By Megha Merani
Blockchain is one of the buzzwords of the modern business world, but there is still a lot of ambiguity and uncertainty surrounding it and the impact it will have on the global economy
There are three kinds of laypeople you are likely to encounter at an event with a blockchain panel on the agenda.
First, the sort that still shake their head and say: ‘it’s never going to catch on’. The second set are all suited up with the latest fad speak and rattle off all the right jargon to sound nearly expert enough, even if they don’t always know what they’re talking about. The third group typically lament the colossal loss of not investing in bitcoin.
From real estate to banking, supply chain, education, retail, healthcare, art, government and more – it is impossible to go to any sector conference in the UAE today that isn’t having a discussion around blockchain.
Panelists, seemingly speaking a secret language that no one really understands, earnestly and emphatically insist that blockchain is, unequivocally, the future - and that people had better start getting on board, quick.
While blockchain has entered mainstream discourse, let’s be honest, the extensively broadcast buzzword is still baffling business laypersons who, by now – as popular internet memes suggest – are likely thinking ‘I don’t know how this works and at this point it’s too late to ask’.
First off, here’s what it’s not: Blockchain is not bitcoin, nor is bitcoin blockchain.
Roberto Mancone, chief operating officer at Dublin-based We.Trade Innovation DAC, counts this as one of the oddest questions he’s been asked about blockchain. We.Trade is a joint-venture company owned by 12 European banks, that developed and licensed the first blockchain trade platform for commercial clients and their banks.
In an interview with Arabian Business ahead of the Future Blockchain Summit in Dubai, he says: “Is blockchain bitcoin? Answer: is internet Amazon? If not, then you are on the right track to understand what blockchain is and could become.”
The most commonly used internet definition refers to blockchain as a “distributed, decentralized, public ledger”. Other web explanations refer to its more literal meaning: Just “a chain of blocks”, wherein “blocks” are made up of digital pieces of information that are stored in a public database, referred to as the “chain”.
This shared, secure database is managed by a global network of computers, also referred to as miners.
“Blockchain is a technology that allows users to create a reliable and immutable system for recording any kind of transaction or information,” Mancone says. “There is no need for an external or internal authority: every user relies on the technology itself, following predefined rules to meet consensus and ensure the integrity and authenticity of the data.”
But if none of it makes any sense, it doesn’t really matter, assures Omar Jackson, director at blockchain advisory and investment firm Cryptech World and Partner at Berkeley Assets (Dubai and UK).
“In terms of blockchain, the general understanding is still very poor and needs lots of education,” Jackson says.
“But the analogy that is often used is that a general consumer doesn’t understand the technology behind the internet, yet they know how it impacts their lives. The same can be said for blockchain.”
In terms of blockchain, the general understanding is still very poor and needs lots of education
The most important thing to realise is that the technology cuts out middlemen and allows people to transact directly, explains Mohammed Alsehli, founder and CEO of UAE-based public blockchain start-up ArabianChain Technology. “Blockchain is a technology revolution that is helping us to get rid of intermediary parties and creating a network based on value and trust,” he says.
A blockchain allows anyone to directly send ‘value’. A person transacting on the blockchain has a private, cryptographically created key to the blocks of information that he or she ‘owns’.
Using the private key and someone else’s public key makes it possible for a person to transfer the value of what they own, which is stored in a section of the blockchain. For instance, a key can be used to transfer a block containing a unit of cryptocurrency, like bitcoin, that has financial value.
“The major difference between the internet and blockchain is that the latter will enable the internet of value in the future,” Alsehli explains. “The internet today is the internet of information. The information base creates transactions of data. Blockchain is giving those transactions value. For example, if you’re sending a picture of a cat to someone, it’s actually a copy of the original picture on your phone that you are transferring. With blockchain you would send the exact token, so it’s the exact value, and you cannot resend or resell a copy. With that token transfer, you have sold ownership of the picture. This is Internet 3.0.”
Tokens can represent money, ownership rights to cars, real estate or phones, intellectual property or anything that has a value associated with it.
No one can edit a blockchain without having the corresponding keys, which means users can only edit the parts of the blockchain that they own. This establishes trust, verifies identity, and fills the role of recording the transfer – a task that is currently carried out by traditional, centralised institutions like banks, exchanges or government agencies.
This ability to transact directly, securely and more quickly has the potential to disrupt intermediary businesses and solve age-old security and data privacy problems that plague centralised systems.
“Before, we were not able to solve the issue of double spending, double transactions, or fraud sellers,” ArabianChain’s Alsehli adds. “Here you are transferring exact ownership. Once I’ve sent something on blockchain, I can’t resend it. Whatever is sent, is the original. Your private key lets you access and control your data.”
It also avoids duplication of data in separated ledgers, reduces redundancies and cost, We.trade’s Mancone says, adding that blockchain has “the potential of rewriting business models”.
Phil Chen, decentralized chief officer at Taiwanese consumer electronics company HTC, says he is a big believer in people being able to own their own digital identity, assets and data. It’s why he’s founded and leads the EXODUS project at HTC, the world’s first smartphone built for the decentralised internet, or Web 3.0, which he believes can empower and educate users to “wrestle back control” from the world’s largest tech companies.
“Every week, we are seeing new abuse of privacy from large tech companies who have continuous disregard for users data and their overall security,” Chen says.
“These giants such as Facebook, Apple, Amazon, Netflix, and Google in the Western world and Baidu, Alibaba and Tencent in the East, have accumulated so much power in our personal lives and there is a shift in how a lot of people feel about it. Where once people were happy to give up some data for the free use of services, their mindset has switched having seen the blatant disregard for how it has been manipulated and abused by bad actors that are facilitated by these large tech companies.”
HTC has run various surveys, Chen says, which found that “100 percent of people” would have opted to block tracking services after seeing the amount of data that companies accumulate on them personally.
I was once jokingly asked ‘is blockchain going to end global poverty too?’
“Blockchain [is] a new infrastructure for the internet that enhances privacy, security and places the user with all the power,” he says. “Allowing people to own their own data [is] a fundamental and monumental shift.”
The most talked about working example of blockchain technology is the creation and trade of cryptocurrencies like bitcoin. The blockchain serves as the public ledger for all bitcoin transactions.
By using blockchain, bitcoin became the first digital currency to solve the double spending problem without the use of an authoritative body or central server because, unlike electronic files, coins or tokens cannot be duplicated and spent twice.
The true identity of bitcoin’s creator Satoshi Nakamoto is unknown. But the digital currency bitcoin, or the timing of its launch anyhow, is commonly believed to have been inspired by dissent with the inefficiencies of an outdated centralised banking system following the 2007-2008 global financial crisis. With the demise of investment banks like Lehman Brothers – the biggest bankruptcy filing in US history, with more than $600bn of debt – Nakamoto launched the peer-to-peer electronic cash system, empowering individuals with autonomy within the financial system.
“Blockchains are special because they are the first thing of their kind that have brought in such decentralisation and taken power away from centralised government through the use of monetary controlling and issuing,” Franklyn Richards, founding director of LiteCoin, the sixth largest cryptocurrency in the world, tells Arabian Business.
“With decentralisation comes many benefits so we can interact in a far freer method and people can choose what they want to do with their money, and that opens the door to really free markets and people more than we’ve ever seen throughout human history.”
The simplest definition, Richards jokes, that cryptocurrency creators use to explain the concept to people is by calling it “magic internet money”.
On a serious note however, he adds: “You control your money, no bank can access it or spend it and you can really do with it what you want. It’s effectively just money but better.”
But until regulations and parameters for use are made clear, the implementation of blockchain is in limbo, Cryptech World’s Jackson says. “What limitations will there be on the technology? Businesses won’t invest until they know the regulations within which to operate.”
Sunil Thacker, senior partner at UAE-based STA Law Firm, admits that blockchain is witnessing a lot of legal concerns.
“To consider the jurisdictional aspects, there are concerns with the approach towards title, ownership, contractual obligations and liabilities,” he says.
“Additionally, these processes vary and can be fundamentally different from country to country, adding another layer of complexity when dealing with two international companies.”
Questions like ‘what’s blockchain?’ will become a thing of the past, similar to ‘what’s an email?’
Challenges can also arise when considering the enforceability of digital or smart contracts, liability, intellectual property rights (IPR) and privacy, he adds.
With all the buzz around the disruptive technology, experts caution businesses not to jump blindly onto the blockchain bandwagon.
“There’s certainly a lot of people who talk about doing things on blockchain which make little to no sense,” LiteCoin’s Richards says.
“People think that blockchain will solve everything [but] that’s simply not the case. Blockchain has very specific use cases and money is potentially the most important of them. I would really like the UAE, as well as many countries around the world, to recognise the actual value propositions of blockchains such as bitcoin and LiteCoin. It’s not all about trying to put everything on blockchain but it’s more about building a system that’s going to last for a very long time.”
Understanding the difference between public and private blockchains is also crucial to the development of worthy use cases, ArabianChain’s Alsehli stresses.
“A very senior advisor to a government once asked me: ‘What is the license to have a blockchain?’. He thought it’s like buying a Microsoft Windows license,” Alsehli recalls. “After about two hours of explanation and discussion, he said to me: ‘We are doomed. This changes everything... it’s too disruptive... you can’t just have no intermediary and just let people transact.”
While public decentralised blockchains like those used for cryptocurrency transactions “scare” businesses and governments, Alsehli says private enterprise blockchains can offer the benefits of a public network without losing full control. Private blockchains enable organisations to employ distributed ledger technology without making data public.
With all the hype around blockchain over the past years, Dr Aisha Bint Butti Bin Bishr, director-general of Smart Dubai says blockchain enthusiasts “seem to exaggerate its benefit” considering blockchain as the solution to all problems.
Recalling a funny conversation, she says: “I was once jokingly asked ‘is blockchain going to end global poverty too?’ To which I then did respond that though blockchain may not directly end poverty, its application is a pathway to potentially saving several billions of dollars and also leading to the creation of new business models and a new set of jobs that may help exponentially reduce unemployment and poverty.”
Very simply, Bin Bishr says, the concept of blockchain in 2019 is equivalent to what people thought of the internet in the 1970s.
“The internet was a brand new technology back in the day and most people had no clue about its power, but today it has revolutionised every single aspect of our lives - how we live, work and communicate. Similarly, blockchain is going to revolutionise transactions for all industry sectors, by digitising transactions, eliminating middlemen, and increasing efficiency and profitability as a whole.”
For example, Bin Bishr says, the Smart Dubai Payment Reconciliation and Settlement System, the first blockchain pilot that went live in September 2018, reconciles payments between government entities and banks within seconds - a process that previously took 45 days.
“Additionally, Dubai Land Department is testing an end-to-end solution to allow residents and visitors to buy a property in Dubai on a blockchain network. Dubai Land will be integrating developers, banks, the Dubai Land Department, brokers and all other entities that are involved when buying a house in Dubai.”
So far, more than 20 government and private sector use cases have been identified by Smart Dubai with pilot phases being run across several sectors in the emirate, including energy, transport and logistics, tourism, health, education and employment, economic development, safety and justice and social services.
Bin Bishr admits, however, that implementation is still one of the biggest challenges of blockchain technology making it is crucial for governments to work with the private sector and identify policies and laws that will best work for their respective city.
“Due to the inherent nature of the technology, collaboration among entities plays and extremely vital role,” she says. “The more entities we have on a blockchain, the more successful its use will be. But more players on a chain, brings up several questions: Who will invest to build the blockchain? Who will own the data? Who will manage the blockchain network? Are we allowed to bring in more partners? What will it cost for a new partner to join?”
She adds: “Smart Dubai is finalising the blockchain policies for Dubai and will be publishing them very soon.” Once these documents have been have been published we look forward to having more clarity when it comes to the area in general and, going forward, questions like ‘what’s blockchain?’ will become a thing of the past, similar to ‘what’s an email?’ and ‘what’s an ATM?’.
Dr Aisha Bint Butti Bin Bishr, director-general of Smart Dubai, on why Blockhain will play an important role in the emirate’s future
“As one of the Dubai Blockchain Strategy’s key pillars is industry creation, we have partnered with the Dubai World Trade Centre to organise the Future Blockchain Summit, which is the largest blockchain conference held in the world annually. The 2018 Future Blockchain Summit hosted more than 8,000 attendees and in this year’s edition held on April 2nd and 3rd. We are expecting over 14,000 attendees.
“For a person with little or no knowledge on blockchain, attending the Future Blockchain Summit will be the perfect first step to learn more. Apart from speakers representing different industry sectors talking about their use cases and how blockchain has helped grow their business, the summit also provides 101 sessions teaching beginners the basics of Blockchain.”
A process where all participants or peers of the network agree on the validity of the transactions to maintain a distributed ledger.
A representation of a digital asset exchanged on a blockchain system. Also known as tokens.
Ethereum is a decentralised platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.
Initial coin offering (ICO)
A blockchain-based fundraising event in which developers of a new cryptocurrency sell advance tokens in exchange for capital.
The process of validating and adding transactions to a blockchain. Coins or tokens in exchange for validation works as an incentive for miners.
A computer program that encodes and stores business rules between parties on a blockchain that are enforced by network participants.