Trustless: How Blockchain Is Building Trust by Eliminating the Need for It

Any implementation of blockchain technology should be approached just as any other new solution an organisation wishes to integrate into its overall operation. Blockchain is one piece of the information technology (IT) puzzle that, if deployed correctly, complements the other solutions used every day to carry out routine and mission-critical tasks.[1]

In his ground-breaking study, “The World Until Yesterday: What Can We Learn from Traditional Societies?”, Jared Diamond (a Pulitzer Prize-winning cultural anthropologist) asks the reader to imagine themselves as a member of a small-scale society encountering a stranger:

If you come around a corner and suddenly confront another person unexpectedly, and it’s too late to run away, that’s a recipe for a tense situation. It can be resolved by the two of you sitting down, each of you naming yourself and your relatives and exactly how you are related to them, and continuing in an effort to identify a relative in common, such that the two of you would have some relationship to each other and wouldn’t have grounds to attack each other. But if after several hours of such a conversation the two of you still can’t identify any relative in common, then you can’t just turn around and say, “It was nice to meet you, goodbye.” Instead, you or he or both of you must consider the other a trespasser without a relationship justifying a visit, and a chasing-off or a fight becomes likely.[2]

It might seem strange to start any discussion of blockchain with a quote from a book about traditional societies. But in an important respect, the above scenario is about looking for the key to a successful transaction: trust.

The above scenario, by contrast, is very different to the scene that Diamond opens his book with: a comparison between a busy airport terminal in Papua New Guinea in 2006, and with the first photographs of New Guineans, taken in 1931.

“Still another distinction of the 2006 crowd compared to the 1931 crowds was a feature that we take for granted in the modern world: most of the people crammed into that airport hall were strangers who had never seen each other before, but there was no fighting going on among them. That would have been unimaginable in 1931, when encounters with strangers were rare, dangerous, and likely to turn violent. Yes, there were those two policemen in the airport hall, supposedly to maintain order, but in fact the crowd maintained order by itself, merely because the passengers knew that none of those other strangers was about to attack them.

Let’s be clear, though: what these strangers trust is not the other people in the airport hall, but the cultural convention or the assumption that people at airports don’t pose a threat just because they are strangers.

But is it possible to go beyond this, and eliminate trust as a basis for decision-making?

Blockchain says yes.

It is a relatively new technology, but what sets Blockchain apart is not its newness but its revolutionary relationship to trust-building. Instead of trying to build or maintain trust, blockchain is all about removing the need for it in the first place.

In a moment we will look at a number of use cases for blockchain, and see that that mechanism in action. Before we do that, let’s take a look at the first impression the technology made and then see what blockchain actually is.

BAD REPUTATION

Ask the average person on the street what they think of when they hear “blockchain” and they’ll likely say “cryptocurrency.” They might also add “controversy”, “crash”, or “risk”, if they’ve heard anything about the initial exaggerated hype around bitcoin. Or the rollercoaster rides that investors in cryptocurrencies were then taken on as a result.

In the public imagination, “blockchain” and “high-risk cryptocurrencies that tanked” may be more or less synonymous.

It’s hard not to be struck by the irony that a technology whose primary focus is the management of trust could have ended up being the object of so much mistrust.

Blockchain’s reputation, then, precedes it.

The fact of the matter is, though, that the reputation is false.

GUILT BY ASSOCIATION

Do cryptocurrencies use blockchain technology? Yes, they do.

That said, can the technology be put to other uses? Yes, it can.

Is it inherently risky? No—it’s not.

Blockchain is actually particularly clever because it not only mitigates certain risks but eliminates. This has made so attractive to organizations that they are continuing to explore the many possibilities it offers.

Before looking at these possibilities, let’s equip ourselves with a definition of the technology.

JUST WHAT IS BLOCKCHAIN, AND WHAT CAN IT DO?

Blockchain is a record-keeping, trust-building technology. It is a distributed-ledger system for securely recording, storing, managing, and transmitting transactions in a whole host of domains. We say “distributed” because the record of each transaction is kept in more than one place, sometimes in thousands.

For a transaction to be validated, it has to be registered in a block. Once validation has taken place, the block is added to privately maintained chains. Because all chains are identical, they feature the existing distributed ledger, this makes it possible to synchronize data across the board. And once a transaction is registered on the chain, it cannot be tampered with: tampering would show up “as an inconsistency between the block hashes of the individually maintained chains.”[3]

As for what it can do—well, it has already shown its worth in a number of practical applications. But further possibilities are also being explored, and that is what makes the technology so exciting.

FOUR TYPES OF INITIATIVE

Various experts have come up with ways of categorizing developments in the technology. Gartner groups blockchain initiatives into four types. The first is a blockchain disruptor, for new businesses based on blockchain. One example is openbazaar.org, which describes itself as offering “a different way to do online commerce. It’s a peer to peer application that doesn’t require middlemen, which means no fees & no restrictions.”

The second is digital asset market: the digital version of an existing non-digital market. The examples Gartner lists are an exchange for advertising contracts, a market for trading in gold, and a platform for trading carbon assets.

An efficiency-play is an attempt to improve efficiencies in existing business processes within a company or at an industry level. One example Gartner lists is DTCC, which has announced that it has contracted IBM and others to build a distributed-ledger system that will “enable DTCC and its clients to further streamline, automate and reduce the cost of derivatives processing across the industry.”

Gartner’s fourth category is record keeper. Perhaps the most interesting example, Estonia’s use of blockchain to secure “secure the health records for its 1.3 million residents.”[4]

Many of these examples share what Gartner calls “the value drivers of blockchain, including its ability to create/represent digital assets, the distributed ledger, a strong consensus mechanism, the immutability and traceability of records, acceptance of cryptocurrency tokens, and smart contracts.” Ameer Rosic lists another essential feature: “The key here is this: it’s free…the blockchain can…replace all processes and business models that rely on charging a small fee for a transaction.”

These categorizations are fine, but there’s a fundamental principle at work here that is at the heart of everything blockchain. The technology itself, and not those that are taking part in it, is inherently trustworthy. But the effect is the same: no intermediary. No trusted institution (a bank or other financial institution) is needed in order to undersign and validate the transactions involved.

Let’s take a look, then, at some of these applications.

Smart contracts 1: let the (copy of a copy of the) music (file) play

Digital music distribution may seem like an odd use case to look at first, but it actually offers a great illustrative example of how blockchain can declutter our devices. It can help us use valuable resources—storage space, power, and, yes, money—far more efficiently than is now the case. The fact is that music and other data are distributed in ways that do not get nearly as much as they could out of the technology we now have.

In the Blockgeeks blog post cited above, David Siegel briefly summarises how most music is still distributed online these days:

On your smart-phone right now, there may well be a library of songs. For absolutely medieval reasons, the actual songs are sitting in memory on your phone, waiting to be played. They are copies of the original files sitting on some cloud service. Even those files are copies of files distributed by labels, and they get those copies from the artists.[5]

We can do much better than that. By putting a song’s metadata on the blockchain, we can manage both the music and the rights.

In the blockchain-enabled scenario Siegel then outlines, a single music file is put online and then “copied by name (not location) to several servers or computers around the world….The user then pulls each song…to his/her device…. In this case, the artist has sold his/her rights to consumers to listen to that song using tokens and probably a smart contract recorded on the blockchain.”

Siegel then goes on to sketch out the kinds of further scenario that smart contracts can thus enable:

[T]his list of songs and permissions shouldn’t reside on our phones. It should reside online so that we can transition from expensive smart phones with limited memory to cheap dumb phones with unlimited storage online. Soon, I hope, our phones will cost almost nothing, and everything that makes your phone yours will be online. The transition to dumb phones will let billions of people leapfrog into the 21st century with state-of-the-art technology for pennies.

Smart contracts 2: healthcare and the current crisis

This is just one example of how blockchain smart contracts could work. In healthcare, they could be used to protect the privacy of individuals’ healthcare records. Ameer Rosic tells us that these records could be stored, with a private key, on the blockchain’s distributed ledger. He says they could then also be used “for general health care management, such as supervising drugs, regulation compliance, testing results, and managing healthcare supplies.”[6]

That’s healthcare generally. When it comes to the surreal world we all find ourselves in at the moment, Radoslav Dragov et al highlight a number of ways in which blockchain technology can be deployed in the current COVID-19 crisis:

By providing help in the COVID-19 crisis and recovery, blockchain can play a pivotal role in accelerating post-crisis digital transformation initiatives and solving those problems highlighted in the current system.[7]

Two examples stand out among those the authors cite: supply-chain management and contact tracing. Regarding the former, they argue that blockchain “is particularly suited to supply chains because it can connect all stakeholders…and provide a single source of truth. It provides transparency and breaks down data silos while guaranteeing security.” In the latter, they write, blockchain “can be used to both gather and collate patient data more efficiently, monitor patients’ movements to guarantee social distance, and protect their identity at the same time.”

Monitoring the supply chain

Beyond the current crisis, supply chains are more generally a focus for organizations in the public and private sectors. For instance, the World Economic Forum has recently produced a blockchain-deployment toolkit, aptly named “Redesigning Trust”, which it says can guide organizations “through the development of a new blockchain solution.” The result of more than a year’s worth of collaborative work by 100+ leaders, the kit provides tools, resources, and know-how to organizations undertaking blockchain projects. It was developed through lessons from and analysis of real projects, to help organizations embed best practices and avoid possible obstacles in deployment of distributed ledger technology.[8]

Financial services applications: asset management, the processing of insurance claims, and cross-border payments

In the above-cited article by Dragov et al, the authors also point out that blockchain technology is used in the loan and insurance industry “to simplify and shorten the complicated application and approval process by removing third-party intermediaries and inherent delays in processing. The benefits include faster processing time, lower costs, reduced operational risks, and rapid settlement for all parties involved.” In one example they cite, China “has distributed loans amounting to more than $200 million to 87 businesses using a cross-border, pilot blockchain finance platform.” They quote the CIO of a lender, WeBank:

“The cross-border, financial blockchain services platform can play a bigger role, and help medium and small enterprises improve the efficiency and convenience of getting export trade financing and other financial credit support.”

Along similar lines, Federico Plantera writes that blockchain will soon “bring irreversible changes to how we manage risk, assets, and capital.”[9] And he quotes the CEO of Guardtime, which runs Insurwave, the “world’s first blockchain platform for marine insurance now in commercial use.”

“By standardizing an insurance contract into structured data and implementing it as a smart contract, it’s possible to eliminate large amounts of manual work relating to reconciliation and foreign exchange calculations.”

Identity: passports, identification—and voting

When it comes to voting, Dragov et al argue that the widespread public mistrust of online voting could be addressed through the use of blockchain technology, which “can alleviate many of the security concerns that have plagued previous e-voting attempts.” If public skepticism can be overcome, then, Blockchain could one day eliminate voter fraud and obviate the need for recounts. No more stuffed ballot boxes, or stolen elections.

Blockchain is still relatively new and it is still proving its mettle. Whether in the areas we have looked at briefly here, or in others such as detecting contamination in the food supply chain, creating ticketing systems designed to prevent fraud, simplifying the creation of payment systems, or helping organizations increase transparency around the origin and impact of their products.

In his overview of blockchain technology in practice, Bernard Marr predicts that many of the initiatives now being run will not make it in the end:

If the initial dot com boom is anything to go by, then there will be many casualties in the short term but serious disruptions in the medium and longer term. An amazing space to watch.[10]

Of course he means “serious disruptions” in the positive sense. Just as we can see removing the need to trust strangers—to recall our opening scene—as a positive development still in the making. Amazing indeed.

[1]World Economic Forum, Supply Chain Focus—Redesigning Trust: Blockchain Deployment Toolkit, executive summary.

[2]Jared Diamond, The World until Yesterday: What can We Learn from Traditional Societies? Penguin, 2012.

Peter Gonczol et al, Blockchain Implementations and Use Cases for Supply Chains – A Survey.

[4] Gartner, Pay Attention to These 4 Types of Blockchain Business Initiatives.

[5]Siegel, Blockgeeks post on smart contracts.”

[6] Ameer Rosic, 17 Blockchain Applications That Are Transforming Society.

[7] Dragov et al, How Blockchain Can Help in the COVID-19 Crisis and Recovery.

[8] World Economic Forum, Supply Chain Focus—Redesigning Trust: Blockchain Deployment Toolkit

[9] See Plantera’s article, “Guardtime: Blockchain is changing the insurance industry for good”

[10]Berna30+ Real Examples Of Blockchain Technology In Practice.