Google has built a $750 billion empire on its centralized cloud infrastructure and exclusive access to a vast store of user data. Many tech experts wouldn't expect the online advertising and data powerhouse to be interested in blockchain—a technology that, in many ways, obviates the need for the cloud and enables users to wrest control of their data from big tech companies.

So reports that Google is developing blockchain-related technology might sound as though the search giant is shooting itself in the foot, by endorsing tech that could render its cloud-based business model obsolete. But despite what hardcore proponents of blockchain might say, the decentralized technology isn't necessarily the bane of big tech companies.

Improving Google's Image Amid Privacy Scandals

It's not the best time to be a cloud company sitting on a vast store of user data. Facebook is still reeling from a major privacy scandal that has cast doubt and frustration over the way centralized businesses handle user data. And Google has its own raft of privacy woes.

Blockchain replaces centralized authorities with distributed ledgers that transfer the ownership of data to users themselves. Investing in blockchain could indicate that Google is taking positive steps toward giving users more control of and visibility into how their data is used.

"There is a growing awareness among both the public and regulators about cybersecurity and privacy," says Daniel Gasteiger, cofounder and CEO of VALID, a blockchain-based digital identity and personal data platform. VALID is among a handful of blockchain companies that give users a digital wallet for storing their data to which they hold exclusive rights. Only a wallet's owner can decide to share or sell the data it contains, as opposed to deferring the decision to the likes of Google and Facebook.

"The main and most important difference is that we don't handle data," Gasteiger says. "Rather, we provide the infrastructure for individuals to store their data securely and share it with select parties in a fully controlled fashion. You don't need to be a user of Google or Facebook specifically."

Google still hasn't revealed the details of its project, and it's not clear whether the company intends to take such a direction. "Like [we do with] many new technologies, we have individuals in various teams exploring potential uses of blockchain, but it's way too early for us to speculate about any possible uses or plans," a Google spokesperson said.

Blockchain Complements Google's Cloud

"Advocates of blockchain paint a picture where blockchain will 'destroy' traditional businesses," says Jesse Leimgruber, cofounder of Bloom, a blockchain-based credit-scoring platform.

But decentralization doesn't need to be a threat to the centralized cloud business, Leimgruber believes. "There are excellent ways for centralized businesses to adopt the transparency, security, and open source nature of blockchain technology."

Currently, blockchain is not the best place to store large amounts of sensitive data, since everything stored on the blockchain has to be replicated across many computers. Also, information stored on the blockchain can't be deleted, which is problematic when a user wants to remove sensitive information. That's why many current blockchain applications still need cloud services to store their data.

"Storing user data on the chain is a no-go," says Jed Grant, founder of Peer Mountain, a decentralized identity and data management platform. "It will never be a good idea to put the actual user data on chain in clear or traceable form."

Peer Mountain is among several solutions that use a combination of on- and off-chain technologies to provide optimal performance and security to their users. Its application protects user data with strong encryption and stores it off-chain (say, with a cloud service such as Google Cloud Platform or Amazon S3) while storing hashes and zero-knowledge proofs on the blockchain. This mixture provides a middle ground where users get the speed of the cloud and the security and transparency of blockchain.

"The individual owning the data must have the capability to delete the object if needed," Grant says.

Google's blockchain project can make sure that the company doesn't stay behind as new use cases emerge for its cloud platform. For instance, the company can create a framework where developers can build distributed apps (DAPPS) that are compatible with its cloud services.

Transparency and Regulatory Compliance

Google's blockchain project might also be relevant as new regulations such as Europe's upcoming General Data Protection Rules (GDPR) are putting a heavy toll on organizations that fail to protect their users' data. Blockchain is not an all-in-one solution for solving all the security woes of online businesses, but its resilience against security threats will put companies in a better position to avoid cyberattacks.

While hackers will still be able to target decentralized applications, they won't be able to steal large amounts of information, as they did in last year's massive data breach at Equifax. They would instead have to target users individually and obtain their encryption keys before they could access their data.

"The very nature of blockchain is that you do not need to trust anyone," says Leimgruber, whose company Bloom is building the decentralized equivalent of Equifax and Experian. "If Google were to adopt portions of decentralization, customers can know that their information is safe, protected."

By providing tools to create decentralized applications that work in parallel with its cloud business, Google can make sure its clients have the flexibility and choice they need to make sure they remain compliant with the constantly changing rules.

"The risks associated with centralized storage and processing of data has been long known, but the lack of availability of technological tools to enable decentralized storage and processing of data in an economic fashion has deterred the mainstream adoption of such solutions," VALID's Gasteiger says. "We are now seeing a number of decentralized solutions which could challenge Google's business model. Thus, it is quite logical that Google explores such technologies to remain competitive."

What Will It Cost?

Google's entrance into the blockchain industry won't come without trade-offs. For one thing, the company's advertising business, which accounts for most of its revenue, relies heavily on collecting, mining, and monetizing users' data.

"Facebook, Google... these businesses make huge revenues off of owning your data, selling your data. You can't opt out," says Bloom's Leimgruber.

Integrating blockchain at any level might deprive Google of its exclusive access to valuable user data and prevent it from locking customers into its platform. But Leimgruber believes that companies like Google will have to come to terms with the trade-offs blockchain presents to their business models and look at long-term gains.

"Blockchain technology makes it possible for people to rightfully own their data," he says. "Businesses can run as they normally do but give some power back to the people. If anything, this give and take could even give them more support, more power."

Another concern is that Google's move might have a negative effect on the blockchain startup scene, especially as the search giant joins other large cloud companies such as IBM, Microsoft, and Amazon in becoming directly involved in distributed ledger technology. But experts agree that companies such as Google can help propel the blockchain industry forward. "We're excited to see big players joining the space, advancing the technology, and adopting the latest innovations," Leimgruber says.

Even before announcing its own blockchain-related project, Alphabet, Google's parent company, was among the most active investors in blockchain companies.

"The investment from Google and others will surely advance the tech and they have provided some good research solutions to common problems in the past, so overall, the investment will probably be a good thing," says Grant from Peer Mountain.

Grant also acknowledges the threat the involvement of Google and other large tech companies will pose to startups, though. "Google and the others will try to shoehorn solutions into their existing business models and will want startups to use their services in order to lead to long-term dependencies on this," he predicts.

Google-Powered Blockchain Still Years Away

Leimgruber foresees a future in which centralized and decentralized business models can coexist. "Blockchain alone doesn't prevent centralization from happening. There are many private blockchains and countless private add-ons to public blockchains that allow businesses to keep control," he says. "Though with the right setup, you can have the best of both worlds."

Meanwhile, he doesn't see a Google blockchain coming soon. "Blockchain is in its infancy. Even the most robust protocols struggle to support basic applications," he says. "The technology will need to mature substantially before a business the size and scale of Google will be able to adopt it for the bulk of their operations."

Sridhar Ramaswamy, Google's SVP of ads and commerce, recently acknowledged this. "The core blockchain technology is not something that is super-scalable in terms of the sheer number of transactions it can run," Ramaswamy said at a London conference in which he spoke about the company's blockchain plans.

Just as with the internet 30 years ago, no one knows how the blockchain revolution will play out, Gasteiger says: "There is a clear potential for disintermediation and democratization of the internet and that is the mission we are pursuing. Only time will tell what the outcome would be."

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