Is BlockChain the new Internet?

There are many parallels between the development of the Internet of information and that of blockchain which many call the internet of value.  While information moves around the world instantly, a single payment or asset transfer from one country to another is slow, expensive and unreliable.  Blockchain technology will enable the exchange of any asset that is of value to someone, including stocks, votes, frequent flyer points, securities, intellectual property, music, scientific discoveries, and more.

In Why is blockchain a big deal for supply chain management? We described blockchain technology and how it is already being applied to some supply chain applications such as food provenance and diamond tracking. We noted that one thing that blockchains do extremely well is allow entities who do not trust one another to collaborate in a meaningful way.  In addition, blockchains provide an opportunity to have a “single point of truth” for transactions that require multiple steps and partners. It has the potential to eliminate intermediaries and speed up transactions while providing trust and a permanent record. We also described the difference between a public blockchain, such as Bitcoin and a private one such as the IBM Foodtrust.

Here we would like to address the maturity of Blockchain technology and how fast we can expect it to grow. Why blockchain is hard addresses the inherent difficulty in developing and maintaining decentralized data systems. They are more difficult to work with, expensive to maintain, hard to upgrade and complex to scale. A centralized database is much faster, less expensive, easier to maintain and easier to upgrade than a blockchain.

As for current capabilities - the leading platform is Ethereum  on which Decentralized Applications (dApps) are being developed. It is estimated that 85% of all projects use its customizable blockchain as their foundation. However, there is concern as described in Blockchain Platforms: One Chain to rule them all? about widespread adoption because of these major issues:

·        Scalability – the ability to accommodate as many users as possible on the chain while still retaining low transaction fees and fast consensus. Ethereum and Bitcoin’s scalability issues stem foremost from their consensus protocols.

·        Interoperability - the protocol’s capacity to interact and cooperate with different blockchains, and to facilitate smart contracts between one protocol and another. This is a major factor that will help bring blockchain technology into real world applications by connecting private and public chains. 

·        Overall usability – In order to make it attractive for developers  and users to adopt the technology there need to be built-in capabilities such as functional programming languages, smart contract audits, and easy-to-deploy out of the box customizable blockchains. 

Comparing the growth of BlockChain to the Internet can provide some insight into its potential and growth process. In The Truth about BlockChain the authors write that “Blockchain is a foundational technology: It has the potential to create new foundations for our economic and social systems. But while the impact will be enormous, it will take decades for blockchain to seep into our economic and social infrastructure. The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum.”

The authors compare blockchain to another distributed computer networking technology: TCP/IP (Transmission Control Protocol/Internet Protocol), which laid the groundwork for the development of the internet. Prior to this protocol communication was established between any two nodes that needed to communicate and a large telecom infrastructure was built to support this.

In the following we compare the parallels between Blockchain and TCP/IP along several dimensions including infrastructure, applications, localization and long term transformation.

 1)     First Application:

a.      TCP/IP first gained traction as the basis for e-mail among the researchers on ARPAnet, the U.S. Department of Defense precursor to the commercial internet. This was in 1972 and it gained wider traction with the advent of the World Wide Web in the mid-1990s.

b.     Just as e-mail enabled bilateral messaging, bitcoin enables bilateral financial transactions. The development and maintenance of blockchain is open, distributed, and shared. A team of volunteers around the world maintains the core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small community.

 2)     Infrastructure

a.     The infrastructure including hardware, software, and services needed to connect to the now-public network and exchange information. Netscape commercialized browsers, web servers, and other tools and components that aided the development and adoption of internet services and applications. Sun drove the development of Java, the application-programming language which also became the standard.

b.     As described in 18 Predictions for 2018 the current infrastructure of blockchain includes : a decentralized transaction layer (Ethereum); a decentralized file storage layer (IPFS and Swarm); a decentralized messaging layer (Matrix or Whisper); and a high throughput computing resource (Golem). The continued development of the infrastructure will be helped by evolving standards.  

3)     Consumer applications

a.      Early use cases of consumer facing Internet applications in the 90’s were gambling, pornography, and games.

b.     On Ethereum there are already similar consumer applications such as Spankchain, Fun Fair, Virtue Poker, and Crypto Kitties.

4)     Business Localization:

a.      During the late 1980s and 1990s, a growing number of firms  used TCP/IP, in part to create localized private networks within organizations (intranets). To do so, they developed building blocks and tools that broadened its use beyond e-mail, gradually replacing more-traditional local network technologies and standards. As organizations adopted these building blocks and tools, they saw dramatic gains in productivity.

b.     As blockchain follows the path network technologies took in business, we can expect innovations to build on single-use applications to create local private networks on which multiple organizations are connected through a distributed ledger. All the supply chain examples we have shown follow this pattern. The expectation is that similar to the evolution of the Internet that began on Intranets, private blockchains will give way to more public blockchains.

5)     Substitutes:

a.      Once the basic internet infrastructure gained critical mass, a new generation of companies took advantage of low-cost connectivity by creating internet services that were the same as current businesses such news (CNET), book sales (Amazon) and airline ticket buying (Priceline) which also brought unprecedented transparency to the process. The extensive reach at relatively low cost of these offers put significant pressure on traditional businesses such as newspapers and brick-and-mortar retailers.

b.    An example of substitutes using blockchain are cryptocurrencies—new, fully formed currency systems that have grown out of the simple bitcoin payment technology. The critical difference is that a cryptocurrency requires every party that does monetary transactions to adopt it, challenging governments and institutions that have long handled and overseen such transactions. Consumers also have to change their behavior and understand how to implement the new functional capability of the cryptocurrency.

6)     Transformation:

a.      Taking advantage of the web infrastructure and network of users new applications changed online retail through auctions (eBay), the music industry (Napster) and telecommunications (Skype). TCP/IP unlocked new economic value by dramatically lowering the cost of connections.

b.     Blockchain could similarly dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge. “Smart contracts” will automate payments and the transfer of currency or other assets as negotiated conditions are met. There are already early experiments with such self-executing contracts in the areas of venture funding, banking, digital rights management and supply chain.

There seems to be quite a wide consensus that blockchain is an important technology that will have a very large impact on how transactions are handled and tracked. Some see it as having the potential to bring about wide ranging societal changes in how we track private information, intellectual property and votes. Don Tapscott calls blockchain the second era of the internet and as we saw, the comparison to the internet is apt as there is quite a lot of similarity between the way the technology came about and how it is being adopted. We are at the point where the focus is on creating a solid infrastructure and deploying the first applications that will prove this potential.