Distributed ledgers — new kid on the block(chain)
Blockwhatnow?
I’m usually quite good at keeping my finger on the pulse of technology and techniques relating to data. I’m also usually pretty good at being able to articulate these developments in an accessible and non-technical way. (Well, hopefully I am — I’ll let the readers of my previous blogs on data science and machine learning be the judge of that). But blockchain had me stumped. When asked about it recently by a colleague the best I could come up with was “Er……something to do with Bitcoin?”. It was clear I needed to do some research. So I have, and it is summarised here so that if you are ever asked to comment on it at the water cooler you can do a better job than I did. (You’re welcome).
Blockchain as a technology has been around since 2008 when it was invented by Satoshi Nakamoto (well known to be a pseudonym) as the open-source technology to underpin and secure the Bitcoin digital currency. Because of its association with Bitcoin (and therefore the deep web, black markets and all manner of dodgy online activity) it has taken polite society a while to realise the momentous importance of this technology.
Since earlyish last year however, the hype cycle has taken over, and we now seem to be riding the upward trend towards the peak of inflated expectations like a chubby kid on a water flume. This post will explore what distributed ledger technologies are and how blockchain fits in with them; why they are (potentially) so important, and their social and politcial implications.
DLT > Blockchain
Blockchain has become synonymous with Distributed Ledger Technology (DLT). However, Blockchain is actually just one type of DLT. These databases are considered distributed because they are shared (across multiple sites, geographies or institutions) and described as ledgers because they offer a means of recording transactions.
The key to their importance lies in the fact that the data is not stored centrally. Instead every user of the ledger holds a copy of every transaction. It is this level of replication and transparency which gives DLT its inherent security. A single central repository of data is hackable. Tens of thousands (or even millions in the case of Bitcoin) of copies of the same data distributed across the world? Not so much.
New transactions are reflected in all copies of the ledger in minutes (10 minutes in the case of Bitcoin). In the case of non-permissioned ledgers anyone can add transactions to the ledger without requiring permission from any individual or group. New transactions are verified by unlimited consensus meaning that as long as all nodes in the network agree that the transaction is valid it is recorded. The users of the ledger reach consensus about the state of the underlying data through the use of a number of different consensus algorithms. Bitcoin, for example, relies on Hashcash — a specific implementation of a Proof of Work algorithm.
(Bit of a tangent but I really like the concept of Proof of Work so will briefly explain it here. Proof of work protocols make the sender computer do some sort of work before they are allowed to engage in some way with the receiving computer. For example, they are regularly used to prevent spam email by getting the server sending the email to perform a little task like solving a problem that uses a bit of CPU before the email can be received . This stops spam servers sending tens of thousands of emails at once as the CPU load would kill it.
I like this concept because it reminds me of knights having to complete quests before they were allowed to woo the maiden that they loved. A concept I shall henceforth try to apply to my own life).
Unlike unpermissioned ledgers where anyone can add transactions, permissioned ledgers seek to impose governance and control by having one or many owners who validate the addition of new records by limited consensus. The validation is carried out by trusted actors (think banks or government departments).
The most important IT invention of our age?
Blockchain is a type of DLT that stores the data in discrete blocks (instead of in a continuous ledger like other types of DLT). The database chains the blocks together in sequence using a cryptographic signature. In the case of the unpermissioned Bitcoin database, anyone can add a new block of transactions if they can solve a (very) CPU intensive cryptographic puzzle and prove it (back to our chivalrous Proof of Work Knights). The reward for those who solve the puzzle and add a new block of transactions (known as Bitcoin miners) is not the hand of a fair maiden but 25 bitcoins. (Which, at the time of writing, is nearly £12k in sterling. So well worth it. And no dragons to contend with).
It is fairly obvious how the characteristics of this type of technology have had such an impact on less savoury online transactions. The Bitcoin system of peer to peer electronic cash is controlled by the holder and can be sent securely to anybody in near real-time without needing a bank’s permission or running the risk of confiscation. Hence its notoriety. But why is it now being seen as so important beyond its association with Bitcoin? Why has the UK Government just gone to considerable effort to author a report on this technology that claims it “has the potential to redefine the relationship between government and the citizen…[and] has similar possibilities for the private sector.”? Why has the Guardian asked if blockchain is the most important IT invention of our age? Well I’m glad you asked.
Why the Hype?
Firstly, synchronisation. Consider banking transactions, specifically transfers between different banks. Currently these are synchronised between different institutions via the use of multiple platforms that connect to each other and attempt to reconcile at certain times (such as the end of the working day). The effort expended in reconciling these differences is huge and mistakes are common. Setting up a single centralised database can overcome these issues but it is expensive and the system has to be made to integrate with the Bank’s own systems (this is how the faster payments system in the UK currently works). What if all participants had access to the same ledger but instead of being centralised it was distributed and updated in (near) real-time? Then all bank systems could stay in sync without requiring a huge amount of effort to reconcile and resolve issues. It is this instantaneous shared view or ‘one version of the truth’ that has got the financial system so excited.
Secondly — security. These things are really, really hard to hack. A single database is highly vulnerable to attack and various costly security measures have to be put in place to minimise this risk. But when you have many identical copies of the database you no longer have a single point of failure. Hackers would need to target all copies simultaneously to succeed. Given cyber risk is seen as one of the top ten global threats to business, the potential impact of dramatically reducing this is huge. And blockchain is also tamperproof. Once a record has been added to the database it cannot be removed or updated. It therefore provides a verifiable system of historical record.
Thirdly — privacy. People care about who has access to their data. A lot. And organisations ignore these concerns at their peril. This is why the NHS Care Data project crashed and burned, because they didn’t adequately address the issue of sharing sensitive data. Through using cryptographic keys and signatures, technologies like Blockchain can ensure that only those authorised to access data can do so. In addition, it has the potential to devolve ownership and management of personal data to the users themselves.
Fourthly — applications. As snazzy as the underlying database technology is, it is when you combine this with an innovative application layer that things get really interesting. The most hyped of these is smart contracts. A smart contract is a method of using digital currency and DLT to form autonomous, automated, decentralised agreements between individuals or organisations. Current contract processes are extremely manual and vulnerable to disagreements, delay and other problems. They are executed (paid) when parties who have entered into the contract agree that the contracted performance has occurred (i.e. — a specific event has happened such as an order being delivered or a service being provided). Smart contracts can be programmed onto a blockchain or other DLT (making them tamperproof); be linked to other data feeds to record contract performance in real-time (making them self-verifying); and be enabled to control blockchain assets via the transference of digital currency between users (making them self-executing). In high maintenance or high value contracts this level of automation and security has serious benefits.
Finally (and for me, more interestingly) — consensual. As so eloquently put in the recent UK Government report on Blockchain “…through their distributed consensual nature they may be perceived as threatening the role of trusted intermediaries in positions of control within traditionally hierarchical organisations such as banks and government departments.” So — does that mean Blockchain is a socialist technology?
It’s democracy Spock, but not as we know it
Modern capitalist economies and systems of Government tend to favour a model where information is centralised, i.e. — accessible to and controlled by a select few. The underlying philosophy of distributed ledger technologies — distributed, open source and consensual — turns this model on its head and has the potential to be hugely disruptive to traditionally hierarchical institutions such as financial services and government. The fact that DLT also provides a peer to peer capability, effectively removing the need for intermediaries to facilitate transfers of cash or other assets between individuals, further threatens the traditional power model.
Let’s consider some of the implications of this. Think about democracy. It is widely cited that more young people vote on tv shows than in elections. Is this because they are all disaffected, disengaged, ill-informed oiks? Or is it because the structures that wrap around the voting process are so alien and at odds to how they communicate and voice their opinions in everyday life? What other situation necessities you having to register your intention to vote well in advance of the actual ballet, and then turn up to a specific place within a certain time frame with a piece of card with your details on, to be given a another piece of paper that you put a mark on before placing it in a big cardboard box?
(Amusing digression — just after the EU referendum I met somebody who had been involved in counting votes in a London constituency. Instead of a cross one of the voters had drawn a phallus next to the remain option on their ballot paper. This caused a lengthy conversation amongst the voting officials as to whether they had intended this to signal their support of remain or their disdain for it. They eventually rejected the ballot).
Distributed ledger technologies can be used to enable secure, online, digital voting. This has the potential to reduce fraud thorough the use of digital cryptographic signatures and identity authentication. It also has the potential to provide real-time democracy by enabling votes on any issue, not just elections and major referendums. This is hugely, HUGELY significant. Imagine you have an app on your mobile phone that allows you to vote on local issues and national policy issues. If the majority opinion of the population could be quickly and securely polled at short notice, would we still need the current tiers of authority separating us from the implementers? Would we need to be represented by elected officials who are responsible for representing our views (without having the means to effectively gauge what they are) when we can tell the PM in an instant what we want her to do? Of course this raises questions of participation — would society be willing to engage with political decision making on a frequent basis. But given so many of us are happy to engage with reality TV through online voting, why not?
Share and share alike
Another interesting (and potentially socialist) characteristic of DLT is the manner in which it encourages sharing. We are seeing a broader societal shift towards a sharing economy that has been enabled by technology. Think of Airbnb, Park on my drive, Borrow My Doggy and UberPOOL. We are increasingly comfortable with sharing our assets or services with strangers to generate income, save money or for convenience. In doing so we are cutting through traditional models that rely on intermediaries or layers of hierarchy and dealing peer to peer (or C to C in business jargon).
Distributed ledger technologies enable these models of sharing by providing a peer to peer framework. In fact, they negate the requirement for a company (such as Airbnb) to manage the service at all.
So, does this make blockchain a socialist technology? Well, in so much as a technology can be considered to have a political leaning, I believe that it does. The dictionary definition of socialism is “a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole”. Does blockchain fulfil these criteria? Tick, tick and tick. Will this mean that our current systems of Government and Business embrace these technologies? Or will they feel threatened by them and seek to quell their use? Only time will tell…
