Blockchain is still in its infancy as a technology, but make no mistake—it has already arrived.
A blockchain is effectively a database where information can be added (written) or seen (read) and replicated “across” the whole network. It represents an alternative to “vertically integrated platforms” in which information passes “up” or “down” through an intermediary.
The information entered into the blockchain database is secured through cryptographic techniques. This demonstrates the validity of any information entered. The fact that all the other users can see it ensures a high degree of trust. This is a crucial part of the concept. Trust, here, refers to the acceptance of risk. With so many participating, users are more likely to accept any risks because they trust the blockchain.
With vertically integrated platforms, trust is placed in the organisation that maintains the database. The platform is the intermediary, and users might not trust it because they are unsure of the risks, and thus can’t accept them. With blockchain, the trust is distributed among everyone participating.
Instead of a trusted intermediary—such as a vertically integrated platform like Facebook, which these days is grappling with its own trust crises—in blockchain, trust is based on a consensus. Everything is spread all the way along the chain and a lot of users are required to participate, because the users themselves play a role in ensuring the information exchanges—referred to as transactions—are trusted.
Hundreds of millions of dollars in cryptocurrency based on blockchain technology are being traded each day. As of the 13th of June, the market cap of bitcoin was 111 billion USD, with around 212,000 transactions in that 24 hour period . Bitcoin is just one of a number of cryptocurrencies, each with certain common traits but their own unique aspects as well.
The potential for blockchain goes well past cryptocurrency transactions, though as the first widespread application of the technology, it provides a handy barometer when assessing blockchain’s broader potential.
There are key tradeoffs that cut to the heart of the way blockchain operates. These tradeoffs are not just technological issues, but complex philosophical and strategic decisions regarding the nature of information sharing. Privacy versus trust. Each time technology developers make a choice between these tradeoffs, the potential of blockchain becomes a little bit clearer and the emphasis of the technology shifts slightly in one direction. Will blockchain transform platforms across society? In a revolutionary or transformative scenario, certainly. But there are many possible scenarios.
A global public blockchain system that shares transaction data with everyone along the chain is excellent for trust, because so many users are helping to verify that information, simply by participating in the blockchain. This is what makes it so powerful for cryptocurrencies. No central institution is needed and information is verified by every part of the network. Users don’t need to trust intermediaries, just the technology.
But on the other side of the equation are concerns over privacy and security. A public blockchain is excellent for trust, but faces problems in privacy. The more open access for users, the more trust, but less privacy.
So how do these tradeoffs play out in various specific platforms?
Potential disruption 1: internal communications platforms
When looking at applications beyond cryptocurrency, it’s clear the vast majority of firms don’t want all of their information shared publicly. This is where private blockchains enter the equation. In large firms with multiple groups working together, private blockchains are one of the areas of “low hanging fruit” where blockchain is already having an impact. Data61 Senior Principal Researcher Mark Staples points out that these private blockchains have the potential to “break down silos” within organisations. “They would have the same common source of information and no one division would run the database,” he said.
This can work because firms can to a certain extent control access to their private blockchain—after all, it’s their staff accessing it and they can determine who has write access, and who has read access, through a variety of means.
But private blockchains aren’t always entirely “private” because every part of the blockchain sees all the past information. This means firms would need to consider other security aspects, such as limiting physical access.
Potential disruption 2: open communications platforms
At the opposite end of the privacy spectrum, blockchain offers the potential for global communications without intermediaries, as evidenced by an incident in April. Protesters in China who were seeking information from a university regarding a sexual assault case found that all references to their protest were being censored online. A transaction from and to the same individual appeared on the Ethereum network . The transaction was worth nothing in cryptocurrency, but attached notes included details of the protest that were being censored. A series of comments followed. As part of a public blockchain where anyone can have read or write access, these comments were records that couldn’t easily be censored unless the Chinese authorities cut off access to the entire Ethereum cryptocurrency worth billions, or a global majority of nodes agreed to change the blockchain. For residents in areas with limited online freedom of speech, the implications of this could be vast—but it’s very important to keep in mind that if a majority of users along a public chain agree to a change, then the change occurs.
Public blockchains usually require a majority of users to make any significant change, but it is possible to redesign them into “permissioned public blockchains” where changes can be made by “authorised nodes” (in this case, this means a smaller number of users could govern a blockchain).
In these public blockchains, however, the (lack of) ability to delete information is going to be a key factor—if privacy laws are passed that mean people are able to have their personal information removed online, how will public blockchains handle this?
Potential disruption 3: layering public and private options
Both the public and private options have their advantages and drawbacks for both people and organisations but there’s also the potential for these chains to work together in parallel.
For example – what if you want identity information to remain secret, but you want other transactions to be totally public? You could use a private database to secure identities, then use a public blockchain to get the maximum transparency and trust. There could also be a “permissioned public” blockchain with more varied levels of control that suits the privacy and trust needs of the participants.
Potential disruption 4: flattening supply chain platforms for transparency
One potential area for disruption lies in the possibility of increased supply chain transparency and ensuring the provenance of products. Data61 has already researched scenarios in this area, looking at the potential disruptions that could be achieved via “distributed ledgers” that record every action that occurs along a supply chain. This could help ensure the authenticity of the product, because the seller’s information is included. It could also include data from every point along the transaction, be it in shipping, distribution or point of sale. In supply chain blockchains, there would need to be many considerations over what aspects might be public and what might be private. In a totally public blockchain for a global supply chain, this could be revolutionary for consumers—buyers and sellers could look at the ledger and see exactly what happened with the product at every point along the way. But there are questions over who should see each step of the process.
Potential disruption 5: government registry and licensing platforms
In some cases, it’s important for maximum transparency to be achieved—this is particularly relevant when proof of identity is involved. Issues like registration with government departments require a degree of privacy—and some combination of private and public blockchains could accommodate these situations. But there may also be cases where privacy is not an issue—when an individual has a qualification or credentials from a reputable institution, they may want the information to be as public as possible, with the maximum level of authentication. A public blockchain for specific qualifications and credentials could make verifying the skills of experts and service providers much more transparent. No one government department would need to control a vertically integrated platform as they do now. There is also the possibility of voting operations being carried out along a public blockchain so everyone can see.
Potential disruption 6: the far-reaching implications of smart contracts
One aspect of blockchain which holds the most potential relates to what are currently referred to as “smart contracts”. The Ethereum network currently uses smart contracts for what amount to automated transaction tools , but that’s a very limited application of what they may be able to do in future. Imagine, for example, a series of autonomous vehicles, each with their own sensors, all interacting with each other on a blockchain network. In the event of an accident, the sensors gather the relevant information about the crash, and immediately the appropriate insurance information is processes and the funds are deposited in the appropriate account. No middlemen are involved and the entire process is automated.
This would be just one example—in a transformative or revolutionary scenario, smart contracts could be applied across a vast range of industries, with technologies and people communicating and resolving issues immediately along a blockchain. Companies could have their smart contracts released on public blockchains, interacting with each other in creative and productive new ways.