Blockchain: The Ultimate Solution For True Data Transparency?

The truth is out there…

Data management and record keeping has been a part of civilisation for centuries, yet even with the advent of the internet, AI, spreadsheets and cloud computing, data transparency still remains a challenge. Rigged elections, tax evasion, asset misappropriation, and other accounting scandals are common recurrences in the news, and all trace back to how data is recorded, stored, and managed.

With the advent of distributed ledger technology, or blockchain — many are of the opinion that this revolutionary technology holds the key to achieving true data transparency.

In this article, I explore ‘transparency’ and ‘trust’, two sides of the same coin that have raised dilemmas in business record keeping over the ages. I’ll discuss the pitfalls of data management in modern society, as well as the potential for distributed ledger technology to step in and combat these issues.

“New models of computing have tended to emerge every 10 to 15 years: mainframes in the 60s, PCs in the late 70s, the internet in the early 90s, and smartphones in the late 2000s, and now blockchain” – Marc Andreessen (Andreessen Horowitz)

Breaking down ‘transparency’.

Transparency, by its behavioural definition, is the “perceived quality of intentionally shared information from a sender” (Schnackenberg, Andrew K.; Tomlinson, Edward C.).

It implies openness, communication and accountability, and “guides an organisation’s decisions and policies on the disclosure of information to its employees and the public, or simply the intended recipient of the information” (Schnackenberg, Andrew K.; Tomlinson, Edward C.)

The very notion of transparency suggests a clear, open and trustworthy relationship that is 100% free from adulteration and manipulation.

Why ‘trust’ is flawed…

As an example, let’s say Bob wishes to know what the earnings are for his favourite pie company in Q3 2017, so he can make an informed investment decision. When he looks this data up, he is under the assumption that the earnings data he finds on the relevant websites are correct and accurate.

The problem here is that Bob’s trust is at the whim of who controls the data.

Businesses have a duty by law to provide 100% accurate data that is free from manipulation, ‘book cooking’ or any associated fraud. That then begs the question as to why we still live in a society where data misinformation is rampant, and scandals are rife?

Again — Because our trust is at the whim of who controls the data.

So, who controls the data…?

When looking at the pitfalls of data management and record keeping, all eyes fall on the gatekeepers of this information, and we then head down a slippery slope of “who is accountable”. This becomes tricky in businesses with over hundreds, or even thousands of employees who all have their fingers on the data.

In addition to that, files, spreadsheets and even the most advanced of cloud applications are susceptible to human error, hacking, and insider manipulation.

‘Trust’, by today’s standards, then arguably becomes more of an ‘honesty policy’, which really is not ideal when 100% accuracy is the goal, right?

Fortunately, blockchain happens to be an ideal solution to many of these problems.

Will blockchain render many of today’s record keeping technologies a thing of the past?

Shifting from the ‘centralised’ to the ‘decentralised’.

Blockchain’s fundamental idea of a distributed database removes the need for trust from any singular point, and instead, establishes trust through shared ownership, and well, some very clever maths and coding. The result is an ‘immutable audit trail’ — in other words the entire system is rewired so that any kind of fraud or illicit activity relating to data is virtually impossible

In centralised systems, administrators manage the databases and the contents within. These administrators can delegate this power to others, via ‘privileges’. With decentralised public ledgers however, administrators do not exist — instead, independent nodes in peer-to-peer networks must come to a consensus on the status of the ledger. For the peer-to-peer network to be able to continually ‘agree’ on the consensus of the public ledger, different consensus protocols are used. While ‘mining’ or ‘proof of work’ was the first consensus mechanism associated with bitcoin, many alternatives like ‘proof of stake’ have popped up since.

Switching from the ‘mutable’ to the ‘immutable’.

To dig even deeper, we should talk about blockchain ‘immutability’. By design, once a block is written to a blockchain, there is no way this data can be further manipulated. Compare this system to that of a typical Excel spreadsheet, where one may add more rows, columns, etc. Yes, ‘editing’ privileges may be locked off to certain authoritative figures, but what is really stopping them from changing the data to their advantage? Sure, logs managed by third-parties may come in handy here for manual auditing, but there is no integral control mechanism to make the data immutable in the first place — we simply need to trust that the system works, and therein lies the problem.

Dropping ‘trust’ for ‘trustless’.

Blockchain technology removes the reliance on ‘trust’, i.e they are databases that have been configured with pre-agreed technical and business logic criteria. They are also kept in-sync using decentralised, peer-to-peer technologies that have pre-defined rules about what data can or cannot be added.

The obvious benefits of a trustless, immutable system is that it provides a clear, transparent path for auditors. As an administrator for instance, you can prove that your data hasn’t been altered, and as a recipient, you can also be guaranteed the same copy of data via blockchain.

Is blockchain the final nail in the coffin for bad data?

Fact: Companies that are still arguing about how transparent they need to be with disclosing their reliable business information are running the risk of breaking the law. With data, it’s 100% or nothing.

According to Financial Planning’s most recent ‘Advisor Authority’ study of over 1,600 RIAs,fee-based advisers and individual investors in America, consumers placed a significant premium on transparency. As a result, we are seeing global institutions across the globe like IBM doubling down on blockchain technology to enhance transactional security and deliver unparalleled transparency.

And it’s no surprise — a shift to a trustless, decentralised system where no central point of authority governs the authenticity or validity of a data set would indeed provide a clearer path towards data transparency.

Granted, there are certainly new roadblocks and potholes to come along the way, but such is progress…

Adoption and going forward.

Several blockchain companies targeting database transparency have already begun to spring up, a notable one being JP Morgan Chase’s ‘Quorum‘ project. Quorum seeks to solve the financial sectors “most intractable problems by replacing a web of connected databases with a single, shared, immutable record of transactions”.

Google has also announced earlier this year that they are working on two separate Blockchain projects: a “tamper-proof” auditing system and a cloud operations platform.

Another project, Agora has built a digital voting platform for governments and organisations that leverages blockchain technology. It has made great headway, and has already been deployed in Sierra Leone’s March 2018 presidential elections. Votes from the West Districts were recorded on an immutable blockchain ledger. You can check out the results here.

Final thoughts.

Make no mistake — the world we live in runs on data. So it’s not so much a matter of ‘why’ companies should get on board, but more a matter of ‘when’. As blockchain continues to gain momentum, we’ll see increased rates of blockchain adoption as more and more businesses will want to take advantage of its clear benefits of data transparency (among other things).

And for consumers, it makes sense to welcome blockchain technology with cautious optimism, if we are to value truth and integrity.

With a raft of respected blockchain thought-leaders from Malaysia and around the world set to feature, Blocfest’s focus will be on blockchain’s immense potential in the Southeast Asian region, where the technology has already made great headway.

Learn from the best as we set the stage for the region’s thought leaders to dive deep into blockchain-related discussions involving data transparency, blockchain forensics, business tokenisation and much, much more.

Find out more about our speakers by clicking here.

Blocfest is set to launch 26-27 September, and guests are invited to also join us for KL Blockchain Week.


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