Can Blockchain help unlock ‘dead capital’?

Blockchain technology’s most visible application is digital currencies like Bitcoin. But, the technology can be used almost anywhere where records have to be maintained

How can we trust anything we find online?
Wikipedia entries can be edited by anyone. Social media is teeming with half-truths and utter fabrications. Hackers are threatening the integrity of election outcomes. Against such a backdrop, can any endeavours requiring trust and immutability (being unchangeable) be conducted using the web?

But, as more functions of government, business and society move online, trustworthiness is more important than ever before. So, what new safeguards are available and affordable?

Blockchain can be one key solution. Originally conceived to manage the web-based ‘cryptocurrency’ known as Bitcoin, it is a powerful and decentralised technology that is now revolutionising the way people around the world exchange value. It has the potential to disrupt the worlds of finance, healthcare, education, governance and more.

“The technology likely to have the greatest impact on the next few decades has arrived. And, it’s not social media. It’s not big data. It’s not robotics. It’s not even AI…it’s the underlying technology of digital currencies like Bitcoin. It’s called Blockchain,” said Dan Tapscott, a Canadian who is one of the world’s leading authorities on innovation and technology, in a TED talk given in June 2016.

Tapscott is so enamoured by Blockchain that he thinks it can create a new era of global prosperity. He is not alone. Some economists and social activists are now promoting Blockchain as a strategy for uplifting the poor and reducing income inequalities across the developing world.

P2P COMMUNICATION
Let’s not get bogged down in technological complexities when trying to understand Blockchain. In fact, the basic concept is simple: placing transaction records in public and making them impossible to tamper.

Blockchain also enables peer-to-peer (P2P) transactions without an intermediary institution such as a bank or governing body that have, historically, authenticated transactions (but not always efficiently or diligently). Keeping the user’s information anonymous, Blockchain validates and keeps a permanent public record of all transactions.

Blockchain emerged in 2008 with an anonymous person (or persons) using the pseudonym Satoshi Nakamoto to release a paper outlining a protocol for a digital cash that used an underlying cryptocurrency called Bitcoin. It envisaged how trust can be established not by some big intermediary institution but by collaboration, cryptography and some clever computer code.

Since then, the technology ‘genie’ has escaped from the bottle, throwing up all sorts of possibilities that excite innovators and scare historical intermediaries. It has been slow to gain public attention, but that is beginning to change: In 2016, Don Tapscott and his son Alex authored a bestselling book to explain the Blockchain model in non-tech terms.

In Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business and the World, they argue that blockchains can be created to hold any legal document, from land deeds and marriage licenses to educational degrees and birth certificates. They call it the World Wide Ledger—one that enables smart contracts, decentralised autonomous organisations and decentralised government services, among others.

So, how does it work? As the Tapscotts explain, “Bitcoin or other digital currency isn’t saved in a file somewhere; it’s represented by transactions recorded in a blockchain—kind of like a global spreadsheet or ledger, which leverages the resources of a large P2P network to verify and approve each Bitcoin transaction. Each blockchain, like the [Bitcoin 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… and the blockchain is encrypted… it uses public and private keys (rather like a two-key system to access a safety deposit box) to maintain virtual security.”

What is the basis of its immutability? The Tapscotts write: “Every ten minutes, like the heartbeat of the Bitcoin network, all the transactions conducted are verified, cleared and stored in a block that is linked to the preceding block, thereby creating a chain. Each block must refer to the preceding block to be valid. The structure permanently time-stamps and stores exchanges of value, preventing anyone from altering the ledger… So the blockchain is a distributed ledger representing a network consensus of every transaction that has ever occurred.”

Blockchain enables peer-to-peer transactions without an intermediary institution such as a bank, and validates and keeps a permanent public record of all transactions

Every user of the Blockchain has a copy of the entire ledger of transactions that have taken place with that asset – and every subsequent successful transaction is uploaded on to each such copy of the ledger.

WORLD WIDE LEDGER
In August 2017, PC Magazine attempted another explanation. “Think of Blockchain as a historical fabric underneath, recording everything that happens—every digital transaction; exchange of value, goods and services; or private data—exactly as it occurs. Then, the chain stitches that data into encrypted blocks that can never be modified and scatters the pieces across a worldwide network of distributed computers,” wrote Rob Marvin, an assistant editor.

He added, “The power of Blockchain’s distributed ledger technology has applications across every kind of digital record and transaction, and we’re already beginning to see major industries leaning into the shift.”

Banks and tech companies have already moved in. One application is Blockchain-based smart contracts to execute all manner of complex business deals, legal agreements and automated exchanges of data. Microsoft and IBM are using their cloud infrastructure to build custom Blockchains for customers, and are also experimenting on their own.

A growing number of tech startups are using Blockchain for many and varied purposes—from global payments to music sharing, and from tracking diamond sales to the legal marijuana industry. It’s a versatile technology that can be adapted for anything that involves digital assets and transactions.

As PC Magazine noted, challenges remain. “A host of economic, legal, regulatory and technological hurdles must be scaled before we see widespread adoption of Blockchain technology, but first movers are making incredible strides. Within the next handful ofyears, large  swaths of your digital life may begin to run atop a Blockchain foundation—and you may not even realise it.”

UNLOCKING ‘DEAD CAPITAL’?
Hernando de Soto, a prominent Peruvian economist, was among the first to realise Blockchain’s potential for social justice.

He has long argued that the main problem in many developing nations is not capital per se, but the lack of property rights. According to him, many people in such countries are unable to develop plots of land or use them as collateral because they lack clear legal titles.

When the ownership of assets is difficult to trace and validate amid no legally recognizable set of rules governing them, they become what he calls ‘dead capital’, with no real inherent value. His global estimate of its worth is around $20 trillion.

De Soto and other Blockchain adherents advocate applying the technology to opaque, bureaucratic processes such as property rights registration to make them more transparent, secure and fast. In a 2016 interview, de Soto explained the intersection between Blockchain and land, titling: “What we are essentially talking about is re-writing something that is already formatted and standardised on paper. So, the question becomes, ‘what happens to the five billion or so global citizens who are not tied to the traditional property reporting system?’”

These five billion people are mainly in developing countries, as well as in the former Soviet republics. They hold ledgers that are related not only to land but to all their assets.

De Soto believes advanced reporting systems can allow for distinctions separating land, livestock, buildings on the land and water rights to nearby streams. This is where Blockchain technology’s qualities make a difference – with its hashes and ways of being precise, cheaper and more secure while preserving privacy and engendering trust.

NO MAGIC WAND
Countries around the world – from Sweden to Dubai, and Georgia to Britain – are beginning to adopt or test Blockchainfor  streamlining national property records. Two Indian states (Andhra Pradesh and Telangana) are also exploring a switch to Blockchain to record land deals digitally and bring greater transparency.

“If we can…record property transfers on a Blockchain ledger, we’d have an immutable history of every property transaction that can be viewed by everyone and yet tampered by noone,” says Rahul Matthan, an Indian lawyer and technology watcher.

There are many other benefits to using Blockchain for land records. Every entry will be accurately time-stamped, greatly reducing the chance for fraud. While transfers can be recorded on a public Blockchain to ensure transparency, “it is possible to store them on a private Blockchain by turning the record into a cryptographic hash, which will make the data verifiable without anyone actually seeing the data itself ”.

But, digital technology alone cannot solve all matters related to land, points out Sunil Kumar, director of land laws and policy at advocacy group Landesa. “What if the data is incorrectly captured? To get a clean record, you need clean inputs,” he said. “For that, you need community involvement, particularly in rural areas, to verify ownership and resolve disputes.”

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