The promise of the internet was to democratize and decentralize information and content. It offered a platform that would allow millions of users from around the world to contribute meaningfully through a peer-to-peer global network. The internet has been successful in reducing communication and research costs, encouraging new collaborations, and lowering barriers to entry for many new businesses. However, it has become evident that the internet is actually centralizing information.
A few dominant corporations such as Google, Facebook, and Apple have come to control vast amounts of personal user data. They have developed algorithms that dictate the advertisements and information presented to us on the web. In addition, large institutions have been vulnerable to data breaches, as we have seen countless times throughout the history of the internet.
Blockchain offers an alternative. Blockchain is the technology that underpins the crypto currency bitcoin. The key innovation behind blockchain is that it establishes a transparent and decentralized trust mechanism. It provides a public ledger of all transactions made on the system, which can be downloaded and viewed by anyone who is part of the network. Updates or changes to the ledger can only be made if there is consensus and agreement by the majority of participants in the network. While the ledgers of banks or other financial institutions can be manipulated by their owners, blockchains cannot be altered by any one party. As Jason Leibowitz puts it, “no central party has ownership of the ledger, therefore no one can individually amend the entries on the blockchain.” He claims that “this makes the blockchain an immutable store of information.”
Numerous transactions on the blockchain are bundled together and represented as a ‘block’. The ‘block’ is then broadcasted and verified by the network, and subsequently linked together with the existing ledger.
So how exactly does blockchain work? Numerous transactions on the blockchain are bundled together and represented as a ‘block’. The ‘block’ is then broadcasted and verified by the network, and subsequently linked together with the existing ledger. The public ledger contains all transactions that were ever conducted on the block chain network in chronological order. Blockchain was designed with a unique incentive structure. It offers rewards to those who verify transactions (miners) and contribute to the system with newly minted bitcoin.
Blockchain eliminates the need for a ‘middleman’ or intermediary. By replacing the middleman, it offers the world a true peer-to-peer network.
“The first generation brought us the internet of information. The second generation, powered by blockchain, is bringing us the internet of value, a new, distributed platform that can help us reshape the world of business and transform the old order of human affairs for the better.” Alex & Don Tapscott, authors of Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World
The most logical application of this technology has been in the financial services industry. The use of blockchain by banks can reduce transaction costs by increasing the speed, efficiency, and transparency with which financial transactions occur. Canadian banks have demonstrated considerable interest in the technology. Major banks, including the Royal Bank of Canada, Toronto-Dominion Bank, and the Canadian Imperial Bank of Commerce, have joined a consortium led by R3, a blockchain technology company. The consortium will explore ways in which blockchain technology can be used and integrated into financial markets.
What is particularly exciting about this new technology is that it has many practical applications beyond finance. Blockchain technology can be used to transfer or store anything of value. This could involve applications in life sciences and health care, music and media, the sharing economy, and the public sector.
Governments from around the world have been eagerly looking for ways to integrate blockchain into service delivery. For instance, the United Kingdom is considering ways of tracking public funds using this new technology. As the Minister of the UK Cabinet Office Matthew Hancock notes “monitoring and controlling the use of grants is incredibly complex.” He adds: “[a] blockchain, accessible to all the parties involved, might be a better way of solving that problem.”
Sweden has also been looking for ways to use blockchain in government. The Swedish National Land Survey has been collaborating with a blockchain company (ChromaWay), consulting firm (Kairos Future), and a telecommunications firm (Telia), to create a new system for developing and transferring land documents. The system uses ‘smart contracts’, which are a set of rules and computer codes placed and executed on the blockchain network. The program will also use a digital identity system that can verify and process digital signatures to ensure security provision. ChromaWay CEO Henrik Hjelte posits that “using digital signatures in all steps in the process of selling a house we can bring down the total time of doing a deal from several months, say three months on average, to less than a day or a few days.”
“Uber drivers create considerable value but get to keep only part of it. The company retains a significant share of the price paid for every ride, not to mention the retention of user information involved in transactions.” Dr. Mihaela Ulieru of the World Economic Forum
By creating a decentralized peer-to-peer trust system, this new technology challenges and offers alternatives to the so-called ‘sharing-economy’. While branded as peer-to-peer sharing, companies such as Uber and Airbnb are essentially intermediaries which aggregate services and unused value. “Uber drivers create considerable value but get to keep only part of it. The company retains a significant share of the price paid for every ride, not to mention the retention of user information involved in transactions” says Dr. Mihaela Ulieru of the World Economic Forum. Blockchain provides a platform which can connect the users of these online platforms without the use of a central intermediary.
While the blockchain is still in its infancy, the potential applications and uses of this technology are far-reaching. In line with the initial promise of the internet’s potential, it promises to decentralize information and create a truly democratic and inclusive platform where individuals can exchange anything of value.
Andrew Abballe is a 2017 Master of Public Policy candidate at the University of Toronto’s School of Public Policy & Governance. He holds an Honours Bachelor of Arts in Ethics, Society, & Law and International Relations from the University of Toronto. His policy interests include economic, education, social policy and innovation. You can usually find him drinking an espresso in one of Toronto’s many cafes.