If you’re familiar with the famous Gartner Hype Cycle you could safely argue blockchain and cryptocurrencies are currently taking up residence on the ‘peak of inflated expectations’. With Bitcoin hitting the mainstream at the end of last year, not a day goes by without a deluge of headlines talking up the currency and the technology that underpins it. With all this hysteria it can be difficult to unpick exactly what blockchain is and how it’ll impact businesses.
To make life easier, I’ve made a list of some of the most frequent errors people make when they talk about blockchain.
The reality is that there are numerous blockchains and each blockchain serves a different purpose. Blockchains can be open and public, or they can be privately run by enterprises or even individuals. The idea is to think in plural rather than singular. Blockchain is not a computer program.
While it is true that the first blockchain was used for the digital currency Bitcoin, the potential of blockchain technology goes far beyond money and finance. Today blockchains are being used to building services on smart contracts, digital identity solutions, cloud storage, voting systems, and even aircraft safety. The blockchain does not care what type of data is contained in the ledger, as it is effectively just a list of records.
Due to the very nature of the blockchain, anybody wanting to tamper with it would have to make changes to records which are stored on multiple computers, or use a lot of computing power to mine a new branch of the blockchain. Having said that, there have been instances where vulnerabilities in a blockchain or a blockchain based system have been exploited. The Hong Kong based exchange Bitfinex lost $65 million in a hacking incident.
Anyone capable of gathering the mining resources can overwhelm and take control of the blockchain. All they would need is a mining capacity larger than that of the rest of the Bitcoin network. This type of attack is called a 51% attack. Given the difficulty in gathering these resources and the expenses involved, it is unlikely that this could be carried out by an individual or a group. However, it is possible that a government could do this. In the case of mutable blockchains, transactions can be reversed if all participants agree. This element is particularly useful in private blockchains where consensus is easier to achieve.
There is nothing to stop non-corporate users or small companies from taking advantage of the Blockchain. For example, Ascribe is using blockchain in the field of Art; UProov in the field of timestamping photos and video; and Warranteer is using blockchains to authenticate warranties of products in the retail industry. Then there is Genecoin, which wants to ‘back up’ DNA by putting a copy on a blockchain; and Filament, the IoT company who is using the blockchain to get your toasters talking to each other. The good thing about blockchain is that it can be scaled to fit the needs of the user. Therefore, a wide variety of individuals, groups, businesses and non-business users can take advantage of it.
It is true that some of the most well known blockchains are public. However, blockchains can be public, private or semi-public. It is even possible to stack a private blockchain upon a public blockchain. The basic difference between public and private blockchains is simply who has access. For example Bitcoin is a public blockchain, while Corda is a private blockchain that was developed by the R3 consortium.
Bitcoin, and in turn the Blockchain, has gained some notoriety as the currency of choice of online drug dealers, It has also been used in a number of ransomware attacks. However, Bitcoin and other cryptocurrencies are also used for perfectly legitimate reasons. The Bitcoin blockchain has a public record of each transaction that takes place on it, so it is perhaps not the best currency to use for criminal activity. It would probably be better just to use cash for such purposes — not that we are encouraging you to start a career in crime.
The confusion surrounding the legal weight of smart contracts, undoubtedly comes from the use of the word ‘contract’. Smart contracts perform certain actions when a condition is met. When combined with the Internet of Things, smart contracts assume even more value. There is no legal value in a smart contract. They can, however, be used to prove that a certain condition has been met legally. A smart contract is not legally binding. In this respect, a smart contract can be considered a tool rather than a contract.
In the case of public blockchains, there is a misconception that all your transactional details are out in the open and there is no privacy. Nothing could be further from the truth. The only aspect of the transaction that is in the public domain is the transaction amount and the hash – a code that is derived by running the transaction details through a cryptographic function. Compare this with your local financial institution that possibly has your entire life history and your family’s life history at their fingertips. They probably know more about your spending patterns and your assets and liabilities than you think they do.
According to PWC expert Seamus Cushley, as reported by Silicon Republic, nearly $1.4 billion was invested in blockchain technology in the 9 months preceding November 2016. In this same piece, Seamus also asserted that, “There is fringe experimentation going on but people are on a journey. They will move from fear to understanding and a respect for its potential, and they are in the latter phase of that journey.”
To say that Blockchain is only a buzz or a hype, would be unfair and inaccurate. Blockchain technology is evolving and its full potential is still to be realised, but we are well on our way. 2018 will see the hyperbole around cryptocurrencies and blockchain continue. Eventually, we may see a crash resulting in collective hand wringing and ‘experts’ arguing that everything was smoke and mirrors. The truth is blockchain is an exciting and versatile technology and cryptocurrencies have a lot of promise and potential application. Cutting out the exuberance and looking at the reality of the technology rather than the hype will let you know what this trend means for you and your business.