The Blockchain Needs You. But do You Need the Blockchain?
Besides artificial intelligence, which autonomously creates as many problems as it solves, a second technology, the Blockchain, is attracting rapidly growing interest. The Blockchain is one of several Distributed Legder Technologies (DLT). Until recently, it was associated with ominous darknet, money laundering and drug trafficking. The crypto currency “Bitcoin” is most often mentioned in this context: In response to the banking crisis, the paper “A Peer-to-Peer Electronic Cash System” was published via an obscure mailing list in 2008. The “author” Satoshi Nakamoto describes the principle of a blockchain for the decentralized recording of financial transactions.
Blockchain in a Nutshell
Blockchain technology is used to create systems in which facts are guaranteed to be securely and verifiably recorded. To do this, information in a digital ledger (a large spreadsheet) is constantly copied (i.e. distributed) throughout a computer network and kept up to date. Thanks to complex algorithms, it is possible to build consensus between all network partners and create a globally available, reliable data basis.
In 2015, two additional possibilities were added with the Ethereum blockchain project: On the one hand it became possible to manage accounts of several currencies (so-called tokens) within a single blockchain and on the other hand “Smart Contracts” could be stored on the blockchain. Smart contracts are algorithms that can execute fully programmable and iterable (financial) transactions. When such a contract is processed, the execution (computing power necessary) is paid for using the system’s internal currency, Ether.
Ethereum founder Vitalik Buterin likes to describe the system as a “world computer”:
So the idea is that there exists this magic computer in the cloud and anyone can send programs to it and anyone can run programs on it […] Vitalik Buterin
What to do with this “World Computer”?
If you want a rough overview of the possible applications of these networks, you can approach the blockchain from the perspective of 4 central usage scenarios:
Ownership relationships can not only be mapped, but also make transactions possible.
In the decentralized computer network, personal information, data and their history can be administered and made available independent of location.
Depending on the structure of the algorithms, a blockchain can be used for public documentation and all stored data would be publicly verifyable.
Smart contracts can be created in such a way that they trigger transactions according to programmed patterns controlled by events.
The possibilities behind these abstract scenarios become clearer when we look at how they are implemented in the following projects:
Many first-generation DLT projects focus on the decentralized management of “account balances” described above – the first and probably best known benefit of the technology. More recent projects use the function of the virtual currency to create economic ecosystems that perform more specific tasks.
Traceability of medicinal products
The Swiss project Modum develops a hybrid solution consisting of hardware, software and a blockchain. The benefit is simple: hardware sensors document the environmental conditions in a cold chain. The data is stored on a blockchain. This ensures compliance with the cold chain at all times, including in the case of life-saving drugs, and all data can be viewed transparently by the public.
Secure recording of copyrights
The Ocean Protocol project is working on a protocol for the exchange and monetization of data. Structured data sets are to be managed on the platform for analysis. The owner of the data is recorded in the blockchain and automatically compensated for the use of their data.
The next step in automation
The Liechtenstein-based project Aeternity supplements Smart Contracts with the integration of sensors. So-called “oracles”, for example, allow financial transactions to be triggered automatically on the basis of weather data. With the large number of sensor data, there is great potential for possible industrial applications.
Coins, Tokens and Rewards
The role of value transfer
Are we finally talking about crypto currencies? First, we’ll talk about decentralisation. All of these projects have one thing in common: They require computing power and storage space. After all, a *network* needs participants. In the case of blockchains, these are computers; but those too are operated by humans and require resources for their production and operation. Digital currencies have the practical effect of providing participants with a quasi-financial incentive to execute the program code: Miners who keep the net running get credited for their effort on the blockchain. In the beginning, this reward was an idealistic one. Computer enthusiasts liked the basic idea of the digital currency Bitcoin: The first mining computers provided a labour of love, built from available hardware components in basement workshops and dorm rooms. The benefit was to a very large extent to be a bit of a pirate. Today, the available incentives are sufficiently predictable and serve to create specialized mining farms distributed worldwide. Measured by its horrendous power consumption, one can at least speculate that the Bitcoin network can compete with the server farms of Amazon or Google.
So the Blockchain needs you. Because somebody has to join in. If no one participates, nothing happens. The world of corporations has long ceased to just watch the subject with curious scepticism. Since March 2017 more than 200 companies and projects from Microsoft to J.P.Morgan have joined the Enterprise Ethereum Alliance. The Linux Foundation operates the open-source think tank Hyperledger that is similarly well populated. IBM runs a blockchain department and also Amazons AWS offers ready-made blockchain templates.
One of the Corporate World’s biggest hopes seems to be the “Permissioned Blockchain“. Simply put, only those who are invited are allowed to participate here. The Permissioned Blockchain’s existence is tied to the fact that it is maintained by a central authority and can also be shut down, changed or manipulated in a controlled manner. The operator has the last word, the responsibility and the trust. Apart from the centralization (since de-centralization is for pirates, right?) all technical advantages can be preserved. The annoying part of running a currency – just to get people to join in – is also becoming optional. And if you have to become digital and agile, please keep the infrastructure and products central. So, would you need a blockchain like that?
No business model?
Opposed to the use of closed networks in the corporate world, numerous blockchain projects organize themselves in a similar way to the open source operating system Linux: Dedicated foundations are in charge of the support of the network and ecosystem, developments are ensured by the foundation’s assets. These projects no longer have a business model, but a purpose and a community that values their incentives. The great opportunity of these open blockchain projects is to provide the protocol level for many trade and transaction scenarios if they manage to create easily usable open standards.
We see a simple parallel to this protocol level in the development of the platform economy, which thrives on connection and digital standardization. One example is the Social Graph, Facebook’s biggest asset. The Social Graph is a kind of data repository (you remember the use cases above) that maps social identity to the satisfaction of its users and makes it usable. Let us now imagine that this social graph would be managed by an open computer network. Suddenly the abundant data about our tastes and our behaviour, our connections and their development over time could be decoupled from the user interface of a website and the sovereignty of a single party. Your data would be “in the cloud” – distributed worldwide over a computer network, encrypted and under your personal control.
Would you rather entrust something as valuable as your digital identity to a company or a free, non-profit network?
Do you need the Blockchain?
Trust in the Blockchain is still shaken on a regular basis. There is still a gold-rush going on that leads to conditions like in the Wild West. The market follows patterns similar to those seen in the dot-com era (and bubble). Those who actually come into contact with the blockchain (or “world computer”) today have to navigate through a chaos of technical interfaces that are only slightly easier to use than the command line of Microsoft’s MS DOS operating system. Actual use cases are able to become widely relevant still need to be developed, now.