Posted in Big Thoughts General Technology Innovation

Still Struggling to Understand the Blockchain? Start Here.

November 27, 2016 - 1:17 pm

I’ve been monitoring, evaluating, and deploying new technologies for over a quarter of a century. It’s something I love to do. Monitoring emerging technologies gives us an opportunity to imagine the possibilities of the future. Even better, more often than not, deploying emerging technologies gives us the opportunity to positively change millions of lives. As processing power has skyrocketed, technology costs have dropped, and half the world has connected to the Internet (yup – still 50% of the world’s population has no access to the Internet), the rate of new technologies introduced has accelerated. We quickly forget that Facebook didn’t exist 13 years ago or that the iPhone will only be 10 in 2017. It’s worth noting however, that for all the new ideas that are introduced each year, most don’t succeed. That’s sobering if you’re an entrepreneur and a challenge if some of your success depends on trying to figure out and invest in what’s “next.”

I’ve seen a lot of new ideas. I mean a lot. I’ve been right a few times about what would succeed and been way off quite often. Sometimes my predictions were simply too early. Those that know me may recall that back in the middle 2000’s I was bullish on virtual reality (VR). I spoke and wrote about it widely. Turns out I was at least 10 years too soon with my prediction. Same with voice recognition. I did predict the emergence of social media (then called social computing), but didn’t anticipate fake news and all the other ugliness. I was an early user of Twitter and remain a fan, but it pains me to watch it struggle.

Now as I continue to monitor and evaluate a whole swath of emerging technologies I am particularly struck by this thing called the blockchain. This is a technology with a funny name but with the possibility of significant consequence. I’ve decided to write about the blockchain, something I’ve wanted to do for a while, because so few people know what it is, and what has been written about it is remarkably difficult to understand. As an educator, I want to make difficult concepts accessible to as many people as possible.

Selfishly, explaining things makes me understand them better too.

I don’t intend to get deep into blockchain here. I’ll simply discuss its basic concept and provide some examples of how it might be applied. If you’re not a blockchain beginner, you can probably stop right here.

What problem does the blockchain try to solve?

Let’s begin answering this question by looking at an example. We’ll use an online directory. This directory is simply a listing of people’s names, phone numbers, and email addresses. It is provided by a commercial company. The data in the directory is in a database and it lives on a physical server somewhere in the United States. When a person needs to access this directory and find some personal details, they use a web browser over the Internet. Simple enough.

This basic design has generally worked well for a few decades. However, those of us with experience quickly admit to its significant limitations. For starters, if data is changed in the database, how do we know the change is correct? What happens if that single server is successfully accessed by a nefarious individual or organization? Over time we’ve addressed these issues as best we can. For example, validation of authority can be achieved through producing a social security number. But authorities can create bottlenecks, they can be costly, and they can even be biased. Server security is implemented by any number of innovative commercial solutions, yet everyday we hear about major breaches of systems that result in credit card and identity theft. These problems and solutions all exist because we’ve embraced a database design that is inherently limited. Is there a better design, one that not only eliminates theses limitations but also vastly improves how systems interact and data is managed?

Rethinking the centralized database

Now let’s have a little fun. Instead of the database being on one computer, let’s place it on lots of computers–possibly thousands and eventually even millions. If a change needs to happen in the database, all of the versions of the database on every one of those computers needs to change—and here’s the secret sauce: all those computers have to agree to the change!

Instead of a single database on a single computer, let’s distribute the database onto thousands, even millions of computers.

Let’s explore this a little further. In this new design, there is no central computer or single version of the database. By definition, we are using a distributed database. A transaction such as new data or a change to existing data entered in a copy of the database on my computer–if accepted by all the other computers–will be made in their databases too so that the distributed database is identical in all instances. Making updates, which are encrypted for additional security, that are reflected appropriately across this network of computers is analogous with transactions in an accounting ledger, so we’ve decided to call it a distributed ledger. This distributed ledger adds a new immutable block (one that can’t be changed or deleted) of data every time there is a change. Imagining a long chain of blocks gives rise to the notion of a blockchain!

This new design is equal measure beautiful, simple, and powerful. That’s much of why it is so compelling.

So how does it solve the issues of the central database we discussed earlier? First, the distributed ledger requires that all the participant computers agree to a change. This consensus mechanism almost eliminates the possibility of security issues because the large volume of participating computers would all need to be breached. Additionally, since all the computers need to agree or disagree with a change, the network becomes the authority. Effectively, this new design doesn’t require a central authority. Since the integrity of the distributed ledger requires complete participation, risk is radically reduced, and trust is dramatically increased. As Don Tapscott says in his book Blockchain Revolution, we don’t need to trust each other in the traditional sense, because trust is built into the system itself. This is why we’ll sometimes refer to the blockchain as the trust protocol.

The Blockchain eliminates the middleman

Ok, so that’s the basics. We see how the distributed ledger helps with integrity and security, but what does it enable that wasn’t easily possible before?

Suddenly a completely new set of possibilities emerge. Let’s take something as important as online identity. While some creative solutions exist to this problem, blockchain technologies may be the ideal answer. Since the distributed ledger is the authority, it becomes near impossible to duplicate or impersonate an online identity since this authority ensures a single identify for you. It will reject attempts to foil the system. Done right we could see, for example, online voting on the horizon in the United States. Online identify would also enable better protections from copyright infringement. For example, if you write a song and use the blockchain to record your ownership to that song, we effectively eliminate any question of originality in the future.

With robust strength to authentication and validation in all manner of transactions, the blockchain can be an authority over an enormous volume of activities that today require expensive third-party participants. With the origin of the blockchain in an online currency called Bitcoin, the distributed ledger can eliminate many of the required brokers in moving money from one account to another. Imagine sending money instantaneously to a friend in another country with limited bank engagement and cost (and possibly none at all!)

Helping devices negotiate with each other

If the blockchain takes off, the future doesn’t bode well for intermediaries like brokers, notaries, lawyers, and anyone who makes a commission from transactions.

Now let’s kick it up a notch. Rather than simple transactions happening over this network, let’s imagine entire, complex contracts between two entities being recorded and validated by the network. These smart contracts could have triggers that the network would honor, thus eliminating much of today’s human interaction. All manner of intermediaries could be eliminated. Watch out notaries and lawyers! And welcome blockchain-driven machine actions. What might that look like? Imagine devices on the Internet (the Internet of Things) that need to negotiate together, say, facial recognition that results in the opening of a door. A smart contract would exist on the blockchain that would manage the interaction without the need for a central database or authority. It’s not out of the realm of possibilities that future devices using artificial intelligence could create their own smart contracts without any involvement from humans. Jeepers.

It’s quickly possible to see that the blockchain has considerable consequences.

So what might hold the blockchain back?

Like with most emerging technologies a lot of things have to happen to enable success. We’ll need to see the emergence and adoption of standards. We’ll need to ensure integrity and performance scaling to billions of transactions (maybe more) every second at a global level. There’s energy power and legacy technology challenges to contend with there. There will be resistance from impacted industries such as banking and finance. The blockchain’s core quality, that of no central authority, will be challenged and challenging in a world that is designed around the premise of regulation and control.

This all being said, momentum is on the side of blockchain. Radically redesigning technology and the way we think about many of the fundamental processes in our society requires serious understanding and possible plans for action.

Getting a grasp of the blockchain is a first step. But we’ll need to study it closely and try to anticipate implications that may not be obvious right now. Will we get ahead of it’s fake news flaw?

If I’ve helped you understand the basics of blockchain I recommend getting deeper into the topic. Fortunately, there is a lot of industry-specific content emerging and that may be a great place to go next.

I don’t know if the blockchain is the next big thing, but I’m not taking any chances. You?

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