I recently had a conversation with an official from the US Consulate here in Ho Chi Minh City, in which we discussed cryptocurrency and blockchain issues. On repeated occasions he asked the question: what makes blockchain different from a regular database? That got me thinking. There are certainly some instances in which there is no special advantage to using the blockchain over a traditional computer database, but there are surely some instances where a blockchain solution will improve performance considerably.
Now, let’s begin at the beginning.
As I outlined in Data Protection and Blockchains in Vietnam, the basic idea of a blockchain is that it provides a cross-checkable distributed ledger for storing data. This means that multiple copies of a single version of the blockchain are stored in various “locations” and that each new entry in the blockchain will be confirmed through proof of work (the idea that the entity making the insertion into the blockchain has conducted specific computing tasks necessary to confirm that it is legitimate) or proof of stake (which is utilized primarily in private blockchains and is considered, essentially, the authority of the distributer of the blockchain to access the blockchain). Because the blockchain is distributed over several “locations” and each distribution is identical to all other distributions it therefore becomes impossible for any previous entry on the blockchain to be altered without creating a branching chain, which could then be compared with other distributions and shown to be illegitimate. This is the distributed ledger technology in a nutshell.
This distributed ledger technology is especially helpful for cryptocurrencies in that it allows for the entry of new blocks by an unlimited number of entities or individuals in a manner that allows for anyone with access to a distribution of the ledger to confirm whether the entry is legitimate. By conducting the computing processes required for proof of work, the party proves they have contributed sufficiently to justify their new entry on the blockchain. And by utilizing smart contracts on the blockchain it then becomes possible to add additional transactions (buying or selling of cryptocurrency) to the blockchain and thus anyone can check to see if the seller actually owns the cryptocurrency in question.
But what about other uses of blockchain.
In my discussion with this official, he mentioned a Vietnamese developer who was deploying a couple of different types of blockchain in the country. The first blockchain was a logistics tracker that allowed for the recording and sharing of information regarding the site of origin of produce and other goods manufactured in any given country. This is an instance where blockchain is very useful. Rules of origin must be complied with in all international shipping. For a durian grower in Cambodia to be able to make a verified entry on the blockchain that a particular box of durians was sourced on his farm allows for customs inspectors in China to then check the blockchain and confirm exactly where the durian originated. It is an effective use of the blockchain because there are thousands of potential users located around the world with interests in information that is capable of being verified or, at least, unchanged once it is entered. By using the distributed ledger inherent in the blockchain, an entry from Cambodia can be viewed in China, Switzerland, or Rwanda and in each location be assured that it is the same entry that was originally made. This allows each step in the chain of custody of shipped goods to be logged and later confirmed anywhere in the world. This is a situation where blockchain is definitely advantageous.
The other deployment this official mentioned was in health care. Here the idea is that Covid vaccination status will be entered into a blockchain by local medical personnel and distributed in such a manner so that other officials and stakeholders can check that status anywhere else in a jurisdiction which can access the blockchain. He said that currently there are several provinces here in Vietnam that have signed on to this technology but was skeptical as to why it was worth going to the effort of creating a blockchain when a simple shared database could accomplish the same thing.
And I think the answer, in both cases, is a matter of scale.
On the provincial, or city, level it doesn’t make sense to deploy a blockchain when everyone in the jurisdiction is already on a shared network. It is just as easy to create a simple database with permissions and allow access through traditional search queries. But once the scale increases to the point where numerous users are requesting access to the data, such as in the situation where international logistics agencies seek confirmation of country of origin, then it makes sense to distribute the information on a blockchain in numerous copies across the globe.
But even with this idea of scale, anyone dreaming of deploying a master blockchain to control any given type of information in a global context faces the exact same difficulties that prevent any given traditional database from becoming widespread. How does one deployment garner the buy-in by all stakeholders in a given industry or jurisdiction?
Take the healthcare blockchain, for example. In order for it to be truly useful, every healthcare provider in a given city, or county, or country must subscribe to the blockchain. Not only must they have access to it for inquiries, but they must also have access to it for entries. And they must all choose to consistently make those entries. Otherwise, I could have received my Covid vaccine in Nha Trang but unless that specific provider enters that information on the blockchain, it does me no good in Ho Chi Minh City even if the authorities there check the blockchain because information regarding my vaccination status will not be there to check. It becomes a situation where the only way to ensure compliance with blockchain usage is through government fiat, and once that happens, it becomes a public private-blockchain and there is no longer any difference between a government controlled database and the blockchain.
And consider the logistics example. Taking into consideration global stakeholders only magnifies the problem. Now you have to ask questions about international authority, is there any one international organization that can compel the use of the blockchain to record entries? Such a blockchain would be meaningless unless everyone participates. To have two hundred different blockchains providing the same information but for different countries or industries would create a situation where there is no efficiency at all in the process. Customs and logistics entities would have to perform checks of each database to confirm whether there is any entry for a particular shipment.
Globalizing a blockchain also brings into question the issue of data sovereignty? The GDPR in Europe and several other emerging data protection laws prevent or severely limit the options for the transfer of data outside of a given jurisdiction. By entering data on a global blockchain that data is, by its nature, exiting the originating jurisdiction. What can countries do to prevent abuse of data by bad actors in other jurisdictions? What can individuals do to protect their data in a globalized blockchain?
That’s why cryptocurrency is really the only industry that has seen a major adoption globally, because it can be operated anonymously without government oversight or enforcement. Once information on a blockchain becomes sensitive or private then one has to consider laws and protections and safeguards against abuse. It becomes a question of power and sovereignty and that has proven over and over again to be a question upon which the governments of the world simply cannot agree.