Jonathan Reichental looks at how blockchain can be used to establish ownership, disrupt industries, and some of the fundamental challenges that must be solved to successfully deploy it.
- What makes blockchain technology compelling is not just that it offers a new way to manage databases and support trust, but it creates new opportunity. Let's take a simple example of the challenges of proving ownership of a digital product. While digital products such as photos or music have become simple to acquire, store, and move across devices, the same advantage makes it really easy to copy them, and dare I say it, steal them.
Artists and media organizations have had to largely accept this fate, resulting in the loss of billions of dollars of lost value. Even if you are a valid owner, it's hard to prove. If we could register our creation and ownership of digital products in a blockchain database, it's possible we could attain immutable proof. For example, if you are a professional photographer and you register your photographs on a blockchain, it will be difficult for someone else to claim that they took the picture.
Your ownership record will be stored on the blockchain and it will be nearly impossible to change that fact. The blockchain would also enable a more trustworthy mechanism to support transfer of digital ownership. Blockchain technology is still a work-in-progress. It's open-source and is evolving as we speak. For this reason, it has some significant short-term challenges, including transaction speed, verification, data management, a lot of data is generated and needs to be stored on the blockchain, and despite a promise of high security, there are still security and privacy challenges.
We'll also need to overcome the complexities of integration. If blockchain is going to co-exist with other technologies, which I suggest will be necessary, a lot of innovation is still needed to make that happen. Integration will also require a way for different distributed ledgers to talk to each other. We'll need a set of standards, that is, uniform engineering or technical criteria, methods, processing of practices, a prerequisite for any global adoption of a new technology.
We don't yet have them for the blockchain, but fortunately, work is underway. Bitcoin, the digital currency, both the reason blockchain exists and the biggest current utilizer of it, means that it is financial organizations who are on the front lines of its near-term impact. What might that mean in terms of risk? Let's face it, banks, for example, make huge profits on financial transactions. They are motivated to exert control.
There's little incentive for massive and disruptive innovation. Financial organizations also have huge investments in their technology infrastructure, so there's less appetite for more investment that could make their systems obsolete. It's not an easy sell to convince the millions of stakeholders in the global financial ecosystem to upend what they do and worst yet, make much less money doing it. Financial firms must also tread carefully around some of the most robust regulations and laws, so even innovating carries risk.
However, major risk lies with doing nothing. Standing by and hoping that digital currency, such as Bitcoin or the blockchain itself, will pass as a novel fad could be fatal. This is why financial organizations are researching the blockchain and keeping it on their agenda. Some are already exploring active blockchain projects. For them, it seems it is better to participate than to stand idle and face the risk of obsolescence.
More likely, over the long-term, financial organizations will evolve and embrace blockchain innovation. They will find a way to work with it and prosper, rather than avoiding it. Already we see the emergence of interesting new ideas and blockchain partners, such as Ripple and the Interledger Protocol, ready to enhance and improve existing payment systems. In supporting the emergence of a digital currency, blockchain presented the world with a new way to think about database technology.
A way to better secure data that has opened up a whole new world of opportunity. We're left with the conclusion that this is a disruptive technology that is worth knowing and understanding much more about, and that's exactly what we'll do.
- Blockchain basics
- Public and private keys
- How blockchain enables bitcoin
- Blockchain and the electrical grid
- Blockchain and identity management
- Risks of blockchain