Demystifying Blockchain Phones

“People don’t own their digital identities…

…whether it’s behavioral data, commercial data, health data, browsing data, or something else — all of that is owned by a handful of companies.”

- Phil Chen, Decentralized Chief Officer, HTC.

Introduction

At this point, you’ve probably heard a lot about the blockchain, whether it is something you fully understand or is more akin to a buzzword. There are a lot of practical applications for blockchain technology — everything from rights management to compiling sales data, even to voting. These applications, while useful, also seem theoretical and specialized. But there is an emerging use case that’s starting to gain momentum — one that could stand to affect every one of us. At least every one of us with a smartphone, that is.

It’s called a blockchain phone. HTC’s Exodus 1 will launch in March and will be purchasable with US currency. Samsung has confirmed that its Galaxy S10 model will enable customers to use a cryptocurrency wallet. Switzerland-based Sirin Labs launched a $999 Finney phone this past December. And India-based Pundi X made Mobile World Congress headlines by announcing additional decentralized features to its $599 XPhone set to launch later this year.

Let’s dive into what a blockchain phone is — and why it could emerge as an important product.

The problem

The average American spends over 3.5 hours a day on their mobile phones. Each minute spent online generates colossal amounts of data — about the users’ location, interests, purchase habits, credit card details, and more. This data is then sold to corporations (without giving users much choice in the matter) in order to better understand user behavior, predict market trends, serve users the right ad at the right time on the right channel, monitor fraud, even where on store shelf to hold different inventory in order to maximize purchases.

From a privacy standpoint, this is obviously troubling. WIth the advent of Big Data computing power, data mining companies can amass detailed profiles on individual consumers from random bits of information, often times piecing together extremely private and sensitive preferences or aspects of people’s lives, all of which is available for purchase by an interested third party.

Additionally, there has been an acceleration of data and digital security breaches over the last few years — take a look at this interesting visualization. When all of your personal data generated on your mobile phone is being stored in multiple centralized databases, these repositories or even your mobile device itself pose a risk for hacking, phishing, identity theft through scams like phone porting, and other malicious use.

This is where blockchain phones come in. They purport to protect your digital identity by leveraging a decentralized peer-to-peer network to secure your transactions — from phone calls to messaging to financial transactions.

A blockchain refresher

I have written in greater detail about blockchain in the past, but here’s a quick refresher: blockchain is a type of Distributed Ledger Technology (DLT), in which an information database, or ledger, is spread across a network of users. The ledger is essentially a list where users can add information but cannot modify or delete information that already exists on it.

Think of DLT as analogous to Google Docs’ version control. Every action/transaction is recorded and timestamped — and it becomes a permanent addition to the ledger. However, unlike Google Docs, you cannot make edits to the items that have been already added before.

Sets of transactions are recorded in what is called a block, and these blocks are transferred and appended to over a peer-to-peer network, keeping all transactional data decentralized and autonomous. Each block is connected serially to consecutive blocks (as defined in the block’s ‘header’ information, based on the block’s identifier), forming a chain of transactions — or a blockchain.

Blockchain phones

As discussed, one of the key issues with sharing your data is ensuring its security — and blockchain phones go a long way towards solving that.

With blockchain-based Decentralized Identifiers (DiDs), users can regain control of their data. DiDs are encrypted strings stored on a blockchain ledger, with each being assigned to a specific part of the user’s identity (such as name, email, social security number). Using a digital wallet app, a user can give specific applications temporary access to relevant parts of their identity.

Since the data is only accessed and isn’t stored on the application’s database, it prevents any authorized usage or hacks of the data. Another beneficial byproduct of storing this data on the blockchain is that in case users can modify their data (such as frequently changed identifiers like address, credit card info, etc.) and have that modification be immediately propagated across the DiDs as opposed to needing to be updated across the platforms individually.

Blockchain phones also enable the use of decentralized apps (D-apps), which are apps that use public, peer-to-peer networks instead of private corporate servers. By storing data on a single public ledger instead of on the private databases of various corporations, you’re ensuring battle-tested encryptions while giving you complete control over access. Furthermore, every transaction is recorded and time-stamped, protecting users and applications against issues such as:

• Denial of service attacks — Since each user is verified through their key, a DOS attack (which relies on sending bulk requests to a site/app from multiple fake accounts) will be unsuccessful
• Government censorship — With blockchain, privacy is paramount. Since data such as the user’s location is unavailable or encrypted, governments cannot censor content in their respective geographies
• Insecure monetary transactions — passwords are replaced with highly secure two-key encryption

A few present challenges

Despite the theoretical incorruptibility of blockchain, the technology is still in its infancy. There are undoubtedly some significant speed bumps ahead that will need to be resolved before these phones are adopted by the masses.

Nascent technology

There is a perception that blockchain phones and D-apps will be tough for a layperson to grasp. Most of these concepts are difficult to visualize or demonstrate, the ideas work in theory but are practically unproven, and many of the specific features are untried and untested. At best, the technology is a work-in-progress and popular among crypto enthusiasts instead of the mainstream. This leaves the tech and the commercialization of it open to issues that will only be known once extensive real-world testing is done.

Single point of failure

Since the technology is new and prides itself on being decentralized, there are simply not enough regulations to ensure that blockchain based products don’t, deliberately or accidentally, cause the user data or monetary loss. If users lose their encryption key, they have no way to recover their data or their hard-earned cryptocurrency. Gerald William Cotten, the owner of now-defunct cryptocurrency QuadrigaCX, died suddenly this past December. Unfortunately, he alone knew the passwords to his company’s cold wallets which held his customer’s cryptocurrencies, wiping out almost $200 million of value.

Until companies develop an easier key management system without compromising the technology, it is unlikely that these phones will see widespread usage. Companies are experimenting with data recovery solutions, such as HTC’s “Social Key Recovery” on the Exodus, which allows a user to split and share their key with 5 different people. An Exodus phone can be recovered through a combination of password, biometrics, and three of the five split keys.

Conclusion

Despite these challenges, the concept of a blockchain phone is intriguing, and the possibilities are vast. As a protector of user privacy, identity theft, and data collection, these phones offer a unique opportunity as a 21st century consumer.

However, the technology is still at a preliminary stage with limited real-world exposure. The users willing to try these phones will most likely be early adopters or users who frequently transact in cryptocurrency — which is a very small percentage of the overall mobile market. The question here is whether (and when) the general public will be willing to make the move.