A guest post by Ian Gass co founder of Distributed Vision
Much has been written on Blockchain technology over the past year, but the sheer volume of academic thought and curated content can be somewhat overwhelming, confusing and (seemingly at times) contradictory.
This is not helped by the fact that the generic term ‘blockchain’ is used to describe many important variants and layers of technology. So unless those in the conversation are clear about which specific component and/or type of blockchain is being discussed it can still be confusing, even for those who are more familiar with the subject.
However, there is a very good reason why many are excited about the technology, let me try and explain why.
Active versus passive chains, open versus closed
All blockchains share certain features, but they also differ in significant ways. Broadly speaking the most important nuances to identify early on is whether the blockchain in question is ‘passive’ or ‘active’, and whether it is ‘open’ or ‘closed’.
For those completely uninitiated the easiest way to think of a ‘passive’ blockchain is that it is simply a shared electronic database in which the data records are immutable and encrypted. If you are to remember just one thing from this article, make it this.
Effectively it is a permanent database where data entries can look like this:
Basically, without the key to decrypt the data, a database of nonsense.
But, this database has some really useful properties, some of which we don’t ordinarily associate with databases. Those properties include:
If one computer fails no records are lost, and the database is kept operational
2) Immutable records
No records can be altered or deleted, only added to
Can’t deny the record exists or existed
4) Encrypted records
Rather than secure the entry and exit points to the database, all records within the database are encrypted so that only those allowed can view / change the state of the record in question
These properties mean that the technology is really useful (and trustworthy) for data we typically consider important, data that must not be copied, viewed, changed or modified. Examples include personal identity, financial records, voting rights, health information, property, receipts, ownership, intellectual property (music, art, etc), the list goes on.
These properties are achieved primarily because unlike ‘normal’ databases that reside on (or are coordinated by) a single computer, the blockchain database resides on and as a network. This means that a copy of the database is kept at every single location where a computer connects to it. The core code of the database ensures that all copies are always synchronised.
Distributed computing and peer-to-peer technologies have been in active use and development since the early internet, typically associated with disruptive consumer technologies such as Napster in the music industry. This distributed peer-to-peer networking was particularly disruptive because they are typically resistant to centralized controls and hence commercial exploitation.
This leads nicely to the next interesting property of the technology;
5) No central authority required
Up until relatively recently even distributed computing technology still required some central coordinator that set the agenda by reliance on their code (e.g. Bit-Torrent, Napster). But as we know, there are often many good reasons as to why we do not want one party in control of a given data set or operating model. Some blockchain creators have figured out a solution to this.
This is where the discussion centres on ‘open’ versus ‘closed’, ‘open’ blockchains are completely censorship resistant; anyone can join and participate in the network. ‘Closed’ (or ‘private’) blockchains are shared across a network but include some criteria that determines who is permitted to join, which will also impact how the network operates and ensures security.
The first blockchain that solved the censorship resistance problem was Bitcoin: the first fully decentralised blockchain database. The real ingenuity of Bitcoin was combining cryptography and economic incentives to create a viable commercial model for peer-to-peer computing. Bitcoin combined three separate disciplines of computer science: (1) shared databases, (2) consensus algorithms and (3) cryptography harmoniously, to ensure that contributors to the security of the network were rewarded economically. The Bitcoin network has an endemic token (confusingly called bitcoin) which acts like electronic cash; bitcoin is awarded periodically to those network participants who secure it.
It is this mixture of economic incentives with computer science that has permitted decentralised blockchains to exist. Bitcoin demonstrated a viable implementation for shared trust and validation in a ‘trustless’ network environment with no centralised control, or common ownership of computers.
To help visualise the bitcoin network take a look at this series of transactions (records) recently added to the bitcoin database:
To the non-trained eye it is basically just a bunch of random information. This is the point. Users of the network can only view and interact with the network with regard to their information. By encrypting the data at the record level it is tantamount to hiding the data in clear sight, thereby ironically making it more secure.
Research, research, research
Roll forward seven years and a plethora of attention and academic research has created many variants of the same underlying principle that then allow for fundamentally different processes, businesses and relationships to be formed. In short it is now possible to design peer-to-peer relationships electronically with the user controlling their data, where it goes, who sees it, who uses it, and how it is used.
The extra properties of (some) blockchains that allow this to happen are those that turn the blockchain from ‘passive’ to ‘active’.
Up to now I have exclusively focussed on ‘passive’ chains. By ‘passive’ I mean that the database operates almost exclusively like a ledger; someone owns something, and here are the encrypted records that detail this, and we can all trust these notarised records.
Things get really interesting with ‘active’ chains. By ‘active’ I mean the blockchain contains endemic computer code as well as records. This introduces the following properties in full to blockchains:
6) Content agnostic
The database can store anything electronic [eg tokens, programs, etc}
Any code can be left on the blockchain to auto-execute (run) provided its inputs are met
Conceptually it is quite difficult to understand the implications of this but note that this is a profound change, as profound as the invention of the internet.
It is this functionality that will likely drive the expansion on the Internet of Things as objects will be not only be able to connect to networks to fulfill their function but also, crucially, transact. It will permit contracts to be agreed and executed on-the-fly.
The most high profile and ambitious project to date of this kind is Ethereum. For a very good introduction to Ethereum see this video where Dr Gavin Wood (one of the founders) gives his introduction to what Ethereum is, “Ethereum for Dummies”
To summarise, blockchain technology allows electronic computer systems to become a primary medium for the transmission and shared storage of auditable trust documents and certificates. Blockchains are effectively authenticated cryptographically secured activity records of the history of a network, shared among the users of the network.
Having shared electronic trust creates significant opportunities to streamline trust transfer, massively disrupting any businesses that have this at their core. But bear in mind that this does not just impact financial records (where attention has been focussed to date), I find it hard to think of an industry that won’t be touched by this technology: this list includes media, telecoms, health, energy, advertising, insurance, transport, manufacturing, as well as others.
It is important to bear in mind that this concept of storing copies of the database everywhere does make it expensive relatively speaking; you wouldn’t currently run big data analytics on this structure of database. Indeed, blockchain technology is not suitable for every business or community application. In general, if the community’s use of particular data is important, and the answer is yes to at least some of the questions below, there is a good chance that data will at some point end up on a blockchain:
Are there advantages for the community in sharing the database?
Is it important that individuals in the community need to add to records in the database?
Is the absence of an intermediary desirable or required?
Is there some level of distrust amongst the community?
Is there an inter-dependence between records (ie a vote cannot be cast twice)?
As the technology is still relatively new, there are challenges that the computer science community need to solve (for example issues of scalability amongst others). There is also more academic research required into the behavioral and psychological impact on the governance of networks (for example what is the optimal way to coordinate necessary updates to the core code of the database as a network? Are there multiple depending on the community in question?). However, these are problems that will be solved.
The next ten years will see the broader community build on the advances made so far, as these new networks are adopted and new businesses built, many of the household names we now know will disappear as new companies evolve new ways of delivering existing (and new) services much better using the new infrastructure. Some companies will pivot and use their existing networks to expand their product offering.
One thing is for sure, blockchain technology will underpin much of the disruption we’ll see in the near and medium term future.
Ian Gass is a leading authority on blockchain technology. He is a Co-Founder at Distributed Vision, providing strategic advice to established companies and start-ups spanning industries including financial services, healthcare, manufacturing, media and identity. His experience includes executive leadership, corporate strategy and operations. He previously worked in the financial services sector where his experience includes starting and running regulated businesses.