Blockchain – can you trust it?
Why internet v2 may be built on blockchain
From securing virtual currencies to cars that pay for themselves, Barry Collins discovers how blockchain is going to disrupt everything
On the internet, so the saying goes, nobody knows you’re a dog. If your dog was tied to a blockchain, however, you’d know its name, age, pedigree, blood group and favourite brand of dog food.
Blockchain threatens to bring the internet something it’s been lacking since its inception: trust. Whether that’s trust to pass money between you and a restaurant without paying bank fees; trust to automatically open the door on the apartment you’ve just rented on Airbnb; trust to vote electronically in a General Election and know that the Russians can’t possibly have fiddled with it; or trust that Amazon (to name just one firm at random) has paid all of its taxes.
There’s virtually no industry that someone isn’t promising to “revolutionise” with blockchain. It’s even threatening to disrupt the very notion of citizenship and countries ( see p43). So what is this mysterious all-encompassing wondertech? And can it possibly live up to its hype?
Building the blockchain
It’s no small irony that the first distributed blockchain was used to create Bitcoin – a currency that many don’t trust that was invented by a person the media has conspicuously failed to identify.
A blockchain is little more than a list. Each record, or block, in the list is secured by cryptography and contains a hash pointer that is unbreakably linked to the previous block in the chain. No block in the chain can be altered without all subsequent blocks being altered, making any attempt to hack a single block futile.
What’s more, these records typically aren’t stored in a massive database on a central server but are distributed across a peer-to-peer network, eliminating one of the big risks of data storage: that someone’s going to hack the system and make off with the lot. Many different copies of the blockchain exist. There is no master copy, and no copy is trusted more than any other. So, if someone does try to overwrite or edit a copy of the chain, it would be swiftly rejected by the others.
The notorious Bitcoin is the best-known example of blockchain tech. The peer-to-peer payment system allows transactions to be made without an intermediary – no bank or clearing house is needed. Bitcoin transactions are recorded in a ledger (or blockchain) that is distributed far and wide across the internet. Nobody owns it, nobody controls it. If you have a Bitcoin wallet on your PC, you might even have an entire copy of the blockchain (which is now larger than 110GB) on your hard disk, logging every Bitcoin transaction that’s ever taken place.
However, cryptocurrencies are only one possible use for blockchains. There are many more mind-blowing examples of what it can do.
“The next big unlock”
If you think blockchain has a slightly grimy, counter-culture feel to it, think again. The tech giants are falling over themselves to show that they’re all over this blockchain thing. Google’s DeepMind AI lab is experimenting with blockchain to secure health data, Microsoft is using blockchain on its Azure platform to track where electricity and gas supplies are coming from, IBM has a “blockchain platform” to accelerate the growth of the technology across various industries. This is on the cusp of mainstream technology, if it’s not already there.
Jack Dorsey, the CEO of mobile payments system Square and Twitter, recently described blockchain as the “next big unlock”, and even though we hate the way he’s bludgeoned a verb into a noun, it’s easy to see what he means. This does feel like the start of something big. “There are so many problems we can help solve [with blockchain] that are not just related to finance, said Dorsey, “but finance is an obvious one.”
Take the tax system, for example. Right now, we’re largely reliant on companies to truthfully declare the value of goods sold to collect, and eventually pay, taxes such as VAT. When you’re talking about something as complex as a car, there are dozens of steps in the production process where VAT is applied or expenses are written off against tax. The steel company applies VAT to the materials it sells for the car frames, glass is sold to manufacture windscreens, so on and so forth, until the customer finally pays VAT for the finished car itself.
But imagine if those transactions were recorded in a blockchain ledger. It would be possible to trace goods all the way from raw materials to forecourt, with an indisputable log of every transaction. Taxes could be collected automatically and even paid instantly. Tax avoidance would become hard if not impossible; audits would be simplified. Blockchain could help “drive behavioural change because of the risks and consequences of non-compliance,” a recent report from PwC stated, because the sheer transparency of the blockchain would make it difficult to hide transactions. “It’s more likely that you’ll be caught and forever excluded from the blockchain network.”
Now think about the same principle being applied to the welfare system, income tax and corporation tax; you can see why governments might start getting excited about this stuff. Last year, the Cabinet Office minister Matthew Hancock announced the government had
There’s virtually no industry that someone isn’t promising to ‘revolutionise’ with blockchain tech
Rent out your disk drives
One of the common principles of blockchain services is that they return revenue to the user, often in exchange for their data.
Storj.io, however, lets you make money by storing other people’s files.
Storj.io is the blockchain equivalent of Dropbox. But its USP is that it allows you to rent out spare space on your disk drives in exchange for Storj, a cryptocurrency similar to Ethereum. Storj “farmers” – people with disk space to spare – can set their own rates for storage rental, in much the same way you decide how much to charge for your spare room on Airbnb.
This does raise some tricky questions. What if somebody uploads something illegal – such as child abuse images – onto your disk drives? Are you at risk? “The farmer would have no way of determining what the files stored on their drive are as they are encrypted and broken into multiple pieces before they ever reach their storage destination,” Philip Hutchins, CTO of Storj Labs told us. “Files are encrypted and identified in such a way that makes it impossible for a single shard to be associated with the original file without having access to the owner’s metadata. In the case that the metadata has been obtained by the authorities and can be linked to illegal content, Storj would comply with any valid take-down request quickly.”
Storj.io is technically intimidating, requiring users to upload files using a client such as FileZilla or a command line tool to upload and retrieve data. However, the firm plans to make the service as easy to use as Dropbox. “We have been very focused on the network itself and delivering a secure and reliable experience,” said Hutchins.
“We are very excited, however, to have started the design and planning phase of a drag-and-drop desktop app and mobile apps to complete the experience. It is going to be very important to build a seamless, simple and secure experience around using Storj to back up and transfer files from your mobile devices to your desktop/
laptop and back.” already pledged £10 million to the Alan Turing Institute to investigate “distributed ledger technologies” and was piloting a scheme to use blockchains to trace grants. “The fact that data held in the blockchain comes with its own history, and that history is a fundamental part of proving its integrity, this fact is enormously powerful,” Hancock stated.
Securing the Internet of Things
However, blockchains don’t only work in the authorities’ favour – they can be the consumers’ friend, too. One area in particular where blockchains could protect people is by helping to safeguard data held by Internet of Things (IoT) devices.
Today, devices such as fitness bands, medical sensors, voice assistants and other IoT devices collect large amounts of sensitive, personal data and feed it back to the manufacturer. “We have lots of manufacturers who make devices, and those devices talk just to the systems that the manufacturers provide,” said Paul Fremantle, a doctoral researcher at the University of Portsmouth, who has devised a method of securing Internet of Things devices with blockchain technology. “Nest only talks to Google’s back-end, Fitbit only talks to Fitbit’s back-end. These devices are hardcoded to talk to their mothership.”
Fremantle says there are two problems with this siloed approach. First, there are many manufacturers out there who don’t really want to be in the hardware business, they simply see a value in collecting all this personal data. Then there are the cheap box-shifters who are flooding the market with low-cost devices, but who have no incentive to provide security updates, leaving millions of devices vulnerable to attack.
If devices were connected to a blockchain, however, consumers could be selective about which data they’re prepared to share with manufacturers and other companies. Smart contracts between the user and the maker could also deliver a stiff financial rebuke to companies playing fast and loose with your private data. “If you’re caught using this data in ways that you shouldn’t, breaking that contract, then there is a payment made to the person,” said Fremantle. “Instead of having to take the manufacturer to court… the system would automatically pay people. That would be a massive disincentive for people to misuse data.”
What’s in it for the device makers? “There are manufacturers who don’t want to infringe privacy,” insisted Fremantle, whether that’s because they fear being sued or because they’re dealing with highly sensitive information such as health data. But there’s also a financial reward, “if they can be incentivised via a blockchain to do the right thing”.
“Blockchain could be a means of paying manufacturers for updates,” Fremantle suggested. Plus, using a distributed blockchain network means manufacturers don’t need to invest heavily in their own cloud provision. “It could be something that smaller manufacturers jump on.”
One potential obstacle is that IoT devices generally don’t have enough processing grunt to query a blockchain. It “takes at least 512MB of RAM and a 1GHz processor to participate,” Fremantle noted in his white paper. But the ever-increasing processing power of mobile devices could soon make such concerns moot.
Blockchains everywhere
There’s virtually no industry, no application, where someone isn’t
considering a blockchain alternative. Indorse, for example, is a blockchainbased social network for professionals – a rival to LinkedIn that promises to reward endorsements from fellow pros. Users are asked to submit “claims”, such as earning a qualification, writing an article or something as prosaic as learning to play the piano. Those claims are anonymously endorsed by other users of the network, boosting your reputation and earning both you and the person who endorsed you an “Indorse buck”. These bucks can be converted into tradeable tokens, which can be used to purchase advertising on the site or other services. In short, you’re getting something in return for sharing your data or expertise.
This “decentralised professional network” is powered by Ethereum, which allows participants to be paid for completing “smart contracts” with the Ether cryptocurrency. Recently, the value of the Ethereum currency has been rising so rapidly that it led to a surge in the price of GPUs. Why? People were so keen to join the gold rush that they were going out and buying high-powered PCs that could be used to mine the currency, in much the same way there are a few people sitting on a fortune’s worth of Bitcoin that were mined in its early days.
Ethereum is also the fuel behind another startup called Slock.it. The company aims to power smart locks on anything from apartments and rented offices, to bikes and lockers. Once again using the principle of smart contracts, you could pay to rent an apartment on Airbnb, for example, and Slock.it would automatically open the front door when you press “unlock” in a smartphone app.
The smart locks – or Slocks – are controlled by “The Ethereum Computer”, open-source software that can be imaged onto low-cost devices such as the Raspberry Pi or Samsung Artic platform when it’s released later this year, allowing developers to create their own smart lock products without having to invest in a huge cloud infrastructure.
Car, manage thyself
The most exciting, and terrifying, potential for blockchain-based smart contracts is that they will conceivably allow devices to manage themselves. Take cars, for example. Firstly, the idea of hiding a car’s mileage and maintenance history from potential buyers can be avoided by logging all repairs and MOTs in a blockchain.
However, the entire concept of car ownership is being threatened by autonomous vehicles, with selfdriving cars likely to become similar to public transport – cars will arrive at your house on demand, take you to where you want to go, and then set off to pick up the next passenger.
Smart contracts could even let the car become financially independent. The car could pay for its own spot in long-term parking if there aren’t enough fares to make working worthwhile that day, or even move to a new city where demand is higher. In the same way we pay for pensions, it could set aside some of the fare from each journey to fund repairs or even a replacement vehicle for when it reaches the end of its useful life. If it hasn’t got enough money in the retirement pot, it could sell tokens to private investors to pay for the replacement, and then give them a percentage of future fares as part of another smart contract. The car’s not only plotting its own route, its plotting its own destiny.
Blockchain will massively increase the trust we can place in online transactions. The big question we now must ask ourselves is: can we trust the machines to manage themselves?