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The struggles of the blockchain industry are, after a fashion, reminiscent of the latest storylines in HBO’s TV series Silicon Valley, in which Pied Piper, the comical representation of your typical tech startup, goes against Hooli (aka Google, Facebook, Amazon, etc.) with its esoteric plan to create a decentralized internet.
In response, Gavin Belson, Hooli’s evil chief executive, hires every distributed systems developer in the Bay Area to prevent Richard Hendriks, the CEO of Pied Piper, from fulfilling his vision, because as one of those developers justly points out, “Once he builds that internet, he’s gonna render Hooli’s entire web-based ecosystem completely obsolete.”
In this context, Google’s recent announced that it is developing its own blockchain-related technology, which might sound odd. You would naturally expect big cloud companies to do everything they can to prevent blockchain, a technology that poses a serious threat to their business model, from taking root. So why would a company that makes billions of dollars from its cloud business endorse a technology that many believe obviates the need for the cloud?
The cloud and blockchain can coexist
Contrary to what many of its advocates like to say, blockchain does not necessarily come at the price of destroying traditional businesses “There are excellent ways for centralized businesses to adopt the transparency, security and open source nature of blockchain technology,” says Jesse Leimgruber, cofounder of Bloom, a blockchain-based credit scoring platform
Blockchain is surely a revolutionary technology with many interesting applications. But the technology is still struggling with many challenges, one of the most prominent being the storage of large data. Every record stored on the blockchain must be replicated across thousands of computers. The bitcoin blockchain, which only records monetary transactions, has currently reached more than 150 GB. A blockchain that would store bulk data such as images and videos would quickly fill terabytes of storage on each device that would host it.
Another point to consider is that blockchain is immutable, which means once you store information on it, you can never remove it. This is in fact one of the strengths of blockchain and makes it a very effective technology in preventing fraud and data tampering. However, the blockchain’s immutability can become problematic in some scenarios. For instance, if you store sensitive personal information on-chain, you’ll never be able to delete it and must indefinitely protect the encryption keys that will decrypt it.
That’s why many blockchain solutions use a combination of off-chain and on-chain technologies. For instance, Blockstack, one of the startups that provides a platform for creating decentralized applications, enables users to encrypt and store their data on the cloud while storing the encrypted hash value of their data on the blockchain. This mixture provides a middle ground where users get the speed and flexibility of the cloud and the security and transparency of blockchain.
In this regard, becoming involved in the blockchain space might enable Google to prevent blockchain startups from disrupting parts of its business. But publicly showing interest for blockchain might serve other purposes.
Giving users back the ownership of their valuable data
Google’s announcement comes at an opportune time. Facebook is still reeling from privacy scandal that has cast doubt and frustration over the way centralized businesses handle user data, and Google has to contend with its own raft of privacy woes.
Blockchain provides a solution that allows users to own their data and control who gains access to it and relieves companies of the burden of storing, handling and protecting user data. An example is VALID, one of a handful of blockchain companies that gives users a digital wallet for their data to which they hold exclusive rights. Only a wallet’s owner can decide to share or sell the data it contains as opposed to deferring the decision to the likes of Google and Facebook.
“The main and most important difference is that we don’t handle data,” says Daniel Gasteiger, cofounder and CEO of VALID. “Rather, we provide the infrastructure for individuals to store their data securely and share it with a selected counter parties in a fully controlled fashion. You don’t need to be a user of Google or Facebook specifically.”
Google’s endorsement of blockchain might signal a move toward providing users with more privacy and ownership of their data. But it’s not clear how far the company will be willing to move down that path. Integrating blockchain into its business model will clearly come at serious cost to its advertising business, which relies heavily on collecting, mining and monetizing users’ data.
“Depending on where you live, your personal data can be worth upwards of $100 per year, or more. Experian, Equifax, Transunion amassed over $10B in revenue from the sale of personal information,” says Bloom’s Leimgruber. “Facebook, Google… these businesses make huge revenues off of owning your data, selling your data. You can’t opt out.”
Bloom vision is creating a decentralized version of Equifax and Experian that gives users back the control and monetary value of their data. Bloom uses the blockchain as a transparent chain of evidence to register the events that establish a user’s credit worthiness and prevents any centralized provider from holding exclusive rights to make credit decisions. Users decide how their data is sold, preventing big companies from making money from their data.
Leimgruber believes that companies like Google will have to come to terms with the tradeoffs blockchain presents to their business model and look at the long-term gains. “Blockchain technology makes it possible for people to rightfully own their data,” he says. “Businesses can run as they normally do, but give some power back to the people. If anything, this give-and-take could even give them more support, more power.”
Preventing data breaches and security incidents
Bloom is also banking on the security capabilities of blockchain to protect its users’ data from massive data breaches that threaten its centralized counterparts. “The very nature of Blockchain is that you do not need to trust anyone,” Leimgruber says. “If Google were to adopt portions of decentralization, customers can know that their information is safe, protected.”
With upcoming regulations such as GDPR, organizations will want to make sure the heavy fines over failing to protect user data or mishandling it. If employed properly, blockchain can prevent massive data breaches from happening. So, for example, while hackers were able to steal 143 million records from Equifax or 57 million user profiles from Uber in one big swoop, in a service running on blockchain, they would have to hack each record individually.
“The risks associated with centralized storage and processing of data has been long known but the lack of availability of technological tools to enable decentralized storage and processing of data in an economic fashion has deterred the mainstream adoption of such solutions,” VALID’s Gasteiger says. “We are now seeing a number of decentralized solutions which could challenge Google’s business model. Thus, it is quite logical that Google explores such technologies to remain competitive.”
What will happen to the startups?
Google’s move might make it harder for blockchain startups to compete in the space, especially as the search giant joins other large cloud companies such as IBM and Amazon in endorsing distributed ledger technology.
But experts agree that the involvement of Google and other larger players can help propel the blockchain industry forward. “We’re excited to see big players joining the space, advancing the technology, and adopting the latest innovations,” Leimgruber says.
“The investment from Google and others will surely advance the tech and they have provided some good research solutions to common problems in the past, so overall the investment will probably be a good thing,” says Jed Grant, founder of Peer Mountain, a decentralized identity and data management platform.
But Grant also acknowledges the threat the involvement of Google and other large tech companies will pose to startups. “Google and the others will try to shoehorn solutions into their existing business models and will want startups to use their services in order to lead to long term dependencies on this,” he says.
Peer Mountain is also using blockchain to give users more control and flexibility in using their data across platforms, something that goes against the current practices of big tech companies. Should Google and other tech giants take a similar direction, it could prove detrimental to their business.
Leimgruber, however, foresees a future where centralized and decentralized business models can coexist. “Blockchain alone doesn’t prevent centralization from happening. There are many private blockchains, and countless private add-ons to public blockchains that allow businesses to keep control,” he says. “Though, with the right setup, you can have the best of both worlds.”
Meanwhile he doesn’t see a Google blockchain anywhere near in sight. “Blockchain is in its infancy. Even the most robust protocols struggle to support even basic applications,” he says. “The technology will need to mature substantially before a business the size and scale of Google will be able to adopt it for the bulk of their operations. It’s getting there, but I foresee many more years of work.”
