Project Bletchley: How to Stop Worrying and Love the Blockchain
Last year, Microsoft introduced Project Bletchley: a vision for creating a blockchain ecosystem that makes it easier for businesses to implement blockchain technology while maintaining a high level of enterprise stability and security. Blockchain is an exciting topic: two of Gartner’s 10 predictions for IT organisations in 2017 focus on it. Because it is evolving so rapidly (and, frankly, the terminology and underlying tech can be a bit dense to digest) it is difficult for executives to get a clear sense of the applications of blockchain. This article is designed to provide a bit of insight into the way distributed ledgers are evolving and their potential to drive business value.
Now, if you understand what TheDAO attack , and the Ethereum hard fork are, this post is probably not for you. Chances are, you’re already keyed into the current existential crisis within the blockchain community, and this post will mostly cover familiar territory. If you’re a business executive, however, and these sound like headliners at this year’s Glastonbury festival – well then, by all means read on.
A quick primer on the blockchain
Before delving into the future of blockchain, and its potential to upend traditional business processes, here’s a quick primer. First, blockchain is not Bitcoin. They’re connected, but that’s explained a bit further down. Blockchain is a cryptographically authentic shared distributed ledger. In other words, it’s a method of keeping a record of transactions (a ledger) that, while there are many duplicate copies held by multiple users or organisations (shared and distributed), is also made secure by the same kind of technology that underpins current secure ecommerce transactions and digital signatures (cryptographically authentic).
While the record of a transaction is public, the identity of the entities engaged in the transaction remains obfuscated. That means that if one were to agree to a transaction (an exchange of funds, for instance), the record of that transaction would be publicly shared, providing immutable evidence that it has occurred without disclosing personal information about the sender or recipient.
From Bitcoin for baddies to business benefit
The value proposition for Bitcoin – one well-publicised use of blockchain technology – has been to democratise the process of paying and lending using a distributed ledger. It’s goal, in essence, is to disintermediate the financial services industry in much the same way Uber and Airbnb have disintermediated the taxi and hotel industry, respectively. The problem with this “democratisation” is that the regulations which apply to banks – say, the responsibility to report terrorist support, money laundering and other illegal activities – don’t apply with Bitcoin. As a result, Bitcoin has allowed a black market economy to spring up around it, often overshadowing the legitimate uses of the technology. So while banks have, not surprisingly, distanced themselves from these activities, about two years ago, they began to recognise the potential benefits of having a shared ledger. One shared view of transactions meant a reduction in the effort to reconcile each of their own versions of their ledgers, thereby saving time and money.
Blockchain 2.0 and the Ethereum hard fork
The efficiencies gained by viewing transactions in a distributed ledger was interesting for business, but the next stage in blockchain’s evolution came with the application of smart contracts –bits of code connected with transactions that can set rules and actions in place for transactions. In this “blockchain 2.0” world, these smart contracts can, for instance, execute a stock trade when a stock hits a certain price, or transfer ownership of specific assets from a parent to child if the child finishes university with first class honours, or provide an auto loan and adjust the insurance policy of a person as soon as s/he purchases a new car. In these cases, complex financial and legal arrangements are generated automatically across companies, and even across industries.
As one might guess, the ability to automate the execution of legally binding agreements is causing quite a stir in both the finance and legal communities. The potential industry shakeup is also generating opportunities for innovative and entrepreneurial thinkers. In fact, FinTech was the third largest category of unicorn companies – venture-backed companies with $1B+ valuations – behind eCommerce and Internet software & services. While the influx of capital to FinTech startups is helping to push the pace of blockchain innovation, traditional businesses are coming together – in consortia like R3 – to try to assess the real risk and real-world implications (financial, legal and societal) of adopting blockchain technology.
Perhaps the most recent example of real-world implications is the attack on a blockchain platform, Ethereum, in which a hacker siphoned off over £32M worth of the currency from the distributed autonomous organisation (TheDAO). That existential crisis I mentioned earlier? Members of TheDAO, which by definition is decentralised and non-hierarchical, have been split on whether or not to reclaim the stolen funds by, essentially, rolling back the ledger to the moment before the attack happened (aka a “hard fork” or permanent divergence in the Ethereum blockchain). Spoiler alert: they decided on a hard fork.
Project Bletchley: a vision for a distributed ledger marketplace
So on one hand, there’s the tremendous optimism (hype?) around the potential of blockchain technology to transform any industry where a distributed ledger could increase business value. On the other hand, that optimism is tempered by the concern over the security and accountability that have been raised by very public breaches and their aftermath. The vision for Project Bletchley is to overcome these concerns by using trusted middleware to interact with blockchains, and to develop a trusted marketplace for smart contracts within blockchains. We like to think of it as Blockchain 3.0 .
Here’s how it might work. Remember the example above of a student receiving certain family assets if s/he does well in school? Well there could be middleware (cryptlets ) that interact with a university’s student information system to independently verify the student’s academic record outside of the chain which triggers the smart contract on the chain to execute the contract. That same cryptlet could be used by graduate courses to help verify the academic records of applicants if it were made available as a service, or through the marketplace proposed in Project Bletchley. To focus on this single use case of the blockchain marketplace, however, is like using a single song on a playlist to explain how Spotify works. There’s a much more comprehensive (albeit more technical) description in Microsoft’s Project Bletchley whitepaper.
Blockchain beyond banking
The analogy of music is quite apropos for what’s happening in the financial sector with blockchain: think Napster. When this peer to peer music sharing app came out, it caused a major disruption among record labels and stores (what are those?). While the first iteration was fraught with all sorts of legal challenges, it eventually gave way to a digital delivery model in which the remaining music studios still played a key role. The landscape permanently shifted. New players emerged, and the companies that couldn’t find ways of providing value in this new world disappeared. The model spread beyond music to transform the way movies were distributed, and, some might argue, influence the way that we now find taxis and lodging.
Experts in a lot of sectors, not just in banking, think that we’re on the cusp some would say midst of a major disruption thanks to blockchain technology. Efficiencies gained through smart contracts could significantly disrupt the legal industry. The complex and nuanced information shared through cryptlets could replace electronic data interchange (EDI) for manufacturers. Blockchain is even being looked at beyond industry, by global organisations such as the World Bank and United Nations to help provide the kind of identity verification that would help empower billions of the world’s citizens to participate in the democratic process and gain access to basic financial services.
The future of blockchain
So what’s next for blockchain? Given the speed of innovation and the distributed nature of the technology it’s hard to say precisely how it will evolve over the next 12 months. What is a bit clearer, though, is the notion that the companies that will see the biggest benefit of this technology will do so with the help of folks (like, Microsoft and others) at the forefront of enterprise business strategy and digital transformation.
