This is the first in a three-part series by Seth Litwack exploring the potential uses of blockchain.
Due to the prevailing forces driving global e-commerce, privacy professionals are keenly aware that individuals are rapidly losing control of their personal information. Even sensational news stories about the latest massive data breach have become a routine and unexciting. Many privacy professionals fear a day of reckoning as we cede control to weakly-regulated entities, and increasingly pervasive technologies and algorithms that analyze, track, predict and permanently remember everything about us.
There are others who see privacy-enabling promise in these same technologies. For each new privacy threat, high-tech innovations arise to help individuals claw back a little more control of their digital identities. One such innovation is blockchain technology.
By now, many have heard about blockchain-enabled cryptocurrencies, such as bitcoin. To the layperson, blockchain and cryptocurrency represent concepts too new and exotic to appreciate. Industry experts, however, believe that the underlying technology that powers today’s nascent cryptocurrency market may lead to tomorrow’s advancements (such as Ethereum) in massive, decentralized trust networks for sectors well beyond finance and banking. If successful, blockchain technologies may emerge as the backbone of a new system designed, in part, to control and protect one’s digital identity.
Blockchain: What exactly is it?
In order to understand how blockchain technology can affect privacy, you need to first apprehend its technical foundations. An earlier Privacy Tech post explored some of the math involved in blockchain, but in layman’s terms, it’s a foolproof distributed database that securely sends information and transactions. Unlike traditional databases, a blockchain is stored on multiple private computers, connected to a network that can solve computational enigmas to ensure the network is secure – a “decentralized database.” On the other hand, traditional databases utilize client-server network architecture, which lets people store information in a “centralized server.” A designated authority will be permitted control over both the server and database. If compromised, hackers can change or download the information.
All transactions within a blockchain network are logged on all copies of the blockchain linked to the network. Transactions are similar to rows you add to an Excel spreadsheet; they’re added to the record by blocks.
Each block has certain characteristics, including a digital footprint (cryptographic hash). Each transaction creates a time-stamped “block,” and each block is linked to the previous block via the digital footprint—creating a chain of transactions. These transactions are then verified prior to being written to the system and before the next transaction is transcribed.
Blockchains are divided into three types:
- Public – Public blockchains are the foundation of the majority of cryptocurrencies, like bitcoin. Public blockchains usually cost more to operate and do not have the speed seen with consortium or private blockchains. However, they offer better transparency than the others and let anyone connect to the network.
- Private – Private blockchains limit who can access and write additional information to the chain. Private companies tend to use this option because they can control the features and modify it for various reasons.
- Consortium – Consortium blockchain platforms have many of the same advantages of a private blockchain, but operate under the leadership of a group of businesses instead of a single entity.
What makes blockchain so unique?
The great thing about blockchains is that they can securely send data and stored value from one person to another without the need for an intermediary. Since there’s no intermediary, platforms can be developed that provide businesses and end-users more control over communications with other entities. The secure nature of blockchain ensures systems are far more dependable and safe. In fact, they are ideal for situations when information and transactions must be substantiated.
What are smart contracts?
Smart contracts differ from formal contracts in that they are not necessarily legally binding. These contracts carry out peer-to-peer agreements that conclude on their own when everything in the contract is completed.
An easy way to understand smart contracts is by thinking of a vending machine. If you insert a $1.50 in a vending machine and hit the soda button, it takes several seconds for the machine to give you the soda can. Similarly, smart contracts are small programs that execute “if this happens then do that” statements on the blockchain and are verified by computers connected to the blockchain.
Smart contracts allow decentralized applications to connect to a blockchain and are an essential feature of the popular cryptocurrency, Ethereum. Decentralized apps are like any web applications used – think Facebook – but give the developer the ability to use smart contracts on the platform. In the second part of this series, you’ll learn that dApps are extremely powerful tools that enable users more control over their personal data.
Blockchain technology can change how personal data is amassed, kept, shared and controlled. They allow trustless connections between two entities to take place, usually without the need for personal information. For example, blockchain technology may soon let individuals – anywhere in the world – attain a loan they need without giving away any personal information.
In Part Two of this series, I will further explore the potential for blockchain technology to change the way personal data is collected, stored, and shared in the forthcoming “Web 3.0”.
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