Security: The secret sauce in a blockchain-based economy
by Joe Pindar, Director of Strategy, CTO Office, Gemalto
Sharing economy enthusiasts argue peer-to-peer sharing is a fundamentally new way to organize activity, and it's clearly booming.
Although sometimes defined so broadly it can include everything from recycling to cooperatives, the sharing economy's top brands are raking in billions of dollars: Uber currently has a self-reported value of $62.5 billion, more than the market capitalization of General Motors; Airbnb is said to be worth $31 billion; and Zipcar is now owned by conventional car rental company Avis, which paid $500 million for it in 2013.
Enthusiasts praise the convenience, competition, innovation and control that the sharing economy brings, while critics claim it fails to offer proper protections for workers, consumers and property owners.
Another critique? It's not necessarily a "sharing" economy but an "access economy." Whether you're a true believer or have reservations, the sharing economy has decentralized supply chains and put a spotlight on the security issues inherent in peer-to-peer sharing.
Enter blockchain, a fully transparent, peer-to-peer distributed ledger that securely allows transactions to take place directly between different participants. One of its most important properties — the elimination of the need for central authority and agents — could become a backbone for the real sharing economy, or version 2 of it.
In the current access-based model, every "sharing economy" service has a central authority, but similar services built and operating using blockchain technology would directly connect supply and demand in the most efficient manner.
To develop sustainable blockchain-based systems, security needs to be built in from the beginning. All of our current sharing platforms allow us to adopt security best practices, but people have always been the sharing economy's weakest link — we can't ensure that transactions between people will be secure. Blockchain solves this classic issue by answering the question, "How do I transact with someone that I don't fully trust?"
Blockchain creates an easier way for devices to verify one another. Instead of relying on a trusted third party, blockchain distributes the trust model, recording the transaction on a shared ledger, cutting out the central authority and making the transaction cheaper and faster.
In providing a distributed trust model, blockchain removes the "single point of attack," in turn enabling device networks to protect themselves in other ways, such as allowing networks to quarantine any nodes that start behaving unusually.
This is what makes blockchain such a potentially powerful accelerant of the next phase of the sharing economy: It gives data the ability to know who its owner is. Anything with an Internet connection can hook up to a blockchain, which also creates a perfect record of who owns what.
As governments and businesses move more activities online, blockchain can give senior officials a truthful understanding of transactions where many people and departments are involved. It also provides a much more cost efficient way of building infrastructure to manage documents and transactions with members of the public.
However, blockchain is not a silver bullet. It does not solve every problem, and the added complexity of managing the security of many distributed nodes can only be justified by gaining business benefits from using blockchain.
Our current challenge is to test and validate the many different blockchain networks that have been built. And in doing so, we can then begin to find a way to standardize and consolidate protocols so these networks can work together.