Why you should care about blockchains

24th March 2016

Nesta's Oscar Townsley writes about the possibilities of blockchain beyond Bitcoin. This article was originally published on the Nesta website.

Of all the interesting inventions coming down the line: artificial intelligence, robotics, 3D printing, biotechnology, genetic engineering, self-driving cars, graphene and virtual reality, blockchains (1) are by far the most difficult to grasp. This is unfortunate because, as I’m going to show in this article, blockchains are laying the groundwork for the next century’s economic growth - not only in the finance sector, but across society as a whole.

You might have heard that blockchains are going to disrupt the financial sector. This is true. Banks are currently pouring money into numerous experiments, with the general aim of reducing costs and increasing efficiency. But what goes mostly unnoticed is their disruptive potential across the rest of the economy.

Fundamentally, blockchains are just databases, but describing them in this way hides their revolutionary properties. It’s a bit like saying computers are just 1s and 0s - it’s really about what you can do with them. Databases are ubiquitous; Facebook, Twitter, Uber - they are all fundamentally databases. So are our health records, police records and bank accounts. Many people get confused by the detail of how Blockchains work. That’s not necessary - if you understand the principles, you understand a lot. What you need to know is that:


Blockchains are databases with new and interesting properties

  • Firstly, they are autonomous. They run on their own, without any person or company in charge.
  • Secondly, they are permanent. They’re like global computers with 100 percent uptime. Because the contents of the database is copied across thousands of computers, if 99 per cent of the computers running it were taken offline, the records would remain accessible and the network could rebuild itself.
  • Thirdly, they are secure. The encryption used on blockchains like Bitcoin and Ethereum is industry standard, open source, and has never been broken. Their ledgers are what is known as ‘cryptographically auditable’, which means you can be mathematically certain that their entries have not been forged.
  • Fourthly, they are open, allowing anyone to develop products and services on them, and allowing anyone to audit the code.

With these four properties, blockchains allow us to do a lot of things that were we couldn’t do before.

Internet of Things

People have been thinking about the Internet of Things (IoT) for a while, but unless you’re a tech fan, you’re probably not exactly sure what it is. Essentially the idea is to give physical objects identities on the internet. Just like your computer or phone are connected to the internet now, in the not too distant future, so too will your car, house, fridge, and almost anything else you can imagine. This allows them to be controlled remotely, and talk to each other. Imagine, for example, appliances that barter with each other for electricity at peak times, cars that negotiate and pay each other for road space, or a bridge that tells vehicles to slow down because there is ice on it. This isn’t just a pipe dream, research and advisory firm Gartner estimates that by 2020, 20.8 billion ‘things’ will be connected to the internet.

But what does this have to do with blockchain technology?

As IBM and Samsung point out in their recent report, blockchain technology solves a number of problems that have thus far hindered the development of the Internet of Things. These can be summarised as: cost, trust and future proofing (permanence). For IoT firms, the cost of supporting billions of smart devices will be substantial. In place of centralised clouds and large server farms, blockchains allow IoT firms to outsource infrastructure provision to the places in the world with the lowest costs (2). As a blockchain is a shared system, these costs are also shared between all of its users, eliminating redundancy and increasing efficiency.

On the subject of trust, the authors of the Samsung and IBM paper write: “In the post-Snowden era, it is evident that trust in the Internet is over… Current security models based on closed source approaches are obsolete and must be replaced by a newer approach - security through transparency. For this, a shift to open source is required.”. Blockchains are both open source and also ‘trustless’ meaning that you don’t have to rely on any human, instead relying on the consensus of the network.

Transparent Supply Chains / Notary Services

At the beginning of the blog I said that blockchains are open and permanent. That’s really important for businesses based on transparency and trust. Immutable, open ledgers provide a neutral space where companies can prove exactly where their products and components are on the supply chain at any given time, and consumers can trace the source of their purchases.

There are a number of startups in this field:

Everledger, currently being incubated in the Barclays accelerator, is using the Bitcoin blockchain to tackle the problem of counterfeit diamonds. By creating a digital ‘DNA’ record comprising cut, clarity, color, carat weight and 14 other reference points for each stone, the company is able to create a transparent ledger of diamonds - their origin, ownership history and any processes it has undergone over time.

Provenance is another firm working in this space, providing a service that allows businesses to verifiably share the story behind their products with consumers. The authors of the provenance white paper write: “Despite various efforts, full “chains of custody” that tell the stories of products remain largely rudimentary and difficult to verify. Fragmentation of these efforts make them open to fraud”. Of course, blockchains change all this.

Stampery and Blockverify are two other companies using the bitcoin blockchain to verify all manner of items, from emails and documents to pharmaceuticals.


Secure Digital Identity

One of the biggest problems with our attempts at online identity so far has been the risk of centrally managed data. Numerous high profile cases of companies losing vast quantities of data to hackers underlines this issue. The holy grail of online identity is for it to be verifiable without requiring users to give up control of their data. Blockchains use public key cryptography (whose inventors just won The Turing Award) which gives us new ways to solve this problem.

ShoCard is a company using the bitcoin blockchain to do exactly that. The ShoCard system allows users to control their own data, and share only the data that is relevant. It also removes the necessity to continuously enter (and forget) usernames and passwords. Onename is another company looking to do a similar thing. The Bitnation Blockchain Emergency ID is a fascinating take on digital ID using a blockchain. Inspired by stories of passports confiscated from migrant workers, the Emergency ID creates a web of trust so that family members can verify each other’s ties.


Governance & Government

Blockchain technology also opens up lots of possibilities for governments. In a report on the matter this year, the UK Government’s Chief Scientific Adviser Sir Mark Walport suggested a number of areas that the technology could assist in, including:

  • Transparency and traceability of how aid money is spent
  • Protecting critical infrastructure
  • Registering assets such as intellectual property, wills, NHS health data and pensions
  • Reducing benefit fraud

Furthermore, the Estonian government, which has a reputation for being one of the world’s most technologically progressive governments, is partnering with Bitnation to allow e-residents to notarise their marriages and birth certificates on the Horizon blockchain. The press release reads: “If a couple get married on the [blockchain], it doesn’t mean they get married in the jurisdiction of Estonia, or in any other nation state jurisdiction. Instead, they get married in the ‘blockchain jurisdiction’. The blockchain technology provides a worldwide, legally-binding proof of existence and integrity of your contractual agreements.”

The most exciting thing about this field is that we have no idea how many more countless innovations blockchain technology will lead to. This really is the beginning of the internet all over again.


1) The word blockchain used in this article refers to a public (permissionless) blockchain.

2) Mining (transaction processing) is an economic activity in which miners compete to process transactions in return for rewards paid in cryptocurrency. The lower the miners’ electricity costs, the larger their profit margins, therefore over time, the system as a whole optimises to source electricity from the cheapest areas on the planet.

This blog was originally posted on Nesta.org. Written by Oscar Townsley.

Image credit: Steven Depolo, via flickr, CC by 2.0




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