Why do we use blockchain?

Beauties and complexities of using blockchain technologies to resolve big problems

Recently I had an interesting call with an investor, and after some good discussions I was asked, “Why do you use blockchain?”.

That’s a good question. At the end of the day, you can think of every technical piece you need to put in place as having advantages and liabilities. Each of these pieces, potentially at some point, may give you some trouble.

As the song says: “If Heartaches Were Nickels, I’d be the richest fool alive”. I don’t think Joe Bonamassa was ever a blockchain developer, but that’s the feeling.

So, why did we use a technology with less years of maturity, seems more complex and with fewer people able to understand what’s going on?

Decentralized ecosystems, connecting untrusted parties

Nevermined was created to offer its users the ability to build data-sharing ecosystems where untrusted parties can share and monetize their data in a way that is efficient, secure and privacy-preserving. The intention is to help resolve very big problems in environments where collaboration between participants is necessary to resolve such problems, but trust between those parties may be completely absent.

A good example is a problem described by Rodolphe Marques about credit card fraud detection. Banks that are natural competitors can actually work together to mitigate their common problem of credit card fraud via collaboration that uses their data. But there are limitations: the data can’t be moved; the data must remain private; the participants must mitigate risk. What if it were possible to train a fraud detection model in a privacy-preserving manner on top of all the banks’ credit card transactions to detect more fraud transactions and save all the banks money?

What a blockchain brings is a unique source of truth, independent of any of these banks. The solution to this problem can be provided by some business logic implementing the access control and orchestration of the fraud detection model. All of this can be packaged in the form of Smart Contracts. This business logic can be audited and governed by a consortium composed by all the parties involved (even including external auditors or regulators). Managing which participants can make use of the data and under what conditions, independent of the individual organizations, can be governed pretty nicely using this decentralized ecosystem setup.

Technically you can do the same thing using traditional technologies, but in that case you need to trust an external entity for control and oversight, which means you are not going to have the same level of transparency. To achieve the same level of transparency that you can obtain using blockchain, it’s necessary to workaround the technology with much more complex processes (external auditors, bureaucracy, etc.). The level of transparency that traditional technology doesn’t naturally provide needs to be built and with blockchain it doesn’t.

Data Provenance

Data Provenance allows us to understand the context in which “something” was created, how it is used and by whom, and how ownership is transferred or delegated.

Take pharmaceutical manufacturing and think about a supply chain situation where a drug developer needs to deliver some medications to a hospital in a different country. The process looks simple, but to actually make it possible means coordinating different organizations (i.e. the drugs manufacturer, multiple freight forwarders, customs, etc.) and the individual processes that come with each. These organizations could be adversarial but benefit from cooperating in a complex supply chain scenario. Here we are speaking about dozens of different companies, different IT systems, regulations, etc., so it’s critical to understand what happens during the entire delivery process. You can find some examples to understand why this is important.

With high fidelity data provenance, we can understand:

• Who manufactured the medication? You don’t want to use medication from unknown parties.
• When the medication was manufactured?
• Who handled these medications?
• Did the medication go through customs and was it verified by the local authority?
• That all the data around the product and the delivery are valid and did not tamper? (i.e. quality checks, product specs, etc.)

And herein lie the main benefits that a blockchain solution can provide:

• We can keep the complete provenance record during the data’s whole life-cycle. This provides the complete lineage of the data during a supply chain workflow, from the manufacturing to final delivery.
• We can keep track of the digital signatures of all the parties involved. To avoid goods or data tampering, tracking who is doing what during any handover or interaction between parties, it is possible to record the signatures of the parties involved in that process. This provides transparency of all of the actors involved in the workflow.
• We can record the digital fingerprint of the assets involved during that process too. Any virtual or physical asset can be associated with multiple digital files and metadata. We can use the same blockchain solution to record the fingerprint of these digital assets and use that for flagging any further data or metadata changes afterward.
• We can use a unique, immutable and transparent source of truth to track everything. Different organizations with totally independent IT systems don’t need to replace their infrastructure, but augment it with a common, trusted backbone where all this essential data and information is tracked.
• As before, all the business logic used to manage this scenario can be modeled using Smart Contracts and governed by a consortium of organizations cooperating in this digital ecosystem.

As in the previous example, implementing all of this without a technology that, by design, facilitates the interaction of untrusted parties is technically possible, but practically so complex that it’s otherwise impossible to achieve. Blockchain overcomes this impossibility.

Tokenization & Payment

One of the foundational capabilities of a blockchain is to enable exchange of value between different parties. By design, blockchains can incorporate tokens as a form of payment. The token, independent of how it is designed, is the medium used in a blockchain network for the exchange of goods and services. It makes the value exchange of digital assets possible. In other words, it’s a built-in payment gateway / mechanism.

Digital payments is a very mature technology space designed to move money around. But a token doesn’t need to have a monetary value attached to it to be valuable. Depending on how it is designed, it can encapsulate any kind of value for the participants of a network. For example, an employer could give a Flexible Benefit to their employees as a performance bonus in the shape of a token. This token could be used later for getting additional holidays, paid volunteer time, training, etc. Or even to be traded amongst employees or participants of an ecosystem!

What blockchain technology is good at is integrating the same high standards of security and efficiency expected when making traditional payments, but without requiring the use of traditional money. All of this is abstracted by the token, and provides the flexibility to be mapped to any kind of exchange of value.

In Nevermined this is a very powerful concept. You can deploy Nevermined on a public network and attach any token to exchange value. You can use a token, call it NVM, without that connectivity but still have it associated with some value agreed to between the members of the network. Implementing the necessary levels of security and transparency to perform the exchange of value could be done by incorporating traditional, cumbersome means of payment. But this is definitely not trivial stuff. Blockchain again helps simplify the application.

Incentives

When you have a digital ecosystem where different parties can collaborate, each participant can add value in the shape of goods and services. Tokenization allows us to quantify the value provided. And incentives are the missing piece of the picture. They promote the desired behavior of all the participants via rewards. These rewards can take different shapes and forms. They can be explicitly monetary, or proxies for some other economic reward like vacation. Or they can be reputational, coupling to notoriety or influence. The permutations of what these incentives are able to represent are virtually limitless.

The distribution of rewards can be codified easily as part of the Smart Contracts, and automatically triggered when the codified conditions are met. There are no additional conversations necessary.

In Nevermined we believe that making data available can be done via the incentivization of making data available and improving its quality. But Nevermined also permits the implementation of different incentive schemes that can promote the curation of data, metadata enrichment of existing data, development of Data Science workflows, etc. All of this is much easier when you have the technology that, by design, implicitly enables you to build it.

How the network operates, including the incentives schemes, is part of the responsibility of the governance of the network. Blockchain technology allows us to design different governance models where different members of the community can participate and decide how the ecosystem must operate. Again, amazing flexibility to enable dynamic, complex systems.

I hope this post provides some information on why we used blockchain technology when building part of Nevermined. We are delivering a solution with the motivation of resolving big problems where multiple untrusted parties need to collaborate. As usual in technology, there is no unique way to do things. But I think for the problems we are trying to solve, blockchain technology helps to provide a better solution. Even if some of the heartaches are not converted to tokenized nickels! 😉

If you would like to know more about the commercial opportunities Nevermined makes available for your organization, or are interested in having a demo, please reach out to us on info@nevermined.io or visit our website.

Thanks to Don Gossen and Jesse Steele for the editorial support.

Originally posted on 2021-01-21 on Medium.