Blockchain Frenzy

You cannot pick up a business publication these days without seeing something written about Blockchain or Bitcoin. Blockchain has pushed Big Data, IoT and Digital Business Models onto the sidelines. This has been accompanied by a huge rush to invest in the technology and thousands of start ups being established, hoping to exploit the technology.

Yet if you read the articles written about Blockchain, it is difficult to get your head around the subject. Recently, I read a comment by a Consultant who specialises in Blockchain noting his complaints about the complete gibberish being published about it. So I decided to educate myself on the subject and was relieved to find an introductory talk on the subject being run by the Business Information Systems Group of the BCS. 

What I learnt was:

- Blockchain is a protocol for a Distributed Ledger;

- It creates read only transaction records which are cryptographically protected by Hashing;

- Transactions are contained within time-stamped blocks; each block is hashed; the blocks are chained together in such a way that their hashes are based on their position within the chain;

- The main parties participating in the transactions get complete copies of the chains;

- Parties can only view the records which relate to them;

- The ledger can deal with anything of value and does not have to be limited to money;

- It is possible to apply some conditional business rules via "smart contracts".

The speaker has a great web site www.distlytics.com on which he has provided some good resources for learning more. It's worth a visit.

Put together, this makes for a highly resilient (to fraud or denial of service attack) means of exchanging value or valuable assets without the involvement of trusted 3rd parties. It also provides confidentiality, traceability or provenance by default. So there are many innovative initiatives and opportunities around it. Removal of the need for a trusted 3rd party would remove the need for brokers in certain types of transaction, whether it is financial, commodity or asset based. The provenance trail could be useful in art dealing or international antiquity import and export; conveyancing of property deals could become a thing of the past and so on.

There are some issues. Some are regulatory. For example tax and treasury authorities typically do not like the unmonitored and invisible to them. There also is potential for the use of the technology for criminal purposes on the so called dark web.

However the key issue at present appears to be scalability. The scale of duplication in very large markets is likely to be unsustainable, unless new concepts are added. It appears that existing implementations are only able to sustain modest transaction rates for comparatively small sizes of market. The duplication involves significant overheads on transactional complexity, network traffic and storage.

So if Blockchain is going to involve, there is a need for a standards body or user body to evolve the protocol for performance, APIs etc. At present this is interesting as the original protocol was floated by someone or collection of people using a pseudonym. So at present there appears to be no authoritative owner to legitimise such a body.

It will be interesting to see what happens next and how market forces will shape the evolution of Blockchain.