Another Blockchain App We Don’t Need

Last month I looked at ascribe.io, which is using the Bitcoin blockchain to solve problems of the digital art market.  It is certainly the case that ascribe’s goal to make it easier to collect digital art is solving a problem that no normal people actually have. Nevertheless, I kind of like ascribe because it is helping starving artists, is open to anyone, and, very importantly, it is actually implemented and working!

This exact same idea is being used in a much more closed system, http://www.everledger.io/. In this case, instead of digital assets created by anyone, the commodity to be tracked are diamonds, with the goal of preventing fraud and documenting the origins of diamonds as they are bought and sold.

The idea is that they maintain a registry, and publish digitally signed records on the Bitcoin blockchain. The blockchain assures that everyone in the world can read and verify the records, and presumably used them in a legal setting. The blockchain works everywhere, regardless of borders.

As far as I can tell, the diamond is physically measured, and the digitized description is used to identify the object (along with a serial number on larger diamonds). This ID is used in records of origin and ownership, which are posted on the public blockchain. Any diamond can be compared with these records to confirm it’s identity and know who owns it.

What is the contribution of the blockchain? Minimal. There are lots of ways to publish records, this is not really the biggest problem with tracking diamonds (or anything).

For this system to work, the diamonds have to be entered into the system in the first place, which requires the cooperation of dealers and others in the supply chain. Most honest dealers are already recording this type of information at the behest of insurance companies. What the blockchain might do is enable all the disparate players to have a shared wall to post the records they mean to share. Good idea, but the blockchain is scarcely the only way to do that.

Here we see another case where we need “end to end” thinking.  The blockchain provides a way to post and read records, with guarantees that they are not modified after being posted. But where do the records come from, and how do I trust them? In this case, they are created by one or more service that documents the diamonds and their status.

When I read one of these records from the blockchain, I have to decide to trust the source, that it is honest and has not been suborned. What if there are two conflicting records on the blockchain? Which one should I believe? How can I figure out which records to trust?

In other words, using the blockchain does not really alter either the need for trust or the difficulties in establishing it. If I am uncertain about the honesty of a broker on another continent, I have to be uncertain about his records on the blockchain.

Furthermore, the crossborder nature of the blockchain is pretty irrelevant unless the records themselves are considered valid across borders. And that is the hard part: getting people to cooperate and share relevant information, and use shared information in the ways that were intended. Off-shore officials can ignore the blockchain as easily as any other legal records.

Will this service stop or even inconvenience dishonest brokers and thieves? I doubt it. tax authorities and criminals will surely access these records, as well.  Anyone trying to hide assets would be wise not to use this registry. There will continue to be a massive pool of unregistered diamonds available.

Will this service help insurance companies and police agencies recover stolen diamonds? Probably yes, though any registry or registries would work as well or better.

It will actually be interesting to see how Everledger’s “high end”, business to business service plays out compared to ascribe’s retail approach. After all, you could just as well register the description of your diamond with ascribe as with the hoity-toity Everledger. In fact, you could register a high resolution digital image of each diamond as an artwork, and treat the descriptive data as a “poem”.

 

Cryptocurrency Thursday

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