Blockchain, Cryptocurrencies and Smart Contracts
A blockchain is a continously growing list of records (blocks) which are linked and secured by means of cryptography. Each block contains a cryptographic hash of the previous block, a timestamp and transaction data. A blockchain is inherently resistant to the modification of the data in its pathways. It is an open, distributed ledger that can efficiently record transactions between two parties in a manner that is verifiable and permanent. For this reason it has been used to support the cryptocurrency known as ‘Bitcoin’ – a transnational and global currency that is, unlike more traditional currencies that are subjected to the monopoly rights of centralised banking systems, free from the restrictions of centralised modes of control and operation by banks and single administrators. The networks that support Bitcoin transations are based instead on a peer-to-peer system, so that transactions take place between users and without passing through a central authority such as a bank or a payment gateway. As Noelle Acheson points out on the website ‘coindesk’, the ‘double spending problem’ of electronic currencies (where digital assets can easily be copied and re-used) is solved in the Bitcoin transaction because the “integrity of the transactions is maintained by a distributed and open network” that is, in fact, owned by no one.
Whilst blockchain technology is primarily understood as the primary foundation and operation of Bitcoin, it has also evolved in directions beyond the maintenance and circulation of virtual currency. Blockchain technology also supports the self-executing contracts that are directly written into lines of code, and that exist (like Bitcoin) across a decentralised blockchain network. Smart contracts have the potential to completely remodel our current economic system. In the music industry, for example, block chain technology and smart contracts (such as Bitcoin and Ethereum) can be used to automate royalties with micro-payments, thus enabling on-demand music services. This effectively allows musicians to by-pass the big production companies and to sell their music directly to the consumer.
Yet whilst the decentralised nature of blockchain, cryptocurrencies and smart contracts may sound very attractive, problems arise when blockchain technologies start heading towards data privacy regulations, and in particular, the new European General Data Protection Regulation, which requires accessibility to one’s own personal data at all times, as well as the ability to change or delete this data. Because blockchain is distributed across a network of computers, it is, in principle, unchangeable. It is this unchangeability that ensures the reliability of the information that is stored within the blockchain. As Josh Hall asks in The Guardian, how can our data be private if it is stored everywhere (‘Cambridge Analytica’ Opinion, 21 March 2018)? Although MIT’s ‘Engima Project’ and their ‘secret contracts’ may offer some solution to the legal conundrums of developing blockchain technologies in line with data protection regulations, blockchain developers and users will nevertheless need to negotiate the parameters of the GDPR and data privacy more generally in order to fully explore the revolutionary potential of blockchain.