Until now blockchain has been largely associated with bitcoin, one of the crypto currencies that the technology enables. That will change before long. As Belatrix noted in its Predictions 2018: A Year of Transformation, awareness of blockchain’s power is growing, and this promises deployment in an array of sectors, including banking and finance, healthcare, and government services.
The distributed ledger system at the heart of blockchain means users can scrutinize content, but no single user can control it. Changes must follow rigorous protocols and are subject to review by all. So, in effect, blockchain marshals the collective energy of those committed to a venture, while retaining the mindfulness of the risks posed by counterparties. In this way it speeds up verification and the trust-building stage that is needed to finalize deals. That’s why The Economist has compared the transformative power of blockchains to the invention of double-entry bookkeeping or the joint-stock company.
Over the short term, blockchain technologies will continue to be driven by Bitcoin and an expanding array of other cryptocurrencies in circulation. Overall, the value of cryptocurrencies has increased well over 10-fold in 2017, a trend that will most likely continue into 2018 albeit not at such a frenetic rate. The cryptocurrency market now includes many high value altcoins like Bitcoin Cash, Bitcoin Gold, Zcash, Ethereum, Ripple, Litecoin, Dash, Monero, with others joining all the time. But beyond supporting cryptos, there are a slew of financial services and business models where smart contracts, which embed ownership and other complementary data into a blockchain, promise to streamline transactions. Use cases include sales of stocks and commodities, real estate, other forms of property like online music, supply chain, insurance, healthcare, ride sharing, and so on.
The bridge from cryptos to enterprise applications is being built by public, open-source blockchain projects like Ethereum or Hyperledger Fabric, which serve as a platform for smart contracts, which are a major differentiator. These smart contracts-enabled blockchains offer a degree of versatility because decentralized applications (DApps) can be built on them. Once information is coded into a public blockchain, it is fully verified. The contract is self-executing; no notary is needed. This stands to bolster the use of the distributed ledger technology for finalizing business deals.
By extension, smart contracts could revolutionize government services. Sweden is testing a blockchain for use in land registry and Dubai announced a strategic plan to have all government documents secured on a blockchain by 2020. In a different arena, the Japanese Ministry of Agriculture, Forestry and Fisheries, is working on a blockchain to track the supply chain of the country’s meats.
Further down the line, blockchain could also enable a new way for doctors, patients, and providers to exchange complex medical data, all while remaining secure and complying with privacy regulation. Using a healthcare specific blockchain, patients could gain more control over their medical records and caregivers that were given access could retrieve them from their systems without worrying about incompatibility issues. Early trials are already underway. Researchers at the MIT Media Lab are building a prototype system using a private blockchain based on Ethereum called MedRec and the company Gem is also conducting pilot projects for healthcare use cases using their blockchain based platform.
On the financial front, the Australian Securities Exchange (ASX) has recently announced its intention to replace their current Clearing House Electronic Subregister System (CHESS) with a private blockchain platform, becoming the world’s first major stock exchange to do so.
But even these distributed ledger technologies (DLT) like Bitcoin and Ethereum are not without their pitfalls. Public blockchains are inherently not private and only partially anonymous. This means that they might divulge too much information in cases where rival banks happen to be working on a joint deal. MultiChain.com paints the problem well: “If multiple institutions are using a shared ledger, then every institution sees every transaction on that ledger, even if they don’t immediately know the real-world identities of the parties involved.” This could pose regulatory as well as commercial headaches.
As a result, ever newer implementations of distributed ledgers are getting into the scene. Contract description languages such as MLFi and Ricardian Contracts are set to become a part of blockchain deployments for use in multi-bank deals. Currently Corda by R3CEV and DAML by Digital Asset are leading the way in this domain. These types of languages offer great potential for banking shared ledgers solutions as they allow the conditions of complex financial contracts to be represented formally and unambiguously in a computer readable format.
The above alternatives to smart contracts are also designed to preserve privacy by implementing a series of techniques such as partial data visibility, transaction tear-offs and multi-signature support which rely on hashes and composite keys to secure sensitive information. If all goes according to plan, contracts can be executed just based on the hash. Crucially for privacy, the hash itself is not the data, but in the case of the dispute it would still provide the party holding the right keys with the means to back its claim.
The tack toward hashes obscuring content highlights a larger impasse. Blockchains create trust through transparency and verified steps, and businesses must trust that the inputs accurately reflect real world information. Additionally, inputs may not only come from transacting parties, many interesting use cases for distributed ledger technology involve third-party agents that find real-world occurrences and submit the information to the DLT platform where smart contracts, which contain programmatically predefined algorithms, would react to the values and trigger events on the blockchain. These third-party agents are called oracles in the jargon.
Inputs from the oracles could be any data, like weather indicators, successful payments, price fluctuations, flight delays, signals from IoT-enabled devices, etc. But since the oracles are external services that are not part of the blockchain consensus mechanism, people still need to find these sources of information trustworthy. As Timothy Myers notes: “Regardless of the tech or the provider, the challenge isn’t the technology, but how to define trust in external systems so that information sources can be integrated into the evolving blockchain ecosystem.”
That said, some oracles are already implementing solutions to provide provenance and confidentiality assurances. Companies like Oraclize and Town Crier are using different trusted computing techniques such as TLSNotary-based cryptographic proofs or Intel Software Guard Extensions (SGX) as promising ways to lessen the trust challenge.
In other realms, deployments will depend on gaining a critical mass of input data. Going back to the healthcare application, patients will need to opt-in to having their data used before that DLT solution can really scale up. But as trials give way to wider deployments in 2018, the vast potential of blockchains to secure all types of transactions will become more evident.
As we have been discussing, there is an ever-growing number of altcoins, and newer distributed ledger solutions are being developed all the time to better suit specific industries. But it is interesting to note that when it comes to the current blockchain market it is not a zero-sum game. The success of one project does not necessarily imply less market for another. The pie is still growing. It is common to see many cryptocurrencies rising in value during the same period, and technological advancements from one project tend to promote similar implementations on other networks since public blockchains protocols are open source by nature.
In this regard the first major change will be in the recognition that it is not about blockchain but rather blockchains.