Blockchain and Bitcoin appears to be going through something of a resurgence in interest at the moment. Some recent, highly publicized “epic fails” such as the Mt. Gox hacks (where half a billion dollars’ worth of bitcoins disappeared) and significant value declines, seemed to threaten that it might be “game over”. Instead, Blockchain seems to be re-spawning quite successfully. Yet, many of the concerns that caused the initial issues still haven’t gone away and it looks like there will be some interesting paradoxes that need to be addressed for the technology to grow.
Before we analyse this further it may be worth taking a moment to try to explain this technology for the uninitiated. Blockchain is often referred to as a “distributed ledger” – in essence, an independent means of digitally logging and tracking exchanges across the internet so that it is easier to record and trace a wide range of transactions – people often discuss digital currency payments through Bitcoin, but this can also involve contracts, deed transfers, birth certificates and even marriages! This technology is, today, borderless and designed to be free from intervention from traditional authorities. This also explains why many (though not all) think it is vital to separate Blockchain (the infrastructure ledger) from Bitcoin (a payment application of the technology that runs on the rails).
To expand the mining analogy often applied to Bitcoin, we’re now seeing the digital equivalent of a Californian Gold Rush as many individuals and institutions seek to find their fortune by identifying the killer applications for this platform that will deliver the unquestionable potential value of the technology.
As one considers the hurdles that need to be overcome, there are undoubtedly some obvious paradoxes that need to be considered carefully and resolved to strike gold:
“Trust me, I’m Anonymous”
From its earliest inception, the Blockchain has seen user anonymity as one of its USPs. Even the creator, using the pseudonym Satoshi Nakomoto, inspires comparisons with the “Who is Keyser Sose?” riddle posed in The Usual Suspects and has become a legendary, mythic avatar in the Blockchain community. How can a system that actively prevents one party from knowing the other party’s personal details thrive in the financial space? Can the trust and peer rating systems engendered by organisations such as eBay translate to this use case sufficiently rapidly, or will there need to be some compromise? Highly publicized examples such as Silk Road, an online black market predominantly for drugs, uses Bitcoin payments to avoid traceability, highlighting law enforcement concerns. However, many internet technologies have histories of early utilization by shadow organization – music by piracy, video by adult entertainment – which have later “make good”.
Ironically, one of the clear potential applications for this technology appears to lie in ID verification – which has historically been problematic to facilitate globally. The irony if ID ends up being the enabler of Blockchain would be something to savour.
Poacher or Gamekeeper
The Blockchain community started out with the express intent of being decentralized and free from any government or institutional oversight or intervention – unregulated and relying on the trust of its participants. People’s views on the desirability or viability of this end-state will vary considerably but, to become mainstream, I certainly believe it will need to resolve what appears to be a significant challenge to its widespread scalability, particularly in developed markets.
Many large financial institutions and governments are investing significant resources into evaluating opportunities for the technology and the concept of “private” blockchains will certainly be adopted to try and bypass some of these limitations to facilitate experimentation. To add insult to injury, many of the government efforts seek to use the traceability of the ledger technology to facilitate taxation – hardly the use case the early developers were envisaging!
More fundamentally, however, I think we risk significantly underestimating the intangible human and sociological factors that are critical to mass adoption of new technologies. While a transaction or contractual relationship (even, in some Blockchain experiments, fixed-term marriages) can be “recorded” and tracked, surely the factors that determine the success or failure of that transaction are far more than simply binary? What is a contract worth if it cannot be enforced by the legal or social rules that encourage and support mutually agreed commitments?
As internet and cloud-based technologies are breaking down many barriers and creating significant opportunities, this also highlights a widespread challenge – how does legislation and regulation keep up with these advances? How does one enforce and manage local copyright laws, for instance, when a digital file can share a book, a song, a film globally within seconds? Some of these issues are far more complex than simply identifying use cases for Blockchain and Bitcoin technology – there are significant legal, commercial and sociological implications – does a Blockchain-like Digital ID remove the need for a national passport for example?
Blockchain, Bitcoin and other related technologies assume binary relationships and I am sure that many of the technological use cases will be quickly proven to work – maybe some of the focus should now be shifted to investigating the wider human and sociological dependencies that will undoubtedly be equally critical to their long term success.