Blockchain
There is something profound about transparency. Being able to share what is happening, being able to see what is happening, and being able to ensure that what you see is what you get. This is true in relationships, in public figures, and in business. And while it would be amazing to have our politicians’ actions fully transparent, that might take a bit longer to realize. However, at least in a business environment, technology is enabling true transparency via the use of blockchain. This has never been possible in a way that is truly “trustless”—a term that sounds negative but is actually an amazing innovation. While it would be nice to have an unbroken trust with a business partner, that would require you to know them well, have a long history of being able to trust each other, and likely have aligned interests. Even then, people can be let down and betrayed. The term “trustless” means there is no trust, but only because there doesn’t need to be. All parties can see what is happening, and therefore there is no opportunity for deception.
While this concept is still somewhat new in terms of how we can use blockchain to create a trustless environment, it has already shown potential and a number of use cases. If you think about many of the business scandals that have occurred, few to none would have been possible with the correct application of transparency. Let’s dive into what the technology is, what use cases are either available or on the horizon, and clear up a few misconceptions you may have about transparency on the blockchain.
Public and Permissioned Opportunities
There are a few key elements to look at when creating a transparent environment for business partners. First, there must be a use of a blockchain. This is because one of blockchain technology’s greatest features is immutability. Validators work together to ensure the public record on-chain is valid and has not been changed. It can be seen and verified by anyone with access to the chain itself. Next, the chain must be public. This doesn’t necessarily mean open to anyone, but it must be open to all participants. A community of validators and participants ensure that there are no hidden elements, contracts, or actions taken by any one party. Business is conducted on-chain and in the open. Third, the business is conducted with the use of a smart contract. This is the result of using a public blockchain to create that transparency; the smart contract can be read by all involved, and cannot change without a predetermined agreement by the parties. There are no hidden clauses because the smart contract, which is a piece of software that outlines the parties roles, actions, and consequences and then executes it autonomously. There cannot be hidden moves by any party because the facilitator of the business is actually a program that was written, viewed, and agreed upon before any business was conducted.
This is incredibly helpful, but a chain must not only be public, it must also be permissioned to create the most effective use cases. The term “permissioned” can mean a number of things, but in general there are various tiers of participants. This allows some participants to be able to read all the data on the chain and interact with the smart contracts. Think of this tier like a customer. Other tiers may include those that write the smart contracts. In this case, business conducted requires this tier to undergo KYC/KYB verification to ensure they are who they say they are, and to ensure regulations are observed. Other tiers may include a more active role, such as becoming a chain validator; as this is a powerful role, there are likely additional requirements needed before this role is approved. Applying for this role may require staking tokens, additional vetting, or being accepted only after those in the tier approve it.
This public and permissioned chain is incredibly powerful because of the “trustless” quality described above, but also because the vast majority of the processes are automated. Once a smart contract is created, it can be placed on-chain and the various businesses and customers can interact with it. One example of this is the Camino Network, which is an L1 chain created for the travel industry. Its validator tier (called consortium members) must be a business in the travel industry, and can vote to determine what policies the chain will follow. Travel businesses who have been validated can write smart contracts that may include selling travel packages or other travel-related goods or services. Customers can interact with these smart contracts, and most importantly can review the entirety of the interaction they will have with the business. Travel contracts can be notoriously complex and have the opportunity for misunderstandings and even hidden charges. Setting them up with a smart contract protects both customers and businesses, ensuring there is fair play from all and no surprises possible.
Misperceptions and Clarifications
One of the biggest misperceptions people might have about blockchain technology is that “transparency” means a lack of privacy. This simply isn’t the case. Private information doesn’t have to be on-chain, or it can be encrypted if necessary. There is also a fast-developing effort in blockchain using Zero Knowledge Proofs, which allow the data to be immutable and verifiable without having to be shared or published. Business can be conducted openly (eg., being able to read the smart contract) and still protect an individual’s privacy.
Another misperception is that blockchain in general is the same as a public and permissioned blockchain. A blockchain can still be set up without this type of transparency. This is why scandals such as the FTX debacle have occurred; a blockchain was used but the exchange had no interest in being transparent. It relied on trusting customers, and they lost money as a result. A trustless environment using a public and permissioned blockchain is necessary for a safe and transparent environment.
What’s Next?
There is so much potential for a transparent and trustless business environment. While Camino and a few others have begun pioneering by building up these ecosystems, we have only scratched the surface in terms of what use cases can benefit greatly from this. The next year will likely see more and more interesting applications hit Web3, making the world just a little more transparent.
