Distributed Ledger — Everyone is talking about it. Simplify it for me please, will you?
Five of your friends are having dinner one weekend at a nearby bar. The pizza arrives 25 minutes late. You and your friends witness this and made a note of this incident, at the same time, in a Moleskine notepad that each of you carry. Let’s say you made a pact with each other and agree (under oath) that you will only turn to the next page or attempt modifying the notes on the current page if — and only if — all five are present together, and at the same time. In addition, the notepads are locked inside a box that requires a secret key that only you have access to. Let’s also assume that you are all required to use indelible ink.
These five notepads put together — with the records in append-only form — are known as a ‘distributed ledger’.
Instead of one person making note of the incident and providing access to others (in effect becoming a centralized authority) the distributed ledger makes everyone an equitable participant. No single person will have more or less ability or access to edit the ledger, and all will have equal access rights over the pizza records.
I still don’t get it — give me a different example?
Imagine someone on the street gives you a copy of the latest music album of Adele for $5. For simplicity sake, let’s say it comes to you in the form of a DVD.
You take this DVD and plug it into your DVD player and it starts playing. You see that Adele introduces herself in the video, and now you know that it is the real deal. She says she recorded this on the 21st of March, 2016, and the album consists of five songs. Now you are convinced and excited to listen to the album. (Alternatively, you could have bought the DVD from Amazon, verified that the album producer is Universal Music, and read hundreds of reviews that assure you that the DVD is authentic.)
For some reason, you get a call from work asking you to take the next flight out to Singapore. In a hurry, you forget the album in the player connected to the internet. You return home after a week on a Sunday. You are exhausted and you see the album cover and you decide to play the DVD. For some reason, the DVD player starts playing Taylor Swift’s previous album. You are confused and realize something’s suspect. Not having the energy to investigate further, you shower and crash. After a few days, you decide to work from home and listen to music. You hit play and now it starts playing some Spanish music from an artist and album you’ve never heard of.
You are aghast and bewildered at the prospect of someone entering your house or hacking your DVD player and changing the contents of the DVD — even though the DVD cover still says Adele. How could this be?
Mysteriously, your copy has been modified — not once, but twice. How did that happen?
If there is a centralized server or system such as Universal Music or Amazon, the methods, skills, and computing resources required to hack this system are easily available for Hacker X to do so. Hacker X can either steal, delete, or modify anything, affecting millions of users who are dependent on the centralized database of these corporations.
Now, let’s say a copy of this album has been sold to one million others across the world. What if Adele recorded this album (not by Universal Music) on her own and sold these copies directly (not via Amazon)? She also created it such that if anyone wants to change anything on their copy, they need consensus from all one million people including her to make this change on all one million copies. If all one million people agreed to delete one song and instead add a Taylor Swift song, then that’s what will happen. Let’s say you want to erase a song and record your own song, you cannot do that unless all (one million) Adele DVD owners agree to the change.
Let’s say Hacker X tries to get into your DVD to modify the contents via the player (connected to the internet). In this scenario, he has to change the contents on all one million copies all at once, at the same time, and without raising an alarm. The amount of time and effort required to do this — either manually or using computer programs — is massive. The pay-off for Hacker X is substantially smaller compared to the time, cost, and effort that he would have to incur to profit from his hack.
“Ah! so, storing my digital assets (such as music, audio, video, images, emails, money, property titles, insurance information) on a distributed ledger makes it harder for anyone to hack, steal, change, or delete them, correct?”
Correct! Decentralization removes the risk of manipulation and makes it harder for anyone to hack into compared to a centralized ledger system or application. The information is stored cryptographically with an access key, and cannot be accessed without the key.
[This slightly dated Deloitte report has some good insights about the concept of ‘distributed ledger technology’. ]
What is panchayat and why should anyone care for it in the 21st century?
Panchayat is a traditional form of self-governance that existed since early 250 AD in parts of Asia, including India and Nepal. It involves the assembly (the word for assembly in Sanskrit is ayat) of five (panch) elderly and wise people along with all the villagers. These assemblies record events, resolve conflicts, and eliminate duplicity. This amazing system is a highly decentralized form of village-level self-governance that helped kingdoms and governments of various forms throughout history. The obvious benefits were community building, elimination of unnecessary admistrative costs, and oversight.
Mahatma Gandhi advocated “panchayat raj” (the village council) as the foundation of India’s political system. His vision would have created a decentralized form of government where each village would be responsible for its own affairs.
Though significantly different, India has a modern form of panchayat raj known as ‘gram (village) panchayat’. This is local self-govenment at the village level, with elections held for the head, or the “sarpanch”, of each gram panchayat.
The government of India failed to heed Mahatma Gandhi’s advocacy for post-independence panchayat raj in 1947 and instead attempted to deal with village level matters at the national level. It failed miserably.
Indian government re-introduced the panchayat system in 1992 and today there are about 250,000 gram panchayats in India. The highly inclusive nature of this system includes women (50%) of the total three million elected representatives.
What is wrong with it?
Many things are wrong with it. Humans are easily distracted. We have shorter attention spans. Mass corruption. Group rebellions. Increased migration to larger cities or other countries. Or, ironically, the upwardly mobile citizens of these villages and towns may not have time to physically participate in the process.
The fewer the number of record-keepers, the more vulnerable the system is.
Besides, most of us use and are dependent on centralized systems such as Microsoft or Uber. This has made many of us unable to perform optimally without it.
If humans lose faith or trust in each other as a result, then this distributed system breaks. This will cause members of the community to become frustrated with it. They may seek an outside power to resolve their differences. They may seek help from a centralized authority (a powerful intermediary or strongman) to resolve the conflicts. Within no time, this so-called decentralized self-governance system will disintegrate and disappear.
How can this be solved?
Three words — “distributed ledger technology”.
It’s that simple.
So, are you saying that modern technology both mimics and enables traditional systems of assembly and record keeping? That’s awesome…
A traditional panchayat system is decentralized with each individual member participating in record-keeping. Each member of the community is an individual node. Similarly, a distributed ledger technology has millions of computer nodes across the globe.
If we transmute the two together, the panchayat system can now operate in the digital world. The digital system will follow all existing methods, systems, practices, and belief systems of the Panchayat. The individual members (nodes) of the panchayat community access the system using a personal mobile device. A digital record (in append-only form) of every transaction takes place on every single device.
This form of digital record keeping on a distributed ledger can be transformative.
It will help the members of the village to continue thousands of years of decentralized self-governance. They can operate without the need for a powerful centralized intermediary (who is both vulnerable and prone to corruption).
What’s in it for me?
With distributed ledger technology, you will have greater control over your life, both digital and offline, due to increased security, greater online privacy, reduced per transaction cost, and highly efficient digital resources and tools. You can engage in counter-party digital transactions (for commerce or personal reasons) without fear. You will no longer have to worry if Bob Smith, or Hacker X, is your neighbor or a scamster sitting in Nigeria.
You will no longer be forced to change your passwords frequently. You no longer have to go through multiple steps of identity verification, every-time you want to access your own money, your assets, your images, your videos, your messages, your documents or your digital records. You may be able to establish yourself as a self-sovereign individual without requiring additional identity proof documents. You won’t have to wonder if the person entering your bar is using fake ID to prove they are over the age of 21.
“You dont have to worry if you are reading fake news.”
You no longer will need intermediaries for majority of what you do today — social media posting, ride-sharing, online banking, bill-payment, travel booking, cloud storage, micro-blogging, reading the news, buying books, listening to music, watching TV shows (movies) and so on. You will no longer pay a premium to access any of these digital services.
You no longer have to worry about frequent interruptions by ads, or worry about a phishing or virus attack that can destroy your computer and risk losing all of your data.
I agree, all this sounds too good to be true! Regardless of whether you believe it or not, this future is coming — and coming at us very fast.
It is also true that there are cronies everywhere. Soon the crooks will figure out a way to out-smart this and every other technology. However, that won’t stop innovators from discovering new frontiers and leave those crooks behind.
You are entering the future — a future in which a combination of distributed ledgers, quantum computers, machine learning, robotics and cryptography — will bring the world one-step closer to utopia.
YES! You will finally be able to enjoy the true meaning of freedom, liberty, and security.
It’s true — just like our past, the future is decentralized and distributed.
The panchayat system of Mahatma Gandhi’s time helped many communities to thrive. For large centralized powers (kings, queens and vassals), the administrative costs and resources required to centrally run hundreds of thousands of villages and communities far outweighed the benefits. Hence, they empowered and encouraged local self-governance. This increased efficiency, transparency, and harmony amongst smaller communities. This resulted in fewer internal conflicts and bickering.
The traditional panchayat system freed up resources, mindshare, and administrative costs. This enabled the rulers to focus on more pressing issues such as famine, drought, invasions or defense. During peacetime, they encouraged the development of art, culture, language, technology and literature.
Villages, towns, and communities established a way of life that helped them maintain peace and prosperity. They established a simple, low-tech decentralized mechanism to share local and regional resources. This mechanism helped them maintain records of birth, death, property and asset ownership. They developed simple and democratic ways to resolve inter-personal conflicts and rewarded each other with trust and respect. This is nothing but a human-powered distributed ledger system.
Distributed ledger technology is not new or novel. It has existed from time-immemorial. Over thousands of years, the means to record an event or a transaction took many forms. It began with oral record-keeping traditions and evolved with the invention of papyrus, clay tablets, and digital computers.
In the 1960’s, ARPANET was invented. At that time, one of its primary purposes was to ensure multiple copies of valuable digital records were held at multiple locations. This way, valuable records were not lost in the event of a disaster or an emergency. Most of us are already familiar with this.
What many of us don’t know is that the original purpose of this predecessor of the internet was to build a distributed storage network — a system that enabled various departments to backup copies at various locations. It was designed to be a distributed system.
The business models in the 80’s and 90’s changed the distributed nature of the internet and turned it into a client-server system. As a result, the general use of the internet was primarily for communication, publishing media, and exchanging information.
Over the past ten years, the world witnessed massive security breaches exposing the vulnerabilities of centralized systems controlled by big corporations and governments. A slew of zero-day attacks, the 2008 financial crisis, increased online piracy, identity thefts, and fake news fiascos have woken us all up to a new reality — a realization that big corporations and current business models are extremely vulnerable.
At the same time, we have seen major technological advancements. We now have access to affordable and reliable high-speed mobile internet and powerful mobile devices. These developments have resulted in millions of images, texts, and videos generated everyday. A lot of these come from unverified sources.
What’s worse is that we don’t have time to remove the bad from the good. We don’t have time to verify the accuracy of the information we process. We don’t have the time and resources to check the source of news or verify its validity. Even if one were willing to pay a premium, a service of that nature is not available. Or, if it’s a free service, it is definitely violating one’s privacy or personal information to be sold to marketers.
Essentially, we don’t know what’s real and what isn’t. Without a distributed ledger, we can’t prove that the pizza arrived 25 minutes late or if it arrived at all. We don’t know if the new Adele album we purchased was authentic or fake. We are consistently surprised when someone hacks into our DVD player to change its contents while we are not looking. We don’t know if it’s worth paying a premium to have someone else verify the authenticity and origin of the product or service we are consuming. We just ain’t got no time for any of it.
How then can we establish trust, reduce cost, and increase efficiency? How can we harness the potential of technology to solve these imminent problems without relying on intermediaries?
Innovators and entrepreneurs have realized that the time has come to develop new ideas, build reliable technology, and adopt newer business models based on traditional systems.
These ideas and business models that the world so urgently needs won’t be able to survive, compete, and thrive without the use of distributed ledger technology.
How about we all start by decentralizing our minds by sharing this post with everyone to create a distributed ledger of awareness?
Copyedited by Amelia Wellers