If “blockchain” is largely a metaphor for distributed, privacy-focused operating principles, then ITEGA at this stage is very consistent with the gestalt of the blockchain movement, once you get beyond the very abstract and application-unspecific technology of chains of data blocks that are cryptographically linked. But it is too early to declare ITEGA as part of that movement — that will be determined by its governance process, by evolving perceptions of the term — and by eventual operation of ITEGA services in the marketpace.
By Bill Densmore
In early 2018, it is as if the word “blockchain” has become an all-purpose metaphor for what will save the web. It’s handy for the expression of a set of principles — such as decentralized and shared control, trusted identity exchange respecting individual rights and privacy — and verifiable transactions.
The Information Trust Exchange Governing Association (ITEGA) fosters open protocols to safeguard identity and privacy through distributed, shared services. “Blockchain” is a term applied to decentralized technologies that typically provide security around identity. ITEGA’s approach will not be exactly the same as the Bitcoin payment-oriented blockchain. This paper explains why.
So what is the real “blockchain”? Venture-funding analysts Pitchbook, a Morningstar subsidiary, have assembled an image map of dozens of representative companies asserting their versions. It calls the ecosystem “nascent and ripe for exploration.” Tech-marketing firm TechTarget has also developed a simple infographic explanation.
The one universally agreed feature is the idea of recorded transactions being stored in chains of data blocks, where each block represents a unique transaction, and each block also has a tamper-proof number that defines each block’s sequence in a chain of similar data blocks. Change one block, or one of the numbers, and the whole sequence is marked as fraudulent. (VIDEO: What is a blockchain?)
But that’s where the consensus may end. In one credible explanation, the idea that there are multiple databases — constantly communicating with and check each other’s conclusions to arrive at a consensus of transactional “truth” — is also seen as a key component of blockchain-inspired networks.
IBM PUBLISHES BLOCKCHAIN REPORT — The company’s Institute of Business Value released on Feb. 8, 2018 a report resulting from its survey of almost 3,000 global C-suite executives. It finds over one-third of those organizations are considering or are actively engaged with “blockchain.” Two thirds say they will adopt a new platform business model that “breaks the boundaries of traditional market exchanges.”
“Blockchain experts can’t agree on a definition of ‘blockchain’ on basic architecture questions (scaling or security), on what they’re useful for, or on how they should be governed,” Vlad Zamfir, the co-founder of Ethereum, a bitcoin competitor that also touts its use of blockchain concepts, wrote in a Dec. 18, 2017 tweet. “I’m super concerned about the sorry state of ethics in the blockchain community, and I’m (literally) scared half to death about the intended and unintended consequences of tools that will be built using blockchain technology,” Zamfir wrote on Medium in March, 2017.
Zamfir has some standing to say there is no consensus. But that doesn’t seem to be reaching the mainstream media.
Washington Post technology writer Hayley Tsukayama wrote Jan. 10:
Simply put, blockchain is like a ledger book that can be group-edited by people in the cloud. There’s no central company or government that has to verify a transaction, which means thing can move more quickly. As changes are made, it keeps a public log of what changed, when and how. For that reason, it’s very difficult to fake a change or gain access to the log if you’re not supposed to. The records also aren’t tied to your name, so it makes blockchain another more secure way that people can exchange data.
ONE DATABASE OR MANY?
For supporters of Bitcoin, the virtual currency that is said to run on “the blockchain,” the core expectation is that transaction records be recorded in a plurality of duplicated and cryptographically verified databases across a network. It aims to allow the exchange of value — money, digital objects, contracts — directly between two (or more) parties to the transaction, without an intermediary.
Thus blockchain, in this libertarian view, is a system that aims to replace organizational guarantors of trust, like banks, with a technology-based arrangement, with clever code and technology, veteran Silicon Valley author and analyst Don Tapscott explained in a Sept. 2016 TED Talk and YouTube video. By contrast, he said, private central authorities can be hacked, operate slowly and extract transaction fees, appropriating wealth.
Tapscott calls the blockchain idea “the technology likely to have the greatest impact on the next decade.” He writes with his son in their book, Blockchain Revolution: “Each blockchain . . . is distributed: It runs on computers provided by volunteers around the world; there is no central database to hack. The blockchain is public: anyone can view it at any time because it resides on the network, not within a single institution charged with auditing transactions and keeping records.”
“There is no such thing as blockchain,” says one expert. “There are myriad implementations of a distributed ledger network.”
The Economist magazine has argued that blockchain “lets people who have no particular confidence in each other collaborate without having to go through a neutral central authority …. In essence it is a shared, trusted, public ledger that everyone can inspect, but which no one single user controls.”
THE LINUX VIEW AND IBM
Yet the notion of hundreds of copies of a open, public “distributed ledger” does not seem to be a universal component of blockchain-termed systems. IBM, for example, is promoting its “Hyperledger Fabric” blockchain implementation for enterprise services which speaks of a single “shared, immutable ledger for recording the history of transactions” (not multiple ledgers). Here all parties store and exchange data in a private network which is said to be cryptographically secure and trustworthy. (Watch VIDEO.) “Permission blockchain networks that require every peer to execute every transaction, maintain a ledger and run consensus, can’t scale very well,” the IBM video says. “And they can’t support true private transactions and confidential contracts.” (MORE: IBM tutorial on blockchain).
This view is endorsed by some computer scientists. If every transaction on a blockchain network has to be verified, agreed upon and then stored in multiple, duplicate databases, “this approach has a scaling problem . . . the well-known and difficult consensus problem.” University of Waterloo computer-science professor Srinivasan Keshav wrote in a Jan. 7, 2018 report at The Conversation. Keshav says he and colleagues are working on a solution.
IBM has created a 51-page “Blockchain for Dummies” minibook which asserts its view of blockchain as a master shared ledger, “updated with every transaction, and selectively replicated among participants in near real time. “Because it’s not owned or controlled by any single organization, the blockchain platform’s continued existence isn’t dependent on any individual entity.” But at the same time, says IBM, a business blockchain “is governed by rules agreed on by the network participants.”
IBM’s work is a collaboration with the Linux Foundation’s open-source HyperLedger Project, which IBM financially supports. IBM says key characteristics of a blockchain network include consensus, provenance and immutability. IBM’s minibook also says:
- The master ledger is shared among network participants by replication and includes rules so those replicating participants may see only those transactions they are authorized to view.
- Participants have identities that link them to transactions, but they can choose the transaction information that other participants are authorized to view.
- A single, shared ledger provides one place to go to for determining the ownership of an asset or the completion of a transaction.
IBM’s blockchain vision is thus a far cry from a libertarian notion of no central authority. Rather, it is a nuanced view of shared authority and a shared resource when practical. And it is consistent with the idea of “minimum viable centralization,” coined by Brian Behlendorf, who heads the HyperLedger Project and was was the original author of the ubiquitous Apache open-source web server. And it is as focused on identity as on transactions.
“In today’s digital age, an individual’s identity is not defined by a single attribute such as a name, address or user ID,” says Jai Singh Arun, IBM’s security and blockchain innovations program director. “Rather, it is a collection of attributes including, but not limited to, name, age, financial history, work history, address history and social history,” says Arun. “These attributes work together dynamically to define an individual in a particular business or social interaction.”
Among attributes of IBM’s flavor of “permissioned blockchain”, Arun says:
- A shared, append-only ledger with one version of the truth shared across all permissioned network participants in real time;
- Privacy and security measures that grant access only to permissioned parties;
- User-centric design, which allows users to control their identity profiles and attributes. And share between trusted entities with their consent.
- Controlled visibility, or the ability to verify identity without disclosing actual data, and where no single institution can compromise a consumer’s identity.
IBM is not the only big company tinkering with blockchain. The Disney Company’s Seattle office built a system, then decided in 2016 to make it open sources; some employees then formed a foundation to foster the project and have now started a for-profit implementer called Dragonchain Inc.
SINGLE BLOCK GENERATOR — BANK-BACKED VIEW?
It’s not hard to figure out what some of the big banks and financial service companies think about the idea of no central authority at all. RRE Ventures (led by former American Express executive Jim Robinson), Capital One, Citigroup, Fiserv, Nasdaq, Orange and Visa are among backers or partners in a $40-million startup called Chain.com, based in San Francisco and headed by a Stamford University master’s in computer science. In Chain.com’s self-described “blockchain” system, each network is secured by a federation of block signers, only a quorum of which have to agree on a protocol. “For efficiency,” the company says in a white paper, “block creation is delegated to a single ‘block generator.’ Any node on the network can validate blocks and submit transactions to the network.” Chain is careful to say it is not advocating a single shared ledger or trust in a single party. But it clearly is plowing ground where there is some centralization of block creation — which will require some shared, if not central, authority to govern that work. It explains in the white paper:
“Chain’s technology sits at a conceptual midpoint between decentralized cryptocurrencies like Bitcoin and centralized custodial models like a bank. On any given Chain blockchain network, the creation, control and transfer of assets is decentralized among participants, but the operation of the network is governed by a designated set of entities known as a federation. This model allows firms to move financial assets of all kinds with the seamlessness of digital currency while maintaining the governance standards, scalability, and privacy required in financial markets.”
Thus Chain — a consortium of legacy financial-service firms — is using the term blockchain to describe the idea of a distributed database — a ledger — that assembles verifiable data blocks — but very much governed by a “federation” to create trust. Chain says it does not run networks itself — it partners with its customers to help them do so.
MORE DEFINITIONAL CONFUSION — ENERGY CREDITS
Further evidence that there is no common understanding of what entails a blockchain network is evident in a Dec. 27, 2018, Q-and-A on the GreenBiz blog between author Ron Pernick, a founder of Clean Edge Inc. and Jon Creyts, a managing director of the Rocky Mountain Institute and a board member of the Swiss-based, blockchain-promoting Energy Web Foundation. The topic was methods for exchanging contracts — “certificates of origin” in the energy-credits marketplace.
Creyts says that to fix a current system — which he called plagued by high transaction costs, data handoffs, lengthy settlement times and market opacity — “these shortcomings can be remedied by a centralized blockchain ledger that incorporates creation, ownership transfer and retirement into a single robust data system that is cheap to manage, easily accessible and cyber-secure.”
“Our design uses a limited set of authorities to approve transactions (including regulators, utilities and other trustworthy sources) who act as the validators of the blockchain.”
Thus the energy-certificates trading system finds the idea of a single datamart for managing the certificates an improvement, but there will be a single data repository and, Creyts says later in the interview that “the central grid will still be essential in a blockchain-enabled world.” Gone is the libertarian notion of nobody in control except computer code.
PRIVACY AND ANONYMITY — FEATURE OR BUG?
Adam Ludwin, CEO of banking-industry-back Chain.com, mentioned above, asserts that rigorously decentralized versions of blockchain technology are slower, more expensive, use more electricity, are less scalable, and of uncertain governance compared with more traditional hub-and-spoke operations. The one thing decentralization applications do better, he asserts, is make censorship — restricting access to applications and information — nearly impossible. And they allow anonymous transactions.
See: “Q&A: HOW IS THE GROWTH OF BITCOIN AFFECTING THE ENVIRONMENT?” (Associated Press, Feb. 11, 2018)
But is that a feature or a bug?
Commenting in a 2017 Pew Research Center study of Internet trust , Columbia University computer-science professor Henning Schulzrinne — former chief technology officer of the U.S. Federal Communications Commission — declared “blockchain systems do not seem to address any real problems, except if you are in the business of distributing ransomware.” He continued: “There are real opportunities for improving electronic financial transactions, but anonymity and non-reversibility are bugs, not features.” Indeed, the Pew report summarizes its 1,233 respondents’ views as concluding blockchain is “just one of the possible approaches that could be implemented to assure more trust in transactions.”
Anonymity may be a very bad feature of a transaction system if it enables fraud or illegal activity. But it can be an assets if it enables a consumer to exercise a private right to read, view or listen to information sources secure that they are in control of who knows their habits.
Three researchers head by Alex ’Sandy’ Pentland at the MIT Media Lab in Cambridge, Mass., authored in 2015: “Decentralizing Privacy: Using Blockchain to Protect Personal Data.” In it, they describe a method of “turning a blockchain into an automated access-control manager that does not require trust in a third party.” The system can store, query and share data beyond transactions.
Arun, the IBM executive, cites two fundamental principles of trusted-identity management, whether or not blockchain technology is involved:
- A “self-sovereign” identity principle empowers individuals to take full ownership and control of their identity information. Custodians can provide and verify identity attributes, but individuals control how these attributes define them in the context of a business or social interaction.
- A principle of distributed trust management. Since identity is decentralized by default, it’s critical to establish trust among users, identity providers and relaying parties. This way, all parties can use an agreed-upon set of identity attributes to authenticate, verify and authorize individuals to perform business or social transactions.
NEITHER CORPORATIONS NOR GOVERNMENT?
“What’s needed is a system (a human application programming interface, or API) that gives individuals appropriate control over their online activities and the data that most closely concerns them,” Susan Price, digital architect at Continuum Analytics in Austin, Texas, comments in the Pew Reseach Center’s trust study. “Corporations and governments could ‘opt in’ to support such a system, but must not be the primary creators or maintainers of it.”
This review of alternate perceptions of the blockchain metaphor suggests these conclusions for ITEGA:
- The public assumption of blockchain as definitively connected with currency, anonymity and no central authority is a misperception.
- Identity management and greater user control over data privacy are central features of plans to implement “blockchain”-named services.
- A plurality of co-equal participants responsible for sharing users and transactions is also a core attribute of blockchain-termed efforts.
Thus ITEGA’s formative focus on a shared-user network for trust, identity, privacy and information commerce fits within the rubric of “blockchain” thinking, even if it does not require or use blockchain technology. The ultimate direction of ITEGA’s business rules and network protocols will evolve as ITEGA’s membership and governance processes grow.
But it appears these principles spelled out in working documents are consistent with the blockchain metaphor:
- Non-profit governance — avoidance of government involvement or private-equity dominance.
- Support for a plurality of identity and content service providers
- All service services agree to use one or more open standards for the exchange, control and use of user attributes and tokens including personal data.
- Privacy-by-design for end users and end-user control over user attributes
- Widely distributed and competitive operation of user data and consumer-facing services
- “Minimum viable centralization” of network services such as authentication, authority and aggregation of events.
If “blockchain” is largely a metaphor for such operating principles, then ITEGA at this stage is very consistent with the gestalt of the blockchain movement, once you get beyond the very abstract and application-unspecific technology of chains of data blocks that are cryptographically linked. But it is too early to declare ITEGA as part of that movement — that will be determined by its governance process, by evolving perceptions of the term — and by eventual operation of ITEGA services in the marketpace.
On Oct. 12, 2017, the author said this at a panel at the Donald W. Reynolds Journalism Institute: “Thus blockchain as a buzzword represents more of a concept than a technology. It’s a concept of completely eliminating or reducing as much as possible a single point of failure or a Big Brother that’s in control of something. And I think we are going to move in that direction, and I think we’ll move in that direction around distributed identity, and around distributed user management. But I’m not sure there will ever be a system for micropayments or small payments or aggregation of payments — the ability to have one account that works at lots of different websites — that doesn’t have some core, shared, trusted function, because I don’t know how you manage trust ultimately without that.”
How the blockchain is changing money and business
Veteran Silicon Valley analyst Don Tapscott extolled the blockchain metaphor in a Sept. 16, 2016 TED Talk, citing five opportunities:
- Protecting rights through immutable records
- Creating a true sharing economy
- Ending the remittance rip-off
- Enabling citizens to own and monetize their data (& protect privacy)
- Ensuring compensation for the creators of value
Here are excerpts of his points about Nos. 4 and 5:
“The most powerful asset of the digital age is data. And data’s really a new assets class. Maybe bigger than previous data classes like land under the agrarian economy or in industrial plan or even money. And all of you, we, create this data. We create this asset. And we leave this trail of digital crumbs behind us as we go throughout life. And these crumbs are collected into this mirror image of you. The virtual you. And the virtual you may know more about you than you do. Because you can’t remember what you bought a year ago or said a year ago or your exact location a year ago and the virtual you is not owned by you. That’s the big problem.
“So today there are companies working to create an identity in a black box — the virtual you owned by you. And this black box moves around with you as you as you travel throughout the world and its very, very stingy. It only gives away the shred of information that’s required to do something. A lot of transactions, the seller doesn’t even need to know who you are. They just need to know that they got paid. And then this avatar is sweeping up all this data and enabling you to monetize it. And this is a wonderful thing, because it can also help us protect our privacy. Privacy is the foundation of a free society. Let’s get this asset that we create back under our control, where we can own our own identity and manage it responsibly. (audience claps).
“Finally, there are a whole number of creators of content who don’t receive fair compensation. Because the system for intellectual property is broken. Was broken by the first era of the internet. Take music. Musicians are left with crumbs at the end of the whole food chain. You know if you’re a songwriter, 25 years ago you wrote a hit song and it got a million singles, you could get royalties of around $45,000. Today if you’re a songwriter you write a hit song, it gets a million streams, you don’t get $45K, you get $36 — enough to buy a nice pizza.
“So Imogen Heap, a Grammy-winning singer-songwriter , is now putting music on a blockchain ecosystem. She calls it Mycelia. And the music has a smart contract surrounding it. (VIDEO) And the music protects her intellectual property rights. You want to listen to the song it’s free or maybe it’s a few microcents that flow into a digital account. You want to put the song in your movie that’s different and the IP rights are all specified. You want to make a ringtone that’s different. She describes that the song becomes a business. It’s out there on this platform, marketing itself and protecting the rights of the author. Because the song is a payment system, in teh sense a bank account, all the money flows back to the artist and they control the industry rather than these powerful intermediaries. (audience claps). This is not just songwriters it’s any creator of content, like art, like inventions, scientific discoveries, journalists. There are all kinds of people who don’t get fair compensation and with blockchains they are going to be able to make it rain on blockchain, and that is a wonderful thing.”
Fred Wilson: Could Blockchain-based systems replace Facebook?
(Comments by Union Square Ventures Managing Partner Fred Wilson at a May, 2017 conference in New York City, as transcribed by Technomy’s David Kirkpatrick and posted Nov. 2, 2017:
“I think probably the most disruptive business model is the token model that we’re seeing emerge in the blockchain. It is really a native business model for the open source, creative commons. It’s like Wikipedia or Linux–systems that are decentralized, open and community-powered . . . .
“The architecture of the Internet is beautiful, but there are a bunch of things it doesn’t do very well. Things are getting hacked right and left, and there is malware and spam and phishing. And the monetization models tend to be very attention-driven. And all of our data is stored in someone else’s servers and not on our own servers. So our search history, Google has; our purchase history, Amazon has; our friend graph, Facebook has . . . .
“New technologies will emerge that will fix those things . . . we’re going to have decentralized storage, decentralized compute, decentralized security. All these things are going to be monetized with a token or a coin-based business model, as opposed to a subscription or advertising-based business model.”
LONG NYTIMES MAGAZINE PIECE, JAN., 16, 2018:
MIT Sloan School primer on “blockchain” and distributed ledgers, May 25, 2017:
“Investing in bitcoin is antisocial,” by David Kirkpatrick, Techonomy, Jan. 18, 2017:
White papers from the ID3 initiative at the MIT Media Lab:
Ethereum creator Vitalik Buterin, says blockchain tech could steal business from Visa soon:
Blockchain possibilities for aggregating identity data for advertising | Feb. 28, 2017:
The power of cryptocurrencies is to create and distribute money without a central authority | July 31, 2017:
“Everything you need to know about blockchain technology | Dec. 13, 2017:
Ozy’s comic-book editing of “WTF is blockchain”?
Blockchain massively simplified:
The blockchain and us: A documentary film by Manuel Stagars | 2017 | 31 mins.
Warburg Explains The Technology In Five Increasingly Complex Ways:
Blockchain demystified / Daniel Gasteiger:
The blockchain revolution | Rajesh Dhuddu:
How blockchain technology can help build a transparent future:
Blockchain: A technology to transcend time | Leanne Kemp:
Blockchain and a new paradigm of collectivity | Matan Field: