The internet began as a series of simple questions about how computers might be able to talk to each other over long distances by using highly controlled networks of wires. Working forward from this basic engineering problem, engineers and computer scientists have created the modern world, and the level of interconnection they've created has changed our lives and modes of social interaction as fundamentally as any other technology ever created. By changing how computers network, they changed how we network, and now a new paradigm is emerging from this world of basic communications research, one that supporters believe could repeat the internet's unprecedented impact. It's called the blockchain.
The blockchain is more properly called a distributed ledger, basically a way of securely and transparently storing information, and performing pre-programmed operations on that information. You can essentially think of it like a super-advanced, cloud-based spreadsheet, with the real defining feature being not what services it can perform, but in how much users can trust it to perform those services securely, exactly as agreed upon in advance. It's not a network of computers, but a network run on computers, and its distributed, highly secure nature gives it the potential to completely reorient the path of web development, and dramatically increase the capabilities of online platforms. Some fear it could accelerate technological unemployment, and irrevocably change our relationship to one another.
IBM and other giants of industry and business are working to fix the problems that continue to make distributed ledgers impractical in many cases.
By far the most famous implementation of a distributed ledger is the transaction and tracking procedures for Bitcoin. Prior to Bitcoin's blockchain, we needed a trusted human institution like a bank to act as intermediary for something sensitive like a monetary transfer. With the blockchain in place to act as that authority, we can do things like circulate currency securely on our own, without the inevitability of fraud forcing us to pay a percentage of every transfer to a specialized third party. The Bitcoin ledger executes a so-called "smart contract" containing the specifics of the transfer (depositing wallet, amount, receiving wallet, etc.), and since the whole thing is secured, both sender and receiver can rest easy.
By using the blockchain's programmable nature much more elaborately than Bitcoin, it's possible to automate far more complex tasks while maintaining the same high level of user trust. The resulting "smart contracts" could end up doing things like controlling the infrastructure of major cities, or hosting whole online platforms(Opens in a new window). It could handle our purchases from Amazon, our mortgage payments, and our work schedule. And, the most profit-centric of the applications: It could automate financial trading to the point that human traders are not just unnecessary, but incapable of keeping up. Software has been used for trading before, but the blockchain can actually make decisions on its own -- not just executing purchases and sales, but initiating the purchases and sales without having to wait for a human to sign off. That's the power of the programmable, dependable, always-on smart contract.
This public note-taking technology could also make it trivially easy for anyone to set up currently complex or expensive online services, like a secure online store. No longer would we need a company to run things behind the scenes -- users can offer us crypto-funds directly, and we can accept them just as directly. The blockchain not only speeds up and simplifies the abilities of large institutions, but it puts many of the most important such abilities in the hands of independents and small businesses, again repeating one of the core changes instigated by the internet.
It's not just about making transactions easier and faster online. A blockchain could be used to coordinate a complex group of corporate partners, all working together to provide the parts and services to assemble a new prototype aircraft. The ledger could be quick and reliable in making sure all inventory and schedules were kept in line, and its settings, or any changes to them, would be freely viewable to all involved. In IBM's words, when you're using a blockchain, "trust and accountability are built into supply chains."
Probably the most ambitious application of distributed ledgers is Ethereum, a blockchain-based online platform that lets companies host complex blockchain-based systems. Most famously, Ethereum and an associated cryptocurrency called "ether," was used to create the DAO (distributed autonomous organization), which flared out dramatically after a major bug coughed up about a third of the funds DAO had raised. Open ledger technology has amazing potential -- but it's not quite ready to realize that potential just yet.
The biggest problem is power consumption -- and it's going to be a hard one to fix. See, the whole system only works because it's cryptographically secured. In other words, somebody somewhere put in the computer time (and thus, the cost of electricity) needed to perform tough cryptographic procedures that keep everything safe. Solving these "hash" problems is incentivized through the "mining" system in Bitcoin, coughing up real monetary value in exchange for doing the hard work necessary to keep everything secure.
People often say that the blockchain had to exist to allow Bitcoin to functions securely -- but it's just as accurate to say that Bitcoin had to exist to allow the blockchain to function securely. That's why Ethereum has ether, its own cryptocurrency; without that, there would be no way to generate the sheer number of computer clock cycles needed to secure all the communication going on. The problem isn't going away, and as use of the blockchain expands the associated electrical footprint is growing astonishingly quickly.
Ethereum is an attempt to build an entire online platform in a distributed ledger.
There are a number of initiatives that will try to fix this and other problems, maintaining the pace with which we've been approaching a blockchain-based future up to now. IBM has teamed up with the big banks and many other interested corporations to found the Open Ledger Initiative (OLI), which is aimed at(Opens in a new window) fixing the blockchain's glaring technological problems. Other projects are being coordinated by MIT and similar research institutions -- but despite the big names, these initiatives tend to be very pointedly open-source.
Basically, if blockchain technology does come to underpin everything from complex hostile corporate takeovers to friend-group bill-splitting, then we really, really need it to be reliable and bug-free. It's telling about the current state of technology development that the biggest, most monolithic figures in tech believe that the only way to achieve that level of software integrity is to make sure that the biggest, most monolithic figures in tech don't ever get exclusive control of it.
In time for Black Hat and DEFCON, we’re covering security, cyberwar, and online crime all this week; check out the rest of our Security Week stories for more. And check out our ExtremeTech Explains series for more in-depth coverage of today’s hottest tech topics.
