In early 2020, I interviewed my friend and subject matter expert Daniel Mason about blockchain and its various applications. Since then, blockchain and cryptocurrencies have continued to grow in popularity and legitimacy, as evidenced by the successful IPO of Coinbase – a major cryptocurrency exchange platform – last week. In light of the continued growth and interest in this arena, I asked him if I could share his reflections here on my blog, and he was kind enough to oblige.
As a quick introduction, Daniel is a member of the founding team at Spring Labs, a Los Angeles-based company that uses blockchain technology to enable the secure sharing of sensitive data (credit and identity data, for example) among financial institutions. A serial entrepreneur, Daniel previously co-founded a blockchain company called Elemetric, and has worked in various roles involving data science and analytics. My friendship with Daniel extends back to our time at Wake Forest, where he majored in Mathematical Business.
There’s obviously been a lot of hype about blockchain in recent years, but just what is blockchain, exactly?
That's a great question, and this answer is directionally correct but simplified. Blockchain is a foundational technology that handles how data is exchanged between partners on a network. Blockchain's primary differentiator vs. other forms of technology used for transferring data is that it doesn't require the data to be held by a single entity. For instance, when you post something to Facebook, even though it's seen by your friends, the entire data transmission process happens using servers controlled by Facebook. Same thing with Google when you search something or send an email using a Gmail account. When you transfer money to friends, it's technically being held by the bank facilitating the transfer, with special organizations set up to "clear" transactions and help with the data transfer. With blockchain, the data transfer isn't controlled by a single party, but rather a network of nodes operating collaboratively to facilitate the transfer. If a node goes down, the other nodes handle the process in its place. No single entity "controls" or can take down a blockchain network, unlike any other technology you would use.
The most famous "products" built using this technology are cryptocurrencies like Bitcoin or Ethereum, which are controlled solely by the users that hold the currencies (unlike the balance in your Chase account, or USD, which is controlled by the federal government).
We live in the era of Big Data, which only seems to be getting bigger and bigger as a larger share of our lives becomes tied to and influenced by our devices. Moreover, all this data seems to be concentrated in the hands of the major tech companies, who are all too willing to monetize it. Is this a fair assessment? How might blockchain technology provide a better way forward?
I think that's certainly a fair assessment. Tech companies today are almost like nation states, operating with monopolistic power over broad swaths of the global economy. Especially with the current lack of regulation, the power of these companies seems to only be increasing and the data and concentration of power they hold is almost unprecedented.
I think it's possible that blockchain technology could provide a better way forward, but it's also possible it could increase the control these companies have over the economy - as evidenced by Facebook's attempt to effectively launch a sovereign currency called Libra.
The hope that (non-corporate) blockchain technology or cryptocurrencies will provide a route for consumers to regain control of their data is (ironically) contingent on government policy. I personally don't have a lot of faith that users would totally revolt from big tech providers like Facebook, Instagram, or Google because of the implicit "deal" struck with consumers today. These services are "free" because they are paid for by consumer data, advertising, and surveillance. If, given a choice, most consumers would likely opt for a "free" Instagram instead of a $25/month Instagram that didn't collect data.
Government policies designed to protect consumer data, like GDPR/CCPA (California Consumer Privacy Act) or others, could disrupt the profitability of "free" online services, paving the way for future options (which could be built on blockchain technology) that allowed consumer control of information. While not on any dockets today, additional regulations, like extending the FDIC to cover cryptocurrency deposits, could bolster consumer adoption of cryptocurrency products as well.
The question is really whether the government would like to push consumers in this direction, or whether they even *could* implement these types of policies that mitigate the power of the current holders of consumer information.
In your view, what are some of blockchain’s obstacles and limitations?
I think there are lots of obstacles. In 2017, people thought that blockchain (especially Ethereum) would disrupt many of the "apps" we use today, but with versions not dependent on centralized infrastructures (such as Amazon Web Services). This hasn't proven to be the case. Blockchain technology is still slow (by comparison), has problems handling high transaction volumes, and isn't especially user-friendly for either developers or consumers. As an example, being "in control" of your money is a double-edged sword. Have you ever forgotten the login to your online bank account? If that money was in Bitcoin, it would be gone - with no password reset, no support line, and no government agency backing it up.
You often hear blockchain and Bitcoin mentioned in the same breath, which has led to some confusion around and conflation of the two technologies. What are cryptocurrencies, why do they matter, and why are there so many of them?
Cryptocurrencies were the original (and still the most popular) usage for blockchain technology. Cryptocurrencies come in many different flavors with many different intentions, and tens of thousands of them have been created in recent years. Ultimately, many of these serve no effective purpose and were "get rich quick" schemes - or, giving the benefit of the doubt, ill-advised ventures by entrepreneurs that didn't have a product/market fit.
Today, the most interesting (and widely adopted) uses for cryptocurrencies are storing value (Bitcoin), payments (various currencies, but mostly as a hobby vs. an effective alternative), money exchange (especially across borders as it mitigates expensive transfer fees), and stablecoins (effectively creating money that can move with more ease among institutions without the price volatility of other currencies).
None of these use cases, to-date, has proven to be a huge improvement over existing solutions, but each carries some hope for the future.
Lastly, aside from blockchain, what are some other emerging technologies that you’re particularly excited about?
I'm hopeful that technologists will start working on emerging technologies increasingly in the future, instead of spending lots of time on decidedly non-technological products that have propelled many of the newer tech giants, especially gig economy or physical consumer product companies. Most of the technologies that are the most exciting - especially Artificial Intelligence/Machine Learning and Virtual Reality - also carry pretty major societal risks. If regulated responsibly and used in the right ways, though, these technologies could be very exciting and change a lot about society (hopefully for the better).
And Now For Something Completely Different...