Blockchain Use Cases
October 13, 2017 5:46 PM Subscribe
Informed mefites, what are your thoughts on the use cases of the blockchain? I understand there's a ton of ICOs these days for new cryptocurrencies as well as talk about blockchain use for certain financial products such as mortgages.
A friend of mine has started to really get into this blockchain stuff and while he acknowledges that there is a bubble and there are way too many ICOs he nonetheless sees the blockchain as the wave of the future, even likening it to the way the Internet was in the 90s (it would really take a lot for me to believe that).
Anyway, I was thinking about getting involved in some capacity although I currently have no understanding of the technical details of the way the blockchain works, although I did dabble a bit in bitcoin a few years ago so I understand the basic idea of the public ledger and wallets and all that (though I have no idea how bitcoin is going to solve the problem of the distributed ledger getting bigger and bigger). I don't see any point in using a cryptocurrency for legal transactions outside of extreme cases like if you're a resident of Zimbabwe or Venezuela. However using the blockchain to track mortgage compliance and the like sounds intriguing. Anyway, what's your opinion on all of this, hivemind?
A friend of mine has started to really get into this blockchain stuff and while he acknowledges that there is a bubble and there are way too many ICOs he nonetheless sees the blockchain as the wave of the future, even likening it to the way the Internet was in the 90s (it would really take a lot for me to believe that).
Anyway, I was thinking about getting involved in some capacity although I currently have no understanding of the technical details of the way the blockchain works, although I did dabble a bit in bitcoin a few years ago so I understand the basic idea of the public ledger and wallets and all that (though I have no idea how bitcoin is going to solve the problem of the distributed ledger getting bigger and bigger). I don't see any point in using a cryptocurrency for legal transactions outside of extreme cases like if you're a resident of Zimbabwe or Venezuela. However using the blockchain to track mortgage compliance and the like sounds intriguing. Anyway, what's your opinion on all of this, hivemind?
Response by poster:
The "mortgage" use case is just silly. The blockchain would be doing nothing there but preserving documents you can already preserve through normal ordinary techniques. Possibly it might increase confidence in the integrity of the documents, but that's not really what the issue was, most of the time. The reason it has been hard to prove past compliance is that the people responsible for origination and servicing have been greedy, lazy, self-serving, short-sighted, and incompetent, and have not bothered to invest the relatively modest amounts of money necessary to maintain a basic records system. That's all.
Yeah I had sort of though that as well, but admittedly I don't know finance very well so I thought surely there must be an angle to this that makes the blockchain superior to a relational database if this is being hyped up so much. Thanks for your input.
posted by bookman117 at 6:04 PM on October 13, 2017
The "mortgage" use case is just silly. The blockchain would be doing nothing there but preserving documents you can already preserve through normal ordinary techniques. Possibly it might increase confidence in the integrity of the documents, but that's not really what the issue was, most of the time. The reason it has been hard to prove past compliance is that the people responsible for origination and servicing have been greedy, lazy, self-serving, short-sighted, and incompetent, and have not bothered to invest the relatively modest amounts of money necessary to maintain a basic records system. That's all.
Yeah I had sort of though that as well, but admittedly I don't know finance very well so I thought surely there must be an angle to this that makes the blockchain superior to a relational database if this is being hyped up so much. Thanks for your input.
posted by bookman117 at 6:04 PM on October 13, 2017
Best answer: blockchain is usually flypaper for suckers. But I did come across this today that actually seems like a practical, useful way to prevent fraud. Dunno how well it will pan out under scrutiny but it is a neat use case.
posted by Dr. Twist at 6:12 PM on October 13, 2017 [1 favorite]
posted by Dr. Twist at 6:12 PM on October 13, 2017 [1 favorite]
Right now I classify it as a "Solution looking for a problem". There are situations where a distributed ledger, proof-of-work computations, and distributed consensus may prove useful, but right now there is no economic or thermodynamic advantages that make it clearly superior.
posted by nickggully at 6:17 PM on October 13, 2017 [5 favorites]
posted by nickggully at 6:17 PM on October 13, 2017 [5 favorites]
Best answer: It's an append-only distributed database. If you want to make something that ought to have a distributed database, then maybe a blockchain is a reasonable append-only distributed database. If you want a distributed database that is easy for anyone to read and write to and doesn't rely on trusting any particular party, then it's something like the only game in town, but that's pretty specific.
It seems to me like there's some mileage in making blockchains that try to let you move big things in a cheap way that cuts out existing middlemen who exist to secure the transfer (e.g. Western Union; I don't know if mortgages are in this category). I think there's also mileage in making blockchains that let you move small things which nobody else has built infrastructure to track yet, like prediction market mojo or rentable computing resources.
posted by value of information at 6:18 PM on October 13, 2017 [3 favorites]
It seems to me like there's some mileage in making blockchains that try to let you move big things in a cheap way that cuts out existing middlemen who exist to secure the transfer (e.g. Western Union; I don't know if mortgages are in this category). I think there's also mileage in making blockchains that let you move small things which nobody else has built infrastructure to track yet, like prediction market mojo or rentable computing resources.
posted by value of information at 6:18 PM on October 13, 2017 [3 favorites]
Best answer: I've been following this closely for a couple of years; it appears there might be a couple of use cases in my industry. Main points I would make here is not to mistake cryptocurrencies for blockchain; think of cryptocurrencies as an application running on top of blockchain. My thumbnail definition of blockchain is that it is technology that enables an immutable, public, distributed ledger. Expanding on praemunire's point, most (all?) of the pilot projects I've heard of are things that can be solved without the full feature set of blockchain. If all of the participating nodes in your blockchain are running in the same datacenter, you probably didn't need blockchain to solve. The market for solutions and technology is certainly frothy, but I'm not as cynical about it as praemunire and dr twist. Most of the press articles have focused on use cases where you can't or don't want to trust a central authority (e.g. land deeds in countries that have a lot of corruption). But, you still need governance there to make it work. There are probably some applications for blockchain that just take friction out of a system, like validating college transcripts. There is a lot of territory between "wave of the future" and "flypaper for suckers".
posted by kovacs at 6:22 PM on October 13, 2017 [3 favorites]
posted by kovacs at 6:22 PM on October 13, 2017 [3 favorites]
Response by poster: Kovacs,
If you don't mind, I'd like to hear what the use cases in your industry might be. Given how much money has been made and lost from bitcoin over the years it seems foolish to dismiss all blockchain applications. This definitely seems like an area where a savvy/lucky investor could make out like a bandit.
posted by bookman117 at 9:01 PM on October 13, 2017
If you don't mind, I'd like to hear what the use cases in your industry might be. Given how much money has been made and lost from bitcoin over the years it seems foolish to dismiss all blockchain applications. This definitely seems like an area where a savvy/lucky investor could make out like a bandit.
posted by bookman117 at 9:01 PM on October 13, 2017
This definitely seems like an area where a savvy/lucky investor could make out like a bandit.
Saying this with no disrespect to your individual intelligence and judgment, but, historically, this is the kind of statement a private individual makes shortly before entering into the investment that costs him his retirement.
Money made off Bitcoin is not because of the blockchain per se but from (a) good old-fashioned currency speculation with the glamor of technology on top and (b) people wanting to buy illegal stuff in a way they think is untraceable (wrong, although complicatedly so). I actually agree with kovacs that there probably are or will be genuinely useful applications of the technology, but the present investment environment tends to favor the semi-fraudulent and overpromising over everything else. And those useful applications are probably not going to be available to the individual investor to invest in directly--e.g., if commodities companies manage to figure out ways to use blockchains to track goods through the custody of multiple companies in multiple countries (that does seem like it might possibly work), that's not something you're going to be able to buy into directly.
You should assume that anything sold directly to the public under the aegis of a mysterious technical buzzword is far more likely to be a scam than anything else.
posted by praemunire at 10:35 PM on October 13, 2017 [4 favorites]
Saying this with no disrespect to your individual intelligence and judgment, but, historically, this is the kind of statement a private individual makes shortly before entering into the investment that costs him his retirement.
Money made off Bitcoin is not because of the blockchain per se but from (a) good old-fashioned currency speculation with the glamor of technology on top and (b) people wanting to buy illegal stuff in a way they think is untraceable (wrong, although complicatedly so). I actually agree with kovacs that there probably are or will be genuinely useful applications of the technology, but the present investment environment tends to favor the semi-fraudulent and overpromising over everything else. And those useful applications are probably not going to be available to the individual investor to invest in directly--e.g., if commodities companies manage to figure out ways to use blockchains to track goods through the custody of multiple companies in multiple countries (that does seem like it might possibly work), that's not something you're going to be able to buy into directly.
You should assume that anything sold directly to the public under the aegis of a mysterious technical buzzword is far more likely to be a scam than anything else.
posted by praemunire at 10:35 PM on October 13, 2017 [4 favorites]
Instead of mortgages, one of the best use cases Ive heard recently for blockchains is property titles on 3rd world countries
Basically blockchains are just a database where anyone can add new records, anyone can read, and no one can delete. How you manage people adding new records is the only real difference between various use cases. Nearly all the complexity of bitcoin comes from the transaction validation step, but in other uses there's no need for a proof of work or complex validator.
We could write distributed collaborative fiction, storing each new paragraph in a block, and let anyone add to the chain. Your proof of work is then how many alien tentacle dick references you can fit into your allowed character limit.
Any validator can work, as long as anyone in the group has the possibility to pass the check. Block chain as application repository, where as long as your code compiles it can be added to the chain. Block chain as warehouse inventory system where trusted hardware scans barcodes to verify its presence. Blockchain as library checkout system, where unique QR codes identify the books. Blockchain as roommate chore management system.
posted by KeSetAffinityThread at 11:52 PM on October 13, 2017
Basically blockchains are just a database where anyone can add new records, anyone can read, and no one can delete. How you manage people adding new records is the only real difference between various use cases. Nearly all the complexity of bitcoin comes from the transaction validation step, but in other uses there's no need for a proof of work or complex validator.
We could write distributed collaborative fiction, storing each new paragraph in a block, and let anyone add to the chain. Your proof of work is then how many alien tentacle dick references you can fit into your allowed character limit.
Any validator can work, as long as anyone in the group has the possibility to pass the check. Block chain as application repository, where as long as your code compiles it can be added to the chain. Block chain as warehouse inventory system where trusted hardware scans barcodes to verify its presence. Blockchain as library checkout system, where unique QR codes identify the books. Blockchain as roommate chore management system.
posted by KeSetAffinityThread at 11:52 PM on October 13, 2017
This definitely seems like an area where a savvy/lucky investor could make out like a bandit.
In any speculative activity, savviness consists entirely of an ability to assess risk (i.e. relative luck) that's better than that of your counterparties.
If you want to take a punt on making out like a bandit from something blockchain related without having personally done the work required to get your head around it to the extent of being able to generate and reality-check use cases under your own steam, go right ahead. But unless you do put in that work, a big payoff will be due to luck, not savvy, and will be accordingly unlikely.
posted by flabdablet at 3:46 AM on October 14, 2017
In any speculative activity, savviness consists entirely of an ability to assess risk (i.e. relative luck) that's better than that of your counterparties.
If you want to take a punt on making out like a bandit from something blockchain related without having personally done the work required to get your head around it to the extent of being able to generate and reality-check use cases under your own steam, go right ahead. But unless you do put in that work, a big payoff will be due to luck, not savvy, and will be accordingly unlikely.
posted by flabdablet at 3:46 AM on October 14, 2017
Basically blockchains are just a database where anyone can add new records, anyone can read, and no one can delete. How you manage people adding new records is the only real difference between various use cases.
Well, almost. The thing that makes a blockchain a chain, as opposed to an arbitrarily bifurcating tree or pool, is that there needs to exist some mechanism that makes each record added to the blockchain essential to validation of subsequently added records. This is the property that makes the database trustworthy, and deletion impossible, without relying on a single authoritative source. And this property, in turn, depends critically on the way you manage people adding new records. At an absolute minimum, every attempt to add a new record has to be visible to all users.
If you can have a single universally-trusted authoritative source, you don't need a blockchain; all you need is a database with some half-decent access controls. Such databases do not require global propagation of all update requests to the entire population of readers before updates can be committed, and they therefore scale a hell of a lot better than blockchains do. This, it seems to me, makes traditional databases a far better basis for cooperation among existing financial institutions than blockchains could ever be.
Blockchains are really interesting - of that there can be no doubt. But it seems to me that their widely accepted promise is far more than they will ever, in the real world, deliver. In the immortal words of Paul Keating, they're all tip and no iceberg.
posted by flabdablet at 4:11 AM on October 14, 2017 [1 favorite]
Well, almost. The thing that makes a blockchain a chain, as opposed to an arbitrarily bifurcating tree or pool, is that there needs to exist some mechanism that makes each record added to the blockchain essential to validation of subsequently added records. This is the property that makes the database trustworthy, and deletion impossible, without relying on a single authoritative source. And this property, in turn, depends critically on the way you manage people adding new records. At an absolute minimum, every attempt to add a new record has to be visible to all users.
If you can have a single universally-trusted authoritative source, you don't need a blockchain; all you need is a database with some half-decent access controls. Such databases do not require global propagation of all update requests to the entire population of readers before updates can be committed, and they therefore scale a hell of a lot better than blockchains do. This, it seems to me, makes traditional databases a far better basis for cooperation among existing financial institutions than blockchains could ever be.
Blockchains are really interesting - of that there can be no doubt. But it seems to me that their widely accepted promise is far more than they will ever, in the real world, deliver. In the immortal words of Paul Keating, they're all tip and no iceberg.
posted by flabdablet at 4:11 AM on October 14, 2017 [1 favorite]
I think you nailed it with this: "I don't see any point in using a cryptocurrency for legal transactions outside of extreme cases like if you're a resident of Zimbabwe or Venezuela." Illegal transactions and failed states are the main applications.
That's because cryptocurrency is an expensive way to make up for not having a functioning economic system and legal system, or a way to live outside the one you have. Forget about blockchain without currency, or without big economic costs: you can't remove the "currency" part and have anything interesting left over, and you can't make it not be expensive. If you have a functioning society, you can make something cheaper and better.
(Boiled down by this great Hacker News comment: why aren’t professional distributed systems engineers working on blockchain technology? "It's the same reason that Ford doesn't build a tunnel under the US/Mexico border to ferry car parts to America.")
But! The two applications you raised are important, if we're optimistic. Failed states matter. And some play in the joints can be valuable even in a working legal system -- the same way Napster kicked the music industry into supporting iTunes and Spotify. Cryptocurrency is arguably working the same way now, letting people try out new and useful business models that would have been impossible to attempt if you needed cooperation from incumbents the whole way. "Disruption" isn't all a bad thing -- Visa shouldn't get to charge 3% of every transaction forever, poor people shouldn't be left to the mercies of check cashing places forever, etc., and at their best cryptocurrencies might show that there's a better way.
posted by john hadron collider at 7:22 AM on October 14, 2017 [1 favorite]
That's because cryptocurrency is an expensive way to make up for not having a functioning economic system and legal system, or a way to live outside the one you have. Forget about blockchain without currency, or without big economic costs: you can't remove the "currency" part and have anything interesting left over, and you can't make it not be expensive. If you have a functioning society, you can make something cheaper and better.
(Boiled down by this great Hacker News comment: why aren’t professional distributed systems engineers working on blockchain technology? "It's the same reason that Ford doesn't build a tunnel under the US/Mexico border to ferry car parts to America.")
But! The two applications you raised are important, if we're optimistic. Failed states matter. And some play in the joints can be valuable even in a working legal system -- the same way Napster kicked the music industry into supporting iTunes and Spotify. Cryptocurrency is arguably working the same way now, letting people try out new and useful business models that would have been impossible to attempt if you needed cooperation from incumbents the whole way. "Disruption" isn't all a bad thing -- Visa shouldn't get to charge 3% of every transaction forever, poor people shouldn't be left to the mercies of check cashing places forever, etc., and at their best cryptocurrencies might show that there's a better way.
posted by john hadron collider at 7:22 AM on October 14, 2017 [1 favorite]
Yeah, I wouldn't be surprised in the longer term if some bank or government backs a blockchain "currency" pegged to a "real" currency for use as a p2p payments system in places where centralized systems are unreliable or unworkable. A pegged blockchain currency could be very useful for international transfers. Bitcoin already is used for this despite its ridiculous volatility making it less than ideal.
As their own currency, though, you'll probably see something like Monero hang around for as long as governments tolerate it, but I don't see a super long future for blockchain as currency unless something major changes in the global financial system.
Blockchain itself will probably stick around in some form or another, though. There are situations where a (mostly) trustless and immutable ledger could be useful. It isn't particularly rare for companies to not trust their business partners, after all, especially when they operate truly globally.
posted by wierdo at 1:12 PM on October 14, 2017
As their own currency, though, you'll probably see something like Monero hang around for as long as governments tolerate it, but I don't see a super long future for blockchain as currency unless something major changes in the global financial system.
Blockchain itself will probably stick around in some form or another, though. There are situations where a (mostly) trustless and immutable ledger could be useful. It isn't particularly rare for companies to not trust their business partners, after all, especially when they operate truly globally.
posted by wierdo at 1:12 PM on October 14, 2017
Bookman, I sent you a memail with some links and information.
Re: speculation about making money in blockchain. I see three broad ways one could make money in the blockchain space:
#1 Selling blockchain technology (e.g. the selling picks and shovels to the gold miners). I can tell you that based on the number of technology vendors pitching me on blockchain this year, that ship probably sailed in 2014 or so. As I mentioned above , the market is still frothy, but there is no shortage of players betting on this. Lots of VC money is already in, as well as some big players. For a sampling, look at the Hyperledger project's vendor directory.
#2 Cryptocurrency: bitcoin, ethereum, and the hundreds of ICOs we've seen over the last year. That ship also probably sailed a couple of years ago, though maybe there is still room to innovate. The most interesting ICO idea I saw this year was FileCoin, basically a cryptocurrency built around providing storage.
#3 Using blockchain to disrupt a trading network that has friction (and collecting rent for your effort). This is something where you have to have knowledge of some specific industry or transaction that either involves middlemen who are taking a transaction fee, or doesn't have natural middlemen but there is a lot of hassle in authenticating/validating transactions. This is probably the thing that has all of the FinTech people excited around blockchain. Many of the financial transactions we take for granted, like swiping a debit card or redeeming a gift card could have a dozen different entities involved in clearing the transaction, all of whom get a very small cut for their piece. But there are other low tech examples, too, like the diamond trade. This is where a lot of blockchain startups seem to be clustered: trying to implement a blockchain for one specific industry or problem.
posted by kovacs at 6:19 AM on October 15, 2017
Re: speculation about making money in blockchain. I see three broad ways one could make money in the blockchain space:
#1 Selling blockchain technology (e.g. the selling picks and shovels to the gold miners). I can tell you that based on the number of technology vendors pitching me on blockchain this year, that ship probably sailed in 2014 or so. As I mentioned above , the market is still frothy, but there is no shortage of players betting on this. Lots of VC money is already in, as well as some big players. For a sampling, look at the Hyperledger project's vendor directory.
#2 Cryptocurrency: bitcoin, ethereum, and the hundreds of ICOs we've seen over the last year. That ship also probably sailed a couple of years ago, though maybe there is still room to innovate. The most interesting ICO idea I saw this year was FileCoin, basically a cryptocurrency built around providing storage.
#3 Using blockchain to disrupt a trading network that has friction (and collecting rent for your effort). This is something where you have to have knowledge of some specific industry or transaction that either involves middlemen who are taking a transaction fee, or doesn't have natural middlemen but there is a lot of hassle in authenticating/validating transactions. This is probably the thing that has all of the FinTech people excited around blockchain. Many of the financial transactions we take for granted, like swiping a debit card or redeeming a gift card could have a dozen different entities involved in clearing the transaction, all of whom get a very small cut for their piece. But there are other low tech examples, too, like the diamond trade. This is where a lot of blockchain startups seem to be clustered: trying to implement a blockchain for one specific industry or problem.
posted by kovacs at 6:19 AM on October 15, 2017
A guy I used work with is part of Aid:Tech. They're using blockchain for digital identities and entitlements, working with NGOs to help them deliver aid and remittances.
I don't know much about the technology but they seem to be garnering attention and interest and have won several awards. Part of the key seems to be that blockchain helps provide transparency by verifying and securing transactions.
posted by irishalto at 12:51 PM on October 15, 2017
I don't know much about the technology but they seem to be garnering attention and interest and have won several awards. Part of the key seems to be that blockchain helps provide transparency by verifying and securing transactions.
posted by irishalto at 12:51 PM on October 15, 2017
Here's an interesting article about blockchains used to decentralize "self-sovereign identity" info, which would help replace passwords, maybe.
posted by Sunburnt at 11:57 AM on December 1, 2017
posted by Sunburnt at 11:57 AM on December 1, 2017
Really, really disappointed in the MIT Technology Review for the woeful technical standard of that article.
A wide variety of personal credential management software has existed for decades. The problem is not that the software needs new technologies to make it work better, because it absolutely doesn't; the problem is that using it is marginally less convenient than not using it, leading to the inevitable result that most people simply won't use it.
Closest the tech industry has ever got to overcoming this conundrum is to make proof of identity via strong cryptography as convenient as it can possibly be by using dedicated hardware. FIDO U2F is a thing now, and there is at least some chance of a future in which it is normal for most people to carry a Yubikey around with their house keys and car keys.
Until that future arrives, those of us who care about our online identites enough to take on the minuscule degree of inconvenience required to secure them will keep on using the perfectly capable credential management software we're already using, and those of us who don't will keep on putting up with having our identities stolen on the regular. Blockchain will change this picture not one whit.
posted by flabdablet at 3:47 PM on December 1, 2017
Public-key cryptography relies on pairs of keys, one public and one private, which are used to authenticate users and verify their encrypted transactions. Bitcoin users are represented on the blockchain by strings of characters called addresses, which are derived from their public keys. The “wallet” applications they use to hold and exchange digital coins are essentially management systems for their private keys. Just like a real wallet, they can also hold credentials that serve as proof of identification, says Reed. Using a smartphone or some other device, a person could use a wallet-like application to manage access to these credentials.Yes, cryptocurrencies require some kind of personal key management software. But the conclusion that blockchain techniques might therefore be applicable to personal key management is utterly wrongheaded. It's like saying that cars need windows, and office buildings have windows, so perhaps we should be looking at tilt-up concrete slab construction for cars.
A wide variety of personal credential management software has existed for decades. The problem is not that the software needs new technologies to make it work better, because it absolutely doesn't; the problem is that using it is marginally less convenient than not using it, leading to the inevitable result that most people simply won't use it.
Closest the tech industry has ever got to overcoming this conundrum is to make proof of identity via strong cryptography as convenient as it can possibly be by using dedicated hardware. FIDO U2F is a thing now, and there is at least some chance of a future in which it is normal for most people to carry a Yubikey around with their house keys and car keys.
Until that future arrives, those of us who care about our online identites enough to take on the minuscule degree of inconvenience required to secure them will keep on using the perfectly capable credential management software we're already using, and those of us who don't will keep on putting up with having our identities stolen on the regular. Blockchain will change this picture not one whit.
posted by flabdablet at 3:47 PM on December 1, 2017
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The "mortgage" use case is just silly. The blockchain would be doing nothing there but preserving documents you can already preserve through normal ordinary techniques. Possibly it might increase confidence in the integrity of the documents, but that's not really what the issue was, most of the time. The reason it has been hard to prove past compliance is that the people responsible for origination and servicing have been greedy, lazy, self-serving, short-sighted, and incompetent, and have not bothered to invest the relatively modest amounts of money necessary to maintain a basic records system. That's all.
posted by praemunire at 5:55 PM on October 13, 2017 [6 favorites]