This article is provided for information and education purposes only and is not intended as investment advice. Readers are encouraged to do their own research and consult a professional before making any investment decisions.
For many years, our view of the governance model for information was based on the centralized approach. Even now, in the 21st century when most information is already stored in databases, we have gotten used to the idea that data that belongs to us… is not managed by us. Instead, it is managed by certain trusted parties such as governments (national registers), banks (financial databases), private companies (social networks) and so on. However, the rise of Bitcoin has sparked a new debate about the need for those controlling third-parties. Now that we’ve managed to build a transparent, auditable, independent financial system that requires no intervening third-parties, blockchain advocates naturally wonder why we can’t apply these properties - or at least some of them - to other systems. After all, the blockchain has opened the door to a fundamentally new way of managing data - one that belongs to the community. This is the primary question that we’ve decided to cover in this article.
The way things are today
The current method of organizing data has a substantial disadvantage — traditionally organized databases are inherently vulnerable. In fact, one of the primary roles third parties play is to provide security for these centralized systems. For example, national registries rely on government to manage security solutions that ensure the safety of their databases. Those solutions seem to involve nearly every security measure imaginable: security administrators, firewalls, barbed wire fences, armed security guards, a moat with crocodiles, and – well, you get the picture.
Sometimes national registries are public; sometimes not. The need to provide an environment of extreme security provides an excuse for governments to manage registries single-handedly. Sometimes it’s even an excuse to keep registries private and inaccessible to regular people, as government effectively says, “Just trust us; we know what we’re doing.”
On the other hand, there’s Bitcoin — a completely open financial database that is also secured. No one can hack or somehow compromise the database because it is distributed in a way that makes it immutable and secure. And you don’t need to trust some third-party to manage Bitcoin because there is no centralized third-party involved. Since it is managed mutually, the only thing you need to trust is the correctness of the protocol on which Bitcoin is based. As we noted earlier, blockchain - the backbone technology of Bitcoin - has presented a new way of managing data that belongs to the people. It’s precisely this unique combination of transparency and privacy that blockchain allows, and many are only now beginning to come to terms with this new reality.
What blockchain offers
Blockchain technology allows for data reconciliation between independent parties, even when they do not necessarily trust one another. As a result, a properly built blockchain-based platform may offer a number of benefits, such as:
- Database integrity. All changes in the database are ‘kept’ in blocks that are securely interlinked with each other, which makes it practically impossible to alter the previously confirmed data. As if you try to pull out one piece of the complete puzzle.
- The ease of the infrastructure relocation. The technology allows for an easy shift between the single-server and the multi-server model of data processing. The nodes of the blockchain-based platform synchronize with each other in real-time, which means that you can expand the network without the loss of the existing infrastructure because you don’t need to coordinate servers with each other. The launch of a new network node can be done within a very short period of time, while the very process of synchronizing servers is much more secure.
- Fault-tolerance. The breakout of one or couple servers won’t crash the whole system because other servers contain the same copy of the database.
- Invulnerability of the database. This is one of the key aspects here. You no longer need ‘surroundings’: firewalls, fences, dogs, and crocodiles:) With blockchain, the database, itself, is secured because the data is stored and synchronized across an unlimited number of servers. There is no specific ‘place’ that you may try to compromise. The database is distributed.
Having analyzed the capabilities of the technology, you may no longer be surprised that there are activists who “storm governments with the blockchain”. Indeed, blockchain technology has all the required properties to disrupt and change the whole data management infrastructure. So, has humanity finally invented technology that will allow us to manage ourselves without anyone’s interference? Well, yes... but not completely. Nothing is ever that simple, after all.
Recognizing the Limitations
Some people assume that blockchain will replace regulators. It won’t. Regulators aren’t going anywhere. The fact that we’ve managed to build an independent financial system doesn’t mean that we can build an independent decentralized governmental system. At least, not yet.
Let’s go into the specifics. What makes Bitcoin authentic? It is a database where users store and transfer assets (BTC coins). It doesn’t have any privilege levels, but only one set of privileges common to all. Each user can verify the integrity of the database and be the validator by participating in mutual decision-making: transaction confirmation, upgrade management, etc. In such a system, everyone is verifying the integrity of the whole endeavor. The trust parameter is almost ultimately excluded. Malicious data alteration is practically impossible, due to one objective fact — it’s virtually impossible to fool anyone when you’re in the public eye.
Now let’s consider why we can’t just brace up and achieve complete decentralization in all or at least most processes in our society by making all accounting systems as independent as Bitcoin is. The reason is very simple. Bitcoin database doesn’t have any dependencies from the external world. Instead, all the data is ‘created’ within the system, according to the rules pre-defined by the protocol.
If we take a digital ownership platform as a comparison, we’ll see that the data in its accounting has dependencies from the outer world. You cannot determine the rules by which the protocol will be able to verify your identity, make sure that the apartment you ‘digitally own’ actually exists or check that the bricks (digital tokens backed by bricks) that you bought haven’t decayed so you can have them delivered right alone. The same issue applies to the national registry or any other governmental accounting. In such systems, you always need some trusted party, organization, or government agency that will be responsible for putting authenticated data in the database.
Technically, these issues are solved with the aid of so-called oracles — trusted or partially trusted parties that collect data from the ‘exterior world’ and enter it into the database. Obviously, you can't avoid trust here. All you can do is minimize the risk of their collusion by choosing a wide range of independent oracles who pass data. In the future, blockchain technology in combination with this mechanism will have the true potential to replace notarial services.
The sound practice of Blockchain
It is important to soberly understand what blockchain is capable of and recognize its limitations. Otherwise, it leads to the wasting of time and money. That’s already a problem in the current market, as there is an overabundance of hype. For this reason, we’ve decided to throw the light on 5 fundamental applications of the blockchain technology. Knowing them helps you to realize the basic application point.
Neither blockchain nor any other technology will ever allow us to eliminate the trust factor in our society altogether. By any measure, our relations hinge on a social consensus that cannot be achieved by algorithms, at least not yet. Instead, it is reached manually. And that is basically one of the main - if not primary - objectives of governments — to forge relationships within society. The blockchain’s foremost objective is to make this very process much more transparent.
Voting, public registries, settlements of accounts between departments, tax collection and allocation — these are all examples of accounting processes to which blockchain may introduce transparency in the very near future. Besides, this future will come as soon as there will be certain drivers essential for broad blockchain implementation in the real sector.
Obviously, “storming governments with the blockchain” is not about overthrowing ministers. Instead, it is an effort to achieve greater democratization of the whole ecosystem of data management and the very way in which we interact with the government.