The significance of the BLOCKCHAIN

I still covet Issue 1 of the first magazine launched in the UK to cover the Internet. It was a free supplement to an edition of ‘What Personal Computer’ which unfortunately I have now lost. Dated October 1994 and appropriately titled ‘INTERNET’, at 34 pages it is rather thin to say least, much of it advertisements. Page 7 describes the following three and half pages as ‘the most extensive ever published in a magazine’ and includes descriptions of sites such as ‘The BBC Networking Club’, CERN and a handful of corporate sites such as Microsoft, ‘Lotus Development’, Novell and Dell. It’s a fascinating snapshot of the genesis of a technology ten years before it really caught the imagination of the wider world.

Roll forward to today and we could be seeing the start of something equally revolutionary, Blockchain technology. The Blockchain is the enabling platform for the better known Bitcoin cryptocurrency. While Bitcoin attracts most of the interest of writers and news columnists it is almost certainly the Blockchain which is more important. Indeed like the Internet it has the potential to fundamentally and structurally change the way economies work and how transactions take place.

So what is it?

Just a matter of months after the collapse of Lehman Brothers in 2008 a rather mysterious character calling himself Satoshi Nakamoto released a White Paper ‘Bitcoin: a Peer to Peer Electronic Cash System’. The first sentence in the document introduces the concept of Bitcoin: ‘A purely peer to peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution’. With that the Blockchain and its first application, Bitcoin, was born. Its launch has effectively removed the need for any middlemen involvement in a transaction, hence the growing interest of governments and financial institutions.

Bitcoin is potentially significant but is still just a Blockchain application; a bit like relationship between email and the Internet. The Blockchain itself is effectively a database but one with a number of features that don’t necessarily appear in more conventional environments.

There are four elements usually associated with the Blockchain. It is ‘Encrypted’, ‘Distributed’, ‘Public’ (nobody owns it) and ‘Synchronised’. It works in a different way to traditional databases and incorporates a number of principles which are reflected in the features referred to earlier.

It is decentralised. In other words data is validated across a virtual network rather than in one particular centralised place. This allows its nodes to continually and sequentially record transactions on what it calls a ‘public block’. The ongoing chain of these transactions on the ‘block’ is where the description ‘Blockchain’ originates. Each block is distinguished from others by a ‘hash’, the encrypted signature which authenticates the transaction, and the combination of the ‘hash’ and the block ensures that it is not replicated.

The robustness of the Blockchain and its associated encryption and authentication processes facilitate another associated concept, that of ‘trusted computing’. If the Blockchain is the ultimate arbiter of the validity of a transaction then you don’t need an intermediary. You don’t need a bank, corporate or government to establish transaction safety. The rules of trust are embedded in the way the Blockchain itself works.

A third concept is that of the semi-public nature of any transaction taking place via the Blockchain. The fact that you have made a transaction is available to the public but the details of that transaction are opaque to anyone but the person making the transaction. The Blockchain’s encryption technology also ensures that the transaction cannot be hacked for any value that it may hold. It may be that your Blockchain holds Bitcoin and yet no one can access that information, not governments, corporates or other financial institutions.

‘Smart contracts’ are basically a set of instructions associated with a store of value, say a Bitcoin. To enable a transaction to take place without an intermediary the rules of the transaction and any associated transfer of value need to be established between the parties transacting. Once agreed and recorded the Blockchain governs the progress of the transaction automatically and in accordance with the conditions established at the outset.

‘Proof of work’ is a fifth and foundation concept of the Blockchain. It has been described as ‘the right to participate’ in the Blockchain system and effectively prevents users from changing records. Once a transaction has taken place it cannot be undone; it is protected by encryption and the ‘hashes’ that validates its authenticity.

Given the Blockchain is basically an encrypted database that facilitates peer to peer transactions without an intermediary the more interesting aspects are what you can actually do with it. Early applications have generally been financially based, notably Bitcoin, but there are other applications starting to emerge outside of the financial world. Listing those that are (slightly) better known is a bit like looking at that early Internet magazine listing of websites. It’s currently a very small list and the apps themselves are clearly at a very early stage in development.

Actual applications of Blockchain technology are few at the moment, less even than the numbers listed in that first internet magazine in 1994. A few that have caught my eye include ‘Lazooz’, ‘UjoMusic’ and ‘OneName’. Believe it or not if ‘Lazooz’ gains any traction it could be the successor to Uber. Billed as ‘social ridesharing’ it basically links people who have space in their vehicles directly with end users without the involvement of an intermediary. In its raw format it looks and sounds like a winner but perhaps there are still security and logistics issues that will need to be addressed. ‘UjoMusic’ positions itself as ‘a home for artists that allows them to own and control their creative content and be paid directly for sharing their musical talents with the world.’ I can see artists liking this site and certainly users, especially if they would like to establish direct contact with artists. ‘Onename’ is something different. It is essentially a means of establishing an identity on the internet, secured and supported by Blockchain technology. In time it could effectively become a digital signature, a method of authorising a transaction: ‘Blockstack is the global database for people, companies, websites and more.
Decentralized, privacy-centric, and blockchain-secured.’

Potential uses of Blockchain technology are extensive and range from applications in the financial services space to public and private and personal records, physical keys and other uses involving unique identifiers. For example voting could be undertaken via the Blockchain, security access facilitated both physical (keys) or as replacements for unlock codes. Land and property transactions could be authorised, medical records secured and loan agreements processed. The list easily runs into dozens and could reach hundreds or even thousands once the technology becomes ubiquitous and trusted.

As with the internet in the early 1990s it’s all about ‘potential’. Blockchain technology could take off or it could hit the wall along with lots of other equally promising technologies. Robotics, AI, IoT, ‘Big Data’ and the Blockchain are all starting to happen now. The internet has been the big news story of the last twenty years but the next twenty are likely to see much more technology driven change, and at an even faster pace.

The organisational change implications of this technology wave are enormous.

I’ll take a look at this archived blog in 2036, maybe via a Blockchain enabled identity…

Blockchain sites:

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