Blockchain: it’s a buzzword that drives stock valuations and headlines. But under the hype, there is real potential. Tomicah Tillemann, a leading expert on the technology, explains why it could transform everything from standing in line at the DMV to the fight against global corruption.
Octavian Report: What is blockchain and how does it work?
Tomicah Tillemann: At its core, blockchain is a record and a record-keeping system. And humanity has been using record-keeping systems for a long time, since the days of the Sumerians — about 5,500 years. So in that sense it's nothing new. However, blockchain combines two attributes that have never been part of a single record-keeping system previously. And in doing so, it enables organizations to do things that we've never been able to do previously.
The first distinct attribute is that it is distributed. In the case of large public blockchains like the Bitcoin blockchain, it's held simultaneously on thousands of computers around the world. Those computers are constantly checking each other to ensure the accuracy of the information contained in the record. And they are also checking to ensure that only authorized entities are allowed to add information into the system. There's a high degree of security and a very high degree of transparency as you take advantage of that distributed functionality in blockchain.
The second attribute of the system is that it's permanent. In the case of most blockchains, once you put information in, it's easy to update that information. But it can never be erased. And that provides a much higher element of accountability than has been present in most record keeping systems throughout history and creates some big advantages in terms of the ability of governments and financial institutions to ensure that transactions are recorded accurately, that vital records are preserved and maintained in the way that they should be. It helps citizens have the confidence that they need in the organizations maintaining the facts that constitute the base layer of our reality and provides a much firmer foundation on which companies can do business and individuals can go out and live their lives.
OR: Can you give a concrete example of how blockchain could improve a process within, say, a major bank?
Tillemann: Almost two decades into the 21st Century, clearing a check in the United States still takes days and days and days. That's surreal when you think about it: we've been able to solve so many other problems, but the process of clearing and settling financial transactions is still very slow and (in the case of, for example, international wire transfers) extremely expensive. These are problems that should be solved by now and they're not.
Blockchain provides a very compelling solution. We are seeing a number of financial institutions and banks join blockchain consortia where they share information and are able to dramatically accelerate the speed at which they can settle transactions and payments and have a much higher degree of confidence in the transactions that they are processing. The beauty of blockchain for financial institutions is that the trade is the settlement. The transaction is the settlement. And once it's recorded, because all parties on the network can see that transaction, it's instantly finalized and written into the record that serves as the core of the system.
OR: What happens if someone's forgetful grandfather loses their blockchain key and is closed out of a transactional system?
Tillemann: At their core, blockchain and especially large public blockchains like the Bitcoin blockchain are extremely secure. They are arguably the most secure systems that humans have ever developed. And the underlying technology of the Bitcoin blockchain has never been compromised. So there are a host of very profound security reasons to adopt blockchain technology. Many of the solutions that have been deployed to date are dependent on individuals maintaining custody of the keys that they use to gain access to whatever assets are stored on a blockchain. That is critically important in the solutions that have been deployed thus far.
But there are a number of alternative configurations. The most prominent of which is the largest exchange, a firm called Coinbase, where those keys can be restored if they are lost. And there's something of a theological debate among certain corners of the blockchain community right now about which solution is the right solution in order to scale the technology more broadly. My assumption is that you're likely to see both configurations take hold in different applications. Ultimately, it will be very important to develop mechanisms for restoring lost keys. Some of that work has already been done, but I would anticipate that there will be a lot more progress in that area in years to come.
If you put blockchain in internet terms, right now we are maybe in 1993 or 1994. So these are the very early days of adoption. Many of the most exciting developments are still a few years out. But that work is underway and it's progressing very quickly.
OR: Where are we going to see enterprise-scale adoption blockchain over the medium term?
Tillemann: We're already seeing wide-scale adoption in the finance sector. We are also seeing some very compelling applications in supply chains. There are a number of firms like Walmart that are deploying the technology at scale. We're also seeing some fascinating use cases emerge at a more boutique level that provide an indication of where blockchain would take us. One example is a Dutch coffee company called Moyee. They have developed a very highly integrated blockchain-based supply chain that is so good that if you walk out of one of their coffee shops in Amsterdam and you like the cup of coffee you're drinking, you can tip the farmer that produced the beans in your cup of coffee using your digital token.
That level of transparency and accountability is something that we haven't had access to previously in our systems. And it certainly has the potential to create a really positive set of incentives for players and different layers of the value creation process.
OR: What is your sense of how wider adoption might reshape the contours of everyday life?