Blockchain and the Real World

There is a theory that any innovation follows a lifecycle that is shaped like an S-curve and goes through a number of distinct stages: ferment, takeoff, maturity, and discontinuity.

There is another stage that comes between fermentation and takeoff, when the fence-sitters are still in the majority, and really aren’t that sure whether the innovation is about to hit the big time or flop. This stage is commonly called ‘hype’.

At Sphere Network, we’ve been watching the progress of blockchain technology since we launched over a year ago. Seeing that blockchain is moving nicely along the innovation S-curve we decided it was time to revisit the subject and dispel some of that hype.

We were guests of PROTO, the Emerging Technology Centre, in Gateshead for the evening, and had a full house of attendees with the perfect mix of converts, fence-sitters, sceptics and ‘haven’t got a cluers’. People already using or considering implementing blockchain included cryptocurrency owners and investors, businesses concerned with supply chain and commodity provenance, developers working on a wide range of applications, and complementary emerging technology practitioners.

Transactions and tokens

Sphere co-founder Kate Baucherel and City Web Consultants owner Adam Clarey led off the discussion. Fresh from the Blockchain Game Summit in Lyon, France, Kate presented a fascinating overview of how and why blockchain is developing across the games industry. Gamers have a blockchain mentality: they are used to winning, creating and trading. In traditional gaming, this is an illusion, because you never actually own the items. Blockchain’s programmable tokens enable real item ownership. This could even extend to ownership of an avatar that can appear in different games. The idea of tokens representing items has always been in the background of the rapid adoption that is going on, but it is in gaming that it has found its first real application and a test bed for enterprise. Addressing a second aspect, blockchain may seem to be an ideal technology to adopt in games due to the transactional nature of play, but the complexity and volumes of transactions that need to be processed have stimulated innovation in the use of sidechains and off-chain transactions. This can only benefit users across multiple sectors in the long term.

From tokens representing items, the discussion moved to the distinction between types of tokens and the explosion of alt-coins and investment practices. In the example of blockchain gaming, tokens are an integral part of the game itself, a utility. You may buy or win a token that you need for the game, and it may be that this token appreciates in value – a happy extra outcome. In other environments, a purchaser may invest simply in the hope or expectation that the value of their token will increase (but of course, as with all investments, they can also decrease in value). These are increasingly being identified and regulated as securities. There are many grey areas where utility and security cross over, and multiple jurisdictions addressing the challenge of investor protection in different ways.

Trust and transparency

How can business logic be incorporated into a distributed ledger? Technically this requires care, attention and experience, explained Adam Clarey. The precise processes and the code which defines transactions, the ‘smart contract’, must be correct the first time the contract is deployed: there is no margin for error. Those keen to deploy smart contracts must be very clear that whatever happens, the history of the actions in the contract cannot be undone. There is also the question of access. On a public blockchain, the transactions are themselves public and the underlying code can be examined. Transparency is a blessing and a curse. The detail is available only to those users deploying the correct private key – but what if that key is lost? There is no friendly centralised help desk to reset your password. A significant amount of cryptocurrency has been lost forever down the back of the virtual sofa thanks to users losing or forgetting their private keys.

Despite the disadvantages of decentralised, personal management, the transparency of transactions and their unchanging nature, their immutability, means that there is inherent trust in the ledgers. This is a significant factor in the adoption of blockchain and distributed ledger technology. There are advances in key fields such as identity and financial services, where trust is all-important.

Traceability and the transition of wealth

This level of transparency is transitioning into environments where the social and ethical impact of Blockchain applications can be huge. For example, blockchain applications are being developed that support ethical trading so that consumers can access full information about the true source of a product, how the product was produced, and how their payment for the product was distributed within the supply chain.

The Estonian government were amongst the first adopt Blockchain (using Merkle Trees and time stamping), as a way of protecting the history of the country. They gained their independence in 1991, introduced the use of Blockchain in 1998 and by 2009, all of their citizens had a digital identity and ID card that couldn’t be changed. They achieved this by replicating all their citizens’ data by collecting information about every individual and replicating the data into data embassies across the world. Cleverly, as no-one ‘owns’ this data, it can never be changed, lost or destroyed so their history is safe.

T-shaping

Any sustainable innovation needs an army of T-shaped individuals to help it progress along its S-curve. As Blockchain takes off from the hype and moves into maturity, we’ll not just need a lot of coders and computer scientists – we’ll need people who can understand the logic behind the technology, demonstrate agile thinking, and model social, ethical and economic problems for which Blockchain can absolutely provide an answer.

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