Why should anyone care about Blockchain?

We hear so much about blockchain in the news today. The topic has recieved a lot of hype which also comes with many misunderstandings. The goal of this article is to consider the value of the blockchain, and the opportunities afforded by decentralized governance.

I guess a good place to start would be what is decentralized governance?

The Blockchain community has an interesting culture. It seems to be a "stick it to the man" type of environment for the most part. One of the claims that is still prevalent, and true, is that blockhain technology can replace third parties. A common example is that of a bank. Instead of trying to go through a bank to store and move my money I can use blockchain and some form of cryptocurrency (Bitcoin, Ethereum, etc). This is an amazing idea that provides people with freedom/flexibility that we did not have before. Try doing an international wire transfer with your bank. If it goes smoothly it will take 1-2 days. With blockchain I can do the same transaction in 10-15 minutes using Bitcoin or Ether as my currency essentially "cutting out the middleman". We can therefore say in this situation that blockchain replaced the "Centralized Authority" aka the Bank.

Really this idea of decentralized governance is a way to provide transparency and enforce trust. What do I mean by enforce trust? Well trust as a concept is usually facilitated between two entities, and there are degrees of trust given out to those associated with these entities. For example, theoretically, I trust my sister. If my sister chooses to trust her best friend I would extend a certain amount of trust to that individual based on me and my sisters relationship. This trust distribution strategy isn't highlighted often because it is instinctual in nature.

Lets go a step further. I asked my sister to pick up a package that was left at my house because I'm out of town. If my sister tells me she will do it, I believe her. I trust that she is going to do what she says she will. If my sister told me that she was going to have her best friend handle the situation I wouldn't feel as secure, but I trust my sisters judgement to delegate. This strategy does not scale.

As you try to scale this strategy things start to break. A company doesn't personally know another company like I know my sister, so this leads to other methods of verification and enforcement of "trust" (MSA's, SOW, PO's, Invoices, etc).

Now you may be to the point where you ask "But don't we already have systems in place to track all of those things and 'enforce trust'? Whats the point of using blockchain?". That is a valid question and requires further consideration into the nature of blockchain.

You may have heard the statement "the blockchain is immutable". What the heck does immutable mean? Here is the google definition ...

Immutable - unchanging over time or unable to be changed.

So is this saying that the blockchain can't be changed? No, transactions can be added thus the blockchain changes over time. The key here is understanding that once a transaction has been submitted to the blockchain you can not go back and alter that transaction.

Consider the example of two companies. Company A has its own billing/invoicing system, and Company B has its own billing/invoicing system. Both companies have to bill each other for services that they provided each other. Normally if we wanted interoperability between these two systems we would create API's that allow us to pull data from each others systems. Thats great but you don't have the benefit of being able to guarantee those systems are historically unchanged. There can be disparity between the two companies systems and other processes would have to be implemented to figure out what went wrong.

With blockchain this interaction looks a little different. I can define a "Smart Contract", you can think of a "Smart Contract" as a regular contract in code for now, which would take the place of an MSA for example. This contract would track and submit transactions based on predefined stipulations and there is no human interaction once the standard has been set. As Company A I wouldn't share all the data that is in my private system rather I would just share all relevant data to the interchange that took place with Company B.

A big part of the value here is I don't have to rely on a human to carry out my agreements. By extension I don't have to rely on an organization that depends on multiple human inputs to execute my "agreement". On top of this new found freedom I have transparency between all parties involved, and an unchangeable record that could be used in a legal dispute if a conflict arised.

In contrast our traditional wire transfer example would require the use of many different mutable systems and human input to facilitate the transaction. Thats not even considering if a dispute arose, all the hoops you have to jump through to understand what happened let alone how to resolve the issue.

Another big, if not the biggest, value proposition of blockchain is security. The more people that participate in the chain the more secure the chain becomes. This goes into another key difference in how blockchain works vs traditional systems, which is highlighted by the "distributed" part in Distributed Ledger. The data on the chain is stored on multiple "nodes", which are just powerful computers. Each one of these nodes contain a copy of the blockchain and validate that the other nodes have the correct chain. This process is called "Consensus". A deep dive on Consensus is outside the scope of this article. The part you really need to understand is that if a node tries to submit a different chain with malicious data all of the other nodes beat the mischievous node up and tell it to kick rocks.

Blockchain allows for a level of interoperability that has been very difficult up to this point. We can enforce trust through secure distributed networks, thus creating decentralized governance, enabling "Trust as a Service".

I hope this article helped to show at a high level the value of blockchain. This article is by no means exhaustive and I am not a writer so I look forward to your feedback!