Key Attributes of Blockchain

“Why Blockchain is a Game Changer for Supply Chain Management Transparency”¹ “How Blockchain Can Disrupt the Future of Education”² “Is Blockchain the Answer to a Better Healthcare Industry?”³ Why does an esoteric data infrastructure framework provoke such exuberant headlines? The following section discusses the defining characteristics of blockchain, especially those with implications for organizations working to deliver social impact and better governance.

Blockchain boasts three game-changing attributes:

• Security
• Accountability
• Efficiency

These benefits enable blockchain to address many of the failings that have contributed to the erosion of public trust in institutions in recent years. The lines between each of these traits are blurred. Many features of blockchain contribute to more than one of these attributes; conversely, blockchain-based solutions may involve certain trade-offs, such as efficiency versus security, accountability versus privacy. Exploring each trait can identify meaningful blockchain-enabled impact opportunities and anticipate challenges facing successful deployment.

Our social and economic lives are becoming increasingly digital. Today, the most important items on life’s to-do list can often be checked off without ever leaving our homes. Both individuals and businesses have become dependent on the internet for commerce, product delivery, data storage, and processing. These innovations have yielded monumental efficiencies, enabling people to reinvest money, time, and energy into new ventures. They have also created the need for secure transactions and recordkeeping.

Data security is the Achilles’ heel of online innovation.⁴ Unitary actors and large organizations wield disproportionate control and influence in the digital age, yet even these behemoths aren’t protected from bad actors. So how can individuals trust that their information is safe in an ever-more fraught digital world?

Security is at the foundation of blockchain technology. The combined power of its high standards of data verification, multi-layer encryption,⁵ and distributed architecture could help re-establish public confidence in digital infrastructure. Three features of blockchain combine to provide these security benefits:

• Secure data access and exchange: Public key cryptography identifies transacting parties to each other via public keys, then validates their identity via private keys before executing any exchange. Public key encryption demands accountability from legitimate blockchain users and protects individuals’ data against hackers.
• No unauthorized changes: Each new block on a blockchain must be cycled through the network’s various computers, a piece of an algorithmic puzzle which will only fit if no previous information within the blockchain has been altered. If any data is missing or compromised, the addition is rejected. Once information has made it onto a blockchain, it stays there. No censorship. No hacks.
• The network won’t go offline: Traditional databases are centralized, with single points of failure that can be compromised by malicious actors. But each node of a blockchain functions with autonomy. Redundant copies of a blockchain are stored on each of these independent nodes, providing insurance for the entire system if any single one is attacked, goes offline, or otherwise becomes inaccessible. Thus blockchains are considered extremely fault tolerant.⁶

The Social Impact

• Own your data: Once you’ve entered personal information online, there are no guarantees; you lose control over whether and how it’s bought, sold, viewed, or used. But blockchain-enabled self-sovereign identity⁷ empowers people to share sensitive personal data on their own terms, allowing entities to verify identity while accessing nothing more than an alterable public key. By applying blockchain tech to digital identity, individuals can finally control of their own data.
• Make citizens’ voices heard: Repressive governments often deprive citizens of their right to information and communication by blocking access to specific websites. But blockchain technology facilitates access to content hosted on any node within the network by any of its users, making its content exceptionally difficult to censor. If countries hope to reap the benefits of blockchain, they must also commit to a high standard of access and transparency. This information equity can help shape more representative societies.

Challenges

• Sustainability: Executing the consensus mechanisms which verify blocks and secure a blockchain against hackers can require tremendous processing power from blockchain computers. Multiply that by every node in the network, and you’re looking at a pretty massive energy bill. This can even cause nodes to cluster in low-cost energy markets, reducing the resilience of blockchain’s dispersed architecture. New types of consensus mechanisms and widespread investment in sustainable energy sources like wind and solar will reduce blockchain’s environmental footprint while increasing its security.
• Latency:⁸ Bigger blockchains typically enjoy higher fault tolerance, but all that information takes time to travel. Blockchain users have to wait until their transaction has been added to a fully populated block and successfully verified by a majority of nodes before it’s completed and securely recorded on a blockchain. This means that the more secure a blockchain (the more nodes it has verifying blocks), the higher its lag time. This latency may pose scalability and usability challenges for larger blockchains.

Headlines about cyberattacks, online fraud, and data manipulation have deterred many from participating fully in the digital economy. Blockchain offers a solution. It can provide communities the confidence necessary to apply the benefits of digital innovation while mitigating some key risks. Policymakers must still make privacy, data quality, and sustainability considerations in designing blockchains, but as they do so, it should become easier to instill security into digital interactions that will encourage wider participation in an evolving economy.

Global trends indicate a decline in institutional accountability. According to two 2017 reports, most countries “made little or no progress in ending corruption” and global confidence in both public and private institutions dropped precipitously.⁹ As ethics abuses go unaddressed, a vicious cycle forms—those in power see peers act with impunity and become opportunistic themselves. This decay of integrity causes socio-economic disparities to widen and embeds dysfunction into systems, inspiring disruptive and, too often, violent uprisings. Blockchain technology can help foster cooperation with and accountability of global institutions via mechanisms which reintroduce transparency and traceability into human governance.

• Transparency: Anyone with a computer can view the full record of a public blockchain, making it nearly impossible to hide transactions and relatively easy for third parties to track data entries and keep blockchain honest. Even private blockchains, while less transparent, create secure, auditable¹⁰ paper trails.
• No catfishing: Public key encryption lets you know who you’re doing business with on a blockchain. As long as private keys remain private, blockchain identity can’t be faked.
• Secure sequence and permanence: Transactions can only be added to the end of a blockchain, and once they’re there, they can’t be deleted or edited. Timestamped, immutable¹¹ entries reduce the likelihood of inaccurate or outdated data and preserve the integrity of a blockchain.

The Social Impact

From ensuring ethical, sustainable supply chains to tracking public financing, blockchain holds staggering potential to close loopholes and increase accountability of people in power.

• IDing abusers: Despite visual evidence of human rights violations and criminal behavior posted to social media, it can often be the good guys who have their hands tied by a dearth of reliable verification. By capturing the indisputable Who, Where, and When behind troubling digital content, the blockchain records hard data, thereby facilitating real-life action against abuses documented online. Data traceability gives local and international enforcement bodies the tools they need to hold wrongdoers accountable.
• Countering counterfeiters: Blockchain creates transparent, tamper-proof, timestamped records of supply chain processes. Sound a bit dry? Profits from fake drugs can surpass those of opioid trafficking, and their trade endangers some of the globe’s most vulnerable populations. Blockchain solutions would allow pharmacies and consumers to verify a therapy’s original source, so communities can trust that their medicines will combat illness, not cause it.

Challenges

• Privacy: The flip side of accountability is exposure. Blockchain’s public key addresses tie records to individuals, creating a pseudonymous blockchain ID. While this is far more secure than using personal information like names or emails, third parties may still be able to analyze metadata¹² trends to reveal the real world identity of transactors. That could put vulnerable populations—human trafficking victims, minority groups, political dissidents—at risk.
• Hold onto your keys: The authenticity of an identity on blockchain depends on private keys remaining private. If people were to gain access to another party’s private keys, they could effectively steal the attached identity and perform fraudulent transactions.

By creating a record that’s difficult to manipulate and easy to audit, blockchain takes aim at the global trust deficit. Blockchain has the capacity to provide clear evidence of wrongdoing and hold those in power accountable. Still, while transparency and third party verification can reduce corruption, verify content authenticity, and keep supply chains sustainable and ethical, considerations must be taken to protect sensitive information both on and off of a blockchain.

Efficient systems are better for wallets, the environment, and long-term development. Yet government effectiveness in OECD countries has either remained consistent or declined over the past decade. The private sector isn’t doing much better. One estimate placed U.S. losses at over $3 trillion in a single year due to poor data quality alone.¹³ Institutions must catch up to growing demands by more fully optimizing shrinking resources. Blockchain boasts tantalizing system efficiencies, thanks to its error-resistant data architecture and decentralized structure.

• Native data verification: Autonomous verification could be very useful to organizations tired of record updates that conflict with previous versions. Requiring agreement among network nodes renders data errors unsustainable, preserving the ledger’s accuracy.
• Low-risk infrastructure: Decentralization removes intermediaries from transactions, preventing bottlenecks or indirect pathways that slow down information transfers. Furthermore, requests for updating the blockchain only have to travel to the nearest node rather than to a central database, increasing efficiency in data movement. As demand on data infrastructure increases, evenly distributed data flows will maximize network bandwidth and serve users faster.

The Social Impact

• Fewer data errors: Digitization improved operational efficiency compared to traditional pen and paper records, but it also created silos necessitating seemingly endless data duplication and the human error which accompanies that process. Blockchain technology lets us apply lessons learned by creating interoperable systems which can independently store and process data, leading to data with greater integrity.
• Maximal data efficiency: Currently, several disparate systems support government functions: healthcare, education, tax, social benefit, and property registries are all typically run on distinct platforms. Blockchain could transform this hydra into a single, agile digital ecosystem, securely breaking down silos and encouraging interaction and relevant data sharing between systems. Perhaps most compelling, it would reduce the need for manual data entry in each separate system, reducing human error and, doubtless, increasing human happiness (especially among government interns).
• Faster, cheaper data sharing: Middleman-free marketplaces also promise dramatic increases in efficiency. Financial service providers charge costly fees for workers seeking to send remittances to family and friends abroad. Moreover, many of these costs are not transparent and transactions can take weeks to complete. The reliability and efficiency of remittances sent on a blockchain will enable both workers and their families to more effectively apply resources, spur development, and raise living standards.

Challenges

• Garbage in, garbage forever: Blockchains are only as good as the data which builds them. There’s a risk that poor quality data added to a blockchain will be difficult to correct, and future additions that are validated based on faulty blocks will only further embed those errors into that blockchain’s architecture.
• High energy consumption: Blockchain’s high efficiency cuts out when it comes to its own energy consumption. While solutions that process transactions without reconciling with other nodes as often, such as sharding,¹⁴ alleviate some strains on power sources, they will also be less secure than regular transaction processing on a blockchain.
• Latency or speed: Discussed in the section on security, but important to note when considering efficiency, blockchain users have to wait until their transaction has been added to a fully populated block and successfully verified by a majority of nodes before it’s completed and securely recorded on a blockchain. This latency may pose scalability and usability challenges for larger blockchains.

Blockchain promises to upgrade the global data infrastructure by building error-resistant data chains and empowering peer-to-peer exchange. While the integrity of their data relies on human inputs and may be susceptible to mistakes, blockchain solutions will profoundly outperform legacy systems in efficiency, particularly with sensitive data. With blockchain, institutions can confront twenty-first century challenges and get the most out of diminishing resources.

So how does strengthening security, accountability, and efficiency translate into improved social impact and governance? Take a look at how these ongoing pilots and programs are taking on real-life problems with carefully tailored blockchain solutions.

This is a representative, not comprehensive, list.