Our Decentralized Future State

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2017 will perhaps be known as the year of the Blockchain. After years of lying low in crypto forums & pilot projects, blockchain has finally captured popular imagination. Causal to it’s blockbuster emergence was bitcoin’s shameless rally last year, where the leading cryptocurrency grew by over 1500%.

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For the most part, bitcoin’s unbelievable price appreciation can be attributed to the expectations around tectonic societal and economic changes it will usher someday. While the promise of this new world is still a distant one, we are certainly beginning to imagine a more decentralized future powered by blockchains —the cryptography powered technology that makes cryptocurrencies such as bitcoin possible. This decentralized future state inside our collective imagination runs transparent and secure systems, devoid of 3rd party mediation, ~100% uptime and with pinpoint accountability.

To be sure, there will be several iterations before we reach this utopia, and some iterations will be more painful than others. But make no mistake, all this will happen sooner than we think. At this point in time however, it’s safe to say that we’re definitely on the cusp of something special.

Leading the way

At the forefront of this revolution, leading the development of production grade blockchain powered services are unlikely candidates — Banks and financial institutions. The very institutions that are usually the slowest to embrace technology and are regulation laden. A vast majority of banks are experimenting with blockchains as I write this, and that shouldn’t come as a surprise to anyone.

Blockchains really transform the way one might think about financial transactions, transparency, fraud detection and prevention. That essentially means it is set to disrupt the centuries old business models that are core to most banking and financial institutions. To be precise, most banks fiddling with blockchains today are doing so with permissioned blockchains, a concept that is somewhat orthogonal to the libertarian thoughts that gave birth to this technology in the first place. But as we often see, technology evolves in unique ways, often driven by consumption until it takes a life of its own, tossing and turning in unfathomable ways.

Decentralized Utopia

So, what does a utopia powered by blockchains look like?

Futurists cite a plethora of use cases for blockchains, spanning every known industry- Finance, IoT, Shipping, Travel, Social Media — you name it. There is a lot of activity already underway, and a wide gamut of startups are promising us this utopia where everything will be decentralized. Several big names have started to experiment with blockchains and are coming up with various ways to integrate this tech with their systems and business models.

From the outside, things don’t seem that different. We will still have websites and apps to interact with, just like we do today. Except these applications would be talking to ‘decentralized’ platforms or networks managed and run by multiple entities, instead of centralized systems controlled by one. (These entities will probably fall in one of the two camps — they’ll either be completely independent of each other, or will be related in some way.)

Further, these decentralized networks will be transporters and store of encrypted user and operational data. When it makes sense, every node connected to the network will store this data —but not always (there are technical ,business model and privacy issues around this ).

Such a future could mean nearly 100% uptime and no data loss for applications, massive gains in user privacy, security and zero eavesdropping by unauthorized sources, including governments in some cases.

Future state: Permissionless or Permissioned?

There are currently two broad concepts around blockchain evolution — Permissionless and Permissioned blockchains.

Permissionless blockchains are just that —permissionless. They are universal, borderless networks such that anybody can become a part of and transact . All nodes are equal, at-least in principle. The most famous permissionless network is our very own bitcoin. Anybody is free to create an account on the bitcoin network to receive and send transactions. As long as you have the public key address of another bitcoin node, (and have enough balance) you can transfer coins — no questions asked. Another promising permissionless system is the Ethereum network, with its own cryptocurrency called Ether.

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This massively successful Game Cryptokitties is built on the (permissionless) ethereum network.

In a Permissioned blockchain however, an entity or a group of entities create a private blockchain network and define the roles various actors in it — e.g which nodes can verify blocks, which nodes will store data, who can deploy smart contracts etc. The advantages of a permissioned ecosystem are transaction privacy, finer controls, better scalability and faster transaction times. Most blockchain pilots currently underway have adopted the permissioned framework, IBM’s Hyperleger (Fabric) being the most popular offering today.

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Pros and Cons

Blockchain purists, offer several critiques of a permissioned blockchain ecosystem— the biggest one being that it defeats the purpose of why blockchain technology was born in the first place — for a borderless, transparent world with no intermediaries. A permissioned blockchain ecosystem built and controlled by a bank, lets say, makes a mockery of the ‘total decentralization’ concept, doesn’t it?

The reality however is that the development of permissioned or private blockchain networks are purely consumption driven and there are some very real issues with public/permissionless blockchains today that permissioned ecosystems solve.

Permissioned blockchains get rid of features such as node anonymity, transparent transactions and the all important “no middleman” concept of permissionless blockchains — what is left however creates sort of a a secure intranet network, with transaction privacy, immutability, and faster transaction times — the bane of permissionless networks. These feature trade-offs also mean that permissioned blockchains can converge on block consensus via modified protocols, ones that are not energy guzzlers such as bitcoin’s Proof of Work algorithm .

Additionally, even if one assumes that the energy efficiency problem for permissionless blockchain networks is solved in the future — the thing that really works for permissioned blockchains today is that they not as disruptive to current business models as their permissionless peers, and that explains their adoption.

In any case, it is clear that the future holds use cases for both these concepts. While permissioned blockchains will allow existing businesses to automate nuanced business interactions, minimize process violations and enhance product/ service offerings — permissionless blockchains such as Bitcoin and Ethereum will push the frontiers of human interaction, challenge centralized institutions and propel the development of global decentralized ones, create new and hitherto unknown product categories and business models.

This post appeared in my weekly newsletter on Product Management & Tech. 
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