You Can’t Do It Without a Blockchain, Here’s Why

What comes to mind when you think about the word data? Digital documents? Filing cabinets? Hard drives and memory sticks? Data is visualized in many shapes and sizes but, at the digital core, data is a bunch of 1’s and 0’s.

Where did this concept come from? And who are the nerds that understand that 10010101 actually equals 149? We need to go back to the very beginning, when, in order to win World War II, Alan Turing used the first computers, as show in the 2014 film The Imitation Game. Data was computed by punch cards. String together a number of these data cards and you need hundreds of people to decipher what’s being computed.

When digital computers were invented, we started to generate much more information, which required even more programmers. To save space, we began to store data on magnetic tapes. However, in order to read the data, someone (or, more likely, 50 people) had to translate it to paper.

The 1970’s made Structured Query Language (SQL) a reality. All of a sudden, ‘big data’ could be stored in tables and organized so that it was readable without necessitating hundreds of programmers. Companies and organizations started creating massive SQL databases. The problem was that these databases were not linked in any way to other databases from other organizations, these groups began stockpiling as much data as they could because as long as they didn’t leave the walls of the system, they didn’t need to double check the data.

When the Internet was created, computers started communicating with one another, facilitating the need for databases to become relational. Everyone knows how complicated data merging can be if you have ever tried an Excel merge. It is a mess that requires intermediaries to connect everything properly. And, even if the databases are manually synchronising, there is no authoritative source of truth. Anyone could manipulate timestamps or change logs with no record of these changes occurring.

At this point in time one thing that computers had still not accomplished was payments processing.This changed at the turn of the 21st century, when companies figured out how to securely encrypt data transfer, leading to e-commerce. But the increase in communication also increased the problems. Companies had to start managing physical and digital inventory. While the Internet is great for data-driven design, the world that we have come to know is document-driven, and the two don’t merge well. Most people cannot look at data in 1’s and 0’s, they require word documents and PDFs. In order for a PDF to become data, it needs to be run through optical character recognition (OCR), parsed by natural language processing (NLP) and sorted according to where the data belongs. It was only recently that computers were able to do this much processing. Now, trying to have two organizations share data becomes very challenging. Any two organizations will live in completely separate worlds in terms of how they operate and store data. Companies have crafted information silos where gatekeepers require fees to move data in and out, relying on third parties to ferry data back and forth. These third parties extract value instead of providing any but have become a necessary evil. What we are left with is a society that silos data and prevents information from flowing freely.

In 2009, Bitcoin changed everything. It was data-driven design that enabled a central bank of the Internet run by everyone and no one. All of a sudden, the network was fused with data and discrepancies between users no longer existed because all users hold a ‘live’ copy of the database. Mathematical proofs are used to show when data is created, that data exists, and when and where data is changed. If any user tries to act maliciously or in only their own self-interest, they can no longer interact with the network unless they agree to the consensus achieved by the community.

Bitcoin showed us what’s possible but Ethereum enables it to occur naturally. Ethereum creates a [de]central bank and enables databases to be distributed instead of relational, where trust is built into the network and gatekeepers automatically ferry the data throughout networks unhindered. By using small pieces of code called smart contracts that live on the network, we can create a system in which all parties using these smart contracts are in agreement on all aspects of the executed operations. This situation is usually where a third party would step in to bridge the gap. No longer are translators between companies needed, just simple agreements that can be modified whenever necessary.

When you think about Blockchain technology and whether or not we need it, consider the data structures and flows of information behind the problem you’re trying to address. Will your system benefit from being closed and not allowing modular structures to be built on top? Is the data being collected in existence somewhere else? Are we wasting time and resources gathering and processing data again and again? Why are we required to continuously enter our information even on the next page?

Yes, similar systems can be created without Blockchains. However, instead of just having access to the information you need, you are forced to go back and forth to navigate a complex system that makes data extraction difficult. When considering blockchain design we need to really consider two things: does a blockchain make this data more modular and available to other parties (if agreed upon)? Can we do it without a blockchain and, if so, are we sacrificing any future improvements because we choose to do it without a blockchain?

In a world where we are always hyperconnected, having the wrong information can lead to bad decisions and improper use of information. A world that is connected without blockchains is a world where value is extracted at every step but not necessarily added.

The world is quickly changing and there was a time before SQL ran our economies, even if we have a hard time remembering. We didn’t see this transition occurring even as it was happening. We might find ourselves in a similar place within the next few years when blockchain technology leads another transition.

by Jesse Grushack, Blockchain Strategist at ConsenSys

Piece inspired by Vinay Gupta