
gene expression and cellular
interconnection
Biological musculoskeletal network

8 Nov 2018
Blockchain Networks
Drawing the Graph
 Different ways to organize information
32
Traditional Method Network Science Method

8 Nov 2018
Blockchain Networks
Network Properties
 Use networks to analyze innovation rate, collaboration
with other departments/firms, how decisions are made
33
Degree of connectivity
of network
• V:={1,2,3,4,5,6}
• E:={{1,2},{1,5},{2,3},{2,5},{3,4},{4,5},{4,6}}
How quickly is a new
idea disseminated?
Who is a key influencer
in decisions?

8 Nov 2018
Blockchain Networks
Build a Social Graph – How does it work?
 Compile table listing names and number of interactions
34
• V:={1,2,3,4,5,6}
• E:={{1,2},{1,5},{2,3},{2,5},{3,4},{4,5},{4,6}}
Source: https://www.teachengineering.org/activities/view/uno_graphtheory_lesson01_activity1
Data
Network Modeling

8 Nov 2018
Blockchain Networks
Build a Social Graph – How does it work?
 Example: Medea (Euripides), 431 BC
 Level 1 analysis: purely quantitative, based on # interactions
35
• V:={1,2,3,4,5,6}
• E:={{1,2},{1,5},{2,3},{2,5},{3,4},{4,5},{4,6}}
Source: https://www.teachengineering.org/activities/view/uno_graphtheory_lesson01_activity1
Basic Interaction Map Network Modeling Network Analysis
Medea
Jason

8 Nov 2018
Blockchain Networks
Build a Social Graph
 Example: tweet activity during conference
36
• V:={1,2,3,4,5,6}
• E:={{1,2},{1,5},{2,3},{2,5},{3,4},{4,5},{4,6}}
Source: https://pegasusdata.com/2012/12/06/just-in-time-sociology-new-field-digital-humanities/
Conference
Agenda

8 Nov 2018
Blockchain Networks
Build a Social Graph
 Example: tweet activity during conference
37
• V:={1,2,3,4,5,6}
• E:={{1,2},{1,5},{2,3},{2,5},{3,4},{4,5},{4,6}}
Source: https://pegasusdata.com/2012/12/06/just-in-time-sociology-new-field-digital-humanities/
Keynote:
Paula Tubaro
Conference
Organizer:
Frederic Kaplan

Blockchain Network Theory

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