How will Blockchain remove Intermediaries?​

Eighth Episode of the Automated Podcast. Check out the podcast episodes at https://automatedpodcast.org/

Intro

I always seem to find something else that is interesting after recording a new episode in the week following. So another point really quickly for last week’s podcast. VR — tech that allows you to feel heat or cold..as well as smell — add on- connection to Sensorama and a good indication of where we are going, beyond just the visual and auditory reality that is created now. Moving more towards the Sensorama experienced as imagined in 1962.

What is Blockchain?

As blockchain is one of the newest technologies that has only recently hit mainstream consciousness and isn’t a tangible product that one can pick up it is often misunderstood. You’ve probably heard some of the terms connected to this like Bitcoin, Ethereum, decentralised network, cryptography, distributed ledger, magic internet money, enterprise blockchain, cryptocurrency, blockchain miners etc but how these are connected and how this technology will impact the future of jobs might be less well known. So let’s break down and try to understand what blockchain actually is. The best place to start is with the word blockchain itself. Try to imagine blocks of digital information that can represent pretty much anything. Let’s use blockchain’s first application bitcoin as an example which is a digital currency. So the digital information in bitcoin’s blocks would be transaction date, time, amount, and who is doing the transacting..although the who is relatively anonymous and uses digital signatures which function much more like a username. When a block fills up with enough information, or transactions, it is added to the blockchain which is simply a series of blocks linked together. But for this new addition to happen, the block needs to be verified in order to make sure that the information is legitimate, much like how a bank verifies your transaction to pay your rent making sure that you actually have the money in your account before paying. Once verified and added to the blockchain that block is given an identification code called a hsah. With the blockchain this verification is done with a network of thousands of computers (roughly 100,000 in the case of Bitcoin) across the entire world. Thus the blockchain is said to be distributed and decentralised. No one single person owns the information as a copy of the entire blockchain exists on every computer across the network. The value of this is is that it is challenging and costly to hack or corrupt it as you would need 51% of the operating hash rate or computer power of the network in order to make a double spend transaction (think of counterfeit money), which for bitcoin at least would cost an estimated $1 billion, which potentially outweighs the benefit in undertaking a 51% attack, thus making the network more secure. Additionally the past records as well as the sender and receiver’s information is encrypted using the AES cipher, the same cipher used by the NSA as the tool of choice used for encrypting information. I’ll have a link in the shownotes if you want to read more about this as it’s a bit too technical for the scope of this episode. These block verifiers are also called blockchain miners and they are incentivised to do this verification by receiving some bitcoin with every single block that is added to the block chain (about 12.5 bitcoin per block). But to do so they need to prove that they have actually contributed to the verification process through something called proof of work. Proof of work essentially is an attempt to solve a complex math problem, that once solved allows you to add your verified block to the blockchain, gaining the reward. If you’re still not completely sure what a blockchain it is, I’ve put some short and simple videos that attempt to explain what blockchain is in the shownotes for you. But for the sake of this podcast we can understand blockchain to be a decentralised, distributed, public ledger that is resistant to malicious modification.

Where did it come from?

Though blockchain was initially described as far back as 1991 by cryptographer colleagues working at a US telecoms research company, it wasn’t until 2008 that an anonymous online entity by the name of Satoshi Nakamoto published a whitepaper titled “Bitcoin: a peer-to-peer electronic cash system.” The document defines how to create a secure and transparent digital currency without the involvement of a central entity or bank. Though the document did not contain the term “blockchain,” it outlined the way blockchain technology works. Satoshi launched the Bitcoin in January 2009, but he left the project after some time and handed over the Bitcoin development to other developers. Many guesses as to who this person or group of people have been made, but to this day it is still unknown who this online entity actually is…

Public Vs Private blockchains

Bitcoin is the first and still the main example of a public and open blockchain, one where anyone can (with the proper equipment and verification) add data to it, as well as view that data. However, there are also blockchains that limit editing and viewing. Private blockchains limit editing access but can be open or closed to view. Much like the closed intranets of large corporations vs the open and public internet which we are all familiar with. Much like in the mid 90’s where there was a ‘battle’ between corporate intranets vs the public internet, many are describing a war between public blockchains (mostly characterised as cryptocurrencies) and private blockchains (generally referred to as enterprise blockchains). Though there are current and possible applications for each ranging from currencies to voting to medical and government records to tax and military uses, as with any new and emerging industry that has a massive potential market, the victor will generally come from having the more intuitive user friendly experience that leads to mass adoption. But if you’ve looked into this a bit more do you think there will be one predominant winner? Or will public and private blockchains co-exist?

Impact on work

Much like VR/AR, blockchain is an emerging industry and with that comes new jobs and job growth. As mentioned, there are thousands of public blockchains (remember every cryptocurrency is potentially a company or at least project run by a number of people) and the private blockchain space is growing rapidly as well. For perhaps the most well known job, blockchain developers there exists as of late 2018 some 80,000 positions predominantly in the US, India, UK and Canada and France.

Currency and banks

But how about the jobs that blockchain will negatively impact?

Up till now the main example used has been Bitcoin as it was the first blockchain application, the most well known and perhaps easiest to understand. Bitcoin and many cryptocurrencies acting as new currencies is seen by many as the main impact blockchain will bring about. “blockchain allows Bitcoin and other cryptocurrencies to operate without the need for a central authority by spreading its operations across a network of computers. This not only reduces risk but also eliminates many of the processing and transaction fees. In effect this reduces if not outright eliminates the need for large parts of government, depending on the scale of financial administration.

It also gives those in countries with unstable currencies a more stable currency with more applications and a wider network of individuals and institutions they can do business with, both domestically and internationally” If a user’s bank collapses or they live in a country with an unstable government, the value of their currency may be at risk. It is no mere coincidence that Bitcoin was created around the 2008 financial crisis. In fact, the very first block that was mined, the genesis block, implanted with a reference to a london times article discussing the failure of the government bail out packages to banks to benefit the economy. A particularly strong example is with venezuela where the hyperinflation is expected to reach 10 million percent this year and many have turned to use bitcoin or ethereum and other cryptocurrencies. Even charities are using them to avoid the inflation of the fiat currency and bypass government economic control.

Remittances

Thus, the theme of disintermediation or removal of the third party, middle man or intermediary, is prevalent throughout the discussion of blockchain’s impact on jobs. One of the most notorious examples of third parties that blockchain is hailed as impacting is remittances. This is the money flow from high wage economies to low wage economies from family members and friends. The world Bank estimated that officially recorded annual remittance reached some $529 billion in 2018. But, the aggregate cost of sending remittances the year before was just over $30 billion, roughly equivalent to the total non-military foreign aid budget of the US! The costs vary depending on country and amount sent, but the process can be exceptionally complicated due to the growing amount of hidden fees, paperwork, and middlemen. Blockchain technologies can impact this area by allowing the sender and receiver to directly exchange funds and drastically reducing the associated fees.

Other Applications

However, blockchains can do more than just store digital transactions, they can also store data about points in a supply chain, medical or tax information, military records, even real estate exchanges. Though most of the discussion below is mostly hypothetical as there are few use cases available so far, if you have a specific killer app that you know about please let me know! Please keep in mind that there are for the most part attempts to bring these applications to life using both a public or a private blockchain, hence the ‘war or battle’ that I mentioned earlier.

Property

Today, a physical deed must be delivered to a government employee at the local recording office, where it is manually entered into the city’s central database. Human error and inefficiency is riddled in this process, but the application of blockchain can have a massive impact by storing and verifying property ownership as well as dealing with the transfer of. The same can happen for most large or luxury assets from real-estate to vehicles, to expensive paintings eliminating the need for any third party mediator.

Supply chain management

Suppliers can use blockchain to record the origins of materials that they have purchased as well as the date and state or quality of the good. This would allow companies to verify the authenticity of their products, along with certain labels like “Organic,” “Local,” and “Fair Trade.” the same is applicable to healthcare where the authenticity of drugs are threatened and if verified on a blockchain counterfeit drugs will be much easier to detect and remove.

Problems/Limitation

However, there are two large issues with the examples above as they interact with physical products. If something is scanned in the real world and digitally added to a blockchain the information is hard to change, so if the situation was in fact wrong..say a certain medicine was in fact counterfeit when it was scanned, then there is an error right at the outset and corrupts the validity of the blockchain. Additionally, with the interaction between blockchain and physical goods there is currently the need for humans to do most of the initial verifying or at least scanning, which doesn’t remove a lot of intermediaries as initially envisaged, and also introduces further human error. However, with the introduction of IOT technologies, which we will take up next week, this could be realised.

Smart contracts

Finally, I want to briefly introduce smart contracts as they are a relatively new feature to blockchains and can potentially remove the need for many positions, especially in the legal profession.., and even maybe lawyers. A smart contract is a computer code that can be built into the blockchain to negotiate a contract agreement, where when certain conditions are met the terms of an agreement are carried out. Thus in essence, Smart contracts allow the entire legal agreement between contracting parties to be laid out in its code and the automated enforcement of the underlying legal agreement means that lawyers will predominantly no longer be needed. But with the current limitations of smart contracts, it is more likely for the time being that the roles of lawyers will change to working with smart contracts instead. But for a deeper look at the subject I’ll have a link to an article in the shownotes.

There are of course many many other implications for blockchain beyond the level of description I can give here but I plan to revisit blockchain in a future episode with a guest and we can dive into some of the more peripheral but interesting applications like voting or generating scare digital goods etc. But hopefully this has given you a small look into this emerging trustless technology that some claim will have even more impact than the internet!

That’s all for this episode but what do you think? Will blockchain be a technology that removes the middleman in many industries or is it just an overly hyped technology? Let me know over twitter or linkedin and as always leave a review or rating on itunes.

The Weekly Podcast Exploring the Impact of Technology on Jobs. Website: Automatedpodcast.org / e-mail: info@automatedpodcast.org