Expert View published at 10/06/2016

Does the blockchain risk impacting on your lines of business and your information system?

By Thierry Derouet, Director of Content

The blockchain is an integral element of cryptography and of its very first use which made it famous: the creation of a cryptocurrency, the Bitcoin (1). However, the blockchain is a technology which, used for other purposes, can turn many fields involving trusted third parties upside down. If this technology becomes more widely used, it may impact severely on our information systems and, as Gilles Babinet suggests(2), "could lead to an upheaval as major as the invention of TCP/IP". Even if its use is still limited by innumerable obstacles, it is always useful to keep an eye on the situation. Because it could all move very fast. And become your affair.


Expert View Level: Forward-looking

Sectors concerned: Services, Bank & Insurances, Public Sector, Media, Transport

Topics covered: Cyber Security, Digital Entreprise

Degree of urgency: Medium

Available language: english, french (click here)



1. Uses that are more than promising
Regardless of the buzz, the blockchain promises to provide proof of the existence of a transaction, a vote or a physical asset. No more. But no less. So this subject does not only concern Bitcoin or the other alternative cryptocurrencies(3), even if substantial fund raising promises to bring blockchain technology to the main players in the world of finance(4).

More commonly, the use of the blockchain concerns:

  • asset transfer applications. Besides a monetary use, as mentioned, this concerns securities, votes, stocks and bonds. For instance, it may be a vote organized by a company within a board of directors. Theoretically, it could even be possible to envisage the organization of a national election using this technology. The blockchain can also concern the world of agriculture, for the management of food traceability, as well as the freight sector to manage containers and goods.
  • areas relating to registration, in order to ensure better traceability of items such as assets. It is possible, for instance, that a government or an NGO may use the Blockchain to create or manage its land register, that is keep the origins of ownership of a piece of land (this is the case in Honduras to put an end to corruption and in Ghana, where there was no land register).
  • what are known as 'smart contracts', small, autonomous programs that automatically execute the terms and conditions of a contract. These smart contracts, simple scripts that do not require any human intervention as they use a programming language, define the rules that apply between two individuals. The production of these smarts contracts may be conditioned by events (a train that is running late, the result of a football match, etc.) or by data collection carried out by a connected object (opening a door).

It is interesting to observe that the use of the blockchain is giving rise to a great many advanced projects undertaken both by those identified as 'blocktechs', start-ups specialized in this technology and by more traditional IT players (IBM).

The public sector, telecommunications, the cloud, the sharing economy, the Internet of Things, logistics, agriculture, the regulated professions (lawyers, notaries, chartered accountants, auctioneers, etc.) are therefore in theory all concerned. However, it is difficult to define the real limits of the blockchain and say that its activity will - or will not - move beyond them.

2. Clearly identified benefits
Why does the blockchain technology hold out so many ideas, so much hope? The blockchain is a public database that recaps all transactions. It contains the entire history of the transaction and is shared by all its users.

A mathematician, Jean-Paul Delahaye, gives a fairly clear definition: "It's a very big exercise book that everyone can read freely and free of charge, in which everyone can write, but it's impossible to delete or destroy it." With one limit stressed by another mathematician and CNRS member (French national centre for scientific research), Ricardo Pérez Marco: "It's a mathematical algorithm that guarantees the validity of transactions as long as most of the agents are honest." 

Three main benefits of using this technology have already been identified:

  • Disintermediation. The costs are transactions are reduced or zero;
  • Traceability. It provides digital proof of existence;
  • Distributed consensus. This vision facilitates both the collective work and decentralization as well as preventing any falsification.


3. Technology in the plural
The blockchain is not unique. There are now a whole series of them, all working on the same principle. Each one is dedicated to a particular use. The most perfected at the moment, the Ethereum blockchain, is accompanied by a programming language associated with a currency, the Ether. The aim here is to create an ecosystem that supplies a market place, a new way of writing and running applications on a decentralized and shared platform.


4. Both technological and legal limits
However, the blockchain is not yet able to impact on all the fields mentioned. The reason for this is simple. It is economic. According to researchers in Zurich, in 2015 Bitcoins used as much energy as 620,000 Swiss households. Because even if they are virtual, Bitcoins have a real cost: IT resources, and therefore the energy required to issue new coins. According to the predictions of a Danish researcher, Sebastiaan Deetman, in 2020 the currency could use as much electricity as a country like Denmark.

What is more, the blockchain requires acceptance of the holacracy it generates, because it is a system of governance organization based on the formalized implementation of collective intelligence. To put it plainly, developing blockchains involves a certain form of politics. Its architecture is a deeply political act. Yves Moreau, professor at the University of Leuven in Belgium, points out that "one of the primary functions of the state is to organize trust in our society. Distributed trust could therefore replace the role of the state." Suggesting that tomorrow, "code is law".

Our structures are not yet all ready. A number of countries look askance at the arrival of this deregulation, even if the technology is based on a principle of transparency. Like Vietnam, Iceland or Ecuador, Russia is looking seriously and the case of Bitcoins users. And may consider passing a law providing for fines and prison sentences depending on whether you are an ordinary member of the public, a group or a 'money launderer'. Very fortunately, Europe benefits from a favorable legal framework for the emergence of the sector, as is pointed out by Marc Lipskier of the France Blocktech association: "We have a clear legal framework in this area that has existed since 1999: the European directive on the electronic signature, which has now been transposed into French law. This text forms the reference. At this stage, the law is quite well done."

 

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(1) The blockchain idea is not thought to be new and is said to date back to the 1990s, with the work of Haber and Stornetta (https://www.anf.es/pdf/Haber_Stornetta.pdf. The blockchain is not a Bitcoin invention, but Bitcoin made it famous. Bitcoin is a peer-to peer-network (where each client is also a server) used to exchange a digital currency, the Bitcoin.

(2) Gilles Babinet is the digital champion of France with the European Commission.

(3) Such as the RSCoin initiated by two researchers, Sarah Meiklejohn and George Danezis, from UCL (University College London), which is said to use a private blockchain under the control of the Bank of England.

(4) 50 million dollars were raised by Digital Asset Holdings, a start-up headed by Blythe Masters, a former market operator with JP Morgan behind the creation of the first Credit Default Swaps, and therefore the subprime crisis.