Navigant Research Blog

Trust in Blockchain

— October 3, 2017

Trust. You can’t touch it or smell it, but it’s a vital ingredient in every commercial transaction. It exists between companies and their staff, suppliers, and customers. The entire worldwide monetary system is based on the principle of trust. One could argue that trust, above all else, is what binds the modern world together. However, trust is not blind: mistrust will also exist between the parties of financial transactions. Consequently, it is hard to build trust, but it can turn to dust in a matter of seconds.

Part of the attraction of cryptocurrencies, like Bitcoin, is that trust is placed in its consensus mechanism and not between a transaction’s counterparties. Anonymous users exchange Bitcoin without the need to measure a counterparty’s trustworthiness. Blockchain technology creates trust across the entire Bitcoin network through its distributed ledger and consensus-based transaction verification. While Bitcoin receives a great deal of media attention, blockchain technology is coming out of Bitcoin’s shadow as a potential game changer for transactions. Many industries are investigating blockchain’s potential to remove the requirement of central market functions, speed up transaction processing, and reduce overall costs. In addition, there are other use cases outside of transaction management. However, there are many issues with the technology that must be resolved before it becomes a mainstream technology.

Ironically, Trust Could Be Blockchain’s Undoing

Few technologies as immature as blockchain receive comparable media interest. Despite any current large enterprisewide deployments, blockchain evangelists have touted it as a technology panacea. It will likely be years before blockchain applications move into the mainstream. Blockchain startups have attracted billions in investment, yet these companies are exactly that: startups. In some cases, little more than a handful of enthusiasts with a good idea and some seed capital.

And therein lies the problem: blockchain could suffer from a huge trust issue. Not in the creation of trustless networks, but trust in the technology itself. The expectation of blockchain’s potential—driven by an unrelenting hype machine—far exceeds its current ability to deliver. It will likely be 4 or 5 years before we see any large-scale blockchain deployments. In the interim, some startups will run out of capital and close, others’ products will fail to deliver on their promises. What is certain is that blockchain developers will come across many issues converting blockchain from an open source software into something that is enterprise ready, scalable, and able to provide viable alternatives to existing technologies.

Expectations Could Be Set Too High

The problem is that 4 or 5 years is a long time to wait. The hype around blockchain is such that expectations can be set unrealistically high. I expect a great deal of negative press if too many startups fail or if too many projects become encumbered by too many unforeseen technology problems. The industry will lose its trust in the entire blockchain industry. A dollar value can be attributed to companies’ trust in blockchain—it’s currently the total amount pouring into trials and proofs of concept. A breakdown in trust will mean an end to project funding and the end of the road for blockchain.

Blockchain has some unique features that could benefit many organizations in the future. But it is not a panacea. It needs time to overcome its teething problems and to demonstrate its value. The hype surrounding the technology could well be its undoing.

Companies investigating blockchain should do so with the full knowledge that it is an emerging technology. It will take time, patience, and investment to adapt blockchain for enterprise-class deployments.

 

Could Bitcoin Really Cut Electric Bills?

— March 2, 2016

Programming code script abstract screen of software developer.The idea seems far-fetched at first, using Bitcoin’s foundational virtual currency technology to reduce your electric bill. But upon further study, the notion has a certain appeal.

The idea springs from a group of Accenture technologists in France who have created a smart plug based on Bitcoin’s blockchain transaction database system. For currency, Bitcoin uses an automated ledger called a blockchain that processes deals through a private network of computers with shared software that verifies and publicly tracks where coins are spent. A key piece of Bitcoin’s technology is a cryptographically signed acknowledgement (essentially a receipt) that verifies a transaction among all players. Traditional accounting has a debit and a credit, producing a double-entry bookkeeping system; with Bitcoin, the cryptographic receipt adds a third element, becoming a sophisticated triple-entry system.

Back to the smart plug. The Accenture device would adjust electricity consumption minute-by-minute and use blockchain functionality to shop different rates and sign up for a lower fee if it finds one. In essence, the plug has an embedded smart contract working on the owner’s behalf. So far, Accenture’s plug is merely a proof of concept, though it could be employed, for instance, to help lower-income customers pay for their energy. According to Accenture’s research, in aggregate, these customers in the United Kingdom could conceivably save more than $919 million per year.

Other Smart Contracts

Expanding on this idea, a smart meter or a number of electrical devices beyond a plug could have an embedded smart contract and provide whole-home energy cost benefits to consumers. Also, the concept would seem to fit neatly into the expanding residential Internet of Things (IoT) trend, a market that is explored in some detail in a recent Navigant Research report.

This is a potentially disruptive technology. Customers could theoretically avoid dependence on a single electricity supplier, though a new player, such as Google or Amazon, could eventually emerge and dominate a system dependent on Internet transactions and the IoT. This would assume, of course, that electric utilities and regulators would agree to such a scheme, which is not likely in the near- to mid-term. How many utility operators would easily welcome a decentralized system in which they could lose—or gain—customers from moment to moment? Not many. Nonetheless, the blockchain idea could give consumers new advantages and bring about more decentralized energy grids. Really.

 

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