Jorge Ordovás

Keeping a record of information on public Blockchain networks (such as Bitcoin, Ethereum or others) involves solving the so-called "Byzantine Fault": several contingents of the same army surround an enemy city, and have to agree, in a hostile environment (where emissaries sent between camps could be killed by the enemy, and messages lost; or worse, with potential traitors among them, who can kill the emissaries, or alter the orders received) to attack the city in a coordinated way. If they can get the sum of most of the forces at their disposal to attack at once, they can win the battle (but if they cannot get a minimum number of forces to attack in a coordinated way, they will lose). Global Management and Resolution for critical services In the field of public Blockchain networks, the challenge is how to bring together the different users of the network, connected to each other by an insecure medium (P2P connections over the Internet) in which information may not travel uniformly (or may even be altered or lost along the way) to make a coordinated decision (what will be the next block in the chain, and therefore, which transactions are recognised as valid) without there being a centralised authority that directs the process. The key to solving this problem is to apply game theory, implementing a mechanism called "Proof of Work" (PoW). Its objective is to incentivise the behaviour of certain actors, the miners, to use their computational capacity to generate new blocks containing information accepted by consensus by the entire network, following the rules defined in a competition that involves carrying out very computationally expensive calculations. In exchange for this work, the miners receive compensation (in the case of Bitcoin, they receive 6.25 bitcoins plus the commissions from the transactions included in the blocks they generate). The "51% problem" Potentially, a miner with a majority of the global computing power of these networks (for example, by having quantum computers...) could alter their functioning by causing unexpected events (slowing down the confirmation of new transactions, blocking payments related to a specific entity, or causing forks in the blockchain in a premeditated way that would allow him to spend the same cryptocurrency twice in exchange for goods or services already consumed). This situation is known as the "51% problem". However, in practice, if a miner were to obtain this computational capacity and use it to generate anomalous behaviours such as those identified, he himself would be the main loser, since he would cause a crisis in the network that would put at risk the possibility of continuing to obtain more rewards for generating new blocks, not to mention the probable crash in the market that would cause the price of the cryptocurrency in the network to collapse (and therefore the income he obtains from his activity). It is much more productive for this miner to follow the defined rules and get that return than to "cheat" and risk the return on his investment in the infrastructure needed to achieve that computing capacity. BLOCKCHAIN Incentives in business blockchain networks: a new approach January 16, 2023 The environmental impact of Blockchain technologies To guarantee this result, the "network effect" (the number of miners working on the network to compete for the generation of new blocks) is key. The higher the cost of obtaining a relevant percentage of the network's computational capacity, the greater the incentive to dedicate this infrastructure to complying with the rules established in the network. And this is where we run into a problem: the environmental impact of these technologies, as the computational capacity of networks such as Bitcoin, which require specialised hardware and consume large amounts of electricity to operate, has increased. The chart shows how the curve representing the computational capacity of the Bitcoin network continues to grow over time, currently exceeding 200 trillion operations per second. Chart: Bitcoin network computational capacity, in https://www.blockchain.com/charts/hash-rate While there is an open debate about this impact of mining in public Blockchain networks, compared to other activities that also demand an intensive use of infrastructure and also generate a significant environmental footprint, and despite the fact that there are more and more projects that try to take advantage of renewable energies for mining, there is a real problem derived from the need for energy to sustain the PoW process and different initiatives are proposed to radically modify the way in which a Blockchain network reaches consensus, highlighting the alternative that we call Proof of Stake (PoS). More and more Blockchain projects seek to reduce energy consumption and use renewable energy sources The aim of replacing PoW with PoS in public Blockchain networks is to achieve a mechanism that is as secure as mining, but which is not based on the need for computational capacity to participate in the process of validating new blocks, but on a random process in which the more cryptocurrency in the network one owns, the more likely one is to be chosen to generate a new block (and receive a reward for it). The most relevant case of transition from PoW to PoS is Ethereum, the public network par excellence for the use of smart contracts in decentralised services. Since Ethereum's inception in 2015, this transition was already considered for the future, but it did not begin until 2020. Beacon Chain, a new consensus mechanism for Ethereum This year, a network called Beacon Chain began to be deployed to manage this new consensus mechanism in Ethereum. This network, in tests since August 2020, will be integrated with the main Ethereum network in the coming months, in an event called The Merge, which will transform the way in which this network reaches consensus in the generation of new blocks without affecting all the smart contracts, data and services based on them that currently exist. A more than considerable challenge, considering the volume of business it manages. When this happens, there will no longer be miners, but validators who will have previously made a deposit of 32 Ether (Ethereum's cryptocurrency) as a guarantee to participate in the process of selecting the actors who will generate and validate new blocks in the Ethereum network. At the time of writing, the value of that deposit of 32 Ether amounts to about $98,000, and there are already more than 351,000 validators who have deposited more than 11 million Ether to be selected to participate in the process. Chart: Beacon Chain statistics, in https://beaconcha.in/ In each round, the Beacon Chain randomly chooses, from among all the available validators, the one known as proposer, who will decide the new block to be generated in Ethereum and the transactions that will be included in it, and a set of validators who will act as attesters, reviewing and accepting (or not) the block generated, so that it can be incorporated into the network (at a rate of one new block every 12 seconds). How Beacon Chain works This process does not require complicated calculations as in the case of PoS, so no relevant computational capacity is needed to be a validator, only to run a specific software that allows to connect to the Beacon Chain and participate in the consensus mechanism. If during this process both proposer and attester behave correctly, they will receive a reward for their work (higher in the first case). If they do not respond when elected, or behave incorrectly, they will receive a penalty (the amount of which depends on the damage their behaviour may cause to the functioning of the network), which will be deducted from the deposit they made to be eligible for the process. Beacon Chain incentivises compliance with Ethereum's rules: fair play maximises profits Should an actor be penalised on a recurring basis, they may even lose their entire deposit and be expelled as a validator, so this mechanism encourages behaviour according to the defined rules, in order to generate new blocks in the network in a coordinated and secure manner. The probability of being selected in the process is directly proportional to the number of deposits made, so whoever has contributed the most Ether as collateral, the more likely they are to be selected, and therefore, the greater the return on the new PoS process. Pure game theory: since behaving correctly maximises profit, and cheating minimises profit, whoever has the most Ether will have the most incentive to play by the rules (for whatever it's worth). BLOCKCHAIN What was traced first in Blockchain, the chicken or the egg? October 27, 2022 Ethereum evolution The evolution of Ethereum does not stop at the migration from PoW to PoS, there are more phases in the future to increase the capacity of the network through multiple blockchains where smart contracts will be deployed, which will operate in parallel, and the Beacon Chain will be in charge of guaranteeing security and coordinating the process of generating new blocks in all the chains that will make up Ethereum. However, there is not yet a definite date for this final phase; there are still many decisions to be made, developments and tests to be carried out. And first of all, confirm that 2022 will be the year of The Merge if nothing unforeseen happens with the implementation process of Proof of Stake on the current network. Rien ne va plus, or as they say in this decentralised ecosystem, WAGMI (We All Gonna Make It). Featured photo: Bastian Riccardi / Unsplash

If we had to highlight one of the most relevant proposals in the field of Web3 during the last months of 2022, we would probably have to talk about the rise of decentralised social networks, which the World Economic Forum points to for 2023 as one of the trends that could become tangible and provide value in the decentralised ecosystem most quickly. Several factors are behind this trend, which have probably been encouraged by some of the decisions taken by Twitter after the purchase of Elon Musk: Concerns about privacy and control of personal data have increased, and many people are looking for alternatives to traditional platforms that collect and profit from the information generated by their users. Decentralised social networks allow users to have more control over their data and privacy, as well as define new monetisation mechanisms for content generators. Growing awareness of the importance of decentralisation and the need for a more open internet. Decentralised social networks are not controlled by a single company or entity, making them more resistant to censorship and manipulation, and facilitating the possibility of using different applications while keeping the data under the control of the user, not the platforms providing the service. Opacity of the algorithms used by today's social networks, which are often challenged for their ability to tailor the results obtained by their users to suit their interests. Decentralised social networks offer a more neutral and objective experience. Two decentralised social networking solutions currently stand out for their maturity: Lens Protocol and Farcaster. Both share this general value proposition but, as we will see below, they differ in some aspects of their implementation. Lens Protocol Lens Protocol is a decentralised social networking protocol created in 2022, right in the middle of the explosion of NFTs, which probably conditioned Lens to fully rely on the non-fungible token standard (ERC-721) to build a decentralised ecosystem. When we register a Lens profile, it is created as an NFT in our wallet. When we follow someone on Lenster (a Twitter-like application) we create a "follower" NFT on the chain. And so on, any post we make or share is recorded in Polygon, the public blockchain network on which the solution is built. One of the most relevant aspects is the separation that Lens (and decentralised social networks in general) makes between data and tools (both creation and consumption), allowing developers to create applications by connecting and integrating different web3 and web2 solutions, or data on and off the blockchain, all using the LensAPI. Aplicaciones en el ecosistema de Lens. Fuente: The Block Research Lens now has more than 100,000 users, who have generated more than 1.4 million posts so far, since its launch in the middle of last year. Farcaster Social networks generate an enormous volume of data. Storing all posts, shares and favourites on the blockchain is expensive, burdensome and challenging on a large scale. However, perhaps including all that is overkill and all we need on-chain are the most essential primitives, such as one's identity and the ability to read and write data, to have a trusted ecosystem. This is Farcaster's approach. The main difference compared to Lens is its minimalist approach to data storage on the blockchain, which its creators call "sufficient decentralisation". BLOCKCHAIN What is happening with the public Ethereum network and will it ever be scalable? November 15, 2021 In this way, Farcaster's proposal is to build an open-source protocol and network architecture that allows any developer to query Farcaster's data and create different and customised clients (applications) on top of this data layer, in the same way that Gmail, Apple Mail or Outlook are based on the SMTP email protocol. Farcaster is currently built on the Ethereum proof network (Goerli), which it uses to manage user identity in a secure and decentralised way through smart contracts, while all the data of the social network itself is managed outside the blockchain, through a network of nodes called Hubs, which guarantee the propagation of changes in real time so that all the applications (connected to them) have a single, homogeneous view of the information. Farcaster Hub architecture and interactions. Source: Farcaster github An application is a programme developed to make it easier for users to interact with the Farcaster network. Users can choose the type of application that best suits their needs and switch between them at any time, while maintaining the same information (which resides on the network). There have been about 30 applications developed on top of Farcaster by the end of 2022, including a customer very similar to Twitter, which allows posting content, responding to other users and sharing their posts, sending direct messages, receiving notifications of mentions, searching for users and content, etc. BLOCKCHAIN The Merge: one small step for Web3, one giant leap for Ethereum September 19, 2022 Some Twitter functions (such as hashtags) do not exist in Farcaster, and the type of content that can be shared is currently more limited (only images or links) to initially reduce the volume of information generated. It is possible to condiv in this application one or more Ethereum accounts associated with the user profile, thus allowing among other things to use the NFTs they contain as avatar (getting a purple check). Farcaster customer for Android (you can check the NFTs associated with each account). Farcaster currently has more than 9,000 users (after a particularly significant growth since October 2022) and has more than 450,000 published messages. It should be noted that new user registrations are very restricted (they are processed manually, by invitation). The most relevant targets for the Farcaster team in the first half of 2023 are: Gain credibility as a neutral network, making it easy for anyone to run a Hub to decentralise storage. Reach 5000 active users/day (5% weekly growth). Migrate identity to the Ethereum core network. Increase network scalability. Improve user experience and APIs for developers. Conclusion The main challenge facing these decentralised social networks is to confirm the value proposition, define the incentive mechanism to attract content generators and consumers, and above all, establish the business model to sustain their activity, something that is not yet clear (and that not even companies like Twitter have managed to land so far). We will see if the trend continues in 2023 and Lens, Farcaster or other proposals manage to become the first mass-use web3 applications, beyond the ecosystem of early adopters from the crypto world. Blockchain The 7 priorities of a company when adopting Blockchain October 24, 2022 Featured photo: Clarisse Croset / Unsplash

Many companies have recently set their sights on the opportunity that Web3 will bring for the future of their business, in many sectors. As our CEO Jose María Álvarez-Pallete says, the transformation that it enables is already here, we are talking about a different ecosystem, a different Internet, much more intelligent, which is based on the existence of a "decentralised supercomputer" based on Blockchain technology, where business logic is programmed through smart contracts. Ethereum is the world's largest programmable Blockchain, the basis for this future of the Internet (Web3), finance (Decentralized Finance - DeFi) or self-managed digital identity (Self Sovereign ID - SSI), among other areas. Cyber Security AI & Data Web3 and the evolution of Internet Identity January 3, 2023 Ethereum in numbers and its influence on the Web ecosystem3 Despite market volatility and global macroeconomic uncertainties (inflation, war, energy crisis, etc.), the current Web3 ecosystem with decentralised services such as DeFi is a reality, thanks to Ethereum. This network offers surprising adoption and usage divs that are clear signs of maturity, such as those pointed out by Consensys (one of the most relevant companies in the ecosystem) in a recently published report: The number of unique users of the network (Ethereum addresses) has doubled to over 200 million in the last two years (early adopters, yes; but 200,000,000 is a lot of early adopters). More than one million transactions per day have been generated over the last 12 months. The cost of using existing services on the network (one of the most historically relevant constraints to wider adoption) has steadily declined since January 2022. Incentives for the actors that make Ethereum's network possible (the so-called "miners") reached USD 1.8 billion since mid-March 2022, the highest among the top 20 blockchains. On the other hand, a huge ecosystem of applications, tools, infrastructure and protocols has been developed over the last few years, making it increasingly easy to develop Web solutions and services3. Web3 Ecosystem (source: Coinbase) Ethereum has also become the solid technological foundation on which many so-called "Layer 2" (L2) blockchain solutions are built, offering networks with higher performance or lower transaction costs where Web3 services can be deployed, without sacrificing security or availability of information, as they periodically use Ethereum's "first layer" as a trusted repository of information. One of the most prominent of these "L2 solutions" is Polygon, which today manages the largest transactional volume of all existing Blockchain networks, and which also offers an ecosystem with a negative carbon footprint, unlike the significant impact of the Ethereum mining process (which is highly energy demanding to operate). A change that reduces environmental impact However, I have good news for the environment: this is true not only for networks like Polygon, but also for Ethereum since Thursday 15 September at 8:43 a.m. (Spanish time), when the network underwent one of the biggest changes in its history, known as "The Merge". This change consisted of merging the Ethereum network (with all the existing information and services) with the "Beacon Chain", a blockchain that allows managing a new consensus mechanism called "Proof-of-Stake" (proof of possession) that replaces the existing mechanism until now, "Proof-of-Work" (proof of work, or more colloquially, mining). The Merge activated at 8:43 on 15/9/2022 (Beacon Chain Client Console) In order to understand the magnitude of this upgrade (which is a milestone in a process that has lasted years) we can consider an analogy: The goal was to change the engine of the Ethereum network, replacing the existing one (which used highly polluting fossil fuels) with an electric one (drastically reducing carbon emissions), but with the challenge of doing it in mid-flight and without the passengers, crew or pilot even being aware of the slightest detail of the process or suffering any inconvenience whatsoever. This is what the Ethereum developers (and the entire ecosystem) have achieved, a true success story that we can tell our grandchildren about when they ask us what it was like when Web3 began. The Merge has enabled, with immediate effect, a 99.95% reduction in the energy consumption required to validate Ethereum transactions. This shift from the Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism radically changes the incentive model for the actors that make the network work. Until now, miners had to constantly compete to generate new blocks in the network (which contain the transactions generated by users of all existing services), requiring a large computing capacity (which they obtained by acquiring specialised hardware to carry out this mining process, which in turn required very high energy consumption for its operation). This investment that miners had to make, in order to achieve greater computing capacity than their rivals, was incentivised by obtaining a reward in cryptocurrencies (Ether, Ethereum's native cryptocurrency) every time they generated a block accepted by the network (the business case consisted of weighing the costs of this infrastructure against the income obtained, depending on the price of Ether on the markets). Reducing the carbon footprint also increases the attractiveness of Ethereum for companies and institutions with ESG objectives. The Merge has made it possible, with immediate effect, to reduce by 99.95% the energy consumption needed to validate transactions in Ethereum, thus greatly limiting its carbon footprint and increasing its attractiveness for companies and institutions with clear environmental, social and governance objectives, at a particularly sensitive time due to global concerns (especially in Europe) about energy scarcity and its high cost, or the increasingly evident impact of climate change. Proof of Work (PoW) vs. Proof of Participation (PoS) Therefore, as of 15 September 2022, there are no more "miners" (who have had more than enough time to "pivot" their business model during the years that this process of moving from PoW to PoS has lasted and take advantage of the investment made in infrastructure by moving to mining on other networks). In PoS we talk about "validators", and these players no longer need a large computing power to obtain incentives for generating new blocks. They now participate in a "lottery" where they periodically choose who will propose a new block and a set of validators who will give their approval to that block. The probability of being chosen for this process depends on the "ballots" they have purchased (to obtain each "ballot" they must first make a deposit or stake amounting to 32 Ether, just over €50,000 at the current exchange rate, which acts as a "deposit"). Those chosen in each round of this "draw" get a reward (in Ether) for their activity, if they perform it efficiently and according to the established rules, which is added to the amount initially deposited. Blockchain Hyperledger Besu: blockchain technology on the rise in the business environment September 8, 2022 This mechanism simply requires having an application permanently connected to the network, ready to participate in the process of proposing or validating new blocks when required. If, when chosen, it responds quickly and performs its task as expected, it will get the established reward. If it does not respond (e.g., because the application is not running at the time) or behaves incorrectly (or worse, maliciously), it will receive a penalty, the amount of which depends on the reason for the incorrect behaviour and the impact the action has had on the network. This penalty is deducted from the 32 Ether deposit previously made by each validator and is what incentivises these actors to behave correctly and honestly, following the rules. If a validator repeats his bad behaviour, his deposit will be progressively decreased, even to the point of being expelled (and losing those 32 Ether, plus any rewards he may have obtained up to that point). Thanks to this incentive mechanism defined in PoS, game theory (a branch of mathematics and economics) predicts that validators will behave honestly, thus guaranteeing the correct functioning of the network, because they will maximise their profit (in the same way that happened in the case of miners if they followed the rules in the case of PoW). Business is business. However, not everything has turned out to be as positive as it seems after The Merge. This milestone in the evolution of Ethereum was also aimed not only at reducing the environmental impact, but also at increasing the security and decentralisation of the network with respect to the situation that had arisen over the years due to the concentration of mining in a few hands, which posed a potential risk (several miners with a high computational volume of the network could agree and cause problems in its operation). BLOCKCHAIN What is happening with the public Ethereum network and will it ever be scalable? November 15, 2021 The Merge was just the first step towards Ethereum's future As we can see in the following graph, this concentration has only increased with the move to PoS, with only five players (including exchanges such as Coinbase, Kraken or Binance) accumulating more than 75% of the probability of being chosen for the generation of new blocks: Distribution of validators in Ethereum according to staking (source: https://beaconcha.in/charts) Looking to the future, in Ethereum's roadmap, The Merge milestone is just a first step, with a whole sequence of updates planned to make the network on which Web3 is being built even more secure and scalable, this new ecosystem that we will see develop fully over the next few years (something we are working on very actively at Telefónica). May the force be with Vitalik Buterin (the creator of Ethereum) and all the developers in their mission. And may we see it.

In a recent article, we looked through Gartner publications to see how expectations for blockchain application have evolved in recent years Today we will delve into some of the most relevant trends that we can observe in its latest "Hype Cycle", explaining from Telefónica's experience why we believe they are key to the massive implementation of this technology (especially in the business environment). Gartner Hype Cycle for Blockchain – 2021 Telefónica's commitment to Blockchain goes back almost 5 years. We have navigated and lived this story in first person, and although we have not been always relevant, we started 2021 with the recognition of Forbes as one of the 50 companies that are leading the use of Blockchain (the only Spanish company in the world to have been recognised as a leader in the use of Blockchain). If we review this latest Blockchain Hype Cycle, our positioning is very much in line with several of the trends it covers, to which we dedicate a large part of the activity we develop Blockchain Platforms / Blockchain PaaS When we talk about Blockchain, we are talking about a business enabler that allows information to be managed in a more transparent way, guaranteeing that it cannot be modified once it has been recorded. And it makes it possible to develop reliable and auditable business logic based on this data, avoiding the possibility of third parties affecting this processing for their own benefit. In the business environment, we all have systems, applications, portals and other multiple environments that need to interact with Blockchain networks to record and consult the information required in business processes. And in each of the projects where we have used Blockchain in Telefónica we have needed to create an "abstraction layer" that would make it easy to use the different existing technologies (private, public and consortium), as well as their quick and easy integration by all the systems and actors participating in the process. Thanks to this experience, we have developed our Blockchain PaaS service, TrustOS, which offers generic capabilities to easily and quickly compose projects that make use of traceability, certification, identity... in Blockchain, accessible through APIs. This solution avoids the need to know the characteristics of the multiple existing technologies and facilitates access to different networks (private, public or consortium) to make the most of their advantages with minimum effort. And it makes it possible to migrate from one Blockchain technology to another, or between networks, without impacting the business processes built up. Blockchain and IoT No single technology can be the "philosopher's stone" that transforms data into gold. The combination of technologies is key in general to bring the most value to the business, and the case of Blockchain is no exception. One of the challenges we face when applying Blockchain in a use case is how to ensure that the information recorded in the blockchain is correct. Otherwise, we risk having immutable data that we cannot trust. And for this we need to integrate other technologies, because Blockchain does not solve this problem. That is why Telefónica Tech has developed in our IoT solutions the ability to record information obtained by devices in Blockchain networks, through TrustOS. This integration is carried out simply and independently of the network and technology used, through APIs. Either through generic IoT platforms (for those devices that do not have "intelligence") or directly from the device (as is the case of the agreement for the development of IoT+Blockchain solutions that we reached with Aitos.io and Fibocom). In this way, we guarantee the non-repudiation, validity and integrity of the information without the existence of any intermediate service or platform that could alter the information. One of the relevant aspects to be able to connect the world of devices to Blockchain networks is to manage their identity and guarantee control of who is accessing what at any given moment. This need has led us to develop our own decentralised identity solution for Hyperledger Fabric, as this technology (the most widely used in the business world) has a centralised identity architecture that makes this type of project unfeasible. In order to facilitate its use by other companies that have this need, Telefónica has released the TrustID identity solution as an open-source project within the Hyperledger ecosystem, which evolves within the scope of the consortium. Decentralised identity The promotion of digital identity supported by distributed registry technologies is one of the clearest trends in the public sphere, both in Europe and in Spain, which are leading some of the most outstanding initiatives worldwide. In our country we can boast of the approval in early 2021 of the Reference Framework for Decentralised Identity Management (DID) with Blockchain technology. This is the first official standard developed in the world in this field, which places Spain at the forefront in the standardisation of these new technologies. The private sector has collaborated decisively in the development and approval of this standard, with the participation of Telefónica, companies such as BME and Astrea, and organisations such as Alastria, the Spanish association for the development of the national Blockchain ecosystem. At the European level, decentralised identity is an essential part of the European Blockchain Services Infrastructure, an initiative created in 2018 that includes all EU member states. EBSI's goal is to work together to harness the potential of Blockchain for the benefit of citizens, society and the economy. As part of this commitment, the association has built an infrastructure, consisting of a network of nodes distributed across the different member states, which will provide cross-border public services across the EU and will enable the development of applications in different fields (the aforementioned identity, as well as traceability, notarisation or secure information sharing, among others). Recently, moreover, the Secretary of State for Digitalisation and Artificial Intelligence has signed a cooperation agreement between Spain and Germany to work in the field of cross-border digital identity. This initiative aims to give citizens full control of their digital identities. All this suggests that in the coming years this specific area of decentralised digital identity will be one of the most relevant for the development of Blockchain-based services that can achieve mass use by EU citizens in their relationship with the public administration and with private companies. Interoperability between networks As initiatives based on Blockchain are developed in both the private and public sectors, the development of interoperability solutions between networks becomes a key aspect in order to connect and extend services and avoid "silos" that limit the full potential of this technology. This need is not new, every time networks are developed on which the possibility of sharing information and building value-added services is enabled (Internet, mobile networks...) interoperability is one of the decisive challenges for its mass adoption, going from limited environments (intranets, private networks, messages limited to customers of your own operator, etc.) to connecting any user and service in the world. In the coming months, Telefónica will combine different networks and technologies through TrustOS to respond to different needs in areas such as traceability, certification or identity. Facilitating our customers access to private and consortium networks (Alastria, EBSI, LACChain...) to develop interoperable use cases and take advantage of the capabilities of each ecosystem. Tokenisation Finally, we highlight the potential of tokenisation to enable the development of new business models, in which it is possible to create digital representations of assets (tangible or intangible) to facilitate their exchange and traceability. One of the most fashionable trends in recent months related to tokenisation are NFTs (Non-Fungible Tokens, another of the technologies included in the "Hype Cycle"). These tokens represent unique assets, such as works of art or collectibles, facilitating their exchange in markets and enabling not only the traceability of their life cycle, but also the creation of new business models (for example, guaranteeing the creator of a work a percentage of future sales, which he obtains automatically each time the ownership of the NFT that represents it is transferred). Tokens also allow for new gamification and reward mechanisms. As an example, to celebrate a decade of Wayra, Telefónica's innovation ecosystem, 10 NFTs corresponding to 10 original works were issued through TrustOS and given to participants in a competition in recognition of their participation. In the financial sphere, the use of Blockchain networks and tokenisation is enabling the sector to begin to evolve towards a decentralised environment. We are talking about DeFi (Decentralized Finance), another of the most important trends of recent times, which is enabling the development of alternative financial services, supported by stable coins (tokens that represent a digital dollar) and protocols developed on Blockchain networks. Commercial banks and central banks, as well as other players (such as Facebook) are also experimenting with the tokenisation of money to create a new ecosystem to solve some of the current limitations, such as the transparency of the monetary system, or the traceability of transactions to combat money laundering or tax evasion. The Blockchain Hype Cycle includes many other trends, which, together with those discussed in this article, will undoubtedly allow us to develop new services in the coming years that we have not even identified yet. An exciting time for all of us who are working to make Blockchain's expectations a reality. See you in the next Hype Cycle!

It has been several years since 2017 when Gartner first included Blockchain at the top of its "Hype Cycle" of emerging technologies. Back then he estimated that it would take 5-10 years to reach the mass market. It was also beginning to descend into the "abyss of disillusionment" alongside companions such as Machine Learning, autonomous vehicles and drones, among others. Today we are going to review the experience of companies like Telefónica in making Blockchain's expectations a reality. What has happened during this time? Are there already successful applications of this technology, four years later? What areas is it being applied in? What does the future hold for us?? The Ancient Age: The Beginning of Cryptocurrencies Strictly speaking, 2017 was not the first time that Gartner introduced something related to Blockchain in its "Hype Cycle". Two years earlier, in 2015, we could find cryptocurrencies on this curve. Probably this year, 2015, was a turning point for the first wave of bitcoin adoption. Companies such as WordPress, Microsoft, DELL or Destinia (to mention some Spanish companies) saw in this cryptocurrency an alternative means of payment for their customers. But the use of cryptocurrencies for the purchase of goods and services, integrated into the online shops of these companies, quickly fell into the abyss of disillusionment. The reason was simple: it did not solve any problems, for either party. There was no clear return for the companies. The number of users was low and the cost savings in the form of lower fees compared to alternatives were unattractive. In addition, there was the risk (technological, legal, economic, reputational, etc.) involved in adopting bitcoin. Nor did users have any incentive to replace credit cards or services such as Paypal, which were easy to use and already accepted as the usual and secure means of making online purchases. Gartner Hype Cycle for Emerging Technologies – 2015 The Middle Age: From Cryptocurrencies to Smart Contracts Between 2015 and 2017, expectations of the massive use of cryptocurrencies deflated, weighed down by their use as a means of payment. Companies began to look at the underlying technology that made cryptocurrencies possible. They thought of a "decentralised database" where information was stored, without intermediaries, secure and unalterable, and which could be used for more than just payments. Thus, in 2017, cryptocurrencies disappeared from Gartner's "Hype Cycle" to make way for Blockchain. Gartner Hype Cycle for Emerging Technologies – 2017 During this period, new technological solutions began to emerge. They were based on the basic concepts of cryptocurrencies applied to the deployment of general-purpose applications. They did not focus solely on payments and used public and private Blockchain networks. These applications, known as "Smart Contracts", make it possible to define business logic. Once deployed on these networks, they allow different use cases to be implemented securely (without any actor being able to affect their operation). They take advantage of the characteristics of immutability, traceability and transparency of the information in Blockchain networks, in those scenarios where these aspects represent a differential value The Modern Age: Technology in Search Of A Problem Well, that's great, but... 'what's the point of it', you may ask. Where does it make sense for a company to integrate some Blockchain technology? Does it really add value to the business? Is it just one more of these purely technological trends that do not go beyond proofs of concept and pilots? At that time, the objective of those of us who worked with this technology was to answer these questions. To identify use cases where its application was differential. We had to solve a problem that had not been solved until then, or we had to do it in a different way. It seemed difficult to generate revenue, but it did seem possible to obtain efficiencies (cost/time savings). Especially when we were looking at complex processes with multiple actors. During those two years we probably discarded 90% of the scenarios where we proposed to apply Blockchain. After the initial analysis it did not bring clear benefits. Sometimes it implied more complexity than what it solved, both technologically, operationally or in terms of governance between the actors involved. In other cases, it required a technological maturity that did not yet exist. Or it didn't make sense to apply Blockchain at all. But we tackled other projects where it made sense, especially in complex processes with multiple actors. In cases where there are intermediaries because we don't trust the information generated by third parties or there are conflicting interests (as in the reconciliation of international call billing between operators, for example). The French Revolution: Supply Chains Among the recurring use cases that were implemented in companies, one stood out above the rest. This was the application of Blockchain in supply chains. It had all the characteristics to become the ideal candidate: different actors involved, a linear process to monitor, multiple entities to control, potential impact on the business, etc. Telefónica was a pioneer in the application of Blockchain (along with other technologies such as IoT, Big Data or AI) in the transformation of one of our supply chains. We managed to implement a project with real returns: ROI in less than a year and substantial savings. It was not just a matter of applying Blockchain, but also of highlighting the operational improvements that the incorporation of these technologies allowed. This is explained in detail by the Global Supply Chain business area managers who made it possible, in this webinar: The Contemporary Age: Blockchain for All And so, we arrive at 2019, the year in which Gartner would no longer include Blockchain in its "Hype Cycle" of emerging technologies. It was already a firmly enough established technology to have a specific "Hype Cycle" in which to predict which application areas would have the greatest development expectations in the coming years. But also which ones were already at the bottom of the "abyss of disillusionment" struggling to find their "product-market fit" in order to reach the market definitively. Gartner Hype Cycle for Blockchain Business – 2019 If we look first at the lower end of the " abyss of disillusionment ", we find the generic concepts of " Blockchain " and " Distributed ledgers " (the superset of distributed ledger solutions, where Blockchain is also included). However, in 2019 we are starting to see the "return" of cryptocurrencies to the curve, as well as several related trends (ICOs and Digital Asset Exchanges). Taking this graph as a reference, in the last two years we can identify two very distinct trends: The increase in the use of private and consortium Blockchain technologies in the business environment, typically for process optimisation. The development of decentralised financial services based on public Blockchain technologies and cryptoassets. Blockchain In the Company In the business sphere, different realities have become evident (and which we have broken down in more detail in the following article): The maturity of Blockchain technologies specifically designed for the business environment The move from proof-of-concept to production environments The importance of return on investment The need to interoperate between the different networks (private, public and consortium) to obtain the greatest benefit. The importance of having reusable components (allowing us not to "start from scratch" each project). The value of effective decentralisation The importance of combining Blockchain technology with other technologies, such as IoT (to give greater veracity to the information that is recorded). Blockchain In the Financial Sector Since 2019, the development of decentralised financial services has increased significantly. There is growing interest from both customers who make use of them and companies in the financial sector. It is worth noting: The use of cryptocurrencies as an investment asset (not as a means of payment), both among individuals and by companies such as Tesla and Microstrategy (which have been publicly acquiring bitcoin since 2020) The growth of "stable coins", cryptocurrencies designed to remain stable in value (avoiding volatility, and thus reducing the risk of traditional cryptocurrencies) The development of DeFi (Decentralised Finance), a set of "decentralised" protocols and services (loans, deposits, derivatives, etc.), supported by the ecosystem of cryptocurrencies and stable coins, whose volume of business has increased sharply since 2020 The emergence of NFTs (Non-fungible tokens), which make it possible to develop business models based on unique assets (works of art, collectibles, etc.) The interest of central banks in the development of "digital money", the so-called CBDCs (Central Bank Digital Currency) Blockchain Today Garner recently published his latest Blockchain Hype Cycle (so far), where we can see some of these trends at different stages of the curve. Gartner Hype Cycle for Blockchain – 2021 Some of these trends will be key to the ultimate development of this technology, especially in the business environment.: The combination of technologies to bring the greatest value to the business. Consolidating PaaS solutions that make it easy to use Blockchain for quick and easy integration into enterprises, such as TrustOS. Consolidation of Layer 2 solutions to increase the performance of existing networks. The development of interoperability solutions between networks, to connect and extend services and avoid "silos". The promotion of digital identity supported by distributed registration technologies, where Spain is one of the leading nations. The development of new business models based on tokenisation It is clear that this has only just begun. At Telefónica we have an exciting challenge ahead of us over the next few years to continue to lead the adoption of Blockchain in the enterprise, to successfully address all these lines of development and to realise the expectations of Blockchain in Gartner's Hype Cycle, as we will discuss in a future article.