Issue 2: How Immutable is Your Blockchain?
DCG Connect — Week of May 15, 2017
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Blockchain Misunderstood: Blockchain Immutability
Blockchain purists were not happy when Accenture rolled out an “editable” blockchain in 2016. However, as some noted then, even “pure” blockchains aren’t really immutable. Last week, Gideon Greenspan from Multichain wrote about this and the myth of the “immutable blockchain”. It seems like saying “blockchain are immutable” has been incorrectly interpreted to mean “all blockchains are absolutely incorruptible and the data on them can never be changed.” As Gideon notes, this is not true:
In blockchains, there is no such thing as perfect immutability. The real question is: What are the conditions under which a particular blockchain can and cannot be changed? And do those conditions match the problem we’re trying to solve?
A blockchain’s record can can be changed, however, the cost and effort to do so vary depending on its implementation. On a private blockchain it turns out, changing validated data could be quite easy:
Of course, immutability is still easy to undermine if all the participants in a chain decide to do so together. Let’s imagine a private blockchain used by six hospitals to aggregate data on infections. A program in one hospital writes a large and erroneous data set to the chain, which is a source of inconvenience for the other participants. A few phone calls later, the IT departments of all the hospitals agree to “rewind” their nodes back one hour, delete the problematic data, and then allow the chain to continue as if nothing happened. If all the hospitals agree to do this, who’s going to stop them? Indeed, apart from the staff involved, who will even know that it happened?
Note that while not perfectly immutable, a blockchain utilized in the way Gideon describes above could be useful in practice. Why does this matter? We think it’s important not to view blockchain solutions as a silver bullet. As long as there are humans involved, fallibility in systems and processes will persist. As your organization considers implementing blockchain solutions, consider the importance of controlling and understanding the process by which validated events, transactions, or data can be erased or reversed.
Company Spotlight: Supply Chain
Accurately tracking the flow of good and services through a business’ supply chain is costly and prone to mistakes and fraud. Chipotle’s E.Coli outbreak is a well known example — without effective tracking processes in its supply chain, the fast casual restaurant chain had difficulty containing the outbreak or locating its source. Tracking pork in China, enabling compliance with blood diamond laws, or tracking sustainable fishing practices are some specific use cases where blockchain could be useful. How? While issuing a digital token to track a physical asset through the supply chain could be done with a centralized database, doing the same with a distributed database significantly enhances asset visibility. Or, as one article explained:
A fundamental advantage of this distributed system, where no single company has control, is that it resolves problems of disclosure and accountability between individuals and institutions whose interests aren’t necessarily aligned. Mutually important data can be updated in real time, removing the need for laborious, error-prone reconciliation with each other’s internal records.
Partnerships & Projects
Deloitte announces a new KYC-as-a-service proof of concept | The goal here is to cut out the labor costs associated with having someone at a bank electronically fill out KYC forms, a process which often requires reaching out to customers via email, phone, etc. Deloitte has proposed having the consumer information stored on a blockchain, then giving them the choice over which banks can access their information (via KYC “added-value service providers”).
DCG portfolio company Cobalt, announces new partners Citadel Securities and XTX Markets | Cobalt aims to reduce post-trade costs in currency trading and accelerate settlement time. Their system has yet to launch but Citadel and XTX, along with a few large banks, have joined as customers for when it does.
DCG portfolio company Cambridge Blockchain partners with LuxTrust to develop identity platform | Cambridge Blockchain, which is using blockchain technology to develop identity management solutions (KYC regulations for example) will be launching an identity platform with Luxembourg based LuxTrust, another identity software company. They’ll be combining their software so that, “A bank can refer to the blockchain to verify customers’ identities, but the information held there can’t be used to falsify personal data.”
Regulation & Policy
Coincheck is launching Japan’s first interest paying fixed deposit accounts for bitcoin | In April the Japanese government officially recognized BTC as a legal payment method. According to the Nikkei Asian Review, Coincheck is offering four options: a 14 day deposit at a 1% annual interest rate, a 30 day deposit for 2%, a 90 day deposit for 3%, or a full year for 5%.
The UK’s national land registry wants to test blockchain technology | The agency will be testing multiple technologies of which blockchain is one, to “enable the ownership of property to be changed close to instantaneously.”
Hong Kong’s Financial Services Development Council wants HK prepared for blockchain technology | It’ll be interesting to track various governments as they embark on their own blockchain journeys, typically signaled via a white paper of course (you can find theirs here).
Russian eCommerce store, Ulmart will start accepting bitcoin in September this year | This represents a complete u-turn for the Russian government which stopped them from doing this in early February. It seems the government’s position on cryptocurrencies has evolved (previously leaning towards outlawing them) and may even recognize them in a legal capacity in 2018.
Further Reading
Ransomware attacks not a good look for bitcoin // Bitcoin fees are going up // Zerohedge on blockchain, gold, and silver // Fed president likes blockchain more than bitcoin // Authenticating data feeds is important // Bitcoin IRAs?
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