The distributed nature of blockchain networks make them useful conjoin blockchain bitcoin many applications. Disclosure statement Mark Staples is a Conjoint Associate Professor at UNSW. CSIRO provides funding as a founding partner of The Conversation AU. Data61 provides funding as a member of The Conversation AU.
The Conversation UK receives funding from Hefce, Hefcw, SAGE, SFC, RCUK, The Nuffield Foundation, The Ogden Trust, The Royal Society, The Wellcome Trust, Esmée Fairbairn Foundation and The Alliance for Useful Evidence, as well as sixty five university members. Blockchain technology is not just useful for creating digital currencies such as Bitcoin or developing new financial technologies. Blockchains can be used for a wide variety of applications, such as tracking ownership or the provenance of documents, digital assets, physical assets or voting rights. Blockchain technology was popularised by the Bitcoin digital currency system.
But, essentially, a blockchain is just a special kind of database. The Bitcoin blockchain stores cryptographically signed records of financial transfers, but blockchain systems can store any kind of data. What makes a blockchain system special is that it doesn’t run on just one computer like a regular database. Rather, many distributed processing nodes collaborate to run it. There can be a full copy of the database on every node, and the system encourages all those nodes to establish a consensus about its contents. This boosts our confidence in the database and its contents.
It’s difficult, if not impossible, to meddle with the database without others finding out and correcting it. In our society, we normally rely on trusted third parties, such as lawyers, courts, banks and governments to process and keep authoritative records about commercial transactions. These transactions aren’t just about financial transfers, but also include the creation or transfer of physical assets, shareholdings, certifications, digital rights, intellectual property or even votes. These third parties are trusted because we rely on them. If they fail or lie, we suffer.
Blockchains are interesting because the integrity of the contents of the distributed ledger does not rely on any specific individual or organisation. So, rather than relying on trusted third-party organisations to facilitate these commercial transactions, we might instead rely on a trusted blockchain system. This means blockchains give us new opportunities to rethink how parts of our society work. Innovation here might reduce friction in the economy, or create new kinds of services and ways of doing business with each other.
Whether or not blockchain systems are trustworthy is an interesting question. The reasons for believing that blockchain systems won’t fail or lie would be based on our understanding of the underlying software technologies. It also depends on our understanding of market incentives that influence behaviour of the many distributed processing nodes that run blockchains. However, blockchain technologies are still new in the scheme of things, and the community is still discovering their risks, limitations and potential economic and social impact. Because blockchain technology is so new, it’s difficult to predict exactly how they will end up being used.
This is why we at Data61 in CSIRO are exploring new ways blockchains can be used across industries. To understand the economic and societal opportunities presented by blockchain technology, we also need to understand its technological risks and limitations. A recent UK government report on blockchain technologies provides a good overview and examples of the use of blockchain. One of these is Everledger, a company founded by Australian woman Leanne Kemp.
Everledger uses a blockchain to record information about the provenance and ownership of individual diamonds and other valuables. Here, rather than the blockchain recording transfers of digital currency, it records transfers of ownership of identified physical assets. This globally accessible provenance trail could reduce fraud and theft, and enable new or improved kinds of insurance and finance services. The same general idea could be used for any supply chain, such as in retail, agriculture or pharmaceuticals. The drivers for improving assurance of supply chain quality vary in different industries. It could be brand reputation in retail, or safety in pharmaceuticals, or a combination in agriculture. It is worth observing that blockchains don’t totally do away with the need for trusted third parties.
A blockchain is only a digital record, but we need others to determine if those records actually match the corresponding physical assets in the real world. Everledger relies on major diamond certification companies to measure identifying information about individual diamonds. These measurements can be independently cross-checked. But in some sense, companies such as these become trusted third parties for this blockchain-based system. One can imagine the adoption of blockchain technologies creating opportunities for new kinds of trusted third-party organisations.