When Brian Behlendorf learned that blockchain technology was being applied to a land registry project in Honduras, the proverbial lightbulb went on. Land titles in the Central American country are currently stored on a centralized server, so anyone with admin rights can make changes to the registry without a record of why or how the changes were made and take someone's land away.
Blockchain technology offered a way to prevent that kind of criminal activity. The technology uses a decentralized ledger approach to recording transactions. When a transaction is made, it is packaged up with other transactions into a "block" and recorded across a network of computers, a majority of which are required to confirm the transaction in order for it to be accepted as legitimate -- a process referred to as achieving consensus. The block is then time-stamped with a cryptographic hash. Each block also contains a reference to the previous block's hash, creating a "chain" of records that is considered impossible to falsify.
Behlendorf called his hearing about the Honduran land registry project his aha! moment: He said he realized blockchain use cases do not just extend well beyond the financial industry, but also carry the potential for effecting profound societal changes -- similar in scope to the impact the internet has had on the way we live.
Indeed, as an early web developer and an advocate for open source systems, Behlendorf said he believes the current state of blockchain is very much like the early days of the internet, when it was a decentralized, permissionless system and a "generative platform" in which anyone could tinker and build.
"It's what allowed for a raft of new companies to emerge," Behlendorf, executive director at The Hyperledger Project, an open source collaboration effort to advance blockchain technologies, said at the recent Business of Blockchain event in Cambridge, Mass. "Most economists would tell you that the more diverse [a] marketplace or ecosystem [is], the more competitive it is, but also the more it advances from an innovation perspective."
Hyperledger, for its part, is attempting to develop open standards by bringing together different technology approaches to blockchain, of which there is a spectrum. Permissionless, public systems such as bitcoin, a cryptocurrency that is often conflated with its underpinning technology, live alongside permissioned ledgers that automate business processes. And, as Behlendorf realized, blockchain use cases already are cutting across industry boundaries -- from how records are kept and how money is exchanged to how the diamond industry identifies conflict diamonds and how retail giant Wal-Mart Stores Inc. recalls tainted food. The technology's ability to create transparency even in supply chains is a powerful feature, and it will require a collaborative approach.
"Even Wal-Mart, which is implementing this pork supply chain project in China, doesn't have the market force to say to the pork industry, 'We're implementing a track-and-trade system, please use the Wal-Mart API every time you move product from A to B,'" Behlendorf said. "Even they have to walk in and say, as an industry, 'Let's work together on this.'"
Mapping out the spectrum of blockchain uses cases and applications is vital because the technology's potential for disruption is so enormous, according to Behlendorf. If blockchain reaches its potential, it will upend hub-and-spoke industries like finance, which has seen the strongest blockchain testimonial in bitcoin. By eliminating the middleman and relying on automation, the role of intermediaries will change and even disappear, Behlendorf said.
"Instead of [hub-and-spoke industries] being infrastructure providers and central routers, they'll become governance organizations," he said. "They'll become the ones who define the standards, but in conjunction with the participants, the ones who then implement the auditing systems and provide that type of coordination."
Wall Street reacts
Wall Street's financial powerhouses appear to be very attuned to blockchain's disruptive nature, as they are not only following its development, but also experimenting with the technology.
Last year, JPMorgan Chase & Co. rolled out Quorum, a variant of the cryptocurrency Ethereum and an open source initiative that's accessible on GitHub. It's a permissioned blockchain, where access to the network is controlled. "This has been all about getting senior management to understand what open source software means and that anything can be open-sourced," said Amber Baldet, blockchain product and strategy team lead, at the Business of Blockchain event. "That doesn't make it good, intrinsically."
Baldet said the next step is to add zero-knowledge proofs, a cryptography protocol where information can be proven to be true without revealing the information itself.
CME Group, the world's largest options and futures exchange, is partnering with the U.K. government to launch a digital gold product called Royal Mint Gold, or RMGs. The product is based on bitcoin code, but tweaked "to address some of bitcoin's shortfallings," said Sandra Ro, head of digitization at CME, at the event. "The use case is initially an investment product for institutions," she said. "And over time, we expect this new network to evolve."
Behlendorf's story about curtailing land theft in Honduras in juxtaposition with the efforts of financial corporations like JPMorgan and CME to establish digital currencies is part of what makes blockchain an interesting technology to watch. With such competing interests at this early stage, how will the blockchain evolve?
Behlendorf used his closing remarks to urge attendees to think about how civic values should be architected into a technology like blockchain that has the potential to radically change how industries and societies operate.
"The only way we're going to make sure that these chains, as they get built, are going to embody these principles of protecting human rights or, in the medical space, for example, protecting the access of patients to their own medical records, the only way that's going to work is if the first couple of systems that we implement have those principles at the heart," he said.
Otherwise, Behlendorf implied, blockchain could ultimately go the way of the internet and become monopolized by big corporations. For now, he remains optimistic: "I see enough points of light inside all these different sectors to indicate that we can get there first and build something that will work that way."
"It can be interesting sometimes to think about [blockchain] as some extraordinary event in the history of technology. But this is, in fact, how revolutionary technologies are always commercialized: A crazy idea that almost no one believes in becomes a standard through some mixture of smart, technical design, hard work and just a bit of luck." -- Jason Pontin, editor in chief and publisher, MIT Technology Review
"It's important to have a foundation of a noncommercial group creating the open standards [for emerging tech]. So, we have David Clark here at MIT who worked on TCP/IP. We have Tim Berners-Lee, who famously gave away the protocol for the web to make it widely disseminated. So, MIT is known for creating the open standards on top of which the West Coast builds their monopolies. We're following in this rich tradition of not making any money on this stuff that changes the world." -- Joi Ito, director, MIT Media Lab
"It turns out if you're talking about commoditizing trust, it could be very disruptive to our business models." -- Amber Baldet, blockchain program lead, JPMorgan
"It's very difficult to tell how much technology is being invested in blockchain, because every company probably now has a team focused on looking at this technology that didn't exist two or three years ago, and they're probably investing people and time and effort into projects that are not public yet." -- Sandra Ro, head of digitization, CME Group
"This is one of my favorite pieces of technology: the $20 bill. In one of the great ironies in American history, we put Andrew Jackson's picture on the $20. What is the one thing Andrew Jackson hated more than anything else in the world? Paper money. And banks." -- Simon Johnson, Ronald A. Kurtz professor of entrepreneurship, MIT Sloan School of Management
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