Blockchain the Return of Trust

As you read this, try to liberate yourself and shed links with the past. This is the lens through which you need to look at Blockchain as your prejudices may make you blind to the opportunity.

Blockchain’s Relevance

Here is the thing, and something you may not of occurred to you until now; we are entering a new era, a new age of TRUST. Yes, trust. A word that conjures strong emotions and memories of being let down by others. For many, Blockchain is just another over-hyped technology, but for others who have been immersed for some time, Blockchain delivers a new level of openness and transparency to see beyond the opaqueness of central institutional control and layers of non-value added activity. Please hold this thought.

It is a distributed technology that begins with a permanent record of things (people, value, assets, things) that sits on a digital ledger. Simple. The technology sits above the Internet layer alongside the World Wide Web. This is why people often refer to Blockchain as the upgrade to the Internet of Information (to become the Internet of Value), that has been long overdue.

The core architecture of the Blockchain focuses on security and assurance using cryptography and a consensus algorithm to verify things (transactions primarily). As a result, there is often a compromise in performance. Also, try to think of Blockchain like this. It removes the vulnerability of middlemen by eliminating the non-value add of layers created by administrative activities and related tasks and where at each stage our Identity and Security is challenged and penetrated. Ultimately, the more layers there are, the more opportunity to attack (Sybil) open transactions and data as information passes between them.

Identity Matters

Look, you may have realised the Internet is fundamentally insecure and vulnerable. Or maybe you haven’t because you have not had your identity stolen. I have twice and it isn’t nice. Only then do you realise the burden of proof is on you to prove who you are and that you really have been a victim of crime, and then you realise the people your are trying to convince have a different version of you. It is, of course, a complete farce that we don’t control our identity. Simple password protection is not enough, and it is other people that make your identity vulnerable by trading and moving it between the parties in each industry sector as part of everyday transactions.

The WWW is the Wild West in terms of protecting identity. Forget SSL and the little Padlock Sign, forget the three-digit number on the back of credit cards (as most people in call centres write these on paper), forget trying to hide your postcode and house name (all available on public record)… and so it continues. Information about you is everywhere. It resides on hundreds if not thousands of centralised systems (databases) controlled by the few people collecting it over which you have zero input or control – even over who has read access.

Why trying to protect Identity – Is a Myth

The things we think are secure are not. Our private information is touted around every day between departments and subsidiaries in companies and as we trade and buy, browse, and enquire on social platforms and markets, other people create many versions of us on the Web. These are avatars of you and they are your online persona. Each social media platform (Facebook, LinkedIn, Google), each trading site (Amazon, eBay, Alibaba), your bank, the credit rating agencies, the tax authorities and government all have a version of you. It may be based on a portion of your complete identity, mostly inaccurate, but it exists. And hackers know this and will probably piece together a better version of you than you.

These avatars have an enormous impact on our lives, how much you can borrow, and what your entitlement is relating to benefits and rights of ownership.

The current iteration of the Web is anonymous, and the software applications supporting HTML and HTTP allow identity to be played with, to be manipulated, and faked. Your ISP provider allows you to have an email address or buy a URL for a website that is really just a TCP/IP address. The person(s), entity or organisation behind these have not been validated or true intent or purpose established. And yet, billions of people trade and transfer money, assets, and things that, because of this uncertainty, have to pass through a central authority – a central point that attempts to validate who, what, why and where and essentially determines alone what is the truth.

Identity remains the most fundamental issue for business, government, security and commerce.

Who controls Identity and Ownership.

Well, it isn’t you, but it could be.

With the advent of Bitcoin Blockchain that uses elliptic curve cryptography, the role over who controls identity and validates ownership fundamentally changes. The many layers start to collapse as the Peer-2-Peer nature of the technology eliminates the middlemen and the centre, and delayers the rest. This is the essence of a Blockchain Operating Model.

Blockchain architecture using Smart Contracts verifies and executes rights of those that own things (Shares & Financial Instruments, Works of Art, Diamonds, Land etc) and linking these to you, in terms of entitlement and fundamental right making sure the things that are meant to happen actually happen, and they don’t leave copies of your personal information on the photocopier.

There is a good reason Blockchain uses the asymmetric cryptography on which Bitcoin keys and addresses are created, ignoring the man in the middle and rendering redundant the armies of middlemen and administrative layers that add no value, just seek to control who the process of validating who you are and your entitlements (hardly value add, but they convince themselves it is important). Blockchain is a Peer-2-Peer relationship where the parties agree to trade, not the middlemen, and validation is based on a system that delivers Consensus that ensures good actors are protected and bad actors are identified. Only Blockchain Operating Models make this possible.

One thing that gets up my nose are the Utility companies that call your home and demand that you confirm your home address, postcode, date of birth, just to pay a bill. Why do they need you DoB to pay? Nonsense or is it the call handler trying to gain access to more about you…? Often, this is a complete stranger from overseas discussing your personal information without you having the opportunity to validate their identity. British Gas is particularly unpleasant to deal with. Apparent security questions that could be written down and read by someone who’s not you. The ridiculous farce continues. They have called you, and, of course, all calls are ‘recorded for quality and training purposes’. which is complete bull.

Strangers control your avatar – they have access to parts of your identity and they are liberal with it as the data passes between parties. Despite Freedom of Information Acts, Data Security, and others, you are kept from seeing information about you, although, apparently, these public Acts are there to protect us. It is, of course, theatre, a nonsense as you are totally reliant on others you don’t know to get it right and you pay through the nose when they don’t.

More ineffective Rules And Regulations

Why do these strangers working for faceless corporations need to know this stuff? Why is it they want you to confirm information about you when it is they who are calling you? The simple answer is they don’t trust the information they have about you, or other people’s information to confirm who each party is at each end of a transaction. These Acts are meant to help, but instead, KYC and AML is forced to extract more information. They are used to protect the corporation to show that they have attempted to validate identity, rather than the customer whose information is being scrutinised and at risk. The data they have they don’t trust, the data they get from partners and third parties they don’t trust…

This is the fundamental problem with commerce today.

Lines of Trust

The bottom line is that there is no Trust of the information held in what are mutable databases, that are centralised and can be changed and updated after the event. My senses tell me it is getting worse, or is it because I want to trust? In all manner of industry sectors – banking, capital markets, pensions and fund management, investment and wealth management, healthcare, music or general insurance, among others – one has to confirm one’s identity at every stage and at every level. Your identity and all the information about you is held in different places that cannot agree beforehand who you are, what you own you own, and where to money came from: The ultimate source, the provenance, the Proof.

Banks Make It Worse

The system is flawed. The level of trust has gotten worse following the 1991 and 2007 market crises, when banks, regulators, and government were found wanting. Not only that, it became apparent they knew what was going on, or at least had the information but either ignored it or didn’t do their job.

Only this week, Wells Fargo was found to have been mis-selling on a massive scale, and bank executives again being rewarded for it. Yet the public appears numb to it because nobody cares, because they have no recourse anyway: the game is loaded.

Where to place trust is a big problem, as people are programmed to want to trust but time and again the systems let us down. A recent survey suggests people have more confidence and place more trust in Amazon, eBay, and Apple than their bank, their government, and the authorities elected to police things. This is not a very satisfactory state to find ourselves in… and the primary reason Satoshi Nakamoto decided to design a system (2008) that was intrinsically fairer, that removed the reliance on the centre and layers, that is secure in an attempt to restore trust (in financial systems anyway).

Frictional Cost

What aggravates me is that we pay for the inefficiencies and incompetence of the organisations that employ armies of people in departments that attempt to access poorly kept records because they have not invested adequately in technology, conveniently hiding behind KYC, AML, and Compliance, a function that strangles business and pushes trust to the edges of commerce.

Between banks, solicitors, accountants, brokers, and exchanges, there is no trust. Even between operating subsidiaries and close partners, there is no trust, it seems. KYC and AML, Compliance and Audit only have a role because of different versions of the Truth, which is an oxymoron I know, but you get what I mean. Each party has their own information, but they need to check what others have first before agreeing or validating the transaction because they don’t really believe their own. It is frictional tax for their being inefficient.

In Blockchain, the Lines of Trust are identified as the Consensus model is agreed. Data as information is hashed into an immutable data store as the Golden Source. This is verified, time and date stamped. Software and Hardware Oracles and side chains, then provide the validation and find the multiple versions of your avatar to authenticate you, the transaction about to take place, the ownership of things, assets, and value as Smart Contracts enforce rights and terms, align entitlements, ensure payments and link with other Smart Contracts to get things done quickly, efficiently, and without frictional cost.

The cost of doing business has escalated because Compliance demands it to enforce the rules and regulations and justify armies of compliance, audit, and admin people checking and re-checking, reconciling and validating everything. With Blockchain this all falls away.

Blockchain’s fundamental design allows individuals to win back control of things, of value, and Identity.

Implementing Blockchain solutions is very complex but there are huge advantages when done correctly and where identity is one of the core strategic pillars. There are several models to look at, and there are many that will only deliver a technology dead end in terms of performance, smart contracts, available resources, and flexibility. And this is why I spend my time searching for Blockchains that have been ‘forked’ to deliver the essential building bricks and performance for a long terms Blockchain implementation. If you want to know more about Forking read my next article which is released on Monday.

There are enormous advantages for recording the ownership and rights of Asset holders, and other Things of Value to create an immutable Golden Source, a source that delivers Identity out of the box, upfront as a reliable source, a starting point that move you forward without looking in your rearview mirror. The biggest decision of all remains Consensus.

Proof of…

To get your head around it – The Blockchain – you have to unlearn the things you know about business, the rules, and behaviours of the past authority and decision lines of the command that controls organisational hierarchy. You have to understand that the multiple layers within an industry sector add no value and creates frictional cost.

The ethos, the mantra of the Blockchain is a focus on security (Proof of Security), on protecting Identity (Proof of Identity) and making sure Ownership (Proof of Ownership) is accurately maintained as a basis for delivering consensus. The Verification of Who and What is an algorithmic mathematical problem (the Byzantine Generals Problem) that validates Proof of Things; requiring huge work and investment to ratify the transaction and confirm the Good Actors from the Bad Actors. A public layer of security where anonymity is also a true Identity and trust delivered by the crowd by hashing the truth as it appears and written to the Blockchain.

But of course, the basic layer of a Public Blockchain is inadequate and not the full answer, and most implementations will fork using a hybrid version of Blockchain. The real challenge of Identification in a decentralized model, where there is no one central authority deciding, is – to return to the Zooko Triangle – that a decentralized architecture relies on identifying the human element as a central tenant.

What next…

With any Blockchain implementation, once you have decided the architecture – Public or a Hybrid – how governance and consensus works is that you can design a Blockchain Business Operating Model that delivers Identity upfront. Proof of Security, Proof of Identity, Proof of Ownership on a similar basis to Proof of Work principles, (or Proof of Stake) requiring a level on data, calculation and computing effort to write the truth to the Blockchain as an immutable starting point, the cold data store. A state machine.

Blockchain is moving at speed and it is important to get it right first time as the requirements can bump into restrictions and boundaries of the underlying technology as operations attempt to scale, latency is key and interoperability with other systems (legacy) is a vital issue. Make sure you choose the right Fork…

Get with the program, make your customer happy by simplifying your processes, don’t expose them to pointless calls and scrutiny going through KYC/AML because you don’t trust their information or your own. Be different.

There are many ways to automate KYC and AML, have authentication and validation layers automated as both Smart Contracts and Hardware Oracles that deliver data sources and sensory insight. Knowing ‘who’ is only part of the equation, Knowing ‘where’ when it comes to Assets is also as vital as Ownership Provenance, as assets tend to move and can be copied or debased – Proof of Location, Proof of Content e.g. precious metals, money, art etc…

Identity matters, embed it into your Operating Model and be as open and transparent as you are able. Decide the trusted parties you want to do business with, validate them and link them to your Consensus model, build them into your Operating Model at the core. Respect your clients Identity and Ownership by recording it only once and giving them access to their information… and trust in your business, your products and services will return. Customers will come to you because of Trust…it matters.

Join the Blockchain community today…


Author Nick Ayton

T: @NickAyton