Following on from the “Blockchain is a solution looking for a problem” narrative of 2016, distributed ledger technology has evolved.
Distributed ledgers – databases with shared control over what and how data is added – can be seen a strategic solution to the “reconciliation” workaround that we have had to put up with until now. This strategic solution is applicable to all industries, not just financial services.
A blockchain is a type of distributed ledger. But new distributed ledgers are emerging. These are databases where control over the data’s evolution is shared between entities. Here’s a handy cheatsheet.
This short post is inspired by a conversation I had recently with a couple of finance professors from top business schools who had some questions about blockchains.
Prof A explained that he had heard all the fuss about blockchains but was unsure whether it was revolutionary or evolutionary (I think the word disruptive was also used). I have written about disruption in Fintech and the Evolutionary vs Revolutionary aspects of distributed ledgers before (hint: it depends, it’s both, and yes, perhaps).
Then he asked, “Yes, but is there anything new?”
In the context of distributed ledgers, I have noticed that many commentators and consultants confuse shared control of data with the sharing of data itself. The difference is crucial, and this common simplification misses the most important aspect of distributed ledgers.
In this post I discuss three ideas:
- Sharing of data vs shared control of data
- Control of data by rules vs by power
- Enforcement of rules by participants
Ethereum builds on blockchain and cryptocurrency concepts, so if you are not familiar with these, it’s worth reading a gentle introduction to bitcoin and a gentle introduction to blockchain technology first. This article assumes the reader has a basic familiarity with how Bitcoin works.
This post tries to describe two very different uses for blockchain technology: Digital Token Ledgers that record ownership changes of digital tokens, and Activity Registers that record timestamped proofs of existence of data or agreements about data. Bitcoin is used for both.
There are good reasons and bad reasons to use blockchains. In conversations with people thinking about blockchain use cases, I have noticed common confusions and conflations arising from words initially used in a narrow context (usually to describe bitcoin’s blockchain) being understood more generically for blockchains. In this post I hope to untangle some of these common misconceptions.