Blockchain - What you Need to Know - Sustainable Futures Report

Blockchain. What is it? Is it important? Is it sustainable? How does it relate to crypto-currency like Bitcoin, and is that just for money-laundering or for wild speculation? I’m hearing more and more about blockchain, so I thought it was time for the Sustainable Futures Report to talk to an expert.

I found one.

He’s called Anthony Day.

Resisting the temptation to call this episode “Day by Day”, let me introduce him. He says,

“I help start-ups, companies and governments to understand the benefits of using exponential technologies like Blockchain to create commercially viable digital transformations. It's not all about Blockchain, and I bring experience of combining other digital capabilities like AI, IoT, Digital Identity, and Cloud as part of the toolkit to work with.

“I'm passionate about engagement with the community and helping non-experts to understand, and appreciate, the value of Blockchain technology. I host the Blockchain Won't Save the World Podcast which provides easy-to-understand examples of real world projects, stories or entire countries' experience with the technology”

And this is what we discussed.

What is Blockchain?

Anthony C Day: Anthony, I'm going to start with a question, which is pretty broad. What is blockchain? And is there just one blockchain, like one internet, or are there lots of blockchains? And then we'll develop, I hope, to talk about things that hang off blockchain, like cryptocurrency and NFT, and we'll look and see how that might fit in with the whole sustainability agenda. Is that a good starting point?

Anthony J J Day: Sounds good to me. Will I take it away?

Anthony C Day: Yes.

Anthony J J Day: Fantastic. Firstly, Anthony, thank you very much. It's the first time I've ever been in the room with another Anthony Day. So delighted that we could make this happen.

Anthony C Day: Me too.

Anthony J J Day: My brief background, I've been working with blockchain technology primarily for enterprises and governments for the last six, seven years of my career. Before that I've spent most of my career working in digital strategy and digital transformation, which is helping large organisations to understand the implications of technology, to implement that technology safely, and for the benefit of their constituents, their customers, their employees, whoever it might be.

I spent most of my life trying to help people understand the complexities of technology and to make it simple. And so I'll do my best today to do a brief summary of blockchain technology and how I feel it works and how I feel it benefits a whole bunch of different settings. It's not for everything, it's not for everyone. There are some nuances to it that are important. And I think you've lined up some really exciting questions.

I'll start with the basics, so what is a blockchain or how does blockchain work? I'll try and keep it to a less technical description because I think that helps people to understand. Blockchains are essentially just a mix of a few digital capabilities woven together, and I'll go into those in a second, and then secured by a network of computers that are independent. You have what's called nodes, which are computers all around the world that help to maintain the security and the uptime of that particular platform. It's a data platform essentially. Within blockchain technology you then have a few different capabilities.

The Ledger

First things first you have what's called the ledger, the shared database of information that everybody can read at any one time. If you were in marketing circa 2010 you'd be talking about the single source of truth or the single customer view, where you have complex financial ecosystems, complex supply chains, or any situation or any organisation where you need to know what is the latest version of the truth of data that might be sitting on different servers, different databases, anywhere else in the world. That single source of truth is very useful. And so that shared database, that shared ledger, is the first underpinning capability, which makes blockchain useful.

Automation of Activity

The second part on top of that is automation of activity. On that platform you can run applications, applications that essentially run business logic, or that do things at a system level that might be beneficial. It might be managing an escrow account. It might be validating that an identity is correct, it might be proving that your university qualification is valid. That is then launched or deployed onto that shared platform that's kept by a series of computers all around the world that can't be switched off that allows anybody to validate credentials, to make transactions at any time.

That's useful because it's global. So if you think about passport databases, or if you think of even about, at the basic level, university qualifications. If I have to prove that I've done my Master's in eCommerce applications from the University of Sunderland, I'll probably have to email them. They'll probably send me a digital document, which I can quite happily doctor on my computer and change my grades and change the dates and then whatever I like. I can then update the PDF, print it, and then send it to whoever I want. Which is not necessarily the most trustworthy of systems.

Tokenisation

Above that automation, so that allows you to do automated activity to run applications that anybody in the world can access, you then have the concept of tokenisation. Which is really tokens we've been using since long before blockchain has come along, in terms of being able to gain access to a system or hold a token digitally that allows you to do things. Historically, it might be being able to make a payment, or it might be that token will allow you access into a system, or to call an application programming interface, API.

These tokens represent the ownership right of something. It's held in a wallet, your wallet. It could be a digital wallet on your phone. It could be a company wallet, it doesn't really matter. And that token can be used to represent a share in a timeshare, it could be a right to real estate, right to property. It could be the right to a piece of artwork. It could be a proof of purchase. Or it could be a financial document, again, which is unique to you, that's held on your wallet that you hold and you prove that you own. And off the back of that you can do certain things. You can transact with it. You can collateralise that and get lending against it. You can prove to others in the system that you attended a concert at a certain time, or that you have been a member of a whitelist to get access into an event, a purchasing event, an auction, whatever it could be.

And those are the three main layers. So you've got the database, the shared database, which is global in nature, borderless. You've got automation of activity, which allows you to do processes very quickly, take away bureaucracy. And you've got tokens, which allow us to represent digital ownership rights of something that can't be challenged and that's easily transacted.

Anthony C Day: Right. Okay, okay. And is there just the one blockchain or are there multiple blockchains?

Anthony J J Day: That's a good one. You compared the internet as an alternative here. And at some point over time, through the '90s, we agreed on a single protocol for the internet, TCP/IP, which everybody agrees that we will support. And there are other organisations set behind the internet that manage domain names that are centralised authorities that manage that. And eventually the world agreed that there should be one protocol for the internet.

Different Blockchain Protocols

There are many different protocols in the blockchain world because we're experimenting with what type of functionality we would like to have on these distributed networks. Bitcoin, for example, one of the most well-known, has its protocol, its representation of digital cash, its representation of how the nodes work, how the system is validated. And we'll get into this in a minute, but the shorthand for now is that they use a proof of work system. And so that's a different protocol with a different model of consensus to secure the network.

There are other networks, like Ethereum, Polkadot, which have different structural requirements or different features that require the protocol to be a bit different. Ethereum is designed to allow for those applications to run on top of them. Bitcoin doesn't allow you to do that really. So Ethereum is designed differently to allow you to have those global, borderless applications, decentralised applications, so its protocol is slightly different. It also uses a similar consensus mechanism and is also then obviously computationally expensive.

Polkadot, for example, is designed differently to connect between multiple blockchains that do different things. And so its protocol, its model of security, its consensus mechanism is slightly different, because it is designed to still work in a borderless way to still support tokenisation, but also to support different types of upgradability of the system. It's very, very difficult to upgrade the Bitcoin blockchain because of how it's designed. It's very, very easy to upgrade the Polkadot blockchain because it is designed thus, because we don't know exactly how protocols and how blockchains are going to evolve. So one of the features there was, "We want upgradability. We want cross-chain communication. These are important things to us. We think these are problems that we think we need to solve technically."

And so there are very many Ethereum-alikes, blockchains that are a bit like Ethereum but they perform slightly differently. There are many blockchains that are a bit like Bitcoin, that are focused just on creating digital currency. And then there are a whole raft of other protocols and models of consensus that may be based not on proof of stake or proof of work, but have based on that you have provided Wifi service and support to the network. There's some really creative models for how blockchains are supported and the economic models behind them, and so that's where you see the differences. And you haven't seen a winner or one blockchain win out yet because actually there are multiple different needs or different requirements or different functionalities that we're still trying to shake down.

Anthony C Day: Okay. Right. Now you've been talking about Bitcoin and Ethereum, both of which are cryptocurrencies, and there are other things which hang off blockchain like NFTs, which we'll talk about in a moment, but there are multiple cryptocurrencies. I think there are more than 100, and perhaps more even than that. Why? Why do we need, why have we got so many cryptocurrencies?

Why so many cryptocurrencies?

Anthony J J Day: Great question. At a very basic level every public blockchain has an economic model for supporting it, because you need to have nodes and computers to support the uptime of the network. You want to create some economic incentive for that system to be supported and secure. If you provided it pro bono and you didn't create any incentive or disincentive for good or bad behaviour the network would be utterly chaos. You wouldn't have any way of keeping everybody in a win-win situation where good behaviour on the network plays out. Those supporting the network are financially rewarded, because it costs computing power, effort, time, governance. All of these things typically will have a token behind them.

And so wherever you see a different flavour of public blockchain, typically you will see a token that represents value of the network. Now the functionality of those tokens can differ dramatically. They can be, in the first case, they can relate to investment, equity in the platform. I will buy these tokens with the expectation that the ecosystem, the economic environment within that network will grow over time. If you look at Ethereum, I think it's something ... Several billions. If it were still based in Canada it would be the largest institution that Canada has ever created. Multiples of billions of dollars of value on that network. And so if you bought Ether, the token of the Ethereum network early on, speculating that that would be a great place for economic activity to take place, the token would've increased in value because there's high demand for it.

Other networks, it's more based around utility. It's just saying that a token on this network represents your rights to access a product. It might be your right to vote on the network. There are other more complicated multi-token blockchains as well that relate to keeping a stable coin, which is essentially a way of avoiding volatility with tokens because speculation and early stage technologies always are highly volatile. And if you want to transact borderless in, let's call it the blockchain equivalent of dollars, that's going to be difficult if the price keeps going up and down 10% every day. So there are other tokens that represent the ability to create stability on the network as well.

Anthony C Day: Okay. But you talk about potentially the largest organization by value in Canada, but there's nothing behind this, is there? It's a modern day South Sea Bubble, isn't it?

Speculation?

Anthony J J Day: You have activity, and I'm not the best person to evaluate all of the monetary or economic factors that cause tokens to increase or decrease. But ultimately, on that network you have computing power. You have the energy that's used to provide the security. You have applications that are running real world activity. That could be financial activity, that could be trade activity. There is activity happening on that network and so you can value that.

Or those people who are using the compute on that network, or those people who are using the applications on that network, can create or can calculate the opportunity cost of using a different method of transacting. Or a different method of using a different application, or doing things manually, or doing things in whatever the reference system was there. Creating a trade finance network that is connected when everyone has that single source of truth, versus creating 100 point-to-point connections. You can quite clearly evaluate the opportunity cost of maintaining those two different platforms and you can value those things. The more economic activity, the more data, the more interactions, the more communication that happens on that network, the more you can account for that as value.

Bitcoin Mining

Anthony C Day: Right, okay. These cryptocurrencies can be used for transferring value from one person to another to facilitate purchases and so on and so on. But another aspect, which I might even call a fairly arcane aspect, is the idea of Bitcoin mining or cryptocurrency mining, which is the use of computers to solve algorithms in order to actually create new Bitcoins. So eventually, when you've solved the algorithm, a new coin pops out and it's worth whatever the current market value is.

But there's been a lot of controversy about the fact that to carry out these calculations you need enormous computers and they use a very significant amount of electricity. They say that if you look at all the cryptocurrency mining operations, they're up there with nation states in terms of some of the electricity they're using. Now first of all, is that going to continue forever? And secondly, if we're just running a blockchain, are we using that amount of electricity? Or once everything stabilizes, are we actually going to reduce electricity consumption?

Electricity Consumption

Anthony J J Day: Yeah, great question. I think the first thing is, I'll give you quick run-through, that there are probably three generations of blockchain. Bitcoin was created in the 2000s, Ethereum was created in the 2010s, and more recent networks like Polygon and others were created in the last or deployed in the last three to five years. In each generation the model for how they are maintained and secured has evolved slightly. Nobody really wants to maintain a high compute, low sustainability technology network. That's just not the way it works.

Proof of Work

But in the original manifestation of Bitcoin, that proof of work was there to say, "This is how we secure the network." The nodes on the network will have to solve computational problems to validate that they are a miner, validate that they can do the job of validating transactions, and that the parameters of the transactions are accurate. And then, as a result, can be submitted to the network. The challenge there or the intent there is that it makes it much harder to hack the system. The more nodes you have securing the network, the more randomness you have in which node might eventually end up validating the transaction, the harder it is to hack, the more secure that network is.

And so the amount of computational power required today to take over that validation or to hack the existing mining network is very, very, very, very hard. And when you have billions of dollars of economic value going through that network you want it to be that secure. And so if you look at the amount of energy or electricity used to support the traditional retail banking network or the capital markets it's astronomical, and I'm not saying that's a bad thing. But a lot of energy and compute is being pointed towards securing those networks, as well as the Bitcoin network.

Proof of Stake

Now over time, the subsequent generations of blockchain have moved more towards proof of stake, where the process of validation is not about computing. It's about staking an amount of money to say, "I will stake 10, 100, $1,000 that this transaction's accurate. If it is found subsequently that it's not, I will lose my stake and my economic value, my reputation on the network is at risk." So a different model that requires not more computational power than a traditional refresh of a website. So if you look at proof of stake blockchains, the energy efficiency relative to Bitcoin is much, much, much smaller, thousands of times smaller. That is not to say that they are green. They are still using energy. They are still consuming electricity, as are we, recording this podcast, as are most of the rest of the world when they send their emails every day.

There is a bigger meta problem relating to the sustainability of cloud servers and sourcing sustainable energy. There are many Bitcoin mining companies, like Hut 8 in Canada or others, that are fully based on sustainable or renewable energy, that are using hydroelectricity, or they're using wind solar geothermal. And they are trying to rebalance the sustainability of that network. But if Bitcoin is always going to be proof of work, it's always going to be computationally expensive. That's part of the design. And in some cases, part of the appeal. From a sustainability perspective, it's not a great story.

Security

Anthony C Day: Right. Now, you talk about security and how important it is that networks should be secure. But nonetheless Bitcoin exchanges or cryptocurrency exchanges have been hacked and very large sums of money have been lost, so how secure can all this be?

Anthony J J Day: Absolutely. A good point to be raised there, because the ledgers, the underlying network of who owns which tokens or which tokens are held in which wallet, was not hacked, but the intermediary. An exchange is essentially an on/off-ramp for people to exchange fiat currency, pounds, dollars, yen, for cryptocurrency. And that exists as a centralized organization. It's essentially a bank. And banks get broken into, I wouldn't say all the time, but retail banks do have hacks. They do have phishing scams where people lose their passwords. Ditto when personal information goes missing from airlines or from other companies when their security is breached.

Centralized organizations like exchanges or banks or airlines all face the same challenges. Somebody has a password. There is a database somewhere where a series of keys or a series of volts exist, which can be accessed from the outside. And while value is in that centralized exchange, your money can be moved. That system can be penetrated. And so it's not a breach of the blockchain network as such, it's a breach of one of the intermediaries on the network that's facilitating transactions between either trading different cryptocurrencies with each other, or swapping in and out cryptocurrencies for fiat.

Insurance

And this is a challenge. In a number of cases, some of the more mature exchanges now have insurance, where if they have a hack or anything like that your money is guaranteed. In the same ways you do with retail banks today, so that's progress. But any system is as secure as its weakest point. And so a lot of practitioners out there will suggest that you manage your own cryptocurrency private keys. You'll have a specific wallet, a specific USB key, where you'll have the private keys to be able to move or to swap or to transact on a network. And that's under your control and you have to manage the physical security.

You'll have unusual things like you'll write your password or your seed phrase on a piece of paper. You might go move that piece of paper to a physical location. You might separate it and put it on a number of different digital servers so nobody can see that one seed phrase in one place. It feels a bit retro actually when you get down to that level, but these are some of the challenges or some of the behaviors that are being created now because of exactly these sorts of challenges.

Tax Avoidance and Money Laundering

Anthony C Day: Right. Now before we move on to other things which are based on blockchain, like NFTs, non-fungible tokens, one of the aspects of the whole cryptocurrency network is anonymity. And surely this is a vehicle for tax avoidance, tax evasion, and could this not be very serious for global economies and global governments?

Anthony J J Day: I love this one, because this one cuts both ways actually. If you were going to launder money, or if you were going to avoid your transactional history being monitored, putting your trust in a public ledger where every transaction is available and visible to everybody all of the time is probably one of the worst places you could do it. You have pseudonymity of your wallet, but eventually, which wallets you have and those transactions can be linked to an exchange, and then your exchange linked to a private retail bank account, that's very, very, very easy to trace because it's all public. It's all public. Not necessarily the transaction between the exchange and your retail bank, but all cryptocurrency transactions are on a public network.

That's the appeal, it's transparent. It's pseudonymous, nobody knows that wallet XYZ is linked to me, or that wallet ABC is linked to you. So if I send you a Bitcoin, no one's going to know that you and I transacted. But over the course of time the forensic analysis could show that's what happened. Typically it's much, much easier to launder money through retail banks than it is to do so over cryptocurrency networks.

The key thing that remains is how do we manage the taxation or how do we manage or make sure that appropriate transactions have been KYC'd, know your customer. In a lot of cases the on-ramps to buy cryptocurrency will require KYC. If you exchange your pounds, dollars, yen for Bitcoin, Ethereum, MATIC, whatever it might be, you will go through KYC at the exchange level. The exchange will know your wallet address and that wallet address will then be recorded, such that for regulatory compliance, they know who bought which Bitcoin with which wallet.

Traceable

Now you could then go off into the blockchain environment and switch wallets. You could move the money from that wallet to a different wallet that you have never had linked to an exchange. But the network will show that those transactions have come from your exchange linked wallets to your next wallet. Go shift it to a different wallet, that'll still be tracked. It's all available in a public ledger. So from a hiding from the law perspective, not that easy if they genuinely want to do forensic analysis on you.

Different story around if you've got lots and lots of cryptocurrency in a cryptocurrency wallet, at what point do you realize tax, or at what point do you recognize tax to the government? And this is a bit like theft to an extent, is you've never really have to account for theft until you come under dispute. If I steal your bicycle and go riding around with it for six or seven months, it's my bicycle until somebody says it isn't. And at that point I've got to prove it. It's a weird analogy but stick with me on this one.

The same with tax. I've got whatever cryptocurrency keeps going up and down. It's on a wallet that's connected to me. It's not necessarily connected to my retail bank. There's no forcing mechanism for me to pay tax, tax isn't immediately deducted from my wallet. Although there are some solutions that will calculate automatically your tax in the different jurisdiction you are there's, like Intuit or QuickBooks. But for people who have crypto wallets they can calculate all of that for you automatically, based on the markets and based on pricing and so on. And will tell you,"You've made $10,000 this month because the crypto markets are up, therefore pay this much to your local government." Or if it's gone down, "You've lost $10,000. You have no exposure from tax."

It is entirely, at this point, up to the individual, unless under dispute or unless the tax authorities come looking for you. And I think this is an important thing to note for people who are investing in NFTs and so on and so forth, or holding cryptocurrency where they just think, "Oh, well, it's borderless, it's global. I can do what I want, it's my money." That's not strictly true. And so you can transact borderlessly, you can hold your NFTs and they can go up in value forever. But at a point where you realize those gains or where you switch it back into fiat and want to go and then pay for something in the real world, at that point you have a taxable event which, under the law, you should pay for.

NFTs

Anthony C Day: Okay. Well, let's move on to NFTs. There's been a lot of news recently about non-fungible tokens, for example, representing works of art. And as far as I understand it, these are digital photographs of a work of art. And you, well, the purchaser, has the inalienable right to this picture, not to the original, but to this digital representation of the picture.

But as I said in my email to you, if they decide to display it, if they decide to display it online because it's digital after all, anybody can copy it, so what has the purchaser actually got, apart from bragging rights?

Anthony J J Day: You could argue the same thing for any piece of art anywhere. And I think it's important to do a deep dive on tokenization more broadly, because the concept of thinking that NFTs are literally just JPEG pictures of monkeys is limiting in terms of what tokenization actually represents as a capability.

But let's say I have the ownership right to the Mona Lisa in the Louvre. Anybody can walk into the Louvre, take a picture of the Mona Lisa, and then go put that up on their wall. Yes. It's not technically the same Mona Lisa. And do I have private enjoyment of that Mona Lisa? No, I don't. But it is an original. It is authentic. There is provenance behind that that is the Mona Lisa, in the same way that there is provenance behind the ownership rights to a particular piece of digital art.

Now who values that, how do you value that, is open to discussion. And this feels, in some cases, more like a bubble than anything else because it's highly speculative. The original Jack Dorsey tweet, the first tweet on Twitter, was converted into a digital image that he released that has an ownership right link to it, it's represented by a token. And that was bought for, I can't remember, something like $3 million, it might have been more. I'll check it up subsequently. That person then tried to sell it on for $50 million recently and the highest bid they got was something like $250 or $270, something like that. Nobody at that point in time was prepared to pay the asking price.

Now that's not to say that somebody doesn't value that tweet. In the same way somebody might value a pair of sneakers worn by Michael Jordan in one of his college games back in the day. Beauty is in the eye of the beholder. Are all of these pieces of digital artwork going to be valuable? Possibly not. Who values them? It may be of no value to the average person on the street, but for technophiles or for people who want to own a piece of history, some of the first minted tokens on any blockchain, colored coins for Bitcoin, Rare Pepes, and then subsequently things like Bored Ape Yacht Club, these are pieces of history in the progression of a technology movement. And those might be valuable to some people, they may be utterly worthless to everybody else.

But as I said before, it's important to realize that it's not the JPEG here that's interesting. The concept of having that token, or the ability to represent ownership in something digitally, allows us to do a whole bunch of other things. For example, every time that piece of art is traded or that particular token is traded online, part of the transaction value can be shared with the original artist. So you can create a royalty mechanism that can exist perpetually and digitally, which is much, much easier to settle and reconcile than the existing music industry or the existing art industry. You then, as an artist, you don't have to wait to die to become wealthy if your art appreciates in value because of your particular efforts or because of whatever it might be. You can enjoy that value at the time when things are being transacted, it's not that you put it into the world and the secondary market is then of no value to you. So that's interesting.

You can fractionalize art. It could be that that token represents a share in the Mona Lisa, not the whole Mon Lisa. As a result, that allows more people to participate in whatever that investment vehicle might be. It could be artwork, it could be the rights to a particular vehicle. It could be rights to a commodity, gold, palladium. It could be a share in production of oil in the North Sea. And that token can be valued, it can be worth something. And that improves or increases the liquidity or the amount of money flowing in to those particular industries. And so rather than having slow-moving, difficult to sell, low liquidity commodities, suddenly you are able to attract fresh capital into a particular industry, a particular space, which allows for more investment, which allows more innovation.

And this is because you've created something that's digital and that's borderless. You can go through intermediaries, you can go through brokers, you can go through signing paperwork and doing all of that the traditional way if you like, but that doesn't allow people in Suriname to participate in an auction for a particular piece of art somewhere in Malaysia. Or a Brit to invest in some gold reserves in South Australia. Lots and lots of different use cases for how that might play out. But the important thing here is not NFTs are pictures of monkeys, NFTs are tokens that you then link to an asset that could be of value.

Traceability

Anthony C Day: All right. Following the token idea, certain industries, quite a lot of industries, but for example like aircraft manufacturer or the production of beef from farm-to-plate, rely on very closely controlled supply chains so everything is traceable. Now, is that an application for blockchain?

Anthony J J Day: Very much so. There's three broad categories in which blockchain works, particularly around enterprise and government. It's provenance, as you describe, demonstrating or proving that something is authentic or that something happened. Identity management, which could relate to individuals, identities, the sovereignty of your identity, your ability to control your credentials so you don't have to rely on a third party who could block you out. And then tokenization, as we've talked about. Tokenization, I'd say we've probably covered that one. Identity management, super interesting. And the university credentials example I gave before is one of the analogies for this, is saying that we can create a borderless, sensor-resistant, standardized global network for credentials or identity, which is useful in a bunch of different ways.

What you're talking about here is provenance. And so yes, the provenance of food, particularly one of the early examples of this was Walmart we're having particular challenges around recalls on certain product categories. And so if you have thousands of outlets across the country and across multiple countries, if you are sourcing from multiple places around the world, if you have any particular issue with a particular category of produce, you have to recall. You have to get it off the shelves quickly. And if you imagine logistically, how do you find out which produce came from a particular farm, or which produce came from a particular country, and which produce do I scrap? Because if you can't do it within a very short period of time you have to scrap a lot.

And so early on Walmart were calculating, I think one of the senior executives said, "I've got a packet of mango here I'm eating for my lunch. I challenge you, my team, to go and tell me, where did this mango come from?" And it took them something in the order of six days to find out. So if you're dealing in that particular case around food safety, that's not really acceptable. If you have the appropriate information logged by the appropriate parties on a shared data platform, rather than a number of different silos from the farm, to the cooperative, to the distributor, to the warehouse, to maybe the fourth party logistics provider, you don't own every step in that supply chain. So you've got data silos everywhere that need to be connected, or not, where paper may exist instead of digital. There's different levels of maturity. If you can join up all of those silos you can get to that information in milliseconds.

Regulatory Reporting

And there are other areas where provenance matters, sustainability being an important one, regulatory reporting. If you think about particularly the challenges around Scope 2 and Scope 3 emissions for organizations, where's that information coming from? It's regulatory required. It's sensitive. It sits across multiple participants in the supply chain, and somebody is going to audit you against it. And it might be that there's a financial implication around having to offset or having to pay for the emissions that you create in the manufacture of a product. Plastic tax in the UK and in a couple of other countries in Europe has now come in, where you need to look at how much net plastic have you imported in the activities that you conduct as an organization. You need to know anybody who's added plastic and what weight and what product.

Now there's another part of this, which is protection of trade secrets. If you are providing products to a manufacturer as a second or third tier maybe provider, what materials you use, what particular ingredients, what particular process you followed, what the output is, might be commercially sensitive to you. It may well be that you are not prepared to have all of that information shared with the manufacturer or the person purchasing your particular product. You have another challenge, which is you don't want to make all of that information available centrally and just pass it all up to that manufacturer, because they're going to have disproportionate information. They're going to know which suppliers in the network have better or less production processes, or better or worse production processes. And as a result, you put yourself at a disadvantage.

Information Asymmetry

Information asymmetry is massive. I mean, if you look at Airbus and Boeing, the original oligopoly slash monopoly in the aircraft industry. The airlines are desperately fearful that they get too much data because they can hold the entire industry to ransom, because you don't really have too much choice. And so be it the ability to have data platforms that are equitable as well, rather than hoovering all of that information up to the largest in the food chain, becomes critically important too. So the way that data is managed, not just that it exists in a single shared place, is also critically important. And that's some of the activities that blockchain or distributed ledgers are focused on.

Anthony C Day: So there are vast changes, vast activities going on in the background that few people are aware of. But clearly things are, well, I would almost say at a relatively early stage and there's an awful long way to go. And it'll just help the average consumer go through life with everything working automatically and not realizing there are blockchains and computers hidden away somewhere in the background.

Anthony J J Day: As it should. And there are many businesses who've used the early stage hype of saying, "Well, this is blockchain-enabled, therefore you must trust it." And that's also not strictly true. Anybody can upload information to a blockchain and it will be sensor-resistance. Very hard to tamper with, typically unstoppable. Difficult to take down because you've got nodes protecting the network keeping it running. It will be immutable, so you can't change it. But data on a blockchain exists forever, but if it's inaccurate data or if it's garbage data you've basically created garbage data forever. And that data is not infallible just because it happens to be on a blockchain network.

The important challenge, and this is where the digital transformation part of it comes, is in making sure that you've taken all the necessary steps to do the assurance of how the data gets to the particular network, that it is trustworthy. If we're doing our taxes and I just happen to type down a few things in my Excel sheet, maybe forget a few zeros and then just sub submit it to a blockchain, that's in entirely fallible as a process for validating that data exists. Yes, everybody can see that data now, but it's not necessarily accurate.

So there are other important things in digitizing the early stage of a supply chain. These are areas where typically there's low internet coverage, low digital maturity. How are we enabling the capture of data early on to a level of quality that we then have to rely on later on? It might just be that all we're saying is it's a mango and it's from Suriname, and that's enough. Maybe we don't need to know exactly the type of truck or exactly the type of vehicle, we'll make assumptions on that later. But these things become critically important. Being able to track information coming from sensors and machines so that we can do real time auditing becomes critically important, but then who's auditing the sensors at the same time?

Transformation Requirement

There's a huge transformation requirement that sits behind digitizing and assuring these real world processes. And the short answer is, don't send a person to go and do a manual audit once a month, because what about all of the other 29 or 30 days during the month where other things might be happening? We have a bigger challenge around digital maturity that's not just, can I use a distributed ledger or blockchain, which allows me to do automation and tokenization. If you are providing a commodity, if you're allowing people to have a tokenized share in gold assets or palladium assets, how do I know they're there? How do I know that actual gold exists? How do I know I'm not being scammed?

Some really complex challenges that go far beyond what the user experience looks like, what the application looks like in terms of me having an ownership right in that token, you might notice some differences around the type of wallet you have to download and how you manage the security of that wallet, if it's not being looked after custodially by somebody else, that will look and feel different. And that remains one of the challenges around having people understand how to manage wallets that manage tokens on blockchains.

But the rest of what happens behind should be obfuscated from the end user. However, the business case and the transformation should not be obfuscated from the organizations that need to do it because it's expensive. It is non-trivial the amount of investment that's required to make those changes or to enable those things to happen. But the other side of the equation in terms of the value created, the costs saved, the risk reduced, should stack up to the investment required to make it happen.

Thank You

Anthony C Day: Anthony, you have shared with us a vast amount of information. And I think listeners will be pleased to know that, as usual, it'll be transcribed and it will appear on the website. So if they want to go back and read it through, it's all going to be there. But I think you've broadened my knowledge certainly to a very great extent, and I'm most grateful to you for taking the time to do so.

Anthony J J Day: Likewise, excellent questions. I really enjoyed the discussion. Hopefully I've demystified or simplified some of the issues at stake here, because it's not simply blockchain is the next best thing and it's going to save the world. It's not in isolation, there's a huge amount more to it in terms of what it is that we do with technology. In reality in any setting, technology is just a series of capabilities that we use to help do the jobs we've always tried to do better or different or more efficiently or with less risk. And ultimately, as you look at any application for technology, you make those evaluations yourself and say, "Is this a good thing? Does this make sense? Is the user experience good?" And I'd challenge everybody out there as they're thinking about technology, "Do I understand what it's bringing from a capability perspective? Does it make sense, or should I go and do a little bit more reading?"

And so if any of your listeners would like to reach out to me or have any questions following on from this, I'd welcome them to reach out to me on LinkedIn. If you type in Anthony Day to LinkedIn, you might get you or you might get me so people will have to make the choice. Both with beards, both wearing glasses, so people will have to do a little bit of digging on that one. And also, I produce a podcast as well, so I produce a show called Blockchain Won't Save the World. Deliberately ironical title, but over the last two, three years I've been focusing on helping to produce some education, some compelling stories, hype free, that help people understand how is blockchain technology being used today in different domains.

Also, the more recent shows are focused on the history of blockchain technology, in particular countries that I find really interesting or that are taking a really different approach to how to apply the technology. Countries like Canada, Japan, the UAE, Malta, Brazil, the Netherlands, Germany. If you have an interest in understanding national cultures, technology culture in different countries, and want to learn about blockchain along the way, please do stop by and check it out.

Anthony C Day: Well, thank you. I'll put your LinkedIn link on the website. I'll put a link to your podcast as well. And, well, thank you again.

Anthony J J Day: Thanks, Anthony. See you soon.

And that was Anthony Day. And so am I.

Moving swiftly on… Once you start thinking about something, you seem to see it everywhere. Financial news about stable coins, an Idiot’s Guide to Cryptocurrency from the BBC (I think that’s a comedy) and an article about the environmental impact of Bitcoin Mining in the latest Transform, the journal of IEMA. The BBC programme is on at 11pm tonight (Wednesday), link below, and I’ll comment on both of these on Friday.

Also on Friday, reaction to last week’s Guardian tirade against the global fossil fuel industry, a warning about increasing cross-species infections and other sustainability news.

For the moment I’m Anthony Day and that was your Wednesday Interview form the Sustainable Futures Report.

Until Friday.

Links and References

(available only to iema members)

Image by <a href="https://pixabay.com/users/geralt-9301/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=6883780">Gerd Altmann</a> from <a href=“https://pixabay.com/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=6883780">Pixabay</a>

Image by <a href="https://pixabay.com/users/megan_rexazin-6742250/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=4851387">Megan Rexazin</a> from <a href=“https://pixabay.com/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=4851387">Pixabay</a>

Image by <a href="https://pixabay.com/users/mohamed_hassan-5229782/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=6773494">mohamed Hassan</a> from <a href="https://pixabay.com/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=6773494">Pixabay</a>