Blockchain is taking the world by storm. New innovative solutions are announced every week. But for a layman the technology remains little more than a buzzword, with more questions surrounding it that actual answers. Can blockchain really change the world as we know it and where will we see it in action?
by Beata Socha
B lockchain has become the tech catchphrase of 2017 and is shaping to be even more so in 2018. Just as Machine Learning, sharing economy, crowdsourcing and crowdfunding made waves a few years back and the Internet of Things is hoping to gain the status of universally accepted standard in the electronics market, blockchain is quickly taking over the layer of tech that underpins many of the systems we know and use on a daily basis.
It has been touted as the greatest achievement since the invention of the internet (some even say since the invention of print). But unlike the internet, which we all took to in mid-1990s, it is hard to actually see the results that blockchain is producing. “As a consumer, you won’t realize it’s happening. Blockchain will underpin the applications you use but, like any protocol, it will be invisible,” explained Paweł Kuskowski, CEO of Coinfirm.
Is the “blockchain” buzzword so powerful that it will open any wallet no matter how flimsy and patchy the company’s business model is?
A new gold rush
How does it work then? There’s been a number of explanations and definitions of blockchain (see box). But those who understand it don’t need one, while non-tech people find it hard to understand the concept behind blockchain no matter how much it is simplified. And no wonder. The HTTP protocol that the current internet is built on has been with us for decades, but who – outside of the tech industry – really knows how it works? One could very well argue that the difficulty in grasping the concept led to the dot com bubble, which infamously burst in 2001. It was back when any company that utilized “the internet” in its business model, got millions in funding, no questions asked. Could the same be happening here? Is the “blockchain” buzzword so powerful that it will open any wallet no matter how flimsy and patchy the company’s business model is? For now, investors seem to be holding their own and avoiding obvious honey traps. They have also become much more tech savvy compared to the hyper-enthusiasts of the early internet companies.
Still, money seems to by laying in the streets for start-ups that manage to build some actual value on blockchain technology. The number of job openings for the position of “blockchain engineer” is growing rapidly. MarketsandMarkets analysts claimed in 2017 that the blockchain market was valued at $415.5 million. By 2022 it will be worth $7.5 billion, marking nearly an 80-percent annual growth rate.
WE ALL KNOW IT TO BE TRUE
A recently published book by Michał Grzybkowski and Szczepan Bentyn titled “Kryptwaluty. Dlaczego jeden bitcoin wart będzie million dolarów?” (Eng.: “Cryptocurrencies. Why a single bitcoin will be worth a million dollars?”), offers a rather colorful explanation of how blockchain works. The authors tell a story of a dwarf kingdom, where the ledger keeper maintains a record of all the transactions made in the entire kingdom, but the ledger keeps getting destroyed by gnomes (hackers stealing and corrupting data). One day the dwarves come up with a new method of keeping the ledger. They appoint a number of scribes (also called miners in reference to bitcoin mining) who travel from village to village and take an account of every single transaction made in the kingdom’s villages. Every hour they meet at a crossroads and play dice to determine whose account of the transactions from the past hour will become the official one. All other scribes then copy the official ledger and add the same set of numbers (dice outcomes) at the end of it as the control sum (also called hash) that certified the ledger’s authenticity. Then they carry on with their jobs. That is more or less the mechanism behind bitcoin mining. And also how blockchain works in general. Everything is copied and signed with a hash so that everyone has access to it and can be absolutely certain that the document is authentic and has not been altered by an outsider.
What will change?
Even if we can’t really see it, it would be good to know where blockchain is developing and how it is changing the world as we know it. So, we read about new implementations, we go to tech conferences to learn as much as we can before the world moves to the next level and we are left behind. Indeed, there’s been some really impressive headlines lately, even in Poland, which fancies itself as a sort of powerhouse of blockchain and fintech.
According to Kuskowski, one of the visible effects for the customer could be lower prices and better access to some existing services, as one of the values of blockchain is cutting out third-party intermediaries from the value chain. Another positive effect is limiting the chances of fraud, especially the use of falsified documents.
Detractors of blockchain technology say that what it is trying to solve are non-existent problems, and that its true value would only be seen in a post-apocalyptic future.
The first obvious field where this advantage is crucial is finance. A few weeks ago, lender BZ WBK, whose main shareholder is Santander, launched its quick international payment service based on blockchain technology for clients transferring funds to the UK. The bank is planning on allowing blockchain-based quick transfers to Spain as well. Banco Santander informed that it is launching the new service in Poland, Spain, the UK and Brazil, as the first bank to launch blockchain payments in several countries at once. Clients will receive funds on the same or the following day of the transfer and will be informed of the exact value in local currency before the transfer is made. “Blockchain gives us many opportunities to optimize our services, with Santander One Pay FX the first of many such applications,” head of Banco Santander Ana Botin said. The new service uses the xCurrent application based on the distributed ledger technology, developed by California-based Ripple, one of whose investors is InnoVntures VC fund, part of Santander.
A secure and durable medium
Smart contracts and grids
For similar reasons, blockchain may also be very useful in the insurance industry as a way of ensuring that all claims are filed once and damages are paid out automatically through so-called smart contracts. The energy sector could be another beneficiary of the technology. With more and more talk about smart grids and the need to integrate renewable energy sources (such as roof panels) into the grid, one of the main difficulties is keeping track of how much energy is consumed and produced by individual households.
Keeping data secure is a growing challenge these days. Security issues are particularly important in the case of sensitive information, e.g. medical data. Hospitals with centralized data storage have proven vulnerable to ransomware attacks. Keeping data distributed via blockchain not only keeps it from being hijacked, but also from being altered, as well as ensuring it is instantly accessible in case of a medical emergency. Combined with the growing popularity of wearables and their use for medical purposes (monitoring heart and breathing, detecting early signs of e.g. epileptic shocks), it could improve response times and the standard of care immensely.
No central authority
Finally, in the aftermath of the Cambridge Analytica scandal, there is a growing awareness of the fallibility in data protection by major data collecting services. A Polish project called IOVO (Internet of value omni-ledger) has recently announced it was going to democratize the internet and the way data is being used. It is based on Directed Acyclic Graph (DAG) technology, which allows for secure data storage and enables micropayments. In other words, “now every internet user will be able to decide who – and to what extent – has access to their data, and they will receive compensation each time it is accessed,” explained Krzysztof Gagacki, founder of IOVO. The idea behind the endeavor, launched in early 2017, is to stop global corporations from being the sole beneficiaries of our own data.
“Now every internet user will be able to decide who – and to what extent – has access to their data, and they will receive compensation each time it is accessed.”
The company has some big names behind it too. Brittany Kaiser, former business development director at Cambridge Analytica, who had left the company even before the scandal broke out to search for solutions that would allow internet users to protect their data, has recently joined IOVO’s data democracy movement. “Corporations put a lot of effort into monitoring our online activity, gathering as much personal information as possible and monetizing our data behind our backs while making millions,” she said at a press conference in April. During her speech, Kaiser mentioned that this abuse can be stopped. “IOVO has the potential to fix the problem with online data, one that the whole world is now talking about, but nobody knows how to resolve it. IOVO is a game changer in this field,” she added.
Cutting out the middle man
A bleak scenario
Detractors of blockchain technology say that what it is trying to solve are non-existent problems, and that its true value would only be seen in a post-apocalyptic future, when there are no authorities left and trust in the business and economic sphere has to be built on decentralized, mathematical models, rather than on communities and people. Take notary public. Should societies as we know them collapse and we wanted to re-establish the notion of ownership (we’re assuming of course, that electricity and computer networks remain intact in this scenario), a blockchain register would be an ideal tool for keeping score of who owns what. In a bleak future where there are no central banks and no governments, blockchain-based currencies could indeed prove to be the only viable method of payment and value storage (assuming their inherent volatility is no longer an issue).
Also, critics are in no short supply of ammunition where bitcoin – the first widespread implementation of blockchain – is concerned. From creating a bubble and causing financial instability, through to the enormous power use of bitcoin mining (some estimates put is as high as 30 TWh of power annually, which can be equated to powering Morocco for a year, according to Bitcoin Energy Consumption Index), not to mention the cost of equipment that is necessary to mine bitcoins.
Meanwhile, blockchain remains an invisible force that is driving change in the tech world and a growing number of industries. As long as there is money behind it, the wheel will keep on turning. No doubt, some blockchain implementations make a lot of sense and will improve the security and speed of transactions, maybe even democratize data. But there will also likely be a host of projects that fail to deliver the added value they promised, leaving many investors wondering whether the emperor was naked all along.