Block8's Chief Technology Officer27.07.2020. in Technology, Thought Leadership, Solutions
Key Takeaway: “Distributed Ledger Technology (DLT) is good for recording asset ownership, automating business agreements, and providing transparency.”
Why use DLT? DLT is useful for a lot of things, and it can be tricky to define in simple terms without giving a technical definition. There’s also a risk of oversimplification. How would you answer the question “What is a database good for?” Let’s give it a go:
Consider this: by definition, centralised systems create data silos. Where as blockchains are:
One of the fundamental properties of modern computing is that data is very easy to duplicate. The ability to copy and transmit information with stunningly low cost and high reliability was the very innovation that ushered in the information age. This, however, generated a side-effect: when digitising something of value (an asset), the digital representation of the asset is also now able to be easily copied and transmitted.
Here’s an explanation on how to manage digital assets:
Consider a ‘digital’ asset being an entry on a database representing $1 million.
And now consider a physical asset being a bar of gold.
A natively digital asset (aka “tokenised” asset) converges the best properties of both.
NOTE: some in the industry use the word tokenised to mean an asset as a bearer-instrument. We use it here in the more general sense to represent an asset that has been deployed onto a distributed ledger, thereby giving it the programmable-source-of-truth property we desire.
Fundamentally, an asset is a thing of agreed value by a group (network) of entities (companies, people), and such an asset can be represented on a ledger.
In the same way, the current state of a process can be tracked and updated, with a full and agreed history of progress. Over time, this will also reveal external bottlenecks that can be targeted for further optimisation.
A distributed ledger means the information about who owns what things of value is the same for everyone, i.e. the “truth” about the current state of affairs is indisputable.
Why use blockchain? The key insight here is that we can converge a (legal) product with its digital representation, rather than having them separate. Take for example a new personal loan - the origination of a new financial asset. The loan can be entirely represented on a distributed ledger, including the terms and conditions, offer and acceptance, and history of repayments. Further, now that this asset is programmable, it can be distributed (shared) with others, making it a trivial matter to bundle a group of such loans and resell them as new securities, with full look-through back to the underlying asset for the investor, all perfectly synchronised within seconds. These securitised assets can then be traded further down the value chain by extending the ledger, and so it goes.
Using blockchain for executive technology strategy is crucial. Consensus-based data replication can be incredibly useful, particularly in the management of digital assets, public information, and inter-business workflow. It’s no accident that the term smart contracts invites comparison with more prosaic “legal” contracts (although many in the blockchain space concur that smart contracts are a lot more like dumb programs). The key difference is that they run autonomously, or in other words, across multiple nodes at the same time independent of any one operator, giving each node complete assurance that the data they see is the same as what their counterparties see.
The benefits and potential have been publicly recognised:
Centralised systems create data silos. DLT offers an alternative to APIs for data sharing.
Remember, DLT enables business relationships to operate at the speed of consensus (mere seconds), which is much faster when you can rely on the information as soon as it appears.
Message-based systems (APIs) work by your counterparty hiding information and you needing to trust what you're told.
State-based systems (DLT) work by your counterparty showing you the information so you can see for yourself.
There are of course certain trade-offs and elements to always be aware of when planning how to use a distributed ledger for any use case, particularly when managing digital assets.
To find out more, check out our eBook:
About the Author:
Samuel 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.