Behind the hype of cryptocurrencies like Bitcoin lies a potentially revolutionary technology called blockchain.
Paul Ruskin, who was part of the BPAY team that won a peer nominated award at a recent blockchain hackathon in Los Angeles, breaks down this complex subject.
In simple language, what is blockchain?
It's essentially a means of keeping a record of transactions that have occurred, in a way that makes it difficult to tamper with that record. What happens is that everyone gets a copy of the transactions and when you want to add a new transaction to it, the majority of nodes keeping records have to agree for it to be accepted. When it's accepted, we use some cryptographic processes to make it easy to detect if anyone tries to change that transaction in the future.
Is this why it’s sometimes characterised as an immutable distributed ledger?
The blockchain is distributed in that everyone has a copy of the transactions and it's immutable in that once it's in the ledger, it can't be changed. There's also the consensus aspect of it, in that the majority of people who are participating, have to agree before any new transactions can be added.
How have you seen blockchain evolving?
First-generation blockchains, such as Bitcoin, are really just distributed ledgers and a straight record of transactions. The next generation, such as Ethereum, let you deploy what they call smart contracts, which are effectively a set of rules that are codified on the blockchain network. So you're able to deploy a smart contract, which is essentially an application, that can then run across that whole network and you start moving from having just a straight ledger into being able to support distributed applications, which are often called a DApps. In essence, the smart contract is a set of rules so that when a certain set of conditions occur, then do this.
What are the key advantages of that sort of system?
The key advantage is that it's distributed, so you're getting rid of the middle man. One of the other prime candidates for blockchain is international money transfers. Today, if we send money to somebody overseas using traditional means, the banks need to agree between themselves how much they are going to exchange and how it is going to work, which can result in a process that takes quite a bit of time to execute. If you do that on Bitcoin, for example, as long as I know your address, I can just submit a transaction that goes in and comes out the other end and you've got it in a very short space of time. It doesn't need to go through the banks or any other middle parties between you and me. You're trusting that underlying blockchain network to do it for you.
In terms of using the DApps or smart contracts, what are the advantages of that system over and above just moving currency?
Because the blockchain is distributed, immutable and has a full public record of what's happened, it’s great from an audit perspective. The other aspect of it is that the smart contract itself is visible as well as the associated rules and they are also on the blockchain. This means, for example, that no one can come along later and slip some money off to the side or put in an additional fee.
What are some of the downsides?
One of the prime challenges with blockchain at the moment is the governance aspect. In the real world, sometimes you need to unwind things but because the blockchain is immutable and because it's happened, there’s a question about how you go unwinding a transaction. There's an example from early November 2017 where an Ethereum contract for protecting wallets was deployed with a bug in it. Someone triggered the bug which effectively locked all wallets that depended on the contract. There was over US$150 million worth of ether in those wallets but there was no way to unwind it so the funds could be released.
There are also legal aspects if, for example, you have a blockchain that represented a social media network and someone published something defamatory, how would you take it down?
What is the view of blockchain for BPAY?
From a BPAY perspective, we've really got a watching brief on blockchain at the moment. We're just looking at it to try and work out which use cases make sense for us and where it would be appropriate for us to be in a market. I think in facilitating interbank payments, especially with international money transfers, that there are definitely some opportunities.
Where do you see blockchain going in the future?
The areas that I see development coming to the blockchain are really around speed and scaleability. If you look at the blockchain in BitCoin, for example, I think that it’s limited to about ten transactions a second, which is not going to be fast enough to support a banking product. And also, when you look at the amount of energy that the blockchain network uses, it's very large.
Can you just talk about what the LA trip was and what the main takeaways were?
The Los Angeles trip was for a hackathon in Manhattan Beach. It brought together nearly one hundred engineers from all over the world and twenty teams had three days to try and come up with a new DApp running on Ethereum that you could then take to market.
Our team was called BillChain and we built a subscription management platform. Everything these days is moving towards subscriptions, from Netflix to the Sydney Morning Herald, but it's really hard to get a view on the subscriptions you've got, how much are you paying, when the money is debited and things along those lines. So, using Ethereum, we built a smart contract that represented your wallet and a smart contract that represented a subscription agreement and then allowed the subscription to be registered with your wallet. You would then see all your registered contracts in your wallet, which you could then approve or decline. If you've approved a subscription, the subscription provider could then draw down funds from your wallet according to that contract. It meant that in your wallet, you could also then control those subscriptions because you could effectively stop them, pause or decline. And our project was lucky enough to be a joint-winner of the peer vote.
Subscription management, or that sort of idea, is relatively easy to implement using blockchain. I think the biggest challenge is the volatility of the digital currency. But with some of the governments around the world starting to look at whether or not it makes sense to create a fiat currency on blockchain, that would remove some of that volatility, making it easier to implement applications like BillChain in that space.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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