(Dis)Trust Away
When we think of safe places to store information, a single, centralized, restricted-access location usually comes to mind. Picture, for example, your bank statement data: stored in the bank’s systems, they are accessible through credentials such as passwords and/or biometrics. All the knowledge amassed by mankind was, until some decades ago, clustered in a few great libraries — a tradition beginning in Antiquity and epitomized by the Library of Alexandria, whose construction began in the 3rd century BC under the command of Ptolemy I, Alexander the Great’s successor.
The greatest risk of maintaining a centralized system is precisely the fact that attackers have only one target to take down. In the case of banks and credit card companies, the mark is on the servers storing customer data and transactions. The very birth of the Internet is linked to the need for decentralized communication between military bases to prevent a general collapse in the event of an enemy attack on a central spot.
Another feature of centralized systems is the essential role of the information overseer — an institution or a government, for example. Users must have a trust relationship with the data provider. When accessing information on the bank website, for example, they have to believe that the displayed data correctly represents their statement and, moreover, that they are actually communicating with the real-world financial institution of their choice. For this purpose, certifying entities were created to attest that websites actually represent who they claim to represent. In this model, another trust relationship must be forged, this time with the certifier applied to validate the website. The user’s device must deem the website’s certificate legitimate, so the user is not fooled into doing business with scammers.
Blockchain technology, on the other hand, is based on concepts diametrically opposed to those used in “traditional” databases and does not require a trust relationship with any central entity. For starters, information is stored in a decentralized and distributed way, with copies of the data held in dozens, hundreds and even thousands of computers. As a result, there is no one figure who “owns” the information and, thus, no need to certify or prove the data provider’s identity. In addition, when information is added, the entire community (or a designated portion of it) verifies its authenticity and every copy of the blockchain in question — on every computer on the network — is updated.
For now, the most well-known use of blockchain is cryptocurrency, such as bitcoin and ethereum. But there are a lot of applications of this infrastructure that are already starting to pop up. At the end of 2016, Deloitte conducted a survey with 308 executives of US companies in multiple industries and with annual revenues in excess of $500 million. The answers gathered indicate the rapid adoption of the technology: 21% of respondents stated that they already had blockchain-based systems and 25% wanted to implement them over the course of 2017. Health care sector executives made up for 35% of those with plans to implement blockchain-based systems throughout 2017. The three sectors signaling the largest investments were respectively the consumer and industrial products industry, followed by technology, media and telecommunications, and, finally, financial services.
Blockchain technology has features that meet a large number of requirements. It can store any kind of information, necessarily in chronological order. Thanks to the use of cryptography, game theory and efficient communication protocols, it is not possible to edit the information once it is stored in one of the blocks of the chain. It is also practically impossible to delete information once it is in the system. Furthermore, all data must be verified independently by the computer network maintaining that blockchain before they are accepted as a valid block. This makes fraud, forgery or malicious manipulation extremely hard — at least with currently available technologies — creating a very secure environment. And, as we have already seen, all without relying on either a central figure or certifications for the benefit of the parties involved.
Each of the blockchain blocks typically represents a transaction — the purchase or sale of a certain amount of bitcoins, the registration of a patent, the accreditation of an individual, the ownership title for a property, the copyright of a song or a film, the vote for a particular candidate. Whatever the application, this distributed, secure, and chronologically organized environment allows auditing, reliability, and transparency. Thus, it is hardly surprising that so many industries are interested in applying this breakthrough to their businesses: every blockchain transaction is already validated and audited from inception, reducing to virtually zero the verification costs of counterparties, origins of goods, payments and the like.
For the time being, the financial sector has the greatest number of practical applications for the technology, with the prospect of efficiency gains and cost reductions in the short term. Even monetary authorities (in Canada, Singapore, and England, for example) are analyzing the impacts and benefits of adopting blockchain technology to deal with issues such as taxes, international payments, and transaction settlements. According to Christian Catalini, Assistant Professor at MIT’s Sloan School of Management, the implementation of micropayments — very low amounts paid for services or goods — has become viable for the media, publishing, and advertising industries due to the low cost of blockchain transactions.
It should be noted, however, that issues such as privacy, anonymity, legal backing, and technical standards are still under discussion, impacting the decision-making process of companies in regard to the use of blockchain. At the end of 2016, Deloitte interviewed more than 300 executives of US companies with annual revenues in excess of $500 million. The results indicated that 56% believed that establishing universal standards for blockchain implementation would be a game changer concerning the adoption of the technology. Forty eight percent reinforced the need for legislation to ensure legal certainty regarding audits, contracts and statements procured through blockchain — our next topics. See you then.
