Blockchain Beyond Currencies: An Introduction
The article that allows you to make sense of all the other crypo articles: Part 2 of 2
People ask me if Bitcoin is here to stay or if it’s just a fad. The truth is I can’t answer that.
Years ago, several of my friends signed up for Friendster, and I figured I’d give it shot. Before long, MySpace emerged as the dominant social networking site. In those days, I could not have predicted that Facebook would overtake them both to such a dramatic degree.
It’s like this with cryptocurrencies. Which ones will disappear? Which ones will come to shape much of our lives, both personally and globally? There are over 1,500 different cryptocurrencies, and I can’t forecast which ones will rise or fall.
However, if Bitcoin is the starlet of the crypto world, then blockchain is the talent behind the persona. Blockchain was developed a decade ago and first used to create Bitcoin, but it can be used for so much more than just currencies.
In Part 1 of this series, I gave you an introduction to cryptocurrency and blockchain. In this installment, I’ll explain why blockchain is causing a paradigm shift in the way we will use software to shape our lives and our futures. I recommend reading Part 1 before reading this article.
Smart Contracts
Remember, in Part 1, we said blockchain is a permanent database of records that are linked together. It is decentralized because it is stored in many locations and not managed by a single entity. Blockchain eliminates the need for intermediaries or centralized authorities because it automates those functions, allowing truly peer-to-peer transactions. It creates transparency, gives a clear audit trail, and resists being altered.
Think of sending Bitcoin like filling out a check. Checks have a few required fields, like the amount of money, whom it should go to, and your signature. When you sign a contract for employment or mortgage or cell phone service plan, there are more fields to complete, but it’s a similar basic idea. You are entering data on a form in order to activate the terms of the contract. Blockchains can be built with few required fields, like Bitcoin, or with many complicated rules and requirements. We call these “smart contracts.”
Nick Szabo, one of the computer scientists who helped develop blockchain technology, liked to use the metaphor of a vending machine. Imagine a blockchain that is a vending machine, but instead of candy, it’s chambers are filled with computer programs. The smart contract is a set of rules that tells the machine which “snacks” to release, meaning which codes to run. That code can be used to do pretty much anything that can be done with computer code: process data, run an application, communicate between networks, post embarrassing things to social media, play viral videos of cats. Endless possibilities.
Decentralized Applications
Decentralized Applications, called Dapps, use smart contracts to allow creators to publish their own applications without the need for a middleman. You don’t need Apple or Amazon or Google to get your product to the user because the blockchain automates that function. You build programs that you set into motion and they continue without you. Once something is published to the blockchain, it cannot be erased, not even by the company that created the blockchain.
What kinds of processes could be improved by a decentralized application with these features? Suppose someone created a Dapp to allow you to sell your car peer-to-peer using an automated process. You submit all the relevant details about the car, the price, and the buyer and seller. The smart contract triggers an automated process that sends the offer to the buyer. If the buyer does not respond in 72 hours, the offer times out. If the buyer sends the digital currency, then the Dapp will process the payment and send the updated car title.
You don’t need a bank, so you’re not worried they might hold your funds for up to 3 days to process the transaction. You don’t need a dealership keeping part of your profits. You don’t even have to stand in line at the DMV. We can go even further. The Dapp could update your insurance for you, transfer the auto repair history to your mechanic, and set reminders for scheduled maintenance.
Data systems at your car dealership, your mechanic, your DMV, your insurance agency, and your bank were not designed to work together. Because they are centralized within those agencies, integrating them into a single application would look something like the Tower of Babel: every data system is speaking a different language. The benefits of pulling that off would not be enough to justify the difficulty, expensive, and time it would take. With a decentralized application, data that used to be siloed in different agencies can now live on the same network. In a nut shell, everyone is speaking the same language so working together just got a whole lot easier. This is one reason decentralization is a game changer for so many different industries.
Decentralized Supply Chain Solutions
In 2007, my parents had a boxer who was maybe the best dog ever. Ok, I’m biased and also I say that about a lot of dogs, but she was a very good pup. One day she fell ill and the vet believed she had gotten some bad food. It’s ok; I’m going to go ahead and tell you that our dog is fine at the end of this story, but you may remember seeing on the news from that time that a lot of dogs were getting sick. That year was filled with pet food recalls due to contamination by a series of deadly stuff, which kept tracing back to food ingredients shipped from China. There’s a wikipedia timeline of how events unfolded, if you’re curious.
It was a long process of nailing down the sources of multiple contaminations and working out the diplomacy involved in helping a foreign government build a case against companies who were denying wrongdoing. Ultimately, China shut down 180 food factories for using deadly chemicals and executives at three companies were indicted on charges of intentionally defrauding and misleading American manufacturers about poisonous ingredients in pet food, but that took over a year. In the meantime, vets were telling people like my mom to avoid all products that source ingredients from China, which is not information a consumer can easily find. News outlets tried to compile blacklists showing which labels to avoid and some companies whose food was safe saw revenues plummet in the confusion.
Why was this so hard? Currently, the logistics of tracking food along its chain of supply is impossibly complicated. The ingredients in our food are grown, transported, stored, and passed between middlemen many times before it makes it into that bag sitting on your grocer’s shelf. Each time a kernel of corn changes hands, it is thrown in with all the other corn from all the other processing plants, from all the other farms supplying corn. That’s why one incident of tainted food results in stores all over the country having to jettison food en masse. Just this year, e coli outbreaks caused stores nationwide to toss out all of their supplies of romaine lettuce, and some bad salad still got through to several unfortunate diners.
To combat this, companies are developing blockchain ledgers that use dedicated serial numbers to follow the ingredients of your food as they travel end-to-end, from the source all the way to your grocery store shelf. Payments happen directly on the blockchain every time goods change hands. Like Szabo said, the blockchain “vending machine” accepts coin and does a function. In this case, the function is to record each step of the supply chain.
Blockchain supply chain management can be applied to any industry involved in manufacturing and shipping goods. Want to know if the raw materials in your new cell phone were mined using child labor? Want to make sure your baby’s teething toy is safe? Want to verify that the medicine at your pharmacy isn’t made from counterfeit drugs? All of these are real life examples of problems that become much easier to solve with blockchain.
Your Digital Identity Management
If you’ve ever had your identity stolen, you know that our current system of identity management is badly broken. It can take years for you to get your life back on track because you are not in control of your own records. Your digital footprint is made up of all the digital records that various institutions keep about you. In order to have a digital identity, you need to be associated with many disconnected organizations that each contribute fragmented segments of your credit history, your legal records, your professional credentials, and so on. The longer you go without these digital affiliations, the harder it is to provide enough of a record to build a digital identity.
What if you had no social security number, no passport, no educational records, no bank account, no credit score, no marriage certificate? Functioning in this world without a digital identity is incredibly difficult. According to the World Bank, more than a billion people have no way to prove their identity. Maybe they are refugees who had to leave their documentation behind to save their families. Maybe they have been sold as slaves. Maybe their parents never registered their birth. They cannot prove their citizenship or file a W-2 for employment or use their military benefits or enroll in school. They cannot prove their children belong to them or sell their assets or qualify for a mortgage.
With blockchain technology, a person’s history can be permanently stored on a decentralized ledger. You would have the ability to temporarily provide medical data to your doctor, financial data to your mortgage lender, or educational credentials to a potential employer using smart contracts. You retain control of your information and share it peer-to-peer as you see fit. You won’t lose your information if you cross national borders or if a hurricane destroys your city. You don’t have to have it translated, notarized, and verified. It can reduce the time spent waiting on information, eliminate the costs of redundant record keeping across disparate organizations, and minimize human error.
We could go on and on with examples. You’ve probably seen articles trending all over the place about how blockchain is “disrupting” this industry or that industry. And there are problems with blockchain that we haven’t even gotten into yet. These first two articles give you a basic foundation so that you can begin to see the exciting things happening in the blockchain landscape as they unfold in new and unpredictable ways.
