Due-Diligence Report on Commerce Block

CommerceBlock proposes to decentralize finance by providing a public blockchain infrastructure.

Their vision is, “To bring commerce to a decentralized world”.

CommerceBlock wants to take bartering, trade finance, and commerce and decentralize it. The team at CommerceBlock are building the financial tools required in trade and finance on the public blockchain without the need of “third-parties”.

Currently, in the traditional forms of finance and trade there are multiple external entities such as banks or “actors” that are unfortunately involved in the overall transaction. These banks or “actors” are intermediaries that receive a piece of each transaction via fees and commissions.

CommerceBlock wants to eliminate those “intermediaries” and thus reducing the costs to the end users. The side benefits are a dramatically simplified and faster process, that retains the anonymity for both parties involved in the transaction.

Right now, even if one were to use the public blockchain (decentralized) for trade and commerce transactions, one would need to interact with a private entity such as their local bank (centralized.

CommerceBlock focuses on utilizing cryptography while providing validity to each transaction using the public blockchain. This eliminates third party risk.

The bridge or mezzanine would effectively be CommerceBlock, connecting all your trade and commerce transaction between the public blockchain and private entities.

TOKEN MANAGEMENT & DISTRIBUTION

From the CommerceBlock whitepaper regarding the “Token Management & Distribution”

Asset issuers will be able to construct and distribute assets on public blockchains in a privacy-preserving manner. The token purchase agreement and other legal information can be directly associated with the token.

According to Nicholas Gregory:

“We are building an open source software. See the token as gas. Although it’s a network token. So, we envisage people joining our network and getting paid in CBTs, like using our escrow service.”

CommerceBlock plans to issue CommerceBlock Tokens (CBTs), a network token that will be tracked on a public blockchain. To use services in the CommerceBlock ecosystem, customers will have to pay in CBTs. The token will be initially tracked on the Ethereum blockchain using an ERC-20 smart contract. When a sufficiently viable sidechain or color coin scheme is available on a more secure public blockchain, CommerceBlock will transfer the value there.

They imagine a future in which customers using our infrastructure will also require payment in CBT, creating an ecosystem of applications revolving around CommerceBlock. The CommerceBlock network token lays the foundation for a public blockchain based ecosystem of trading platforms and infrastructure companies.

Companies that download our SDKs will be fully integrated with CBTs out of the box. By building a self-sustaining ecosystem of companies that accept CBTs, an emergent network of developers will be incentivized to improve upon and help maintain the open source libraries that CommerceBlock releases.

In this respect, CBTs have a binding effect: companies that build useful infrastructure using the CBTs will increase its value, providing further incentive to improve the libraries. This tightly couples the success of ecosystem companies to the CommerceBlock network token.

OFF CHAIN SMART CONTRACTS

Escrow and smart contract templates will be available for trade flow management. These templates will make multi-signature dispute mediation easier for B2B, B2C, and P2P trading applications. Templates for in-channel lightning network smart contracts will be available as well. API users in multi-signature escrow can engage their funds into swaps, CFDs, and other financial instruments. Extended with atomic swaps, a Bitcoin backed derivatives market could be constructed on top of the lightning network.

BIP PROPOSALS

The CommerceBlock team drafted up the BIP175 protocol specifically for their decentralized business suite platform. Thanks to this protocol, CB users can associate smart contracts with escrowed cryptocurrency addresses while allowing only client-side visibility.

CommerceBlocks first product offering is based on our implementation of the pay-to contract protocol described by Gerhardt and Hanke. This protocol is designed to mimic real-world payment interactions between merchants and customers. The protocol results in only the merchant and customer having cryptographic proof of who is being paid and for what.

To learn more about this BIP Proposal: https://github.com/commerceblock/pay-to-contract-protocol-specification/blob/master/bip-draft.mediawiki

ZERO KNOWLEDGE PROOF

In cryptography, a zero-knowledge proof or zero-knowledge protocol is a method by which one party (the prover) can prove to another party (the verifier) that a given statement is true, without conveying any information apart from the fact that the statement is indeed true. Another way of understanding this would be: Interactive zero-knowledge proofs require interaction between the individual (or computer system) proving their knowledge and the individual validating the proof.

Here is a great explanation of zero knowledge proof:

Zero Knowledge Protocol (or Zero Knowledge Password Proof, ZKP) is a way of doing authentication where no passwords are exchanged, which means they cannot be stolen. This is cool because it makes your communication so secure and protected that nobody else can find out what you’re communicating about or what files you are sharing with each other.

ZKP allows you proving that you know some secret (or many secrets) to somebody at the other “end” of communication without actually revealing it. The very term “zero knowledge” originates from the fact that no (“zero”) information about the secret is revealed, but the second party (called “Verifier”) is (rightfully) convinced that the first party (called “Prover”) knows the secret in question. Why would you need to prove you know the secret without telling it? When you don’t trust the other person, but still need to persuade them that you know it. So, what does the process look like?

OCEAN NETWORK

The Ocean Network is CommerceBlock’s version of the lightning network. It will contain smart contracts that will have the ability to add features. As of today, there has been no more published information on, the Ocean Network, and Nicholas was not at liberty to discuss any further.

HIGHLIGHTS

  • Zero- Knowledge Proofs Implementation
  • First open source implementation on github
  • Validated by community and BIP (Bitcoin Improvement Process)
  • Leverage the bitcoin network, product ready.
  • Chain agnostic could support Litecoin, Decred & Ethereum.
  • Customers already, OTC Market & bitsupply
  • Product exists on https://trade.commerceblock.com

ADVANTAGES

  • Optimizes logistics & information shared
  • lower cost
  • safe and secure
  • Reduces Intermediaries

UNDERSTANDING THE BUSINESS MODEL

The following is a Q & A that I had with Nicholas Gregory, co-founder at CommerceBlock:

Questions 1:

Who would you consider to be your “ideal” user?

Answer:

We started off in the OTC space building escrow. Since we set up as CommerceBlock, its B2Bs would want to reference transactions with trade data / invoices / assets.

Question 2:

What are some obstacles and or roadblocks for CommerceBlock? Things that keep you up late at night?

Answer:

More adoption of crypto, because we have customers already we are fine but the ICO has been more intense then I imagined. We still don’t know how customers will react to using a token.

Question 3:
Does that mean that as a business CommerceBlock without the TGE has a viable revenue stream to sustain itself already?

Answer:
Potentially, however, with mainstream adoption of crypto coming we need to scale, plus we don’t want business investing in private blockchains like RS, etc.

Question 4:
What misconceptions and or misunderstanding that exist when it comes to people understanding CommerceBlock? Or is that not an issue?

Answer:
I don’t think they always understand it, it’s a failure on our part, so we tried to simplify with this https://www.commerceblock.com/commerceblock-two-pager.pdf

Question 5:
With any business endeavor mass user adoption is an issue, how do you plan on gaining user adoption?

Answer:
We build use case out on our blog, simple B2C apps like trade.commerceblock.com is and how we bring in the B2B via similar ways.

UNDERSTANDING THE TECHNOLOGY

The following is a Q & A that I had with Omar Shibli, CTO & co-founder at CommerceBlock:

Question 1:
Can you explain how CommerceBlock integrates with the Lightning Network (LN) and Sidechains?

Answer:
Yes, we have several use cases that we explored on our blog, sidechains will be used for token issuance and management, for instance we can tokenize gold for gold fund, or silver, or apartment, in fact we have partners in real estate and hedge funds to use our platform.

Regarding the LN, we would leverage it for decentralized exchange, specifically for hedging using atomic swaps. We have explored these options more in details in our blog.

Question 2:
Okay great so oracles are a component to tie off chain like BTC to ETH, in terms of smart contracts?

Answer:
Correct it’s used to feed external data like exchange rates.

Question 3:
So how does CommerceBlock work with the Raiden Network?

Answer:
We don’t have plans to support Raiden at this point, we are focusing on bitcoin/Ethereum, LN and sidechains over bitcoin as first phase.

Question 4:
Is the CommerceBlock network independent of ETH network? The token CBT is ERC 20, but the middleware is independent right?

Answer:
Correct, we are using ERC20 for crowdfunding and bootstrapping the network, since it’s the defacto way of doing ICOs today, our platform will be independent from Ethereum blockchain, we are considering migrating to RSK or different protocol in the future, our sidechains and services will be independent on top of bitcoin as a first phase, as most liquidity in bitcoin today, will be adding more cryptocurrencies based on market demand.

Regarding scalability issues, ETH and BTC has a lot of scalability issues, we believe that the ultimate way to solve this is on second layer networks, Lightning, CommerceBlock Network, etc… where these networks will be sort of aggregators that do clearance on the first layers.

Question 5:
Makes sense, N Tier or so on one layer take the brunt of some work and push it out to next layer?

Answer:
At this point, we only see two layers, I think it should be enough for the near future, in the far future, who knows, we are agile and up-to-date with the most cutting-edge tech and research out there, we will adapt with market needs.

Question 6:
Is scalability and resource bandwidth like data processed an issue, as you scale out and grow? Are the environments typically virtualized right?

Answer:
It depends, first scalability will be much higher in second layer networks because it’s more centralized, but as long as it’s pegged to the base layer, I think it’s acceptable tradeoff, decentralization and scalability is very different concepts, so we are trying to find tradeoffs where it makes sense.

Regarding your second question, yes, we want to leverage the power of cloud, all of our services will be available and easily deployable on the cloud.

Question 7:
Redundancy is key as, well right? Multiple environments?

Answer:
Yes redundancy is achievable if you have the right setup and tools on the cloud.

Question 8
Would that be managed by you or a third party?

Answer:
Both. Services will be offered by CommerceBlock, other participants could deploy our services and offer these services as well, nothing is stopping them really, our code is free and open source.

CHALLENGES

The immediate challenge I see are:

  1. Execution
  2. Marketing

Execution

As with most business projects especially in crypto, time and deliverables can pose an issue. The team at CommerceBlock is well-seasoned and may not have any issues, but it must be said, that executing on their road map and fulfilling on the timelines could be a potential challenge.

Marketing

Gaining mass user adoption is a challenge with any business, let alone in the crypto space. I am not quite confident on the plan set fourth, “We build use case out on our blog, simple B2C apps like trade.commerceblock.com is and how we bring in the B2B via similar ways.” But I also cannot ignore the ideal strategic partnerships and uses cases that CommerceBlock is initiated. For example, most recently with CG Blockchain. This may be a non-issue as the team is well seasoned, yet I must include it as a possible challenge to be forewarned. It is not a red flag, just worth noting.

ROADMAP

CommerceBlock will be ramping up very quickly over the coming months. As stated, they have already completed an open-source implementation and BIP specification of the pay-to-contract protocol. They will be using our own Ethereum smart contracts and token distribution web interface for our token sale planned for November of this year.

Once completed, they will be able to provide this infrastructure to our Enterprise Integration partners for use in their ICOs. Following a successful token sale in November, their immediate priorities will be to hire a larger team, research our token strategy, and complete their first Enterprise Integration. This requires them to extend their pay-to-contract implementation to use BIP 148s P2WSH. More details about this integration will be announced in the coming months.

They will have a working private beta for this client by early Q2 2018. Their dedicated research teams will establish their token strategy and begin drafting a specification for Q1 2018. They will see this infrastructure in beta by Q2 2018. Another team will research and implement an alpha design of their templated in-channel Lightning Network contracts by Q3 2018.

NOV. 28TH — CommerceBlock ICO goes live.
FEB. 2018 — First enterprise-grade integration of CB platform’s associated invoicing service.
APR. 2018 — Specs will be published on how Lightning Network in-channel contracts will work and asset issuance.

TOKEN SALE TERMS
Dates: 11/28/2017–12/19/2017
Token: CBT
Price: 1 CBT = 0.0624 USD
Protocol: ERC-20
Accepting: BTC, ETH
Soft cap: 2,000,000 USD
Hard cap: 25,000,000 USD
Supply: 1,000,000,000 CB
Note: All unsold tokens burned

TEAM

Nicholas Gregory, CEO Background in technology and finance. Senior roles at Merrill Lynch and JPMorgan. Involved in bitcoin since 2012. Working in crypto space since 2015.

Omar Shibli, CTO Technology start-up veteran, having had leadership roles at ZocDoc and Eyeview; opensource contributor to crypto projects on GitHub. 21

Dan Eve, Operations Seasoned business analyst in a FTSE 50 financial company. Evolved into a cryptocurrency advisor, trader, and miner.

Shachaf Rodberg, Design UX/UI designer with years of experience and a passion for cryptocurrencies.

Valerio Leo, Engineering JavaScript expert and smart contract developer.

Mohamad Shaib, Engineering Systems and Infrastructure Engineer, open source and smart contract developer. Passionate for cryptocurrency.

TREND ANALYSIS

B2C e-commerce sales worldwide from 2012 to 2018 (in billion U.S. dollars)

This statistic provides information on B2C e-commerce sales worldwide in 2012 and 2013 including a forecast until 2018. In 2016, global B2C e-commerce sales are expected to reach 1.92 trillion U.S. dollars. As of the fourth quarter of 2016 the average value of global online shopping orders via desktop amounted to over 143 U.S. dollars. E-commerce orders via mobile averaged around 114.52 U.S. dollars and tablet shoppers usually spent close to 110 U.S. per online shopping order.

Value of global peer to peer lending from 2012 to 2025 (in billion U.S. dollars)

The statistic presents the value of peer to peer lending worldwide from 2012 to 2014 and a forecast thereof for 2015 and 2025. The global P2P lending market was valued at 3.5 billion U.S. dollars in 2013.

Peer-to-peer (P2P) lending is a new type of “sharing economy”. P2P lending platforms help connect investors with borrowers without the bank acting as an intermediary. Between 2014 and 2015 the value of global P2P lending was expected to rise to a value seven times what it was in 2014 — from 9 billion to 64 billion U.S. dollars. By 2050 the value is expected to be close to one trillion U.S. dollars.

In the United States, 26 percent of people admitted that they used peer-to-peer payments. The value of mobile P2P payments in the U.S. amounted to around nine billion U.S. dollars in 2014 and it was predicted to increase to 86 billion U.S. dollars in 2018. Also, the number of mobile peer-to-peer payment users in the United States was predicted to increase significantly — from 53 million in 2014 to 126 million in 2020.

Total revenue of global mobile payment market from 2015 to 2019 (in billion U.S. dollars)

This statistic shows the global mobile payment revenue from 2015 to 2019. The worldwide mobile payment revenue in 2015 was 450 billion U.S. dollars and is expected to surpass 1 trillion U.S. dollars in 2019.

CONCLUSION

CommerceBlock is an exciting new project with a rock-solid team and solution to a real-world problem, “The large majority of commerce still relies on traditionally architected financial products and services.”

This is very true, and there has yet to be a viable solution.

CommerceBlock may very well be that solution.

As I mentioned earlier, there are some potential challenges around execution and gaining mas user adoption, however with a competent and seasoned team, these two issues might be easily mitigated.

The CommerceBlock project is breaking ground in a space and sector that sorely needs assistance, trade, commerce and P2P financing. How well CommerceBlock is received and how influential it can be in helping to positively transform the fintech landscape is yet to be seen, but they are on the path.

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