Ever since the advent of the internet we’ve been swimming in an ever-growing pool of data. But despite this tidal wave of information, our society still has relatively few official reference points. If you’ve tried to open a bank account recently you’ll understand this problem. Before handing over your money you will require professionally certified copies of utility bills, passports and driving licences, along with national insurance numbers, tax numbers a gigantic dose of patience to tackle the account opening forms. The process appears endless and, curiously, it doesn’t seem to have evolved, despite our technological advances. Blockchain promises to solve this and many more administrative ills – that’s a big promise.
I had the recent pleasure of meeting Nick Zeeb, who introduced himself as a Blockchain Evangelist – needless to say, he had my attention.
Many people know blockchain is the underlying digital foundation that supports applications such as Bitcoin, but the reaches of blockchain go far beyond the world of digital currency.
Harvard Business Review defined blockchain somewhat bluntly as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically”
I wanted to know what that actually meant, which is why we invited Nick to Sandaire; to present the basic principles of blockchain. This interview forms part of a short series where we explore the blockchain concept, potential applications, the benefits and challenges, and what it means for businesses and consumers quite broadly.
Samuel Bosanquet (SB): Blockchain is the backbone of Bitcoin, and is being heralded as the most important innovation since the Internet itself. So how does it work, and why is it so important?
Nick Zeeb (NZ): For the first time in history, blockchain technology allows the world to build a decentralised and transparent network of computers (“nodes”), whereby every participant within the system has the ability to record and track assets. Assets can be anything of value – tangible or intangible. This might include a house, a car, land, identity, governance or intellectual property. The system is not controlled by one person, company, jurisdiction or country, but instead, it runs on thousands of “nodes” around the world validating records in real time.
Blockchain was born out of the need for an efficient, cost-effective, reliable and secure system for conducting financial transactions; initially, that was for recording ownership of the digital Bitcoin currency. But Bitcoins are just the most well-known application, the potential for other uses is unlimited.
Let’s look at a hypothetical example based on real life. If you want to know who officially owns a property in the UK you can check the Land Registry. The problem with this single source of data (node) is that if it is corrupted, or contains errors, the implications are vast. The system is also not integrated into the property transaction process, it’s an entirely separate registration process. Lets imagine an alternative world where everyone has access to an independent record (multiple nodes) of who owned every property. And every one of those records (nodes) updated as soon as a new transaction occurred. There would clearly be less risk in the system – a hack or error would have to occur in every single record to take effect – and its integrated nature would be far more efficient. Given this, its no surprise that Sweden began testing a blockchain-based land registry in 2017.
Bitcoin has done to money what email did to letters. But we now know that much more interesting innovations came out of the internet than just email!
SB: What are the key terms that we need to understand?
NZ: One important thing to understand is that blockchain and Bitcoin are not the same. Blockchain provides the digital infrastructure to record and store Bitcoin transactions. Since Bitcoin was founded in 2008, there are an estimated 700 Bitcoin-like cryptocurrencies (exchangeable value tokens) already available, like Ethereum for example.
A range of other potential adaptations of the original blockchain concept are currently live or in development. A suitable analogy is the world wide web (www) – an infrastructure that allows anyone to create a new website at any time.
SB: Where do you believe the biggest opportunities lie?
NZ: Before I make any attempt to answer this question, I’d like to quote Tom Watson, the IBM chairman in 1958 who said, “I think there is a world market for about five computers.” He mostly envisioned them for scientific calculations and could never have imaged his beloved computers being used by millions of people to share pictures of what they had for lunch that day.
With this in mind, I think that in the first phase, the technology will be used to remove the power of trusted intermediaries. Plenty of central banks have proven unable to resist the temptation of printing unlimited quantities of money to prop up their economies. Many have argued this has actually caused more suffering for millions of their citizens than benefits.
One of the benefits of blockchain is that it can effectively enforce predetermined rules by coding them onto a blockchain, such as how many Bitcoins can be issued (capped at 21 million units). It, therefore, enables good governance, and instils and democratises trust.
Lastly, I think the history of technology shows that most new technologies replicate an existing application, but do it faster, cheaper and make it more accessible. When the printing press was invented, its main use was to copy the Bible – previously done by hand. I suspect blockchain technology will progress in a similar way and that the longer-term applications will be left to the imagination.
SB: Is Bitcoin the next tulip or dot-com bubble; what if it bursts?
NZ: I’ve worked in technology long enough to appreciate Amara’s law which states that:
“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run”
If you look at the long-term price chart of Bitcoin, for example, you can see that we’ve already had several bubbles and crashes. Human nature and behaviour have changed very little since the Upper Paleolithic period (10,000 to 40,000 years ago). I suspect that we will continue to see bubbles, crashes, accidents and scandals experienced at the outset of embracing innovations. However, if that idea or technology serves a useful purpose for humanity, it will ultimately win the day.