Use cases for blockchain have been claimed for almost every industry you could think of, with leading proponents citing applications for healthcare, media, real estate and even sports – as well as the sector to which the software is most frequently attached, finance.
But what does using blockchain actually feel like? What does implementing it within your firm mean in practical terms, in areas such as data security and ease of use? And how should corporate blockchain projects be structured to make the most of the technology?
For a grounding in some of those fundamentals, The Treasurer spoke to Tiana Laurence: co-founder and former CMO of US blockchain innovations company Factom and author of Blockchain for Dummies – the second edition of which came out in April.
UX for a blockchain could be many things. A common format is a wallet. Some wallets allow the user to write data to its blockchain or issue a token from within the wallet.
The terms ‘token’, ‘coin’ and ‘cryptocurrency’ are often are used interchangeably. They are not the same thing but, in use, function the same way.
It’s confusing, but here are the differences: cryptocurrency is issued by a blockchain algorithm to reward nodes (those doing the upkeep of the records). A token, on the other hand, is created via a smart contract for some purpose that the contract issuer wants – such as raising capital, for instance.
A coin typically refers to what is known as a ‘coloured coin’. These work a lot like smart contracts, except they are written to blockchain transactions in the metadata.
To know whether an action you have carried out was written to a blockchain, you can use a block explorer. Typically, you would input the ID that came with the transaction and see what block the transaction was placed in.
A well-designed blockchain app should work like any other app or software. The blockchain takes the place of a database.
Almost every app uses a database, so if the user is fluent with their smartphone, it should be just as easy for them. If it’s not that easy, then something’s wrong.
Blockchain has always been a democratic type of software, in the sense that anyone with a connection to the internet can interact with, develop, mine or in some other way use the technology.
Public blockchains are open to anybody – you don’t need anyone’s permission to access them at all. Meanwhile, businesses have trended towards private and controlled. This is not a bad thing – there’s room for everyone.
At a base level, blockchain can be used to store states of corporations’ internal records. This would allow them to secure their record systems without exposing private information.
Last month, Google announced that it has achieved quantum supremacy. According to a paper that the web giant published – and then quickly took down – it has created a computer called Sycamore, with 54 superconducting quantum bits, or qubits.
Reportedly, Sycamore was able to execute in just over three minutes a problem-solving calculation that would typically take a conventional supercomputer 10,000 years to crack.
At present, Google’s quantum computer is not strong enough to break the security measures of Bitcoin. It is also possible to shift to a quantum-resistant encryption algorithm when necessary. The National Institute of Standards and Technology announced 26 candidate encryption algorithms this year.
What does this mean? Essentially, that the type of encryption we have all relied upon for years is simply not good enough any more. We need to start building new systems, with higher security standards – and blockchain may be a part of helping us to achieve that.
Blockchains and related digital assets are self-clearing, self-settling and self-authenticating. So, with that in mind, the technology can be used to automate functions and reduce risk.
Indeed, service providers have created lots of different gates that allow legacy systems to connect with blockchains via application programming interfaces.
From the outside, one issue I’ve seen is that many projects have tried to take the crypto out of blockchain.
You have to imagine blockchain as a three-legged chair, consisting of the following elements:
Any project that sets out to remove one or more of these components will be missing the very security features that make blockchain so unique.
Plus, like all software, blockchain is about automation. But the banking industry requires some things not to be automated because of regulations, such as those around custodianship – every jurisdiction has different rules about being a fiduciary.
So, even if software adds efficiency and security, it may not necessarily be legal.
[For more on this, read our recent feature ‘Corporate blockchain projects: are we having fun yet?’ The piece examines Reuters research showing that out of 33, large-scale, corporate blockchain projects involving major banks, exchanges and technology firms, at least a dozen haven’t made it past testing.]
I have a love-hate view of ICOs.
On one hand, the ability to raise capital on a global level quickly, securely and cheaply democratises access to capital and the proliferation of innovation. But on the other, because the process is so easy, there has been a lot of fraud and misuse of funds.
We can learn a lot from the ICOs craze of 2017 – which was marred by rampant securities fraud and unlicensed security offerings – in terms of how to revamp our financial system to be more democratic and open.
[For previous coverage of ICOs, read our ‘Five minutes on…’ feature about the Financial Conduct Authority’s approach to cryptoassets.]
Technology is moving so fast, and we are seeing it being used to help developing nations leapfrog the Western world.
In the next 10 years, I would like to see blockchain technology being used to uplift women in developing countries. One simple advantage that blockchain provides is the ability to hold assets and transact without needing permission. Women who have money, and control over how they spend it, are freer. It also gives them a voice.
In places where there is institutional prejudice, blockchain may make things like voting and self-sovereignty an accessible reality and a force for good.
Blockchain for Dummies, Second Edition, by Tiana Laurence is published by Wiley
Matt Packer is a freelance business, finance and leadership journalist