The magic trust machine

What if somebody invented a technology that could make large parts of society's main institutions and authorities obsolete? A new revolutionary set of solutions that create cheap, safe, and democratic alternatives to outdated, bureaucratic, expensive, and non-transparent establishments and commercial monopolies? A new paradigm where we no longer need to trust big organisations and businesses, but where the trust instead is embedded in decentralised and democratic system? 

This technology exists today. It is called blockchain (or “distributed ledgers”) and smart people believe that the technology has the potential to disrupt society and businesses even more than the introduction of the Internet itself. From revolutionising key industries to creating an opportunity to redesign major part of the public sector. It sounds like science fiction but it is turning into reality as you read this.

Satoshi Nakamoto

The history starts straight out of a cyberpunk thriller by William Gibson – On October 31 2008 somebody, using the alias Satoshi Nakamoto, published a description of a revolutionary online payment system, a so-called cryptocurrency. The system was called Bitcoin and it was based on a technology called Blockchain, which made it possible to conduct safe, instant, and free payments worldwide without any involvement of traditional banks or government authorities. The decentralised system is run by thousands of networked computers using open-source software that in combination ensure stability, transparency, and accountability. The Bitcoin system was turned on the following year and the first money transfer happened on January 12 2009. Since then, the system has escalated tremendously and today the total value of Bitcoins exceed 10 billion dollars.

But Bitcoins and other cryptocurrencies are only one of numerous areas where the underlying blockchain technology threatens to revolutionise old business models and corporate monopolies.

When uniqueness is important

The majority of the new successful services and products, which has been accelerated by digitalisation and the Internet through the last couple of decades, were characterised by the fact that they explored the possibility of creating digital replicas that are exact copies of the original – from mpeg3 music files and digital movies to e-books and online media news. Digitalisation makes it possible to create 100% exact copies at an almost non-existent cost, which has revolutionised the software, media, and entertainment industries.  

But there exist services and areas where it is of vital importance that you can’t make an exact copy, give it away and keep the original. This goes for payments, where you can go to jail if you pay with a dollar bill but keep an exact copy of the same bill, or when buying a house in which case it is important that there is only one owner with a deed to the property. Or with a university diploma, which should only be used by the person who actually passed the exams.

The demand for verification of unique identity and originality is essential in numerous situations, and these are the conditions where the blockchain technology has a potential. Take a piece of paper and spend a few minutes noting down a list of circumstances where originality and identification is important – it quickly becomes a long list: car ownership, buying property, getting a passport, all forms of accreditation, educational diplomas, all kinds of public benefits and support, marriage certificate, birth certificate, getting a loan, insurance, lending a book at the library, voting, medical files, product warrants, permits, military records, etc.

In the past we left it to public or private authorities to handle the question of originality and identity – the police issued driving licenses, the church marriage certificates, and the banks lending documents. In return for the verification of identity and originality we accepted bureaucratic processes, long waiting time, and high fees. Blockchain technology has created the potential for replacing all these old authorities partly or completely with distributed software that delivers the same services simpler, faster, and almost free of charge. With bitcoins it takes a few seconds for two persons on different sides of the planet to exchange funds for free, the same service at a traditional bank will, in most cases, take several days and the bank will charge you a substantial fee.

The Magic Trust Machine

The magic about blochchains is that advanced cryptography makes it possible for us to exchange our old trust in institutions and corporations with trusting a collaborative distributed system. It is in fact must more difficult (close too impossible) to tamper with a blockchain-based system compared to hacking into a government institution and manipulating with an exam grade or your medical records.

Despite that the technology is already available today, blockchains will not change the world tomorrow. The institutions challenged by the technology, are some of the largest and most resourceful on the planet, and they will not hand over their positions and privileges without a struggle. It will take decades before we will be able to fully understand the impact of blockchains. But there is a lot of activities already today – major banks throughout the world are investing heavily in this area (some through the R3 platform, and in Silicon Valley countless millions are being invested in start-ups that try to explore the opportunities. I think that the most interesting aspects will be to see how governments are going to react – blockchain has the potential to help us create a more efficient, more transparent, and more democratic public sector.

Thanks to professor Michel Avital and the participants at the September 22 blockchain symposium in Copenhagen for inspiration.