Over the last two years, scores of publications have appeared and countless debates have been held on AI trends and technologies. This year, the media and bloggers focus their attention on the blockchain. While the technology may not be as explosive a topic as robotics, intelligent cities and autonomous vehicles, it is becoming hotter every week. It is, in fact, every day that I hear of new technological and business implications of blockchain.
The topic often becomes a priority in my meetings with clients. The frequency with which smart blockchain-based contracts are brought up in conversation stems from the recognition of the huge potential of self-executing processes and automated decision-making and task performance. I also observe the coming to terms with this new trend on many levels of society. Blockchain is no longer the exclusive concern of cryptocurrency investors. And although, for the time being, the technology is pursued mainly by large financial institutions and the energy industry, some of its features may well make it as commonplace as e-mail and the Internet within a matter of years.
Smart contracts in peer-to-peer networks
A key feature of the blockchain is its ability to cut out the middleman by bringing transaction parties into direct contact with one another. In 1994, the lawyer and cryptologist Nick Szabo realized that blockchain could be used to conclude contracts without intervention or authorization by any party. Such contracts could be concluded automatically once the relevant contractual terms have been met. This is how the idea of smart contracts came into being.
Blockchain contracts can be converted into computer code that allows an asset or currency to be transferred to a blockchain-based program. The program runs its code and automatically checks whether a condition stipulated in the contract has been satisfied and, on that basis, whether an asset should be transferred to a transaction party in payment or be returned. In the meantime, the blockchain block stores and replicates the contract, keeping it secure and immutable. By doing so, the blockchain automatically updates information on e.g. asset and currency transfers and the receipts of products and services.
Payments for ordered goods are triggered automatically once goods are delivered to the recipient’s warehouse and/or pass quality verification. The payment is made without human intervention after the delivery of even a single unit has been confirmed by the logistic system.
The advantages of smart contracts
- Control, or rather the lack thereof. In a distributed system that confirms (or withholds approval for) contract performance, multiple parties constantly check, re-check and update block entries, whereas other contracting parties reject any performance that fails to comply with prescribed rules.
- Security. The contract logic is followed by running the program simultaneously on all blockchain nodes. All of the parties involved can then compare the results. Such parties modify their own version of the block only after they have agreed to contractual terms. The block is then replicated throughout the network. In theory, no one can fool the blockchain.
- Transparency and flexibility. Any blockchain user can evaluate contract logic and the underlying mechanism. Each of them can verify and run the same code. Needless to say, users are not granted access to individual contracts, which can only be seen by the contracting parties, as are all contract details. If other users accept the contractual terms and contract logic, then – simply put – any of them can duplicate, modify and execute the contract again for their purposes. As mentioned before on several occasions, the way blockchain handles privacy is controversial.
The possibilities of launching smart contracts vary from one blockchain system to the next. For example, NXT is a public platform that supports selected smart contracts. Unfortunately, at this stage of development, users are barred from creating their own contracts in the network. However, they are free to use any of the existing templates. The most popular and probably the most advanced public blockchain platform is Ethereum. Theoretically, an Ethereum contract can be drawn up by following any logic. Unfortunately, the technology is still highly complex, and the use of the language employed for its contract logic, called Solidity, is highly difficult and demanding to use.
Waiting for a killer smart-contract app
I am watching the new technology, waiting to see it win over successive communities and professions. Last March, Muscovites were given access to the blockchain-based platform Active Citizen designed to connect members of micro-communities. Launched by the city authorities, the platform is intended to support the casting of votes and the adoption of resolutions in neighborhoods. The blockchain debate has also spread to Europe. In February 2018, the European Commission resolved to set up a blockchain observatory.
All this shows that although the technology may not have yet revealed its full potential, it is ready to support its first business applications. It will take a few years though before the full potential of smart contracts is reached. Analysts project that full capabilities will be available by 2025. The technology we are observing today is merely nascent. Perhaps in a year or two, the secrets of smart contracts will have to be explained to a wider audience. Could we use Pokémon-like madness that showcased the capabilities of augmented reality? We may well have one. Futurism.com has recently announced that the blockchain-based Ethereum (ETH) game Cryptokitties has raised $12 million for its development.
Check out these examples of how smart blockchain-based contracts could change our lives in the near future:
Taxi drivers in blockchain and simple logistics
In a single pithy sentence, Vitalik Buterin, the creator of the Ethereum ecosystem, has summarized the benefits of blockchain for urban transport. “Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” Arcade City is an example of a startup based on operating principles that are similar to those of Uber and Lyft. The difference in Arcade City is that the drivers who use the blockchain function, which keeps track of all interactions, can already fix the rates they charge and build their own customer base. They can also employ smart contracts to close deals for specific routes.
However, before independent carriers appreciate the blockchain, the technology may be noted by industrial transport sector. A distributed transaction log may come in handy wherever shipments need to be traced in real time. This is especially useful in multi-level information architecture that requires multiple confirmations and authorizations and where trust is of the essence.
That is precisely why the Antwerp port authority has chosen to use the blockchain. The technology makes life (and communications) easier for shippers, drivers, support providers and any other businesses involved in the distribution of goods. It supports the tracking of shipments from the manufacturer to the final customer with a simple mobile application that directly accesses blockchain records. This simple service makes do without large and complex ERP or SCM systems, which also allows it to keep the costs down. What is more, smart contracts saved on Ethereum automatically execute direct payments and process shipping and receipt acknowledgements without confirmations from users or customers. Everything is secure and instantaneous.
Paper documents to become museum items
Tens of millions of passports, which of course are traditionally on paper, are counterfeited world-wide every year. Some countries are already engaged in advanced projects to digitize such data. Dubai is working to develop digital passports. This field is another possible application of blockchain. Sooner or later, public administration should accept the idea of keeping their records digital and unforgettable. All information used to identify citizens and any other citizen-related data could be kept in a single global decentralized blockchain-based peer-to-peer database. Forging a document would require breaking into and modifying a blockchain, which is practically impossible. What is more, any change to or entry in such a document, such as a visa or transit annotation, would be saved permanently. One can only imagine how this would increase security and data transparency.
Banks whetting their appetites
Will blockchain make the bank account a mere memory? This is not entirely out of the question. The cryptocurrency community view traditional money as archaic. They argue that all financial operations can be performed by means of an unfalsifiable string of characters shared directly between the members of a given network. The banking community has already recognized the blockchain as essential for the upcoming changes. Last year, IBM carried out a survey of 200 banks. As many as 65 percent of them revealed plans to launch blockchain projects within the next three years. I think it is almost 100% certain that blockchain will become part and parcel of this sector. This may well mean that ordinary cash customers will no longer require bank intermediation.
Blockchain can become a critical tool for the public to control politicians. Future blockchain-based tools may prove irreplaceable in overseeing the electoral process, with blockchain’s ability to act in real time coming in handy. Vote tracking and counting will no longer require large electoral commissions that perform multiple activities. Voters could be given a useful auditing tool to ensure that no votes are deleted or added. Just how crucial that is in politics goes without saying.
Making the cloud even safer
The blockchain technology is likely to be valued by medium-sized businesses. Applications that group datasets and support joint transaction authorizations are set to gain popularity. Even as a small business owner, you are likely to keep your business data in a cloud at more than a single address. Owing to its distributed architecture, blockchain is a perfect fit for such decentralized environments. It divides files into small pieces and saves them to multiple locations. Every new piece that it generates becomes part of the blockchain. Information about file uploading or downloading is shared with all network users, who can authorize the entire process. Distribution and joint authorization give the user a sense of added security. The value that such solutions bring to smaller or larger businesses and their potential to further their growth is beyond question.
Enthusiasts and skeptics
While the tech industry enthusiastically welcomes the capabilities of blockchain, marketers and trend researchers have responded with considerably more poise. Smart contracts may be difficult to embrace psychologically. As you may well remember, once an algorithm recognizes that proper conditions have been met, a contract will self-execute. Blockchain fans see this as a sign of technological intelligence. They stress that automated contracts do away with red tape, superfluous middlemen, “third parties”, ambiguous terms and conditions, and, by doing so, even reduce court workloads. Skeptics, in their turn, point to human reluctance to entrust such matters to algorithms. Not everyone can live with having no humans involved in the drawing up and conclusion of contracts. The approach of skeptics resembles that of drivers who swear they will never get into an autonomous vehicle or allow an IT code make decisions concerning road safety. Personally, I refuse to believe that disagreements over some aspects of blockchain operation could keep it from transforming the world.
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CoinTelegraph, Nick Szabo News, link, 2019.
GitHub, Solidity documentation, link, 2019.
Futurism.com, VICTOR TANGERMANN, Cryptokitties Are Like Pricey Beanie Babies, And Just As Devoid of Value. I thought I was buying a cryptokitty, and all I got was a picture of a dumb cat, link, 2019.
IBM Institute for Business Value, Keith Bear, Vice President, Global Financial Markets and Nick Drury, Global Banking & Financial Markets Leader, IBM Institute for Business Value, Leading the pack in blockchain banking. Trailblazers set the pace, link, 2019.
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– Blockchain poised to shake up our lives
– Will quantum computers doom the blockchain?
– Why do we care about blockchain technology?
– Blockchain – the ultimate financial crash
Good post Norbert
A somewhat reasoned critique which would be far more compelling were it not for the straw man arguments and the “take it or leave it” and “black and white” fallacies. We can see here echoes of understandable frustration with the current shortcomings of the technology.
I would suggest having a little more patience and not taking the hype too seriously. Trust and risk are two sides of the same coin. Moving some trust and some risk away from opaque human actors and towards open technology networks is not a panacea and will take time to fully test one way or the other. Considering the degree of inefficiencies, cheating, and corruption of traditional approaches with the distribution of power, some forms of blockchain technologies deserve a fighting chance. We’ve come a long way since the stone age and information literacy for an information age is one more step of many in the path forward
I get irritated at the blockchain movement. The amount compute needed once the chain becomes large will be crippling in cost. Just look at what has happened to bitcoin. You used to be able to use a regular cpus to mine, then gpus, now asics. It has good intentions but wrong tech.
Had a client who was doing some file storage for clients. He said in future versions of the application he would like to see blockchain implemented because it is the new technology. Tech for the sake of tech.
First off I would like to say fantastic blog!
I had a quick question that I’d like to ask if you do not mind.
I was curious to find out how you center yourself and clear your mind before
writing. I have had a hard time clearing my thoughts in getting my thoughts out
there. I truly do enjoy writing however it just seems like
the first 10 to 15 minutes are generally wasted simply just
trying to figure out how to begin. Any recommendations or hints?
Spot on. The article pretty literally states that “if it doesn’t solve all world problems in one swoop, then it’s completely useless”. Which sounds surprisingly dumb compared to the otherwise well laid out details of the text.
Funnily the comments here mimic that: XML was overhyped once? Well, ok, but it’s still extremely useful and applied in a lot of places.
Cryptography didn’t change the world into a paradise? True… but could the internet or any modern communication tool even exist without it?
I don’t understand why the author states that blockchains can’t replace farmers markets… who would even make such an absurd claim? Just like other modern tools, Blockchains could improve one or two elements of such complex systems – it can’t replace the whole thing.
So yeah, I consider Ripple a scam. As are 90% of the altcoins … and I see nonsensical promises all the time. But millions of people already use blockchains to store and transact wealth. That’s an extremely useful application … that billions of people otherwise have no access to.
For a 10 year old invention, that’s already impressive. More is certainly to come.
I agree, the premise of blockchain is not great applied cryptography, that is just a tool that is used to acheive decentralized trust(even if not absolute trust). Sure it has its flaws but like you pointed out, its still an early technology. From a tech POV its nothing groundbreaking but it does provide a paradime shift from centralized to decentralized. Blockchain is trying to create decentralized trust that can be a powerful thing in most systems. I dubit the current blockchains and cryptocoins will survice the test of time. I also agree that theres a lot of gambling with in trading those coins/tokens but it is important to have such stupid amounts of money to finance development of the underlying tech. and explore ideas in different areas of application.
Even a quick poll of your colleagues/relatives and a quick skim of recent news will reveal that banks are actually not “really” bad, they are at worst “moderately” bad and at best “a little” bad. I wager there is a very high chance that none of your direct contacts lost any money in bank holding in the last decade.
What I’m saying is that any serious competitor to banks must beat this statistics by a noticeable margin to succeed.
The strength of the blockchain is that it extends the uses of cryptography in interesting new ways. Blockchain enthusiasts played the role that Schneier played in 1994, hyping the capabilities allowed by the blockchain to the absolute extreme (and then a fair distance beyond) of what could be accomplished, ignoring the practical realities on the ground. Now the author of this article is playing the role of the grumpy newspaper editorialist of 1994: “These futurists are saying that we’re going to be doing our banking and shopping online in the coming years! Bah! You just can’t trust a computer on this so-called ‘Internet’ in the same way as you trust your local shop-keeper!”
Cryptography is a branch of mathematics. And like all mathematics, it involves numbers, equations, and logic. Security, palpable security that you or I might find useful in our lives, involves people: things people know, relationships between people, people and how they relate to machines. Digital security involves computers: complex, unstable, buggy computers.
Mathematics is perfect; reality is subjective. Mathematics is defined; computers are ornery. Mathematics is logical; people are erratic, capricious, and barely comprehensible.
Although forgery of documents is a concern/problem and DLT, along with blockchain (1st Gen DLT), can provide an immutable and secure platform to store PII data, oracles (entry points of data onto a distributed ledger) can be compromised.
If PII is controlled solely by a corrupt gov’t and does not allow for varification by the person to which the PII belongs, then this leads to potential forgery by the corrupt gov’t for nefarious purposes of the corrupt gov’t. China, Iran, NoKo, Venezuela, and many other countries come to mind that could/would manipulate a global or country-wide identity distributed ledger ID system for their own gain and control (i.e., labeling someone a terrorist who simply doesn’t agree with the views of a country). “Power corrupts, but absolute power corrupts absolutely.” (Lord Acton)
Thanks for breaking this down! As I’ve always said in my entire career and fostered in me early on and passionate about it
Adam Spark Two
While there are a number of things in this article I’d like to comment on, this quote from the article actually concerns me: “All information used to identify citizens and any other citizen-related data could be kept in a single global decentralized blockchain-based peer-to-peer database. Forging a document would require breaking into and modifying a blockchain, which is practically impossible.”
It solves a very important problem, that of having electronic cash that operates independent of human actions and, as such, is immune to corruption and disaster. As an example, if we suddenly got into a weird situation where the dollar suddenly lost its credibility – suppose for example a war/catastrophe situation, or perhaps criminal activity managed to print billions uncovered – then Bitcoin would look more attractive to you.
Of course, Bitcoin is like having your nose unclogged, you don’t really give that any value until you get a cold. If the system works and dollar stays stable forever, then, indeed, perhaps Bitcoin will never have any use. But don’t act as if it doesn’t solve a quite important problem.
There cannot be a decentralized system of trust. Any form of asymmetrical trust always requires either a third party to verify or two parties that trust each other must interact directly.
Look at the Root CA’s for example. Without a root “vouching” for the validity of a cert, SSL is entirely useless.
Blockchains give us an algorithmic way of modeling chains of trust, just like the way humans invented money to model relationships of trust. Just because people are naive and take the mental shortcut of blockchain=money doesn’t mean the tech is worthless.
I know us programmers just love to be as pessimistic as possible, but why let banks lull us into thinking there’s anything wrong with blockchains just because cryptocurrencies are a disruptive market? Let’s keep in mind people showed the same sort of pessimism for the internet in it’s early years.