This text is a translation from Chinese. The original article is published on MarsFinance here.
Plasma Cash solves security and scalability issues, eliminating the need to download the entire Plasma block and speeding up the processing.
⦁ The time to transfer money between businesses for international and domestic transactions can take from 1 to 5 business days, with the cost of international transfer in the neighborhood of 40 USD.
⦁ On average, contract enforcement takes from 490 to 1100 days,costing from 15 to 50% of the claim value, and taking up to 37 steps, depending on the country.
⦁ Eighty percent of cases do not come to resolution at all because of the length, complexity and expense of the procedure.
This affects the speed of moving money in domestic and international market economies. For instance, it makes it harder for small enterprises to participate in international activities, forcing them to deal through larger intermediaries.
All of the above factors affect business survival rates, impacting primarily SMEs, which are the backbone of all developed economies. Inefficiency of intermediaries affects the efficiency of the whole.
Q: Hello, Sergey. Please introduce yourself.
Sergey Grybniak, almost 15 years of experience in applications development and marketing for enterprises of various sizes in Central and Eastern Europe, North America and Asia.
Opporty is a company with 3 operational units, including New York, USA, business development and technology design; Shanghai, China, business development; and Odessa, Ukraine, research and development.
As a member of Enterprise Ethereum Alliance Opporty is exploring opportunities for applications for business transactions using blockchain technology, including international trade. We use Plasma-based side chains proposed by Joseph Poon and Vitalik Buterin in August, 2017.
We are exploring the advantages of blockchain for international trade. The Chinese “One Belt, One Road” project is currently the biggest project in the world directly related to international trade. Infrastructure corridors encompassing around 60 countries, primarily in Asia and Europe but also including Oceania and East Africa, will cost an estimated$4–8 trillion USD.
I would like to share some thoughts on blockhain implementation related to this initiative, and to international trade in general.
Opporty is exploring such opportunities as a member of the China Cooperative Trade Enterprise Association, and under the advisement of Mr. Daniel Wu, who is a Deputy Director of the One Belt One Road Development center.
As foreigners, it takes some time for us to become familiar with the particular details of the local market, but we closely cooperate with local partners. We are proud to be a partner with InfiniVision in the fields of big data and blockchain integration.
It is worth paying additional attention to OCR (Optical Character Recognition), which allows us to digitize any document. With blockchain’s capability of creating tamper-proof records, there are potentially countless interesting implementations for applications. Mr. Cai Dong personally advises us.
Q: As we know,Plasma was designed for Ethereum to solve a scalability problem. Is that correct? Can you tell us more about it?
The answer is yes and no. Plasma is applicable for Ethereum and is able to solve a scalability problem. However, even in Plasma”s Whitepaper they use the term “root chain,” saying directly that it could potentially be implemented on top of other root chains, and not only for Ethereum.
“Plasma is a proposed framework for incentivized and enforced execution of smart contracts, which is scalable to a significant amount of state updates per second (potentially billions) enabling the blockchain to represent a significant amount of decentralized financial applications worldwide. These smart contracts are incentivized to continue to operate autonomously via network transaction fees, which is ultimately reliant upon the underlying blockchain (e.g. Ethereum) to enforce transactional state transitions.” — Joseph Poon, Vitalik Buterin, Plasma Whitepaper.
This means that potentially smart contracts and applications on Plasma could be “integrated” with other blockchain protocols. We are highly inspired bythe idea of Blockchain Agnostic applications and smart contracts.
It will require significant cooperation with other blockchains, because in the current state it is not possible to implement “as is”. But we are already taking steps in this direction, and we believe that blockchains will be doing that as well, because it will benefit each participant and industry overall.
Q: So Plasma allows the building of decentralized applications and smart contracts, potentially able to work not only with Ethereum, but with other Blockchains. Is there anything else you would like to share about it?
Yes, a few things. First, Plasma allows us to implement privacy and levels of access in building decentralized applications, which allows them to potentially “talk” to each other. Also, the ability to work with other blockchains is our big vision.
It is also worth paying attention to Plasma Cash. This design pattern was proposed by Vitalik Buterin in March, 2018. This approach has certain advantages over the original Plasma.
Plasma Cash is an enhancement of Plasma Protocol, which is imperfect due to limited scaling capabilities. Its drawbacks do not allow Plasma to support the exponential blockchain growth required to enable IoT.
Plasma Cash resolves issues of security and scalability, speeding up the process by eliminating the need to download entire Plasma blocks. Proof data is now only required for a user’s own coins.
Without getting too technical, Plasma Cash makes tokens indivisible and attaches a unique ID to each token. It can work both with ERC-20 (the fungible tokens most projects are using) and ERC-721 (non fungible tokens like those used for Crypto Kitties).
Q: Token IDs. Can you briefly explain more about how these implementations work?
“Scalability is this idea of coming up with a blockchain that can scale much larger than existing chains, essentially by processing transactions in parallel. And moving away from this paradigm where every single node on the network has to process every single transaction.” — Vitalik Buterin
So let me briefly explain how Plasma works and solves scalability problems. We have a certain amount of wallets with certain token balances in each of them. And we have the limitation of the main network of Ethereum of around 15 transactions per second. So how does Plasma work?
These wallets and tokens “enter” Plasma and execute off-chain transactions without the root chain limitation of 15 transactions per second. After these computations, the balance of each wallet taking part in off-chain transactions is updated. These remaining balances are updated on the main chain and then“exit” the system.
So how does it work with Plasma Cash?
With ERC-721, each token has a unique ID in the main network. It enters the side chain with this ID, computation takes place, and then the token “exits” to the main network. When we use ERC-20 tokens, the IDs are created when the tokens “enter” the side chain, and tokens become indivisible. Computation takes place, and when the tokens “exit” to the root chain, they become standard divisible ERC-20 tokens without IDs.
The process is not limited to only these two standards. They were used as examples.
Q: Got it. So please share your vision on the current state of the industry, and on the applications you mentioned earlier.
Currently we are seeing the penetration of blockchain into a number of industries, following its previous penetration into the financial industry. To serve this goal, many projects and protocols have been and are currently being created. Among them exist two distinct approaches:
⦁ One Chain, one application. By nature, these applications are easier to implement. Being mostly isolated, they have a shorter list of security and privacy requirements, which makes the integration and implementation process easier. However, this approach goes mostly in the opposite direction from the key ideology behind blockchain technology — decentralization.
⦁ Applications as part of a large chain. Interoperability is a key advantage of this approach. It requires sophisticated security and privacy settings, but that is the big vision for blockchain adoption by industries. It features decentralized applications,and tamper-proof smart contracts that rely on the computation power of the whole network, distributed among millions of users and various applications that “talk” to each other,through multiple blockchain protocols.
But let’s leave the blockchain industry for a moment and get back to transactions between businesses, by reviewing the process of purchasing a service or product. Domestic and cross-border transactions consist of four main elements:
Terms confirmation by the counterparties, payment, product or service provision, and dispute resolution if a transaction fails.
The terms of a collaboration are confirmed by the parties and written into a contract, which is then signed either on paper or electronically. This is followed by payment and provision. Which happens first depends on the particular industry and the type of agreement, but the important thing is that the provision process is also reflected in various documents (shipping documents, service delivery proofs, confirmation from authorities about a change of asset ownership, cargo location updates, etc.).
Either before or after shipment, a payment is transfer redusing some intermediary institution (e.g. bank). This creates a situation where, if one of the parties is not happy with the outcome, he or she can simply pick up the phone and stop the payment, even when the service or product has already been provided. When that happens and the parties are not in agreement a dispute arises.
So how can blockchain help here?
There are currently multiple debates about the possibilities of smart contracts mimicking traditional contracts. Let’s review how smart contracts could be implemented, and what the advantages are.
Smart contracts are digital agreements, made tamper-proof because they are run on a decentralized infrastructure.
Agreement terms can be put on the blockchain via smart contracts and accepted by parties using their digital identities. The Chinese court already accepts such implementation as digital evidence.
In a more sophisticated manner, such terms may be connected by an incremental payment agreement. For example: “I will pay you when the goods have arrived, when the goods are confirmed to be in the proper condition, when the customs bureau has released them, and when ownership records have been changed.”
The main concern related to smart contracts mimicking traditional agreements is the necessity of obtaining data from the real world. They cannot “talk” to data itself, so there must be a means of connecting to the sources of such data.
Among them could be different blockchain applications (supply chain visibility, production tracking, etc.), data feeds directly from iOT devices, aggregators of such data, public/authority registries, different ERP systems, feeds from shipping companies, etc.
These applications may be using different blockchains, or may also be built using Plasma implementation. For any proposed implementation to operate efficiently, it must be blockchain-agnostic, meaning it is able to connect to different blockchains, and not limited to operating with only one root protocol.
As an example of integration with OCR paper invoices, shipping documents, certificates, documents from customs, etc. could be converted into JSON strings and recorded to the blockchain for further processing.
Receiving such data confirms successful performance on the provider side, and payment is then executed. This is a somewhat sensitive topic in China, but for informational purposes we will review a few possible implementations:
⦁ The smart contract is connected to a banking or other payment system. When Oracles deliver information about the successful performance of a provider, the smart contract sends an unconditional signal to a bank account or other payment system to initiate a payment.
⦁ The smart contract initiates payment using cryptocurrencies. This is not currently possible in China, but let’s review it, just as an example. This is an initial sample of a smart contract on the blockchain.
Currently such constructions, if present, are mostly connected to one particular protocol and/or cryptocurrency, which makes it a bit selective and limited. We think the ability of such transactions to connect to multiple blockhains for processing transactions is a must.
In the long run, if and when different entities, industries or governments accept standards based on different blockchains, cross-blockchain and cross-protocol implementation will be more favorable, providing more flexibility and advantages.
⦁ The smart contract initiates payment in stable coins associated with a particular currency. This is an interesting sample. In our implementation, each token has its unique ID, similar to the money we have in our pockets. Combining this with the fact that participants have unique digital identities presents interesting opportunities for implementation.
For example, an authority may issue a certain amount of such tokens to a responsible company, to deliver a particularly complex project. With token IDs, the issuing organization would be able to track how the issued amount of money was spent, and to whom it was transferred.
This allows for the control of cash flow and prevents the use of the funds for fraudulent purposes. Basically, it closes the gap that once allowed Bitcoin to be spent on various illegal activities and become a tool for shady money transfer between countries.
Having the terms of an agreement confirmed in one place and approved by the counter parties, provision and payment information enables a perfect “container” for arbitration should a dispute among the counter parties arise.
For certain types of agreements (e.g. certain types of international trade agreements) arbitration could take place directly “in” this smart contract, where the arbitrator, after reviewing all the stored material, makes a decision to execute or not execute the transaction.
For other types of agreements, it gives both parties and arbitrator faster access to all the relevant information, which helps to increase the speed and reduce the cost of the arbitration procedure.
A Chinese arbitrator in Nanjing is already implementing blockchain to store and process cases and negotiate resolutions. It is quite realistic that such activities will end up providing access points for implementation, similar to the one described above, because of the obvious advantages for all participants in the market.
Q: Interesting. So in which scenarios do you think these implementations might work?
Blockchain implementation has a number of use cases, from building interoperable applications, to creating transaction smart contracts, to being integrated into applications built on other blockchains. International trade smart contracts are only one example. There are a large number of use cases for domestic transactions and various non transactional applications as well.
As one of the use cases, we are building a B2B marketplace platform. The big vision of this platform regarding international trade is to allow an SME from, for example, Africa, to get direct access to international markets, with the ability to execute standards-based contract sand bypass intermediaries
Chinese trading companies wanting to gain access to a foreign provider from, say, New Zealand. The platform has a number of use cases for domestic markets as well. The main idea is to create a trusted and efficient environment for businesses to utilize the advantages of blockchain technology.
Using classification models provided by InfiniVision, we would be able to separate client, provider, products and orders into certain classes to implement a better matching.
A very broad example, just to glimpse our vision,is a client who is looking to buy 500 kg of grain or fruit, to be delivered in one week to a different provider; or a client who wants to buy 500 000 kg delivered over a 6-month period, in six separate shipments, and covered by 6 incremental payments.
Having the terms of order, timing, type of contract, buying and selling patterns based on previous history, and industry-relevant details, we would be able to provide significantly better matching, making the entire process easier and more efficient for both sides.
We are happy to get connected to trading or manufacturing enterprises, to potentially establish mutually beneficial partnerships.
That is pretty much it. Thank you so much for having us here.