Cut Out the Mid­dle­man

Blockchain’s prom­ise to de­crease our de­pen­dency on legacy in­sti­tu­tions

Norway-Asia Business Review - - Norway Asia Business Review - HENRI VIIRALT

No doubt most peo­ple have heard of terms “bit­coin”, “blockchain” and “cryp­tocur­rency” by now. The story of Bit­coin ini­tially caught the at­ten­tion of the main­stream me­dia be­cause it was seen as a way for hack­ers to fi­nance all man­ner of il­licit ac­tiv­i­ties in the so called dark web. Later, when Bit­coin started to gain trac­tion, the ques­tion sud­denly be­came, “could cryp­tocur­rency ac­tu­ally de­cen­tralise power and re­duce our de­pen­dency on legacy fi­nan­cial in­sti­tu­tions?”

What be­gan as a story on vaguely un­der­stood, some­what mys­te­ri­ous tech­no­log­i­cal in­no­va­tion, has now be­come firmly on the agenda of not only nu­mer­ous fi­nan­cial ser­vice com­pa­nies, but also gov­ern­ments, en­ter­prises and star­tups world­wide, all of them ex­plor­ing the ap­pli­ca­bil­ity of blockchain tech­nolo­gies in their re­spec­tive do­mains. There are a num­ber of pri­vate blockchains ar­riv­ing, and its uses broad­ened be­yond cryp­tocur­ren­cies and into the real world.

In their book, Blockchain Revo­lu­tion, Don and Alex Tap­scott, ex­plain that at its core, blockchain tech­nol­ogy works by en­abling a net­work of com­put­ers or nodes to main­tain a col­lec­tive book­keep­ing via the in­ter­net. This book­keep­ing is nei­ther closed or owned by a sin­gle party - rather, it is pub­lic and avail­able in a sin­gle dig­i­tal ledger, which is fully dis­trib­uted through­out the net­work.

In the blockchain, all trans­ac­tions are logged, in­clud­ing the in­for­ma­tion on time, date, par­tic­i­pants and amount of the trans­ac­tion. Each “node” or user in the net­work owns a full copy of the blockchain. The math­e­mat­i­cal prin­ci­ples gov­ern­ing the sys­tem also en­sure that the nodes au­to­mat­i­cally and con­tin­u­ously “agree” on the cur­rent state of the ledger and ev­ery trans­ac­tion in it. If any­one at­tempts to cor­rupt the trans­ac­tion, the nodes will not ar­rive in a con­sen­sus, and will there­fore refuse to in­cor­po­rate the trans­ac­tion in the blockchain.

Blockchain tracks and ver­i­fies dig­i­tal as­sets, leav­ing them pro­tected from hack­ing or copy­ing with­out per­mis­sion. The sys­tem is fully au­ton­o­mous, which elim­i­nates the need for in­ter­me­di­aries. It is this high level of se­cu­rity that makes it suit­able for use for cryp­tocur­ren­cies, but that’s re­ally the tip of the ice­berg – it can also be used for a va­ri­ety of dig­i­tal as­sets, in­clud­ing vot­ing in elec­tions to stocks, tax pay­ments, and con­tracts, just to name a few.

In fact, the Trap­scotts ar­gue in their book that blockchain tech­nol­ogy is a full-on par­a­digm shift, one which will re­shape civil­i­sa­tion as we know it and we’re only start­ing to scratch the sur­face of what the tech­nol­ogy is ca­pa­ble of.

The rev­o­lu­tion­ary part about blockchain is that it de­cen­tralises own­er­ship and con­trol of as­sets, thereby trans­form­ing the very pil­lars of so­ci­ety. Our global econ­omy is based on the power and trust we place — be­cause we lack and al­ter­na­tive — in in­ter­me­di­aries like banks, gov­ern­ments, util­i­ties, and large

in­ter­net com­pa­nies like Face­book and Google. The pro­po­nents of blockchain ar­gue that these com­pa­nies, which hold some of the most in­flu­en­tial po­si­tions in so­ci­ety, add no value to trans­ac­tions be­yond the in­ter­me­di­ary func­tion, and if any­thing, slow the process down.

Here is a look at some of the most promis­ing ar­eas that blockchain tech­nol­ogy could po­ten­tially dis­rupt:

Dis­trib­uted cloud stor­age Dis­trib­uted cloud stor­age is big busi­ness. In­tel Se­cu­rity’s re­cently pub­lished re­port, Build­ing Trust in a Cloud Sky: The State of Cloud Adop­tion and Se­cu­rity, which sur­veyed over 2,000 pro­fes­sion­als, re­vealed that 80% of all IT bud­gets will be com­mit­ted to cloud so­lu­tions over the next 15 months, and that 73% of com­pa­nies are plan­ning to move to a fully soft­ware-de­fined data cen­tres within two years.

Blockchain is ex­pected to dis­rupt the in­fra­struc­ture as a ser­vice in­dus­try over the next 3-5 years. In its cur­rent state, cloud stor­age ser­vices are cen­tralised and the providers con­trol all of their clients’ dig­i­tal as­sets, mean­ing a lot of trust for the ser­vice provider is nec­es­sary. Storj. io is startup that is pi­o­neer­ing end-toend en­crypted, blockchain-based cloud stor­age tech­nol­ogy to im­prove se­cu­rity, de­crease de­pen­dency, and im­prove net­work speeds at a frac­tion of the cost.

“Each file is shred­ded and en­crypted, spread across the net­work un­til you’re ready to use it again. You can be sure the files are safe be­cause the keys are in your pocket, not the com­pany’s. Only you have ac­cess to your stuff. Be­cause the net­work is shared among all users, you don’t have to worry about slow down­load speeds com­ing from one place - we’re all help­ing to make the sys­tem blaz­ing fast,” reads the state­ment on Storj’s home­page.

An­other as­pect of cloud com­put­ing is the amount of wasted cloud spend. RightS­cale con­ducted its sixth an­nual State of the Cloud Sur­vey of the lat­est cloud com­put­ing trends with a fo­cus on in­fra­struc­ture as ser­vice to find that cloud users un­der­es­ti­mate the amount of cloud space they don’t use. Re­spon­dents es­ti­mate 30% of waste, while the ac­tual waste has been mea­sured be­tween 3045%.

Cur­rently in beta test­ing, Storji’s users can rent out their ex­cess stor­age ca­pac­ity in an Airbnb-es­que setup, thereby elim­i­nat­ing cloud space waste and cre­at­ing new mar­ket­places. Dig­i­tal iden­tity se­cu­rity As it stands, the se­cu­rity is­sues sur­round­ing dig­i­tal iden­tity are sig­nif­i­cant. In a world that’s in­creas­ingly gov­erned by dig­i­tal trans­ac­tions and data, our ex­ist­ing meth­ods for man­ag­ing se­cu­rity and pri­vacy are be­com­ing less and less ad­e­quate, with data breaches, iden­tity theft, and large-scale fraud be­com­ing more com­mon.

Be it bank­ing, health­care, na­tional se­cu­rity, cit­i­zen­ship doc­u­men­ta­tion or online re­tail­ing, blockchain tech­nolo­gies make track­ing and man­ag­ing dig­i­tal iden­ti­ties both se­cure and ef­fi­cient, re­sult­ing in seam­less sign-on and re­duced fraud.

ShoCard is one of the star­tups that is aiming to sim­plify and make dig­i­tal iden­ti­ties more se­cure.

“A lot of com­pa­nies are look­ing at the blockchain for things other than bit­coin. We’ve cre­ated a dig­i­tal iden­tity card that is as easy to use as a driver’s li­cense but it’s so se­cure that a bank can rely on it,” ShoCard co-founder Mr Jeff Weitz­man told Techcrunch in an in­ter­view.

Shocard works by scan­ning your iden­tity doc­u­ment and sign­ing it. Next, the mo­bile app will gen­er­ate a pri­vate and pub­lic key to seal that record. It is en­crypted, hashed and sent to the net­work of com­mu­ni­cat­ing nodes run­ning bit­coin soft­ware for later use. Smart con­tracts Per­haps the most promis­ing ap­pli­ca­tion of blockchain tech­nol­ogy is the so called smart con­tracts, which are legally bind­ing, pro­gram­mable digi­tised con­tracts, util­is­ing blockchain. De­vel­op­ers are able to im­ple­ment le­gal con­tracts that can re­lease funds us­ing the bit­coin net­work as a 3rd party ex­ecu­tor in­stead of a sin­gle, cen­tral author­ity.

“For ex­am­ple, if two peo­ple want to ex­change $100 at a spe­cific time in fu­ture when a set of pre­con­di­tions are met, the con­di­tions, pay­out, and par­ties’ de­tails would be pro­grammed into a smart con­tract. Once the de­fined con­di­tions are met, funds would be re­leased and sent to the ap­pro­pri­ate party as per terms. By giv­ing com­put­ers con­trol over con­tracts, we can make busi­ness more ef­fi­cient and make the le­gal sys­tem more eq­ui­table,” writes Ameer Rosic for Huff­in­g­ton Post.

De­cen­tralised no­tary As ex­plained ear­lier in the ar­ti­cle, the way blockchain works is that each node in the en­tire net­work es­sen­tially has to agree on the state of the ledger and ev­ery trans­ac­tion, log­ging the info on time, date, par­tic­i­pants and the amount of the trans­ac­tion. For de­cen­tralised no­tary, the time­stamp fea­ture is a par­tic­u­larly in­ter­est­ing fea­ture. In a de­cen­tralised net­work, it es­sen­tially con­firms the ex­is­tence of some­thing at a stated time that is fur­ther prov­able in a court of law. Un­til now, only no­tary ser­vices could serve this pur­pose.

Since a small amount of data can be at­tached to a trans­ac­tion record, us­ing the bit­coin blockchain as a no­tary ser­vice is easy and in­ex­pen­sive. This could be use­ful if you needed to prove to a group of stake­hold­ers that 1) a busi­ness event oc­curred at a par­tic­u­lar date and time, and 2) you have the un­al­tered ver­sion of that doc­u­men­ta­tion.

For all of its al­lure, there is also crit­i­cism be­ing thrown at blockchain, on both net­work se­cu­rity and trans­ac­tion speeds.

“In­di­vid­ual Bit­coin trans­ac­tions are para­dox­i­cally slow by con­sumer pay­ments stan­dards. Noth­ing on the blockchain is fi­nal­ized un­til the new chain and its hash value have been cal­cu­lated and agreed to by the net­work (be­cause in the mean­time, there might be an at­tempted dou­ble spend).

The ex­act time is un­pre­dictable; at present, 13 per­cent of trans­ac­tions can take longer than 20 min­utes, and 0.25 per­cent longer than an hour. This de­lay cre­ates prob­lems in some re­tail pay­ments set­tings; for ex­am­ple, a ho­tel that ac­cepts Bit­coin might find a pay­ment blocked 10 or 20 min­utes af­ter the guest checks out,” writes Con­stel­la­tion Re­search VP and prin­ci­pal an­a­lyst, Steve Wil­son, in an in­depth re­port.

It is likely that once blockchain be­comes more pop­u­lar, the trans­ac­tion speeds will in­crease as the speed of a peer to peer net­work di­rectly cor­re­lates with the size of the user base. Also, there is news from re­searchers in Rus­sia, who claim to have de­vel­oped and suc­cess­fully tested the first blockchain which isn’t vul­ner­a­ble to en­cryp­tion-break­ing at­tacks from fu­ture quan­tum com­put­ers. Once the claims are ver­i­fied, the se­cu­rity crit­i­cism may in­deed be a thing of the past.

Bit­coin tech­nol­ogy may still be in its in­fancy and there are sev­eral ob­sta­cles to over­come in bring­ing it to the main­stream, but the prom­ise of de­cen­tral­i­sa­tion cer­tainly re­mains an al­lur­ing one.


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