The future of blockchain – smart contracts and digital identity | Part 2

The Bitcoin blockchain is revolutionary in its ability to allow two individuals to transact digitally without a trusted third party. But the scope of blockchain technology extends much further than digital currency.

A 19 year old Russian-Canadian programmer, Vitalik Buterin, proposed that Bitcoin needed its own scripting language for developing applications on the blockchain. The other Bitcoin developers didn’t agree with him, so he went off and made his own platform called Ethereum. What Ethereum allows developers to do is code their own ‘smart contracts’ onto the Ethereum blockchain. A smart contract is essentially what it sounds like – a contract that self-executes.

Disrupting the disrupters

A good way to understand the potential applications of a smart contract is to consider the ride-sharing service Uber. When you order an Uber on your phone, the request gets sent directly to Uber’s big server farm. They use their own proprietary software to match you with a driver. The software maintains all the key information including your credit card details, the driver’s star rating and what kind of car they have. The driver takes you where you need to go and the fare is debited from your bank account. Some of that money goes to the driver, however a significant cut goes to Uber themselves, to pay for their expensive, centralised infrastructure.

Uber’s use of the internet to radically disrupt the taxi industry was truly game-changing. The technology was able to break monopolies held by taxi companies in nearly every large city worldwide. But disruption at this scale is not without its problems. Uber constantly features in headlines for its ethically questionable business tactics. To offer incentives for drivers working under their competitor service, Lyft, Uber developed an internal software program named ‘Hell’. The name was in reference to ‘God View’, the application used by Uber developers to track the geo-location of its customers. A former Uber employee stated in a court declaration that his colleagues used God View to ‘track high profile politicians, celebrities and even personal acquaintances of Uber employees, including ex-boyfriends/ girlfriends, and ex-spouses’.

Both drivers and consumers are completely at the whim of Uber’s algorithms and sophisticated data gathering. What if instead, just like with Bitcoin, a ride-sharing business transaction could occur without the middleman taking their cut?

Centralised versus decentralised app

That is the core idea behind smart contracts. Not only do they let two people transact without an intermediary, but the conditions of that transaction can be coded up in the blockchain itself. An entire Uber application could be built on the Ethereum blockchain. Just as with Bitcoin transactions, the important parts of the application are fully visible to both parties, and unchangeable. The driver will not be able to fake their star rating or be able to rip you off on the fare, because the information is cryptographically secured on the blockchain. This is good for both parties – the driver doesn’t have to give their cut to Uber and the passenger feels safe knowing that the reputation of the driver is accurate and immutable. A blockchain based alternative to Uber could provide vastly superior data security and value for customers and drivers.

The value of identity and the weak walls it lies behind

No one owns the open protocols that define the internet, but a vast amount of data is held by the biggest single players. Reputation and identity are enormously valuable pieces of data. The recent Equifax hack was widely regarded as the worst data breach in US history. 143 million USbased users had their names, Social Security numbers (SSNs), birthdates, addresses, and, in some cases, driver’s license numbers stolen. SSNs and driver’s licenses are critical pieces of information for identity theft. In a recent blog post, the creator of the internet Tim Berners-Lee stated:

“As our data is then held in proprietary silos, out of sight to us, we lose out on the benefits we could realise if we had direct control over this data, and chose when and with whom to share it. What’s more, we often do not have any way of feeding back to companies what data we’d rather not share – especially with third parties – the T&Cs are all or nothing.”

A physical passport is an unsophisticated, but elegant solution for verifying a person’s identity. They are very difficult to forge and cannot be copied when a customs officer reviews the information they hold.

Blockchain offers the possibility of a true ‘digital passport’. Sensitive personal information could be securely stored on the blockchain. Rather than allowing a company to hold the information on their own infrastructure, you could simply authorise an ‘identity check’, revealing the information required for the company to verify that you are who you claim to be. The data stays secure from hackers under the strong encryption on the blockchain. Only you can give permission to use or view the data.

This seems to contradict a key concept of the Bitcoin blockchain in that anyone can view and verify the flow and information contained within blocks on the blockchain. A cryptographic technique known as ‘zero-knowledge proofs’ guarantees the information is valid, despite the data about the sender being hidden.

Using digital identity to improve lives

Decentralised, secure digital identity has the potential to save companies enormous amounts of money, removing the need for vast and redundant volumes of user data, expensive data security processes, and the costs associated with cyber security and data breaches. Sensitive medical records could be securely stored on the blockchain. Doctors, hospitals, laboratories, pharmacists and health insurers could request permission to access and update a single version of a patient’s records.

The technology can also improve the living conditions for people in the developing world. A partnership of governments and technology companies have started ID2020, an initiative that uses the blockchain to give digital identity to those who have none. It is estimated that there are 1.1 billion people without any kind of official identification. Proof of identity is essential for giving individuals the right to vote, to open a bank account, and often to gain access to healthcare and education. Accurate records of population and identity allow services to deliver aid where it is needed most. Developing identity records and verification on the blockchain can streamline the bureaucratic processes of immigration and determining refugee status. If ID2020’s implementation of blockchain technology is successful, it could be the biggest contribution to alleviating poverty worldwide.

Australian Blockchain projects