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In 1970, a scientist at IBM Research named Edgar F. Codd revealed a remarkable discovery that would truly change the world. Though few realized its significance at the time — including IBM, which neglected to commercialize it — the relational model for managing data would spawn an entire industry.
Today, few have heard of relational databases, but everybody seems to be talking about blockchain. Much like Codd’s idea nearly a half century ago, blockchain represents an opportunity to create a new data infrastructure likely to help power businesses for another half-century.
Contrary to current hype, few of us will ever work with a blockchain or even know it’s there. The real revolution will come not from the technology itself, but from its secondary effects in the form of new business models. To understand these, you must first understand how Codd created the data economy in the first place.
Blockchain represents an opportunity to create a new data infrastructure, which will likely help power business for another half-century.
How relational databases changed the world
Imagine taking a trip back to 1980. Ronald Reagan was just elected president, and Terry Bradshaw led the Pittsburgh Steelers to yet another Super Bowl. Just a year before, Larry Ellison and two friends launched the first commercial product based on Codd’s ideas. Two years later, they would change the company’s name to Oracle.
Now, imagine trying to explain to someone in 1980 what they’d need a relational database for. Back then, few people used computers. Mainframes were primarily used for back office tasks and heavy computational jobs like scientific research. Relational databases were hardly relevant to most people’s day-to-day work.
What made relational databases important? They changed how people manage data. They made data fungible. Classical or “flat file” databases worked very much like Excel spreadsheets. They stored data in inflexible columns and rows. People would need to understand exactly how the database was set up to find the information they needed. Anybody who’s tried to understand someone else’s spreadsheet knows what that’s like.
With relational databases, however, all we’d need to know is the query language. With it, we could extract whatever we needed from any database no matter who set it up. That’s why, today, we can hop on a system like the internet and pull data from just about anywhere we want. Relational databases are what made the information age possible, and most people hardly realized it.
Why blockchain matters
Relational databases were designed for centralized computing. Data was stored in a mainframe, and we’d use a terminal — and later a PC — to get information out. For example, executives use ERP software to pull data from far-flung operations and manage business processes more effectively. Marketers access research databases to understand consumers. Salespeople leverage CRM systems to service their customers.
Today, however, computing is no longer centralized, but radically decentralized. We carry smartphones in our pockets that are more powerful than what would have been considered a supercomputer back when relational databases were invented. We use those devices not only to retrieve information, but also to send it to centralized databases, often without knowing we’re doing it.
That creates an information bottleneck that is often insecure for a number of reasons. First, while most commercial databases are encrypted, data needs to be unencrypted for us to use it, which leads to problems like the one with Facebook and Cambridge Analytica. Data is also unencrypted at the source, so firms can access our data and store it without us having any control over it.
The most salient aspect of blockchain is that it functions as a distributed database. Unlike relational databases that house data in one location, blockchain distributes data everywhere at once in a secure form. So we can track data wherever it goes, see what it’s used for and who alters it in any way. This will create a radically more transparent information economy.
With blockchain, we can track data wherever it goes, see what it’s used for and who alters it in any way.
What a killer blockchain app will look like
In a recent conversation I had with Bernie Meyerson, IBM’s chief innovation officer, I asked him what he was most excited about. Thinking he would talk about the Watson program or a futuristic research project, I was somewhat surprised that the first thing he mentioned was his company’s joint venture with Maersk to develop a blockchain infrastructure for global trade.
With everything going on at IBM, from artificial intelligence to developing new computing architectures like quantum computing and neuromorphic chips, shipping seemed a bit lowbrow to me. Nevertheless, once I started digging into the numbers I could see what he meant. Blockchain really can have an extraordinary impact on global trade.
Consider the fact that a 2013 study by the World Economic Forum found that reducing back-office friction in international trade could increase GDP by nearly 5 percent and commerce by 15 percent. Global GDP amounts to nearly $80 trillion, which means you’re talking about a $4 trillion potential impact. If even a fraction of that pans out, it’s huge.
The thing is, nobody is going to buy a product and say, “Wow! This is 5 percent cheaper thanks to blockchain!” The truth is that no one will ever see it. Blockchain, much like the relational databases that came before it, is technology infrastructure. It’s basically to global business what paved roads were to cars — an essential enabling technology, but not a “killer app.”
Blockchain is to global business what paved roads were to cars — an essential enabling technology.
Where to find the next big thing
Over the next decade, we’ll see the impact of blockchain unfold, but it will look a lot more like Oracle and the IBM-Maersk joint venture than the next Google or Facebook. If you don’t work with a relational database now, you probably won’t have much to do with blockchain in the future.
Still, that doesn’t make the impact any less real or exciting. Much like the internet distributed computing, blockchain will distribute secure data. That is likely to radically increase transparency and security while reducing costs. “Disintermediation” is a term we can expect to hear a lot of in the future.
For example, Hu-manity.co is a new startup that plans to give patients more control over their health data. Today, when we sign a consent form for our data to be used for research, we essential give it away. However, with blockchain, we will be able to track it, decide for ourselves how we want our data to be used and even be reimbursed for it.
If you want to know how to profit from blockchain, start looking for information bottlenecks, like global shipping or medical data. Eliminating those bottlenecks is how blockchain will truly change the world.
An earlier version of this article first appeared at Inc.com.