How IBM will use blockchain as its commerce backbone

VentureBeat: I can see how it’s not simple, in a lot of ways. You would think that you want to join up with all the banks, but what if somebody out there disrupts the banks and they’ve got better ideas than the banks?

Cuomo: I see technology platforms out there like R3 Corda, which I think is a very strong–one particular ex-IBMer joined that early on was very influential and very intelligent in their decisions. But I don’t see it being managed in an open governance process. That’s one thing. The second thing is adoption. You can build the best technology in the world, but sometimes VHS wins over Beta. Does anyone even remember that? It doesn’t have to be the best, necessarily. It has to be what’s adopted.

When I see Hyperledger Fabric adopted by Microsoft, Amazon, Google, Alibaba, Oracle, SAP, and IBM–again, not necessarily a recipe for winning, but that’s a good start. It creates an environment of–dating happens before marriage. A user of the technology can start on one vendor and have recourse to go to another. That opens the market up for usage, and then usage drives the next metric, which is how many live networks are on this technology. I know Hedera, and I think it’s really interesting technology. I don’t know how many live networks are yet up and running on it.

See these gray hairs on my head? They weren’t there in 2014. I had brown hair. The lessons learned to stand something up–it was one thing to talk about the web. It was another thing to do the Olympics. IBM was involved in the 1996 Nagano Olympics. We had to stand up the first real time scoring website. Now it’s like, really, are you gonna brag about that? But it almost killed people! Again, blockchain, the lessons learned from standing up real blockchain solutions will whip the technology into shape in record form.

Again, I can’t claim to have the crystal ball on how things will be written. But history says that if you follow these rules, the odds tend to be in the favor of the things you’re on. If not, we have our eyes open. For example, we started with Ethereum. Many people start their blockchain journey on Ethereum. There is now an Ethereum smart contract processor, an EVM, that has been donated to the Hyperledger Project, called Project Burrow. We’ve integrated Burrow into Hyperledger Fabric. Now you can build an Ethereum network, but permissioned with Hyperledger Fabric. That cross-pollination is an example of–you need an environment lends itself to taking innovations and jumping the tracks.

It’s hard to say where it’s going to go. I do know that we’re holding on, and we’re very serious about the things that we’re working on. But we’re not afraid to pivot either. The winners will pivot in this space. In the end, measure live networks. I think that’s really the critical piece.

VentureBeat: The other thing that becomes difficult for me is that sometimes it’s a small company that comes up with an innovative idea, but those also tend to be more likely the ones that are some kind of too-good-to-be-true ICO fraud. It makes you wary of getting too excited about any one thing.

Cuomo: We see innovation coming on all sides. To me, the real blockchain innovator is not–I was listening to a talk from the head of the Linux Foundation. He gave this completely underwhelming statistic, which is, there’s been 1,000 contributors to Linux to date. I thought, “That’s it? That can’t be right.” But what he meant was, literally, the Linux kernel has had 1,000 code contributors, or something on that order. It seems so underwhelming. But you don’t track contributors. You track users. This set-top box or that smartphone, it all has Linux in it. That’s the measure of success.

In blockchain it’s the innovator. We had a guy on our team that came from Wells Fargo. It’s the perfect storm of innovation, where he understood the core technology, the disruptive powers of blockchain, but he had industry experience. He worked on Apple Pay and all this stuff. He understood the extreme inefficiencies of the payments business. He was able to jump the tracks and pull the two together. Applying blockchain to cross-border payments, for example.

I have this little blockchain talk show, and I’m going to have on the founder of a small company called True Tickets. Again, they’ve found massive inefficiencies in events and ticketing. If a ticket becomes really hot, the people in the middle make all the money. It doesn’t flow back to the originator, the artist or the venue or the sports team. By having this ticketing platform built on blockchain, where smart contracts dictate the maximum or minimum price, or how much of the total revenue should flow back to the originator–this platform could really change things.

Now, is there going to be one blockchain technology to rule them all? Well, why? There’s not one operating system. There’s not going to be one blockchain. It’s about what people are doing with it. Look at the evidence here in 2018. Yes, we always like to look at the moon shots. But the moon shots take a long time. It’s the Apollo programs that are in place, like True Tickets, that are taking one slice at a problem and trying to solve it. Those are the ones to watch. They’re going to grow up. They’re going to have their Apollo one and two and eventually get to the part to where they’re fulfilling the big piece.

Yes, it is confusing, but it gives me hope. I’m fortunate to see these things on a daily basis. There’s also a lot to be concerned about. There’s a lot of choices out there. There’s a lot of folks jumping on the bandwagon. But there are real signs of adoption.

VentureBeat: The regulators are still barely catching up.

Cuomo: I’ve had the fortune of seeing that up close and personal. I’ve testified to Congress twice now on blockchain, most recently on Valentine’s Day this year. It’s interesting to see–I think it was 18 months prior to that, when every question was about Bitcoin. This time, the understanding of blockchain as a platform for B-to-B interaction was much better.

One of the co-testifiers was Frank Yiannas from Wal-Mart. He had to pitch to the Wal-Mart board about why blockchain, and they did an experiment with tracking back sliced mangoes from a Wal-Mart store to the farm. The control environment was doing it manually, and it took seven days to do that tracking. In this food network we have, it took 2.2 seconds. Congress clapped when he said that. It became evident that if you have a salmonella outbreak, it takes seven days. You see it go around. It makes a big difference if you can do it in 2.2 seconds instead.

We want the government focusing on the broad use. Yes, there is one use around cryptocurrency, and I don’t want to belittle that use. It’s a transformative use. You do a lot around gaming. There’s a game theory, or a behavioral economic behind blockchain, that is at the essence of it. Some people call it mining, but every network, even in a permissioned non-currency, there needs to be some motivational economic in the middle of that network to make it tick. There has to be an ecosystem of buyers and sellers or data providers and consumers that creates an incentive to have a seat at that network. It can’t just all be for the benefit of IBM, or the three companies that founded it. There has to be that–what is it? The Nash motivational economic system.

VentureBeat: One thing I wanted to learn more around is the notion of anonymity and security, and how both of those things can happen with blockchain. One company called Authenteq just raised some money last week. They talked about having an account verification system for online games. You sign up through them and they authenticate who you are through a picture of yourself and a picture of your ID. They associate the two together and come up with a hash string for the blockchain. If Twitter needs to verify who I am, they go to that hash string and it says yes, this is a real person. But they may also get a reminder that I’m a real person they banned last week. That person now cannot open a second account on Twitter. But Twitter never handles those details, the photo or the personal information. They just get an answer from the blockchain.

Cuomo: That’s a wonderful use.

VentureBeat: It helped me a bit better how you can preserve the anonymity of someone’s data while doing what needs to be done for the sake of security.

Cuomo: There’s two uses of the word anonymity. In Bitcoin’s blockchain, the referees of the network, the trust anchors in the network, the miners, are anonymous. Again, what makes a blockchain a blockchain, whether it’s permissioned or permissionless, is building trust through a consent model. Bitcoin’s consent model is almost like a college fraternity hazing process, where they test the intestinal fortitude, the determination of a member to be part, by giving them tough problems to solve. In solving those problems you burn real energy, compute energy. If you keep doing it, they say, “This person must want to be in, so I’ll trust them.” That’s how it cleverly builds trust despite anonymity.

But that’s just doing transaction validation. That’s not saying, “I have an account and I want to transfer this and that around it.” You can’t be anonymous at that level and still have an account. Companies have to do AML and KYC. You have to be able to do something like that. You can’t say, “I’m lending money to someone anonymous.” It could be drug cartels or the Taliban. That part, the user part of the blockchain, that’s privacy. How do you deal with privacy?

In Hyperledger Fabric, we have some clever privacy constructs. Again, there’s the permissioning system that the trust anchors use, but then for the users we have privacy. For example, we have the equivalent of Slack channels for blockchain. You can set up a specific topic as a transaction type and you invite members to that. If you’re not a member, you’re not privy to that class of transaction. It’s done privately. What you just described is the crypto anchor approach, where you create a hash of something: put the hash on chain, but keep the data off chain. That’s important, because GDPR requires the right to be forgotten. Any blockchain worth its salt, you shouldn’t be able to delete anything. It’s append only. In order to deal with privacy issues like GDPR, you keep the anchor on, the fingerprint, the hash, and it’s fine, because if you delete the source the hash can stay. It points to nothing and it’s not causing any harm.

The third class is the magic class. It’s zero knowledge proof. It’s a form of privacy, a deep cryptological form of privacy. It allows you to prove a fact without divulging the data associated with it. I can prove I’m over 21 in a bar without telling you my age. I’m giving you the data encrypted. You’re running an algorithm over that data. It never decrypts, but you get your answer. The answer isn’t 24. The answer is yes or no. That’s zero knowledge proof, and that’s one of the things we support in Hyperledger Fabric.

What you talked about, also, is something really interesting, which is the melding of the digital and non-digital worlds. You’re talking about two-factor authentication through a picture and a driver’s license, and then using that as an anchor on a blockchain.

VentureBeat: There was interesting tech there that detected whether you were holding up a picture of somebody else. It could figure out that part. If you’re going to take a selfie, it has to be of a human face. That was an interesting twist.

Cuomo: What then happens with this privacy stuff is that–in your case, the blockchain is used as a digital rights management system of sorts. Your privacy data is like your music or a piece of art you made. Now I can license this art to different users under certain terms of conditions. It’s the same thing with my privacy data. You can have access to it under these conditions.

If I rent an apartment, you hand me a rental agreement and I have to give up every aspect of my life. Why do you need my mother’s maiden name? Instead, I’m not going to give you any of that. I’ll give you rights to ask members of my network questions, once. I’ll give those members of my network rights to answer the questions, once. And you’re not going to know who they are. This might be my bank, but you won’t know who I bank with. You’ll just know that a tier one financial institution answered this question. Then the network provider doesn’t know either. That’s called triple blind data exchange. The National Institute of Standards and Technology loves this kind of stuff. But up until blockchain, these types of identity systems hadn’t been possible. Or at least they were very cumbersome to build.

The system that your colleagues have built has a lot of promise in being able to set up a privacy system on a blockchain that keeps the end user in mind. We’re announcing something on Thursday with a startup called Humanity. They’re pursuing the 31st human right, which is the right of any human to control their digital data. They’re trying to get that passed as a bill, and they’re creating a platform around that, but also a platform of commerce around that information.

If I have clinical data, or if I’m going to participate in a clinical trial–I might not even know what clinical trials are out there, but this network can help me match with the right clinical trial. Maybe I want to match because I just want to do good, or maybe I’m having trouble making my insurance premium payments. By sharing this information I can get compensated. What Humanity is doing, again, is setting up this digital identity information network, but doing it in a way that’s self-sovereign, so the end user stays in control, and you can also conduct commerce. There’s almost a marketplace around it.