Blockchain was created around a decade ago as the public, distributed ledger for the Bitcoin cryptocurrency. Most everyone agrees that it’s a truly brilliant architecture, built on decades-old fundamental research in cryptography, distributed data, distributed computing, game theory and other advanced technologies. When it first came to light, blockchain had no broader goals beyond supporting Bitcoin. But, as was the case with the Internet and World Wide Web, blockchain soon transcended its original objectives.
In 2016, blockchain made the list of the World Economic Forum’s Top Ten Emerging Technologies. The WEF report compared blockchain to the Internet, noting that “Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built. And like the Internet, it allows people to bypass traditional intermediaries in their dealings with each other, thereby lowering or even eliminating transaction costs.”
That same year, blockchain made its first appearance in Gartner’s yearly hype cycles, where it’s remained for the past three years. In 2017, Gartner noted that “blockchain might seem like it’s just around the corner. However, most initiatives are still in alpha or beta stage… Long-term, Gartner believes this technology will lead to a reformation of whole industries.”
In a recent article in the MIT Technology Review, associate editor Mike Orcutt succinctly summarized the current state of blockchain: “In 2017, blockchain technology was a revolution that was supposed to disrupt the global financial system. In 2018, it was a disappointment. In 2019, it will start to become mundane… After the Great Crypto Bull Run of 2017 and the monumental crash of 2018, blockchain technology won’t make as much noise in 2019. But it will become more useful.”
Most potentially transformative technologies go through the kind of adoption cycles that Orcutt has (metaphorically) compressed into three years. Has there been too much hype surrounding blockchain? Absolutely. Quite a bit of that hype has now turned into disappointment, – perhaps outright disillusionment, – as people realize that blockchain is still in its early phases of adoption, and much remains to be done if it’s to successfully transition from early adopters to mainstream markets. The key question is whether experts still believe that, over time, blockchain has the potential to become a truly transformative technology. And, with few exceptions, the answer is positive.
Decades ago, the great science fiction writer Arthur C. Clarke famously said that any sufficiently advanced technology is indistinguishable from magic. I still remember the feeling of magic when the Internet first took off in mainstream markets in the mid 1990s. People talked about the emergence of a whole new Internet economy. Clicks and eyeballs would now replace old-fashioned business models based on revenue, profit and cash. Cities would decline, as people could now live, work and shop online from their more relaxing, affordable outer suburbs or small towns. As the dot-com frenzy picked up intensity, all kinds of startups were brought to market, – some quite innovative and some rather silly, – many of which did not survive the dot-com crash.
A new Internet-based digital economy has indeed emerged over the past couple of decades, but, as is generally the case, it’s taken a lot more time and investments than originally anticipated, – as well as major additional innovations, such as smartphones, IoT, Big Data and cloud computing. A similar story can be told about electricity, the internal combustion engine, and now artificial intelligence.
Pilots will go into production. The article cites the example of Walmart, which is wrapping up a two-year pilot project with IBM on the use of blockchain-based ledgers to manage the supply chain of food projects from farm to shelf. A few months ago Walmart announced that by September of 2019, all suppliers of leafy green vegetables to its Sam’s and Walmart stores are required to input detailed information about their food into a blockchain database, so it can better keep track of its massive distribution network for fresh produce. Over 100 Walmart farm suppliers are expected to participate.
Tracking the source of produce is today a labor intensive, manual process. In an experiment conducted by Walmart, it took its employees seven days to trace the source of sliced mangoes and locate the specific farm in Mexico where the fruit was grown. With blockchain, the source of the mangoes could be tracked in a matter of seconds.
The new technology will help Walmart “pinpoint the sources of food-borne illnesses much faster than it can today, which could save lives as well as money. A recent E. coli outbreak affecting romaine lettuce killed five people, according to the Centers for Disease Control, and forced Walmart to throw out every bag until it located the source.”
The article also mentions that two blockchain-based platforms will soon go into production to support the management and trading of digital assets. In August of 2018, Intercontinental Exchange, the parent company of the New York Stock Exchange, announced its plans to create a new company Bakkt, to enable consumers and institutions to safely buy, sell, store and spend digital assets. And, a few months later, Fidelity announced the creation of Fidelity Digital Assets, a full-service, enterprise-grade platform for storing, trading, and servicing digital assets.
Real-world smart contract applications. Beyond the management of distributed ledgers and digital assets, blockchain platforms are being designed to support distributed applications based on the concept of smart contracts, that is, programs that are automatically executed when a set of pre-specified conditions are met. Once agreed upon and stored in a blockchain, smart contracts are irreversible, and are intended to digitally guarantee the enforcement of a contract between two or more parties, thus reducing the need for intermediaries.
But, as Orcutt points out in a second recent article, “before smart contracts can do anything really useful, they need a reliable way to connect with events in the real world.” For example, a flight insurance policy that automatically pays out if a flight gets canceled is an example of a simple smart contract application. However, such an automated flight insurance application requires a trustworthy source of flight data, otherwise hackers could feed it fraudulent data and claim payouts. This problem is now being addressed by companies like Chainlink, a startup that’s developed a tamper-proof system that securely feeds the necessary data to smart contracts on a blockchain.
Legal applications are another potentially important area for smart contracts. A number of companies, such as Open Law, are looking to reduce the costs and frictions of creating and enforcing binding legal agreements by embodying all or parts of the agreement in a smart contract. Established firms as well as startups are seriously exploring how to incorporate smart contracts and other blockchain technologies into their core legal practices.
State-backed digital currencies. Bitcoin began life as a kind of techno-anarchist project to empower and protect individuals who shared a deep distrust of governments and large companies. It aimed to create a universal currency and an alternative global financial system not subject to interference from governments or banks. Some of its strongest supporters hoped that, over time, Bitcoin would replace traditional fiat currencies and become the world currency.
So far, it hasn’t quite worked out that way. But, a number of central banks are taking a serious look at embracing some of the technologies pioneered by Bitcoin and launching their own national digital currencies. There are a number of reasons for this trend, including the shrinking role of cash in our increasingly digital economy; the potential to reduce the costs of managing and replacing physical banknotes; better security, privacy, and consumer protection; and the ability to better reach the hundreds of millions around the world who don’t have a bank account or access to financial services.
This is, in many ways, “the opposite of the revolution the original cryptocurrency pioneers envisaged,” notes Orcutt in conclusion. “But revolutions don’t always unfold the way the revolutionaries had in mind.”