Is Blockchain (Not Bitcoin) the Future?

Recently, a lot of banks, companies, and other organizations have started pouring millions into “blockchain research”. That is, they are not investigating bitcoin or other currencies specifically, they are trying to find other problems that one of the core systems in bitcoin can solve.

Although, we will probably see banks and nations try to create their own crypto currencies and promote theirs instead of bitcoin, I would argue that people will likely choose not to use them. Nations and banks want to control their currency, control access, control policies, etc. So if they create a currency with these controls, only open to citizens, only accepted in their nation, it leaves us largely where we are today.

With the choice of the benefits of a decentralized system open to anyone, versus their authoritatively controlled centralized system which is only used by a single nation or region, I believe people will choose the former. If one doesn’t like the policies of bitcoin, they can use another decentralized crypto currency. If one likes the policies of their national crypto coin, they are free to use that, but if one doesn’t like the policies of their national coin, well, they can use a decentralized crypto currency. If nations create a decentralized, open system, that benefits all, people might just use that, but bitcoin is way ahead of the race.

 

Bitcoin’s Blockchain is Unique

Bitcoin has, by far, the largest number of users and the greatest amount of computing power contributing to its security of any other blockchain. Though hacks have stolen individual private keys and the associated coins, in 10 years, no one has been able to alter the bitcoin blockchain (change the transaction record) and simply award themselves billions of dollars. The incentive to do so is obvious. No one has been able to. Not because no one is trying, but because it’s damn near impossible.

The blockchain is a history of every transaction on the network, it’s stored on thousands of nodes across the world. It’s essentially impossible to modify the information contained therein because you have to convince thousands of other nodes to also change the history, and the entire history must be modified all at once.

In bitcoin, all of the transactions from the last 10 minutes get grouped into a block. This new block is cryptographically tied (mathematically linked) to all the blocks that preceded it. Each new block is tied to the history of the previous, and subsequently every block before it. This process creates an extremely secure chain of transaction blocks.

What that means is that if I, on my own node, go back and change any block before this block, the new block just added won’t correspond with the history. And if my information doesn’t agree with everyone else’s, all the other nodes will actually start disregarding my node (because they know I’m provably wrong), and I lose the chance to participate in the system.

This amounts to a history of information that if altered in any way is immediately obvious to everyone. In bitcoin, the blockchain is a fundamental pillar of the system, but it is not the only pillar. The system also employs game-theory to incentivize lots of completely independent people to try to mine blocks by offering them a reward for doing so.

Anyone can participate because the network is completely open. All you have to do is set your computer to start trying lots of math problems over and over and hope that you find the correct answer and are the first to mine a new block (in reality, you need specialized hardware or to participate in a “mining pool” to stand a chance of any kind of reward these days). And, since they have to complete many math problems before they can actually mine a block, and thousands of other computers are also trying to do so at the same time, the first person to mine the new block is randomized. Randomization is important in making sure no single actor is allowed to create all the blocks.

In 2018, a single mined block yields 12.5 bitcoin (BTC), worth over $80,000 USD at the time of this writing; every 10 minutes there’s a chance to mine another 12.5 BTC. The system of awarding coins to the miners makes everyone compete to mine the next block, and the time-consuming math problems required to do so helps randomize who gets to mine each block (and makes it difficult to generate lots of “correct” blocks). Remember, all the blocks are mathematically tied together, so changing one block means doing the math for all of the other ones after it also.

This game-theoretical competition model is the other pillar of this system, without which the history of bitcoin transactions would not be as secure.

What I’m trying to outline is that without the reward-incentive for mining blocks, competition to spend computing resources (and the electricity to power them), participation in the system is greatly diminished. Therefore, the security of the transaction history is not as robust. Less math is required to mine blocks. In other words, if only 5 people are trying to mine blocks, one might be able to influence some or all of those 5 people to put wrong information into the transaction history; this is much less the case when thousands of completely independent actors are all trying to participate. With only a few participants, it’s also much easier to control a large percentage of the computing power, which would centralize control over the system opening the door to abuse. These open networks need a lot of participation to achieve decentralization and security.

Applying the blockchain to a problem outside of cryptocurrencies means that the blockchain won’t be as effective as a secure history without some kind of incentive to create competition and participation in the network.

That is not to say that there aren’t other applications for the blockchain; instead, I simply wish to communicate why adding “blockchain” to a project doesn’t by itself create an “unchangeable” history.

Furthermore, blockchains take a lot of computing resources to run, and if decentralized and open protocols aren’t necessary to your application, in reality all you’ve done is create a very inefficient database system. It’s on the order of 1,000 times less efficient as traditional databases we use today, and that’s a huge waste of resources. Still, I believe we will see a few other use-cases for blockchain technology that take advantage of this “decentralization” feature, and make the use of computing resources worth it.

Voting

One of the applications I think stands to benefit the most from this technology is voting. Our current system of voting requires physically being present in person (to verify identity), at a specific location, at a specific time, to fill out a paper ballot. Overseas voters like military personnel are allowed mail-in paper votes. This allows us to “recount” the paper ballots when there is dispute, and it’s a relatively secure system, but certainly not perfect, and not impossible to change votes due to centralized points-of-failure (for example, consider a malicious person that controlled a voting station, or intercepted mail-in votes, and changed or falsified the votes after they have been cast). Furthermore, many people might have jobs that make it difficult to show up at the correct place and time; voter participation is pretty low, and this is often cited as a reason.

Of course, we have seen electronic voting systems become more common over the last decade, but we’ve also seen nearly insurmountable concern regarding the security of these devices. And one still needs to physically go to the machine to vote.

If we created a system where people could use cryptographic private keys to send their vote as a transaction on a blockchain, people could vote from anywhere and at any time during the voting window. Only the person with the private key linked to your identity can cast a vote for your identity. Everyone could verify how many votes go to each candidate, and that only one vote per identity was cast.

This system is not without issue. First off, we have to find a way to distribute private keys to each person; it’s rather doable, we do this with licences, social security cards, and other things. But we would have to keep the private keys completely confidential. If a private key is lost or stolen, we would need a way to reissue a new key (like getting a license reissued). Subsequently, we need a centralized authority to issue the keys, and that authority would need to only issue only one key for each one registered person in the voting district or nation. Another concern is private keys could be sold by people that value money over their vote’s voice. We would need a rather strict set of laws to punish anyone selling a key, and even more severe punishment for those hording the voting keys.

Regardless, I would argue that a blockchain voting system has the potential to be much more valuable than anything we have today. Most of the issues with this new system are already issues with our old system. Voting fraud, vote-buying, and ballot stuffing are already concerns in our modern world. What’s different under this system is that every vote cast could be verified by the entire network.

However, this creates a new problem. We either need to accept that everyone can see everyone else’s vote (which I don’t think is good), or, similar to the bitcoin pseudonymous system, we would need to keep the public from knowing who has which keys. Also, we need to jointly make sure the authorities know that only one valid private key has been issued to each eligible registered voter.

Incentive, while not as great as $80,000 every 10 minutes, would be that citizens and organizations sacrifice some computing power to contribute to the network for the purpose of helping ensure the votes are recorded correctly. We could easily reach a few thousand or so independent participants using their home computers to mine voting blocks for a few weeks during election season. Still, these are all non-trivial problems to solve, but the benefits of an “unchangeable” voting record, easily and instantly verifiable to all speaks for itself, so I predict we will see a lot of clamor for such a system in the coming years.

Supply Chain

The other application of blockchain that we are seeing a lot of hype around is the supply chain. The idea is that it’s difficult to track the provenance of items in a supply chain. There is value in knowing that your clothes didn’t come from a sweatshop, your food was sourced from ethical or organic farmers, or your cell phone was built by people paid a reasonable wage, etc. The blockchain could be the “unchangeable history” of this supply chain.

I’m not completely convinced that this solves all the relevant problems. During a product’s creation and shipping life cycle, there are often many stages of storage, manufacture, and distribution along the way. Even if we find a way to incentivize miners to contribute to this supply-chain blockchain, and we create an “unchangeable” history of a product from “farm-to-table”, there is another key piece that is discussed far less.

An unchangeable history doesn’t matter if the information entered is incorrect.

Having a blockchain history is irrelevant if you can’t secure the information entered into it at every single point along the line of production. Of course, having  the secure history is a key component in this concept, but I believe the much greater challenge is ensuring that each stage of product life cycle, like farmers in remote locations, production facilities in corrupt political environments, and so many other points along the way includes accurate provenance information. Ultimately we are attempting to apply this technology in a way that benefits the majority; we simply have to remember that this is no silver bullet.

 

Ownership and Real Estate

The transfer of ownership of a real estate property (which can be worth millions) from one owner to the next is actually relatively complex, and requires money, agents, authorities, accurate record keeping, lawyers, insurance, and more. This industry is rife for disruption. Unlike the supply-chain example, we do not need to rely on the accuracy of the information entered into a blockchain title-registry every time a house is bought or sold. Instead, real-estate titles (and really, the ownership of any asset) could be like owning a particular bitcoin. When transfer of ownership happens, the current owner can “spend” the title to another user, much like they spent a coin. The ownership of that title would then be associated with the new owner on the unchangeable blockchain.

There are already a number of different projects looking to tackle this problem so I won’t waste time getting into the specifics, you can feel free to do some research and look into yourself if you are interested. But, as I understand it, this is a relatively straight-forward problem to solve, it will benefit buyers and sellers, simplify fractional ownership, and eliminate a lot of waste.

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