Forget Bitcoin, Long Live Blockchain
Everyone has heard of Bitcoin, the digital currency that was supposed to “upend our current kludgy financial system and ignite an explosion of disruptive innovation”. Institutions pooh-pooh’ed the idea, laughing at the ridiculous notion of a non-fiat currency with a pre-programmed scarcity. Yet, bitcoin gained followers over the years and saw the highs and lows of a fickle market. Bitcoin posted a record high of over $1,200 per coin in 2013, and then, in the span of months, Silk Road, an online black market that sold illegal drugs, was shut down, and Mt. Gox, the largest bitcoin exchange, filed for bankruptcy.
It’s no surprise then that bitcoin, in its short lifetime, has amassed the same range of vitriol from critics and reverence from supporters once only experienced by the most fanatical religions.
However, blockchain, the innovation that underlies the bitcoin digital currency, is less well-known.
Instead of the hub-and-spoke IP network that runs the internet today, imagine a huge number of decentralized devices that work together in a distributed mesh network. This is Blockchain: decentralization on steroids. While the hype behind bitcoin has waned slightly since its highs, blockchain’s potential is just beginning to be unearthed. Young, ambitious talent has flocked to the space. And the money has followed, with $667.6 million invested to date in bitcoin and blockchain startups.
Although blockchain was originally built to run a global cryptocurrency network, tech startups are now increasingly adopting the framework in hopes of disrupting many different industries — especially those dominated by powerful monopolies and central authorities.
So just what exactly is blockchain and how is it a game-changer?
The simplest way to think of blockchain is a system to send a completely secured digital message and ensuring that it reaches the correct person, even without knowing who that person is. Currently, that digital message is money, usually bitcoin.
How does this happen? Without delving too much into its technical inner-workings (and the game-theory underlying it), the blockchain is composed of “blocks”, single transaction confirmations, similar to what an ATM prints after a deposit. These blocks link together to form a full history of bank transactions, or the “blockchain”.
Like its name, only the most current link in the chain can be edited, and once it is linked up, the data is permanently locked. And each block contains information on both itself and its previous link, thereby imprinting the entire chain’s digital DNA onto each block.
In other words, the blockchain is “an ‘append-only’ ledger. You can only write to it, you can’t delete it.”
Blockchain is decentralized over a huge number of nodes, or devices, each with a copy of the ledger. The majority of nodes together point to the most up-to-date version of the ledger, ruling out any inconsistencies. Using the power of the crowd, the system can verify the order of transactions, determine if a transaction is valid, and whether it can and does take place.
The kicker? The community is incentivized to verify transactions because they earn bitcoin.
Therefore, blockchain cleanly and simply eliminates the need for a core coordinator, a single overseer, or any kind of bookkeeper.
“Blockchainiacs” claim the technology has genuine potential to become a panacea to the internet’s ills, upending the status quo in traditional sectors long under the thumb of institutional and multinational corporations, and centralized governing bodies. After all, blockchain has the potential run any process that requires verification or any communication tool.
Critics take a bleaker view — blockchain, in their view, is an impossibly impractical system, reliant upon a crypto-currency with a one-way ticket to an anarchic hell of tulip-manias and rampant and unregulated speculation.
Disruption in the Blockchain Era
On one point, however, everyone is agreed: the implications of blockchain’s potential disruption are enormous. And although, for now, much is still theoretical — the tech remains massively underdeveloped for widespread application — here are some areas startups have already begun taking advantage of:
1) Fraud-free Finance
If blockchain, even in the guise of bitcoin, is making itself felt anywhere, it’s in finance. The potential for transactions to be settled in minutes, rather than days, with fraud or hacking almost impossible, is game-changing. Remittances, payments, and global loans startups are already up and running with sizable VC money invested.
Reuters reported earlier this year that IBM was considering creating a digital cash and payment system using the blockchain. The venture would allow currencies to travel free of borders using a blockchain-tied cash system. Banks are starting to contemplate the innovations that could occur through digital currency systems.
Outside of currencies, NASDAQ announced in May that it was exploring new ways for shares to be issued and transferred using blockchain. This could change the entire infrastructure of the financial services industry — instead of trades taking 3 days to settle, it would take just 5–10 minutes.
2) An End to Patents?
As one of the first non-financial uses of the blockchain, ProofOfExistence.com has launched basic legal services that store encrypted information on the blockchain. Effectively, Proof of Existence can prove ownership of a document without showing the information within.
This means companies can demonstrate they had created a particular technology on a certain date without filing for a publicly known patent. Companies like Apple could finally get rid of pesky IP detectives trying to predict how the next iDevice will be lighter than air and thinner than paper. Startups are jumping at the opportunity; founders can essentially prove ownership of digital property and people can have better ownership of their own data.
In short, inventors can prove they had an idea at a certain time, developers can later verify versions of their code, and authors can protect their works.
3) The (Actual) Death of E-Mail
E-mail is an infrastructure monster, archaic both technically and from a user’s perspective. It’s no surprise everyone’s trying to kill it. Startups have attempted to construct “on top of email” or even go a step further and build their own clients, all of which have proven to be nightmares. For users, the problem is just as frustrating. Not only does managing email now comprise almost one-third of our workweek, but switching costs are high; emails are now seen as the primary identity tokens online.
Enter the blockchain. The idea, according to Vitalik Buterin, founder of decentralized app platform Ethereum, is that blockchain could underlie a distributed email system or even an identity system. Simply put, this means startups would:
- Control their own address: With the ability to easily change it, whether that means switching names or providers
- Forget worrying about losing an email address: In the unlikely event a client provider folds — if Google closed Gmail, for instance — messages could still reach the intended recipient
- No longer need third-party identification methods: Startups and the online community currently rely on email, Facebook and Google as internet IDs, and those third parties mine our data in return, but the blockchain could do away with that system entirely.
4) Increased Secure Storage for Cheaper
Decentralized data storage via the blockchain architecture has become an increasingly important factor for startups in two important ways: security and cost efficiency.
The current storage infrastructure has someone, somewhere holding the keys to your data. That’s fine sometimes, but cloud databases and platforms such as Dropbox and Facebook are legally required to share sensitive data at governments’ requests, and huge file hosting sites like Megaupload have been summarily shut down. With blockchain, data is decentralized and cannot be revealed without decryption keys which only its owners hold and control.
Moreover, for cash-strapped startups, companies like Storj — who are currently beta testing cloud storage using a blockchain-powered network — are offering very cheap services. Storj’s developers estimate users will have access to 100 GB of secure data for roughly one quarter of Dropbox’s monthly fee.
5) Free Speech Haven
The power of blockchain’s ability to verify without identifying the users is powerful in a world where ensuring anonymity could truly be a life or death issue.
The voting system is a long and arduous process which requires verification of machines and identities during recounts, and is a prime target for hackers. This explains why some political parties have turned towards blockchain as a solution.
In places where suppression is rampant and anonymity is a valued asset, blockchain provides a solution that is impossible to shut down and impossible to censor. Krzysztof Okupski, a student in the Netherlands, created a messaging service that would allow dissidents to cheaply and easily send messages across borders.
These may be less applicable in the US but other countries which have less freedom of expression could utilize blockchain as a way to circumvent censorship and oppression.
Death of the Middle-Man
While blockchain has often erroneously been synonymous with bitcoin, its potential beyond crypto-currencies is vast. Services and institutions long serving as middlemen who have held up the modern global economy, from financial transactions to contract management, could see their reigns upended. It’s hardly surprising that traditionalist hubs are tense.
They should be; young entrepreneurs have realized that the possibilities are only hindered by their own imaginations.
An (unofficial) master-list for possible applications currently stands at 84 distinct, if theoretical, purposes.
As a result, startups that serve as blockchain platforms for apps, such as Blockcypher, have popped up to open the technology to even more developers. As engineers are flooding into the space, investors are following.
For any entrepreneurial types out there looking for a new idea, consider researching blockchain. Some of the smartest, forward-thinking people globally are pushing the envelope in the space.
What’s clear is that even if the critics are correct, even if bitcoin collapses, the blockchain can stand as its own technology. How long until blockchain upends the entire internet and the world?