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Part of a ZDNet Special Feature: How Blockchain Will Disrupt Business

Blockchain won't save the world, but might make it a better place

Although blockchain's crypto-anarchist utopian dream is unlikely to be realised, it still promises plenty of benefits.

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Image: iLexx, Getty Images/iStockphoto

One of the most striking features of blockchain is the utopian streak that runs through it -- the idea that blockchain can replace the existing authorities like banks and governments with a distributed network of trust, held in place by clever mathematics.

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Bitcoin represents blockchain in its purest form: a distributed digital network that anyone is free to join, controlled by no-one and using cryptography to secure transactions that remain visible to everyone. It's a new currency owned by no state.

Enthusiasts point to the success of bitcoin and other blockchain-based cryptocurrencies as the first example of a trend, arguing that blockchain could have a similar impact elsewhere in society. It could replace existing gatekeepers -- banks, governments or any other authority -- with a peer-to-peer network of trust where actions are transparent and visible to all, ushering in a crypto-anarchist utopia.

For example, instead of the government being in charge of confirming our identity (through passports or ID card databases), a distributed, cryptographically-secured ledger could allow us to control our own data.

But how realistic is this vision?

Revolution on hold

"Blockchains shift some control over daily interactions with technology away from central elites, redistributing it among users. In doing so, they make systems more transparent and, perhaps, more democratic," said a report from the European Parliament last year titled How blockchain technology could change our lives.

However, the report goes on: "That said, this will not probably not result in a revolution. Indeed, the governments and industry giants investing heavily in blockchain research and development are not trying to make themselves obsolete, but to enhance their services."

For now it seems, rather than being used to destroy existing authorities, elements of blockchain technology are being used to fix problems with them, especially around the security and reliability of data. While there are some strong reasons why blockchain-style technologies can fix some vexing problems, it's not likely to smash the system any time soon.

"Blockchain is the first time we've had a reliable mechanism that is based on mathematics rather than the frailties of human nature that is capable of maintaining the integrity of the critical systems that make up our lives. No amount of cryptography and clever software will serve as a substitute for the integrity of public officials or financial institutions, but this is a technology that makes it substantially more difficult or expensive to engage in bad behaviour," argues Tomicah Tillemann, director of the Blockchain Trust Accelerator at the New America think tank.

Tillemann sees blockchain as one way of rebuilding or replacing the trust that has been lost in many of the institutions we traditionally rely on. It can help cut corruption, make systems more efficient and help to engage citizens who currently feel ignored or marginalised by the system, he says.

Blockchain-based systems allow you a much higher level of confidence in the underlying integrity of the information, and can also provide a degree of security that no existing database system has been proven to replicate, says Tillemann.

He points to a blockchain-based land registry project in the Republic of Georgia, which combines a private blockchain with data that's then anchored to the Bitcoin blockchain. This makes it much harder for a corrupt official to be able to change who owns a piece of land -- something that's much easier to do and cover up on a paper-based system.

"I don't believe blockchain is going to eliminate the need for government or the role of government, but I do believe it can help institutions that are struggling mightily to keep up with the velocity of change," he says.

New business models

But Tillemann does see a more transformative role for blockchain and also thinks it can create trust and make it easier for individuals to share information, which could lead to new business models.

He suggests that individuals could have their own blockchain-based data wallet, in which they will store everything from their medical records to their votes to their financial transactions. They will then be able to share access and revoke access to that information at will.

"They will have ownership of the data that defines their identity, rather than the centralised actors that control that information in our current systems," says Tillemann.

In this context, blockchain has the potential not just to upset the traditional gatekeepers like banks, but also the new digital gatekeepers -- the Facebooks, Googles and Ubers who have flourished by creating their own networks of trust.

If I didn't need Facebook or any other network to share with my friends, or if I didn't need Uber to be able to trust and pay for transport, it might be possible to create new genuinely peer-to-peer ways of doing business.

"This is a technology with profound implications. Now, we don't know yet whether that potential is going to be realised. None of this is inevitable and it could go any number of ways, but the potential is there and worthy of our attention and respect," says Tillemann.

Filling a trust vacuum

Eleonora Harwich, head of digital and technological innovation at UK think tank Reform sees blockchain as having a much greater impact in countries where there's low trust in institutions, or where corruption is an endemic issue in public sector. That's because blockchain creates a system where you don't actually need to trust other people or agencies involved in a transaction, thanks to the tamper-proof version of the truth contained in the ledger.

That's handy for freezing out crooked officials, but less useful if you already have efficient and trustworthy authorities. So blockchain usage in government -- at least in the UK -- is more about efficiency gains than completely overhauling the way we think of public services.

"In its theoretical core, blockchain does have the intention to bring down power structures for sure. But I don't think that's the kind of applications we are talking about in the public sector," says Harwich.

Potential usages in the UK might include using blockchain to break down silos in government that hold information about individuals. For example, blockchain technology could help with creating a single, secure patient record that individuals can control, says Harwich.

"When you talk about patient-centric care or citizen-centric services, it calls for a restructure of the data infrastructure in which we operate. The whole blockchain world is forcing us to ask questions a bit differently," she says.

However that doesn't mean the government is ready to switch over immediately. Blockchain might make sense when setting up something completely new, but government has been gathering data for hundreds of years and connecting that legacy data to the futuristic world of blockchain won't be easy.

The permanent nature of blockchain-based transactions can also be a headache in some scenarios; how does someone exercise their right to be forgotten if their data is held forever in a blockchain?

Blockchain issues

For Martha Bennett, principal analyst at Forrester, the issue of transparency and how to deal with it is just one of the issues with blockchain technology.

"Radical transparency is a curse. Transparency handled appropriately is a good thing clearly, but transparency badly handled can actually be a threat to personal safety and is untenable in a commercial environment. I don't want everybody to know what I'm doing, but if all my actions on the blockchain are accessible to everybody, they know where I am, they know what I've done, so they can try and blackmail me."

Still, blockchain does have its place, says Bennett. "When you have processes involving multiple parties, where everybody should be looking at the same data but they are not, and you have endless friction and endless arguments as to whose version is right and who did what when, that's actually when the concept can come into its own, providing they can agree on how to run the network."

As for the more utopian aspects of blockchain, Bennett is unconvinced. Just because you don't like having your data controlled by other people, that doesn't mean an infrastructure with no conditions for privacy is a great alternative, she says.

Bennett also warns that placing too much trust in the technology alone is unlikely to be successful.

"It's an illusion to pretend that just because you have a blockchain-based network, suddenly everybody will behave in an appropriate manner. Rules and regulations are what make a civil society function; you cannot provide consumer protection in an unregulated environment."

Blockchain confusion

Part of the confusion around blockchain is that when people talk about it they don't necessarily mean blockchain technology, they mean 'let's do things differently', says Vili Lehdonvirta, associate professor and senior research fellow at the Oxford Internet Institute.

"They mean 'let's come up with digital identities for objects and people that allow us to make processes more efficient, but let's do it in a way that doesn't result in those identities and all that data being owned by a Silicon Valley monopolist'," he says.

Blockchain has become a catch-all term for this kind of a vision, even if it doesn't use the distributed permissionless model of Bitcoin. And certainly not every project needs to use blockchain either.

The desire to create a system that isn't controlled by a digital gatekeeper like a Google or a Facebook might be increasingly understandable, but that doesn't mean technology alone can fix the problem.

"In practice there isn't any simple technological silver bullet; you can't just install blockchain and you're all set, and we have this digital Nirvana which is all egalitarian and there are no gatekeepers. No, that's not how it works," says Lehdonvirta.

For example, while blockchain does offer the potential for more transparency, not everyone in every sector wants all transactions visible to everyone. And even where more visibility of transactions might be good for some (like in the art market, where it would enable -- at least in the UK -- artists to know when their work had been resold, enabling them to receive a cut) not everyone wants that.

"There are parties that benefit from opacity and inefficiency who are the gatekeepers often in these markets, and they are not so keen on these changes", says Lehdonvirta. "It's not like there's going to be this avalanche and everybody is going to adopt technology because it's best for everyone."

Blockchain is not a morally neutral technology; it has been created by software developers with their own agendas and interests, which means it's far from immune to politics. "There's people involved -- it didn't just fall from the sky," Lehdonvirta points out.

"It's more distributed that some other software systems, but it still has politics, it still has gatekeepers, it has power relationships, it has interests. There isn't a technological solution to the problem of politics; you still have to somehow decide who's in charge and who makes the rules."

The idea that there's no authority at all in a blockchain is perhaps missing the point. "You're still going to have people in charge; the question is who do you want to have in charge -- do you want to have a government, or do you want to have some system of software developers and commercial interests in charge?" says Lehdonvirta.

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