Samuel G Brooks
Samuel G Brooks

Block8's Chief Technology Officer

16.06.2020.

Distributed Ledger Technology

Block8's mission is to use distributed ledgers to make a fairer and more efficient world.

 

We selected the word “Fairer” because this technology is, fundamentally, a new tool in our ability to organise information. In particular, Distributed Ledger Technology (DLT) provides the ability to reliably share - decentralise - information relating to things of value (digital representations of 'rivalrous' assets), meaning that market power no longer needs to be centralised, and parasitic information asymmetries can be minimised.

We selected the word “Efficient” because a distributed ledger is a modern invention that seeks to optimise a very old yet very common use case: intermediation[1]. Distributed ledgers solve intermediation with technology - a set of use cases that have previously enjoyed no technological innovation since the invention of the original solution: custody. Where custody is not used to facilitate a transaction between two untrusting entities, additional processes are needed to ensure each entity is satisfied with the integrity and outcome of the transaction. Hence, with a distributed ledger, the time and cost efficiency of any transaction is improved when there is an agreed source of truth (data) for that transaction process between the entities, and now, when designing information systems that facilitate interactions between entities, we have a second technology option: a distributed system.

With today’s hyper-centralised information technology mix, the biggest efficiencies we observe are from the biggest centralised services. Under these centralised models, there is usually little scope for more than a single software platform (market) in any given domain; think the social network, the professional network, the market for ridesharing, or the market for short term holiday rentals.

But the centralisation of information causes the centralisation of power and the introduction of market information asymmetry. This precarious situation often leads to negative side-effects, such as data misuse (abuse) and mismanagement (breach).

 

Centralised Information Systems

With the advent of secure decentralised systems (blockchain, DLT), we have collectively begun to challenge the status quo of the use of centralised systems for delivering shared processes and information, particularly when that information is commercially valuable or in the public interest to be made public.

Fundamentally, centralised systems are closed, meaning that access is only provisioned via the central authority, and then only a ‘view’ of the central source of truth is provided via a digital interface (APIs); the central source of truth is never truly seen. This causes several issues:

  • Misaligned incentives between the custodians of the information and the owners of the information can lead to privacy and ethical transgressions, particularly when that information is owned by a for-profit entity (consider Facebook and Cambridge Analytica).
  • APIs that are supposed to provide digital access to view and change the underlying information are typically closed-source, error-prone and provide incomplete functionality, inhibiting Innovation.
  • The fundamental inability to view and rely upon the underlying source of truth (without trusting the information) creates information silos, precipitating costly reconciliation processes. A simple example of the manifestation of this issue is reconciliation between banking ledgers: when transferring money between banks, reconciliation processes are required at both ends due to the inability to share a common source of data, caused by the use of multiple centralised systems. Note that in a banking context, trusting an external source of truth is often not compliant with various prudential risk regulations, which require strong operational controls to ensure information integrity.

Decentralised Information Systems

Per the above, centralised systems - by definition - create data silos, causing costly process friction, and are functionally constrained, limiting innovation. This naturally frames an argument for blockchains:

  1. Shared, by default. Data is guaranteed to be both accurate and available as the shared consensus system keeps all data up-to-date for everyone at all points in time.
  2. Programmable, by default. Smart contracts do not require APIs to be written in order to read or write to them; their natively open design provides read/write functions by default. This feature alone provides immense opportunity for digital innovation.[2]

The possibilities for innovation are quite promising now that we are presented with an alternative paradigm offering the following features over centralised systems:

  1. The ability for consumers to have programmable, shared custody over their identity information as well as the data generated in their digital economic activity. We refer to businesses and consumers alike who have this level of control and transparency over their data: “Prosumers”.
  2. The ability to host decentralised and programmable sources of public information. These sources of truth are best used for non-sensitive public information that are intended to be agreed by all actors across an economy, such as public registers, and legal and civic rights and processes afforded by legislation.

 

Download our Response to Treasury to see illustrations of these concepts contrasting “CDR 1.O” - implemented today using APIs - and our vision for “CDR 2.0”: that which can be implemented with DLT today and deliver superior outcomes.

Download Block8's response to treasury's issues paper Download here

Block8 would be happy to further discuss our thinking on any of the topics covered above, including specific detail on solution architectures and demonstrations of currently working distributed ledger systems developed to address the challenges and opportunities outlined in the Issues Paper and our Response.

Our experts are also available to assist with research mapping the value chains for centralised and decentralised approaches, the identification of the highest-value areas for a consumer-centric data infrastructure, or working with the Government and other members of industry in the development of pilot programs.

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[1] The word ‘intermediation’ here is used in a pure sense. It does not imply “intermediary”. Managing intermediation may necessitate a custodial entity, or alternatively additional procedural overhead between the transacting entities.

[2] In terms of implementation cost and complexity, some of the cost that would ordinarily be expended in developing an API layer for a regular system would be expended within the logic of the smart contract itself.

 

About the Author: 

Samuel_Brooks_Block8_CTOSamuel Brooks is an expert in connecting next-gen technology with current-gen business problems, with particular specialisation in the development of distributed ledger systems, having designed many DLT-based solutions and authored and contributed to multiple public submissions from both industry and government.

He is also an active member of the Australian blockchain community, including regularly speaking at technology conferences, meetups and podcasts, and contributing to industry and International Standards committees.

Samuel holds a degree in Electrical Engineering from UNSW and has been working hands-on with blockchains since 2014.

 

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