There’s a ton of hype around blockchain. I’ve read that blockchains can erase global hunger, make the world corruption-free, end poverty and do a lot more without breaking a sweat.
Never before has a “back-end” technology gotten so much print space in public media.
But should the common man have heard about blockchain? I think NOT.
Let’s start with a simple analogy. Most of you may be users of Facebook, Google, LinkedIn, Uber and WhatsApp. But how many of you know the technologies on which these run? And do you even care? Well, you really shouldn’t.
Ever since Edgar Codd proposed the relational model for database management in 1970, our world has been ruled by databases. Almost everything that makes the Internet so powerful and useful depends upon computer databases. But the general population has never heard about in-memory databases, distributed databases, graph databases, parallel databases and their assorted cousins.
Everyone has heard about blockchains and distributed ledger systems. And everyone has an opinion about them. And that’s what the biggest problem is.
The most common question I am asked is “What can blockchain do that other technologies cannot do?” Is it fair to expect a 9 year old technology to outperform all other technologies in the world?
Blockchain is not Rajnikant or Chuck Norris. It cannot compete with all the world’s technologies. And it’s not supposed to.
1. What is blockchain technology?
At its core, blockchain technology tries to ensure provable data immutability by using hash functions and digital signatures. Did you know that the Information Technology Act of India defined hash functions and digital signatures way back in the year 2000?
Blockchains are compared to distributed databases and even to software development frameworks and that’s partially true. But private blockchains are more than “just” shared databases.
I totally agree with Gideon Greenspan when he says that “If trust and robustness aren’t an issue, there’s nothing a blockchain can do that a regular database cannot”.
Blockchain technology was announced through the paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto in 2008. Interestingly, this paper does not specifically use the word “blockchain”. This paper talks about a “purely peer-to-peer version of electronic cash” where “the network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work”.
Richard Gendal Brown puts it well when he says that a “distributed ledger is a system that allows parties who don’t fully trust each other to come to consensus about the existence, nature and evolution of a set of shared facts without having to rely on a fully trusted centralized third party”.
2. Bitcoin v Blockchain
Bitcoin is a crypto-currency which is usually in the news for all the wrong reasons – drugs, tax evasion, organized crime, money laundering and terrorism financing. This is a little unfair since these crimes have been going on for centuries.
Conventional currencies, gold and even diamonds are used for drugs, tax evasion, organized crime, money laundering and terrorism financing.
Bitcoin runs on a global network of computers that are part of the Bitcoin Blockchain. This Bitcoin Blockchain is permission-less, which means that anyone could spin up a node and start “mining” bitcoin. And yes, it takes a huge amount of electricity and computational power to keep Bitcoin going.
3. Private blockchains
Today, there are many private blockchains being set up. These do NOT require huge amounts of electricity or computational power. They are permissioned – random strangers cannot become part of these.
Let’s take an example of Multichain, an open source solution for building blockchains. It allows you to set 8 types of permissions:
- connect – to connect to other nodes and see the blockchain’s contents.
- send – to send funds, i.e. sign inputs of transactions.
- receive – to receive funds, i.e. appear in the outputs of transactions.
- issue – to issue assets, i.e. sign inputs of transactions which create new native assets.
- create – to create streams, i.e. sign inputs of transactions which create new streams.
- mine – to mine blocks, i.e. to sign the metadata of coinbase transactions.
- activate – to change connect, send and receive permissions for other users, i.e. sign transactions which change those permissions.
- admin – to change all permissions for other users, including issue, mine, activate and admin.
Some of the popular blockchain platforms are – BigChainDB, Chain, Corda, Credits, Domus Tower Blockchain, Elements, Eris, Ethereum, HydraChain, Hyperledger Fabric, Hyperledger Iroha, Hyperledger Sawtooth Lake, Multichain, Openchain, Quorum, Stellar and Symbiont Assembly. You can read more about them here.
4. Some “good” blockchain use-cases
I agree with Gideon Greenspan when he says that the primary categories of blockchain use cases are Lightweight financial systems, Provenance tracking, Inter-organizational record keeping, and Multiparty aggregation.
Banking sector: Asset registry & tracking, Asset re-hypothecation, Know Your Customer (KYC), Payments – b2b, b2c, p2p, Smart wallets, Syndicated loans, Trade finance.
Insurance sector: Agent Details Registry, Fraud Repository, National Policy & Claims Records, Unclaimed Life Insurance Ledger, Verified Health & Policy Records, Verified KYC Data.
Other financial use-cases: Asset backed virtual currencies, Clearing & settlement, Corporate finance book-running, Depository receipts, Escrow, Fund portfolio management, Payment gateway, Peer-to-peer trading, Regulatory reporting, Securities servicing, Securities trading, Securities settlement.
Government: Record authentications and verification of academic records, accounting records, birth certificates, business ownership records, copyrights, health records, identity documents, national ID, police & court records, regulatory records, property records, vehicle records.
Others: Auctions, Contract management, Identity management, Secure documents, Supply Chain Management, Voting.
Blockchains can minimise fraud and maximise efficiency, security & transparency in supply chains, healthcare, global money systems, financial technologies, democratic elections, auction of public assets, energy trading, electronic record authentication, delivery of Government services, IoT and much much more.
We just need to skip the hype and give this technology a fair chance.