Last updated April 25, 2018 at 10:16 am
The barnstorming arrival of Bitcoin has thrust blockchain technology into the spotlight, but there’s a lot more to that story than just modern money.
Whether Bitcoin is a game changer or merely a headline grabber remains to be seen, and the ultimate verdict will probably be more about politics than either economics or technology.
The bigger issue for those more interested in the technology than the politics is what else we can do with what makes cryptocurrencies such as Bitcoin and Ethereum work.
A system that can allow money to be safely transferred can also, in theory, be used to execute contracts, distribute confidential documents, maintain and monitor supply chains or ensure free and fair elections.
At the heart of such as system is blockchain technology, although even that requires some discussion.
It is generally accepted that what we call blockchain technology was invented by a person (or possibly an organisation) called Satoshi Nakamoto specifically to allow him (or it) to create and launch Bitcoin as long ago as 2008.
What Nakamoto did, according to Dr Mark Staples from CSIRO’s Data61, was to “configure and integrate a whole lot of technologies in an interesting way”.
“A lot of the foundation technologies – cryptography, distributed systems – have been around for some time,” he said.
“Bitcoin was the first to bring them together in a way that is known as blockchain technology, but the more general term – terminology’s not really a settled issue in this area yet – is distributed ledger technology.
“The view emerging is that a blockchain is one way of implementing a distributed ledger; but there are other, non-blockchain DLTs as well.”
The ‘block’ in blockchain
The name is descriptive, to a point. “Block” refers to the fact that individual transfers are not dealt with in isolation but as part of a block of what might be completely unrelated activities.
“Chain” refers to the fact that each block is linked to its immediate predecessor. The key to the system – and the most complicated bit for non-techies – is the rigorous verification process.
In the case of public block chains such as Bitcoin and Ethereum, this work is done by “miners”. Anyone can become a miner and try to contribute to the operation of the network.
They compete for the right to complete a block and earn the transaction fees as their payment.
“It’s competitive and that’s the point; it’s not in the hands of one particular party,” Staples says.
“You don’t have to trust any single person or organisation, you just have to trust the market incentives that work in this highly competitive environment.”
It’s referred to as tamper-resistant. The hash function takes some digital data and turns it into a long number that looks random.
You can’t work backward from that number to the original contents and if you change even one bit in the original contents you’d get an entirely different hash number. This hash number becomes like a signature of the previous block. Every block is building on the integrity of all the previous blocks.
Just how tamper-resistant people consider this is will likely be one of the determining factors in how mainstream cryptocurrencies become.
What interests the CSIRO is the potential in enterprise or industrial settings where the blockchain might be run by a collective with legal or contractual obligations to each other, rather than relying on market incentives.
“Our focus has been on looking at blockchain as a technical infrastructure or platform; understanding from a technological point of view how you should best use it in the design of a system, what sort of functionality is it good for and what’s its performance is like,” Staples says.
“How is system availability affected by using a blockchain? How do you manage security and identify on blockchains? How do you use it in specific industries? How do you use it to support registries or support supply chains?”
Staples and his colleagues have released two complementary reports into the future of blockchain technology that are well worth reading. As well as trying to answer some of the questions raised above, they give a succinct overview of how the technology works. You can find them on the Data61 website here.
One of the reports notes the following: “The challenge for new technology platforms, and integrity processes, is to clearly describe what they are going to do, and deliver on this benefit.
“Distributed ledgers exist in an ecosystem of other technologies that must also deliver on this promise. For example, a crucial component of these systems is the use of private cryptographic keys to identify users, and control access.
“Losing control of these keys would invalidate trust in the system.”
Risks and challenges
There are clearly risks and challenges, not the least being how much the technology might change as it develops and the market seeks to maximise returns.
However, Staples and his colleagues are very positive about the potential in areas such as supply chains.
“It is one of the domains where people are seeing a lot of promise for blockchain,” he said.
“You get this unalterable history and record that everyone in the supply chain can check. It’s not owned or operated by a single party.
There is no single natural owner for a supply chain. In that sense the structure of the blockchain suits the very distributed nature of the supply chain.”
The question remains, of course, whether Bitcoin’s very public emergence has helped or hindered the broader development and acceptance of blockchain technology.
Staples suggests it’s a bit of both.
“Certainly Bitcoin has raised the profile of the technology, but on the other hand a lot of the blockchain applications don’t necessarily involve cryptocurrency and there’s a lot of acknowledged technical limitations with Bitcoin that aren’t necessarily limitations of other blockchain deployments.
“Sometimes there are perceptions about what blockchain can do that aren’t true because people are only thinking about Bitcoin.
“The stories you hear about blockchains using vast amounts of electricity, for example, are currently true of Bitcoin and Ethereum but ultimately it doesn’t have to be true of other uses. And the public blockchains are addressing that.”