- 1 Is bitcoin money?
- 2 What is blockchain technology?
- 3 How is it useful?
- 4 What about the hackers?
- 5 So you still don’t like a virtual currency?
- 6 A new social order
Blockchain is a technology working its way into the ether since 2009, but has taken on a life of its on in 2017. It entered most people’s consciousness in the form of bitcoin which emerged from a paper published anonymously under the pen name of Satoshi Nakamoto. The paper’s concept resonated quickly and deeply, forging a community of developers determined to make it real.
The product, bitcoin, is the first cryptocurrency applying block chain technology. It is the potential of the database (or some call it the ledger) that makes this technology so interesting. Bitcoin and its siblings who followed are just one application of the blockchain concept.
Blockchain is a solution to add uniqueness to digital assets and allowing trusted buying and selling of digital goods between unknown partners.
Is bitcoin money?
The simple answer is no, although this is an ongoing argument. The issue of what constitutes money is an abstract conundrum that still has economists arguing over the criteria for inclusion. Just as gold is marketable, so is Bitcoin, and as neither are any use for buying a cup of coffee they compare well.
The gold miner sells gold at the prevailing market price, so will a bitcoin miner. Just as people buy gold because they hope to exchange it for something else in the future, people buy bitcoin. The analogy extends, just as extracting gold by mining becomes harder and harder as supplies in the Earth’s crust run low, bitcoin becomes harder and harder to extract as miners reach the theoretical 21 million bitcoin limit.
Bitcoin kind of outsmarts gold because we know 3 of every 4 bitcoins that will ever exist have already been mined, whereas new gold seam discovery devalues the world’s gold. There are stockpiles of inactive bitcoin, just as there are stockpiles of gold, and so the recent tripling of bitcoin valuation is open to the same market influences of mass sell-off, just as gold valuation is influenced by massive sell-off of gold supplies.
Bitcoin’s launch paper: “Bitcoin: A Peer-to-Peer Electronic Cash System”, clearly shared its intention to be spent and there are some 100,00 merchants worldwide  who will accept bitcoin payments, such as: Shopify, Microsoft, PayPal, and Virgin Galactic , but still no coffee, at least not yet.
What is blockchain technology?
Blockchain is simply an asset registry. A digital ledger. The asset can be a car, house, currency, contract, equity or anything of value. Bitcoin and its siblings are simply one application of the blockchain concept.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)
A blockchain is a public digital register or ledger shared by numerous parties over a distributed network. The blockchain records and stores every transaction that occurs within the network, creating an un-editable and auditable transaction history.
Every party of the network has a copy of the register and therefore if anyone presents data that does not match, it will be rejected. The transactions are linked with a public key, but that cannot be traced back to the originator who holds the private key. Therefore, there is a public record of transactions and transfer of ownership, whilst retaining the privacy of the owner.
What is so special about that?
Blockchain technology allows databases to be both secure and distributed. Blockchain’s beauty is in its resilience, because a wide peer group shares a blockchain there is no single point of failure, allowing it to survive the loss of parties, temporarily or permanently.
It is secure due to its resilience, transparency and immutability. It is transparent because the blockchain database is visible to the participants, allowing a simple auditing trail. It is immutable because it is impossible to make changes to the blockchain without detection by the other peers, reducing the opportunities of fraud. It is permanent because the final data block is write-only, there is no amending the data .
It is revolutionary because of the nature of the peer to peer exchange. Two parties are able to make an exchange without the intervention or oversight of a third party.
“With blockchain technology, we can create a version of Wall Street where no one can cheat and where all kinds of mischief cannot even occur. Crypto currency gives us a way to communicate value that’s outside the control of any government mandarin, and I think that’s good.”
Patrick Byrne – CEO, Overstock.com
How is it useful?
Peer-to-peer exchange can benefit from blockchain, allowing secure access to cloud, to encrypted file transfers and communication logs. Imagine a country such as Indonesia, where every cell phone is connected, transferring smart contracts on behalf of their users. Everyone else’s phone can be a node holding and updating the registry, if you are off to the countryside for a while, don’t worry, as long as a few visitors travel through, someone’s phone will pick up your changes and requests and pass it onto the rest of the cloud once they get back to town. This peer-to-peer exchange offers a real opportunity for innovation. You can vote using blockchain, register assets and write contracts. You could do a combination of the above.
Smart contracts are the programs that encode certain conditions and outcomes. The software has already been adapted to allow creation of invoices that pay themselves when a shipment arrives. Share certificates can be created which send their owners dividends once profits reach a threshold level. Such contracts allow escrow services to be enabled with near-instant submission times at marginal costs.
What would the child of smart contracts and voting look like? Imagine votes that are activated when certain conditions are met. A power company wants to build a power plant. You set up a smart contract that says: “I’ll vote yes for the power plant, if they put six solar panels on every house in my street and allow us all to sell that electricity back to the grid”.
“Study how to write smart contracts, which is the basic unit of programming a blockchain for business purposes. It is the equivalent of being taught HTML and Java during the early Internet days. And master how to create assets or tokenize existing ones on a blockchain.”
William Mougayar – author: The Business Blockchain
Whilst your Kenyan friend chuckles as you describe the American banking system to them, then chuckles some more and sends their mum some money, that arrives before you finish explaining that the quickest way to transfer money in America is by applying the que-withdraw-que-deposit system. Smart contracts offer an enormous potential for countries, such as Kenya to leapfrog, just as they have with their banking systems, (thank you very much).
Smart contracts have already entered into the legal system. The future may see a smart contract system for every song streamed, with royalties allocated and paid immediately upon file activation. An asset registry of ownership for works of art may protect stolen art from resale. Ascribe, for example, has entered the intellectual property arena offering services to register digital art .
They can also be applied in a more mundane arena: you want to make a sports bet with your brother, but you don’t trust him as far as you could throw a kettlebell? Etherparty plans to handle the technical heavy lifting, to make setting up a smart contract as simple as posting a blog on a WordPress site.
There are areas of industry ripe for blockchain disruption. Businesses with huge auditing-trails, such as the freight industry, can reinvent their business processes. All the goods moving in and out of countries can be tagged, for example, properly harvested wood can be identified and verified .
“In the modern insurance industry, the cost of auditing accounts for 30 percent or even 40 percent of the total. Even so, the ratio of insurance fraud in China is still not small. Therefore, the insurance industry is looking closely at Blockchain technology. If data is stored on the Blockchain, immutability will save us from contractual conflict. In the case of insurance claims, a smart contract will be triggered to execute provisions, this solving the problem of compensation settlement and lower auditing costs. Blockchain can reshape the integral foundations of insurance.”
Wei Yingning – Former vice chairman of China Insurance Regulatory Commission (CIRC)
Fatcom offers a permanent, time-stamped record to data anchored in the block chain. This can be applied to proof of process, existence or audit. Their first project was an official land title registry. The potential range of applications is immense. The energy sector is examining the potential of blockchain. With a modern, distributed energy grid where customers are also producers, even the movement of electrons is an asset that can be logged and trigger payment. Blockchain technology is set to revolutionize bureaucratic administration. Dubai’s blockchain strategy is to move all government documents (more than 100 million per year) onto a blockchain by 2020 .
Blockchain in Healthcare – it doesn’t make sense. But it does. People are working very hard to bring together blockchain and healthcare as you read this.
The Power of Blockchain for Healthcare by Peter B. Nichol shows how blockchain will transform the patient experience. From patients, to doctors to insurance companies – the entire system. The book shows blockchain’s potential to transform healthcare at the patient level.
It answers the questions: What can blockchain do? How will it impact our health? Why should you care?
Healthcare is a bureaucratic service industry that suffers from disparate stakeholders requiring access to patient records. Gem has set up an Ethereum blockchain infrastructure to allow healthcare stakeholders to access patient information. Operational efficiency will climb exponentially, hand in hand with actually giving practitioners access to up to date patient information . Quality control is a serious consideration for application of blockchain. Medication, for example, can be guaranteed to be what it claims to be. Hyperledger has created the Counterfeit Medicines Project. Each drug produced is marked with a place-timestamp, as well as changes in ownership, which are transparent to all interested parties .
“A blockchain-based medical records system could safeguard patient data and allow for improved interoperability between doctors and hospitals, while also giving patients more ownership over their own records.”
Valery Vavilov – CEO of BitFury.
With over 2.5 billion adults worldwide lacking a bank account, blockchain offers opportunities to overcome barriers to accessing financial services . The key issue preventing access to financial services is proof of identify, and yet 20% of the world’s population lack any such documentation . Humaniq applies Ethereum’s blockchain-based app to create user profiles based on bio-metric data and then gives them access to services otherwise denied, such as small business loans, insurance and pensions. Pundi Pundi, a small start-up in Indonesia, allows anyone without a bank account to hold, buy and sell cryptocurrencies in physical stores with a smartphone, and it also offers retail points of sale in shops, cafes and convenience stores. An early player, 21 aims to embed their mining chip into IoT devices such as smart phones, allowing the phones to become a player in the bitcoin market place. Companies such as these are set to radically alter the payment playing field.
“You could imagine something like a completely automated system for renting bikes that’s just done completely over blockchain crypto-payments. And theoretically just sort of start it up, and it works completely autonomously.”
Vitalik Buterin – co-founder of Ethereum
The financial technologies (fintech) sector has clearly embraced this new technology. The World Economic forum predicts that by 2027, 10% of the global GDP will be managed by distributed ledger technology (ref in ). All the major stock exchanges are investigating the technologies . The significant difference between fintech’s approach and bitcoin’s is that the bitcoin network is public, anyone can join. Fintech will, more typically, apply private networks, where only selected members such as traders and banks will have access to update the registry . There are plenty of bitcoin sibling crypotcurrencies spreading across market niches: namecoin, litecoin, mastercoin, peercoin, darkcoin and ripple .
The Internet of Things (IoT)
The sheer size of the IoT propels it towards blockchain technology. One early player, Filament provides the wireless sensor network for industrial applications of IoT. In response to the challenge that comes from attempting to connect an ever-growing number of devices to one centralised network, they have developed and deployed a fully decentralised IoT infrastructure  using blockchain technology.
So, we travel full circle and return to the issue of money and payment. There has long been a need for internet-based service provision to be able to accept meaningful micro-payments. Similarly, there has been a barrier to provision of micro-services on the internet because of the sheer effort of will required by users to make a payment. The tedious requirement to create a username, password, enter credit-card details and buy a service can be circumvented by the application of bitcoin-like technology. News sites and other providers who could create revenue with a buy by article business model, would be empowered to move away from their corroding advertising model, .
What about the hackers?
So, there are those of you wondering whether this system is truly safe: surely it can be hacked? Interestingly this happened early on enough in the game to provide insights now. It was not the blockchain that was hacked, but the application using a blockchain system. This is what happened to a project based on the blockchain platform Ethereum where around $50 million was stolen. The project based on the platform was hacked and the Ether “coinage”, mined in the same way as bitcoins are mined, stolen.
Imagine you picked up a large sum of fresh bills from the bank, and on the way home you were robbed. It would be great if you can tell the bank about this and they can inform the world that they will cancel the notes they gave you (based on their serial numbers no one anywhere would accept those notes) and they reissue you with your cash. Ethereum decided to dump the “serial numbers” associated with those “coins” and return Ether of the same value to the investors who had lost their money.
They faced an interesting dilemma. Ethereum applies blockchain technology, whose transactions are intended to be irreversible. By executing a hard fork (they can’t delete, remember!) and rewriting the rules by which their blockchain is executed, Ethereum negated one of the core tenants of their system- that it is unchangeable. Yet they also did something profound – their community rejected the violence committed against it. Of course, the hackers are still at it, and wallets that hold such coins have also suffered attacks.
So you still don’t like a virtual currency?
Maybe you like the concept of blockchain, you agree that is sounds like a great plan with applications limited only by the imagination and the developers to throw at it, but there is that but. A currency not backed by any bank, government or collateral, you just don’t like the feel? Then fear not -there are platforms out there designed for the asset investor. Do you like high-end sports cars, but you are not likely to ever own one? Bitcar will allow you to invest in their blockchain platform where your CAR coin F50one actually represents investment in a Ferrari 50. After a 5–15 year term they sell the vehicles and pass the profits back to the holders of the coins.
Blockchain is here, and outshining other start-ups in terms of investment, and has the potential to solve bureaucratic issues at a fraction of the normal costs. Sweeping all of this utility aside for the moment, it also represents a revolution in human interaction. The bitcoin community, like other disparate, self-appointed networks such as Wikipedia are creating useful, reliable, liberating products with no leader.
“The blockchain does one thing: It replaces third-party trust with mathematical proof that something happened.”
Adam Draper – founder and managing director of Boost VC (Adam Draper Bot)
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 V. Gupta and R. Knight, “How Blockchain Could Help Emerging Markets Leap Ahead,” 2017.
 M. Geranio, “Fintech in the exchange industry: Potential for disruption?,” Masaryk Univ. J. Law Technol., 2017. N. Kshetri, “Journal of Global Information Technology Management Potential roles of blockchain in fighting poverty and reducing financial exclusion in the global south. Potential roles of blockchain in fighting poverty and reducing financial exclusion in the global south,” 2017.