In September 2016, the Irish dairy cooperative Ornua did what it does best: it sold its milk. In this specific case, cheese and butter worth $100,000 USD, to be delivered to the Seychelles Trading Company. It’s hardly worth mentioning, except for the manner in which the agreement was realized. With support from Barclays Bank and Wave, a startup company, the deal was processed using blockchain technology—allegedly the first contract worldwide to do so. Using a special platform, all the commercial and freight documents were made available in a forgery-proof manner within seconds—including the payment.
The Irish dairy industry’s comparatively minor deal is a good example of all the possibilities, hopes and expectations bound up with this key technology. In contrast to long-established, Internet-based transaction platforms, blockchain promises more speed, more security, more decentralization, more anonymity and more transparency. And, in particular, the prospect of bypassing intermediaries and authorities to do business directly. For some, this is tantamount to a revolution in which the “data monarchy” of central servers is overthrown and a “data democracy” proclaimed. Others, such as the analyst and economist Anton Golub, view it as nothing less than “the greatest discovery of our lifetime.”
An Excel Worksheet that Grows
A simple Excel worksheet is all that is needed to understand what a blockchain is and can do. All the data is stored there, including monetary transactions, identities and proof of ownership. What distinguishes the blockchain from Excel, however, is that the blockchain’s worksheet cannot be changed later, is encrypted and is maintained not just by one person but by many people—a network that regularly agrees on the correct status of the worksheet and follows clearly defined guidelines. These rules are known to everyone and can only be changed if the majority wants them to be. Anyone who violates the rules is kicked out.
Now the worksheet, which is also known as “distributed ledger technology” (DLT) or a “shared ledger,” is growing. Further transactions are entered as new items in the shared ledger. However, since this is a thousandfold copy distributed worldwide on computers, instead of being kept in a desk drawer somewhere, any new transaction also appears in all other ledgers and is authenticated by the computers participating in the network. Only then are the entry and transaction valid. This can’t go on indefinitely; when the ledger reaches a certain size it is closed. A complete block has been created, a new one is started—and a chain of blocks, the blockchain, grows.
The essence of the blockchain shines through, even in this short description: there is no single, overriding authority that keeps everything orderly. It is the decentralization, the mass of network computers, the transparency paired with cryptographic encryption mechanisms, that regulate and control: “The protocol coordinates people who do not know and do not trust each other, across national borders and without traditional, centralized institutions or legal agreements,” says Shermin Voshmgir, director of the interdisciplinary Research Institute for Cryptoeconomics at Vienna University of Economics and Business. “The rules of the game are regulated in the code, have economic incentives and are automatically executed by smart contracts through a distributed computer network.” This enables a new kind of economy where anyone can join without the permission of a central authority, such as a bank: “Anyone can open an account and—at least theoretically—mine crypto- currencies such as Bitcoin.”