The Distributed Ledger and its Impact on Future Infrastructure

Episode 27 The Decentralized Ledger and its Impact on Future Infrastructure

The value of the distributed ledger is baked into the promise of Web3, where equity, access and accountability occur within a shared governance and self-organizing ecosystem; and where creators can truly own what they produce and enable and control new value creation.

We’ve purposely left out the word, “Blockchain” in this title because it has become synonymous with Cryptocurrency. The value of the distributed ledger, in and of itself, creates an infrastructure that may not only increase access, but also mitigate some of the risks we see today.

The growth of Internet of Things (IoT) and the connected devices, gadgets and systems will bring the full power of the internet to society and business. International Data Corp. (IDC) predicts that, in 2025, 75% of the 55.7 billion devices will link to an IoT platform of some sort. Though it’s ever-expanding and innovative, it’s not all-powerful. These billions of devices will need more security and efficiency.

Today, Generative AI and the mounting bias, manipulation, ownership and data privacy issues add a whole other dimension to how we manage systems as IoT, including the increasing computational load created by these technologies.

We welcomed Dr. Jacob Mendel, who is a seasoned veteran of Blockchain technology, having served as Managing Director of the Blockchain Institute, Tel Aviv University. He is currently Head of Digital Cryptography & Cybersecurity of State Street.

We explored the importance of distributed ledgers and why this is critical to the future infrastructure. We defined decentralized technology, how it may solve the problems of central authority, and how emerging AI technologies will adapt to a future in a distributed infrastructure.

Transcript
Hessie Jones

Welcome, everyone to Tech uncensored. Today we’re talking about the distributed ledger. This is the future. This is the underlying structure for how we communicate, how we share, how we verify information, how we transact, or is it our future? So adoption for distributed ledger, or what some people call it the blockchain, has been slow, but it’s been synonymous with what we see in the emergence of Web3. Here we have a promise of equity. We have a promise of access. This is where there’s going to be more accountability within a shared governance framework and in an ecosystem that actually self organizes. My name is Hessie Jones, and today we’re seeing a lot of issues happening in tech where centralized authority in big tech has actually perpetuated some of the risks that we see today in identity, in manipulation, in data privacy. So this actually may be the ticket to give some individuals some semblance of control in a more democratized framework. And I’m happy to speak today to Dr. Jacob Mendel. He is a seasoned veteran of blockchain technology, and he served as the managing director for Blockchain Institute in Tel Aviv University. And he’s currently the head of digital cryptography and cybersecurity at State Street. So Jacob understands this technology and he can not only speak to the security, but also data privacy and the integrity of the infrastructure. As we see things evolve, we’ll also start to explore the work that needs to be done in the emergence of generative AI and the concerns about computational load and the sustainability of our systems as sensors become a lot more prevalent. So welcome, Jacob.

 

Dr. Jacob Mendel

Welcome. Good morning, good afternoon and good night. Because people all around the world, we need to touch everybody.

 

Hessie Jones

That’s right. And Jacob is joining us from the UK. By the way. So let’s start with your experience in this space. What has led you to venture down the path of blockchain or distributed ledger?

 

Dr. Jacob Mendel

Excellent. So before answering all your questions today and the audience question, I just want to clarify a very clear disclaimer that everything is related to Jacob. Okay. And the discussion and my personal experience in this and not related to any firm, any organization, not currently today. Okay? So it will be clear.

 

Hessie Jones

Perfect.

Dr. Jacob Mendel

I think that the technology of distributed ledger become fascinating because the different future use cases that we are seeing in the world, and especially even it’s not any more sexy world. Web3, touch me, touch me. The way it’s going to change the economics is going to change how we are dealing with identity. It’s going to change the way we are using data and we are using our own data. It’s going to change everything. If the underlying technology of distributed ledger will be what we are using today from different companies and names which are running all around, and I can mention few of them, for example, Ethereum, Solana, Hyperledger, Bezu, or anything else, it’s not really not what we are currently discussing. This is an evolving technology. What we need to look is how we are improving what we have today, what we are going to benefit from this. Why should organization consider and listening to what we are doing now? Is it going to gain more money for them? They will be more efficient, they are going to get better service to the customer? The underlying technology can change. Today we call it DLT, distributed ledger technology. Tomorrow we will call it maybe hyperledger something or another name that I don’t know or it will be. We need to focus what we gain. Why should we look on this? And the idea that we can reduce the intermediators, all these inter between teams which are just accepting from one side, add more cost, make delays and then transfer it to someone else in the chain. And another one like this, and another one like this. And in the end of the day, you are getting it very expensive, slow and no one really contribute any additional value in the process. Why we need all of this? So if there is a possibility to make business directly between party A and party B without the immediate and they really can trust each other without knowing each other in the past, this is the idea. If person A can sell a car over the web to a person B that they never met, never and he transferring the money and on the other side he gets the asset to the other party with the full trust of the system without need a lawyer, two lawyers, okay? Party A will bring his lawyer, party B will bring his lawyer and the lawyer will get authorization from the seller and the buyer and they will do the agreement. And you need to trust your lawyer. He need to trust it. You understand what we are talking about here?

 

Hessie Jones

Exactly.

 

Dr. Jacob Mendel

We want direct connection and this is what we are doing. And behind the direct connection is not to make this trustable transaction is how we verify the identity that I really sell something that I have. All of these are enabled on DLT and this is why it’s fascinating and I say that this is a change almost the revolution that the internet bring to the world.

 

Hessie Jones

Okay? It’s more than just a cool technology and it’s actually going to solve some of the problems that we’ve seen in Web2. So let’s talk about what some of those problems are in the current centralized structure.

 

Dr. Jacob Mendel

The thing that people are thinking today on Web2 we are getting a lot of services for free. No, you are not getting these services for free. The majority of services that you are getting for free on the Web2 today, you are giving your privacy for this and this is why you think you get it for free. But no. And sometimes, you know, they provide them personal information. What we call PII and they give you these services and you live with that. The idea is that the Web3 will give you the possibility of controlling, and the DLT is part of this, of the control of all your own data. You with a smart contract, for example, will be able to manage your PII information to whom you want to disclose it, how they are going to use it, and only they will be able to consume it. And in some cases, you can even get money for it. Why to give it without money? So this is the idea and the fundamental change behind the scene and also is that your data always remain at your side. That means you do not provide it to a third party. And now the data is already on their database. What you can do, you can ask them very nicely, can you please delete it? The data on Web3 will remain on your site if you operate properly. Okay, but the idea is the services will be with cost, or you get money or you pay. But things are very clear on both sides.

 

Hessie Jones

Okay, so you’ve mentioned something there that I think a lot of people would find of value because the essence of the distributed ledger is the smart contract. So can you explain a little bit how the smart contract works?

 

Dr. Jacob Mendel

Okay, the smart contract is a software. In the end of the day, it’s software, very basic, very simple. If you go to the terminology and the language syntax, you will see that it’s very old technology, concept of programming, very simple one. But the idea behind that is that part of the consensus algorithm. And the next stage of the algorithm of the blockchain is to execute this code. And I want to explain something. When you are running a code, for example, on your laptop, when you run PowerPoint or Excel, you run it locally, and this is your own code. If something goes wrong with your code or someone manipulate your code, it will influence only you. In that case, in the blockchain, the code is equal to all parties. The code is transparent. Everyone can see the code, everyone knows how to interface with the code. The code that you will run for you and me using the same smart contract will be identical. All the condition, all the parameters, all the interface. And based on the input, you will get the relevant output. But part of the execution of the next stage, it will run also the smart contract. And this is part of the nice thing around that. So it’s not that it’s running in some cloud environment or it’s the same code running for everybody and you cannot modify the code. You can put another smart contract, but again, the code will be identical to everybody which have access to this smart contract. And this is the most important thing around that.

 

Hessie Jones

Okay, so can you provide an example of this, how data flows within a distributed ledger, how it’s governed and how the smart contracts will work. So can you give an example of how this actually works in a real environment?

 

Dr. Jacob Mendel

Yes, for example, let’s take an example that you have a medical record and you want to share this medical record with insurance company, okay? Now, the insurance company come to you and say I want to get your medical records to give you an offer for your medical insurance. You will have all your medical information in a file and then this file will be part of your database. Now, what is happening? You will decide what you want to open in your database to share with the insurance company based on the agreement that you have with them. And you will decide and specify for your smart contract this is the terms and condition that I open my database to the insurance, to the specific. This insurance company, not everybody, not anyone, only this one. And the smart contract will negotiate with the entity or the smart contract of the insurance company based on the term and condition. They will match each other and then they can share the information and execute. So the insurance company will ask my smart contract execute or search this display, how many incident happened or this, what are the blood type and everything. And the smart contract will negotiate with the other smart contract based on the term and condition. It’s not that the database will be transferred, no, he will query my database, my smart contract will check, give the response about that. Another small example, so you will understand that it’s coming also from another is the energy. For example, imagine yourself, you have a smart meter and the smart meter you will program it a smart contract inside saying the following always prefer to buy energy from a utility company which are green, even the price, and this is the range price that I want. If we don’t meet this range, you can go to standard carbon or not green energy and take this for payment. And this is the margin or the boundaries that I’m willing to pay. And the smart meter will do it automatically for you, always checking the prices between the different vendors and select it according to the priority in the smart contract that you define. And the utility company can always scan and challenge who wants this and they can make really a trade who wants to pay for this? I’m providing and everything done automatically in the background for you.

 

Hessie Jones

So from this perspective, because of the amount of automation that’s already happening, it’s very targeted to the terms and conditions of this contract. And so from this perspective, it looks like there’s much more efficiency that’s built into a system that I guess in the past has been, I guess controlled by humans, humans who have to be organized about, especially if that vendor we’ve worked with before. In the future it’s less about okay everybody, this is my example. Send me an RFP if you want to vie for a certain position. Those who have been accepted in the past probably will not have to enter all that information again because they’ve done it before but through the past applications they could essentially augment or modify what they’ve done. Is that what we’re going to see in the future?

 

Dr. Jacob Mendel

Hopefully, because this will be the efficiency and reducing the cost and better services to all of us around the world from governments, from different company of services that we will have smart contracts acting on behalf of us and in the back end. We will have our own wallet, digital wallet which manage our digital asset to the different activities. And it can be from personal perspective and companies which do this on a regular basis. If you are talking about RFIs and RFPs then there will be a smart contract which dealing and searching for such activities, combining of course a lot of machine learning combination around this which will bring better quality, better connection, better business and closing this together between two smart contracts.

 

Hessie Jones

Okay, so why do you think it’s been difficult to actually move to this environment? It’s still out there but it’s still slow. Mainstream hasn’t evolved like obviously big tech was trying to move there and they’ve run into their own hurdles. What’s it going to take for us to actually move into a decentralized structure?

 

Dr. Jacob Mendel

I really need to say thank you very much for asking this question because this is something that not only I’m sure the audience are interesting about that, but also the community around distributed ledger want to understand when the break will happen, when it will going to blow up and make the change. The question is very clear. The answer is involved with multiple parameters. It depends first of all that this technology is a complex technology, it’s not simple and there is not a lot of people which really understand the underlying technology and to deploy it, it’s not straightforward, it required expertise and it’s not available in the wide. It’s not like for example if you currently looking for a Python programmer, you will get tens of thousands CVs just that you are looking for a programmer. Publish that you are looking for a solidity programmer, someone which is expert in blockchain, how many you will get? How many really understand this? And companies doesn’t like to make a change or enter into a new technology in early stages. They prefer let adults start with this and I will come later after I will see that this technology is mature and this is why it’s taking time for new technology to enter. And we are in this phase. The blockchain technology is not mature yet, we are seeing quite a lot of issues from different angles, especially in the cybersecurity. And don’t forget we have also the crypto and crypto, unfortunately, mainly today, in the mindset of the people in the audience and everybody around the world connect to criminals, bad actors, hackers, especially around ransomware, because they are paying with crypto. And the connection between them creates a negative impact, negative thinking about they hear the word blockchain. This is bitcoin. This is the bitcoin. The hackers are paying with bitcoin. This is how criminals are transferring money. Boom. I don’t want to touch it, not in my company. This need to change, and it will take time, and in parallel, the evolution will go forward to make it much more stable, much more mature, that companies can really understand. If I move to this technology, what it will save me, what I will gain from it, why should I invest on moving this? Why should I go now in the university and learn blockchain? Why should I do this when we have a clear answer to those DLT will be in the main?

 

Hessie Jones

Okay. It seems like there’s a lot of hurdles, though, that’s going to make it more difficult for adoption. I’m looking at even the risks to our own electrical grid. So we know that blockchain is very much dependent on computational power and therefore electricity. But now we’re also seeing the same thing of generative AI, like the amount of computational power it costs to actually run these large language models is now going to compete for the same power that’s going to be used for blockchain. Do you agree with that?

 

Dr. Jacob Mendel

Again, this is exactly the answer is in the question. Because at the beginning part of the evolution of the technology, there was a lot of demand for energy, for computation. But you can see that the thing is changing. For example, in Ethereum, we move from proof of work, we change the consensus algorithm. Okay? So when you move from proof of work to proof of state and proof of authority, immediately you reduce the problem of high energy consumption.

 

Hessie Jones

Can you explain the differences between the proof of work?

 

Dr. Jacob Mendel

Yes, of course. In proof of work, there is a mathematical challenge that the nodes in the blockchain need to compute before the next block is written into the blockchain. This mathematical challenge involved an algorithm called hash function, where the nodes are challenging between the network nodes about finding the nons, which will generate the signature, for example, that the hash of all the aggregated data in the merkel tree will have at the beginning, for example, six, zeros. This is only a forward calculation that when you calculate this, it requires the investment to calculate all the different possibilities. And you can split it between different nodes that select the ranges, each one of them to accelerate, but later you split the reward between all the participants. This is a heavy computation to do. Why? Because you need that it will be practically very hard to break it. Okay, I’m saying very hard and I’m not saying impossible to break it. I’m very careful here to make it impractical to break it from this perspective. So this is why it required so massively computation. When we move to, for example, proof of state, we change the model. We do not have a mathematical challenge. Every participant which are currently going to participate on setting up the next block in the chain will stack. That means will put in an environment that is not able to touch the asset, the crypto in that case, and based on the number of stacking that he will put, when we select a random number, the probability of selecting this node to calculate what will be the next block in the blockchain is higher. So for example, if we have four parties, one will put two coins in the stacking, the other one will put four points and the third one will put six points. When you calculate a random number, the one that put six and the other one which put four and the other one which put two. Divide this, the probability will split between them based on the number of stackings. So the node which put six on the stacking will have likelihood more chances than the other two which just put two and four. Okay, this is how it’s calculated. Still, it’s random, but the likelihood is relatively to the stacking that you put in the system. But this is also the commitment. When you stack something, you are putting your own money. The node put the money from his pool into this mechanism so he cannot use it. This is his commitment to execute and calculate the next block in the certain amount of time that he got previously to do this and he must do the calculation, otherwise you get the penalty.

 

Hessie Jones

From that perspective, it’s almost like he’s putting his own integrity at risk because he has now skin in the game to be able to execute on that next block versus before where it was more of a competition. Is that what you’re saying?

 

Dr. Jacob Mendel

The skin is real money, it’s tokens. It’s the real token. It’s putting it there and it’s locked. So if it doesn’t do something, the money is already not in his hand.

 

Hessie Jones

Okay, so let’s talk about this from security perspective and is this really going to change how data is managed today? Because obviously there’s tons of mishandling of personal information and now it seems like the distributed ledger will require more security protocols. Do you agree?

 

Dr. Jacob Mendel

So one thing that I want maybe to break some misconception blockchain is not a magic word or a magic technology that solves cybersecurity problems or solves privacy problems or both of them. Absolutely not. In some cases, blockchain create more problems on cybersecurity than other solutions and create more problems on privacy and violate privacy than other solutions. But if you know how to do this correctly and you know how to create the full system architectures to make it secure, and to take care for privacy, then most likely you will build a much stable, secured solution. Now this is like any other technology. If you don’t understand the technology and you don’t know how to configure it correctly and implement it correctly, you will find yourself very fast in the front of an attack that in a fraction of a second take your entire digital asset. Nevertheless how much money you have, nevertheless what are the digital assets behind that if you didn’t implement it correctly, you are gone. You are gone so rapidly. And this is also why companies are afraid to jump into it so quickly. They said the risk here is too high for us and they don’t have the expertise and the knowledge how to really create a secure environment around it. So they have the trust to put all their technology, all their asset in this environment. And yes, we are seeing quite a lot of hacking happening in this domain which create bad impact for this. So you really need to know what you are doing and security and trust are going hand-by-hand in this technology. So I really recommend anyone considering entering this area or even build a POC with real digital assets around that. Nevertheless, if this is crypto NFTs or anything around this, know exactly what you know exactly.

 

Hessie Jones

Okay, so at least meets my last question because what we’re going to probably see in the near future, if we’re not already seeing it already, is the rise of Internet of Things. We’re already seeing some semblance of that in AR and VR. We’re seeing it in smartwatches, maybe Google Glass or whatever iteration of it will be in the future. And so we’re going to see much more sensor technology within the supply chain. And so it seems like in the future if we head down this path, it needs to be within a framework that’s trustworthy as you call it, how do you think it’s going to interplay with this emerging technology in addition to what eventually will be artificial general intelligence?

 

Dr. Jacob Mendel

When we are trying to combine IoT devices with blockchain technologies, one of the fundamental gaps that we have is oracle. That means how we really can connect the sensors, values, whatever they are bringing, temperature, telemetry, anything that the IoT device are doing, how we can put them the data that they bring into the blockchain. The idea is not technically how to do it, how we can trust what the IoT device is creating, that we can put it on the blockchain. Because the moment we put it on the blockchain we want to trust it because a lot of things will happen after this. So please understand, the IoT devices are very limited from power consumption and the amount of algorithms that you can run on them and the security level. The cybersecurity on these IoT devices in majority of cases doesn’t exist. So how can I trust the data that I’m getting from the IoT device and I will put it now on a blockchain that everybody in the world will have access to it and I will make decision based on this. This is the fundamental that need to be solved, how we can connect it. And there are already companies in the world working on this building marvelous solution around that. But again, it’s maturity how to really create this chain of trust from the IoT device until we put the data in the blockchain. And if you’re going to use it, you need to prove why this channel is secure and the data which has been written in the blockchain from the IoT device is trustable.

 

Hessie Jones

Yeah, no, I agree with that. And I think as we start to evolve, what the definition of PII as it pertains to, let’s say, how we walk or our biometrics, or our unique? Did you know that every person’s ear is unique? And that, yes, of course, it’s also an identifier. So as all those things become part of, let’s say, identity and part of how we identify ourselves in sensor technology, I think that’s going to start to raise questions, concerns and potentially more innovation, how we deal with that, so that the integrity of the system and I’d say how we protect individuals is there and is addressed. Correct. All right. Thank you, Jacob. I think that’s all we have time for today. Jacob is actually on LinkedIn, if you’d like to connect with him. He is very knowledgeable in all things blockchain, cybersecurity, privacy, et cetera. So please go ahead and connect with him for our audience. If you do have any ideas for future topics that you want us to cover, please contact us at communications@altitudeaccelerator.ca. Tech Uncensored is also available on podcasts. So wherever you find your podcast, you can find Tech Uncensored. I’m Hessie Jones. I look forward to seeing you next time. Next week we’re going to be at Collision, so have fun and stay safe.

 

Dr. Jacob Mendel

Thank you very much. Bye.

Host Information
Hessie Jones

Hessie Jones is an Author, Strategist, Investor and Data Privacy Practitioner, advocating for human-centred AI, education and the ethical distribution of AI in this era of transformation. 

She currently serves as the Innovations Manager at Altitude Accelerator. She provides the necessary support for Altitude Accelerator’s programs including Incubator and Investor Readiness. She will be the liaison among key stakeholders to provide operational support and ultimately drive founder success. 

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