While there has recently been a tremendous focus on the business efficiencies and mechanics of the blockchain, there is also a profound global impact this technology will have on all of us. To truly understand where the blockchain is really taking us, and how to prepare for it, it’s helpful to first understand some basics about the technology itself.
At its essence, the blockchain provides a mechanism for conducting peer to peer transactions that result in the exchange of a digital asset (or even a digital asset representing a physical asset) without the need for a trusted third party, intermediary, or counter party. An example of a third party might be an escrow service, your local government, investment bankers, or your bookie. You know, people we expect to trust.
As each asset exchange is recorded in the blockchain, cryptography and mathematics are used to ensure only the owner can exchange the asset, and that any transaction created is tamper proof. From a purely mechanical perspective, it just so happens that it’s more efficient to batch up groups of transactions into ‘blocks’, and connect each batch or block to the previous block of transactions in a chain of blocks, each containing multiple transactions, aka a blockchain. Navigating backwards thru all the asset transactions across multiple blocks, enables us the ability to calculate an individual’s asset balance.
Unlike the physical world where the execution of a transaction and the recording of it are performed as separate actions, the recording of the event in the blockchain and the event itself are bound together. In other words, if a transaction was recorded in the blockchain, then the event must have happened, and if an event happened there must be a transaction for it.
With commonplace databases, ecommerce services, accounting systems, and banking ledgers, the actual exchange of an asset and the recording of the event may or may not be programmatically tied together, and there’s really no way to guarantee it. In other words, if someone wanted to ‘cook’ the books of an asset ledger and cover their tracks, it may take some time before someone figures it out. Trusted third parties like banks, benefit from the fact that everyone involved in a transaction has an implicit trust in them and accepts what is recorded on their central ledgers. To earn that trust, these institutions spend a lot of time and effort on auditing their own books. But, transactions bound to an event in an open and transparent system of record, can also be extremely effective when it comes to trust, let alone save hundreds of hours performing audits.
This year I sold a website domain and used a popular service called Escrow.com to conduct the transaction. Escrow.com allowed me, as the seller, to indicate the terms of which I wanted to sell my domain, which domain or domains were involved, the sale price of the domain, and the time frame in which the transfer would happen once the buyer accepted the terms and deposited the money. I also constructed the agreement so that the buyer paid Escrow.com’s fees, a percentage of the sale price.
Escrow.com went through a process to ensure I was who I said I was, confirmed I owned and controlled the domain I was selling, and that I had a valid bank account to receive the funds. Escrow.com also went through a similar process to validate the buyer. Once the buyer transferred the appropriate funds to Escrow.com, I then went to my domain hosting service, GoDaddy.com, and initiated a transfer of ownership to the buyer’s selected domain hosting service. Once the transfer completed and the buyer confirmed receipt of the domain to Escrow.com, the funds were released into my bank account, Escrow.com received its fees, and the buyer was now the new owner of the domain. The whole process took about 3 days.Replace the word Escrow.com with the Blockchain, and you now have a basic understanding of the blockchain. Instead of having a trusted third party like Escrow.com verify the parties involved, verify the asset owner, verify funding availability, and execute the exchange of funds, the blockchain can perform these functions, and potentially even perform the transfer of domain ownership. After all, performing peer-to-peer digital asset exchange was really its initial purpose. And, rather than paying a third party, like Escrow.com, a fee for performing this transaction, we use crypto-currency, like Bitcoin, to pay the blockchain. This is actually why all blockchains have their own currency, to pay for performing all of this work.
Being able to validate an identity, establish the ownership of an asset, perform the exchange of an asset, and record it all in one step, can create some incredibly powerful services. And it is this aspect that will change the way we interact with each other forever.
With the aid of AI and brain-cloud advancements like nano-technologies, the blockchain will be the stepping stone to a truly immersive digital world, one in which we will be connected to nearly everyone and everything. Intelligent services will be acting on our behalf, interacting with other intelligent services that represent another person, group, or thing. It will be the blockchain that enables us to verify that whatever we are interacting with or is interacting with us, can demonstrate its legitimacy thru historical transactions or by association to another source. It will be the blockchain that will enable us to conduct services safely in the digital world without the need to leverage a third party to verify funds, identity, capability, or credibility. But for this to happen, we first have to overcome some significant hurdles.
Blockchain transactions are often referred to as trustless, because we don’t need to rely on a trusted third party to act as our intermediary. But ironically, for blockchain services to be successful, we ultimately must have trust in the blockchain itself.
The blockchain is still a nascent technology and we’ve seen how program errors can erase millions of dollars, or that stolen keys can result in the loss of even more. But really this is no different than ensuring the security in just about any other technology in which new safeguards need to be created both on a technical level and an educational one. I can still recall the early internet years when people said there is no way they would ever provide their credit card number online.
While I would consider the blockchain’s ability to conduct anonymous transactions one of its greatest feats, many people still consider this a negative and associate it with black markets and money laundering. But, when we look at some of the greatest breakthroughs in technology, many were first leveraged and improved upon because of what we might consider illicit activities. For example, whiskey-running during the prohibition of the late 20’s and early 30’s drove improvements to automobile suspension and engine power, and the porn industry practically invented e-commerce and video streaming. Today, federal law prohibits cannabis retailers from storing funds in federally insured banks. To address this issue, the cannabis industry has been leveraging blockchain crypto-currency for purchases and payroll. As a result, legal and auditable payment processing using crypto-currency is starting to become more common as well, even for businesses like Expedia, Microsoft, and Overstock.
With the latest crypto craze in full gear, many organizations have concerns of volatility. But just like the dot com craze of the 90’s, we’ll likely see the real players gradually emerge and these markets stabilize. In fact, major corporations are already coming around to the value and potential of blockchain technologies.
In the end, it’s this negative attention that will shine the light on this new technology, result in its objections being addressed, and ultimately legitimize it as a trusted and useful tool. While the blockchain frenzy continues, its technology will continue to mature, become safer to use, and enable more functional and approachable services. It’s during this period that we will likely see an accelerated transition to a different kind of world.
In the next decade, we’ll be taking the first steps to where our physical and digital lives will become indistinguishable. Education, social, health, work, and even public interactions will become more common in digital world than in our physical world, and the function of the blockchain that will move us closer to this new world, will likely be identity verification.
When interacting with someone in a truly digital format, we each will need a way to verify ourselves, whether it’s verifying the control of an asset, or verifying by association, e.g. ensuring you really do have that degree from Harvard University.
Similar to how I sold and transferred my domain to a buyer using Escrow.com, we’ll want to be assured that when we provide our personal data and/or assets to another party, our identities, ownership, and credibility, have been verified. Blockchain technology is leading us there.
Conversely, blockchain verification can also be leveraged to hold central authorities themselves more accountable. From public servant spending, organizational financial solvency, to the credibility of news sources (think fake-news), the public will begin leveraging blockchains.
As the number and capability of online services grows, we’ll not only want to know who is monitoring us, collecting our data, and why, we’ll want to have a say in it. To achieve this though, individuals will need to have control of their own digital trail and personal data that make up their identities. Not Facebook, not Google, not LinkedIn, and especially not Equifax, should be the custodian of your identity, only you should be the ultimate controller of you. Without this personal control, the next steps in our digital transformation will not be easy ones.
To move in this direction, we’ll need to agree on some level of governance in how our personal data is used and shared. Once an acceptable and trustful approach to handling our personal data is established, individuals will willingly migrate to services that are open and transparent about how their personal data is being used, and mass exit those that are not. With technology advancements increasing at an exponential pace, we’ll need to act quickly. And one way of getting there is thru economically incentivized transparency.
henever I visit Los Angeles, I greatly appreciate that a restaurant’s health and public safety grade of A, B, or C, is posted in its window. You can imagine the concern of a restaurant owner about something so public facing, anything less than an A could result in lost customers. When it comes to protecting our personal data and data privacy, this should be the same approach we use with online services.
Next May, the EU will be implementing the General Data Protection Regulation, which identifies new guidelines on how businesses must handle the personal data of EU citizens. This includes visitors to the EU, as well as non-EU companies that have EU customers, clients, and/or employees. Compliant organizations will be able to display a certification of compliance seal, while non-compliant organizations face heavy fines.
Fortunately, most countries now see this as the gold standard for data privacy, recognize the economic benefits of data privacy, and are moving in this direction. We’re already seeing new technologies arising strictly around personal data privacy, giving the user control of their own identity, and enforcing these data privacy rules.
While there are still technical and social barriers to overcome, it’s peer-to-peer open transactional systems like the blockchain, combined with personal data privacy transparency, that will raise us to a new level of interaction, awareness, and control, that we’ve never had before. It’s these changes that will not only lead us, but allow us to enter the next evolutionary stage of the Internet and of ourselves. This is what the blockchain really means.