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Inside, confidential and off the record

The truth about blockchain

Reuters / Dado Ruvic

Recent crypto-currency failures — ranging from this year's $500 million heist of Japan's
Coincheck to the 2016 hack of The DAO, a kind of decentralised venture capital fund –
also undermine the idea that blockchain is more secure than other giant honeypots of data.

HONG KONG - These days, the innovation known as blockchain is almost always mentioned in association with two things. First, as the technology that underpins bitcoin, and second as the brainchild of Satoshi Nakamoto, the anonymous person – or persons – who issued the white paper that supposedly spawned the crypto-currency.

In fact, the concept of a distributed record of digital transactions is older, and has many broader applications. That is easy to forget as bitcoin's wild price swings seize headlines and startups raised almost $1.5 billion by issuing digital coins in the first seven-and-a-half months of 2017. The decentralised aspect of the technology is the existential question where it begins, Michael Casey and Paul Vigna argue in “The Truth Machine: The Blockchain and the Future of Everything”.

As early as the 1990s, proponents of what became blockchain technology began proposing an alternative status quo, in which individuals could control cryptography. For these so-called Cypher-punks, the idea had revolutionary appeal. A database that can record anything of value across a peer-to-peer network of computers provides an immutable record that can't be disputed or altered. This was obviously attractive to libertarians eager for a world free from the shackles of big government and other central authorities.

Casey, a senior lecturer at the MIT Sloan School of Management, and Vigna, a reporter for the Wall Street Journal, don't simply tell the story of bitcoin. They entreat the reader to take a deeper look at the myriad applications of blockchain – the digital truth serum of their title. The book describes the ways in which the technology has the potential to upend the way we think about real estate, disrupt supply chains, and confer property rights to the unbanked.

The authors share some wondrous examples. In Jordan, the United Nations World Food Programme's Azraq blockchain pilot is coordinating food distribution among 10,000 Syrian refugees. Meanwhile, MIT Media Lab's Digital Currency Initiative, together with the Inter-American Development Bank, is giving Latin American farmers the ability to obtain credit from commodity warehouses backed by blockchain-proven records. More mundane applications include services to remit payments across borders, as well as startups developing cryptographically secured, anonymous currencies.

The virtues of blockchain stand in contrast to the big tech titans which control – and sometimes abuse – personal data, as the latest Facebook privacy row aptly demonstrates. The authors argue that a blockchain solution for social media would be one in which digital tokens are issued and posts are vetted by users, producing a world of only high-quality content. A truly decentralised solution applied across a huge cross-section of industries would allow self-governing individuals to act as their own economic agents and reclaim the rights to their data.

However, it seems fanciful that this idea could achieve the necessary critical mass, especially as users become increasingly reliant on existing platforms. Besides, a sense of interconnectedness is central to social networks' original appeal.

For all the supposed virtues of decentralisation, most blockchain-based solutions remain embryonic. And those nascent projects that are under way are hardly problem-free. Decentralising anything takes work, and consumer habits are difficult to change. Moreover, there are deep reasons why human beings entrust financial records, medical information, and other sensitive data to custodians and government bodies.

In the world of finance, we may grumble at fee-charging institutions and the onerous process by which money is transferred and cleared. But securing assets with a private alphanumerical key that can be lost also has clear drawbacks. Recent crypto-currency failures — ranging from this year's $500 million heist of Japan's Coincheck to the 2016 hack of The DAO, a kind of decentralised venture capital fund – also undermine the idea that blockchain is more secure than other giant honeypots of data.

Then there's the question of which organisations are applying the technology. As the authors acknowledge, some of the major experiments in blockchain are now – somewhat paradoxically – run by the original gatekeepers whose power it was supposed to curtail. Financial institutions like JPMorgan and Accenture have spearheaded projects such as the Enterprise Ethereum Alliance, which offers enterprise-grade software. Tokyo-based online brokerage Monex on Friday announced it would acquire the embattled Coincheck.

Meanwhile, China has established a blockchain research institute and mused about issuing a sovereign digital currency, even as it bans offerings of private tokens. Dubai says it wants to put the entire government on blockchain by 2020. Most recently, International Monetary Fund Managing Director Christine Lagarde argued that authorities could “fight fire with fire” by using blockchain innovations to help regulate crypto-assets.

Surely, this is not what the original Cypher-punks had in mind. While some might fantasise about a world in which self-governing individuals are the sole architects of transactions, a more likely outcome is that intermediaries and traditional gatekeepers will remain involved. Perhaps we are not ready to do away with trusted intermediaries. Perhaps we never will be.

Sharon Lam / Reuters Breakingviews / April 06, 2018

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