When the UK government published its report “Distributed Ledger Technology: beyond block chain” this attracted some sceptical comments on various internet forums. Is Blockchain the answer to many problems or is it just another over-hyped technology looking for problems?
Well there are plenty of problems around trust in information that need to be solved and the report provides plenty of examples. Some of these examples refer to existing solutions and these provide some confidence that there is value in the technology. Others are more futuristic with a focus on ongoing research and development.
The wave of interest in this technology stems from a special case – that of bitcoins. Bitcoins are almost synonymous with criminal activities and the dark web but the fact that they have apparently survived in this hostile environment is a tribute to robustness of Blockchain technology. The ideas underpinning bitcoins technology are not new but what sets them apart is their combination.
The key ideas are basically – the use of Hash functions combined with Public and Private Keys to create a verifiable log of transactions combined with Proof of Work to establish trust. Taken together these have been used to create a distributed ledger of bitcoin transactions that provides pseudo anonymity for the participants and which does not depend upon a trusted third party. For bitcoin the trust is in the technology.
This trust is established by a competition – where many servers compete to solve a computationally difficult problem in order to win a prize. The first server to solve this problem wins 25 bitcoins. Once the problem has been solved it is very easy for the rest of the bitcoin community to check that there has been no cheating (for example trying to spend the same bitcoin more than once).
This competition creates an economic balance – it is more cost effective to work to win the prize than it is to cheat. But this comes with a cost – solving these puzzles uses massive amounts of computer power (and hence energy). It has been estimated that the total energy consumption is around 1 Gigawatt. It is also very slow with a maximum transaction rate of around 7 per second (which is several orders of magnitude less than that regularly achieved by payment card processing for example).
It is also not completely bulletproof – in 2014 the Ghash mining pool managed to achieve what everybody had said was impossible – to gain more than 50% of the network hashing. In the end Ghash and the bitcoin community came to an agreement.
As well as bitcoin elements of this technology have been successfully applied to solve other problems. One example being establishing trust in digital documents.
Digital document signing is not new; however significant work is involved where trust is established based on PKI certificates issued by Certificate Authorities. The problem is obtaining and keeping the evidence needed to prove at any point in the future that a document is the one that was originally submitted. This means keeping records of certificates, certificate revocations, timestamps and verification of CA policies and this process does not scale.
An alternative approach has been deployed in Estonia since 2007 and is used by individuals and organizations to file tax returns and other important documentation. This exploits what is called a Keyless Signatures Infrastructure (KSI).
The originator of a document sends a Hash of the document to a Signing Service and in return receives a signature token. This token is a proof that the data existed at the given time and that the request was received through a given access point. The service then guarantees that this Time Stamped Digest will be retained, and can be verified on request by anyone at any time in the future.
The benefits of this to Estonian citizens include:
- Each citizen has the ability to verify the integrity of their records at government databases at will, independently of the government or any other third party.
- It is impossible for privileged insiders to perform illegal acts inside the government networks, and erase the log evidence pointing to their actions without it being immediately evident.
- Since it is based solely on hash-function cryptography, it is not vulnerable to attacks utilizing quantum computing.
Going beyond Blockchain, as applied to Bitcoin, is Ethereum which is the brainchild of software developer Vitalik Buterin and is a hot project amongst the cryptocurrency community. The proponents of Ethereum believe that this system can be used to develop what are described as “smart contracts”. These are programs that define and implement set of transactions in a predefined agreed way. Because it is programmable there is no inherent limitation on the complexity of the algorithm. The agreement, once made, is then autonomously executed in way that is as trustworthy as the code.
Blockchain builds upon existing proven technology. It can be deployed at some cost as a public distributed ledger where there are a small number of updates relative to the number of enquiries. There is a lot of work to do to make the public distributed ledgers a practical and scalable proposition. However, there are opportunities for permissioned community distributed ledgers where there is an existing element of trust among the community.
The difficulty with any new technology is to distinguish the hype from the real value generating applications. KuppingerCole has created research into this subject:
- Advisory Note: Demystifying the Blockchain – 71555 – KuppingerCole
- Advisory Note: Blockchain Impact on the Financial Industry – 71601 – KuppingerCole
To find out more on this subject attend the Blockchain event in Paris on March 9th: How Blockchain Will Influence Your Business – KuppingerCole
