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Tomicah Tillemann on the future of blockchain

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?

Tillemann: The best portal into the future that I’ve seen is the country of Estonia. Estonia has the world’s most advanced e-governance systems. Every citizen has a digital identity that exists alongside their analog identity. And they’re able to use that digital identity to engage in virtually all of the transactions and processes that we all spend time pursuing on a day-to-day basis. What that means is that for an Estonian, the idea that you would have to stand in line and physically visit the Department of Motor Vehicles to get your driver’s license renewed is laughable. The idea that you would have to go to a polling place to cast your vote is adorable to them. They vote from their mobile phones.

Estimates are that Estonians save hundreds and hundreds of lifetimes of time by virtue of having these systems in place. And the beauty of blockchain is that like Estonia’s systems, which are used not only by the government — and governments will be among the largest users of blockchain systems going forward — is that you’re able to decrease the price of trust and reduce the amount of friction that citizens encounter in their day-to-day lives.

Every time you fill out a form to validate your identity, in the future you instead will be able to rely on a nearly instantaneous blockchain solution. Every time you have to gather up documents to prove something to a lender or a financial institution, you’ll be able to rely on a nearly instantaneous blockchain solution. Every time you need to use or share medical records, rather than having to wait through an arduous process of having those records shipped from one service provider to another, you’ll be able to use a nearly instantaneous blockchain solution. Citizens should experience the improvements in their lives pretty quickly.

OR:  How will all this change the global economic and security terrain?

Tillemann: Let’s take the economy first. I would say that if your organization profits off of efficiency and accountability, blockchain could be the best thing that ever happens to you. And there will be really profound opportunities for companies and firms that derive their profits from improving efficiency and accountability to harness this technology in ways that we haven’t even imagined yet.

The flip side of that is that if your company or organization is based on friction — and there are a lot of great organizations that are based on friction, serving as the middleman or taking a transaction fee on someone else’s business — then you need to start looking at your business model pretty quickly and ensuring that you have a strong value proposition that will hold up. Because this a technology that will significantly reduce the amount of friction that is acceptable in any business process or any supply chain.

On the security front, this could be one of the most important tools ever developed for combating corruption. If you look at the numbers provided by the United Nations, corruption is roughly a three-trillion-dollar-a-year industry. It’s also one of the world’s primary drivers of political instability. As blockchain systems are adopted, the increased level of accountability and transparency that they provide should make it dramatically more difficult for actors to engage in malfeasance or for the regular inefficiencies of government to get in the way of doing their work.

I’ll give you one domestic example from the U.S. The Treasury Department, by its own admission, makes about $144 billion in improper payments annually. That’s money that goes out the door that should not go out the door for a variety of reasons. And they’ve looked at this and started to recognize that blockchain solutions could address the preponderance of that improper spending. This is a technology that will have huge implications in frontier and emerging market settings. But it will also, I think, play a pretty important role in restoring efficiency and trust in institutions and countries like the United States where confidence in our existing structures is waning. And it could help reverse that decline.

OR: What are the major misconceptions about blockchain that you see in analysis of it?

Tillemann: A friend of mine was speaking at the World Bank recently and said, “There is a misconception that all of this is going to happen soon. The reality that it’s happening right now.” For those governments and organizations that are taking a wait-and-see approach, it is now time to get off the sidelines and to engage because this is moving much more rapidly than the development of the internet did a generation earlier. You don’t want to be left behind.

The second misconception is that you need to understand every technical detail surrounding blockchain before you can understand how it can help your organization. Like many of the internet protocols that emerged a generation earlier, what stakeholders and citizens will ultimately care about is the ability of this technology to improve their lives and deliver higher levels of security, accountability, efficiency, and transparency. And once you get the basics, then you’re going to be in a pretty good position to identify ways in which blockchain can help your company or your country pursue those objectives.

The biggest hurdle to adoption of blockchain technology is a lack of education. And there is a bit of a high barrier to entry around blockchain: it does require a leader to take an hour to and sit down and read a few articles to understand what the technology is and what it can do for them. But with the investment of an hour or two, they can be in a position to really harness one of the most important new tools that’s emerged since the founding of the internet.