The first hack was in October and the coup succeeded in early December. An unknown user had written a new transaction protocol for Vertcoin, a digital currency similar to Bitcoin and based, like Bitcoin, on blockchain technology. It superseded the original blockchain, enabling him to use his Vertcoins more than once for transactions and to steal more than 100,000 US dollars.
How did he do it? In principle a blockchain is relatively secure because it is a database distributed across as large an open peer-to-peer (P2P) network as possible and gets by without a central authority. That means every computer in the network records the same data. Similar to an Excel spreadsheet it consists of three columns: User A, User B and the sum remitted. If one user remits Bitcoins to another user the transaction is undertaken directly from computer to computer. Anonymized, it is entered in the table and saved in parallel to all the network computers. The table is completed line by line and, to ensure that load times are not too long, lines end after a certain number of characters, creating a finished block that is sealed and filed. Step by step, a blockchain takes shape.
Unlike the Bitcoin blockchain, which is difficult to manipulate due to complicated encryption and a large number of nodes, the Vertcoin is based on a much simpler design—intentionally so because it is to be usable as a cryptocurrency for users with relatively simple computers. That was its undoing in the hack mentioned above. The hacker succeeded in generating more than half of the blockchain’s computing power and in thereby gaining control over a technology that was considered to be uncrackable.
This example demonstrates that even a blockchain is not unassailable. It is nevertheless relatively secure.
In a current study Capgemini assumes that the technology will be able to strengthen supply chains around the world. The advantages are self-evident:
The blockchain records all transactions securely.
It will create confidence without users needing to know each other.
The individual user does not need to set up and maintain an expensive infrastructure.
Companies will incorporate their private blockchain into their existing IT infrastructure as a local database.
In addition to the security vulnerabilities revealed in connection with Vertcoins there is, however, another serious drawback to a technology that is currently being so highly praised: its extremely high energy consumption. If ten percent of the world’s population use the technology it will consume nearly 23 percent of the world’s power generation.
These facts present the new, hyped technology in a new light, giving rise to a raft of questions. How good is blockchain technology in reality? Is it just hotly debated hype fed by the price rally of the cryptocurrency Bitcoin? Do companies stand a realistic, timely chance of putting the technology to profitable use? Is there, indeed, any prospect of a blockchain killer app?
At present, scientists are sounding out various possibilities. Andreas Ittner, Professor of Computer Science and Distributed Information Systems at Mittweida University and a member of the Blockchain Competence Center Mittweida (BCCM), sees potential for structural change of entire industries, including in particular banking, logistics, energy and industry in general in connection with robotics. Specifically, he has in mind blockchain registers for property. Instead of the official property register entry, a blockchain could list who owns which real estate. Mutual fund holdings, which fluctuate in value, could also be mapped securely in this way. Industry and tradesmen, Ittner says, could benefit from smart contracts stored in a blockchain. The Fraunhofer Institutes for Applied Information Technology (FIT) and for Material Flow and Logistics (IML) outline in a position paper opportunities for blockchain technology in energy, finance, medicine, and public processes. They anticipate significant influence on the design and implementation of digital business processes and eGovernment solutions and thereby on societal processes. They note, however, that there is as yet no legal framework. Blockchain, they claim, is especially interesting for small and midrange businesses (SMBs), the reason being that SMBs frequently collaborate in value networks where the new technology could fully develop its potential. The requisite know-how must now be built up and pilot implementations trialed to establish the potential or even the new business model that blockchain opens up for SMBs.
Pioneers Launch First Applications
While scientists are already sounding out potentials, companies are hesitating. Along with the lack of a legal framework they tend to be more interested in calculating the possible economic benefit and assessing the maturity of what is still a relatively young technology. There is also a shortage of IT experts who know their way around the subject. For a study published in October 2018 Capgemini polled 450 companies. Only three percent had implemented a large-scale blockchain and ten percent were experimenting with pilot projects in at least one location. Young companies have made further headway, as shown by the findings of a current Bitkom survey of 300 German startups. Six percent of startups were found to be using blockchain technology already and more than one in four (27 percent) were planning and discussing its use.
Deutsche Bahn logistics company DB Schenker is testing blockchain for sea freight. On average, 15 parties are involved in the journey of a container from Asia to Europe. If all of them blockchain the shipping documents the documents will immediately be reliably updated for all parties. That is not only secure but also reduces significantly the time and expense of data input. Nestlé, Unilever and Tyson Foods have embarked with other companies on a blockchain cooperation for the food supply chain with a view to improving food safety. The blockchain makes it clear when and how which ingredient is added to which end product. Another blockchain idea pursued jointly by Germany’s second-largest power utility RWE and the startup Slock.it is an adapter for users of battery-powered cars. It looks like a standard travel adapter and can be plugged into any standard socket to recharge the car’s batteries. What is special about it is that the cost of the power it downloads is clearly allocated by blockchain to the car’s owner.
Great Expectations, Lack of Regulation
While blockchain applications are still very much first steps, the expectations of blockchain are enormous. Professor Ittner says the technology will reinvent the Internet, taking it forward in its development from a small network for a handful of scientists to a public, world-encompassing internet of values. Goods and values can be mapped globally, simply and safely by means of the blockchain. Bitkom CEO Achim Berg has called on federal and state governments and local authorities to take the lead and demonstrate what blockchain can accomplish for public administration provided, that is, that the legal framework conditions are clarified. “If we set the points correctly now,” he says, “Germany can be right among the leaders in developing blockchain products.”