Beneath the bitcoin hype is a system that could truly change the way that businesses actually do business with each other and consumers, and the way consumers manage and transfer their own data - blockchain.
The applications across industries appear to be endless - funding and delivering food to Syrian refugees, the world’s largest shipping company (Maersk) using it to track cargo and various banking institutions doing their own testing. It’s also been suggested that thanks to its transparent and decentralised nature, it will challenge the premise of capitalism.
- What blockchain is and how advanced it is
- What are the benefits of blockchain for B2B and B2C
- It’s limitations and challenges
- The role of government
- Rosa Thompson - Project Manager, ConsenSys & Co-organiser, Women in Blockchain Melbourne
- Dr Joseph Liu - Senior Lecturer, Faculty of Information Technology, Monash University
- Lyndon Gasking - Founder, Zoetic.AI
- Dr Donald Feaver –CTO, E2Language.com, Branded Trust Assurance Systems, LearningBase and TDS Web 3.0 Solutions
What is blockchain?
Simply, blockchain is a continually growing list of records (blocks) that are linked using cryptography (chains). The key features of blockchain include:
- Decentralised: there is no single source of data distribution in a blockchain. For example, your bank is the central point of data distribution for your everyday account as it approves, traffics and records all data. In a blockchain, your transaction record could be updated by any individual or organisation that you have linked - seeing your $5 soy latte deducted as soon as you tap, rather than ‘pending’.
- Distributed ledger: all chains - or participants - can contribute, and access all data as because it is distributed and synchronised across networks.
- Consensus: agreement between all participants on the validity of a transaction.
- Immutability: once a transaction has been agreed to, and recorded, this block can never be edited or hidden - only new blocks can be entered.
These features elevate blockchain from being just another another database. It is a total departure from established, accepted and systematically ingrained processes.
What are the benefits?
In a world where sharing data is needed to accomplish almost every task (personal and professional), creating trust is crucial. Blockchains characteristics create a completely transparent system. There is no central point where data is vulnerable to manipulation, or being hidden or changed, instead the information moves horizontally across the chain of participants. In theory, this transparency should mean that the ethical and the credible rise to the top, while the unethical and fraudulent are exposed.
Brands where ethics and sustainability are core to their values, can now differentiate themselves with records that blockchain enables them to have. It can also assist them to make more informed decisions on who they do business with.
This dynamism also has positive commercial implications. The constant creation of new blocks of data creates a trail that lends itself well to supply chains and financial services, and it also enables ‘smart contracts’. Smart contracts allow for the performance of credible transactions without third parties. This provides greater security and a reduction in transaction costs. A smart contract can empower a business who deals in escrow, for example, to improve their commercial viability.
Blockchain is sounding too good to be true! What are the limitations?
There are vulnerabilities in any system, and an open source blockchain is no exception. Each ‘pro’ has a reflective ‘con’:
- Transparency: while this allows a business to stake its ethical claim, it could also reveal weaknesses in it’s credibility. Transparency does not automatically equal credibility. For example, a business can complete a full DNA analysis on a product and enter this into the blockchain, but this raw data doesn’t always give the context - how and where the analysis was completed, and how was the data was validated before it was entered. The devil lies in the details.
- Decentralisation and consensus: no central point, means no governing force or central point of regulation and authority. When working across borders, businesses are still dealing with countries that have different rules, regulations and standards. This can make it difficult to establish enough trust and confidence to reach consensus.
- Distributed ledger: participants having immediate, and total access to data creates security issues. It can expose sensitive data to competitors and leave you vulnerable to theft of intellectual property.
Blockchain is relatively young, the technology is evolving and there are many different options in the market. Businesses are also trying to understand the value proposition, alongside implications for strategy and consumer and business confidence.
Ultimately, it depends on how you choose to perceive blockchain - if you see it as a fix-all it will disappoint, but when seen as a tool that is part of a bigger solution working cohesively with other tools (like IoT) it can be of great benefit.
What are the implications of implementing blockchain now?
Not dissimilar to another complimentary system (IoT), blockchain has cost and strategic implications. While the latter is still yet to be fully understood, we know that blockchain adds to the cost of goods and services, and this is inevitably passed on to the customer.
In gemstones, blockchain is being used to authenticate ethically sourced stones. However, its use immediately adds $100 to the cost of a stone as low as $0.50. Completing complementary tasks, like DNA and SNA analysis can also also be expensive.
Sophistication and innovation are needed to propel blockchain forward to where the value proposition and strategic implications are clear, and any costs passed on to the customer are minimised.
Where is this technology going for consumers?
Blockchain has the potential to challenge how consumers view and use their data. Through Silicon Valley behemoths like Facebook and Google, we have become used to getting things for free. We can search and receive information, connect and communicate, and enter into a two-way exchange with government and brands in a way we never have before, all without handing over any money. There is a cost however, and it’s our personal data.
Google and Facebook centralise and distribute our data according to terms and conditions we agree to (mostly without bothering to read). The ethics of this are being put under greater scrutiny, and consumers are becoming aware of how our personal information is being used and sold. Just as these companies gave us a louder voice and greater freedom, blockchain has the potential to give us greater control and ownership over our data.
Blockchain may also provides consumers with more information and greater access beyond the point of service. This could shift where, how and from whom we purchase.
If there is total transparency, how can there be privacy?
Total access to all data for all participants does create tension for providers who work across competitive sectors. For businesses, this creates a question of confidence - can their intellectual property and sensitive operational information, be safe?
There are two elements to consider -
- Challenging the perception of intellectual property: ‘If you’re worried about being copied, you’re not moving fast enough’. There are many more elements to success than an idea, specifically the execution. The way that we view, value and define intellectual property could evolve as blockchain does.
- Private blockchains: some blockchains allow you to restrict access and this is certainly a viable option for protecting sensitive data. However, an important feature of blockchain is transparency - is it still blockchain if it’s not transparent for everyone?
Where does the ultimate centralising force - government - fit into this?
If there is no central point, there can be no central regulator or legislator. Working across borders opens participants to range of different standards and expectations. Additionally, if transactions are taking place using cryptocurrency, how can this be taxed?
There are opportunities for government to both play a role in and benefit from, blockchain;
- Creating a global standard: one of the challenges mentioned earlier is that while there is full transparency, there is no certainty around how the data is being authenticated. Government could fulfil this need.
- Taxation: while financial transactions are occurring using cryptocurrencies like bitcoin, blockchain leaves a trail of those transactions allowing governments to track profits and earnings. And while these currencies aren’t compliant with government, it may give rise to hybrid coins, like NEO, that are.
- Improving public services: while there is the consideration of cost, blockchain has huge potential in public services like health and transport. We are yet to see this fully explored here, but there are smaller Eastern European countries like Estonia who are.