The Future of Blockchain

Forward (December 2019): This is a bit of a throw-back, a paper I wrote a couple of years ago as an educational piece for a client. I came across it recently, and wanted to share with this audience, as both a primer for those with limited exposure to blockchain and as an interesting contrast between what futurists thought would happen vs. where we are today (note that the embedded links have been updated to more current references).

Enjoy!

Unless you’ve been living under a rock for the last couple years, you’ve heard at least a little about ‘blockchain’ — most likely in the context of Bitcoin and other cryptocurrencies. What is often missed or overlooked is the truly fundamental shift this concept brings to the practice of gathering, storing, exchanging and validating information — not only for monetary exchange, but for any data-centric industry (so, really… EVERY industry).

Some would assert that we are on the verge of utilizing blockchain-based systems for everything from managing finances and paying taxes to controlling our individual personal and identity-related information. This fundamental shift could bring with it wide-sweeping social changes and would ultimately provide the technological basis of truly world-wide economic decentralization and democratization.

Sound far-fetched? Let’s take a deeper look…

A Thirty Second Primer for Blockchain

First, the obligatory answer to the question - “what is blockchain?”

Given all of the hype surrounding the concept, it can be a bit tricky to sort out, though in principle it’s very simple. Think of a blockchain as a bankbook or an accounting ledger…

Transactions are recorded as the equivalent of ‘debits and ‘credits’, but instead of someone maintaining her own records independently, the ledger is ‘audited’ by several other parties who must agree on the validity of each transaction.
That audit can be as simple as confirming a transfer of funds — trading Bitcoins — or as complex as confirming the details of a contractual agreement before green-lighting the transaction (this is separately referred to as a “Smart Contract”, but the principle is the same).
Once confirmed, the transaction is added to the ‘chain’ of transactions that make up the blockchain. Each new block depends on all the previous blocks for validation, so ‘hacking’ a blockchain is very difficult (though not impossible).

The complexity and benefits to blockchain beyond a acting as a simple ledger lie in the rules associated with how transactions are conducted and how those transactions are audited. The mechanisms defining how blockchain works allows for trusted transactions in largely non-trusted environments (i.e., the Internet). More on that in a moment…

How it Began

There are many historical accounts of the genesis and rise of blockchain (here’s one), so I won’t elaborate beyond noting that the first public implementation was designed to enable decentralized financial exchange. To wit, the advent of Bitcoin in early 2009 heralded the first real-world application of blockchain and led to something of a frenzy among the technology elite (and black market prowlers) to acquire Bitcoins through ‘mining’ - solving complex calculations to earn coins. This complexity gave rise to Bitcoin’s inherent, albeit fiat, value.

So much attention was placed on cryptocurrency that we experienced an explosion of new blockchains — based both on fiat, like Bitcoin, and hard equity, such as Ripple,. Others, like Ethereum, Stellar, and Litecoin, and several more, have become well-known alternatives to the original Bitcoin, each with its unique implementation and value proposition.

This proliferation, and following market speculation, has led to the now-familiar ‘boom and bust’ cycles plaguing cryptocurrencies. In fact, according to Warren Buffet, we’re better off stuffing money in our mattresses, at least for the near term. Even so, with a current market of over $250B US, the value of cryptocurrencies as a whole will not likely evaporate quickly or soon.

Broadening Horizons

If cryptocurrency were the end of the story for blockchain, it would still be a rich and long-lasting entry in the financial services zeitgeist; However, as the concept has matured and evolved over the last decade, financial applications have begun to take a back seat to innovations in many other industries. Examples:

Personal Identity Management — Several well known companies, and an army of start-ups, are building solutions that will allow individuals to manage all aspects of their personal information digitally and grant controlled, limited access to that information based on biometrics and other security measures. This could significantly reduce or eliminate the need to carry physical identification (including passports, driver’s licenses, and credit cards).
Supply Chain Custody — Walmart and IBM are leading the charge to develop a highly reliable and secure method of tracking produce and other consumables from farm to table. This will provide much tighter control of the flow of goods to consumers and much more quickly aid in mitigation of events such as bacterial contamination of food products.
Healthcare — Controlling access to personal medical records while, at the same time, making them available to all relevant healthcare providers has been the Holy Grail of the industry for decades. There are several very credible blockchain solutions currently under development and, if properly adopted, could lead to significant improvements in quality of care.
Real Estate — Perhaps one of the most impacted industries, real estate will benefit from blockchain on myriad fronts. Specifically, blockchain can already enable negotiating and closing transactions through use of smart contracts, financing using cryptocurrencies and pools of liquidity, simplifying fractional ownership of commercial properties, and facilitating transfer of ownership of properties from buyer to seller by managing government property records on a blockchain.
Environmental Responsibility — This is an example of one of many special interest applications of blockchain. Understanding how a product impacts the environment from raw material sourcing through manufacturing, shipping and delivery, is seen as paramount by environmentally responsible entities. Blockchain provides a simple means for measuring environmental friendliness and assigning an economic value. This can be used to give consumers deeper insight into the environmental cost of consumption; or more directly it could be used to assign an economic burden to different points in the value chain (e.g., taxing carbon emissions).

Onward and Upward

So, let’s assume for a moment that all of the proposed benefits of blockchain in everyday life come to fruition; what does that engender for the future? A number of futurists have coined the term ‘Radical Decentralization’ to describe this new world — hyper-community based economies, resilient to economic and social shocks (by seamlessly meshing with other local economies). We are already seeing developments in this space with the introduction of Distributed Autonomous Organizations, or DAOs. In this future, society would become increasingly and inevitably democratized, a Utopia of sorts, with a much smoother distribution of wealth, universal access to basic human services, more pervasive opportunities to contribute to societal stability and well-being.

Update (December 2019): Er, well, perhaps that was a bit hyperbolic… There are less optimistic, more measured perspectives on blockchain and its current/future impacts — examples: here and here. As always, the actual story will likely land somewhere in the middle.

So, For Now…

We are experiencing evermore rapid emergence of new technologies and solutions today, and, if you believe Ray Kurzweil, we’re moving rapidly up the hockey stick of convergence. Some of these developments are exciting and full of possibility; others still very much solutions looking for problems.

Where blockchain will ultimately fall on the spectrum is definitely still up for debate; however the promise, if realized, could have a profound impact on how we gather, store, and share information, both as individuals and as organizations. At the very least, it is important to understand what impact this technology is likely to have on our respective industries and to plan accordingly.

A Postscript — Whither Security? (December 2019)

It’s worth noting that we have recently seen that, although the concept of blockchain comes with inherent controls for protecting both data and transactions, it is by no means foolproof Also, newer developments in cryptography have had profound impacts on blockchain security.

Bottom line — especially for blockchains that will control and manage private information, stores of equity, or governmental records — we will need sophisticated, hardened approaches to controlling access to information and transactions. This is no different that more traditional approaches, but the need for scrutiny and care is heightened due in part to the continuing evolution of blockchain.