(608) 239-8282
ig@imergeconsult.com

September 6, 2017

Blockchain and the Trust Paradigm

Fundamentally, Blockchain will revolutionize TRUST and move the needle from FUD (fear, uncertainty, doubt) toward more, and simpler, Trustworthy transactions. Assaults on our Willingness to Trust have exacerbated FUD – hackers, ransomware, big-data consolidators like Google and Amazon, the Government, and others intrude on our privacy.  Trusted sources, if not less trustworthy, seem less so.

As the Russian proverb guides us: Doveryai, no proveryai (Trust, but verify), every transaction begins with a trust assumption. Do we trust the vendor to ship goods? Do we trust the bank to transfer funds and have sufficient funds on hand? Do we trust the Title Company to conduct a thorough title search? Do we trust the Register of Deeds/Recorder to properly record title?  The answer can be based in tradition, historical experience, contractual compulsion, regulation and oversight, or a myriad other trust disciplines.  By and large, these intermediaries are Trust Brokers; by and large, intermediaries confirm transaction validity and execute the transaction – banks, stock exchanges, SWIFT, MasterCard, etc. and, of course, all take a haircut (fee) for this service.

What blockchain offers is a new way to trust and verify without the need for intermediaries – or, in some cases, massively simplified intermediaries.  Blockchain anchors its immutability on mathematical cryptography which creates the unique hash key that is then used to authenticate transaction participants and transactions activities. You can Google the topic and find as much in‑depth explanation as you can handle.  Here is the basic concept:

blockchain hash

To have integrity, the blockchain participant needs a way to validate identity.  In a private blockchain, there is a presumed expectation of trust because all members are invited participants – think supply chain. There are a lot of sources to determine trustworthiness – credit reporting agencies, Better Business Bureau, bank references, other customer or vendor references and of course, when uncertainty exists, a bank letter of credit. But what if every participant had their identity and trustworthiness validated – they had a Code that proved a transaction participant was capable of meeting their obligations? It would immediately simplify doing business and eliminate Trust Broker fees.

Let’s use a simple example.  IMERGE is going to have a booth at the ARMA conference. They decide to give away bling at the booth. We search and find some nice bling on-line and prepare to order it.  Both IMERGE and Best Bling, LLC have verified hash codes verifying that IMERGE has the money to pay and Best Bling has the ability to deliver.  This simple transaction flow would be as follows:

blockchain xtn

Each block in the chain contains all of the previous blocks and each “row” has its own unique hash code that is the combination of the previous plus current blocks. This cryptographic approach means the blockchain is immutable. The ledger itself is distributed – both the buyer and seller have identical ledgers. In this example, the second to the last row shows the task of “verify ledger” – a check to be sure the final hash codes match before authorizing payment.  At the heart of blockchain is this concept of a distributed ledger where all nodes (participants) hold the ledger and validate the legitimacy of each transaction through cryptographic hash codes.

In reality, a simple transaction like this would likely not be improved using blockchain. But think about the last row – money transfer.  Notice I didn’t use “bank” in that example. IMERGE and Best Bling could have digital wallets whose value is confirmed by the wallet’s blockchains (think Bitcoin or Ethereum) and the transfer would then be peer-to-peer, or in this case, wallet-to-wallet.  Gee, we’re effectively back to a “cash economy” underwritten by blockchain digital currencies!

In reality, a typical supply chain would include international and national shipping companies, banks, insurance companies, railroads, bulk buyers and more making a blockchain far more complex. In this scenario not all blocks would be included in all chains.  For example, the railroad doesn’t care how a container arrives at its siding, only that is has arrived and is ready to be transported.  Their blockchain would include the shipping order, estimated date of arrival at the siding, quantity, weight, etc.  However, the ocean vessel data would be public so the railroad could, if desired, track its position on the seas and know when it will be in port; or, the shipping blockchain could issue a notification to the railroad when in port with the unloading schedule (yes, a blockchain can execute code; after all, the blockchain is stored in a database).  Payment would be authorized and executed once the blockchain distribute ledger reaches agreement that contractual conditions have been fulfilled (known as a “smart contract”).

It is inevitable that supply chain automation will be one of the first applications of blockchain to eliminate time and cost associated with intermediaries; and no doubt, the industry will rapidly develop standards that further simplify and lower transactional costs of doing business.

Because blockchains are distributed, immutable ledgers all parties can trust them. If any one ledger were modified/hacked, its hash code would fail to match the other ledgers; the hacked ledger would be repaired by agreement of the other ledgers (this is a gross oversimplification but you get the idea).

Which leads to my next article on “Information Governance, Blockchain and the Internet of Things”.  Did you hear the one about comuter scientists at the University of Michigan that hacked pacemakers?

Contact me at:

james.just@imergeconsult.com

608.239.8282

Twitter: @jamesjust10

Linked in: jamesjustimerge

Recent Posts

An Introduction to Taxonomy and Classification for SharePoint

By Charmaine Brooks, CRM This article appeared in the Spring 2017 digital issue of DOCUMENT Strategy Magazine and was number 11 Document Strategy’s Most Read Stories of 2017. Individuals and organizations alike are experiencing one of the paradoxes of the information age: As we gain access to more and more data, it is becoming harder […]

Read More
Blockchain, Cybersecurity and the Internet of Things (IoT)

Implanted medical device. Hospital critical care devices. Factory robots. Drones. Autonomous vehicles. Fitbit. What do they have in common? All are part of the Internet of Things (IoT).  All can be hacked. In 2008 a group of researchers, led by Dr. Kevin Fu of Archimedes Center for Medical Device Security at University of Michigan, published an […]

Read More
Blockchain and the Trust Paradigm

Fundamentally, Blockchain will revolutionize TRUST and move the needle from FUD (fear, uncertainty, doubt) toward more, and simpler, Trustworthy transactions. Assaults on our Willingness to Trust have exacerbated FUD – hackers, ransomware, big-data consolidators like Google and Amazon, the Government, and others intrude on our privacy.  Trusted sources, if not less trustworthy, seem less so. […]

Read More
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram