Blockchain technology has the potential to impact nearly every aspect of our daily lives. It’s effect in reshaping our economy, governance, and relationships could be enormous. Most people have heard of blockchain’s current applications in cryptocurrencies, such as Bitcoin. However, the implications of Bitcoin’s underlying technology – the blockchain – extend to voting, smart devices, supply chains, and business contracts.
Experts claim that the blockchain revolution is the same magnitude of technological change as the invention of the internet. This is because blockchain decentralises authority, increasing trust between parties and decreasing the need for slow, expensive institutions. To understand why this change is so revolutionary, it’s helpful to know how blockchain works to create trust.
A Layman’s Overview of Blockchain
The foundations of blockchain technology began in 2008 when a mysterious figure named Satoshi Nakamoto published a white paper on creating a peer-to-peer digital currency. Satoshi called the currency Bitcoin, and the white paper outlined how to use cryptography to secure a digital public ledger. Satoshi’s white paper (and the Bitcoin protocol that followed) was a breakthrough on a problem that had stymied cryptographers for years.
To decentralise something, you necessarily remove the institution that keeps the ledger of transactions. Therefore, in a decentralised system, the ledger has to be public. This is true for Bitcoin in finance, but it’s equally true for voting, contracts, supply chains, digital media, and any other place where we use ledgers to track ownership or status. Creating a public ledger that anyone can access means all sorts of challenges, but the largest is preventing bad actors from making changes to the ledger.
Satoshi’s breakthrough was to store the ledger of transactions in timestamped groups. (Bitcoin groups its transactions approximately every 10 minutes. Other blockchains are faster or slower.) These timed groups are known as blocks. With all the transactions inside the block, computers on the network can choose to participate in solving a cryptographic puzzle to seal the block shut. Once a computer on the network decodes the puzzle, that block is added to the official public ledger.
The cryptographic puzzle that the computers on the network solve include a reference to the previous block. As such, the blocks are linked together in a chain – the blockchain. The puzzle is difficult, making it unlikely an attacker could create a bad block faster than all the other computers on the network. Since the puzzle includes a reference to the previous block, altering an old block requires re-solving the puzzle for all the subsequent blocks. If it was unlikely that an attacker could create one bad block, it’s vanishingly improbable that the attacker could alter multiple blocks.
This cryptographic protection of a public ledger means the ledger can be transparent and fully accessible without anyone being able to alter it. Blockchain is append-only ledger technology, meaning all transactions are additions to the existing ledger. The blockchain is immutable. Once on the ledger, transactions can’t be reversed, faked, double spent, or manipulated in any other way.
The Implication for Institutions
If we now have a technology that can maintain a secure, decentralised, and public ledger without allowing anyone to alter earlier transactions, that has significant implications for the role of institutions in society. Keep in mind that Bitcoin’s creation in 2008 came in the wake of the global financial crisis when trust in institutions and governments was at an all-time low. One of the primary goals of blockchain technology is to create trust between parties without having to rely on institutions as intermediaries.
Blockchain is a distributed database. It stores information outside of governmental and corporate control. Don Tapscott, writing for McKinsey, elaborates that this distributed database means “trust is established through mass collaboration and clever code rather than through a powerful institution that does the authentication and the settlement.” This applies for all kinds of institutions, not just financial.
We can theoretically use blockchain anywhere we currently use a database. For instance, we could create peer-to-peer marketplaces where items for sale are listed on the blockchain. Instead of using (and paying for) eBay to list the item, the listing is on the public record. eBay could still help sell the item by accessing the blockchain and finding buyers for the item, but it wouldn’t control the listing. Other smaller marketplaces could just as easily access and market the item to their customers.
Digital Media Content
Right now, our digital media consumption mainly works on a rental model. Netflix, Apple Music, and television channels control the content, and we purchase monthly subscriptions to the services these institutions provide. However, blockchain could turn content ownership on its head. Buying a film or album on the blockchain would mean you own access to that product indefinitely. Since the blockchain is near impossible to alter, you’d know that your digital content is verified and original. With blockchain security, digital documents and media can’t be forged, copied, or revoked, giving you ownership of your media.
The immutability of the blockchain holds exciting implications for cybersecurity. Document storage and transmission, as discussed above, is one potential application. Authorised parties could only access sensitive documents and copying or forging them would become impossible. The peer-to-peer, decentralised nature of the blockchain also means the database itself is harder to attack. Right now, a successful attack on a centralised institution gives hackers access to millions of personal records. On a distributed database, that’s no longer the case, since the whole network guarantees security.
Internet of Things
The Internet of Things (IoT) is another emerging technology trend that has promising overlap with blockchain. IoT refers to the billions of devices we have currently connected to the internet or each other via WiFi, Bluetooth, Z-Wave, and other technologies. These are cameras, sensors, and other devices that collect data about the world and make transportation, agriculture, shipping, manufacturing, and countless other industries more efficient.
These small devices need to communicate. They also need to share resources like bandwidth, storage space, and power. Blockchain technology could enable these devices to conduct microtransactions in small denominations at a high rate. One of the leaders in the intersection between IoT and blockchain is Berlin-based IOTA, a platform designed specifically for IoT applications.
Currently, banks use an inefficient, slow system of nostro and vostro accounts to process cross-border payments. Settlement can take days and lots of fees for the end user. Blockchain creates an opportunity for using a secure ledger to process payments and settle accounts instantly. This is a highly regulated industry, so a change will likely be slow coming. Making cross-border payments more efficient worldwide could change the global economy in similar ways the Eurozone created a more streamlined European economy.
Switzerland has distinguished itself for its willingness to allow blockchain developers to experiment in finance. Its sandbox model of regulation means that blockchain finance companies can avoid many strict rules as long as the amount they transact and manage remains small. Slovenia also stands out for its willingness to work with blockchain companies on creating favourable regulation.
Identity, Voting, & Governance
We could securely store information about identity on the blockchain as well. The challenge is ensuring that sensitive identity information is protected when listed on a public, distributed ledger. If a secure system is established, we could live in a future where you could choose to confirm identity information by releasing parts of your blockchain identity record. Blockchain identity verification could lead to voting on the blockchain, using your blockchain ID to access government services and interact with companies.
Once again, Europe is leading the way on blockchain identity. Estonia is using blockchain to secure its citizens’ medical records, create an e-residency programme, and implement an e-voting system. Eventually, it’s possible blockchain technology could replace large portions of government bureaucracy. Governments could issue currencies on blockchains, create laws that are blockchain smart contracts, and manage access to social programmes more efficiently.
Europe Leading the Way in Blockchain Business
Europe has established itself as a dominant force in blockchain development and innovation. According to the Blockchain 2 Business Conference, Europe leads the world with 65% of all blockchain businesses calling Europe home. Europe’s well-educated population, open regulatory environment, and strong business culture mean it’s fertile ground for the rise of this new revolution in technology.
The EU Commission is actively keeping tabs on blockchain’s rise in the interest of setting the right conditions for innovative, transparent, and compliant blockchain development. They’ve recently launched a small preliminary study to investigate the opportunity and feasibility of a comprehensive EU Blockchain Infrastructure.
A recent report to the European Parliament outlined potential benefits of blockchain that gives a succinct synopsis and provides an excellent summary of what I’ve been trying to communicate in this article:
“The way blockchain-based currency transactions create fast, cheap and secure public records means that they also can be used for many non-financial tasks … For example, they could help manage supply chains better, to offer certainty that diamonds are ethically sourced, that clothes are not made in sweatshops and that champagne comes from Champagne. They could help finally resolve the problem of music and video piracy, while enabling digital media to be legitimately bought, sold, inherited and given away second-hand like books, vinyl and video tapes. They also present opportunities in all kinds of public services such as health and welfare payments and, at the frontier of blockchain development, are self-executing contracts paving the way for companies that run themselves without human intervention.”
Blockchain technology will have a far-reaching impact. It will affect not only the way we conduct financial transactions, but also how we track shipments, execute contracts, prove identity, and interact with our governments. It’s an exciting time to be involved in blockchain, especially in Europe, as the platforms of the future get off the ground and begin to take off.