Untangling the blockchain
Block chains and Distributed Digital Ledgers are a hot topic at the moment. There are heaps of events, blog posts and videos hyping up the potential of this new technology, spurring investment by a huge variety of startups, established companies and even governments attempting to harness it. But blockchain technology has been around for a while. Bitcoin, the digital currency which launched in 2009, is built on it. Is 2016 the year in which it takes off, with a variety of other applications proving its utility?
I went to an event recently hosted by BIMA at The Ivy and heard three talks by Simon Gill, Chief Creative Officer at DigitasLBi, Alan Graham, founder of OCL and Dave Hrycyszyn of Head London. Here’s what I picked up.
What is the blockchain?
Okay, first let’s clear up one thing: is it the blockchain or a blockchain? Actually, it’s both.
A blockchain is a distributed database – a way of storing a growing list of data across many different locations rather than centralised in one place. A time-stamped block of data (transactions) is added to the chain when its verified by a certain number of other nodes on the network. Because all the nodes on the network have a copy, or at least a partial copy, of the entire blockchain, it makes it very hard to tamper with the data.
Users of Bitcoin might refer to the decentralised ledger system which records transactions in that cryptocurrency as the blockchain. And in fact, that particular blockchain is versatile enough to support many other applications besides transaction processing. But anyone can set up a blockchain for a different application (e.g. Namecoin, a fork of Bitcoin).
To confuse matters, some commentators also refer to the technology in general as the blockchain, in the same way as you might say “the automobile revolutionised transport in the 20th century.”
What’s a blockchain good for?
Apart from recording transactions in a digital currency a blockchain can be used anywhere you need to store a growing amount of data. In other words, pretty much anywhere you’d normally use a traditional database. So there’s potential for blockchains to ultimately replace SQL.
Because it’s virtually impossible for an attacker to rewrite the data in a blockchain, they’re particularly suited to applications where proof of ownership is important. There are obvious applications for the financial services industry here and banks have reportedly already put tens of millions of dollars into investigating blockchain technology.
For example Everledger uses a blockchain to permanently record ownership of diamonds, reducing the opportunity for fraud and allowing big insurance companies to sleep easier at night.
There’s also talk of using a blockchain to record DNS domain name ownership – this was the original purpose of the cryptocurrency Namecoin.
Verification of ownership is also incredibly important when you’re talking intellectual property. OCL, which bills itself as a comprehension engine, has developed micro licensing via blockchain which maintains a permanent ledger of authorship of user-generated content. The idea is that content-creators will ultimately be recompensed for their creativity through micro-transactions. Similarly, Blockai is a new way for artists, photographers and other creators to register copyright.
A variation of storing ownership details is storing identification details. Putting everyone’s ID on a blockchain, perhaps using biometrics, could pave the way towards a distributed database which could be used for verifying identity. It would dramatically cut down on identity fraud but also perhaps help alleviate privacy concerns as no single node would hold all of an individual’s data. The UK Government is trialling something similar for verifying online identity at the moment.
Ethereum is a platform for applications using a custom built blockchain which uses ‘smart contracts’. These contracts can record almost anything – land titles, membership, assets, a will etc. The potential to then create derivatives based on these contracts partly explains the interest of the finance industry.
When is a blockchain not so good?
The downside is the extra time required to generate the cryptographically secure blocks (e.g. with Bitcoin it takes 10 minutes to create a block). Also, transactions are passed between nodes on a best-effort basis, so there’s no telling quite how long it will take for data to be added to the blockchain.
A way of getting around this delay is to have a centralised service verifying transactions rather than leaving it up to the wider network (there’s some controversy over whether such private chains deserve to be called blockchains or not). Presumably by using a combination of these techniques you could fine tune your latency/throughput payoff, as Chainspace seem to offer with their blockchain platform.
Another question that needs to be answered is: how scalable is the blockchain? As the popularity of using the blockchain increases, then so must its size. This could become unworkable with nodes having to transfer massive amounts of data to each other in order to verify transactions. However, more use of lightweight clients and a change in approach to the processes could alleviate this issue.
The idea of a putting software into the blockchain has also been gaining a lot of traction recently, with talk of actually placing an AI inside of it. The current ‘brute force’ approach to creating artificial intelligence through machine learning could be given a boost by huge, distributed databases. But the distributed nature of blockchains would mean that such an intelligence would not only be impervious to attempts to delete it but also that it could never be switched off!
Apart from Skynet-induced nuclear armageddon, the advent of quantum computing also spells a danger for blockchain tech. The incredible power of quantum computers could render the cryptographic underpinnings of blockchains (elliptic curve cryptography, apparently) much more vulnerable to attack. On the other hand, of course, they could also be used to speed up transaction times.
Security and decentralisation are at the core of the concept of the blockchain, so it goes against the grain slightly when large organisations such as Banks and Governments take the tech and apply it to their own systems, instead of investing the time and effort into a singular blockchain that could be used by everyone.
Over the next few years a lot more investment will be put into these technologies, with the potential to radically change the way that we carry out everyday tasks such as opening utilities accounts, paying for our goods, signing contracts and even voting. The blockchain could take control of these process away from a relatively small group of organisations and distribute it among a wider mass of the population.