Brian Behlendorf: A little bit of background, so Hyperledger is a part of the Linux Foundation, and the Linux Foundation has been an active organization in the open-source software space for almost 20 years now. The way that it works is it’s an industry consortium. It pulls together, at the Linux Foundation level, thousands of companies who have an interest in seeing open-source software built to go and solve common challenges in the technology sector, whether around operating systems, or cloud computing, or networking, or automotive software, or special effects software for the film industry, there’s all these different collaboratives within the Linux Foundation, like Hyperledger.
Now Hyperledger was formed to focus on one end of the blockchain space, which was really how enterprises can build these multilateral systems that cooperate, that automate a whole lot of business processes that involve trust at a really deep level without having to park all that trust in a central provider. So these companies work together to build software. Our job is to help serve as air traffic control, to make sure that the software that’s built actually delivers value, but then also to help these companies build the commercial ecosystem around that code, to make it this flywheel so that they profit, they benefit, and they feed that back into improvements in the software.
Four years in, that flywheel is flying fast. We’ve got hundreds of different networks that have been built out there based on Hyperledger technologies, in domains from trade finance to supply chain traceability to bond trading to the mining industry, too, and then a whole lot of deployments in the digital identity space as well, really trying to provide a much better answer to that question of “who you are” and “how do you prove who you are” than you might get from a Facebook or a LinkedIn approach. So lots of very interesting production uses of the technology and lots of new creative technologies that we’re enabling through our work.
Lau: So there was a little future casting when the Linux Foundation really gathered forces and launched the Hyperledger project. And as you’ve said, we’re not even at the five-year mark and now we’re in the midst of Covid-19, where we’re seeing global firms really accelerate into global transformation in a way that I don’t think an event like Covid-19 could have even predicted. So where are we now? What are you seeing in the space around you? How are global firms responding to this existential threat?
Behlendorf: Well, before the pandemic happened, I would pretty much say this past year, 2019, was the moment where there was really this inflection point, from people doing proofs of concepts, pilots saying, “does this technology work?” A pivot point to moving into production. Because before now, I think there was a lot of association of this technology with cryptocurrencies and ICOs and some of the, let’s just call it, regulatory complexity that comes with the use of those technologies, and also questions about scalability and privacy, and can you really trust these technologies to operate the way that they promise? And I think this past year, a lot of that got wiped away.
We’re now seeing people moving straight from idea to stand up a sample application to moving into production without really needing to stop to say, “does the technology work?” and do a lot of market education. People now have a pretty clear stance. And within Hyperledger, we’ve got really production-ready technologies, and a number of companies that offer commercially hosted versions of the software.
So IBM, which has long built a history on this, of course, offers a commercial platform using this technology so you can just go straight to them and buy it. But that’s also true from Microsoft, with their Azure service, with Amazon Web Services, as well as with the major cloud providers in China, Baidu, Tencent, Alibaba as well, it’s a part of the BSN, which is the blockchain network set up by the government of China.
So these technologies have really become standardized and routinized, and I dare say even boring, in a way, in allowing very conservative organizations with, I mentioned mining before, who are not necessarily known as early adopters in new information technology.
Lau: We’re talking about raw material mining, not bitcoin mining. We’re talking about commodities, real commodities here in the world, earth commodities.
Behlendorf: BHP Billiton recently launched a project with a company called MineHub to conduct trades across a shared blockchain ledger. So, yeah, that was the reference, and it’s been a part of the diamond industry now for about four years. So that’s been exciting to see.
Lau: So essentially, it’s taking the conservative, corporate member firms and making them feel comfortable to open source, in a way, at an enterprise level, amongst themselves — blockchain protocols that serve everything from supply chains to mining to everything else. The argument is, this is permissioned blockchain, right?
Obviously, there needs to be a sense of security; immutability is key, but what about consensus or decentralization? You have permissioned blockchain, and then you have public blockchain that lives alongside it. Are they working in parallel, are they working together, or is this a more adversarial relationship? Is it an either/or situation?
Behlendorf: So there are use cases that are going to start from either end of what we really view as a spectrum. There are some use cases where there’s a business process you’re hoping to automate between a collection of 10 or 20 business participants. You always want the door open to the 21st participant, the 22nd. But they really start from it.
Here’s an existing set of business relationships and existing regulatory environment, and all we want is a way to automate a lot of the paperwork and a lot of the papers, signatures, and fax machines and other things that we do, and we don’t really want to have to bear the burden of thinking about the tens of thousands of nodes that a public chain has with this and perhaps the security model there and the complexity that that bears.
At the other end of the spectrum, though, the public chains have really done a lot of hard, prosaic work in figuring out how we might bring verifiability and confidentiality and privacy to those transactions, yet still have the benefit of 15,000, 20,000 reference points to make it really hard to censor data or to challenge the integrity of the data in that network.
In between the two, you can see how these use cases grow towards each other. Those prior permission networks get larger and larger, the permission networks want to do more and more deep technology where having to pay the gas prices or fit into the transaction rates in the public ledgers are harder, and so we’ve always thought that there is never going to be just one blockchain, or even just one protocol, that the world was going to be made up of this web of lots and lots of different networks for different purposes, some of them specializing in payments or digital identity, or some of them highly specialized for mining in a given region.
So what’s most important, we think, is unifying all of this activity under open-source licenses so that there isn’t really a battle over control of a standard. You want to avoid even a behind-the-scenes grab by one company to establish themselves as the only company that’s relevant in this space. The whole point of decentralization is freedom of choice, is optionality, and that’s really what open-source software has been about for 25 years.
And so within Hyperledger, Fabric was the first project we launched, and it’s still very much about the 20 or 40 or couple hundred organizations and automating those processes. We’ve recently added projects at the other end of the spectrum. Hyperledger Besu is a technology that came over to us from ConsenSys and is an implementation of the Ethereum technology stack, and itself is usable both on permission blockchains as well as public blockchains, as well as the public Ethereum chain and the Ethereum classic chain. So we see a need to cover the full spectrum; there’s other projects inside Hyperledger covering different parts of that spectrum and we think there’s a lot that both sides can learn from each other.
Lau: One of the characteristics obviously of public blockchain is tokenization, is the decentralized model in which the public can actively participate in either the revenue and/or investment in said blockchain protocol. You’ve always said, Brian, that Hyperledger will not tokenize. Is that something that you potentially might be shifting, especially with your new membership in InterWork Alliance and your work there?
Behlendorf: Well, early on in Hyperledger’s life, pretty much after I joined — I joined just after it was founded — I asked the community whether we wanted to commit to a set of things, and the community did. One of those was, we’re going to be about building software. We’re not going to be about standards that’ll happen in places like the Ethereum Enterprise Alliance or the W3C or other places that will implement those standards. We’ll push new standards to them and that sort of thing.
But we’re also not going to be about establishing a mainnet, establishing a central network that we want everybody to hang off of, because I felt there are a lot of different approaches to that. I felt it was difficult to disentangle the tribalism that you see in the competition between many of these public token-driven economies. And really, I wanted to be a very big tent. I wanted to try to be a place where even those tribes could collaborate on common technologies, and I felt it would be hard if we were also pushing a Hypercoin that certain parties might see as a zero-sum game, as a competition between that and their own tokens.
So we said that’s a game for other people to play. But we certainly supported the idea that people might build token-based systems using the technology that came out of Hyperledger. Even before the Ethereum stack came in, we’ve had a platform called Hyperledger Iroha, which has been used for the digitization of assets since its beginning. Even Fabric has support for doing token-like things. And I do think that tokenizing all sorts of digital assets and making them more widely available is really, really interesting.
I think the question of whether average consumers should be able to invest in instruments that they might not have much visibility into is much more of a question for regulators than it is for me or for what we’re trying to build with Hyperledger. So we’ve never tried to push a, “we’re here to disrupt the banks” or “we’re here to render regulators moot” [position] or anything like that.
Totally fine if people use our technologies to do those things, but we feel like every field, every existing multilateral system, this technology can make it better — make it more auditable, make it more transparent, make it more fair. Because if you engage in a system with rules, the only thing that annoys you more than too many rules is people who flout the rules and get away with it. So I think blockchain systems can help make building these systems with rules easier, transparent, auditable, and fair.
Lau: But also those rules in terms of governance internally within blockchain protocols are really, really integral to the strength of even that platform alone. Because you are permissioned, because you’ve got member firms, you essentially lead Hyperledger and all of these member firms, no doubt that governance is going to be critical internally as well. How have you dealt with some of the obstacles between member firms, between tribes? Obviously they are working together, but in the industry, they’re also huge competitors.
Behlendorf: A lot of folks in the blockchain space believe that human governance is a bug and automation is there to fix it. I’ve got news for them: human governance is essential to making all this work. It really does boil down very often to trying to get two people who can’t agree on the phone together, onto a video conference together, back when we could travel, in a room together, and finding that point of greatest commonality so that folks can see “wow, we could each implement something different and end up competing with each other for no good reason, or we could work on the bits that are common, get further, faster, and then spend more of our effort building our differentiation on top of that.”
And so we do a lot of convening, a lot of organization not just around the way that the projects work, the 15 different software initiatives within Hyperledger, but also cutting across them into common working groups around architecture, identity, performance, and scalability, as well as special interest groups around health care, public sector applications, financial services… basically different ways of slicing and dicing to try to give people a greater sense of common cause, a greater sense of, “hey, this is not an act of charity. This is not something where I have to give up something and not sure if I get a return. This is something where I can get further, faster, by working together with other folks.” And again, partly by staying out of the token and mainnet kind of conversations, that helps us.
The last thing I’ll say is, we’ve been very eager to partner with adjacent organizations. You mentioned the InterWork Alliance, which is the home for the token taxonomy initiative. Some really interesting stuff coming out of that. In fact, we already have a project in Hyperledger Labs, which is our quieter kind of thing, focused on central bank digital currency, a system built on top of the token taxonomy initiative work.
And then working with folks like the Enterprise Ethereum Alliance and on digital identity, with people like the Distributed Identity Foundation and the W3C. All of this is about building – I talked about this web of blockchains, well, there’s also this connective tissue, this web of independent organizations, nonprofits and consortia like us that we know are essential to building these commercial ecosystems. And so we’re very eager to lock arms with other organizations that are building complementary pieces of this picture.
Lau: Commercial ecosystems are increasingly becoming sovereign ecosystems. We’re seeing those initiatives in China right now with BSN, as you’ve mentioned, but also the digital currency / electronic payment, or a central bank-backed digital currency. What’s your view at Hyperledger as you see increasingly these ecosystems being built? Are we seeing a bifurcation as well between East and West here, where at the end of the day, potentially, we’re talking about open source, but clearly, there are initiatives being made right now by one single sovereign to dominate?
Behlendorf: Well, the very first business trip that I took as executive director of Hyperledger was to Shanghai for the second Ethereum DevCon, where it was very clear not only was the Ethereum community something we had to pay attention to — that’s why it always had an open door, and with Hyperledger basic coming in, that was a nice culmination of a lot of hard work to paint that full spectrum picture — but also very clear that China was going to be very serious about this space and saw it as a way to digitize processes that in many ways back then they perhaps were behind the West in digitizing.
The West has spent the last 30 years building information systems in the financial sector and organizations like DTCC (Depository Trust and Clearing Corporation) and other connective tissue, doing that bearing tremendous cost with mainframes and VDI (virtual desktop infrastructure) and a whole lot of weight that now is a little bit hard to transition to something new. And much like the cell phone, I think China realized that this is a technology that’s not just enabling, it’s transforming, and is a way to leapfrog other countries in the establishment of trustworthy information systems and trustworthy economies. Something where I think China’s actually been fairly honest has been a challenge for them.
And that’s the nice thing about having a country that’s run by engineers rather than a country that’s run by bureaucrats or whoever is running our country. So their intent has been sincere, I think that’s paid off in the hard work and the research they’ve done, and we’ve reciprocated by trying to say, “look, open source is a global phenomenon.” They use a ton of Linux, they use a ton of other enabling technologies, and we’ve benefited back in all these open-source projects: Apache, and analytics from others from the work done by Chinese engineers, shared with us.
It only made sense in the Hyperledger community for us to recognize that there’s a lot of talent there and to engage that talent and give them as much as possible a first-class experience and an equal weight, an equal peer relationship and participation in our community, both as technology contributors as well as businesses. So since pretty early on, about a quarter of our membership has been comprised of companies that are based in mainland China. So again, Baidu, Tencent, Alibaba, Huawei, but also a very long string of startups, and that’s been really amazing to see.
We’ve also chosen to work with CAICT and with a number of the academic and regulatory agencies in China to help inform them about the technology, and I think that’s paid off in their adoption of Hyperledger Fabric in the BSN and in other ways. I remember telling them once, all this technology is open source. You can certainly create your own releases of it, your own distributions, then you can give it global blockchain, but with Chinese characteristics, and I think that’s paid off.
Lau: There’s no doubt there’s a political bifurcation right now, with the U.S. and China trade tensions really exponentially increasing since Covid. So is this a business risk for Hyperledger? How do you incorporate this increasingly tense political reality in the backdrop of how you are trying to conduct your business?
Behlendorf: Well, we’re actually a pretty small team, so I’ve got nine people reporting to me, and three of those people are based in an office in Hong Kong, and that office is actually organized in such a way that they can legally operate in China, travel to China, talk about membership. China, even before the recent tensions, was not quite comfortable with U.S.-based nonprofits coming in and soliciting in China. So we found a way to make this all work.
There’s a lot of economic weight, and a lot of members, and a lot of development talent there. So we’d like not to be ignorant of the political risks or naive about it. We certainly do think about it, but we think the only path through that is for the organizations and developers on the ground to want this and to make the case up the stream that no matter what happens up here in terms of tariffs, in terms of messaging between world leaders, that ultimately what we’re building is designed to last longer than any U.S. president, designed to last longer than any Chinese premier.
Those governments will turn over, but these technologies are here to stay, and no better way to make this a coming together of equals and peers than to really foster the development of a supply chain network that spans from factories in China to consumers in the West and perhaps even all the way back to the source of the raw materials in Asia and Africa and other places. So that’s perhaps a bit globalist in nature. I certainly don’t believe it’s naive; it is optimistic, but I do think these cycles come and go and will outlast this.
Lau: Business continuity is a huge thing, especially when you have teams that are so decentralized. Do you think about that from a regulatory point of view as well? Increasingly, we are seeing regulators around the world being a lot more sanguine, educated, a lot more thoughtful about blockchain technology, a lot more aware. But at the same time, this environment in which we live, which is very much defined right now by Covid and defined by a lot of tension that exists, are you concerned about the regulatory partnerships and the regulatory influence on the blockchain industry going into the future?
Behlendorf: I think the regulators, actually [based on] my experience with them, have been picking up this technology, understanding its potential, on average far more quickly than they understood the internet, understood the web. I do think in particular, I mentioned before, this is technology that enables the automation and auditing of business processes in a way that really wasn’t possible before.
In essence, it’s reg tech, as it’s called, and regulators at the CFPB (Consumer Financial Protection Bureau) in the United States and the SEC, I think, have realized that. The Monetary Authority of Singapore has certainly recognized that the Chinese in our conversations with them realize that this is a way for them to both be flexible and still have a view of what’s going on in their economies around these different regulated processes. This is the only way to implement something like the Kimberley Process as well, which is a multinational regulatory process.
So this isn’t even just about regulators in one country, it’s, if we’re going to keep blood diamonds from being sold at Macy’s, that’s more than just what the U.S. regulators can do; they need to work together with other regulators, as peers. Put whatever legal framework you want around that, that ultimately is meaningless if a stamp on a piece of paper is your only guarantee to the authenticity of this diamond. You have to have a more rigorous infrastructure for it, and this is really the only technology we’ve come up with to provide that more rigorous infrastructure.
So the regulators, once you can sit down and talk with them about that, they’re very eager about this. I think other people in the blockchain space, especially those more oriented around cryptocurrencies, might struggle a little bit more, but I don’t think that’s because of the technology, I think that’s partly because they come so much from a world where, you know, bitcoin and others were designed to evade the types of systems we’ve built for good reason. Those systems get abused and it’s useful to have that counterweight, that foil, and I do think a lot of regulators realize if they don’t step up and engage, these things could run away from them, and become unstoppable in the way certain other technologies do.
Lau: You want your voice at the table. You want a seat at the table.
Behlendorf: Yeah, and what’s interesting is this can give them a seat as a peer to everybody else in the ecosystem. They don’t have to wait for an after the fact monthly summary of what went on in the market, as self-reported by an actor who might have the incentive not to give the complete picture. Instead, they can be plugged into the jugular of the market and see every transaction go by at no extra cost to the other participants in the marketplace, and that’s pretty unique.
Normally, regulatory compliance is a tremendous burden for these organizations, from recording to operations. But with this stuff, that has that built in. So we’re seeing interesting applications and insurance for automating regulatory reporting in things like the pharmaceutical supply chain, where there’s a lot of new regulations coming out of the United States, where there are blockchain networks spinning up to automate the reporting and automate the business processes in such a way that regulators can see second-by-second that what they expect to see the market do is actually being done. Or when there’s something amiss, they can respond more quickly than a month later or a year later.
Lau: Can you imagine real-time GDP reporting? That future is possible, but obviously it needs political will. But I digress.
Behlendorf: One [important] thing to me is real-time blocking of fraudulent Covid-19 vaccines, which we will see unless we get our act together on this.
Lau: From even tracking future pandemics, though this one still has us in its grips. Tell us about what 2020 has in store. 2020 is a very interesting year, we’re going into the second half, and it sped up a lot of adoption. We’re seeing some very interesting news. What are the top three projects in your mind that would surprise the audience, that blockchain is being integrated in a real way right now?
Behlendorf: Well, I think one of them is digital identity, especially in privacy-sensitive domains. So I don’t know if you’ve got the equivalent in Hong Kong or Taiwan, but in the States we have this little yellow book that keeps track of the immunizations that you get, and used to be you’d have to prove certain immunizations to travel to certain countries. Well, that’s coming back, and rather than being a little yellow book that might be really easy to fraudulently change something….
Lau: With little stickers from the vaccine nodule that you get your injection from.
Behlendorf: They’re actually digital, especially as we’re getting closer to a moment where there are Covid-19 vaccines available and that being vaccinated could logically be a pass to being able to travel to certain countries or even take on certain jobs, that sort of thing. But there’s obviously big privacy risks. If you created a centralized database of everybody who’s been vaccinated and made that public, there’s huge privacy implications in that and equity implications for that. So there’s a field that is uniquely blockchain-enabled called self sovereign identity, and many of our technologies are having a play in this space.
There are many people looking at applying this to credentials related to vaccinations and other test results and that sort of thing. So folks might not know about that, but I think that’s going to ramp up and be really big towards the end of this year. Certainly the central bank digital currency thing has been ramping up. A lot of interest in how we can just distribute benefits more quickly to people who are in a tough spot, even those without traditional bank accounts. How do we get through some of the traditional fees associated with that, or failures and KYC and that sort of thing?
So I think as a way of really souping up the payment rails out there, and cutting the costs in them, and getting them to be more flexible enough in an area where they need to be, I think we’re going to see the central banks playing a big role in adopting this technology for a digital dollar, digital yuan, of course, as we’re hearing, or perhaps other digital equivalents.
And then in the third, supply chains around the world have been under tremendous stress, and the integrity of those chains are under a lot of question, especially when it comes to the healthy treatment of food. Are the meat processing plants being run in a healthy, clean way? Are there potentially tainted vegetables? That sort of thing. And blockchain technology is now a proven technology in this domain. There’s no “maybe,” no “hey, let’s do a POC,” there are running production systems tracking all sorts of these things that are, I think, essential to not only making supply chains more efficient, because lots of technologies have made supply chains more efficient, but in doing so, they’ve also made them tended to make them more brittle.
It’s tended to make it harder to adapt to the wild swings in consumer chain preferences, the wild changes in availability. I sincerely think these blockchain technology systems actually enhance the resilience of these blockchain networks, enhance the optionality, make them more flexible, and I think that’s going to be a big story by the end of the year.
Lau: Brian, there’s so many big stories right now and we’re swirling around them. Back in Davos, just a few short months ago, you said that the blockchain industry was close to its tipping point. Do you think that we are now past that tipping point?
Behlendorf: Boy, did we ever have a series of tipping points in a macro sense. Since then, that feels like a decade ago, frankly. But that tipping point was, the one I mentioned at the beginning — from experimentation, from trying this out with a handful of early adopter kinds of companies, to now every industry taking an honest look and going, the way that we coordinate our supply chains of all sorts, not just in hard goods, but in IP and other other fields, or the ways that we regulate ourselves, so many people are now saying this makes sense, and it’s time to pile into the stuff that is clearly working and restart some of the experimentation in the fields that it hasn’t yet touched. So it’s a super exciting time to be there, and I think these challenges that we’re facing today only speak more to the need for these technologies.
Lau: Well, when the developer of the Burj Khalifa is talking about using Hyperledger to tokenize sales of its future developments, that’s pretty incredible. What can you tell us about that?
Behlendorf: Their deployment in real estate?
Lau: Yes.
Behlendorf: That’s just one field, that’s a field that’s resisted automation for so long, a field that especially when it comes to the buying and selling of physical assets, of houses, of other types of property, a lot that’s based on very creaky systems for title management, one where the lawyers are used to putting together very large packages and building healthy margins for what they do, and one where title insurance typically costs 1%, 2% of the purchase price, just to have confidence that the title behind that land isn’t in conflict or in question.
These are all the types of prosaic kinds of challenges that I think blockchain technology can address. And so tokenization… Is just one of the fields… [the developers you mentioned] are members of Hyperledger, they’ve been immersed in the technology, I’ve spoken at their headquarters in Dubai, they are sincere.
And I’ll end with what’s really cool about open source in general, but specifically, the space is, you do have these infrastructure providers like IBM and Microsoft and others that have been providing, and a lot of startups who are the toolsmiths and platform providers using Hyperledger but selling a lot of the same services and products that they’re used to.
But you’re also finding end user organizations such as MAF diving into the technology, extending it in certain ways, figuring out what they can do and engaging with those companies to productize that or move further, but also getting this really visceral sense for what’s possible. So it’s been exciting to have them and a lot of these other end-user organizations in the community.
Lau: Well, 2020 is shaping up to be very interesting for hopefully other reasons. And thank you for enlightening us as to what that future can look like; certainly we are racing into it as we speak. Brian, it has been a pleasure. Thank you so much for joining us here on Word on the Block.
Behlendorf: My pleasure. Thank you.
Lau: And thank you, everyone, for joining us on this latest episode. I’m Editor-in-Chief of Forkast.News, Angie Lau. Until the next time.