Blockchain: Here to stay?
Data Science Digest, Vol. 5
This article is part of our “Data Science Digest” series. With this series, we will help you keep up with the developments in Data Science, show you the potential of data science techniques and give you a sneak peek into some of the exciting things we’ve been working on at Anchormen. In this article, we will talk about Blockchain, Zero-knowledge proof, and the sectors that can be influenced the most by the technology.
Currently, data is stored in central places like banks or companies with one access point, which makes it vulnerable to loss or malevolent intent. Blockchain technology allows records or ledgers to be stored not in one place but across a vast number of computers, a concept which lies at the heart of decentralization. Decentralization has a lot of theoretical advantages like transparency and security.
Blockchain is a foundational technology that has the potential to change the way we store, validate, and interact with digital systems. It uses blocks of cryptographically validated data that are impossible to corrupt. In other words, it creates a historical transcript that everyone (with access) can see but that is immutable.
Another term that needs to be covered before going further with applications of the technology is Zero-knowledge proof (ZKP). This is a technique by which one party can prove to another party that something is true without revealing any information. A classic example of this is ‘the cave of Ali Baba’ or the ‘Arabian cave’, shown in the image. Picture a circular cave with a door at the far side. If ‘B’ wants to prove to ‘A’ that he knows the secret to unlocking the door without revealing it, the only things he needs to do is walk one side and appear on the other. Repeat this process enough times and the probability that ‘B’ is cheating drops. Thus, proving that he knows the secret without showing what it is. This is Zero-knowledge proof.
So, how does it apply to blockchain? Well, in regular blockchain transactions, when an asset is sent from one party to another, the details of that transaction are visible to every other party in the network. By contrast, in transactions where ZKP is also applied, the other parties only know that a valid transaction has taken place, but nothing about the sender, recipient, asset class and quantity. This is what makes the technology particularly interesting for Governments and industries such as Financial services, which we will discuss below.
If you’ve ever had to deal with any government most likely a realization has dawned you that the different branches of government don’t ‘talk’ to each other or share information because of privacy restrictions. This can turn a presumably simple request into a tedious process. One possible application of blockchain technology that can revolutionize this is creating personal data folders for every person.
In these folders there can be ‘proofs’ that government agencies require as a step in their processes. Using ZKP’s this proof can be stored in a personal folder without its contents being visible to others. Unless of course, they have the key to unlocking this data. Using Blockchain technology in this way can drastically speed up data sharing between citizens, companies and government organizations.
Another possible application of blockchain technology in governments is in voting. Because of the transparent nature of blockchain ledgers, the entire process can theoretically be made faster and more importantly – safer.
Here is an example of how introducing blockchain to governmental agencies can make your life easier:
Blockchain presents a double-edged sword for the financial services and in particular – banks. On one hand, it can allow them to save a lot of money by reducing processing and transaction costs. On the other hand, blockchain allows for the existence of cryptocurrencies, which remove the need for third parties and financial middle-men, which banks are for the most part.
Although this possibility is far off, there are more immediate advantages that organizations in this industry can utilize. For example, the technology can be used to improve fraud detection or for the creation of smart contracts.
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