Blockchain: an internet we can trust?
From securing virtual currencies to cars that pay for themselves, blockchain is going to disrupt everything
On the internet, so the saying goes, nobody knows you're a dog. If your dog was tied to a blockchain, however, you'd know its name, age, pedigree, blood group and favourite brand of dog food.
Blockchain threatens to bring the internet something it's been lacking since its inception: trust. Whether that's trust to pass money between you and a restaurant without paying bank fees; trust to automatically open the door on the apartment you've just rented on Airbnb; trust to vote electronically in a General Election and know that the Russians can't possibly have fiddled with it; or trust that Amazon (to name just one firm at random) has paid all of its taxes.
There's virtually no industry that someone isn't promising to "revolutionise" with blockchain. It's even threatening to disrupt the very notion of citizenship and countries. So what is this mysterious all-encompassing wondertech? And can it possibly live up to its hype?
Building the blockchain
It's no small irony that the first distributed blockchain was used to create Bitcoin a currency that many don't trust that was invented by a person the media has conspicuously failed to identify.
A blockchain is little more than a list. Each record, or block, in the list is secured by cryptography and contains a hash pointer that is unbreakably linked to the previous block in the chain. No block in the chain can be altered without all subsequent blocks being altered, making any attempt to hack a single block futile.
What's more, these records typically aren't stored in a massive database on a central server but are distributed across a peer-to-peer network, eliminating one of the big risks of data storage: that someone's going to hack the system and make off with the lot. Many different copies of the blockchain exist. There is no master copy, and no copy is trusted more than any other. So, if someone does try to overwrite or edit a copy of the chain, it would be swiftly rejected by the others.
The notorious Bitcoin is the best-known example of blockchain tech. The peer-to-peer payment system allows transactions to be made without an intermediary no bank or clearing house is needed. Bitcoin transactions are recorded in a ledger (or blockchain) that is distributed far and wide across the internet. Nobody owns it, nobody controls it. If you have a Bitcoin wallet on your PC, you might even have an entire copy of the blockchain (which is now larger than 110GB) on your hard disk, logging every Bitcoin transaction that's ever taken place.
However, cryptocurrencies are only one possible use for blockchains. There are many more mind-blowing examples of what it can do.
"The next big unlock"
If you think blockchain has a slightly grimy, counter-culture feel to it, think again. The tech giants are falling over themselves to show that they're all over this blockchain thing. Google's DeepMind AI lab is experimenting with blockchain to secure health data, Microsoft is using blockchain on its Azure platform to track where electricity and gas supplies are coming from, IBM has a "blockchain platform" to accelerate the growth of the technology across various industries. This is on the cusp of mainstream technology, if it's not already there.
Jack Dorsey, the CEO of mobile payments system Square and Twitter, recently described blockchain as the "next big unlock", and even though we hate the way he's bludgeoned a verb into a noun, it's easy to see what he means. This does feel like the start of something big. "There are so many problems we can help solve [with blockchain] that are not just related to finance, said Dorsey, "but finance is an obvious one."
Take the tax system, for example. Right now, we're largely reliant on companies to truthfully declare the value of goods sold to collect, and eventually pay, taxes such as VAT. When you're talking about something as complex as a car, there are dozens of steps in the production process where VAT is applied or expenses are written off against tax. The steel company applies VAT to the materials it sells for the car frames, glass is sold to manufacture windscreens, so on and so forth, until the customer finally pays VAT for the finished car itself.
But imagine if those transactions were recorded in a blockchain ledger. It would be possible to trace goods all the way from raw materials to forecourt, with an indisputable log of every transaction. Taxes could be collected automatically and even paid instantly. Tax avoidance would become hard if not impossible; audits would be simplified. Blockchain could help "drive behavioural change because of the risks and consequences of non-compliance," a recent report from PwC stated, because the sheer transparency of the blockchain would make it difficult to hide transactions. "It's more likely that you'll be caught and forever excluded from the blockchain network."
Now think about the same principle being applied to the welfare system, income tax and corporation tax; you can see why governments might start getting excited about this stuff. Last year, the Cabinet Office minister Matthew Hancock announced the government had already pledged 10 million to the Alan Turing Institute to investigate "distributed ledger technologies" and was piloting a scheme to use blockchains to trace grants. "The fact that data held in the blockchain comes with its own history, and that history is a fundamental part of proving its integrity, this fact is enormously powerful," Hancock stated.