Few technologies have attracted the frenzied level of unbridled hype that has surrounded blockchain over the last couple of years, but the technology is not well understood. Advocates often argue that blockchain goes way beyond cryptocurrency, even though the two are inextricably linked in the public consciousness, but deeper conversations about blockchain typically have a heavy focus on potential.

With HTC’s Exodus smartphone going up for preorder, joining blockchain phones from lesser known names like Sirin Labs and Sikur, we wanted to try and find out what a blockchain phone is, and who might want one? What can it do? And why are companies making them now?

What is a blockchain phone?

“It’s about the internet, where it’s going, and what’s wrong with it right now,” Phil Chen, decentralized chief officer at HTC, told Digital Trends. “Our position is that there’s something deeply wrong right now because people don’t own their digital identities; they don’t own their digital data; they don’t own their personal data. Whether it’s behavioral data, commercial data, health data, browsing data, or something else, all of that is owned by a handful of companies.”

We use ostensibly free services from the likes of Google and Facebook with some understanding that they’re not really free — we are trading our data in return for those services. It’s clear that companies with enormous, centralized data hoards are finding ways to monetize that information. In fact, their business models are based on selling insights and targeted advertising.

“It’s about the internet, where it’s going, and what’s wrong with it right now.”

“I find it quite frightening to think that we’re this far into the information age and there’s no concept of digital property,” Chen said. “If you think about the agricultural revolution with real estate property, and the industrial revolution with intellectual property, and we’ve gone this far into the information age and still people don’t think their data is worth anything.”

There’s a growing swell of opinion that’s coming around to the idea that we may have sold ourselves short in giving away all our data. Whether it was an agreement we entered into with open eyes is debatable, and where we go from here is far from clear. But what does all this have to do with a blockchain phone?

Wait a minute, what’s blockchain again?

We’ve looked at what blockchain is before. In brief, it’s an immutable, decentralized ledger. The ledger is a list of transactions, or blocks, that are distributed across a network of different devices, or nodes, instead of being held on a central server. Every user has a private key and a public key which they can use together like a digital signature to create a new block. Each block is verified by the network and then added to the chain. Once added, it cannot be altered.

Additional blockchain guides

The HTC Exodus 1 is an Android phone with a secure enclave that allows you to keep possession of your own keys, and potentially your own data, instead of Google, Apple, an exchange, or some other company holding them for you. It’s effectively an Android phone like any other with all the same functionality, but it has this additional locked area that’s protected from Android’s insecurities.

“What we’ve built is like a parallel micro operating system that’s secure,” Chen said. “So, for certain secure transactions, in this case holding your private keys and signing transactions in the crypto space, you use that secure enclave.”

The first application of this is to allow you to hold cryptocurrency or other crypto assets like non-fungible tokens securely, but Chen sees it as the foundation of being able to own and hold your own digital identity and data.

Preventing digital copying

To properly explain one of the potential applications for this kind of technology we’re going to talk about CryptoKitties. Yes, you read that right, bear with us.

“It’s very significant what CryptoKitties have done because it has completely changed the idea of what digital content is,” Chen said. “The concept of non-fungible tokens builds on this idea of digital scarcity.”

CryptoKitties is a blockchain-based game where people can breed, trade, and sell digital cats. The key thing to understand here is that each cat is genuinely unique and can’t be copied, which led to one cat, named Dragon, selling for around $170,000.

Blockchain was originally conceived as a way to prevent double-spending of bitcoin. In simple terms, when I give you a bitcoin, I don’t have it anymore. That’s not usually the case with digital files, because it’s easy to copy a file so that we both have the same file.

“That technology empowered Steve Jobs to disrupt the whole music industry with the iPod and iTunes”

“That technology empowered Steve Jobs to disrupt the whole music industry with the iPod and iTunes,” Chen said. “Non-fungible tokens are building on top of this immutable power of the blockchain, so you can’t copy digital content anymore.”

It potentially gives some intrinsic value or worth back to digital content and it could be applied to a song, a video, or something else just as easily as a digital cat. There’s clearly a big future for blockchain in gaming, especially around digital loot, but there’s no reason it can’t spread beyond that.

“We see it as a completely new paradigm,” Chen said. “Right now, it’s wallet exchanges and gaming collectibles, but we don’t know what killer apps will come out of this.”

What if I lose my phone?

The obvious question that crops up in any discussion of a blockchain phone is what happens if I lose my phone or it gets stolen? Your keys, and possibly eventually your digital data, are physically stored on that device. The HTC Exodus 1 isn’t a cold storage device like Sirin Labs’ Finney blockchain phone, which can also keep your digital currency safely stowed and disconnected from the internet.

“I think demand for cryptocurrency-enabled phones is going to be limited to enthusiasts for the near term, especially devices that have cold storage components to them,” Scotty Perkins, Quisitive’s senior vice president for Product Innovation, told Digital Trends. “If you have coin holdings in cold storage electronically on your mobile phone, you really have to think carefully about what happens if the phone is lost, stolen, or irreparably damaged. Unless you plan carefully, you can lose much more than just the value of the phone and a few contacts.”

HTC has gone for a kind of middle ground, limiting the risk of centralized wealth, but stopping short of completely isolated cold storage.

“There’s no such thing as 100 percent security, there’s always a balance between security and usability,” Chen said. “Right now, all your wealth is online, stored in some centralized server. We are at least spreading the risk with blockchain phones, there’s no one failure point that gives you access to digitally rob 150 million people; if you want to rob someone you have to physically rob them.”

So, what if you do get robbed or you lose your blockchain phone? With a normal phone you can call Google or Apple and run through a recovery process to get the keys to your account back, which will at least restore the data you backed up.

With the decentralized blockchain you have no such recourse, which is why HTC has come up with something it calls Social Key Recovery. Employing a well-known algorithm for sharing, the mechanism splits your key into five different parts, so you can share it among your family and close friends. When you lose your phone, you can call up three out of the five friends to recover it.

Because it’s strictly for recovery, you still need your biometrics or password, so they can’t get together behind your back to access your key and start signing transactions. With cold storage, you need to recover the device, or the assets stored on it are gone forever.

There’s a long way to go

Chen has no illusions about the market for the HTC Exodus 1 today. This is the beginning of something new and no one really knows where it will lead.

“Right now, it’s targeted towards the crypto crowd that really understands what it means to hold your own private keys,” Chen explains “Which is, in fact, not even the majority of crypto users.”

This is the beginning of something new and no one really knows where it will lead.

HTC is looking for help to make the device and system more secure. The plan is to release Application Programming Interfaces (APIs) so third-party developers can use the Exodus 1 to protect keys and sign transactions. There’s no telling what kind of decentralized apps and services might come from this.

The potential of blockchain is undeniably exciting; it could fundamentally change the way we interact with the internet, but you’ve probably heard that before and there are plenty of powerful players with a vested interest in the status quo. For now, blockchain phones are about managing cryptocurrency and some other digital assets. Whether they ever grow beyond that depends on whether blockchain can fulfil that potential. That’s simply impossible to predict right now, but HTC is far from the only player betting that it will.

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