And in the beginning there was Bitcoin...

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It is hard to browse the news these days without coming across a breathless article about cybercurrencies and blockchain. Most of these stories usually revolve around the latest rise (or fall) in the price of a Bitcoin or one of the other “altcoins” and question if we are entering a cybercurrency bubble.

However, the other side of the blockchain story, and maybe the most interesting one, is not about the coins themselves, but about the fact that blockchain is going to revolutionize the world by removing the need for intermediaries, by speeding up transactions - making them transparent and frictionless - and generally by doing everything for everyone. It actually sounds a little bit like the early days of IPX, for those with some history in telecoms!

But what exactly is blockchain and how does it related to Bitcoin and those other currencies? And more importantly, what are the opportunities in the international telecom world for this new technological approach?

This series of articles from HOT TELECOM will bring you through the telecom blockchain journey, starting with the blockchain basics to then discuss its potential use in telecom, by outlining a number of potential use cases for wholesalers and their carrier customers. 

But let’s start at the beginning by diving into the history of blockchain and each of the key constituents and lingos of this new ecosystem: cryptocurrencies, hash functions, miners, smart contracts, ICOs and the different blockchain models.

The birth

Bitcoin is where the story started in a very unusual fashion 9 years ago. The concept was introduced in November 2008 by Satoshi Nakamoto, an anonymous individual (or group), with the publication of a white paper entitled ‘Bitcoin: A peer to peer electronic cash system’. It was then followed by the release of an opensource software capable of operating the design a few months later. As you will recall, this was around the time of the economic collapse and, indeed, the first block on the Bitcoin blockchain includes the text “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. 

From there, the Bitcoin system has continued to evolve to where we are now, which is a crucial time in the blockchain-Bitcoin story, as either it will evolve to become the next disruptor at a similar scale to how the internet transformed our society or it may turn out to be yet another bubble.

For the last 3,000 years, our monetary system has used currencies and cash which rely, to a large extent, on trust. This requires the implicit belief that a paper note or coin can be exchanged for a certain amount of goods anywhere in the country and that it cannot easily be duplicated or “double spent”. These days, the national bank or treasury in each country performs the role of the trusted entity managing the supply of money in that country. 

Therefore, a revolutionary global system of cash that would not rely on any entity to guarantee the currency needs an unbreakable way of ensuring that this currency or “coin” cannot just be conjured from thin air, and cannot be double spent. The solution to that problem came from a new database design created by Satoshi Nakamoto that used cryptography for security, combined with a unique interlocking block structure to ensure that coins are unique and could be tracked through each use, thus confirming their identity. 

The design then approached the question of how this database could operate without any single entity actually managing the process or operating the servers hosting the database. This was achieved by duplicating the database across multiple independent servers, with no controls or restrictions on who could run the software and hence obtain and manage their own copy of the database.

Moving the control of the monetary system from a centralized state controlled system to a decentralized democratic one. Finally, the design resolved the two remaining issues of confirming that each new transaction involving a bitcoin is valid and incentivizing people and organizations to run the system by defining a way that all parties in the network competed to validate new transactions and gain a reward for doing so. This, of course, begs the question - what is a block, how does this system work, and what has it to do with telecom?

The young infant

The very succinct overview above has introduced the basic concepts behind this new database design. At its heart: the blockchain.

A blockchain is a series of blocks of data which are linked and secured by a cryptographic hash function. Before you close this article now, this is not as complex as it seems! A hash function is simply a mathematical fingerprint of the data in the block which accurately represents the data with a fixed length string of digits. In addition, you cannot work backwards from the hash to the underlying data - it is simply a unique ID.

The slightest change to any information in the block will result in a totally different fingerprint or hash. In a blockchain, each new block contains the hash of the previous block and so on, as new blocks are added. As a result, any change to an earlier block will totally invalidate the accuracy of all subsequent blocks. This, coupled with the multiple identical copies of the database that are in existence, means that any attempt to change any element of data in the historical record would require massive new calculations involving the majority of participants in the blockchain.

As they are all independent entities, in practice this cannot happen. This therefore gives the blockchain its key advantage as the underpinning of a currency system - once a transaction has been included in a new block of data and has been agreed by a majority of the participants to be accurate, that transaction and that block of data cannot be changed. In effect, an immutable record of historical transactions has been created without the involvement of a managing entity such as a national bank or large company. 

Just before we leave this piece of the history, it is important to recognize that blockchain technology can be operated under two distinct models: the public and private blockchain models.

This first blockchain model, which supports Bitcoin and similar currencies, is known as permissionless. This is a public, open structure operated by large numbers of independent players and with no access control or central ownership. New applications can be adopted on the blockchain without permission essentially using the blockchain as a “transport layer.”

The second approach is a private permissioned blockchain where a specific entity - a single or group of companies or government (s) - create and operate a blockchain for internal use, or externally with the trust of other parties. 

This is the basis of some privately generated cryptocurrencies such as Ripple, but more importantly is an approach that many of the big international banks are exploring for internal or industry managed use cases. Indeed, this could be a preferred model for the international telecom industry and wholesalers to automate elements of their business. 

The toddler

The first blockchain version was launched to support Bitcoin and was simple in structure to just enable to tracking of spending of each Bitcoin that had been mined. The process of creating new bitcoins was termed “mining” and was the reward to all the participants in the network for running the complex cryptographic algorithms that were supporting the creation of the blockchain. Using this models, miners or the servers used to process the bitcoins, get paid partly through a transaction fee (paid by the Bitcoin seller) and through the allocation of new Bitcoins in payment for their mining services.

In 2014 however, new extensions to the basic design started to appear with the capability to add “if this, then that” type programs to the blockchain. These were also known as smart contracts, so that two people could agree, for instance, that if one transfers the title document to a car to the other, then a transfer of “cash” would immediately occur between the parties. The contract is written into the blockchain and as the system writes the change of ownership of the title, the cash is immediately transferred. 

In effect, this is an escrow system with no third parties managing the transaction. Now this open secure ledger system can directly manage transactions between individuals or companies, which opens up the design to all manner of new opportunities. The Ethereum blockchain was the first example of a system which enabled companies and individuals to write smart contracts into the blockchain and have them automatically executed. This blockchain, incidentally, uses ‘Ether’ one of the so-called “altcoins”.

This opened the door to all manner of use cases, from voting, to medical records, to drug safety, to supply chain automation and so on. Each of the use cases is feasible, but each brings significant implementation challenges, mainly around the processes to bring these solutions to fruition. 

While blockchain can provide the secure unchangeable record, the approach taken to confirm how information can be validly changed are themselves very complex and open to security challenges.

The childhood stage

2017 has been a breakthrough year for blockchain. The jury is most probably still out when it comes to cryptocurrencies’ viability, but it is obvious that blockchain and its secure decentralized model will be a game changer in many industries.

Apart from banking and fintech, it is probable that blockchain could be a facilitator of IoT, providing the security that it has been looking for. It is also very possible that it may be a facilitator of AI and its development by providing a secure environment for big data owners to connect and share more data with AI developers.

2018 will definitely be a turning point for blockchain with the accelerating proliferation of real life use cases, therefore pushing blockchain into its childhood stage.

Blockchain - A telecom game changer?

Having set the scene in this introductory article, our next article will focus on use cases for blockchain technology in the telecom industry and more specifically between wholesale carriers and their customers. Blockchain could definitely be a game changer for the telecom industry in the near future and now is the time to determine how you will benefit from it.

As might be obvious already, the international voice and messaging business is one where significant effort and cost goes into managing complex international financial transactions - the very thing that a blockchain can potentially automate. 

Additionally, we will explore whether blockchain could also mean the end of the wholesalers. A simple automated, real-time process such as blockchain could be used by operators around the world to exchange rates, contracts, traffic and payments, which would mean that wholesalers would become redundant in playing such a role. 

This and more will be explored as we dig deeper into the new world of blockchains!

Steve Heap, CTO HOT TELECOM