This Blockchain Thing...

If you’ve been on Earth the last few years you’ve probably heard someone exult about bitcoins. If you’re the sort to describe wine in terms of its human attributes (tantalising, playful, teasing, coy, full-bodied) then you’ve probably talked airily about “cryptocurrency” and “encryption algorithms”, perhaps while fondly stroking a crystal decanter filled with a playful wine infused with memories of summer berries and earthy woodiness. 

So, if I may for a moment, pause this heady feeling of tech savviness to observe that there appears to be a great deal more to this bitcoin thingy than just cool cash conveyance.   Bitcoin is not so much an invention (IMHO) as one (and only one) clever application of a much cleverer technology – the Blockchain. The application of this technology is totally predictable but the beauty is that the technology itself was less expected).

At this stage, the more honest among us are thinking “what is the blockchain?”.  And the wine connoisseurs amongst us are smiling knowingly into their claret, and thinking “Ah yes, the blockchain, from whence the bitcoin does spring … tantalisingly…”

Forget about what the blockchain is for a sec. It will be relevant once you know the why of the blockchain.

Why the blockchain?

Great question! So glad you asked. May I offer you some full-bodied thought experiments with a hint of a 1950s census surveys to titillate your synapses? What happens if 2 people independently conduct the same campaign (let’s say it’s for the “Free the Hamsters” cause) in a fixed sequence across the same suburb, but come up with different sets of signatures on the petition? Which version of the signed petition is the “source of truth”? You need to trace back the campaigners’ trail, one signature at a time, to locate the last discrepancy, and then work back to identify other divergences.  Eventually you go back and find the first divergence, prior to which all other signatures on the two lists tally. You then know that prior to that divergence, both lists are in accord and hence those signatures represent the minimum number of people that wish for hamsters to scurry forth and self-actualise in the world.

While that works really well for hamsters and suburban surveys, it doesn’t work so well in the digital world. Or voting, banking, transferring land title, discharging contractual obligations etc.  You need independent and “trusted third parties” to verify a chain of events, and solemnly reassure you that the chain of custody was unbroken, or at the very least that any attempts to tamper with the chain were decisively neutralised. That’s why you have governments having the final say on your identity, antediluvian election vote counting methods, and clerks in dingy offices have authority to proclaim whether or not you own your farm/white picket fenced bungalow.  That is why you need financial intermediaries to ensure that when you buy your 1973 Chateau Margaux using a credit card, the money (value) is “removed” from your account and “put into” to the wine merchant’s account. Sophisticates refer to this as the “double spending problem” – how do you ensure that you’re not spending the same money twice?

So it’s a big problem really – modern life requires that we rely on, trust in and pay for “trusted” third party intermediaries to ensure that value (money) does actually digitally “change hands”. That is why Visa and MasterCard exist, and why PayPal and others link with your bank accounts.  We need them because some amongst us would prefer to not pay for stuff, and maybe even take what isn’t ours when no one is looking.

In flows the blockchain – a technology at once coy and bold… with a decidedly mathematical flavour and undertones of cryptography and a subtle, tantalising promise of freedom.

"It is essential to remember that the blockchain is a technology - software code to be specific.  And bitcoin (or Ethereum or any of the other solutions on offer) are just applications of that technology.   Blockchain and bitcoin (or any other cryptocurrency) are not synonymous- just like grapes and wine."

That’s why everyone is so excited, because blockchain does for the transfer of value what the internet did for the transfer of data.

Clear, so far? 

How it works

What I know is a lot less than what I don’t know. Heck, I don’t even drink wine. I readily admit that in trying to explain what is a complex lovechild between computer science and advanced mathematics, I may express things in ways that experts may find incorrect. Be kind and appreciate that I’m just trying to break it down to byte sized bits (please also excuse this weak pun) so that non-experts can grasp something that has gained so much currency (oh, groan…someone gag me) in recent years.

Anyway, the key principles (especially for bitcoin) are:

• Blockchains are ‘mined” (produced through the expenditure of effort, like in gold mining) by powerful computers – called nodes, that are on the same network.

• Chains of digitally encrypted and timestamped records of transactions are lumped into “blocks”, which are maintained on a “ledger” by each node, and as transactions are added to a block (and blocks accumulate into chains), it gets synchronised across the network of nodes such that all the block chains on the nodes should tell the same story of the history of any given transaction.

• As hundreds become thousands of nodes (and more are added all the time), each mining away on a network, each node has to “agree” on the ledger – this is the critical consensus.

• Where there are discrepancies in the ledger, the ledger with the longest chain of transactions embedded will be the “correct” one – the source of truth, and any nodes working on other (shorter versions) of the chain switch to the longer one.

• Any naughty interception or change to one ledger would immediately create a discrepancy with all the other versions, and would also have a shorter block “history” to corroborate it, which makes that tampered version a pariah in the blockchain network where … length matters (ahem).

• Replicating that discrepancy across all the versions of the ledger – the entire blockchain network – is such a huge task that it is computationally impractical, and would only happen if the bad guys suddenly had control over the majority of the nodes mining blockchain and changed them all rather rapidly.

The great thing about the blockchain is that it is a distributed ledger across many, many nodes. 

"As Satoshi Nakamoto declares, 'The only way to confirm the absence of a transaction is to be aware of all transactions.' "

Thus each ledger must be aware of all the transactions, and must have an agreed version (which will have the longest “chain of custody” behind it) across the entire network to which the next transaction will be added.

The greater thing about the blockchain is that it disintermediates trust – so we don’t need to pay “trusted third parties” for being trustworthy and keeping us, and the counterparties we deal with, honest. The blockchain programmatically ensures veracity. Interestingly, Satoshi Nakamoto says, “As such, the verification is reliable as long as honest nodes control the network, but is more vulnerable if the network is overpowered by an attacker.”  However, elsewhere he/she/the organisation calmly points out that to modify past transactions in blocks, across the entire network of nodes, would require the attacker to re-do the chain of custody in those blocks, and all the blocks added after that, and run like mad to catch up with, and surpass, the work of nodes that aren’t under the bad guy’s  control (so that he can re-write the ledger, so-to-speak), and the “probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added”. The sheer programmatic complexity, pace and volume of nodal activities make it hard for counterfeiters/attackers to catch up with, let alone outrun, the new blocks mined constantly.

That does make sense. It’s like the lie you tell one family member about why you couldn’t attend their kid’s flute recital. And then you have to madly chase everyone else in the family and ensure you’ve told them all the same lie so that when the original person you’ve lied to brings it up, everyone is aware of this lie and plays along. Sounds exhausting.

So why should we care?

Well, by getting rid of the need for “trusted intermediaries” that really means getting rid of banks (and just how “trusted” are these “trusted intermediaries” anyway?)   It also could mean any intermediary that charges a modest fee for giving us the gift of certainty needs to find a new job. Perhaps as a wine taster, or Hamster Freedom Fighter.  It also means that we can program “smart” transactions between promisor and promisee that automatically recognise (digitally) whether that promise has been delivered or not. If you’re cool, casually refer to this as “smart contracts” while wetting your lips with that Chateau Margaux.

This has enabled a truly tech savvy artist like Imogen Heap to sell her music directly to her listening public, and collect her dues directly from them rather than via the velvety pockets of recording labels, managers, and other “trusted intermediaries”.  It will likely change the way Intellectual Property is protected, accessed, shared, distributed, and developed on the internet. It could even mean that Uber’s fleet of drivers transact directly with people who want a ride rather than rely on Uber to coordinate and control the flow of information and money. It may mean that, some day, I could directly send you small amounts of money for virtually no fees, just to keep you from waxing eloquent about wine. It could mean that the millions of unbanked people in the world who have smartphones can start to transact well beyond their traditional physical-world boundaries. Wonderfully enough, governments are looking beyond just cryptocurrency when it comes to deploying this technology – to record land title, for example. In effect, we could create a world of true peer-to-peer digital transactions for the transfer of value that is distributed, horizontal, obviates the need for trust and above all requires extraordinary computational power to tamper with.  These transactions could be between people or between machines and devices.  

"It could therefore offer a new security paradigm for the protection of data collected by and transferred through the 'internet of things'. "

I personally believe that the complexity of the modern world is obscured behind intuitive touchscreens and that blockchain technology will quickly become embedded in our technological universe without us being fully aware of it (just like we have been using yeast recombinant DNA for synthetic insulin production since the 1970s). The changes and cost savings will be sweepingly referred to as “technological changes, like that interweby thing” – and that is absolutely fine by me. As long as we can trust a trust-less system , to be coded and engineered by humans that we trust will further the cause of trust-less-ness in an untrusting and untrustworthy world. That, and perhaps the occasional irksome description of fine fermented grape juice, is about as much complexity as I care to handle.

Views are personal and do not represent those of my employer or associates