Deirdre Macken discovers the new kid on the block
Blockchain sounds like a solution to a 19th-century railway problem, but lately it’s on the lips of every executive who wants to solve the problem of 21stcentury digital transactions. As innovator Tim Lea, of Veredictum, says: “It’s a great space we’re in – but getting hotter by the day.”
Lea is building a blockchain for identifying videos and he’s running hard to keep up with the express train.
The evolution of blockchain is exponential. It may have begun as a system for dealing with (often dodgy) digital transactions six years ago and it may have captured the imagination and budgets of banks last year, but in the months since it began entering dictionary searches, it has become a possibility for almost every sort of business.
Blockchain is still new enough to be greeted with “block what?” at business functions. It needs an explanation and so far no one has found one as catchy as “information superhighway” was in the early days of the internet. But let’s give it a go.
Blockchain technology is a way of recording and storing digital transactions. It’s a distributed ledger that allows transactions from one verifiable party to another on a network that everyone can “see” but no one can change, defraud or clip the ticket along the way. Some people have called it “the internet of value”, others refer to it as a “trust network” but everyone agrees it’s the best way of wheeling and dealing on the net.
It has been best known as the system for exchanging Bitcoin and it has been a public network. Focus is shifting to private networks that give various parties permission to participate, and this is becoming the preferred model for finance businesses. But a new model is emerging that will be a hybrid of public and private networks that would best suit areas such as copyright.
The idea is that blockchain will become the infrastructure for the digital age as people realise that its characteristics – identification, frictionless transfer, tamper-proof storage and trust between parties – can be used for any asset.
The list of uses is already large – banking transactions, share trading, unsecured loans, recording property titles, trading in diamonds, artworks and currencies, managing insurance and tracking mining equipment.
“Anyone who’s not working on it is off the pace,” says lawyer Mark Toohey, who has been using the technology since Bitcoin days and now lectures on it. “People mocked us for being interested in Bitcoin. Now they’re saying, ‘Hang on, you know about blockchain?’”
Toohey says the technology is in that interesting moment when most people haven’t heard about it; those who have realise they need to know more; and the few who do know about it are secretly working to claim its benefits.
Gauging how much work is being done on the new technology is almost impossible, but looking at just one application gives an idea. Blockchain is made for copyright. All the music, books, videos, news stories and photographs that became digital and lost their rights can be managed more equitably on blockchain.
Lea is working on a smart ownership and distribution platform that will identify ownership of videos and prevent piracy, and says: “There’s a major problem in social media called freebooting where someone discovers a video on YouTube, downloads it and strips it of any reference to the content producer and then puts it on Facebook to draw people to their page so they can sell more T-shirts or whatever.
“Freebooting is so common one study found that of the top 1000 videos on Facebook, 725 had been stolen from YouTube. Those stolen videos had 17 billion views from which the video producer got nothing.”
The ability to track ownership will change the business models of every information and entertainment industry but copyright institutions appear flat-footed. Copyright Council chief executive Adam Suckling says: “I went to an international copyright conference just last year and there was nothing said about it.” His council is “looking at it, but it’s quite embryonic”.
Lea, who is about to join the BlueChilli incubator, laughs when asked if there’s a race to exploit the technology: “Blockchain is where the internet was in 1995, which was the year the Mosaic web browser allowed techie people to join. I remember going on to the internet then and I thought, this is going to be astronomic.”
Other obvious users include content creators, crowdfunding sites, sharing economy operators such as Uber and Airbnb, car registrations, discrete energy networks, and livestock farms.
Those who service the business community are often best at gauging activity and one legal advisor, Bernadette Jew, of Gilbert and Tobin, suspects there is more talk than action.
“Over the past six months the discussion of blockchain has just taken off, you can’t really avoid it, especially when they’re investing in new technologies,” she says. “(But) when you go behind the scenes, it’s mostly dipping the toes in.”
For legal firms, blockchain means smart contracts, which are contracts converted into computer code – either wholly or partially – in the same database as a blockchain. Smart contracts are more dynamic than existing contracts because they can be automatically triggered by various conditions in the contracts. To date, firms such as Gilbert and Tobin are developing them mainly for simple commodity contracts, such as loan agreements.
Already the reach of this technology is visible in the ways people work. Says Jew: “It will change the way we work because when we’re writing a contract we will have to think, ‘Should we be writing in code or traditional mode’ and, if it’s code we will have to think in rigid, logical ways and we will need to be clear which part of the contract should be in code.”
This will change some jobs, and eliminate many. When banks and the ASX talk about cost savings, they’re referring to the elimination of many roles in the traditional exchange of assets – jobs such as trustees, back office roles, search, authentication and agency jobs.
“It scares me,” says Toohey. “When we remove a significant number of white-collar workers, what happens when those office towers empty out, what will happen to society?” Coming on to the list are genetic profiles, medical records, transport services, postal services, taxation and government payments, including social security.
Andrew Dyer at the Boston Consulting Group agrees that it only became a must-have conversation six months ago and, in his view, most involved in developing the technology are at the “post-concept, post-design but pre-product stage”.
There is a curve for new technology called the Gartner Hype curve, and Dyer places blockchain at the point where “we’re through the point of disillusionment and we’re yet to see where all the opportunities lie”. While innovators around the world are racing to claim territories with the technology, he says Australia might be further ahead in one area: “Our regulators are in much deeper discussion than most appreciate.”
Since the banks and the ASX have declared their interest, the Australian Taxation Office, Australian Prudential Regulation Authority, Reserve Bank and Australian Securities and Investments Commission, as well as security forces have taken an interest in a technology that offers them easy, fast and solid information on transactions.
“The Australian government redistributes a lot of income in lots of programs and there would be leakages there and I’m sure the leakages are quite large,” he says. “If you are able to understand who your customer is and link the customer to those other records – whether taxation or medical – it’s huge.”
“MyGov is the first step in identity establishment. There are already three or four identifiers for every person in Australia –
tax file number, Medicare number, mobile phone number and email address. If someone could put those together it wouldn’t be hard to establish a good identity. Basically, the government’s human resources department did it 18 months ago when it decided to simplify customer services.”
Dyer says linking citizens’ online identities to create a unique identifier wouldn’t be difficult but “the politics of it would be tough. There would be an outcry.”
The privacy aspects of putting citizens on a government blockchain might be frightening, but Dyer says “privacy has gone. That went long ago. We leave footprints wherever we go but being able to look at those footprints, see where they’ve come from and what’s happening to them, that is huge.”
Developing a unique identifier for every person would effectively open up a worldwide blockchain. One small Australian start-up, BitTrade Labs, is focusing its efforts on using blockchain to establish trading networks in solar energy but also to build a distributed identity. This identity, says co-founder Hugo O’Connor, can be built within a blockchain in a similar way to how identity is established with paper trails.
“It’s the same way that you use electricity bills to show you live at a certain address. The idea is to create a web of trust so you put your identity on a blockchain and use others on the blockchain to vouch for that identity.”
The big difference, he says, between showing your electricity bill or using your distributed identity is “you would own your own data and you can allow people access to that data or you can deny access”. The pitch that you can control your own data and determine who gets access to it will be crucial when authorities begin moving medical records on to blockchains as they already do in some developing countries.
Next on the list: reputation management, biological transactions, home security automation, and authentication of online reviews, educational attainment, voting systems.
The race to stake a claim in the internet of value might still be subterranean, but the winners that emerge will be the big players in our online lives. It does feel like the internet of 20 years ago when open source began evolving into private profit. O’Connor, at least, is confident: “We’re the only ones doing open source (in identification),” he says. “Plenty of people are building their own walled gardens trying to own it but open source will win.”