Why we need to communicate the blockchain better
It’s a beautiful conundrum. We often talk about trust as the belief to strive for. Yet one emerging technology, which is built upon the principle of mistrust, is being explored by those in the “trust business” – the likes of banks and financial institutions – as a way of putting trust back into our system.
We are of course talking about the blockchain, a technology which has recently hit the headlines thanks to the levels of investment it is attracting. But what excites me is not so much how it can transform the financial services industry, but how it can transform our everyday lives.
Theoretically, the blockchain can also be can be applied to tackle global issues such as human trafficking, where rescued people are often re-entered, untracked, into the system, the circulation of blood diamonds, as well as provide assurance that charitable funds are reaching the right people.
However the blockchain is facing a communications issue. It can be easily addressed, but if ignored could prevent it realising its potential. But before I dive into the challenge, it’s worth spending a few moments explaining what the blockchain actually is.
Flashback to the scene from Mary Poppins, where Michael hesitates to give his father’s bank his tu’ppence. Had he done so, the bank would have taken his money, recorded the transaction in a written ledger and a personal savings book.
Of course, as the scene plays out, the bank takes Michael’s tu’ppence and refuses to give it back to him. In the commotion, other savers believe the bank is unable to pay them back and a run on the bank ensues. This is because the current system assumes that we can trust one institution and in this case, a bank.
The foundation of the blockchain assumes that you can’t trust one institution with this ledger. In essence the ledger is shared amongst many people or institutions, that everyone can inspect, but which no single user controls. Those within the system collectively keep the ledger up to date and can only be amended by general agreement.
When there is a new transaction, a new block is created, validated by consensus and enters the ‘chain’. The only way one person can manipulate the ledger, is to manipulate a block and all subsequent blocks in every copy of the ledger, before a new block can enter the chain. Not impossible, but highly unlikely given the limitations of today’s computing power. (For a video explanation of the blockchain, click here).
Some may see this as a threat to those in the “trust business”, but ironically it’s these institutions that are investing millions into developing it. In fact, it’s estimated that $1bn will be invested in blockchain technology by the end of 2017, even though it has not yet had a proven commercial application.
There are several reasons for this. One of which is because the blockchain creates an immutable ledger, which accurately tracks transaction history, prevents double-spending and is therefore great for regulators.
But perhaps the biggest reason why some of the world’s largest investment banks are pumping so much money into developing the blockchain, is the potential which lies in “smart contracts”.
Smart contracts are in essence, automatic protocols which are stored on the blockchain, that verify, or enforce the negotiation of a contract. In the financial world, a derivative contract that might have taken three days to clear, could take a matter of minutes as it cuts out the need for extensive legal processes and administration. Again, the assumption here is that no one controls these protocols and therefore everyone can trust.
While motives may be financial, a technology that delivers transparency is perhaps not a bad thing given the financial services industry remains the least trusted, according to the latest Edelman Trust Barometer.
Despite its potential benefits, the blockchain is facing a communications issue. Given this technology was born out of the minds of some of the world’s best cryptographers such as Nick Szabo, how will the blockchain appeal to the average consumer?
From a reputational standpoint, given the blockchain was the underlying technology behind the crypto-currency, BitCoin, it has been unfairly associated with the negative headlines BitCoin has attracted as beautifully outlined in this Forbes article.
From fraud to financial crime, BitCoin has faced some pretty negative headlines in the past year. Recent news aside, the collapse of Mount Gox in 2014 still lingers in many people’s minds. But we should not allow this to ‘block’ the blockchain from becoming mainstream.
There is some work to do to educate the average consumer why they can place trust in the blockchain, clarify that it is not a crypto-currency and explain its potential benefits – whether it’s a retailer using it to prove the authenticity of a handbag, assuring ownership of a property or by rescue organisations tackling human trafficking.
The good news, is that despite recent surges in BitCoin due to the Chinese stock market crash and currency devaluation, media interest has waned. The big story now is the growth in blockchain start-ups and innovation. Now, more than ever is the opportunity for start-ups, governments, regulators and industry alike to communicate just how powerful blockchain applications can be not only to business, but our everyday lives.