Yes, I am aware that ‘blockchainable’ isn’t a real word…but what fun is blogging if you can’t make up your own words…?
This content was originally part of Blockchain Questions you were too shy to ask, but edited due to brevity concerns.
It attempts to provide an overview of the disruptive nature of Blockchain technologies and the industries that will be most affected by it.
(In addition to blockchain, if you are specifically interested in cryptocurrencies, check out ‘What is Bitcoin’s true valuation’?)
The key question to ask
Not all distributed data problems require a blockchain solution. Relational databases, Enterprise Messaging Systems and several existing technologies already address a lot of problems that are currently being proposed as ‘blockchainable’.
A hallmark of whether blockchain technology can be ‘applied to a problem domain’ or not, revolves around a simple question:
Does your use case require that all parties see the same set of data at the same time ? (This can be called the ‘data consensus (trustful data consensus)’ requirement).
As a simple example, if you are one of many suppliers of mangoes to HEB (Kroger for those that don’t live in the great state of Texas), and HEB claims that one batch of mangoes is ‘infected’, your first defensive response would be ‘show me the mango trail’.
You (and every other mango provider) would need to see the ‘trail’ for that particular batch to ensure that it did (or did not) belong to your shipment. In order for this audit trail to be presented to all parties, you would need an assurance that:
- a) Everyone was seeing the exact same set of data ( ‘all sets of eyes on the data at the same time’)
- b) No part of the data, anywhere along it’s entire history, had ever been tampered with.
A blockchain provides the two guarantees listed above by using publicly visible data in conjunction with a variety of consensus mechanisms (Proofs of Stake, delegated PoS, Proofs of Work).
However, while a) is still possible without the use of blockchain technologies, it turns out that b) is next to impossible without blockchains.
To solve a) (all users see the same set of data at the same time), consider a simple web UI built around a centralized database that has stored every shipment from every supplier. The web UI is accessible to everyone at the same time; either through a browser or heck, you can even get everyone in the same room and show them the data displayed in the web app.
However, there is no guarantee, except the one that you provide, that the data wasn’t tampered with, either while storing it or while transmitting it (to your browser, for example). There is also no easy visibility into the entire audit trail of that data (maybe for DBAs, but potentially not for public consumption).
Blockchain technology is unique in that each mango transaction that ever occurred shares the following attributes:
- An accurate and verifiable transaction trail that is publicly visible to all parties. The trail extends all the way back to the origin of the shipment. This trail is based on cryptographic principles and is immune to counterfeiting or spamming attempts.
- Enforcement of legal and financial contracts without any intermediaries (people). For example, HEB releases payment automatically to the supplier on verifying (through the blockchain), receipt of the shipment. There was no human ‘checking off a list’, there was no warehouse supervisor or any other intermediary involved in the release of the funds.
- Just as there are no humans in the middle, there are no centralized servers. That is, the entire database is stored in decentralized nodes, akin to bitcoin network nodes. This network is maintained by the ‘bookkeepers’, who are compensated in the blockchain’s native currency. This leads to a ‘self supporting’ economic system — no need to buy expensive server farms and hire a team of DBAs!
Back in 2015, Nasdaq realized the need to do away with paper stock issued certificates. For Pre-IPOs, rather than provide paper certifications, Nasdaq launched a project called LINQ.
LINQ is an example of a digital representation of a physical asset; in this case a piece of paper. LINQ issues pre-IPO stocks digitally and stores them on a blockchain ledger, thereby avoiding any risk of tampering.
Note that this isn’t just a digital version of a piece of paper. This IS the piece of paper. There is no further need for the piece of paper since you have digitized the underlying asset. This has a lot of implications; simply put, if you tore your piece of paper in half, it would not represent half a stock, correct? However, once digitized, that is EXACTLY what you can do, you can split your digital asset in half — and it represents EXACTLY half of the stock!
Real Estate — Digitization of Assets
Think about your land deed. It is a paper document. If you wanted to gift half your land to your son and the other half to your daughter, you would have to go through a complicated legal process, because the asset representing your land (the deed) was not digitized. If it were truly digitized, the entire land would be represented in binary (just like bitcoin), and you could simply send half a ‘landcoin’ to your son and half to your daughter. No other paperwork required!
Such is the power of digitizing assets and storing them on the blockchain.
Startups such as Bankex and Polymath are working on Proof of Asset type of protocols.
Utilities — Power Generation and Distribution
Siemens micro grid is an effort to turn rooftop solar panels into producers and distributors of electric power. Blockchain based ledgers will track each such power transaction.
The microgrid example is but one of many IoT device based data captures that will be stored on a decentralized ledger. Several startups including Walton Chain and VeChain as well as larger industry leaders, including IBM and Hyundai, are investing heavily into IoT on the blockchain technologies.
Healthcare and Medical Insurance
Patients are required to fill out multiple paper forms, which are scanned, then shared with doctors across hospitals. In all the transformation and transmission, data often gets lost, or is incorrectly associated. Claims processing takes forever and costs insurance companies more than 20% of their total operating costs. In a blockchain-based insurance market, this data could reside with each user (self sovereign data)
Imagine for a moment that all this patient data was stored with the patient herself.
The patient’s ‘wallet’ would consist of public health information (age, gender…) and private health information (conditions, medications etc.). The patient could provide the doctor with a key to their wallet disclosing the information pertinent to the doctor. The doctor would then recommend a procedure by signing a document, using their own wallet key. The insurance company could easily validate that a REAL doctor (doctor’s cryptographic key) saw YOUR medical data (your wallet key) and recommended a specific procedure!
Everything that applied to the medical insurance scenario above can be applied to auto insurance and other forms of insurance as easily.
Dating, Social Media and The Identity Problem
The biggest issue in all social media is that of identity. How do you tell whether a profile is real, doctored or simply a bot? Blockchain based solutions to this are straightforward. A variety of Oracles could be used to verify identity.
The simplest is a live photograph and facial recognition — which could serve as the primary Oracle. Secondary oracles could be linked facebook accounts. If all your links are real people, with verified identities, chances are that you are not a bot. Once verified, your verified identity can be stored on a public ledger, available in lieu of a Driver’s License or other paper ID.
Finance and Currency Trading
Obviously, crypto currencies, as we know them, are the primary success story in the blockchain world. From time to time, I meet folks who still say:
I am into blockchain, but not really into crypto…..
That’s like saying, I’m into V8 engines , but not really into cars….
Cryptocurrencies have led to some of the biggest advances in blockchain technology. The list includes sidechains, lightning network and payment channels, Segregated Witness, Tangle, Hashgraphs….To say that you follow blockchain but not crypto is saying that you are not abreast of some of the most noteworthy advances in blockchain technology.
And while crypto enthusiasts have already labeled bitcoin as ‘proof that it works’, there are still those on the fence about whether or not bitcoin constitutes a real currency.
- Microsoft, Expedia, Whole Foods and several large online e-tailers already accept bitcoin as payment. Yes, you can buy your next Enterprise SQL Server or your next Quinoa cereal, all using bitcoin!
- In my native Austin, some of the largest real estate deals in 2017 took place in bitcoin.
- Several countries are already launching their own cryptocurrencies as alternatives, maybe even replacements, for their traditional paper currency.
- A soccer player recently preferred to be purchased in BTC instead of Euros.
So, for a lot of real world users, it already is a currency. It may also replace Gold as a store of value, once the price of bitcoin stabilizes somewhat.
Entire Countries on Blockchain?
Smaller countries such as Estonia have adopted blockchain and crypto-currencies en-masses. Medical records, government contracts, real estate deeds — just about everything in Estonia happens on the blockchain. Estonia is now known as the blockchain nation and several smaller European nations are headed in the same direction.
Some countries (Sweden noticeably), are also considering replacing their paper currency with a crypto version.
How Blockchain is Tackling Corruption
By eliminating potential middlemen, who are at the root of most corruption scandals, here are some ways in which Blockchain is reducing corruption.
- The transit of goods and services, would be transparent and captured on the chain, so as to avoid any misuse.
- The flow of charity donations, development funds and other monies to third world countries can be traced all the way to the local, point of disbursal. There would not be a way for funds to be siphoned off, without being reflected in the underlying chain.
- Campaign contributions for politicians could be traced to their original sources just by following the blockchain ledger. There couldn’t be a way to get ‘dark money’ or under the table transactions.
- The illicit sale of weaponry from one nation to another could be tracked. The passage of a weapon, from a manufacturing facility in the U.S., all the way to rebel forces in a rogue nation, could all be traced on an open blockchain ledger.
Novel Blockchain Uses, Digital Passports and more..
While IoT, Currencies, Equity Markets and Insurance are the most talked about blockhainable industries, there are several novel use cases that are being worked on as we speak:
— A Blockchain for Gun License Control
— A Blockchain for research and copyright protection
— And my favorite, a digital passport (stored on the blockchain), which could, potentially, replace paper passports!
While all of these novel use cases will require initial manual intervention and validation, in the long run, they can be disruptive (imagine the entire passport industry ecosystem going out of business due to digital passports)
Where blockchain is not a good fit
Centralized Databases have earned their spot in the I.T. industry. This is due to their ACID transactional abilities; being able to take a set of distinct operations and group them together as one block. For e.g.. — as a user confirms their online order, the ‘inventory’ of the item should automatically decrement by 1. These two operations need to go hand in hand; Conversely, if the user cancels their order, the inventory should automatically increment by 1.
If there was any ‘gap’ between these two operations, another order for the same item could be placed, leading to an inconsistent inventory.
Relational databases are experts at making sure that such ‘grouped operations’ either pass as a group or fail as a group. If the order placement fails, then the inventory change also fails — simultaneously!
Blockchain ledgers, with their built-in delays are not suited for such ‘grouped operations’. In fact, any single operation, can take up to an hour to reach consensus (confirmation) on the bitcoin network. There are speedier workarounds such as the lightning network and payment channels; but there is still no possibility of matching the ACID capabilities of relational databases.
Summary, and ushering in ‘User Ownership’ of Data
A key criterion is the Consensus Question: ‘Does the same set of data need to be visible to the same set of eyes? And, is there a mechanism to trustfully provide this visibility to everyone, without any tampering?
In addition to solving the ‘all eyes on the same data at the same time’, a blockchain excels at data ownership by users (e.g. mango suppliers). Users can take ownership of their own data, through the use of digital signatures.
If users can be ‘nudged’ to own and maintain their own data (securely, using encryption), this ushers in a whole new economy around the data (more specifically, around the transfer of value that involves that data).
So, to those still wondering if blockchain will revolutionize the world as we know it, it seems to be already doing that. Perhaps on a larger scale than anyone imagined.
Is your company starting an internal blockchain initiative? If so, you will not want to miss this specialized blockchain presentation, with content created specifically for decision makers (CIOs, CEOs and startup ecosystems)
Free Newsletter — Sign up for our Emerging Tech Strategies Newsletter(free) — The latest on Containerization Strategy, Public Cloud Strategy and Blockchain Strategy
Public Key Infrastructure (read this post to understand why PKI was as key an enabler for bitcoin, as was blockchain technology)