21. Blockchain with Juho Lindman
With any disruptive new technology, there will be a certain level of hype. Blockchain has been no exception, with bitcoin and other cryptocurrencies spearheading its way into the mainstream. In the 21st episode of Let’s tech, we take a closer look at the concept of blockchain, its mysterious origins and most famous applications. Henrik speaks to Juho Lindman, director of the Blockchain Lab at the University of Gothenburg, who researches uses for blockchain in the public sector.
Links
Visit the Blockchain Lab.
Find Juho Lindman’s contact details here and don’t hesitate to contact him about potential use cases for public sector blockchain.
What is blockchain? World Economic Forum tries to explain.
More info on the Libra project.
If you don’t have time to listen…
HE: Hi and welcome to the Let’s tech podcast. This is our 21st episode. My name is Henrik Enström and this is Codic Consulting in central Gothenburg. We are in the office right now and today we are welcoming Juho Lindman. Welcome Juho.
JL: Thanks for having me here.
HE: And it is going to be a really exiting topic, because you are an Associate Professor of Informatics at the Department Applied IT at the University of Gothenburg. Right?
JL: That is correct.
HE: And you are also the Director of the Blockchain Lab.
JL: Yeah.
HE: So, that is kind of why we invited you, you know, to talk about blockchain. It’s a very hot topic and obviously a technology that has had a lot of buzz around it and been very hyped, and sometimes you hear that you shouldn’t use it. I mean, when I asked around the office here for possible questions to ask, they said that if you have a product owner who says that: “Now we are going to apply blockchain or AI”, for that matter, then they should have a water spray in their face and get told to wake up. You know, it doesn’t hurt them, but to get them to wake up and realise that: “That’s probably not what we need to do at this place in particular.” So, have you heard sentiments like that before?
“With any new technology that’s disruptive, there is a certain level of hype, there is a certain level of very high expectation. And those expectations are often very useful in terms of selling the technology, but they might make it difficult for people to understand what the technology is.”
JL: Yeah, so there are fewer things to kind of … maybe it’s good to put it to the table right in the beginning. The hype around the technology and is of course totally overblown. So, in this kind of situation where a product owner is trying to say a few things about it, it’s often quite difficult because everybody already has some kind of opinion of what it is. Some people have a good opinion, some people kind of technically know what it can do and what it can’t do. Some people might have an inner idea that they read on the internet, that it’s going to solve a million different things. And maybe a third class of people are generally skeptical towards a number of things. It’s pretty easy to be very skeptical towards blockchain. There is a good and bad that comes with that. So, the good thing is that you of course with any new technology that’s disruptive, there is a certain level of hype, there is a very high expectation. And those expectations are often very useful in terms of selling the technology, but they might make it difficult for people to understand what the technology is, which is wrong or sets the expectation level too high. And that is, I think, a real issue in relation to blockchain. And a real issue that anybody who want to take the technology seriously needs to look into.
HE: Yeah, so, I once also saw… I can actually bring it up here on the screen. I saw this little flowchart where it says: “Should I use blockchain to solve my problem?” And the first has just one arrow; “No.” But what if: “Oh my god, no.” So, that’s a no. And then there is like the longer one which is: “Should you use blockchain?” And then: “Are you making cryptocurrency?” “Yes”, then “please stop.” Or: “No”, and then “No, don’t use blockchain.” So, you know, they are obviously making fun of it, the whole technology. You have seen this kind of flowcharts before of course?
JL: Yeah, but is it actually making fun of the technology or the hype around the technology? So, I think that a distinction which is useful to make.
HE: I mean, like we mentioned already, the word cryptocurrency is very connected to Bitcoin, being the most famous one.
JL: Yeah, it’s been up again a little bit lately. So, it’s causing a buzz again.
HE: I saw that it was around 10 000 dollars now and two years ago there was a real peak at about almost 20 000 dollars. So, it’s been unstable or volatile, but still carrying a great value.
JL: Yeah, it’s also interesting because many blockchain people, or people who are operating in the blockchain space or are engaged would say that: “It’s always a good idea to distinguish between Bitcoin on one hand, or like the cryptocurrency in the talking, and then are the blockchain down to lay on the technology on the other hand.” On the other hand, always when Bitcoins prices start to go up, it’s becoming interesting for a number of people. If they are actually serious but making this distinction shouldn’t really be very concerned about that.
HE: Yeah, exactly. So, it is inherently linked together, those two concepts of course. But should we start then by like going in to, what is blockchain? Because I think that’s not at all an obvious question. I mean, even if you might have heard one explanation before, you probably don’t remember it very well. So, what is it?
JL: That discussion is not always very easy to take. Before I go into the definition, I want to say one thing which is that blockchain can be viewed at least in two different ways. So, one is the idea that it’s kind of almost philosophical, like a trust machine, a transparent new technology that will transform organisations radically, that will do traumatic changes in them. And another view is that it’s kind of a technology similar to some other technologies, which is more like has specific functionalities and it can be used to complement to current things that are happening in organisations. And these things are for sure connected, but often… especially when people who are not so tech savvy take this more philosophical approach and say that: “Blockchain will transform trust in society completely. It will make third parties absolute in a number of areas.” For example, that’s more like a philosophical claim, and more kind of a tool space or a more a technological claim would be to say that: “It can be used as a logging system or to track cars and people, patients”, something like that, in a very transparent way. And it might be beneficial use cases.
HE: Yeah. More the technology itself then, what is the blockchain? What does it refer to?
JL: So, the idea is that with any kind of peer-to-peer technology, but with blockchain specifically, it’s kind of an architectural design where you have a situation where you have a network of nodes. And that the kind of the first requirement. Usually these nodes in this blockchain system they are applications that run on their own, and they form a kind of coherent hub. Blockchain, or distributed technology, I use them as the same thing, but they are not, but I will use them to kind of roughly limit the topic a little bit.
HE: hat’s good, I think. Yeah. This is so complex, so let’s make some simplifications.
JL: Yeah, so you have this network where you have peers and the idea is that these peers are not above each other, specific …
HE: No authoritative source?
JL: Yeah, no trust at third part are needed basically for this structure. Now, on top of that, each one of these individual nodes has the full transaction history of the ledger. Think of Bitcoin, so the full transaction history is held by all the nodes and then transactions are added individually in each one of these nodes. So, what this kind of basically means, is that you can change the transaction histories within one of the nodes, if all the nodes still have the transaction history that’s untampered with, which makes it quite tamper resistent. That’s the traditional way of looking at blockchain. So, you have the network level, you have ledgers which the one of their individual nodes holds. And those are usually immutable, so you only add stuff to the end. And you’re only allowed to add like one specific thing. This is the kind of the core … kind of the architecture of what it could look like. And then, on top of that, you could have a service like a cryptocurrency for example So, for the cryptocurrency you would have a public infrastructure, meaning you have public and private addresses. And that you are sending kind of, in this case, cryptocurrency tokens, Bitcoin. You’re sending from your public address to another specific public address on the chain. And this transaction would be signed, and you would be sign it by using your private key in this case. And then, the person who would get the money could only get it if they would know their own public and private key.
HE: So, I guess one way to think about it is like if you’re trying to solve a certain problem, for example if you have a bank and you have to keep track of how much money each customer has, then most banks, I guess, have a central master database and the bank is the authoritative source for exactly how much money each person has. And then they have to solve a certain problem, so someone tries to throw money, then they deduce that from the master database, and they make sure that you can’t withdraw money from two ATM:s at the same time and withdrawing the same money. So, they have to solve certain problems, but it’s much, much easier because they can always rely on the one central database, exactly. And the blockchain is trying to solve a similar thing, but there is no central database. Instead the database is out in the open and it’s … you know, many persons or applications or peers that are keeping track of and getting a common view of what the transaction log is or the ledger.
JL: Exactly. So, it’s exactly like that. So, all the individual nodes have the full earlier transaction history. And when somebody attempts to make a payment, the system would check from the ledger which everybody has, if there is enough unspent money on that particular account.
HE: And it’s very important then, how you kind of add new common knowledge… or common understanding items to the master ledger. I mean, there is of course a very beautiful algorithm here, in how you agree on adding stuff to the ledger which is very important with the time stamping of things. And then you have a difficult problem to solve, right? I am trying now to just for memory here, and then you reward the persons or computers who help the system to add new items to the ledger by solving this difficult problem. So, they get a little bit of money from the Bitcoin.
JL: Yeah, it works exactly like that. So, this is what’s called the mining, the proof-of-work system, but I want to note that’s not the only way to build blockchain systems, but that’s how Bitcoin works. And Bitcoins is often the most useful example.
HE: It’s the one that people would know about a bit.
JL: Yeah, and it’s quite battle tested. It’s been around for over ten years, so that’ actually quite old in terms of technology, so not immature, mature.
HE: Yeah, that’s very true. So, we touched up on some of the like how it works and the complexity of this technology. Maybe we should return to then to talked about what kind of research you do now at the Blockchain Lab at GU, Gothenburg University.
JL: For the last few years, we have been most interested in public sector and how public sector is engaging with the technology. And of course, our research is throwing on this quite strong Swedish tradition of public sector research, but also things that we know about digitalisation related to public sector authorities. And we are one of the only research centers globally that really kind of focuses on public sector use cases. So, often blockchain research is organised around for example fin-tech or cryptocurrencies, but we are trying to see how public sector organisations are currently engaging with the technology. And what problems they might be having or what problem that are having, and how they are thinking of solving those issues.
HE: One follow-up question on this thing with the cryptocurrencies. What advantages do you see with using blockchain and cryptocurrencies in comparison to like standard currencies, in their ways of dealing with money.
JL: One of the benefits with … to mention with their original Bitcoin had to do with that you would be able to carry without trust at third part. You wouldn’t need central banks or governments in that system, because you could technically move Bitcoin from one place to another as long as you had internet, even architecture. So, that means that you don’t maybe need a bank account in places where it’s difficult to get one, or you could do parts of the transfer sends anonymously, but the idea originally was that it wouldn’t be tracked, but Bitcoin can be tracked. So, it’s not like that anymore.
HE: I guess there are like thousands different cryptocurrencies apart from Bitcoin now, so they have different features like small transactions or maybe that you cannot track exactly where the money came from all the way back.
JL: Yeah, but I do want to mention also; with cryptocurrencies there is an element usually related to speculation of their value. So, many people see them more like an investment than a direct payment system. And Bitcoin, of course, has also a drawback for that.
HE: Yeah, what are the risk with cryptocurrencies or drawbacks?
JL: So, with Bitcoin there has been a lot of discussion over the media about proof-of-work energy usage and competitional power usage. That has a little bit at least going down, but I think it’s a real problem.
HE: This demanding problem that you kind of seal the deal on that you have new parts to put on the ledger?
JL: Yeah.
HE: It becomes more and more energy demanding.
“So, the bank has a little bit of responsibility at least. Bitcoin on the other hand, if you lose your private key, if you lose your password to somebody, you’re done. You lose your money. You have to be your own bank. You need to take precautions which you might not need to take with a bank.”
JL: Exactly. So, the algorithm is built in a way that is makes crypto puzzles more difficult to solve, if they are solved too fast. So, that’s roughly how it works. So, they make artificial difficult problems that the minors then try to solve. That’s not effective in terms of if you’re only looking at energy usage needed to run the network. That energy usage is huge, by the way, related to Bitcoin, so it’s actual a real problem.
HE: Yeah, and as you mentioned, one thing with Bitcoin is … even though there are a lot of other cryptocurrencies that are trying to fix different problems with Bitcoin, it’s proven now and it’s been around for many, many years. So, that’s kind of amazing, that it’s still around. I mean, and isn’t it also that the technology itself, the algorithm of Bitcoin is working evidentially because it’s still there, but there are other problems like when you had this attack on Mt. Gox, where I guess billions of dollars or a huge amount of money was lost by ordinary people. What’s the difference if I have a money in a bank account, it’s also just digital numbers, and then if you have it in Bitcoin, what is the difference?
JL: So, the bank has a little bit of responsibility at least. Bitcoin on the other hand, if you lose your private key, if you lose your password to somebody, you’re done. You lose your money. You have to be your own bank. You need to take precautions which you might not need to take with a bank.
HE: Nowadays, you have like a BankID that protects your money in the bank, but you could have that for Bitcoin as well, I guess. So, it’s a little bit that you trust a bank, but don’t necessarily trust places like Mt. Gox. Even though they are huge, you can still lose your money.
JL: Yeah, so the question has to do with the exchange, so the process where Bitcoin gets transferred into real money or other money, cash. Or situations where you want to put it to storage, and you are using some other service than the actual Bitcoin infrastructure to do that. I think then there is a risk. But those scandals have had a lot to do also with bad systems and bad people. I want to say that, actually, related to the Bitcoin algorithm, if you take away the mining, which is I think kind of interesting and brilliant innovation as such, but if you take that away, the core algorithm, especially just two, are relatively simple. So, they are figuring out the addressing system and sending the money, and the other one checking that there is enough on the ledger. That simplicity actually has to do with that they have been able to test it. And that’s also why it’s relatively reliable and has been for a number of years. And if it would be somehow dramatically flawed, it would be quite apparent pretty fast.
HE: It would make use of the flaw. But one place where Bitcoin maybe hasn’t succeeded then is the ease of use, being able to pay in the normal store with Bitcoins. I mean, there are some places where they actually allow it, but I guess … you know, they are few and far between. You can’t rely on just walking around with a Bitcoin wallet around town.
JL: One of the best objections towards Bitcoin seems to be a good solution, but you can’t really do much with it. So, you can horde it, you can have it on your account, or you can do one-to-one transactions with it, but it’s difficult to use it as a payment system. And if it’s intendent to be a payment system, this is a little bit of a problem.
HE: What do you think about the Libra project by Facebook? It’s been very publicised in the last few months, I guess. And if they succeeded with this, it would probably… they have the size and the reach to be able to actually make practical use of a cryptocurrency.
JL: Yeah, that’s a pretty amazing project. I’ve been monitoring it quite closely. So, it’s going to be interesting how it’s going to develop.
HE: I guess they had some hurdlers and they’ve been, you know, had to answer difficult questions in the Senate. Mark Zuckerberg himself and then some big entities have pulled out to the project, I think I read.
JL: Yeah, the most creditable credit card companies and a few of the payment systems withdrew from the project. So, I think it’s a really interesting project. Anyone who is interested, I would really recommend looking in more detail into that, because Facebook has tried to build a payment system before. I think they have had like two different tries already with that and nobody used them. They couldn’t do much, except buy more advertising from Facebook. They have tried it a little bit, but they couldn’t get usage out of it. And I think what was pretty brilliant from their marketing team is to say: “Okay, now we are going to build a cryptocurrency.” Because one thing that cryptocurrencies have, which their previous systems didn’t have, is that people can just get these tokens and let them sit on their account and they will probably increase in value.
HE: They want to become a bank essentially and add a source of speculation.
JL: Yeah, there is definitely a speculative element in there.
HE: Because we have all heard about those people who were early adopters and you know they spent maybe ten dollars and then they became millionaires and multimillionaires.
JL: They have an idea that they would actually keep the value of the money relatively constant. Some real currencies …
HE: That’s the problem with Bitcoin, the volatilities going up and down a lot every day.
“What they say is that [The Libra Project] actually shouldn’t be so volatile, because it’s backed by real currency. There is no need why it would go up and down like this. We’ll see.”
JL: Exactly, and it depends what you compare it to, but you are right, it does that. What they say is that it actually shouldn’t be so volatile with this system, because it’s backed by real currency. There is no need why it would go up and down like this. We’ll see.
HE: Yeah, the proof is in the pudding, as you say.
JL: But I’m guessing it can be relatively similar to other cryptocurrencies. I don’t see how it could be very dramatically different? The ones who are driving that issue, they know this. They know that the price will likely go up because people buy it for speculative reasons, but I want to mention that they might not able to launch it in many countries, or the European Union might actually stop the whole thing.
HE: I mean, I guess one reason that lawmakers are not particularly keen on projects like Libra, they see that shady elements will get another way to transfer money and it like many of these cryptocurrencies it can be hard to track.
JL: Yeah. Well, Facebook could at least a little bit control that, but I think there is a more fundamental reason which has to do with control and control of monetary policies.
HE: Yeah, losing control in itself is a problem also?
JL: It might be. I’m not saying it would be, but it might be different if the actor was somebody else than Facebook also, because they have had a number of issues related to regulations.
HE: Definitely. They’ve been in both Senate and the EU Parliament before, so … Do you happen to know… When I asked around the office for questions, someone mentioned that there was a rumour at least that North Korea was good in hacking different exchanges and earning money on cryptocurrencies? Is that a widespread rumour or is it known that that’s the case?
JL: Well, what is known? So, I don’t have any empirical evidence, but there are some papers at least that would indicate that this is the case. Some countries, maybe North Korea among them, are using some of the cryptocurrencies to evade for example international trade sanctions that have been put on these countries. So, that’s one the reasons why some cryptocurrencies have been for example developed in both Venezuela and also in some other areas where moving funds from one country to another is a problem. I wouldn’t be so surprised.
HE: So, I think we have to mention also, talking so much about Bitcoin and blockchain here, that I mean blockchain was actually invented by one or several unidentified people and there was this alias Satoshi Nakamoto and this happened in 2008, so it’s a long time ago. What have you heard about that? Is there some consensus on who this alias might be in real life?
JL: I have no information about that, but it’s also worth noting that what kind of adds to the mystery is that there hasn’t been activity. This person or group was relatively active in the beginning of Bitcoin, like the first three years.
HE: Yeah, you can see it through the ledger what happened to money and this person or persons should be extremely wealthy. They just have to use their money, Bitcoin.
JL: Yeah, exactly. During a number of years people have claimed to be this person, but then it’s difficult for them to prove it. And what’s adds the mystery is that it’s very easy to prove who this person is, because if the person is able to use one of those early accounts, that means that they have the private key of Satoshi Nakamoto and you would just need to send a message to the system or send some monitory transactions saying that: “This is me.” That would without any shadow of doubt explain who it would be.
“One of the interesting scenarios is if Satoshi returns in the future. I think he might be bigger than Jesus is some circles. ”
HE: But it’s not you, right?
[Long pause]
JL: No, I don’t think so. Please.
HE: [laughs] Not officially? No, okay.
JL: No, I don’t … it’s not me. One of the interesting scenarios is if Satoshi maybe returns in the future. I think he might be bigger than Jesus is some circles.
HE: Sounds like Jesus, yeah.
JL: Yeah, exactly. In some circles, he would be that in that category. But people also think it might be a huge risk.
HE: Yeah, there’s a lot of money involved.
JL: Well, yes, but also power on top of money.
HE: Yeah, and he actually created money out of thin air with the algorithm, he or them, so that’s also pretty cool, just from an idea. I mean, it also brings of course some drama and storytelling around this, that you have this alias.
JL: For sure.
HE: I mean, it’s a little bit like Banksy. This certain drama that you don’t actually know who he is and there are a lot of speculation and articles pointing credibly at a certain person, but you don’t really know who it actually is.
JL: Yeah, and of course it’s also possible that that person might have passed or might have lost his keys. It might be an interesting turn of event if that was the case.
HE: Yeah, exactly. There is something called Shor’s algorithm that one might say is mathematically proven to break the blockchain. Is that something you could elaborate on?
JL: That goes well beyond my mathematical skills. I think this is related to the questions …
HE: The quantum computers?
JL: The quantum computers.
HE: We are not quite there yet, but I guess Google at some point quote-on-quote claimed “quantum supremacy”, but doing something which others then said was pretty simple. But quantum computers seem to be coming and is there a risk if you are holding a lot of Bitcoins that you might… you know, there is a risk the algorithm holds true?
JL: I wouldn’t dramatise that risk too much, partly because if quantum computing becomes widely used, we have a lot of other problem also in society at that point, so this is not the only one.
HE: Yeah, I guess if quantum computers materialise and let’s say they do, then they could break any of the current encryption methods that we use. Or many of them at least.
JL: Yes.
HE: So, one cool thing about you is that you also been visiting scholar at Harvard, Stanford and London School of Economics.
JL: Yeah, so I’ve been a little bit of a travelling academic. I’m originally from Finland, so I’ve been going where the road takes me. So, last year I was in Weatherhead Center in Harvard, Cambridge Massachusetts. And one of the main points to go there was actually to have a look at the governance aspects related to blockchain systems, looking closer at especially MIT, what’s going on in their labs, but also to kind of see what is going on in that scene more generally. And of course, those have been really formative experiences for me.
HE: And how does your research now at Gothenburg University compare to research that’s done elsewhere in the world?
JL: So, as I mentioned, one of the things that we are especially interested in is the public sector use cases. And that’s something that we are pretty good at in general in Sweden, but also at our university.
HE: And if you want to sell that idea, why should public sector use it?
JL: I wouldn’t say that the public sector must use it for a number of things. I would say that there are some use cases which they really need to be aware of.
HE: It’s an opportunity?
JL: I think there is definitely an opportunity, one of the use cases that I think is really interesting, it has to do with voting. And different kinds of e-voting systems.
HE: They had problems with an app in Iowa for example?
JL: That particular app had nothing to do with blockchain, but there are companies, actually several companies in the US, who sell very similar mobile apps, but that are actually blockchain based. They are claiming that blockchain will actually take away some of the problems that they were facing in Iowa.
HE: It sounds like there is a risk as well that you can see in the ledger who voted for who.
JL: Yeah, there is a number of risks involved, but there is an interesting development to keep an eye on. And there are a few other areas where it might be useable, but based on the empirical evidence that we have, for example collected in Europe and also a little bit in Sweden, the pilots are not very mature yet. But if somebody has a pilot that would have actual usage, please feel free to contact me. I would be really keen on looking at it in more detail.
HE: You can see the contact details here on the website, so please contact Juho in that case. So, maybe a final question then. What do you think is the future of blockchain? How will it impact our society and a normal person today, the invention of blockchain?
JL: Based on my own research, which is on public sector, I do not think that blockchain will be disruptive or transformative. At least we haven’t seen much evidence of that yet. On the other hand, in the future, who knows what will happen? What we are seeing is that in both fin-tech and different kinds of ways, and blockchain is being tested for a number of applications. And I don’t think it’s going to be like it’s pictured in a few very popular blockchain books, that everything is suddenly blockchain. It will take a little bit longer time now. The technology is starting to become more ready than it was a few years ago, but I wouldn’t expect it to be up and running immediately.
HE: Thank you. It’s been very interesting talking about this subject, Juho Lindman. Thank you for coming.
JL: Yeah, thanks for having me.