Bigger than Bitcoin: The Revolutionary Potential of Blockchain Technology
While the recent skyrocketing value of Bitcoin and public trading of Bitcoin futures have made headlines, the truly transformative technology emerging today may be blockchain: the technological infrastructure that Bitcoin and other cryptocurrencies are built on.
A blockchain is essentially a public, digital ledger where records of transactions are maintained. In the case of Bitcoin, coins are bought, sold, transferred and mined from this secure database.
One key characteristic of the blockchain is its decentralized nature. Unlike records or accounts maintained by banks, health care providers, government agencies and other institutions, the blockchain does not require an intermediary to complete financial transactions or alter records. Each user within a blockchain has a private encryption key linked to their own personal block and when a change is made to that block, every block linked before and after it is updated, creating an irreversible record.
On Tuesday, the value of several digital currencies, including Bitcoin and Ethereum, dropped by more than double-digit percentages, reaching the lowest level in more than a month.
If what we’re witnessing is truly the burst of an economic bubble, then the legacy of cryptocurrencies may only exist within the widespread application of blockchain technology, and not the currencies that digital ledger was designed to serve.
Taylor Gerring is an international blockchain consultant and speaker who runs the educational website Blockchain.wtf. He’s also the co-founder of the Ethereum Foundation, the nonprofit that manages the administration and development of Ethereum. He joins us to discuss how the blockchain could be entering our lives in the not-to-distant future.
Below, a Q&A with Gerring.
Chicago Tonight: What is a blockchain and when did it come into existence?
Taylor Gerring: A blockchain is amongst other things, a distributed database that lives on the internet and this idea came to be when this whole Bitcoin thing was introduced. Bitcoin was introduced about nine years ago now. The idea with Bitcoin is that it could be money on the internet. It was after looking at this idea of money on the internet for a while that we started figuring out we can use this distributed database idea and do things beyond money. And that’s when the whole idea of using a blockchain and using blockchain technology for different applications came to be.
One of the things that makes a blockchain a blockchain was this idea of incentivizing validation. Looking at how people work together, cooperate together and figuring out what incentive model can they share that we can achieve a similar desirable outcome, even though they have many things that they’re interested in.
In the past, we’ve used these data structures. But at some point, somebody has to own that data – to maintain it, make sure the database stays online. Along with that comes this idea of who owns the data, who maintains it and the political power associated with it. It’s just kind of a natural way this system evolved. We’ve worked around how do we trust this power with somebody and be sure that they’re not going to do something bad with it. We’ve done different things in the past to achieve this.
One of the things that we’ve relied on to do this is institutions – whether it be state-run institutions or something that is highly regulated and the state verifies it, like banks. So we have other players helping to manage it. The genius of this blockchain technology is that we don’t necessarily need those institutions to exist to achieve a similar desired outcome. And that’s how we’re able to have money on the internet without a single entity controlling it or, let’s say, fudge the numbers.
How does this digital ledger work with cryptocurrencies like Bitcoin and Ethereum?
All these miners, or validators, are all competing to come up with this special lottery ticket, if you will. What this lottery ticket does is allow them to take the valid transactions that have been broadcast to the network and kind of seal them into a book of data, or what we’d call a block of data. They have the ability, once they get this winning lottery ticket number, to be able to broadcast that block of data to the network and then that becomes the de facto truth that everybody else pays attention to. For that effort that they’ve expended, they’re also rewarded with some Bitcoin or whatever currency that particular blockchain uses. That’s the basic idea: we’ve incentivized people, by giving them a reward of Bitcoin, to validate – and that’s why I call it incentivized validation. They do that all on their own, without caring about what data is necessarily in the data or who’s transacting. All they care about is they want to append to the ledger and be rewarded for that work.
So, they’re essentially creating a new link in the blockchain?
Yes. And every link points back to the prior link. So if you want to go back and change something in the past, it would undo all of the linkages. That’s one of the special, cryptographic things about blockchain.
How can blockchain technology be applied to other industries?
Blockchain technology can be applied to different industries depending on what properties from the blockchain they’d like to apply. One area that’s highly popular with auditors and regulators is this idea of triple-entry accounting. We’ve had double-entry accounting since the Renaissance times – for every debit, there must be a credit. By using this cryptographic data structure, we actually now get a cryptographic receipt, if you will, so it makes it even harder to go back and fudge those numbers. That’s one angle of auditing that’s very interesting to people.
Another aspect might be censorship resistance – the ability to put information out there and not have that information squashed. In areas that might have dictatorships or unstable governments, the citizens can say, ‘We agree to use the blockchain as the de facto way to track real estate and we don’t really care what government comes in, this is what we as the people agree upon as the solution.’
Another area is when the ownership of particular goods is not fully baked into one person’s business role. So, for example, if we’re sending goods across international borders, those goods change hands multiple times and right now, a lot of that process is managed with paper – handing paper from one person to another. If we’re able to take that data and put it in a distributed ledger, like the blockchain, then we can track all that data without having to worry about who owns that data, who controls it, who manages it and who maintains it.
And in the age of data breaches and hacking, couldn’t the security potential of blockchain be attractive to governments and companies that store sensitive information?
Yes. One area that I’m personally passionate about is fixing some of the problems of the internet and how our data is siloed with particular providers. It leads to this problem where hackers have this huge honeypot of information. If we think about the Equifax breach – there’s a couple hundred million people’s data all sitting in one location. If you can breach that one location, you have access to a huge treasure trove of data. Now, if the data was distributed and everybody managed their own, rather than having a central organization control all of it, then the hackers basically have to hack every single person individually, which is much more secure. It’s like storing all your gold in one place or spreading it out along the Earth. It’d be a lot harder to find that gold, if you spread it all out.
What are some disadvantages of blockchain technology?
We’re definitely still in the stage of exploring the technology and figuring out what cases work well. People have tried to figure out how to apply blockchain to a whole variety of different industries and I have no doubt in my mind that there’s tons of value in tracking things like supply chain. But I think one of the greatest risks is promising that this technology can be a silver bullet for anything and everything. We just have to be honest with ourselves that that will never be the case for any singular technology.
With that being said, can a hacker compromise a blockchain?
Yes. There has been a way for hackers to compromise aspects of the blockchain. That said, it’s kind of like describing compromising a car or house – they might be able to compromise a component of it. That doesn’t mean the whole system is broken. It might mean the single component needs better security around it. From what we know, the cryptography that secures the blockchain has not been broken. There have been instances where some aspects built on top of that have been broken or changed in some way, but as we spend more time with this technology, we figure out how to build those components better.
Do you think the blockchain will eventually become mainstream, everyday technology? What kind of timeline do you envision?
I do think blockchain technology, in some form, will become so prevalent in all aspects of our lives that we won’t think about it. Just in the same way as when we visit WTTW’s website, we don’t think about the DNS, TCP/IP, HTTP and all these open protocols that allow us to see a webpage on our phone. It magically happens behind the scenes.
If we’re very successful with the idea of blockchains, ideally, that will be the future – where people don’t even think about it. Minimally, I think there’s an absolute case for money on the internet. Today, our money on the internet primarily exists in the form of a credit card. That’s 1950s technology – it was never really designed to be on the internet and we have lots of hacks associated with credit cards. So it seems very natural to have five dollars of digital currency loaded into your web browser that you use to read articles, tip people or whatever you would normally do with some cash in your pocket.
Follow Evan Garcia on Twitter: @EvanRGarcia
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