 Hi, welcome to Wikibon's weekly Friday research meeting here on theCUBE. I'm Peter Burris and we've assembled an August team of analysts to discuss a very, very important topic, blockchain. Now, blockchain means a lot of things to a lot of different people, partly because there hasn't been a lot of practical utilization of it. We've talked a lot about Bitcoin and Ethereum and some other applications of blockchain-related technologies, but it's very clear that what blockchain will become is more than what it is. And to try to unpack that and really understand blockchain from the perspective of business decision makers, CIOs and IT and the IT industry, we want to talk a little bit about what blockchain is, what some of the key applications are and what it's going to mean from a technology design and investment standpoint over the next few years. Now to kick us off with us, David Florida, start with a little observation on, let's talk a bit about what is blockchain, David. Okay, well, blockchain is a very exciting set of new technologies, but at heart it's a shared immutable ledger. So let's go down one level from that. It allows consensus, it allows all of the participants to agree on its validity, it allows provenance to know exactly what has happened, the history of what's happened, it allows immutability so that no participant can tamper with a transaction or an asset value and it now allows finality. A single shared ledger provided in one place so that they contract the ownership of an asset or the completion of a transaction. So the second concept is really important, how, where are we applying this? And we need to apply this in any sort of business network. Assets can be real or they can be virtual. They can be widgets that you count, they can be, or they can be IP, for example. So that's, the core of it is a business network. So what's the problem that it solves? The key problem that it solves is that in order to have those characteristics of consensus, provenance, immutability, finality, society had to put together very complex systems indeed. So give a few example of those, stock exchanges needed to be created around the value of stocks and when they were sold and the transactions, credit card companies, the swift banking system. Diamond dealers, for example, have to have a system by which they could know the provenance and value of these assets. These systems were essentially centralized. They were centralized and controlled centrally or there was a very, very sophisticated, complex trust and honor system, some of the systems that have been put in the place, particularly in the Middle East. And they're expensive. The transaction cost is high for doing that and companies that have allowed themselves to be in control of these can take a high percentage or a large amount of money out of this. But they make a lot of money by owning this right to manage this provenance, this immutable ledger. So the value of blockchain is that we can cut down that cost and we can create many more smaller business networks which can focus on a small area and get the same results as this big complex thing we had before. But a crucial feature of that, David, is going to be the question of design. We're going to have to set these things up and design them right and that's going to have a lot of implications for how businesses work. So John, if I take a look at some of the applications of this, David talked about immutability, finality, provenance, et cetera, and how it's going to take transaction costs out of the system. Where do we envision blockchains going to end up within the application frameworks? I think the key thing that on the application side, there's a many series of use cases, low hanging fruit today and then ones that our people are connecting the dots in the future. The fundamental application impact really comes down to where the confusion and clarity comes from, the difference between decentralized and distributed. That's often confused and I think applications purpose, the outcome of applications is really how people work and engage in great value. And the measure of that is how authority and control are provisioned. Distributed and decentralized has a unique difference there. That's a fundamental architectural thing that David pointed out. When it comes to blockchain, people get confused. They think Bitcoin, they think Ethereum. That's kind of on the currency side and the crypto side. But the momentum around decentralized goes much farther than that. So you're seeing things like energy systems, the RAID plus had a pre-sale that was over 40 million that changed in the game on how energy may be used and managed, government, political sovereignty is changing. Breakthrough in science, for instance, Cripser and other labs make opportunities with decentralized labs. Crowdfunding is an obvious one. You see that really get a lot of traction. Space exploration is one. Open source software, you're going to see a lot of activity there. Personal health monitoring, online educational systems, security. These are tell signs that the game will shift in terms of the new architecture and then the impact will be the creative destruction around that and how things are done. So we were talking before we went on about the role of a horse and buggy versus a car. A mechanic and a car is not the same person managing the horse and buggy. That's the role of the service provider market. A lawyer is going to be very instrumental or legal, but in new context. So the applications are going to morph around that and you're going to see people who deal with use cases like tokens, example, hence the token sale, but applications that are already solving some of these problems for their business. Blockchain opens up the door for a lot more headroom for competitive advantage and value creation. I think that's where the action is. So Dave Vellante, I want to bring you into this conversation very quickly and try to build upon what John just talked about. This notion of the difference between distributed and decentralized. Distributed is kind of where things are. Decentralized is more of a statement about authority. What kind of observations do we initially make about how blockchain is going to impact the whole concept of authority within communities and markets? Subtle but important differences between distributed and decentralized. If you look at the internet initially and today, it's distributed but power increasingly has become centralized and that's problematic. Because it exposes us to a number of things. High value breaches if that power is centralized, manipulation, surveillance risks, et cetera. I think there are some characteristics to look at that are relevant here. The distributed nature of that blockchain, the immutability and the lack of a need or no need for a single trusted third party. So that distributed nature of the blockchain versus that decentralized internet, if you will, to use that as an analogy, dramatically decreases those exposures and is much more inclusive. So when you think about that notion of inclusivity, we do have to come back to the idea that we have certain ways, David, you mentioned about how we're doing things today. Very relatively high transaction costs with a few parties making another in this amount of money by administering those transaction costs. And now we're talking about going to something that does inherently look more like a peer to peer but requires an enormous amount of upfront design. Jim Cabela, talk a little bit about how we envision the transition from where we are today to where certain attributes of these applications are going to be in the future. Are we going to need things like PKI? What is going to be the near term implications at a business level? Yeah, I agree with everything that Dave and Dave and John had said about. The new distributed environment, where it's going is that what's fundamentally innovative about blockchains and the evolution of distributed collaboration, really collaborative commerce is it builds upon immutable distributed public identity. PKI, that's what PKI is all about. PKI has been around for a while and adds to it an immutable distributed public ledger. And then the public ledger itself then the blockchain becomes the foundation for distributed decentralized marketplaces. With that said, where it's going is that increasingly there will be layered on top of blockchain more standard interchange formats to enable various types of collaboration or interaction amongst various types of entities in various types of business networks. So, I think this is just a foundation for really a truly distributed peer to peer environment. But at its very heart, there is still this as it were more centralized infrastructure called PKI with certification of flurries and root CAs. That's not going away. That's becoming ever more fundamental, the whole PKI infrastructure that's been built up. So, David Floyer, if I were to listen to this conversation as a CIO, I might think that this is going to be somebody else's problem. Let's take this down inside the business. What is it that a CIO needs to think about this notion of distributed networks of data that both represent data and can represent other assets? And what are some of the things that I need to start thinking about inside my business? Is blockchain really just an economy level? Or is it going to have an impact on how I think about architecting, building, conceiving, deploying and managing systems? So, there's no shortcut to good systems design. People design very complex centralized systems and they're going to need to design systems that work together, especially when you go real time. So, it's relatively simple to have batch systems which can catch up and things like that. But if you want to get the real value of blockchain, it's going to be doing things in real time. So, it's going to, for example, if you're in a car and you want to get data from other cars and you want to be able to feed data into that to optimize on where you should have lunch or the best route to take, all of that data has to be done in real time. So, what needs to be done is to make sure as in any design of system that you have sufficient power, you have the network which is fast enough and these types of systems because of their encryption, because there's a lot of work that needs to be done to make them immutable and all the other characteristics, these systems take a lot more power to drive. David, let me jump in here for a second. So, one of the key differences, just so we're clear, is that we build these centralized systems and historically we've created a data store that in the centralized system is under centralized control and we serialize all access to that data through that centralized control. And that creates latency both in what's on the wire but also latency in terms of the path link of handling that serialization software through the system. What we're fundamentally talking about here is decentralizing that control, putting the data everywhere, but decentralizing that control so we're not serializing anything through the central authority. That's fundamentally what we're doing, right? Yes, just with a little caution there, you still got to have processed it in all of the nodes and for you to be able to get it and you still got to make sure that all of that work's been done. So, that's all decentralized. It is decentralized, but you still, if people aren't keeping up to the uptime, you will still have a serialization impact. Right, eventually. Eventually, yes. So, George, think about from a peer-to-peer standpoint, what does this mean from thinking not just about designing systems at a grand scale but on a smaller scale? Can we envision how blockchain might be used to better marry identity, authority, and incentives as we think about building systems within a business? Well, you had talked about the upfront design requirements in, sorry. You talked about the upfront design requirements in organizational design enabled by this. At the risk of sounding a big picture, this technology makes it easier to have an ecosystem of peer-to-peer companies that cooperate. Typically in the past, we've had like supply chain masters and they've sort of disseminated demand signals and collected supply signals. That was the central coordination, central trust sort of clearinghouse and having the data distributed makes it, the data distributed, but this one system of record which essentially is logically centralized makes it easier to have a new sort of, a new ecosystem design. So, fundamentally, we're talking about the idea of design writ very, very large in the sense of the degree to which we have to diminish the expectation that we'll fix design problems later on. We're going to have to do a lot of design work up front. So, David, I want to close this conversation out by bringing it down to the metal, so to speak. Because when we think about uni-grid and the idea of highly elastic, highly plastic systems where data's flying around and five milliseconds away from any other data kind of thing, there's going to be a need to envision how we can manage all of those applications or user problems within a system in a way that sustains integrity of the data. Does blockchain have a role to play inside the system and how we allocate resources, how we allocate data? What do you think? I think that's a very astute observation because one of the issues at heart here is ensuring that the system itself is not tampered with, that the chips or any part of it. So, there is a role here potentially for blockchain to be the arbiter of truth within the system itself or within the systems themselves. Now, that is not here yet. And that's got to be something which works super, super fast because it has to work in a way which allows the rest of the system to do its work. So, it's going to be extremely interesting technology challenge to put it in there, but the value of it would be enormous. If you can trust then that the system itself, the chips, all of the, everything within that system, for example, you can take a snapshot these days which are very, very quick indeed. And if you can track that, track all of the activities, you will have much greater confidence in the system itself. So, but that's not here yet. And I suspect that's going to be quite a few years before those are put into the microcode, et cetera. So, John Furrier, that has an implication when we start thinking about control authority. What's this going to mean? I mean, Dave, Dave talks about the network aspect and the systems level. The systems of control you guys are getting at, but the edge of the network is where the action is. If you look at all the success of blockchain, you're seeing the edge of the network really be the economies of scale. And that's where the people talk about this, the future of work, all those nonsense out there. It's true, but the action for the people getting value are the ones that have economies of scale that go beyond their current economy or scale of centralized systems. So, you're seeing edge of the network type things, crowd sourcing, edge of the network, autonomous vehicles, you mentioned that use case. So, the edge of the network paradigm we've been researching at Wikibon and covering on Silicon Angle and on theCUBE at the events, fundamental in this new exploration area. So, for CIOs and for businesses trying to crock blockchain, which is different than the cryptocurrency piece, working together with tokens and blockchain is an edge of the network value process. As you go beyond centralization and distributed, working together, that's where the action is. The people that are realizing the benefits there and so companies that are evaluating their position vis-a-vis blockchain and crypto should be evaluating are we exploring these kinds of things? And that's where the filter is. Yeah, so I'd say, here's what I'd say just before I summarize, John. I think you're right. I think that blockchain, that we, as we've written in our Wikibon research, folks have to design around the edge whether blockchains there are not, but blockchain is going to ultimately make it easier to enact those designs over a period of time. Okay, let me summarize, guys. Great conversation today about blockchain and our objective here is to bring it down from the level of magic, the level of potential, the level of someday into the level of practical. And I think what we've done is we've talked about blockchain in a couple of different ways. First off, blockchain is an immutable ledger that is decentralized in the sense that a lot of different agents can gain control of a piece of data in a way that everybody else knows where it is and who has it. And that opens up an enormous amount of new application forms. We talked about what some of those application forms are. They can be open source software having an enormous new way of thinking about how they monetize work that they perform. We've talked about how business networks can be established at a large and small scale that are capable now of not having a centralized authority that becomes a clearinghouse, but rather reduce the transaction costs of deploying and running those networks. However, all of this means ultimately that the issue of design becomes that much more important. Blockchain is not a magic technology. Just don't establish a blockchain. It absolutely requires upfront thinking about what is it that you're trying to perform? What is the work? What is the context that the blockchain is trying to manage from an overall security standpoint? That's going to require a lot of very collaborative work between the CIO, the IT organization, business, and very importantly the lawyers. And that's not going to go away. We will see near term a number of interesting efforts from existing authorities, folks who are handling public the infrastructure, SWIFT and other types of networks try to use blockchain as a mechanism. And that's likely to have some important cues as to how this is going to play out. But ultimately what CIOs need to do is they need to turn to somebody and they need to say go understand blockchain in an architectural level so we can think about how we're going to build applications for communities that operate differently. Now the final point that I want to make here is that it's likely that we will see blockchain or blockchain like technologies actually go deeper into systems as a way of arbitrating access to data and other resources within some of these highly elastic, very large scale, uni grid like systems that we're talking about building. Definitely something to watch, not here today, but likely something that's going to start hitting the market in the next few years. What's the action item? CIOs need to understand that blockchain is not magic, it's not something that somebody else is going to do. You have to get someone on the issue of blockchain architecture right now, understand blockchain design issues right now so that you can deploy blockchain in small ways but absolutely participate in the process of your business starting to enter into business networks that are likely to be mediated by blockchain like technologies. Don't worry so much about Bitcoin or Ethereum, watch those currencies, they're going to be important, but that's not really where the action's going to be over the next few years. The action's going to be how we think about bringing data and authority and identity closer to the work that's going to be performed increasingly at the edge, utilizing a decentralized authority mechanism and blockchain right now is the best option we have. Thanks very much for observing us and once again have an open conversation about a crucial research matter. This is Wikibon's research meeting on theCUBE. Until next time.