Technical perspectives of an ICO on the Ethereum platform

TECHNICAL PERSPECTIVES OF AN ICO
28/11/2017
STEVE DEGOSSERIE, CEO MI8
Shutterstock

MISSION-CRITICAL APPS, BOTS & SMART CONTRACTS
DEVDAY17 - TECHNICAL PERSPECTIVES OF AN ICO
We build end-to-end digital solutions
to boost your business’ operations.
Steve Degosserie, CEO mi8 SPRL
▸ 18 years in Software industry
(McKinsey Solutions, Zetes, Fluxys)
▸ MSc in Digital Currency &
Blockchain technology,
University of Nicosia (Cyprus)
▸ Currently working on a token sale
for the Stampify project
Clients we serve

The world has a fundamental problem with corporate governance
Almost everywhere in the world, the fundamental principles of corporate
governance — the way business organizations are created, run and liquidated —
are a remainder of a pre-technology era, deeply misaligned with today’s world.

INTRODUCING STAMPIFY
Stampify paves the way to the business of tomorrow, by providing
entrepreneurs, startups and companies with new-generation corporate
governance tools. Stampify's mission is to build a frictionless business
world where connected organisations work together with transparency,
ﬂexibility and trust. To do that, Stampify takes the most out of advanced
technology, including distributed ledgers.

LET’S MINT TOGETHER : DEVDAY TOKEN

AGENDA
▸ Bitcoin, mother of Blockchains
▸ Ethereum & Smart Contracts
▸ Decentralised Apps : towards Web 3.0
▸ Crypto-economics & Mechanism Design
▸ Cryptocurrencies, Utility Tokens & the ERC20 standard
▸ ICOs : the Good, the Bad and the Ugly
▸ Token dev toolbelt : Trufﬂe, OpenZeppelin & Parity
▸ Let’s mint together : DEVDAY token

BITCOIN, MOTHER OF BLOCKCHAINS
Bitcoin is a private, decentralized,
digital cryptocurrency
▸ Private: not issued by a sovereignty
▸ Decentralized: no issuing party;
units are issued algorithmically
▸ Digital: Fully electronic; with no
underlying peg to assets
▸ Cryptocurrency: Anti-
counterfeiting though
cryptography

BITCOIN, MOTHER OF BLOCKCHAINS
▸ October 2008: Satoshi Nakamoto’s
Bitcoin design paper
▸ January 2009: Genesis block;
Bitcoin becomes operational
▸ October 2009: $1 = 1,300 BTC
▸ February 2011: $1 = 1 BTC
▸ April 2013: 1 BTC = $100
▸ December 2013: 1 BTC = $1000
▸ October 2017: 1 BTC = ~$6000
▸ November 2017 : 1 BTC = ~$10000

WHAT IS A “BLOCKCHAIN” ?
Under the hood of Bitcoin, is the
Blockchain, or Distributed Ledger
Technology (DLT)
“An incorruptible digital ledger of
economic transactions that can be
programmed to record not just
ﬁnancial transactions but virtually
everything of value.”
Source: CapGemini, Blockchain: Opportunities and Challenges across Multiple Industries [https://www.capgemini.com/resources/blockchain-opportunities-and-challenges-across-multiple-industries/]

WHAT IS A “BLOCKCHAIN” ?
blockchain technology
A look at
The blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this
technology, participants can confirm transactions without the need for a central certifying authority.
Potential applications include fund transfers, settling trades, voting, and many other uses.
Someone requests
a transaction.
The transaction
is complete.
A verified transaction
can involve
cryptocurrency,
contracts, records,
or other information.
The new block is then added to the
existing blockchain, in a way that is
permanent and unalterable.
The requested
transaction is
broadcast to a P2P
network consisting
of computers,
known as nodes.
What is it?
How it works:
Increased Complex
The network of nodes
validates the transaction
and the user's status
using known algorithms.
Validation
Once verified, the
transaction is
combined with
other transactions
to create a new
block of data for
the ledger.
Source: PwC, Making sense of Bitcoin, Cryptocurrency, and Blockchain [https://www.pwc.com/us/en/ﬁnancial-services/ﬁntech/bitcoin-blockchain-cryptocurrency.html]

ETHEREUM & SMART CONTRACTS
Ethereum is a decentralized applications platform whereas
Bitcoin is (mostly) a decentralized payment system.
▸ Bitcoin: BiTCoin cryptocurrency, store of value,
deﬂationary, simple scripting language , small / slow
blocks, PoW consensus, conservative evolution.
▸ Ethereum: ETHer in-app currency, eternal inﬂation, EVM
runtime environment, Turing-complete programming
language, dynamic block sizes, PoW but upcoming PoS
consensus, substantial innovations in the pipeline.

ETHEREUM & SMART CONTRACTS
Source: Diagram by codebrahma.com
“A Smart Contract is the automated
execution of an agreement.” (code)
Smart Contracts are tiny pieces of
software code that execute
autonomously on the Blockchain.
Contracts are made between humans.
Smart Contracts are running
agreements between
humans, apps & devices.

DECENTRALISED APPS : TOWARDS WEB 3.0
▸ Web 1.0 : Static pages, client-server, e-commerce
▸ Web 2.0 : Social web, clouds (third-party servers)
▸ Web 3.0 : Peer-to-peer web, serverless, “Post-Snowden”
Ethereum’s protocols for Web 3.0: ETH + BZZ + SHH + P2P
‣ ETH : blockchain activities (tx, blocks, code)
‣ BZZ (Swarm) : decentralized (incentivized) storage
‣ SHH (Whisper) : inter-node secure & private messaging
‣ P2P : networking layer interconnecting nodes

CRYPTO-ECONOMICS & MECHANISM DESIGN
Game theory is the study of how and why people make
decisions. Or more speciﬁcally, the study of mathematical
models of conﬂict and cooperation (= games) between
intelligent rational decision-makers.
It has a wide array of applications in economics, politics,
political science and sociology, as well as logic, computer
science and biology.
Importance of game theory in economics: 11 “game-
theorists” have now won the Economics Nobel Prize.
Source: Cryptoeconomics In Context - https://hackernoon.com/cryptoeconomics-in-context-6435ad6839be; Vitalik Buterin, The Cryptoeconomics Way - https://www.youtube.com/watch?v=lYGOMGqz9zE

Mechanism Design is also known as reverse game theory.
It’s a ﬁeld in economics and game theory that takes an
engineering approach to designing economic mechanisms
or incentives, toward desired objectives, in strategic
settings, where players act rationally.
The game designer:
‣ chooses the game structure rather than inheriting one
‣ is interested in the game's outcome

What makes Bitcoin (and other blockchains) special is not a
speciﬁc technology, it’s the concept of Cryptoeconomics,
that is, using Cryptography AND Economic Incentives to
achieve information security goals.
▸ Cryptography can prove properties about messages that
happened in the past
▸ Economic incentives deﬁned inside a system can
encourage desired properties to hold into the future.

When building a system, using Cryptography and Mechanism
Design, a Blockchain Developer must carefully:
‣ Apply crypto wherever needed to ensure the basic building
blocks of the system will be trustworthy (digital signatures), and
tamper-resistant (hashes, encryption).
‣ Decide what are the desired properties of the system (=
outcomes) that will hold true in the future
‣ Design the right economic incentives / disincentives so that the
desired properties will effectively hold true well into the future.

USE ECONOMIC INCENTIVES TO REWARD
PARTICIPANTS WHO FURTHER THE SYSTEM’S
OBJECTIVES, AND PENALIZE THOSE WHO
HARM IT.
V. Buterin, Ethereum co-founder

So, whether building a Blockchain platform, or an app on top of
an existing Blockchain, it is important to carefully design the
economic incentives for the various actors of the system:
‣ Miners
‣ Resource Providers (compute / storage / etc)
‣ Investors
‣ Community (developers)
‣ End-users (or the service / product)

ICOS : THE GOOD, THE BAD AND THE UGLY
What’s an Initial Coin Offering (ICO) ?
‣ Process of openly raising funds (crowdfunding sale),
typically via cryptocurrencies, by issuing a Utility Token at a
certain price, with the promise to investors that raised
funds will be used for developing a product or service,
whose business model, and related business / technology
information, is described within a document shared
publicly (= whitepaper).
‣ It’s like an IPO, but with Digital Coins …

ICOS : THE GOOD
▸ Simpler & faster way of raising money (compared to tradition
Initial Public Offerings process, w/ heavy due diligence process,
costly third parties involved, or Venture Capitalist rounds)
▸ Global scale -> “The world is a village”
▸ Fully transparent: whitepaper, team composition, code for
contracts of Token & Sale are usually published in advance
▸ Purely algorithmic, relatively simple to setup (in days / weeks max)
▸ Gnosis: $12M in 10 min; Brave $35M in 30 sec; Filecoin $200M in
60 min (totally $257M)

ICOS : THE BAD
▸ Risky capital with no guarantee of ROI
▸ Future Promise: investor must assess business model potential, team
experience & ability to deliver, technology readiness, market size
▸ So many ICOs: “good” projects have trouble getting exposure
▸ Few regulations, or vary from country to country, ranging from permissive, to
gray-zone, to entirely forbidden / banned
▸ Token sometimes assimilated to securities, assets —> Taxes, VAT
▸ Complex whitelisting procedures required: KYC=Know Your Customer,
AML=Anti-Money Laundering, CTF=Counter Terrorist Financing,
PEP=Politically Exposed Persons

ICOS : THE UGLY
▸ Still complex from a technical perspective for a non tech-savvy person (actually,
even for tech person !)
▸ Loss of millions of USD due to security vulnerabilities in Smart Contracts: tricky
aspects of the Solidity language, insecure third-party libraries / contracts, hacks
▸ Any tricks to get exposure in medias / social networks is used
▸ Very lucrative : social network inﬂuencers monetizing access to their
followers
▸ 1 tweet or post can be worth several Bitcoins !
▸ Nothing really prevents the team behind the project to disappear with the
funds raised …

ICO : GET RICH OR DIE TRYIN'
50 Cent (~= 0.00005 BTC = 5000 Satoshi)

CRYPTOCURRENCIES, UTILITY TOKENS & THE ERC20 STANDARD
▸ Cryptocurrency: digital currencies minted (or mined)
using encryption protocols that securely regulate unit
production and monitor exchanges/transfer of funds.
▸ Utility Token: Utility tokens (or user tokens / app coins),
represent future access to a company’s product or service.
If not designed as investments and properly structured,
they are exempt from federal laws governing securities.
▸ /! Carefully design your token so it’s not considered as a
tokenized security, subject to SEC regulations (Howey Test)

TOKEN DEV TOOLBELT : TRUFFLE
The “Ethereum Swiss Army Knife”
▸ Built-in Smart Contract compilation, linking, deployment and binary
management
▸ Automated Contract testing for rapid development
▸ Scriptable deployment & migrations framework
▸ Network management for deploying to both public & private networks
▸ GitHub: https://github.com/trufflesuite/truffle
▸ NPM: truffle

Demo: bootstrap a Truffle project
We’ll start from the metacoin box
‣ npm -g install truffle
‣ truffle unbox metacoin
‣ truffle compile

buildcontracts: compilation artifacts
contracts: Solidity contracts
migrations: Deployment scripts
test: Tests written in JS/ or Solidity
truffle.js: Truffle’s config file

trufﬂe test
‣ compiles contracts
‣ deploys to built-in
TestRPC
‣ executes tests in an
isolated manner

trufﬂe develop : integrated dev console

trufﬂe(develop)> deploy

Interact with your deployed contract …

TOKEN DEV TOOLBELT : OPENZEPPELIN
Open Framework of reusable and secure smart contracts.
▸ Focused on security, modular approach, open source.
▸ Reduce the risk of vulnerabilities in your applications by
using standard, tested & community-reviewed code.
▸ GitHub: https://github.com/OpenZeppelin/zeppelin-
solidity
▸ NPM: zeppelin-solidity

Demo: create a simple ERC20 token
‣ Create new smart contract that inherits from BasicToken
‣ Define name, symbol, decimals & initial supply
‣ Write more advanced tests
‣ Deploy token using Truffle deploy
‣ Interact with token using Truffle develop

Test suite

TOKEN DEV TOOLBELT : PARITY
Full-node client by Parity Technologies
▸ Fast & secure, cross-platform, reliable
▸ Written in Rust programming language
▸ Built-in web-based Wallet & Dapp environment
▸ Register & interact with your smart contracts
▸ Can also be used for private or consortium deployments
(PoA consensus)

TOKEN DEV TOOLBELT : PARITY
Demo: deploy simple ERC20 token to Parity node
‣ Deploy token using Trufﬂe deploy
‣ Interact with token using with Parity web UI

Designing a real-world ERC20 token & crowdsale involves
making a lot of business & technical design decisions:
‣ Token: total supply, symbol, decimals but also, issuance
model, burning or not, retained qty for founders / business
ops, vesting schemes, pegging to fiat currency, dual tokens
‣ Crowdsale: start / end time, sale periods, goal, cap,
emergency stop, allow refund if goal not reached,
gamification (bug bounties, deals), fiat / crypto supported
for payments, …

Open Zeppelin contains base contracts for tokens:
▸ StandardToken: full-featured ERC20-compliant token
▸ MintableToken: token can be minted (e.g. when purchased)
▸ BurnableToken: burn function (decrease total supply)
▸ PausableToken: pause token transfers (e.g. during sale)
▸ TokenTimelock: lock tokens during a period of time
(vesting)

Open Zeppelin contains base contracts for crowdsales:
▸ Crowdsale: ﬁxed-duration & rate, wallet for raised Ether
▸ CappedCrowdsale: max amount of tokens for sale (cap),
sale can end prematurely if cap is reached before end time
▸ RefundableCrowdsale: minmim amount of tokens to be
sold (goal), investors are refunded if goal not reached
▸ FinalizableCrowdsale: custom ﬁnalization logic at the end
of the sale (e.g. burn unsold tokens, mint a reserve qty, etc)

Demo: create a DevDayToken contract
‣ Tokens should be ‘minted’ when an investor buys tokens
‣ name: DevDay Token
‣ symbol: DEVDAY
‣ decimals: 18 (same as ETH)
‣ initial supply: 0 (token minted when purchased)

Demo: create a DevDay Token sale contract
‣ Creates and owns Token contract
‣ Cap: 10 ETH, Rate: 500

THANK YOU !
MISSION-CRITICAL APPS, BOTS & SMART CONTRACTS
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Technical perspectives of an ICO on the Ethereum platform

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