With Blockchain blowing up (thanks mainly to the price of Bitcoin), the question many people have is “what is it?”. After looking up for some time, they’ll quickly discover it’s about something called “decentralization“… which is basically taking data and putting it into 100’s or even 1000’s of servers.
Whilst this is a relatively new idea, the most important thing to consider about it is that if you’re looking at this from an investment perspective, you will need to consider the implications of the technology in business as a whole. This can be difficult depending on your familiarity on the technology.
The point is the question about “blockchain” comes down to whether “decentralization” is a good idea or not. If it is a good idea, the question then becomes – in what way will it benefit companies? This is a question which we’ll attempt to answer during this article…
Communism vs Free Market
One of the drawbacks of communism (even socialism) was the central management of production capacity. In the USSR, for example, workers were put into “collective” farms who all worked for the well being of each other.
The problem with a centrally controlled market (apart from the obvious corruption) was that it ignored one of the base elements of “life” – the need to expand & grow.
Characterized by a more rustic and “idyllic” existence in the USSR and latterly North Korea, a centrally controlled market can never benefit the people because it only grows as far as the leaders (PolitBuro) are able to facilitate. This not only represses the people’s will to grow, but also prevents many of the innovations that the likes of the West have enjoyed for many decades from being adopted, or even developed.
On the counter, a “free” market is seen to be an example of economics on overdrive, with consumerism and materialism filling shelves with millions of products people neither need or use. It’s responsible for rampant over-consumption, leading to pollution issues and also the likes of obesity.
Whilst in the US everyone can “afford” a car (if they work hard), in the USSR, you were “lucky” to gain access to one. However, the problem with the US model is that rampant consumerism has warped the economy in such a way to make debt and credit the driving force of the economic engine (NOT productivity).,
Whilst this might seem a somewhat obscure example, its parallels with “data” are very similar…
“Centrally” controlled data is very similar to centrally controlled markets.
Not only is its access heavily regulated (through a central provider), but its use is also prohibited, as either it’s not accessible, or there is no functionality to get it working correctly.
This is on top of the “security” risk of the data’s integrity being compromised, especially in the light of such things as a data breach (hacking) or virus infection (ransomware).
In other words, not only is a centrally controlled data more restricted in terms of its access, but its use is limited and it will generally much more difficult to integrate into other applications.
“Blockchain” was developed as a way to decentralize data for a number of reasons…
- It would make “data” more secure (being stored securely on 100’s or 1000’s servers prevents mass data breaches).
- It gives users the opportunity to access much more data (if they have the correct access credentials)
- It would ensure that companies are able to integrate their data with other applications more easily.
In a nuthsell, “decentralized” data works to provide developers & users with a more open & reliable way to access data without the need for a central provider. This has its obvious uses with such applications as the likes of a “hotel” booking system… but also has the ability to create totally new ideas, such as a “decentralized” currency, which allows people to “trade” without the need for a bank.
The problem with decentralized data is exactly what makes it appealing – some data just isn’t meant for sharing. Financial records, medical information and previous information are all ways in which the problem of hacking and lack of data integrity could cause major problems for the idea of “blockchain”…
When NOT To Share Data…
The whole idea of “blockchain” was to give people the ability to look up information such as when a house was purchased, and how many times a phone number has been updated… but what they’re not looking at is when decentralizing information is a bad thing.
The whole point of sharing data comes from when you either want that data to be used by other applications, or as part of a much wider system (such as having “decentralized” currency).
The premise of being able to see live airline prices, hotel room prices or restaurant reservations ALL working with the same data as the institutions use themselves is very appealing (for both the consumer and business – the business would be able to limit their infrastructure investments).
Times when data is personal (ALL cryptocurrencies are totally anonymous) and when it NEEDS to remain rigid are when it should remain centralized.
In the end, the choice really likes with the vendor.
The way we see things moving forward is towards a focus on the growth of another “layer” of the Internet, whereby public “blockchain” data will be available for a large number of different datasets.
Due to the availability of the data, and the ability for developers to utilize it properly, various decentralized applications will begin to appear, allowing users access to this data in a much more user-friendly and extensive way.
To this end, the idea of having a completely decentralized data stack is not really necessary. Incorporating decentralization into a current data setup may be something to look into – especially considering the added opportunities it would bring for more transactions etc.
In other words, businesses should not be worried just yet. It will take another 5 years at least before “blockchain” becomes as mainstream as to encourage businesses to have to look at it seriously. In between then and now, we can just wait to see which way the technology develops.
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