Cut Out the Middleman
Blockchain’s promise to decrease our dependency on legacy institutions
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.