Frankly speaking, the internet is amazing, and it is changing the world. The internet is a part of everything we do, it has significantly influenced industries like newspapers, and retail, reinvented others like how we manage our money, and created new industries such as social media and online dating. Do you see where am coming from? The internet has been a force to reckon with and continues to be. In fact, the most life transforming days of the internet may still be ahead of us.
Many people out there have said that we are still in the opening act, that we have barely scratched the surface. Of course, it is easy to focus on all the positives of the internet but we would be kidding ourselves if we did not recognize that the vast network of networks did not have some persevering problems associated with it.
Beyond some of the obvious, social media trolling, software viruses, online fraud, fake news, and criminal hacking, the internet often struggles with the fundamental challenges of trust. As we use the internet, we always wonder about things like the identity of the person you are doing business with and whether they are whom they say, they are. We also worry as to whether the service is real or a fraud.
Healthy ecosystems rely on trust and already wonders have been done with existing technology. In addition to usernames and passwords, we now use two-factor authentication, which requires more effort to validate an identity for an individual. We have firewalls and intrusion detection systems, hardware installed for that works to block bad internet traffic; we have biometrics, and CAPTCHAs, those online boxes that require you to type in letters and numbers from a photograph to prove you are not a computer.
With these mechanisms for security and trust, we have come a long way, and yet we still are hacked. Our systems and databases are compromised, made unavailable, money and identities are stolen, and our confidence to innovate even further using the internet is stifled and, at worst, impeded. If we want ironclad online voting, workable digital currencies, confidence in machines, talking to machines, self-driving cars that securely negotiate with each other, improved and seamless methods to authenticate identity, and more, we’re going to need a more secure and trustworthy internet.
To enable Bitcoin, the world’s most successful online currency, a new mechanism for establishing trust was required. This was the Blockchain. In addition, while the Blockchain may change the game in security and trust, it may enable a lot more. If we are going to enter the next chapter of innovation and positive disruption using the internet, it may well be the Blockchain that opens the door.
Reconsidering Traditional Database
In order to understand the Blockchain and how it enables Bitcoin, first we need to cover the basics of a database. In simple terms, a database is a place where we store and manage data for a computer system. Data can be stored in a structured way or an unstructured way.
In a traditional database, the data is stored in two ways that is either organized or structured. To explain this, visualize for a moment, columns and rows. In each row is a different person’s first and last name and their phone number, with each distinct piece of data in its own column, respectively. In technical terms, we call this a database table. Entries in one table in a database may reference another table or even another database. This is powerful because it enables us reduce duplication of data. It is much more efficient to only include a person’s name and phone number once in a system and simply refer to it, rather than creating that data every time there is a need for it or it has to be updated. Imagine a database that stores invoices. Each time an invoice is generated for the same person, it simply references the name, rather than recreating it many times.
An unstructured database is the opposite of a structured database in that no structure exists. Oddly, most of the data in the world is now in an unstructured format and it is estimated to be 80% of all data. Think of the data that is collected and stored in social media or an email or online documents. It is not surprising then that the General Data Protection Regulation (GDPR) has been put in place.
Unlike the predictability of a structured contact database, these unstructured systems have to manage people’s online posts, for example in Facebook, which are undefined in length and can contain more than just text, such as photos and music. Fortunately, a healthy ecosystem of providers has created tools for managing unstructured data really well. Both structured and unstructured databases are the foundation of almost all servers and online systems in place today.
The databases I have described typically reside on a server computer, one that lives in a data center at a business or a systems provider. This is a centralized database structure. Now a decentralized structure is different in that the data is removed from the center and is distributed among lots of computers on the network. This can improve performance really well and for the users of the system, they are not aware that this is actually physically designed differently. In all instances, there are one or more mechanisms for allowing certain people to have access privileges. For example, one type of user might be able to just look up information in the database, while another user might have the right to add or delete data. In many organizations, this is a designated system administrator. The problem arises however, when someone who is not authorized attains certain rights and gains access to a database? What happens if someone is able to bypass security measures and alter the data in the database?
The traditional databases I have described are generally serving our organizations well and providing vast value across the global economy. However, as I have also described, they have clear limitations that have created and maintained risks for organizations. These challenges continue to be difficult to resolve, perhaps, until now. The Blockchain is a new type of database and it just might offer some solutions to today’s challenges, while also providing radical new opportunities.
Solutions provided by the Blockchain
The traditional database has at least two potential flaws to it. Foremost, if a system relies on a central database, this can result in a single point of failure. That is to say if either the central authority is compromised or a backdoor is exposed, the database can be subject to risk.
The second major flaw is that the central authority holds all power. This central power creates control that limits access, say by being cost-restrictive, by creating internal controls like human checks and balances, approval workflows. In most cases, by extension, humans remain the final arbiter of the validity of a transaction. We see this in most contract work. A contract between two entities completed over the Internet still requires one or more central authority to validate data. For example, with a mortgage, banks must validate savings and approve loans. Title companies must validate properties. In addition, legal professionals must validate signatures and other contractual requirements. Each one of these central authorities has unique that levies considerable overhead in a mortgage transaction. The transactions in the very databases all take time to process, cost money, are vulnerable to hacking, provide limited participation from those involved, require special skills, and can be error prone.
Up until now, we have generally been okay with this. The Blockchain however solves almost all of these challenges. The Blockchain is a new type of database. Instead of a centralized or decentralized database on one or more servers, a Blockchain database is installed on individual computers used by the people who use the database. In fact, a copy of the same database is installed on every computer of every user who uses that database. As I have already demonstrated, in a central database we have the database on one server in the center. In the decentralized database, it is spread out among several servers. However, a distributed Blockchain database is copied to every client computer on this network. There are no database servers.
When a transaction takes place in this distributed database and a specific owner modifies an entry, this rule is codified into the software. When a change is made on database that is on my computer, my database transmits this transaction to every identical database on the distributed network over the Internet. At this point, all of the individual computers where the database resides have to agree that I have the permission to change that specific transaction. Since all the distributed databases already know this rule, that is, only the owner can change the specific entry they allow my change. We can think of as consensus-based permission because computers on the network have to reach agreement before a change is allowed. Each database then appends a new block of data in the database that contains my new entry. This in turn leads to a creation of a chain of blocks whenever an entry is modified; we call it the Blockchain that has identical information in all of the different databases that are distributed throughout.
Now, what makes this interesting is that if somebody wanted to hack this, perhaps they wanted to change an entry that they are not authorized to change the Blockchain database is not going to permit this. Moreover, the reason for that is each entry in this on the identical row in each database before it. Therefore, any changes would not permit this to exist, so the integrity of the database would be broken. This is an important quality. Blocks are only added and never deleted. All changes are simply captured as new blocks. We call this characteristic immutability. Put another way, a Blockchain database is an immutable database.
To reveal just how transformative, it is, first, there is no central authority. The power is now distributed across the entire network of users of the database. No single person or system can approve or deny my entry change in the database. Power has been decentralized and thus it requires the consensus of all participating computers. Since the distributed database knows that I am the only person allowed to change my own entry, it is almost hack-proof. We are able to create these immutable transactions. A hacker would need to change the information on hundreds and likely thousands of computers in order to get the authority to make the change. This quality then ensures integrity to the database and creates inherent trust this is perhaps why the Blockchain is sometimes referred to as the trust protocol.
Blockchain supports immutable transactions and currency movements in the case of Bitcoin, are secure, frictionless, undisputed, without central authority, and only changeable by consensus from all participants. Following this example, stock trades, bonds, and other financial assets can be accomplished this way.
Blockchain will eliminate the challenges of proof of ownership for a digital product. While digital products such as photos and music have made it easy to acquire, store, and move across devices, the same advantage makes it easy to copy them, and in effect, steal them. Many artists and media organizations lose of billions of dollars as a result of this because it’s hard to prove that you are a valid product owner.
If we could register our creation and ownership of digital products in a Blockchain, it is possible we could attain immutable proof. Take for example a professional designer, who registers their work on a Blockchain, it would be difficult for someone else to claim that they own this work. Their ownership record will be stored on the Blockchain, and it will be near impossible to change that fact. The Blockchain would also enable a more trustworthy mechanism to support transfer of digital ownership.
Blockchain can also be used in trade. In ports all over the world, ships drop off products and they load up products. This is done quite fast. Putting massive containers on a ship for moves quickly. After all, with fruit, any time lost means the product can spoil. However, where the shipping business loses time is with significant volumes of paperwork.
Take a scenario where a Ugandan farmer exports a container of mangoes to Kenya. The container of fruit might have paperwork that needs to be signed and stamped by around 30 people: customs, tax officials, and health inspectors, for example. Added to this burden, this paperwork can be tampered with, allowing criminals to siphon off product especially at checking points or mislabel to exact a higher price. Now, instead of using paperwork, if all the transactions are made digital and make all changes on the Blockchain, it suddenly becomes near impossible to tamper with. All signatures can be more efficiently managed, and there is an immutable history of every step of the journey of the mangoes.
I know you are probably thinking that is not possible. It is at this juncture that I would like to draw your attention to the fact that IBM and Maersk, the container shipping company, have been piloting just such a system.
The internet today relies heavily on identity but this continues to be a challenging space. If we establish identity on a system with a username and a password, we still know that our passwords can be stolen and our identities compromised. This paradox would be easily solved if we to store our identity on a Blockchain. We could imagine all our credentials such as system passwords, credit ratings, driver’s licenses, birth and marriage certificates, property titles and more stored confidently and tamper-proof in this system. We’d even eliminate many of the traditional authorities that make access and updates to our own documents so difficult and often so costly.
Finally, Blockchain having made a trustworthy online identity could allow us to fulfil the dream of online voting, enabling more citizens to vote in elections from their smartphones and ending election rigging. This will eliminate the need for expensive ballot equipment and violence that usually happens at voting and polling centers.
Examples of the Blockchain in action today
First, there continues to be a great attention in technologies to aid tracking of stolen diamonds. Everledger begun to use Blockchain to store information on almost one million diamonds. This is done by scanning each diamond to glean 40 unique points that are then condensed into a digital footprint, which is then entered into the Blockchain. Each time a diamond moves through a sale or exchange from one person to, a new block is created and over time, a full, secure digital trail of ownership is established. The adoption of this solution is growing and Everledger is attracting attention from investors. It was reported on 22 March 2018 that raised $10.4 million led by the Canadian division of Fidelity Investments and GMP Securities.
There is another venture capital firm without essential an owner, where funding decisions are made by shareholders not VC’s. The DAO (Decentralized Autonomous Organization) raised $168 million from cryptocurrency and is entirely run by those that are invested in it. Its governance is completely transparent unlike traditional VC’s where functions and rules are private and opaque. The DAO has not been without serious challenges including several security breaches. Not necessarily dispelling the security promise Blockchain, but more a reflection on its particular implementation.
Finally, Blockchain is also being used in voting. In 2016, Colombians voted on a peace treaty between the government and FARC (Fuerzas Armadas Revolucionarias de Colombia). There were a variety of limitations on enabling the six million Colombians living abroad to participate in the vote and so an organization called Democracy Earth experimented with the Blockchain to capture their voices online.
The inherent challenges of online voting in any context is proving an identity true. Using this new technology enabled authenticating votes. In addition, to push voting innovation, Democracy Earth gave citizens more than a no and yes choice to the peace treaty. They were given sub-themes to indicate by vote the relative importance of each one. While the votes could not be added to the official ballot, this voting experience did give a voice to a larger group of Colombians and has triggered a rigorous debate in Colombia about the use of online voting in the future.
The future of Blockchain
When we begin to imagine the uses of Blockchain, we quickly recognize how transformational the it could become. The Blockchain is a work in progress and being open sourced, it is continually being updated. In addition, how the Blockchain is being applied continues to evolve in surprising and compelling ways.
We know we are in the early stages of Blockchain because already many innovations have failed. This is common as a new technology emerges. Making bets right now is risky, but as these innovations illustrate, when success does come, it will most likely be transformational.