This is a transcript of episode one of my podcast „The Blockchain Lawyer“. You can listen to this podcast on all major podcast platforms, including Apple, Spotify and Google.
Introduction
Hello everyone! Welcome to the first episode of a blockchain lawyer, a brand new podcast about Blockchain, cryptocurrencies, and new distributed technologies that might change the future. As you might have guessed from the title, this podcast is about laws and regulations that hopefully help to improve the future for the better. My name is Dennis Hillemann. I am your host, and I am happy you found the way here. So you are probably asking yourself, why do we need another podcast on Blockchain and cryptocurrencies? There are already excellent podcasts like podcasts from Pomp or the Unchained podcast. It is a good and fair question. I may explain this to you. Let me first introduce you to my CV. Why did I come into the Blockchain technology? My name is Dennis Hillemann, and I am 40 years old. I am working as a lawyer and in Germany, Europe, with a focus on the public sector. Therefore is this podcast, at first, different from the other podcasts.
Concerning blockchain technology: First, I am from Europe. Most of the most renowned podcasts on Blockchain come from the US; they are coming from the US as most things concerning Blockchain technology and cryptocurrencies, because they, of course, are happening in the US for significant wants. There is a lot of stuff going on with Blockchain and cryptocurrencies in Europe too. It is an excellent reason to focus a little bit more on the developments from the old European countries as the first reason to put up the podcast-episodes. The second reason is professional activities in the law with a very different point of view when it comes to Blockchain technologies and cryptocurrencies, and all the regulation matters would go together. Besides, when many other podcasters come from a financial background or a technological background, it is necessary to put the focus on the legal aspects of Blockchain. How do we probably need to change our legislation so that Blockchain technology, and other innovative technologies, can develop and they all can help to achieve a better future?
The first aspect, based on my professional background, is different from the other podcasts. As a lawyer with a specialization in the public sector in Germany, I counsel governmental organizations, administrations, universities, and NGOs. Therefore, I know what the political aspects of Blockchain are. I understand how legislation thinks about Blockchain and cryptocurrencies from a constitutional point of view. I hope that with my podcast, I can help to make you understand a little bit better the issues that legislation and regulation face with Blockchain and cryptocurrencies. I can help to put the focus not only on the technology, on the technology behind Blockchain and cryptocurrencies, but also on the political and social aspects of new technologies. How do we have to change politics? How do we have to change our minds when it comes to technology?
Many applications of technology are being used today. Podcast-Episodes are dedicated to the use of applications in different sectors. Let us imagine a little while back when someone had to go to the hospital and changed doctors. Every time we went to a doctor, we went to the hospital; we had to tell the whole story of our difficulties because nobody had a digital file with the patient history.
No databases with patient histories were available, and patients have to tell the whole story again by different doctors several times. It took quite a while until one doctor sat down and did not just look at the patient and what he noticed. At this point, I have thought – can it be the 21st century? Is it necessary to write all the data on the paper? Doctors have to read the full data brought by the person from different doctors; all the documents are to be added to a file. The patient needs to run with this paper files under the arm, to find a doctor who can put a whole puzzle together.
We are so much still thinking in an analog way, but we have also so much in the papers. Data treasures, where everyone is just looking at data, are not connected. How can it be? There are applications like Facebook, Twitter, eBay, and Uber. Today it is possible to receive so many goods and services online. We can communicate with someone who is in Japan; it is no problem anymore. In the area of health data, we do not have a system to connect different data. I figured out and wondered why it is today like that? Therefore, I was looking for technology that could help to change this situation, and data could be connected with data points that people are connected with data, and among each other services and businesses. The whole procedure in the documentation on paper could perhaps stop.
In this way, I came into Blockchain technology. I think that Blockchain is a great technology to move our enthusiasm in the digital aspect and to help to make life much better and progressive. I got in 2016 into Blockchain and have stayed with it ever since. Now I am in the Blockchain community, also like a part of an Institute in Hamburg, to help the idea of Blockchain become more prevalent in Hamburg. We work with German organizations. We have good people to create Blockchain technology, industrial standards. I could meet some great people who are interested in Blockchain technology and who are doing something with Blockchain technologies.
Professionals from the technological sector are so deep in all the great ambition they have on Blockchain technology. Many people are missing the chance to spread out the message, what Blockchain can do, how it can help in different areas. Blockchain, cryptocurrencies, and other technologies that can make our lives so much easier, so much better, might help to change the world to better concerning climate protection and social issues. They might have a little difficulty in transporting these ideas to politics and society. Maybe with this podcast and guests on it, I can help a little bit to start the message out there and how we could change our future with the new applications of Blockchain technology.
What is Blockchain?
Can it be helpful? I want to show that Blockchain can do definite advantages, but I also want to underline that Blockchain is not everything. Blockchain is not the tool to change everything. Blockchain is just something like a hammer, like a tool to make something happen. The important change must come from people, from societies, from politics, and of course, from the legislation.
Why is Blockchain relevant? This podcast is not meant for an explanation of how Blockchain works in detail. There are many reasonable explanations for Blockchain. I am trying to give my understanding and comments. Before we go into the Blockchain, let us take a step back and look at desktop computers, and how they evolved in the last years. Every one of us knows the situation by losing a desktop PC: All data was lost.
We used to store data on the hard drives, floppy disks, and USB ports or in one central space. I think a lot of us still do that until today. Therefore, we have cloud solutions that are already a plus. Like you store your data in a cloud, and you can access it from all over the world. But still many cloud solutions have the weakness; the data is stored at a central point at a central location. If information is stored at a central point, data can be modified. Let us imagine someone hacks into a cloud by Amazon and by Apple. I know: companies will say it will never happen, but just let us imagine that, and the data is modified there.
Let us modify the situation with photos. Hacker erases people’s pictures out there. Then data is modified because central solutions always have the weakness by attacks to modification. It is tough to prove that information stored on central solutions was changed. We know it very well by central solutions. The data can be stolen, monitored, altered, and lost. There is no copy of it, and if it is modified, we cannot prove that it was altered or, even if we store data on a physical device like a hard drive or even on smartphones or iPads, it can be stolen. It can also be destroyed. These situations demonstrate the main weaknesses of centralized solutions.
Data can be modified or lost, and there is no access to the data if the physical device is stolen, or connection to this device does not exist. Like for example, go back to the idea with the story from a doctor´s visit. Every doctor puts the data in her or his computer system on her or his server. The data of the dear person to me was not interconnected with the computer of the other doctor, the hospital. Everyone had her, or his data concerning this patient closed away from the patient. The situation is similar to the doctor with no connection to the other doctors or hospitals. This situation is also today a very widespread phenomenon. We all know from business work or private life as well the case if we need to access the data, but only someone else has on his or her device on his or her server or his or her cloud this solution, and we cannot access it.
There are many weaknesses of centralized data solutions.
Blockchain, however, puts the data into a decentralized database solution. Blockchain is a decentralized database solution. Blockchain is an accounting system where a record of all transactions is distributed among a network of computers. The operations, the data is not stored only on one computer. It is stored equally and each time in the same way in a network of computers. How does it work? Let us go back to the idea with a server. The firm has a server, and everyday employees turn on computers, computers communicate with the server and get their data from that server. So all data is stored on this one server, and all networks connect with that server.
One central point, the server, and users connect with that server and use that server. Blockchain is different. The data is stored on a whole network of computers – the same data but not on only one server. The same server is stored on a network of computers. How does it work? First, the computers are part of a Blockchain network; they all can verify all transactions one by one and add them into a block of information named Blockchain. The blocks of data can be edited to the Blockchain, and downloaded on each computer, to summarize with the only one visit – how these computers keep the Blockchain secure and running. They build up a block of information and one by one edit on each computer that stores the data.
To understand what the term Blockchain refers to the fact, it is a chain of blocks. Everything is in blocks. The transactions are combined with the chain in groups rather than individually. Let us imagine that we want to count to 10, and every block consists of two numbers. So we have the first block one-two and so one for Blockchain and add the next block three four, there is the second block. It follows the first block, one, two, three, four chronically. So it is added there when we got five, six as the next block, the first block added to the chain when we got seven, eight as the next block additive a chain and nine, ten, and if we want to count more and so on and so on.
It is a database.
Participants in the network follow a chronological order. Now we could worry. Is it not maybe more dangerous? If the data were stored on many computers in a network and not only in one, would it possibly make it easier to modify the data or to erase data from a past? The clear answer to that is No – because transactions on a Blockchain are recorded in the form of hashes. Hashes mean a string of numbers and letters. The hash is generated to include information from the current and past transactions. It creates a chain effect where the order of hashes cannot be changed. As a result, transactions are immutable. Once they have been added, go back to my one, two, three, four, five, six, seven, eight, nine, ten, for example. The moment we add the point for a hash, and it is simultaneously included.
It means that we cannot change past transactions. Of course, there are also solutions like pruning to modify the data. At this point, I do not want to go into the technical details of functioning. Let us keep for this reason that Blockchain is immutable and cannot be changed for the past. This peculiarity is the excellent thing about Blockchain. The next worry is maybe the following situation. Would it not be easier for hackers to attack a Blockchain because instead of getting through a very secure central system, they could acquire one of the participating computers of a network, one of the so-called nodes, and modify the data around it, do transactions on the Blockchain. Still, it is saved on that one node and then?
The Blockchain has changed. Every other computer has to change as well. That is not the case because all transactions on a Blockchain need to be verified before they are added to the Blockchain. How does it work? There is an algorithm, a consensus mechanism by all participating nodes in the network, that allows nodes in the network to agree without a central authority. It is the basic idea. If we want to change something on a Blockchain, then it has to be done regularly with all the rules of a Blockchain complying with the algorithm. Only then, all the other computers, all the avenues will accept what happens on a Blockchain and save it on their computers, their nodes as well. Change the block at the chain as such; what does it mean?
There is one node, one computer visited by hackers in the network, to receive information about financial transactions. We go into the detail of this situation later. Then the hacker modifies financial transactions on this computer to send money; the hacker modifies only on this one participated computer in the Blockchain network.
Is it possible that all involved computers or nodes also change the data?
The clear answer is No – because a Blockchain will only save anything that complies with the consensus algorithm. By attacking only one computer, one of the participating nodes, no hacker can make the change in the Blockchain; the hacker has to attack 51% of nodes, the majority of all participating nodes, in the same way, to change the Blockchain.
Only quantum computers are claimed. Nobody knows what they basically can do with their computer power. Is it the truth? We see where the strength of the Blockchain is based. Let us go back to our central storage data. If a hacker has access to a central data storage or if he has access to the server, to the cloud, he can modify the data, and only the modified data would be visible for all participants. In a Blockchain scenario, the hacker cannot only attack one computer, one central server; he would also have to attack all participating nodes or at least 51% of them in the same way. That is the basic idea of a Blockchain. The network is so secure because it makes sure that data on the Blockchain can be modified only in theory (in theory everything is possible).
With a very high level of security, the data cannot be changed by anyone if there is no consensus with the algorithms of a Blockchain. This peculiarity of the network and system makes Blockchain so strong. The network is decentralized and runs without the central authority. That is the basic theory of Blockchain. Another vital element of the Blockchain is transparency. It is important to know if we work with Blockchain and if we search something on the Blockchain, full transparency. Of course, for me, as a lawyer, it is very important to decide. Many personal data should not be open. Here we need to differentiate several aspects. For example, we are all pirates. We all pirates, we search for gold, we put the money and coins in a treasure chest, we close it under the earth, we dig a hole, put the treasure chest into the hole like a point on the map, but we know where it is and have a key to the treasure chest.
We store data on a Blockchain, and that is a kind of a treasure chest. We store very personal data on a Blockchain, and we know now our treasure chest stored on the Blockchain or data in a treasure chest is multiplied hundred times all over the computers of a network around. The main point here is that the data is transformed into the hashes. Everybody on the Blockchain can see a block of hashes, but no personal data. Personal data are multiplied a hundred times over different nodes. The block is multiplied a hundred times over. We all see only different nodes. The only users with the private key can access data like access to the treasure chest. Only with the private key, the data can be opened, encrypted, and read.
It means transparency in terms of Blockchain.
We see only the fact that blocks have been added. We also see transactions. For example, if we change the data in the treasure chest on the Blockchain, then the block changes with the point that another block was added. This scenario was explained before. Only with a personal key, it is possible to open the data and to see the concrete data. Here is so important to understand that Blockchain is not about making every personal data visible. Only transactions are visible on the Blockchain. The transparency of a Blockchain in all Blockchain scenarios can be described in this way. The Blockchain is a decentralized database with key elements. There is no central authority ruling the database, and this database is decentralized.
The database is spread across a network of computers, so-called nodes.
The Blockchain is immutable. All data are added to the Blockchain in blocks, but an edit to the Blockchain is possible in chronological order. The network is permanent. It is a tool for permanent record keeping. All key elements together make the peculiarity of this Blockchain network. At first, the Blockchain is transparent, but as I explained before, only the actions going on the Blockchain are open for everyone. The data is visible only for the person holding the private key. This person with the private key can access the data stored on the Blockchain.
The fourth essential element of Blockchain is its security.
I explained earlier this as a consensus mechanism that prevents the possibility of the attack to one participating computer on the network to change the whole Blockchain. There is no possibility to alter the data in the network, also with the technological background; therefore, Blockchain is such a good technology. It is decentralized, transparent, immutable, and secure. We keep this at this point.
So now we have the question: what does this all have to do with Bitcoin?
I thought Bitcoin is Blockchain, and the answer is a typical lawyer´s answer: yes and no. Bitcoin is just one of the many ways to use Blockchain. It is the most important Blockchain use case at this time, but it is only one of the many ways to use the Blockchain. It is one use case, but it is not the whole Blockchain. We will go into the difference in the following podcast, maybe the next one is dedicated to Bitcoin and other cryptocurrencies.
Bitcoin is just one use case of Blockchain, but it is by far not the only one and by far not the one with my most interests. It is also helpful to understand what Blockchain is not. At first, Blockchain is not Bitcoin or other cryptocurrencies. Bitcoin and cryptocurrencies are a use case of Blockchain, but they are not naturally the same as a Blockchain. Blockchain is also not a product. It is not a product that makes driving faster or allows us to fly to the moon or creates safety for all of us. Blockchain is a decentralized database. It is a technology, and it can be used to help different businesses to realize business ideas. It can also be used to create a business.
Maybe Blockchain has similarities with the internet. But: Blockchain is not like a replacement for the web. It needs to be connected to the internet to work. Blockchain is also not like a replacement for secure messaging. Blockchain is a technology, a tool that we can use. We have to understand this and keep it in mind with Blockchain.
Blockchain was also not created for criminal use. Nobody can be identified using the Blockchain, that is also not the truth. Not at all. As I explained before, we need to have the private key to open the data on the Blockchain. Yes, nobody can see the data, but we need to use a gate to access the Blockchain. For example, all the people trading cryptocurrencies, they go to an exchange, an exchange platform like BitMax. There are different ones, and of course, by entering and using such a gate, they leave the personal data that can be identified. Therefore, Blockchain is not necessarily anonymous. It is essential to remember!
What are the use cases for Blockchain?
In few impressions: first of all, for my understanding as a lawyer, Blockchain makes sense where different organizations, people, businesses work together, and interact with each other, exchange data, or do transactions with each other. They do not want a central authority to rule the network, and they want the network and the transactions, and the data exchanged on the network to be very safe because then two strengths of Blockchain can work together.
It is decentralized, very safe, and it cannot be hacked. Let us have a look. Where can Blockchain be useful and is being used? In the beginning, I show just two examples. The first example that I find is an existing use case for Blockchain. It is the food industry. For example, when we go to a supermarket today and we look at the excellent meat there. It stands on the label where it comes from. How is it possible for us as the customer to be sure that it comes from Argentina? We could trust the supermarket, but with Blockchain it can be possible in the future to track everything concerning meat. It is possible to follow the whole process of delivery. Where was it first, from which farm in Argentina does it come? Maybe even from which cow does it occur? What did that cow eat, and like which way did it go from there? When was it there? When did it come to Germany? It is the typical case for Blockchain. T How was it delivered? Shipping. Every little point of data can be saved on the Blockchain and cannot be modified. It is possible for us as a customer then maybe to stand someday in the supermarket and scan a code (label) of the food that we have in hands and to see the whole process of delivery. Then we can be very convinced to say – Yes, this is good meat coming from Argentina, from a good farm.
The second use case for Blockchain is cryptocurrencies. When we make a transfer of money in Western countries, we do it via a bank. Why has the bank our money on it, and we trust the bank to be careful with our money? We believe the bank transfer it to another bank, which also then informs us about the transferred amount of money. In the future, it might be possible that we move money around the whole world without a bank in the middle. That is the basic idea where Bitcoin comes from, to help people. That is a perfect use case for Blockchain as well because there is also data involved. It is a decentralized solution, and it is also secure, the Blockchain notices all transactions. When it goes about money, we can trust that the Blockchain is secure and cannot be hacked.
Let us go back to the beginning. Let us go back to health data. The main idea explained at the beginning. The dear person of mine had the problem of keeping the health data saved. Let us imagine there is a Blockchain solution for health data. An average doctor can, with our permission, can access health data, and add health data on the Blockchain wherever we go. Patient data is accessible for a person who needs the data; be it a hospital doctor or a surgeon, and be it the doctor around the corner. A typical use case from my point of view for Blockchain and why? We do not want a central authority to rule the network. In this case, we want many people connected with data to have a possibility to access data on the same Blockchain with the same data standards.
We want the data on this Blockchain concerning healthcare to be secure. Here, Blockchain is beneficial, and the other use cases, about which we will talk about here, are based on Blockchain. We will look into the use cases from a legal point of view, especially, because as an important last remark, it is not possible to use Blockchain without stable regulation, and all use cases might be prevented by legislation. The data might be lost, but not at the decentralized solutions. Also, keep that in mind. So I hope you had fun even it was today about Blockchains basics, and I hope you will tune in again in the next episodes when we dig much deeper into the blockchain use cases and the law behind it. Thanks for listening, and I hope to see you again on this show!