Credit: Original article published by The Capital.

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The Global Blockchain Business Council (GBBC), in collaboration with the World Economic Forum, on 14 October, prepared and published a Report, Global Standard Mapping Initiative (GSMI) 2020, to provide guidance and an overview of global standards in blockchain technology.

As we have already seen, the GSMI includes two reports, one investigating the Legal and Regulatory Overview, which I explained in detail in the previous editorial, and another on the purely Technical Overview, which I will report on in this in-depth section. You didn’t seriously think I would omit it?

Although blockchain technology is growing exponentially, it has also gone through several phases of clamour or skepticism, and, even today, several critical issues remain for the success — or failure — of the blockchain. Moreover, regulatory clarity remains a significant obstacle for many organizations, as do technical and governance issues such as interoperability and security.

As outlined in the document, new working methodologies are challenging existing models and can offer unique features of flexibility. One of the nodes to be assessed is technical standardization, which in this document requires three steps:

1. mapping ongoing technical standardization efforts;

2. identify gaps and areas of overlap;

3. identify the next critical steps for the ecosystem.

In particular, the purpose of this document is not to make value judgements about current standardization efforts, and inclusion in this report is not a sign of endorsement of any activity. Rather, it is an attempt to raise awareness of ongoing activities and to present current trends. The document presents a broad view of “standard-setting bodies” or “standard-setting bodies” in order to map the broad ecosystem that contributes to standardization. This may include both traditional standard-developing organizations (SDOs) and industry groups and developer communities.

Such mapping is based on:

1. An in-depth literature analysis exploring existing efforts towards standardization of SDOs

2. Technical interviews to validate desk research observations and better understand the implications for the development of DLT standards.

THE ROLE OF STANDARDISATION

While the function of standardization in the First, Second and Third Industrial Revolution is well documented, in the task of establishing an “information infrastructure” on which to build new products and markets, the role to be played in the Fourth Industrial Revolution, where emerging technologies are rapidly changing lives and transforming companies and societies, and enabling new realities and operating models, as in the case of the blockchain, where we are, indeed, witnessing decentralised governance, is quite different.

Standards are generally created and adopted in one of three ways:

By convention (de facto standard) — a practice, behaviour or configuration becomes widely accepted through repetition and use;

By flat (standard de jure) — imposed by an edict or regulation by a government or other institution. Examples include the US Securities and Exchange Commission (SEC) de jure standards on token management;

By negotiation — as formally agreed between the parties involved in an activity or business, such as those created by formal standards development organizations (SDOs).

In some ways, the chain of blocks overturns traditional standard-setting models, given decentralized governance and the ability to incorporate standards into protocol building. Protocol-specific standard processes have been implemented in a decentralized manner through “improvement proposals,” managed by the developer community and often facilitated through the GitHub open-source platform. Many of blockchain’s widely recognized applications use the ERC token standards, which define the motivation, specification, and operation of Ethereum-based tokens (token standards are managed through the Ethereum Improvement Proposals (EIP) process), which runs on GitHub.

There are several examples of tokens, named according to their identifier Ethereum Request for Comment (ERC): noteworthy, they are (taken from the token standard):

ERC-20: The following standard allows the implementation of a standard application programming interface (API) for tokens within smart contracts. This standard provides basic functionality for token transfer, as well as enabling token approval so that tokens can be spent by another third party on-chain; known to enable smart contracts and decentralized finance (DeFi) (e.g. Chainlink), for Initial Coin Offerings (ICOs) (e.g. EOS), for Stablecoins (e.g. Tether).

ERC-721: The following standard allows the implementation of a standard application programming interface (API) for non-fungible tokens (NFT), within intelligent contracts. This standard provides basic functionality for NFT tracking and transfer. Known for collectible blockchain and games (e.g. CryptoKitties).

In software development, in which several communities and consortia collaborate, the procedures are not the same, and therefore a procedure should be regulated upstream that can combine the various needs, to better monitor the standards: the software is continuously updated, to add new features and fix bugs, while standards have more constraints on the release of updates. The same approach to intellectual property is different, as in software, it is linked to the technical contribution and not to each single component, that’s why a correct governance is vital to create correct standards!

Clearly, there are different approaches to creating standards for blockchain technology. This document represents an effort to map current activity (as of August 2020) and identify trends within the ecosystem. This section summarizes KEY INTUITIONS from mapping dozens of standardization initiatives and their activities, identifying challenges, overlaps, and gaps:

– Clarity remains a challenge, as terminology remains inconsistent, while the scope of blockchain standards remains unclear.

– There are both gaps and overlaps in the standard setting landscape.

– Definition is inconsistent through attributes such as position, competence, and role. In addition, intellectual property rights can influence the level of openness in the creation process.

In the document, we compare definitions of the same term “blockchain,” according to the ISO22739 standard (updated to 2020) or according to the ITU.T standard (Table 1 page 10 of the Report), and some differences emerge that contribute to the inconsistency of unique and undisputed standards. Although the differences may seem subtle, they could have a knock-on effect on all standards for the development and implementation of the process. The result is a mix of overlaps that can create confusion in the development of the blockchain, also taking into account that some sectors are better analyzed and disciplined than others, creating great inconvenience when block technology interacts, for example, with other technologies of the Fourth Industrial Revolution, such as the Internet of Things (IoT)!

FIVE PREDOMINANT AREAS OF OVERVIEW are indicated in this document:

1. Security: of course, security has been the key area of interest for technical standards. Since not all blockchains are created in the same way, understanding how to ensure consistent safety management among the different types of blockchain is essential to ensure sustainable use of the platform. However, it remains to be seen how various factors, such as consensus and authorization protocols, influence these standards.

2. Internet of Things (IoT): An assessment of the convergence of emerging technologies is crucial for forward-looking standardization. Technical standards include an understanding of the requirements for Internet of Things and blockchain use cases and analysis of interoperability requirements between IoT and blockchain.

3. Identity: considered a cornerstone and application of the blockchain, the fundamentals of digital identities, such as circulation, key generation, and management protocols and protocol specifications for the mutual identity origins of public keys/addresses generated by different cryptographies, have been at the center of attention of standardization bodies.

4. DLT requirements: there is work in progress to define the software and hardware requirements for blockchain operation. However, much of this work is protocol specific and cannot necessarily coincide with other aspects, such as governance requirements.

5. Taxonomy/ DLT Terminology: Since terminology is the basis for all further standard setting activities, most entities have started here. But, as described above, there are differences in definitions and reference architectures.

However, there are LACUNES in the landscape, which currently exist due to a combination of technological immaturity, complexity of the topic, and differences in fundamental philosophies about technology. The gaps identified in standard definition have generally fallen into four categories:

1. When to apply the TLDs: most attempts to catalogue the criteria for assessing the suitability for use of the blockchain were mostly informal. Institutions may benefit from guidance on performance expectations and a framework for functional risk assessment.

2. Fundamental technical elements: the fundamentals of blockchain technology, such as consensus algorithms and interoperability, have been developed, to a large extent, through industry and technical evolution, rather than through formalization and standardization.

3. DLT performance testing: There are currently no standards on what types of tests can and should be performed on DLT platforms. Standards could outline the parameters for test types (e.g., technical, functional, usage, stress, or safety) and procedural recommendations.

4. Vertical companies: As previously described, organizations setting standards have already started to explore the connections with vertical sector companies (education, sustainable development, construction, rights management, property registers). However, several of these still remains unexplored territory.

Furthermore, decentralization and the current state of the blockchain have meant that there is no dedicated entity responsible for disseminating standards and monitoring their implementation, such as ICANN for the Internet. Therefore, the implementation of the standards is largely left to an ecosystemic organizational level. Much of the standard setting activity today is based in Europe, North America, and China. Without some representation — or at least a possibility to send feedback — standards may be inconsistent in terms of infrastructure, regulatory and/or operational realities within certain geographies, adding that the fundamental thematic elements of standard setting work, such as privacy, contain highly cultural interpretations and contexts.

Section 3.9 of the Report touches on another fundamental theme, namely the sphere and field of intellectual property!

I quote:

“A well-managed standardization body creates a standard that is easy to implement, which anyone can implement; furthermore, there should be no patent problems — or, if there are, they should be clearly specified. However, it is important to note that there can be trade-offs between openness and IP ownership.

For example, open processes such as those used by Bitcoin and Ethereum — as participation is fully public without any transfer of intellectual property — risk creating standards, which violate the participants’ proprietary patents. Although this has not yet arisen as a substantive issue, it could be a risk in the future.

On the contrary, other standard-setting bodies run processes that are probably more “closed” in the sense that participants in these conversations may have to agree to license any intellectual property patents in their possession that are covered by these standards. This means that those discussions cannot take place in anonymous environments.”

SECTION 5 gives a number of suggestions to be applied both to regulatory entities and to entities adopting technology standards.

Section 5.1 gives the former a series of RECOMMENDATIONS on the standard specifications for TLDs:

A. Ensure further coordination and collaboration between standard setting organizations. The shortcomings of the current landscape can be alleviated through increased collaboration or recurring dialogue or consultation between working group leaders. This can facilitate alignment of standards, including but not limited to alignment on:

1) harmonized terminology and working definitions;

2) appropriate sequencing of standard development; and

3) minimization of redundancies and maximization of potential to advance interoperability.

B. Identify and specify where conversations about standardization may be premature — and where formal standards are NOT NECESSARY. There may be technical aspects of TLD that are not yet mature enough for standardization. Premature standardization can stifle innovation or lead to distortion. As such, the period of time in which standards are developed is crucial. In identifying a prospective roadmap, conversations about technology development and the development of corresponding standards can continue in parallel. As technology evolves, standard-setting entities may choose to adopt a principles-based approach — first defining high-level principles, and then issuing the relevant guidelines. Ultimately, the standards can be further specified and codified at a time when the technical aspects have reached sufficient maturity.

C. Ensure that the language and intended use are accurate. As said, there is still a debate on key terminology and technical design within the DLT ecosystem.

D. Proactively plan the role of decentralization in the creation and implementation of standards — and innovate accordingly. Those producing DLT standards will have to consider the implications of decentralized governance for the creation and implementation of standards.

E. Continue to look for different inputs in the development and introduction of standards. Ensuring diversified representation is key to preserving the integrity of standards — creating a process whereby standards are not designed in the image of particular products, philosophies, or geopolitical interests.

F. Educate industry and policymakers on the best techniques for implementing standards. Standard setting organizations should oversee the market launch and facilitate the creation of user-friendly tools or resources for standards implementation by creating guides and describing use cases.

There are several RECOMMENDATIONS for entities adopting technical standards:

A. Proactively discover the desired level of commitment through the definition of standards. Entities should proactively determine their strategy for participating (or not participating) in these activities. This could include but is not limited to identifying topics or areas of influence by joining specific industry action groups or appointing technical experts to working groups at an early stage.

B. Work with other organizations to establish a plan for standards setting.

C. Define a decision-making and adoption process. As discussed, standards are likely to contribute to key technology features, including interoperability and scalability, and potentially unlock new products and markets. Standards bodies need to be diverse and proactive and strive to create awareness and understanding.

If you would like to go further into this document, you can find it at the following link http://www3.weforum.org/docs/WEF_GSMI_Technical_Standards_2020.pdf

All Rights Reserved

Raffaella Aghemo, Lawyer

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GBBC Technical Overview of October on the blockchain was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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