Curiosity always fuels innovation, says Stuart Haber

Despite what he called the “huge potential” of blockchain, Haber says there is a lack of awareness and understanding how it can be used is a key challenge, especially in industries outside of banking and fintech, while a lack of regulatory clarity is a roadblock to mass adoption.

Haber is a speaker at this week’s Singapore FinTech Festival and commented Discard in an email interview. Questions and answers have been edited for brevity.

Pradipta Mukherjee: What was your original idea behind blockchain technology?

Stuart Haber: The idea behind the invention was not for specific use in financial systems. When we worked at Bellcore (Bell Communications Research) in the 1990s with Scott Stornetta as young cryptographers, our goal was to create a solution to the problem of authenticating documents and ensuring the integrity of digital records. We believed that the necessary method to do so was through time-stamping of digital documents with the following characteristics:

First, a way must be found to timestamp the data itself without relying on the properties of the medium on which the data appears, so that it is impossible to change even one bit of the document without the change being obvious.

Second, it should be impossible to stamp a document with a different time and date than the actual one.

This became the prologue that gave birth to our 1991 paper “How to Timestamp a Digital Document”, which in many ways introduced the idea of ​​a chain of hashes to create a total sequence of commitments to a dynamically growing set of documents.

Mukherjee: Did you imagine blockchain would be used for non-fungible tokens (NFT), metaverse, GameFi and other innovations happening today?

Dr Haber: When blockchain took off, it was quite an experience for me and Scott, to see the huge potential it has and to talk to people about our place in history and how it came to be.

Back then, our main goal was simply to find a way to ensure the integrity of digital records and documents. But 30 years later, it is exciting to see the development and explosion of this technology, not only in economic interests, but also in entertainment, business and technological innovations.

And since blockchain systems are readily available now and much more widespread than 30 years ago, I encourage the new generation to use it and continue to innovate and challenge the unknown. Curiosity is always the fuel for great innovations.

Mukherjee: What kind of technology innovations do you envision for blockchain? What is still unexplored?

Dr Haber: Blockchain technology found its first final successful implementation in the real world with the launch of Bitcoin in 2009.

Since then, we’ve seen it evolve and change the way people shop and interact across industries, including health, business supply chain tracking, and gaming and entertainment.

However, as we look into the future of blockchain, there is definitely much more to explore for its use specifically in the financial sector.

Specifically, FinTech (financial technology) makes up the lion’s share of the blockchain market. Over the past decade, we’ve seen how digital accounts leverage a fundamental change in how we send, receive, manage and store our money.

Interestingly, while we are already seeing the transformative impact of blockchain across the fintech industry – from crypto to DeFi – we are still in the nascent stages.

The untapped potential of blockchain technology in the sector remains vast – from improvements in transaction processing and interoperability, to reducing transaction costs and timelines while increasing transparency and security.

But the bottom line is that we all live in fast times and with such volatile market and economic conditions, we absolutely need a technology like blockchain to increase international transaction speed and reduce costs.

That alone means many opportunities to push the needle and explore the many possibilities with this technology.

Mukherjee: How can blockchain transform the fintech sector?

Dr. Haber: Blockchain technology is revolutionizing the fintech industry in many ways. For example, borderless payments are made possible through cryptocurrencies that use this framework. This can also pave the way for faster payments as it cuts the additional authorization process, and becomes more user-optimized.

Another key feature is blockchain’s programmability, which allows users to create and execute smart contracts that help automate businesses in the industry more efficiently.

Mukherjee: What are the challenges facing the fintech sector with blockchain adoption? How can these be resolved?

Dr. Haber: While considered a breakthrough technology, blockchain also has its drawbacks and risks for consumers and industries that intend to use it. Some challenges include:

Lack of awareness and understanding: This is a main challenge related to blockchain, especially in sectors outside of banking and fintech. Since it is still in its infancy, there is still much unknown about its use cases. For companies thinking about adopting blockchain in their business, it would be best to find out if it is a suitable technology for your organization. If so, companies should also think about its application, what it will mean for the organization and its operations, even the effect on the company culture and how you will educate employees and stakeholders.

Lack of scalability: Scalability, or the ability to manage a large number of users at once, is a crucial challenge. With more and more people using the technology, transactions have also increased dramatically – and as transactions increase, this involves more computation of complex algorithms resulting in a cumbersome system. Of course, scalability is not an entirely new problem for computer scientists; in fact, the study of consensus protocols for distributed systems goes all the way back to the early work of Leslie Lamport, the Turing Award winner who more or less invented the field, from the 1970s. Scalability for blockchain systems is an exciting and active field of research now, and there are a number of proposals for secure parallelization of calculation processes that could well make a big difference to practice.

Smart Contract Security: With the launch of Ethereum, the blockchain world exploded with a wide variety of applications that could be deployed as “smart contracts.” But smart contracts, like all programs, are difficult to write well and securely, and we’ve all seen many examples of vulnerabilities in systems, some of them very expensive. There is much more work to be done in tools and mechanisms to strengthen the security of smart contracts.

Regulation and governance: There is also a lack of regulatory clarity, which represents a significant roadblock to mass adoption. Decentralized networks can be much less resilient to market shocks, which can directly affect participants. To overcome this, affected sectors may need to work within existing regulations or collaborate with public bodies to create them.

Mukherjee: Many world governments are slow to adopt blockchain and are unsure of the risks. What advice do you have for them?

Dr. Haber: While of course many high-tech enthusiasts care about government laws and regulations, the caution of many governments in adopting blockchain technology is well-founded. Instead of making specific suggestions, my main advice would be “Be careful!”

Mukherjee: How would you address concerns regarding the rising costs of blockchain implementation?

Dr. Haber: The rising costs of implementing blockchain can be prohibitive. Advances in scalability may improve the situation. But significant investment is required for the operation, licensing and general administration of such technology for it to function effectively.

Therefore, it is important to think about the decisive factors when implementing blockchain applications. For example, what are the main drivers of the costs of implementing the technology and how can this be shared between participating stakeholders.