What are the benefits and drawbacks to blockchain?

22 Nov 2017176 Shares

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Amor Sexton of Citi speaking at Inspirefest 2017. Image: Conor McCabe Photography

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Amor Sexton is a senior innovation manager at Citi. At Inspirefest 2017, she explained the implications and possibilities offered by blockchain technology.

The financial community is abuzz over blockchain, a end-to-end technology that could, without exaggeration, revolutionise the way we do business.

Amor Sexton, who is a senior innovation manager at Citi, spoke on the topic of blockchain at Inspirefest 2017, and she made a seemingly unlikely comparison between blockchain and a shipping container.

“As recently as the ’50s, shipping was done the same way it had been done for centuries; cargo was loaded onto a ship barrel by barrel, crate by crate and box by box … it was a very slow game of maritime Tetris.”

Sexton added that theft was also rampant. “They said that a dock worker earned $20 a day and as much scotch as he could carry home.”

In 1956, however, the system changed. A trucking magnate named Malcolm McLean invented the humble shipping container, “a simple metal box that could be locked and could be used to transport goods between a truck and a ship”.

This invention streamlined the process of loading cargo and, as a result, cut down massively on loading times. This in turn cut down on costs and allowed for more cargo to be shipped at a time. The implementation of the container also resulted in fewer thefts, decreased union bargaining power and increased productivity.

The immediate effect was stark. In the first five years after the implementation of the shipping container, “bilateral trade increased by 320pc”. Over the course of the next two decades, this rose to a 790pc increase.

The Economist has gone so far as to say that the invention of the shipping container has been more of a driver of globalisation than all trade agreements of the past 50 years put together.

The question remains, though: what does this have to do with blockchain?

“Data has been described as the new global commodity, the oil of the digital era, and a key driver of growth and change; and, just as manufacturing relies on good-quality raw materials, the global data economy is powered by real-time access to accurate data,” Sexton explained.

“Just like shipping containers move all global commodities in a more secure and efficient manner, blockchain has the potential to provide a more efficient and secure way of transferring this new digital commodity.”

What is blockchain?

Sexton immediately noted that there are more than 100 different types of digital ledger technology.

For the sake of simplicity, she elected to refer to the more general concept of a digital ledger system as blockchain and, while she expressed that there were a number of differences between every type of blockchain, they have one unifying similarity. “One of the main things that they have in common is this architectural concept of using a shared digital ledger to disintermediate the sharing of information across an ecosystem.”

They do this, Sexton explained, “by providing a single source of data that all of the participants in the network can see, can contribute to and can trust that it is accurate”.

Blockchain gets rid of the need for a middleman, such as a central bank, to verify transactions. Before blockchain, the middlemen kept central records that all users put their trust in and compared to their own personal records. Blockchain is different, in that it is an end-to-end transaction.

“As with the shipping container, the information is transferred seamlessly and efficiently, but all of the participants in the network have the exact same information as the other participants and they know that the records are accurate because they trust that the information and the technology is performing as expected.

“This is an evolution from a system based on financial intermediaries to a system based on financial protocols.”

It is taking out this middleman that has caused so much interest around the world in blockchain because it creates the potential to increase efficiencies, reduce costs and create new business models and markets.

Though she explained the potential of blockchain, Sexton was quick to indicate that it is “not a panacea”.

She added: “While certain use cases may benefit from this unique technology, others would do just as well with something else.”

Sexton explained the traits a system must posses to benefit from blockchain. The system, for one, should be a “multiparty ecosystem” as those are the only ones that require the tracking capabilities of blockchain. The parties at either end should be doing arm’s length transactions – the situation in which the need for blockchain’s accurate shared information is more acute.

The transactions should be interdependent or interrelated, as that “leverages blockchain’s unique ability to order and validate transactions to ensure that there’s no duplication”.

Sexton added: “To truly leverage the unique benefits of blockchain, you need to have a digital end-to-end process where the core subject of the transaction – whether it be information or value – is able to be transferred in digital form, and this is because any manual breaks in the process reduce the efficacy and also impact the certainty that the records are accurate.”

With new opportunities come new challenges

“As a famous Flemish poet said at the turn of the last century, between dreams and reality are laws and practical considerations,” quoted Sexton.

Blockchain, and its adoption, depend on a number of potential issues being addressed.

One of the first things Sexton noted for consideration was resolving the need for transparency with a natural desire for privacy. The transparency promised by blockchain brings with it more integrity and accountability, and less risk.

However, it requires that everyone in a system has access to all knowledge about everyone else within that system, and there are legitimate reasons why this might make a user uncomfortable.

Sexton suggested the need for “tailored transparency”, which would share “slices of information on a need-to-know basis”.

The blockchain’s ledger system also is somewhat incongruous with the right to be forgotten or the right to erasure as laid out in EU data protection laws.

“GDPR rule provides an exception to this right, where the data is still necessary in relation to the purpose for which it was originally collected.”

The power of blockchain comes from the “immutable, auditable shared ledger”. Therefore, meeting data protection obligations while still remaining true to the original mission of the concept of blockchain requires careful consideration and design.

Inspirefest is Silicon Republic’s international event connecting sci-tech professionals passionate about the future of STEM. Super Early Bird Tickets for Inspirefest 2018 are on sale now! 

Eva Short is a Careers reporter at Siliconrepublic.com

editorial@siliconrepublic.com