Blockchain 101: Real-World Uses
Written by Sean Kelley-Pegg
You might know Bitcoin as the preferred payment system for ransomware. Or as a volatile investment vehicle (which Warren Buffett won’t touch). You may have read about it as a virtual currency for money laundering or running pyramid schemes. Of course, it’s all those things, but like most things in technology there are two sides to the coin. Focusing on the extreme cases ignores some of the most exciting parts of crypto (for me at least) – the underlying blockchain technology. Blockchain has the potential to impact not just financial but also social systems, and as a technology professional it is important to understand what blockchain is with as little jargon as possible. Crypto land is annoyingly full of acronyms, memes and made-up words, so I hope to give a brief, high-altitude view of the landscape without a lot of clutter.
So, what is blockchain and why is it important?
A blockchain is a way to share information in such a way that it cannot be changed or deleted. It does this by sharing the data among thousands of participating computers which come to a consensus on “blocks” of new transactions. Anyone can participate by running blockchain software and people doing so are located all over the world. Entities are motivated to not disrupt the system because they can earn money automatically by participating in a well-running system. The decentralized nature of blockchain combined with rewards of participating make it a “highly available” system with powerful hedges against being shut down or fraudulent data being saved into blocks.
Imagine a spreadsheet of transactions that can have rows added but not modified. The spreadsheet is shared globally and can be read by anyone. Each time a transaction occurs a new row is added recording who sent how much to whom. Because rows cannot be changed there can be no disputes about whether transactions occurred and no possibility of changing information later. Since this spreadsheet records interactions automatically, people can transact directly with each other without involving an institution like a bank, and without needing to know or even trust each other. Like Venmo but without the settlement delays.
In 2009 Bitcoin was created demonstrating the viability of this concept. However, the real-world uses of Bitcoin were limited. At the time it was difficult to trade dollars for Bitcoin and you couldn’t really buy much with it, except on the black market. Some of the original developers saw promise in the concept and started work on a new blockchain with wider use cases called Ethereum.
The Ethereum blockchain can store just about any other data along with the transaction. This unlocks many possibilities. For example, ownership of property could be recorded on the blockchain, reducing the need for titles or deeds or other physical documents. Blockchain could store identity information which could be used to reduce online fraud. Forget hacking usernames & passwords –you can’t steal someone’s identity if you don’t have their crypto “keys!” Products could be tracked throughout the supply chain and verified by the manufacturer or purchaser –think organics, temperature-sensitive medications, or how certain raw materials are sourced. A blockchain-integrated voting system could prevent vote tampering. Votes would be permanently recorded, and because the blockchain is public, it would be easier and faster to audit a close election. This in turn could increase confidence in the vote.
Another Ethereum concept is the “smart contract,” a piece of custom programming that executes along with the transaction to which all parties have agreed. Smart contracts are often compared to vending machines -we put in our money and receive our selection, and the process is completely automated. Smart contracts can be used to initiate any kind of workflow we can think of. For example, escrow money could be released when conditions have been met. Tickets could be issued or traded or automatically refunded in certain cases. A smart contract could be tied to the purchase of digital art so that whenever the work is re-sold a royalty is automatically paid to the original artist. Programmable money!
Blockchains in businesses
Many large companies are already exploring how their own private blockchains can reduce friction, speed transactions, and increase trust and transparency. IBM has many different implementations of their blockchain for supply chain customers and for those who manage digital assets. Visa is reportedly exploring how the technology could speed up international transactions. Pfizer, Biogen, and other major pharmaceutical companies have formed the Clinical Supply Blockchain Working Group to develop blockchain solutions specific to their market. The Linux Foundation runs Hyperledger Fabric, a framework for building blockchain solutions, and of course Amazon AWS offers a managed blockchain service.
Those projects often use more centralized corporate blockchains, but there is also a vast network of interesting projects backed by the open-source Ethereum blockchain. I’m excited about IPFS (“Interplanetary File System”), a decentralized way to store encrypted files on the blockchain, making them always available (or one might say censorship-resistant). Another interesting project is “Gitcoin Grants” which uses decentralized voting to distribute crowdsourced funding for blockchain projects. Many of their grants aspire to contribute to the “public good” in some way and support the ideals of shared ownership and collective determination rather than simply making money.
Benefits of blockchain
The concept of “public good” runs deep in the Ethereum community and many projects display a fresh idealism about creating systems that are fair, do not discriminate, and hedge against some of the more harmful effects of global capitalism.
For example, blockchain-based voting enables people to organize across national boundaries for a cause they all believe in. Organizations like this are known as Decentralized Autonomous Organizations, or “DAOs,” facilitate human organization at a global scale without needing governments to approve.
Streaming music projects like Audius, Stream.xyz and Catalog aim to compete with platforms such as Spotify, while using blockchain automation to put control back in the hands of the artist. The projects aim to connect artists directly with their fans without going through a centralized gatekeeper. In contrast to the tiny royalties paid by the big streaming providers, these projects could enable fans to directly support their favorite artists and enable artists to create unique “editions” of their music with other digital content, increasing engagement.
Blockchain-based currency can also benefit ordinary people living in volatile economies with runaway inflation. Strange to think of cryptocurrency as a hedge against risk! But in Venezuela, some supermarkets and food chains such as Pizza Hut reportedly accept cryptocurrency as payment, and it’s not unusual for small businesses to periodically convert Bolivars into crypto due to how fast that currency can fluctuate.
Regardless, today there is at least one small way you can benefit from blockchain now, for free and without risk. On the web these days it seems like the price of admission is to put up with online tracking and ads that follow you throughout your day. We accept that we give away access to our browsing behavior in exchange for free access to sites and services. However, there is another option. The Brave browser blocks online tracking and ads by default, then gives you the option to opt into a discreet ad display in a separate tab. There is no requirement to opt in, but if you do, you earn their blockchain-backed “basic attention token (BAT)”. This is a bit like frequent-flyer points that can be used to tip website creators or be exchanged for gift cards or even Ethereum itself. The Brave browser advertising model flips the current Web 2 model on its head –you are the owner of your data, and you choose when to share it, and can expect compensation for it.
So, thanks for coming on a flyover tour of blockchain, a technology that will impact all of us in some way in the coming years whether we work in technology or not. Forget about the price and focus on the promise.