The conversation around blockchain veers between extremes.

Talk to an advocate, and they’ll tell you it’s an anarchist’s dream.  A tool for taking the power back from the hands of centralised banks, overthrowing big tech, and giving regular people full ownership of their digital identities.

Talk to a sceptic, and they’ll tell you it’s a bubble, artificially inflated by hype, and way overdue to burst.  They’ll point to the hyper-volatility of cryptocurrency prices, the complexity of juggling wallets and fuelling transactions with abstract “gas” tokens. They’ll say the technology is forever tainted by the Bitcoin mainnet’s humungous appetite for energy.

Technically neither of these people would be wrong.  Blockchain has the potential to be all of those things and more.  It’s a chest-thumping challenge to the established financial order.  It’s an environment-destroyer that eats more power than a small country.  It’s the future of distributed applications and individual data ownership. It’s a gamble that has already bankrupted many.  It’s a revolution in transparency and traceability.  It’s a tool with near-infinite uses for good and for ill.

Like a lot of emerging technologies, though, reality is likely to play out somewhere in the middle.  And “success” for blockchain is going to come from tempering those extremes into something with more universal appeal and much greater stability.

In my opinion, a lot of the divisiveness surrounding blockchain originates from the fact that the technology, and the potential, are talked about far more at the polar ends of the spectrum than they are in the middle.  Which is why I wanted to kick off The Interline’s blockchain focus (which will run from today until mid-November) with our feet firmly planted on that middle ground.

First, let’s brush away the extremes.

Digital currencies, of which Bitcoin is still the most prominent, but of which there are literally thousands in circulation, are not going away – whether you believe the key coins are over-valued or not.  From Bitcoin being adopted as a key treasury asset by a big corporate entity, to China continually trialling a state-level digital currency that’s likely to be decentralised in name only, the idea has gained sufficient traction that I don’t see it being walked back.

These same developments also doom the idea of decentralised finance as a libertarian utopia.  These are big companies (see IBM and Burberry’s recent blockchain pilot) co-opting an idea, borrowing the parts that work, and bringing them to bear in quite prosaic ways.  Bitcoin, which is how the idea of a blockchain was first introduced, was a grassroots movement once; today it’s another arrow in the quiver of enterprise tech, having its possible applications dissected by the same suits that oversaw the implementation of ERP and other big platforms.

And this is likely to be how it goes: subtly.

Personally, I’m pretty sure cryptocurrency principles are going to revolutionise finance.  But they’re going to do it quietly – to the extent that the average banking customer, accustomed to wire transfers, won’t notice the difference.  So from that point of view, the issue of whether Bitcoin is a speculative asset or a viable replacement for “fiat money” (i.e. money that only has value as a promissory note, not because it is made from a valuable material) is likely to prove irrelevant to actual blockchain adoption.

The same goes for blockchain’s potential to give us back ownership of our digital identities.  I’m fairly certain it’s going to happen, but it won’t happen because people get used to memorising twelve-word passphrases or passing credentials between different soft and hard wallets.  It will come when one of the big technology platform providers – Apple, Google, Microsoft et al – pushes it in a way that allows people to port their identities between different platforms, much as the existing “sign in with Google” credentials system does, but with a very different technology underpinning it.  For the user, the difference will be minimal.

A key point: these are going to be semi-centralised applications of blockchain technologies and ideas, which purists will say are not “true” blockchains.  And they’d be right. Bitcoin in particular was founded with decentralisation at its core: the principle that no single entity governs the network, no one party can shut it down or restrict, and that users are responsible for their own cryptographic keys.

In practice, though, some of these founding ideas are probably going to need to be done away with in applications that bring consumers and corporations together; people are simply too accustomed to having their money secured, their passwords capable of being reset, and other conveniences for true decentralisation to work.  But as we’ll see shortly, the other key component of decentralisation – distribution – will need to remain intact.

To pause briefly at this point, I’m suggesting that blockchain – at least for fashion retail’s purposes – might not be a revolution.  But bear with me.  Because I’m also suggesting that it will be a better system of record, a tool to create unprecedented accountability and transparency, the foundation of secondary resale markets, the start of a new wave of authenticity and inventory management, and a whole lot more besides.

All of which is still a big deal.  So it’s important that everyone with even a passing interest in the technology side of fashion has some idea of how a blockchain works, and how it’s different from what we have now.

To that end, I’d like to offer a humble explanation that I’ve road-tested a few times over the years.  It may not be perfect, but I hope it helps.

The future meets the familiar

Picture yourself in a supermarket.  You might not have been in one much over the last seven months, but hopefully you can remember the experience.  Your cart is loaded with food and drink – possibly more of the latter than usual, what with this being 2020 and all – and you’re about to load it all onto the conveyor belt so the cashier can price it all up.

That conveyor belt is a mechanism for carrying physical goods like apples, onions, or boxes of wine.  Shortly we’re going to use it as an analogy represent a blockchain, which is a mechanism for carrying digital items – which may or may not represent physical goods – but for now it’s just a conveyor belt.

Between one end of the belt and another is the cashier – a single person who serves as the gatekeeper between each item’s start point, as the store’s property, and its end point, as your property.  They perform that transaction by an item, which automatically enters it into a point of sale system, and then passing the item on to the end, where it’s bagged. 

Of course you actually pay for the items en masse, in a single transaction, but the real transfer of value happens when each item enters and then leaves the cashier’s hands, is removed from the store’s inventory record, and becomes a line item on the final bill.

Baked into that transfer of value are several weak points that blockchain can potentially remove.

First: it’s unreliable.  How many times have you checked a receipt to make sure you weren’t overcharged for something a cashier accidentally scanned twice?  How often have you caught a price on your receipt that didn’t factor in a bulk buy discount it was supposed to? 

Second: it’s easy to tamper with.  A cashier can pass an item to the customer without scanning it, accidentally or on purpose.  The customer can honestly or dishonestly walk out of the supermarket without letting the cashier scan their goods.  Both of these are contributors to shrinkage.

Third: it’s a bottleneck.  The only way to scale the checkout experience is to add more lanes, or to take the same process and remove the human element so it can be automated.  But despite its efficiency and cost-saving benefits, even the latter of these does not solve the fundamental issue: that a single inspector, human or machine, coordinates and oversees the transfer of value.  In blockchain parlance, this person would be called a node.  And bolting on additional verification systems such as security cameras is addressing the symptom, not the root cause.

Now let’s think of the conveyor belt as a blockchain.  Rather than moving physical products, it’s moving digital items, which for convenience’s sake we’ll call apple coins: each coin represents one whole apple, and there are a fixed number of apple coins in the network, accounting for the total volume of apples the store has in stock.

Instead of having a single node that handles and approves the transaction that occurs when an apple coin moves from the store’s possession to the shopper’s possession, the blockchain conveyor belt operates by consensus.  Multiple nodes are distributed along the length of the belt, and all need to approve the transaction for it to be validated.  Once it is validated, the transaction is entered into a ledger that’s shared between every node in the network, and it becomes a block on the chain, hence the name.

Those blocks cannot be taken back, they cannot be faked, and in our example the coins (and the physical goods they represent) cannot be stolen or duplicated.  This is the core principle of distribution, and it’s why people who feel the name blockchain has a legacy they’d like to shed refer to it instead as Distributed Ledger Technology, or DLT.

Blockchain, in this case, can solve a lot of problems at once.  It is, at present, the most reliable system for transferring value that we have – protected by cryptography and reinforced by consensus.  A properly deployed blockchain is, in most technical senses of the word, hack-proof.  And above all it can be incredibly fast, provided it’s properly designed.  Bitcoin has fallen foul of its own success by scaling far beyond the initial blocksize (literally the raw data limit that each block is allowed to occupy) it was built with, but other networks have overcome this to easily outpace traditional payment and inventory management solutions.

One question you might have: is having multiple nodes not just introducing more points of failure to a system that previously had one?  This is where, in most people’s opinion, the real forward-thinking genius of blockchain lies. 

While the cashier in the supermarket earns his or her basic hourly salary and is not incentivised to improve throughput or eliminate shrinkage, the nodes in a blockchain are literally invested in the efficiency of the network.  For validating a transaction (which they achieve by essentially solving a cryptographic puzzle) a node receives a payment in the native currency of the blockchain, and since Bitcoin and other digital currencies have finite limits on the number of coins they will ever issue, the node’s reward is likely to appreciate in value over time.

Historically these nodes were called “miners,” because each puzzle they solved uncovered the next block on the chain, which is a model called proof of work – i.e. the miner is literally demonstrating that they have done what was asked of them.  This is where the energy-intensive side of Bitcoin in particular comes in, since mining is becoming a much more complex activity with each block that is mined, and the computational requirement is constantly rising. 

As the technology has evolved, though, other blockchains are pursuing a different model called proof of stake, which asks that nodes commit a certain volume of the native currency to become validators.  In principle this is likely to be a good halfway house between mining and traditional financial institutions, since it retains the incentive without the energy load… but at the cost of ceding network control to a body of high-value individuals and organisations.

We’re straying a little too far into the detail now, so let me pull back for this final paragraph.  The simplest way to think of a blockchain is as that conveyer belt – a mechanism to move things from one owner to another – but with the important additions of total accountability, full movement history, total data integrity, and provable authenticity and scarcity.

What you choose to move with it is where we switch from talking about the underlying technology to figuring out how to apply it.  And from raw materials data to individual shopper profiles, what it can move is essentially limitless.

Over the next few weeks, The Interline will be examining some of the most exciting, immediate applications, as well as considering just how far blockchain could influence the future of fashion in the longer term.

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