Blockchain: Revolution or Risk?

The money transfer protocol Bitcoin was first introduced in 2008 by the still anonymous pseudonym Satoshi Nakamoto. In their white paper they proclaimed “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution” (Nakamoto 109). As a payment system it was founded on the idea that Bitcoins become progressively more difficult to “mine” Bitcoins over time, and the total number that can ever be mined is limited to around 21 million (“How does Bitcoin work?”). However, Bitcoin itself faced constant problems, with it fluctuating massively in worth, large exchanges such as Mt. Gox failed and other failures were triggered by security breaches (Wallace). Alongside these issues of security and technology failures, Bitcoin has struggled to break into the mainstream with it being mainly reserved for use by criminals, libertarians, hipsters and privacy freaks (Lowrey). This constant list of failures, the niche appeal and difficulty people have in understanding how to use it have meant it has failed to strike a cord.

However, the Bitcoin is now being seen as having worked as a testing system for it’s underlying software; the Blockchain. Therefore understanding how the Bitcoin system works helps to give a full understanding of how blockchain, which has recently gained traction could be revolutionary. There is currently “massive hype around blockchain in certain circles even though there are yet few working networks. However, extensive testing of the technology is now beginning” (Eyers). This ‘hype’ is predicated on the idea that blockchains will be able to use the peer-to-peer transfer first utilized by Bitcoin for payments, and instead apply it to almost any commodity (Grimmelmann and Narayanan). This could completely revolutionize the way we make transactions as the blockchain technology has already been used to develop applications such as Xapo; a digital wallet where you can spend Bitcoins in physical stores. Furthermore, Onename; an ID service that is intended to become a digital form of identity and access control that is designed to initially replace passwords, and in the future, replace forms of physical identification like passports and driver’s licenses (Maxim).

The application of the blockchain software would not come without it’s own set of risks though. Grimmelmann and Narayanan point out that because of the peer-to-peer system that blockchain is founded on, as with any real world item it is open to theft, and that as it is completely decentralized it would also not fall under any legal systems:

If a hacker gets access to your computer and can read your digital key, he’s home free because he can transfer the car on the blockchain to a key that he controls. If he does, your car keys will instantly stop working. Not only can he drive off with your car, but he owns it outright. After all, the block chain says he does. (Grimmelmann and Narayanan)

This is not where the issue of cyber-security would stop if the blockchain ‘revolution’ took place, as the transactions would be impossible to trace. As the transactions are secured overall by cryptography they are not only tamper and hacker proof, but also untraceable. The impossibility of tracing the transactions has already surfaced as problem with the Bitcoin system as seen with behavior on the ‘dark web’, criminals have already begun to use it to complete purchases of weapons, drugs and even humans. This means that criminals have already realized the possibilities that blockchain gives them to undertake illegal activites, without fear of repercussions or punishment due to the anonymity provided by blockchain technology. Don Tapscott discusses the issue that comes with predicting the problems of such a complex emerging technology: “This new community is in its infancy. Unlike the Internet, which has a sophisticated governance ecosystem, the whole world of blockchain and digital currencies is the Wild West” (Tapscott). As the main point of blockchain is that it is permissionless. The flip side will always be that there is no authority to appeal to when something goes wrong (Evans). There is ongoing discussion about the issues of cyber-security, as it arguably “gives rise to novel threats and opportunities requiring immediate policy responses; yet understanding its nature and its consequences for security is a slow learning process” (Kello 7). So while blockchain could pose a security threat, as with any new or emerging technology, how to deal with this possible threat will be a learning curve if it proliferates further into society.

These foreseeable cyber-security risks should not necessarily discourage or even stop the further development and application of blockchain technology though. As there could also be abundant advantages accrued from it. For example, individuals would be able to reclaim their privacy due to the manner in which it allows user’s to be in control of their own data and it’s distribution. According to Tapscott this could be the beginning of “the value going to the creators of value rather than to powerful forces that capture it.” This movement to a decentralized system does hold cyber-security risks, although it could also allow for numerous benefits and the possibility of a revolution in how transactions and commodities are dealt with.

Works Cited

Evans, Jon. “Bitcoin Is Still an Inaccessible, Obscure Experiment—but Bitcoin 2.0 Could Change Our Lives.” Quartz. 19 Aug. 2016. Web.

Eyers, James. “Blockchain and How It Will Change Everything.” The Sydney Morning Herald. 6 Feb. 2016. Web.

Grimmelmann, James, and Arvind Narayanan. “Boosters Say Bitcoin’s Underlying Technology Will Transform the Economy. Not So Fast.” Slate. 16 Feb. 2016. Web.

“How Does Bitcoin Work?” The Economist. 11 Apr. 2013. Web.

Kello, L. “The Meaning of the Cyber Revolution: Perils to Theory and Statecraft.”International Security 38.2 (2013): 7-40. Project MUSE. Web.

Lowrey, Annie. “My Money Is Cooler Than Yours.” Slate. 18 May 2011. Web.

Maxim, Jeffrey. “Onename Launches Blockchain Identity Product Passcard.”Bitcoin. 13 May 2015. Web. 18 Sept. 2016.

Nakamoto, Satoshi. “Bitcoin: A Peer-to-Peer Electronic Cash System.” Bitcoin (2008): 109-22. Web.

Tapscott, Don. “How Blockchains Could Change the World.” McKinsey & Company. May 2016. Web.

Wallace, Benjamin. “The Rise and Fall of Bitcoin.” WIRED. 23 Nov. 2011. Web.