LACCHAIN: the new project of the Inter-American Development Bank (IDB)

A few weeks ago I had the opportunity to attend the event called "Blockchain Ecosystem Workshop Peru" at the Universidad del Pacífico (UP) in the city of Lima, organized by the Inter-American Development Bank (IDB). The event lasted two days and was attended by several Peruvian authorities: the Presidency of the Council of Ministers (PCM), the National Superintendency of Customs and Tax Administration (SUNAT), the National Institute of Defense of Competition and Protection of Intellectual Property (INDECOPI), among others.

There was also a group of people representing the private sector of the blockchain community in Peru: José Zarate de Stamping.io, Marco Esparza of Blockchain Life Solutions and other prominent entrepreneurs in the Peruvian technological field. By this I mean that it is very likely that the most knowledgeable people of this technology in Peru have been in the event.

The purpose of the event was clear, to present the projects in which the IDB was involved, as well as Everis, a technology services company, and Alastria, a Spanish blockchain consortium, so that in the future these initiatives can be implemented or developed in Peru (and other countries in Latin America and the Caribbean).

Several interesting topics were played; however, the central presentation was the LAC-Chain project, an initiative led by the innovation laboratory of the Inter-American Development Bank Group (BIDLab). Alejandro Pardo and Moisés Menéndez, explained quite clearly the LAC-Chain initiative.

First, LAC-Chain is a public-permissible blockchain. What does this mean? It means that any entity could be part of the blockchain (public), but that it has to be identified and authorized to act on the network, for example, as a node (permissible[1]).

Now, the purpose of LAC-Chain, taking as reference the Alastria case in Spain[2], is to serve as a blockchain infrastructure for different entities to operate on it. The difference in this case is that LAC-Chain is mostly directed to governmental institutions of the different countries that make up Latin America and the Caribbean (which is why there were so many authorities in the event).

LAC-Chain currently operates on TestNet (test network) and plans to operate on MainNet (main and functional network) this year. It will be a network managed by members of the LAC-Chain alliance that includes Alastria, Consensys, Everis, RSK, Enterprise Etherum Alliance and among others; who will act as validating nodes.

While Moisés Menéndez explained about the latter, one of the attendees asked a really interesting question (and one that many have surely done): How safe is it that, for example, the SUNAT uses the LAC-Chain network by entering information that can qualify as sensitive? What happens if a problem occurs? Could the armed forces do something to recover that shared confidential information through the LAC-Chain network?

I think the question is quite valid. Especially for the relatively recent news leaking personal information by Facebook[3], it is normal for one to worry about the final destination of the information they share on the Internet, even more so if it is classified or reserved government information.

Also, it should be taken into account that LAC-Chain will be managed by a few organizations, with which the benefit of decentralization[4] of the public Blockchains is reduced, maintaining a situation similar to the status quo, where we have to rely on different authorities or entities to carry out, for example, financial transactions.[5]

The response to this concern from the official attending the event allowed the exhibitors to explain the most important aspects of the LAC-Chain initiative: 1) the confidential information will not enter the blockchain and 2) the LAC-Chain member countries will define the applicable regulation .

With respect to the first, the idea is simple. The personal or reserved information will not be registered in the blockchain, in the sense that it will be stored in this database, but the information will be represented in hashes; that is, that in the blockchain only a representation of certain data will be recorded in a series of alphanumeric characters. In this way, confidential information will be maintained off-chain, while the blockchain will register the hashes.

The latter means that it will be possible to delete or modify the information represented off-chain without any fear. If so, the hash it will continue in the blockchain, but it will no longer represent the data initially referred to.

With respect to the second, the idea behind LAC-Chain is that the member countries of this initiative create their own Dapps (Decentralized Applications) on this Latin American blockchain. In this way, the different governments decide the utility that they will give to the LAC-Chain infrastructure, being able to adapt to the regulation of each country and giving the possibility that they can connect and disconnect.

In this sense, the validating nodes members of the alliance only validate, they will be neutral. The latter would be guaranteed because the allies have a confusion of interests so that they find it very difficult or unlikely to reconcile. However, the publication of a document on the governance model of the network is still pending, which I believe is necessary, considering that the most current criticisms of the existing Blockchains (in particular the public ones) are related to their systems of governance[6].

Three other projects were presented in the event that caught my attention. The first one is Khipus. It is a mobile phone application that is still being tested and that allows to register any photo or document in the blockchain of Alastria or Ropsten of Etherum.

This application would serve as a source of evidence against possible controversial scenarios, so that, using this application, the integrity and certain date of a documented event or event could be demonstrated through, for example, a photograph (an Vehicular accident).

In Spain, the use of this application could serve as a means of proof in a judicial process. Article 43.1 of the EU Regulation 910 / 2014 (EIDAS) states that:

"(...) will not be denied legal effects or admissibility as evidence in legal proceedings simply because they are in electronic format or do not meet the requirements of qualified service of certified electronic delivery".

Likewise, Article 326 of the Civil Procedure Law recognizes the probative force of private documents, when their authenticity is not challenged by the party to which it is prejudicial.

In Peru, I believe that it could also serve as a means of proof (electronic document) in accordance with article 192 of the Civil Procedure Code and the principle of probation. Thus, on electronic documents, Professor Marianella Ledesma Narváez states:

"(...) electronic records or supports are true documents, because they contain expressions of human thought or fact, incorporating them into their content, which is what makes them capable of proving the reality of certain events."

The second project that caught my attention was the one concerning the management of digital identity. Here we should make the difference between "identification" and "identity". This project is not about identifying a person with their basic information such as names and surnames, marital status and age, but the digital identity involves much more, from financial information to medical information.

In this way, it would be a digital platform that contains all the personal information of an individual, allowing him to better manage his data. Thus, depending on who you hire, the user of this platform may share the personal data you choose and deem necessary, having control over your data and may revoke your consent at any time. An example of use, in this case of Alastria ID, can be seen here: http://bit.ly/2UZ9pfS.

This platform would comply with the standards regulated in the General Data Protection Regulation (GDPR) applicable to the countries of the European Union, which are much more protective than the current Peruvian law on the protection of personal data and its regulations (Law No. 29733 and DS No. 003-2013-JUS).

Finally, after a brief explanation about the types of money (cash, banking and electronic), they introduced a platform that serves to make transactions with electronic money. The particularity here is that it works on a blockchain and the cash is represented in tokens. In this case we would be facing stablecoins[7].

The issuance of electronic money in blockchain, as expressed by the exhibitors, would not be prohibited in Spanish legislation. In Peru, it would not be either. The characteristics of electronic money and Electronic Money Issuing Companies (EEDE) are regulated by Law N ° 29885 and the resolutions of the Superintendency of Banking, Insurance and AFP (SBS), because it is a financial service and an entity supervised by this authority.

Thus, pursuant to Law No. 29885, which regulates the basic characteristics of electronic money as an instrument of financial inclusion, electronic money has the following characteristics: i) it is stored on an electronic medium, ii) it is accepted as a means of payment by entities or persons other than the issuer and has a cancellation effect, iii) is issued for a value equal to the funds received, iv) is convertible to cash in accordance with the monetary value of the holder, at nominal value, and v) does not constitute deposit and does not generate interest.

Regarding the electronic support and the technological platform, article 4 of SBS Resolution No. 6283-2013, Regulation of Operations with Electronic Money, mentions that:

"All the aforementioned supports [mobile phones, prepaid cards or other electronic device] they must have technological platforms that allow transactions online and in a secure manner, among the different types of users and participants of the electronic money network.

The Superintendence may authorize technological platforms that follow another transaction scheme, if it considers that the controls to be applied allow the associated risks to be properly managed. In these cases, the electronic money issuer will provide detailed information about the proposed modality and will attach the reports prepared by the Operational Risk Unit or equivalent. " (the highlight is ours).

In the end the last word has the SBS, it will depend on the authority to determine if using this platform based on blockchain technology it is possible to manage the risks associated with operations with electronic money, as well as fulfill its purposes.

The final reflection on the event is that many interesting innovations are coming. I do not know how long it takes to implement these or similar projects in Peru, especially because, according to an authority that attended the event, there is a very low digital awareness among Peruvians (eg, scarce use of the digital signature). However, I am sure that we will be having more news about LAC-Chain and other projects in the short term. I wish you the best of successes.


Notes of page:

[1] The word permisionada comes from the English word permissioned. It means that you need permits or authorizations to access and / or use the network.

[2] Alastria is a multisectorial consortium whose purpose is to serve as a blockchain infrastructure so that different entities in Spain (public and private) can develop applications and operations on this blockchain; so that transactions can be carried out more quickly and efficiently, but at the same time guaranteeing the identity of the participants and the registration of operations, complying with the regulations applicable to Spain and granting legal validity.

[3] The best known cases are Cambridge Analytica and the apps (Spotify, Netflix) that had access to private messages exchanged between users.

[4] Decentralization in the Blockchains is almost connatural at the end. Now different levels of decentralization are managed; however, the idea that originates from a blockchain is that where there is no central administrator or administrators, but the maintenance and validity of the transactions is carried by all the participants (nodes) of the network. The supposed benefit of decentralization is that it makes the record uncensored, inviolable and unchangeable.

[5] For example, we are relying on banks when we make interbank transfers.

[6] On the problems of governance in the Blockchains I recommend reading "The Blockchain and the New Architecture of Trust" (2018) by Kevin Werbach.

[7] The stablecoins they are cryptocurrencies that, unlike bitcoins or ethers, are not volatile, but their price is correlative or equal to that of an official currency (eg the US dollar). Brigitte Luginbühl, CEO of SwissRealCoin, explains it quite well: "Unlike cryptocurrencies such as Bitcoin, which are highly volatile, stable coins provide people with the pragmatic, benefits of a cryptocurrency, without having to worry about distressing price changes since they are grounded in the real world".

References:

ALASTRY (2018). Requirements and challenges for a country blockchain network. Taken from: https://github.com/alastria/alastria-platform/wiki/Alastria-Core-Technical-Platform#5-alastria–a-public-permissioned-blockchain-network Visited the 15-04-2019

ALASTRIA BLOCKCHAIN ​​ECOSYSTEM. (2018). [Simulation] This is how Alastria ID would work to buy movie tickets. Taken from: https://medium.com/@alastria_es/simulaci%C3%B3n-as%C3%AD-funcionar%C3%ADa-alastria-id-para-comprar-entradas-a-cine-14bded36dc6. Visited the 16-04-2019.

BUTERIN, Vitalik. (2017). The Meaning of Decentralization. Taken from: https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274. Visited the 15-04-2019

GUARD, Montse. (2019). Interview conducted by Cristina Albarrán in Computing.es. Taken from: http://www.computing.es/mundo-digital/entrevistas/1109745046601/blockchain-acabara-tecnologia-de-aplicacion-basica.1.html. Visited the 15-04-2019

LEDESMA NARVAEZ, Marianella. (2016). The Electronic Documentary Test. In: Foro Jurídico Magazine, N ° 15, pp. 17-25.

PUIG, Alex. (2018). The implications of decentralization. Taken from: https://medium.com/@alastria_es/las-implicaciones-de-la-descentralizaci%C3%B3n-ab8857cd51de. Visited the 15-04-2019

SHAH, Aakash and Surya VISWANATHAN. (2018). The Scalability Trilemma in Blockchain. Taken from:https://medium.com/@aakash_13214/the-scalability-trilemma-in-blockchain-75fb57f646df. Visited the 16-04-2019

WOLFSON, Rachel. (2018). An Explanation For The Rise Of 'Stable Coins' As A Low-Volatility Cryptocurrency. In: Forbes. Taken from: https://www.forbes.com/sites/rachelwolfson/2018/03/29/an-explanation-for-the-rise-of-stable-coins-as-a-low-volatility-cryptocurrency/#1f1c8bde5700. Visited the 16-04-2019.

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Adolfo Morán
Adolfo is Founder and Director of The Crypto Legal. Bachelor in Law from Pontifical Catholic University of Peru (PUCP). His practice is focused on research and advice on Civil Law, Financial Regulation, Privacy Law, FinTech and Financial Consumer Protection. Analyst at PsychoLAWgy. He has a specialization in Blockchain & Law from Blockgeeks virtual academy. He currently works in Vodanovic Legal, law firm specialized in financial law issues. His research focuses on Blockchain, Smart Contracts and FinTech.

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