Blockchain has been the investment phenomenon of the decade. Investors are scrabbling to get in on the action and many recently established agencies are already overcommitted. Troy Norcross, a regular mentor and advisor at Innovation Warehouse, has spent the past year working the Blockchain and cryptocurrency space. He explains where Blockchain has come from, what it’s really good for, and where the industry is headed.
In layman’s terms, what actually is a Blockchain?
I always tell people to start out with an Excel spreadsheet in their head. In that sheet, you could put a lot of different kinds of data. In the case of Bitcoin, it’s transactions of so much currency from account A to account B. Those individual rows are added in groups.
A group of rows is called a ‘block’. Once a block is added, the Excel sheet is turned into a protected cell, meaning you cannot edit or change it. I now give this Excel sheet to thousands of people, which means that if I manage to crack and edit my copy of the sheet, everyone else will know something isn’t right because mine doesn’t match the others. We can all see it.
That’s where the transparency comes from?
Exactly. Now, just as some Excel sheets have macros in them, some Blockchains have ‘smart contracts’. A macro and a smart contract are nothing more than a simple piece of code that operates on the data contained within the Excel sheet or Blockchain. In the simplest terms, that’s what it is, but it helps people understand what you should and should not put onto the Blockchain.
You would never put the entire Game of Thrones video collection into an Excel sheet. That would be like trying to drop terabytes of data into a single cell. It doesn’t belong there. You would not try to put that on the Blockchain for the exact same reason. You’d put a reference to Game of Thrones on the Blockchain, but not the whole video itself. Because then thousands and thousands of people would have a copy of Game of Thrones and it would be wasted space.
Similarly, I wouldn’t put trillions of individual transactions, such as ad impressions, into an Excel sheet or onto the Blockchain. It won’t scale. I would put a consolidation of the information about those trillions into a single entry and I would store that.
What else is Blockchain good for?
Blockchain is so much more than cryptocurrency. You can do voting; identity; supply chain management; provenance; fraud; insurance. There’s a company that says that supply chains can be insured more effectively if they’re on the Blockchain because the insurance company can see the full chain.
Think about a bale of organic cotton pulled out of the field: I put that on a Blockchain, then sell it to people that will turn it into ten bolts of fabric and I get some cryptocurrency in return. If the company then sells 12 bolts of organic cotton fabric, where did they get the other two bolts? Or if they only make five bolts of fabric, what happened to the other five bolts of organic cotton? Did it fall off the back of a truck? Was it wasted and end up on the floor?
Blockchain adds transparency to the supply chain. For some people that’s a really good thing.
And for others, not so good?
Transparency is not always profitable. Let’s take advertising – rather than imagining a bale of cotton, think of a given supply of ads available on the Financial Times and an available readership.
Some ad brokers might try to sell that Financial Times inventory over and over and over again. They can’t do that if the ads are put onto a Blockchain. Only so many people and so many impressions will ever be displayed.
You can also put identity onto a Blockchain in such a way that I can ask if you are over 18 years old, and the Blockchain will answer without responding with your birthdate. The Blockchain would know your birthdate and whether or not you are over 18, and someone could query the Blockchain and receive an authoritative answer – without actually revealing your actual date of birth.
People can trust the information stored in the Blockchain from when it was originally produced.
What might be the next big step for Blockchain? Could it have a broader impact on society?
What’s starting to become evident is that companies will not build Blockchains, but industry associations will. One project I’m watching very closely that is active in the US is called Blockchain in Transport Alliance (BITA). It’s an industrial association that includes Fedex, UPS and many others.
The product was actually built and originated by Accenture, and all these individual transport companies are going to connect to a Blockchain to share information about trucking, capacity, package location and bills of lading. That’s where it will get really interesting, because it’s going to make multiple distrusting parties connect in a publicly shared database.
Most companies may as well just use a database. That would be far simpler and more efficient for the majority of applications if you’re only going to use it yourself. But if you’re going to plug into every trucking company – including your competitors – that’s a good case for a Blockchain.
Is Blockchain already present in a financial context?
Lots of small pilots are starting to take place. One of the things that people say is: “Transactions will be instant, instant, instant”. But there’s still a human factor involved in CTF, KYC and AML compliance that’s not going to be instantly cured because it’s on the Blockchain.
You still have to check the source of the funds, where they’re going, the capital risk or capital flight requirement into or out of whatever country it’s destined for. At the moment, that’s still a very human process.
So you expect Blockchain to cause gradual change rather than an overnight revolution?
First, we have to figure out what it can and cannot do – then what the scaling is. Bitcoin can only do three to seven transactions per second. Ethereum can only do up to 20 transactions per second in the current volume. Visa does 25,000 transactions per second, so you’re not going to put the entire Visa network onto a Blockchain anytime soon.
Click here to read Part Two of this interview