How could blockchain change our lives?

What is a blockchain?

At their simplest, blockchains are just lists of transactions – ledger books – that are recorded in a transparent and decentralised way. Transactions are gathered together in blocks, which are connected in linear, chronological chains. Instead of having a central middleman to decide who can see previous transactions and add new ones, all the transactions are public. New records are added through a community consensus process.

The technology is complicated, controversial and fast-moving. But is of increasing interest to citizens, businesses and legislators across the European Union. A recent report, published in February 2017, entitled ‘How blockchain technology could change our lives’, provides an introduction for those curious about blockchain technology. It is aimed at stimulating reflection and discussion. The biggest question is: are we ready to give up traditional financial and governmental control in favour of decentralised blockchain applications harbouring greater transparency? Some of the answers may be found in an event organised by the Scientific Foresight Unit of the European Parliament on the 11th May 2017.

Blockchain-based currencies

The best-known application of blockchain technology is digital currencies. Hundreds have been created with different features and aims. The most well-known is called Bitcoin, which has a short and controversial history. It was initiated in a 2008 white paper published under the pen name Satoshi Nakamoto. The real identity of the author(s) remains shrouded in mystery. In 2013, the currency jumped from relative obscurity to mainstream attention through a series of booms, busts and black market controversies.

Relatively stable growth since 2015 has seen its value rise higher than ever before. However, during this same period, attention shifted to the wider opportunities presented by blockchain technology, beyond currencies and even financial services.

Blockchain-based services

The way blockchains create fast, cheap and secure public records means that they also can be used for many non-financial tasks, such as casting votes in elections or proving that a document existed at a specific time. Blockchains are particularly well suited to situations where it is necessary to record ownership histories. For example, they could help keep track of how and where our diamonds are sourced and our clothes are made, or to be sure that our champagne really came from Champagne.

They could help us to finally resolve the problem of music and video piracy while enabling second-hand markets for digital media; just like we have for books and vinyl. They also present opportunities in all kinds of public services, such as health and welfare payments. At the frontier of blockchain development, self-executing contracts are paving the way for companies that run themselves without human intervention.

The opportunities are many, but there are also some challenges to consider. For example, blockchain’s transparency is fine for matters of public record such as land registries, but what about bank balances and other sensitive data? It is possible (albeit only sometimes and with substantial effort), to identify the individuals associated with transactions, which could compromise their privacy and anonymity. While some blockchains do offer full anonymity, some sensitive information simply should not be distributed in this way.

Technologies have social values

We often talk about blockchain’s economic and functional potential. These are important, but its most profound legacy may be in subtle changes to broad social values and political structures. Just because technologies can be used for both ‘good’ actions and ‘bad’ actions does not mean that they are neutral.

To the contrary, all technologies have values and politics, and they usually reinforce the interests of those that control them. Each time we use a centralised ledger – like a bank or government database – we confirm their owners’ legitimacy and strengthen their position.

Perhaps each time we use a decentralised blockchain ledger instead, we will participate in the gradual relegation of traditional financial and governance institutions and the prioritisation of transparency over anonymity. But this would only happen if we develop and use blockchains that have these values at their core.

What will their impact be?

We cannot know exactly where and how blockchain will change our lives. They have the potential to help us develop more transparent and distributed social and economic structures. However, we have to look closely to see whether this is really what we are getting.

The sharing economy also promised to connect individuals more directly, ousting middlemen and unburdening people from the intervention of states, banks and other traditional institutions. It also had a similar rhetoric of transition, disruption and even revolution. However, the most successful initiatives of this movement are, at heart, very effective middlemen. Even with ubiquitous blockchain development, we might not achieve the levels of transparency and distribution that we expected.

For example, as an alternative to the most open and transparent blockchain applications such as Bitcoin, so-called permissioned blockchains allow their creators to maintain some centralised control. These blockchains offer a more moderate form of decentralisation and are favoured by many governments and businesses.

Blockchains and regulation

For now, there is little appetite for intervention in blockchain development at a European level. Indeed, a recent European Parliament report on virtual currencies, published in May 2016, acknowledged the increased risks, which will require enhanced regulatory oversight and adequate technical expertise to handle such currencies. However, the report also calls for a proportionate EU regulatory approach to avoid hampering innovation in the field at such an early stage. This means that, for now, we will continue to analyse developments and promote dialogue amongst policymakers, businesses and citizens.

Philip Boucher

Philip is a policy analyst at the European Parliament (EP)’s Scientific Foresight Unit in Brussels, Belgium, who has authored the latest report from the EP on the topic of blockchains.

Featured image credit: CC BY-SA 2.0 by Antana