Do not be distracted. Blockchain has a purpose way beyond the glamour of cryptocurrency, argues John Kennedy.
“They’ve gone and done it now,” I uttered last week with uncharacteristic enthusiasm for someone at 6.40am on the national airwaves in Ireland, proclaiming: “The geeks have gone and created a way to print money.”
I didn’t even have my morning coffee at that point.
I was responding to questions on Newstalk about the rise and rise of cryptocurrencies – from bitcoin to Ethereum and Ripple et al – and how, seemingly, initial coin offers (ICOs) are enabling people to devise currencies and raise cash. They are doing so at such a rate that ICOs are believed to have surpassed private equity investment as a vehicle of choice for raising funding among start-ups. An estimated $2bn was raised in ICOs last year, according to CB Insights.
Just last week, Peter Thiel’s Founders Fund was revealed to have previously acquired, at a fraction of the cost, a war chest of bitcoin worth potentially hundreds of millions of dollars today. Another celebrated Silicon Valley investor, Tim Draper, was understood to have acquired about 30,000 bitcoins in 2014. If Draper hasn’t sold any of these, he could be sitting on a bitcoin goldmine with a current value of $450m.
Last week, bitcoin soared past $15,000 in value and, at the time of writing, just one bitcoin is worth $15,617. Not bad for something that was created as a research paper by a mysterious person called Satoshi Nakamoto, who may not even exist at all.
Not connected to any gold standard or sovereign wealth fund, or defended by any standing army, bitcoin is just one of a myriad of cryptocurrencies that are valued based on the sentiment of its crowd of owners. That value may hold some worth because there are only allowed to be 21m bitcoins in the world, and we are currently at 16.4m or so.
Bitcoin can be created or ‘mined’ by solving complex mathematical problems, and some believe that the coins will hold their value due to the limited supply, in a similar way to silver, oil and gold.
Bitcoins are not physical but represent balances that are kept on a public blockchain ledger, using public and private keys in the cloud, and not on any single server.
According to Coinbase, so far, more than $50bn worth of digital currency has been exchanged worldwide by 10m people in 32 countries.
Is cryptocurrency distracting us from the real value of blockchain?
“Do you have any bitcoin?” That was the first question that greeted me last week when I came off the airwaves. “Hell no,” I replied. “I’m too busy trying to use real currency to pay my bills.”
I can understand the fascination with cryptocurrencies but, 10 years after the worst global recession in living memory (unless you were around in 1929), I can’t understand why people want to just create new money when the world can barely manage the money it has.
And I can’t help but shake the conviction that having cryptocurrency in vogue is distracting us from a bigger, potentially more fundamental development in technology.
Don’t get me wrong, while at times I sound like a crypto-cynic, and have described the cryptocurrency fetish as the Dutch tulip auctions of our times, I do find the trend fascinating.
I find it fascinating as a development in technology; an astounding capability that shows the power of the crowd actually works, pretty much in the same way as how crowdfunding helps start-up entrepreneurs raise cash and validate their products. It is fascinating, pure and simple.
But, at the heart of the cryptocurrency issue is blockchain, a public ledger technology whose worth could herald a world of clarity and security.
That is, of course, if the whole cryptocurrency thing doesn’t blow up in everybody’s faces, putting blockchain’s development back by years.
We saw this before with the dot-com boom-bubble-bust cycle. Over-exuberance among investors saw firms without business models raise billions and then go bust following March 2000, setting everything back.
But, five years later, the rise of Google and others saw tech’s return with a mighty resurgence when broadband and 3G created the right conditions to try again, heralding the present smartphone age. Could you imagine if the people behind YouTube tried what they did in 1999 when there was no broadband and all we had was WAP?
Mental block caused by shiny distractions of wealth
So, if I am cynical about cryptocurrencies, it is not that I don’t admire their potential, it is my fear that any upset could distract from what is really possible with blockchain, the enabling technology behind it all.
Blockchain represents the next upheaval in technology because it can have so many uses, as splendidly proven already in the creation of currency.
A blockchain is a digitised, decentralised public ledger, and ‘blocks’ are recorded in chronological order to allow users to keep track of transactions without central recordkeeping. Each node or computer connected to the network gets a block copy automatically downloaded.
Yes, the distributed ledger technology owes the pace of development to bitcoin, but its potential could be enormous on a number of fronts, from food and pharmaceutical traceability to new ways of trading commodities. It could represent new ways of securing and managing IT assets and networks. It could represent the future of smart, legal contracts, or how entire industries conduct themselves in a regulated, streamlined manner. It could even play a pivotal role in how students can be assessed remotely for school or college exams.
In San Francisco, Chain is developing software tools for developers to create apps to transmit anything of value on the blockchain ledger, including loyalty points.
In London, start-up Everledger is using the technology to fingerprint large diamonds and track valuable stones from the mine to the wearer’s finger.
Texas start-up Factom is building a land-title registry in Honduras on blockchain so that citizens can defend their property in court from unlawful seizures.
Our Start-up of the Week is Zurich-based Tend, which is using blockchain to enable non-billionaires to co-own and trade valuable goods such as art or jewellery. Interestingly, it is planning its own Swiss-based ICO, which aims to be one of the first regulatory-aligned token sales mirroring Swiss securities law.
Why nations need to sit up and pay attention
Despite the glamour of bitcoin and the various cryptocurrencies, blockchain as a capability represents the future of a myriad of things that matter, ranging from farmers’ EU aid payments to how the Irish Leaving Cert could be exported as an educational product around the world.
No doubt academics in the respective universities and institutes of technology across Ireland, and their various computer science schools and labs, are honing in on the potential of blockchain as the next upheaval in software infrastructure beyond cloud.
In the private sector, Deloitte has established a new blockchain lab in Dublin, where a team of 25 developers and experts are hard at work on proofs-of-concept and prototypes for future services with global impact.
In Belfast, PwC is building a global blockchain hub that is also working on the potential for blockchain to shake up industries around the world.
And that is why I believe, from a government and policy level, nations such as Ireland need to start figuring out how blockchain could be utilised practically by the apparatus of the State, and particularly by businesses and consumers.
Could it enable faster and more efficient tax returns by businesses and sole traders? Could it be a more effective way of managing and paying for vital natural resources such as water? Could blockchain unblock inefficiencies in the health system?
In every country, the finest minds of business and academic research – within a forum facilitated by their respective governments – need to sit down and devise a roadmap for a practical future where blockchain could play an enabling role and remove frictions.
We’ve barely scratched the surface on what blockchain represents. Don’t let the shiny coins distract you from the bigger picture.
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