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Seven Things I Learned About Blockchain

14 June 2016  |  9337 views  |  0

Last month I attended the excellent blockchain conference, Consensus 2016, in New York. The theme for the conference was "Making Blockchain Real". Day 1 proceedings were a little distracted by the breaking news that Satoshi Nakamoto was finally outed. However on the floor of the conference, most thought Craig Wright's claim false, as it was subsequently proved in the following days. The remainder of the conference was full of interesting sessions and opportunities to network with the broader community.

  1. There is life in Bitcoin yet, despite arguments about scalability, mining, legal status, and so on. Although more properly defined a cryptocurrency, the Bitcoin project did give birth to blockchain and still claims the most widely used and distributed blockchain implementation today. While cryptocurrencies are fascinating topic, I think the truly important innovation of Bitcoin is the blockchain, which addresses the problem of implementing a secure, computable transaction model across a network of untrusted and anonymous participants. That is, adding trust where it did not previously exist.
  2. Blockchain means different things to different people. There are in fact many different kinds of blockchains or "distributed ledger technologies” (DLT), and they differ in important ways. Public blockchains (e.g. cryptocurrency systems like Bitcoin) operate with shared consensus model, where the transactions are public. But recently, “permissioned” systems have begun to emerge that add a layer of privacy based on permissions which provide differing levels of visibility of the transactions. These newer permissioned based DLTs are designed to solve different business problems. For example, R3’s Corda is designed for financial services where agreements (e.g. the same of some security) are formed between some parties within the network, but those transactions are not visible to others (hence private). Ripple provides yet a different solution to the this problem. There are similar solutions being developed for government services, health, and a whole spectrum of applications.
  3. Blockchain as an industry is still in its infancy. While studying the developments in the industry is useful, the technology still has a lot of maturing to do. Depending on your business and risk profile and objectives, it is possible or even probable to choose the wrong blockchain investments. Many blockchain projects will fail because DLT technology is not appropriate for every problem. Just because you can apply it, doesn’t mean you should. If you’re considering DLT technology, think hard about the levels of trust that exists between participants of your network. You might just find that existing computing models will provide perfectly adequate solutions without DLT. Alternatively, you might be better served to rethink your entire business problem. Rather than just applying DLT simply to the clearing and settlement of financial transactions, can you re-imagine the entire transaction lifecycle from order initiation through liquidity to fulfilment?
  4. Ethereum is seizing the mindshare in the programmable ‘smart contract’ community. One interesting way to think about Ethereum is as a universal computing platform for smart applications; globally distributed and decentralised. Ethereum definitely warrants close attention.
  5. Other than the public anonymous implementations such as Bitcoin, most of the other blockchain projects require some kind of digital identity solution to underpin an effective network. This is a larger problem, and digital identity is of course indivisibly part of trust. The lack of a universal digital identity will hamper many implementations of DLT technology.
  6. Blockchain implementations today do not easily interoperate, and it's not clear whether they should, as the technology is in its infancy. While important, premature standardisation may hinder the development of DLT, but at some point this will become important. Timing is everything.
  7. Government involvement varies from prohibition to active participation and implementation. This state of affairs will continue for some time as the industry and technology matures. Inequable regulation may become an impediment to global blockchain businesses in the same way that some governments prohibit Bitcoin today.

What is clear is that distributed ledger technology presents a truly revolutionary way to approach some problem spaces, but not all. As innovation continues, we will also witness the creation of new markets and new applications of the technology. But the current state of the industry is best described as a gold rush, where participants rush to stake their claim without truly knowing if their stake will offer up any gold. You should experiment with the technology, and pay close attention to the blockchain community and industry, but be cautious about early over-investment. A more successful strategy might be to carefully think about the problem you trying to solve, rather than the tools which you want apply.

 

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