Want to Understand Blockchains? Start Experimentingby@erikpmvermeulen
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2,740 reads

Want to Understand Blockchains? Start Experimenting

by Erik P.M. VermeulenNovember 25th, 2017
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In a digital age, there is an overwhelming sense that we must innovate and engage with emerging technologies, such as blockchain, robots and artificial intelligence.

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Lessons from a Simple “Ethereum” Project

In a digital age, there is an overwhelming sense that we must innovate and engage with emerging technologies, such as blockchain, robots and artificial intelligence.

And this is true for everyone, no matter what we do.

But knowing how to do this is much less obvious.

How do we engage with emerging technologies? How can we understand the future impact of these innovations? And where do we even start?

A recent experience with a blockchain project pointed me towards the answer:

If you want to be prepared for the digital age you need to “experiment” with emerging technologies.

Real-world practical engagement is the only way to understand the opportunities and challenges that these technologies create.

Of course, familiarizing yourself and writing about technology is important. But understanding alone isn’t enough.

If you don’t embrace experimentation, you will surely be left behind.

And, most importantly, this need to “experiment” is true for everyone: scientists, engineers and developers, but also for “non-technologists”.

I have written before about the importance of co-creation. My recent experience has taught me that co-creation means “bringing together diverse perspectives and experimenting together”.

Here is how I came to this conclusion.

How Not to Engage with Emerging Technologies

The last couple of weeks I have been speaking at events about the future of intermediaries.

There was a particular interest in the future of lawyers. But I have noticed similar discussions amongst bankers, accountants and other “middlemen”.

The standout event was The Future Lawyer 2017 conference in Oslo.

It became clear that technologies like blockchain and artificial intelligence attracts a lot of attention from intermediaries. The Oslo event, for example, generated a huge amount of interest.

This isn’t surprising. After all, these technologies have the potential to disrupt traditional ways of working and those individuals and firms that are quickest to unlock this potential stand to make enormous gains.

But what struck me is how many people get their relationship with the emerging technologies all wrong.

I see three common attitudes:

#1 — Many people seem to approach emerging technologies as some kind of “forced innovation without a purpose”.

They grudgingly and reluctantly accept that they have to prepare for the digital age. They engage with technology out of a sense of obligation and, all too often, it is half-hearted and doomed to fail.

The result?

They don’t see the genuine opportunities that technology creates. They use the existence of complicated internal procedures as an excuse not to do more.

#2 — Others embrace the technologies, but then engage in “endless discussion without genuine engagement”.

They organize events and write “white papers”/discussion papers, outlining the pros and cons of new technologies.

But, such endless “tech talk” can easily become disengaged from the practical realities of finding real-world applications for technology and can result in a lack of a clear sense of direction.

#3 — Finally, there are those who are “overly-focused on the shortcomings of the new technologies”.

I find this to be the most common and, potentially, most destructive attitude.

Take blockchain and smart contracts.

Ethereum, a blockchain-based computing platform for applications that run exactly as programmed (so-called “smart contracts”), is often criticized because the smart contracts it hosts currently only cover very simple transactions.

Smart Contracts Are Still Way Too Dumb_Smart contracts were supposed to revolutionize finance. So far, however, they have proven adept mainly at helping…

So-called “smart contracts” are considered “dumb”. They are incomplete, prone to error and usually miss the context. It is often said that they are only as good as the developer who created them.

But wait a minute.

This sounds very much like a traditional legal contract. Lawyers tend to draft incomplete contracts. They use overly complicated legal templates. And I can give many examples of contracts that ended in disaster.

Another “issue” with smart contracts is that they are “immutable” and “self-enforcing”. This is different from “traditional” contracts, which are more flexible and can be changed based on new circumstances.

But, this won’t necessarily make blockchain technology and smart contracts any less attractive.

Blockchains should not be looked at in isolation.

Other technologies, such as artificial intelligence, sensors and data analytics, have the potential to significantly contribute to their “smartness”.

An over-emphasis on the limits of a new technology — focusing on what technology can’t do — can often blind people to the possibilities of what it can do now and might be able to do in the near future.

Such a negative attitude will inevitably result in missed opportunities.

So, what is the answer?

What We Can Learn from “Experiments”

I was recently asked to participate in a collaborative “blockchain project” involving developers, coders and lawyers. It was part of an on-going effort to integrate new technologies into our working routines.

We were particularly keen to experiment with blockchain and smart contracts in international and multi-party supply chains.

After all, a blockchain is simply a record that maintains a continuously growing list of who “holds” what (that everyone can trust and is extremely accurate) and offers untrusted third parties a transparent, traceable and secure way to enter into transactions.

What makes blockchain and smart contracts so attractive is that they have the potential to provide transparency in these supply chains. The automation of payments is viewed as a more efficient and cheaper system.

For our project, Ethereum was used to host smart “supply chain” contracts and create a trusted environment for product manufacturers, construction companies (to install the products), warehouses, distributors and customers.

Version 1.0 of the automated supply chain was overly simplistic. Products and payments could be tracked, but the smart contracts could never be used in real life. For instance, they didn’t take warranties, defective products and insurance issues into account.

Going back to the drawing board, we looked at real contracts to see whether the actual legal provisions related to “these other issues” could be reflected in the code. Based on that experience Version 1.1 was developed.

In short, experimentation allowed us to identify problems, find solutions and reveal opportunities.

This is just some of what we learned:

  • Agreements are incredibly complex legal documents. However, when you really look closely there are only a handful of terms that actually matter. “Coding” the agreement forced us to strip the agreement down to basics.
  • Supply agreements contain provisions that are no longer necessary in the transparent and traceable blockchain environment. The blockchain automates “trust” in the same way that certain legal provisions try to do. Arguably, however, the blockchain has the potential to be more efficient because it deals automatically with information asymmetries. Technology allows us to be more trusting.
  • The blockchain environment made the agreements less complex, enabling a better focus on the issues that really matter. The obvious advantage here is that we can avoid — or, at least, greatly reduce — the risk of future conflicts.
  • Most of the provisions of supply chain agreements can be easily “coded”. Even the obligations that excuse non-performance by one of the parties as a result of extraordinary circumstances (earthquakes, strikes, etc.) can be automated, if the relevant inputs are provided. This highlighted the crucial importance of sensors and other digital information sources.
  • Smart contracts can be made even smarter when developers and non-technologists (in our case lawyers) continue to conduct this type of “co-creation” exercise. The lawyers act as a “bridge” between the tech developer and the end-user of the tech (in our case the parties to the supply agreement). “Intermediaries” won’t disappear any time soon, but their role does need to be re-evaluated and re-invented.

But, most importantly, experimentation allowed us to identify the “real world” potential of emerging technologies and the specific new opportunities that these technologies already offer.

What’s Next?

The act of “translating” old-world supply chain agreements into computer code forced everyone to focus on the key issues.

On-going experimentation revealed what is really important and what is simply “noise”. With each iteration, we were able to identify the core challenges and work at finding solutions.

Yes, there are still technical and design issues with blockchain and smart contracts.

According to the Gartner Hype Cycle for Emerging Technologies, most “blockchain” initiatives are still in alpha or beta stage (and still five to ten years away from mainstream adoption).

But does this mean that we should stop experimenting, sit back and relax?

Our experiment showed that this isn’t an option. The adoption of blockchain and smart contract solutions could be significantly accelerated with the emergence of better sensors and artificial intelligent applications, providing “trusted” input to smart contracts.

And the development of applications assisting with the design of smart contracts (detecting flaws and security issues) will expedite their acceptance.

Business will put pressure on the development of blockchain technology when IoT applications, autonomous vehicles and other smart machines are becoming more mainstream.

But most importantly, experimentation and co-creation between technologists and non-technologists will give impetus to the development and acceptance of blockchain and smart contracts.

The experiment I was involved with showed me that there is no time to waste.

It is difficult to make a prediction, but I believe that the acceptance and adoption of blockchain and smart contracts is closer than we think.

It is not surprising to see the biggest consultants in the world already experimenting with the technology in pursuit of new business.

Open, engaged and realistic experimentation represents the best type of relationship with technology. And anyone who doesn’t embrace such experimentation, will find themselves being left behind.

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