12 February 2018
Beyond Cryptocurrencies
Cryptocurrencies have made their way into mass media. The hype was real, there are wins and scams, but Blockchain – the technology standing behind the scenes – is now slowly getting the attention it deserves. Cryptocurrency is only one of many of Blockchain’s possible applications. What will come next? How can a society benefit from new Blockchain-based applications?
From a software-engineering point of view, Blockchain is a new way of designing distributed database applications. It enables what once was possible in theory, but very costly or impractical to implement.
In the end, it appears that Blockchain promises a step forward in technology usage: tech once available only for the wealthiest and mightiest (banks, governments, global centralized services) has become available for all.
New family of powerful protocols
We commonly refer to the technology as simply “Blockchain”. You can find Blockchain implementations in protocols such as Bitcoin, Ethereum, Hyperledger, and so on. Each blockchain protocol implementation focuses on a particular use case, and differs from all the others.
Blockchain protocols are not apps. Their concrete, running instances (commonly called blockchains) are platforms for applications to run on.
To grasp the scale of the potential changes to come, you can think of Blockchain protocols as analogous to Internet web protocols such as HTTP or SMTP. For SMTP, the app would be the Email service. For HTTP - the web browser, with payment, social, and marketplace “websites”. The difference is that Blockchain protocols are more powerful, allowing computation or preserving global state in the protocol itself. Let’s take Bitcoin as an example: the app would be a wallet – your tokens inside the wallet come as a product of the computation done within the Bitcoin protocol.
Common parts
Let’s shortly review the common properties of blockchain protocols:
- Participants of the protocol – called Nodes – can be servers or even applications on your phone.
- Distributed Ledger is the heart of the blockchain – an unmodifiable list of transactions recorded chronologically. Each Node stores an identical copy of the Ledger.
- Transaction is a record of an event, stores a bit of data, and everyone in the network has the same view of the transaction. A simple example of a transaction is a value (token) exchange between nodes. The important note is that a transaction is being executed on the protocol when a consensus between Nodes has been established.
- Smart Contracts are rules for transactions, and define conditions about when, where, with whom, and on which data a change is executed within a transaction. This is where business logic is encapsulated.
- Tokens are an optional but common concept of any exchangeable, tradable good. Defined by Smart Contracts.
There are also more concepts worth mentioning, such as methods of reaching consensus, token types, ledger validity, data privacy, and anonymity that may vary between Blockchains.
Authors of each blockchain protocol focus on one set of properties: e.g. Bitcoin is designed simply for storing a value - cryptocurrency, Ethereum on an open mix of cryptocurrency and computability, Hyperledger on a permissive network of business nodes.
New brave blockchain economy
We do live in interesting times, witnessing a new wave of technology (often an old one reinvented in a new environment) every few years.
Today, there are two types of competition in the Blockchain market, between:
- Blockchain protocol companies fighting for their product to become the standard in its field. Often led by nonprofit organizations linked with big tech consortia – an example being the Linux Foundation’s stewardship of Hyperledger. There is a vital interest of Blockchain Protocol Companies to attract, or even found:
- Blockchain applications companies – products built on blockchain protocol platforms, vying for a network effect. May use common tokens. Examples include Steem and Steemit ecosystem.
The first adoption of Blockchain that comes to mind is in financial services. With Blockchain technology, traditional banking tasks should become faster and cheaper. Therefore, banks should be interested. However, it looks unlikely that SWIFT – after decades of investment and use – will be replaced by a Blockchain implementation anytime soon. Instead of that, we can observe a race of startups in the Fintech sector looking for their chance in new regulations or changes in consumer behavior.
In stark opposition to the current cryptocurrency landscape, Blockchain offers tools for regulators to fight money laundering, as every single transaction is irremovable from the blockchain. Combining with a transaction’s fraud-proof records, transparency– which is a property of the blockchain protocol – eliminates the need for third parties, and could deliver significant benefits in fighting corruption and building trust between (and with) institutions.
Thanks to the computational nature of Smart Contracts, if applied with enough care, Blockchain builds common technical ground for self-governing contracts and law service automation.
One of the most visible applications of the Blockchain tech among startups is taking the next step in Sharing Economy. With Blockchain, it is possible to tokenize almost everything – every service or asset – down to its atomic elements. For example, the integration of any means of public or private transport – down to seconds or meters traveled within each system. This enables (granularly detailed) fractional ownership of goods. Similarly, any asset usage can be saved, along with a clear record of ownership.
The goal of the Linux Foundation branch working with Blockchain is to create a platform suitable for business networks. Enterprises in such a network can benefit from sharing one ledger, instead of wasting resources on heterogeneous systems. This approach is already present in supply chain automation. Combined with the Internet of Things concept – where nodes of the network are represented by physical agents (typically sensors or machines) – tracking of goods is taken to the next level.
Together with Identity and Access Management, Blockchain opens a practical way to track anything or anyone. And hopefully, it will focus on positive things, such as tracking children’s attendance in schools – especially in regions where kids are dragged from learning to work. Such tracking data could then be used by sponsor or government institutions as a proof of usage when subsidizing public services. That is, it can provide hope for better accountability of local authorities. Healthcare can also benefit, with one truly common patient record solution.
When combined with social networks, Blockchain is used as an incentive for content creation. The somewhat controversial byproduct here is guaranteed freedom of speech – any content produced can be stored forevermore in the blockchain.
In a more broad sense, any open Blockchain application behaves like a decentralized, partially-offline application – a movement visible in today’s web. Having in mind technical limitations of client hardware and social context, this is achievable with Blockchain, as all application users can preserve the full ledger on their side.
The final example of Blockchain usage combines concepts the mentioned above, and is used in the Energy sector, where one service relies on a network of businesses operated on a different level or scale. Having all transactional rules and roles defined in one protocol, it becomes feasible to include (and settle accounts with) – every energy producer and consumer (prosumer) – down to a single device.