The first “blockchain” was conceptualized by a person known as Satoshi Nakamoto in 2008. He modified the original design which was implemented the following year as a core component of the cryptocurrency, Bitcoin, where it now serves as the public ledger for all transactions on the network.
The words block and chain were used separately in Nakamoto’s original paper, but it became one word, as “blockchain,” in 2016.
IBM opened a blockchain innovation research center in Singapore in July 2016, and a working group for the World Economic Forum met in November of 2016 to discuss the development of governance models related to blockchain usage.
John Heiderscheidt from MDI Access answered several questions for us about blockchain technology, its uses, and its impact on business in the following Q&A. John is a lawyer and entrepreneur with a focus on mission critical infrastructure, digital assets, cryptocurrency and blockchain projects.
Explain the basics of how blockchain technology works. Why it is emerging so rapidly?
Many people have endeavored to define blockchain. I usually rely on this definition given by Don and Alex Tapscott, authors of The Blockchain Revolution: “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.” Its emergence is not predicated on one big factor, but because it is a novel way of solving trust-issues related to transactions that typically require the assistance of a third-party escrow service.
Credit card purchases, recording deeds, recording financial transactions, banking records and digital records are examples of some of the items one might see in blockchain. As Ian Khan put it in his TEDx address: “Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors or even an exchange that was not done with the consent of the parties involved. Above anything else, the most critical area where blockchain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.”
What are the advantages and benefits of using this technology?
Speed, efficacy, trustworthiness, dependability, repeatability and, in some instances, scalability. People’s comfort and reliance on old economic models will act as a barrier to adoption, but eventually most, if not all, paradigms requiring ledger services will move to blockchain models.
How does cryptocurrency work together with the blockchain?
Think of the blockchain as a stage, and cryptocurrency as the actor or actress. Blockchain networks act as a platform for various use cases. So, Act 1 could be cryptocurrency, and Act 2 could be a courier service tracking its shipments and deliveries. Managing cryptocurrency and managing logistics are two very different specialties. But each can use a blockchain network to accomplish the end goals.
It’s perhaps easier to think of the word blockchain as applicable to a number of use cases, rather than as one, amorphous platform. The blockchain network supporting cryptocurrency will differ greatly from the blockchain network supporting logistics deliverables.
How is blockchain currently impacting companies with their supply chain and logistics strategies?
This permutation of blockchain is in its infancy, but couriers like UPS are currently testing blockchain platforms for tracking package shipments and deliveries.
What are the biggest issues impacting blockchain, i.e. digital assets, legal impacts?
This is a two-pronged response. Hard science issues and legal issues both impact blockchain developments.
Hard science issues touch on IT principles. For instance, computers used in the network, the infrastructure required to house those computers, proof-of-work versus proof-of-stake networks and power consumption all have significant impacts on adoption of blockchain networks.
Legal issues are quite different, but just as impactful. How regulatory agencies choose to approach blockchain, how differing global jurisdictions view blockchain projects and best practices for maintaining a blockchain business are all in flux right now. How these issues play out will affect the rapidity and prevalence of adoption by future end-users.
What are some of the newest uses for blockchain, i.e. databases, municipal records?
Microsoft, American Express, Oracle, Tencent Holdings, MetLife, AliBaba and even Facebook are actively researching and developing blockchain platforms and use cases. It is likely you will see municipal entities like recorders of deeds, secretaries of state offices, commodity and security traders and perhaps even judicial clerks use blockchain in the future.
Explain “mining for cryptocurrency” and its value. Why does its value fluctuate so greatly?
Mining for cryptocurrency happens on blockchain networks. The most commonly known network is the Bitcoin network.
In simple terms, a “miner” buys one or more ASIC computers designed to “mine” for cryptocurrency on the Bitcoin network. The miner finds a place to plug in the ASIC computer, connect it to the internet and keep it running 24/7/365. For as long as the computer(s) run, the owner will receive fractions of Bitcoin as a reward. The owner can then keep the Bitcoin in his or her digital wallet. Alternatively, the owner can exchange the Bitcoin for fiat currency. These competing practices reflect a division between “mine and hold” or “mine and swap” philosophies.
Valuation fluctuation is largely tied to rate of adoption. While you can purchase some consumer goods with Bitcoin today, not enough vendors accept Bitcoin. So, you have the question of, “what can I do with it?” It’s not guaranteed Bitcoin will ever achieve the level of adoption necessary to stabilize as a global currency. Whether and how quickly Bitcoin sees that level of adoption will dictate its long-term value. The jury is out on those questions. I remain bullish on the concept, but 2018 has been a long bear market and it is having a significant negative effect on rates of adoption. If, say, Amazon were to announce in 2019 that they would accept Bitcoin as a form of payment you’d see an instantaneous return to the bull market of Q3 and Q4 2017. Why? Because the end user would suddenly be able to purchase a slew of household goods and products unavailable for purchase today with Bitcoin. That’s the concept of adoption.
A number of commentators have alleged market manipulation as a root cause of non-intuitive valuation flux. I have uncovered no hard evidence showing definitive market manipulation in the Bitcoin markets, and none has been publicly presented by the Department of Justice. But it is certainly true that people who amassed large quantities of Bitcoin between 2009 and 2016 may have far more to gain from trading volatility than from patiently waiting to see adoption take place. This tension will not go away in the immediate future and will directly impact rates of adoption.
What are some types of digital assets?
There are hundreds, such as Litecoin, Ripple and Ethereum, just to name a few. Don’t join a cryptocurrency venture without being fully informed of the risks. Be especially wary of “ICOs” (“Initial Coin Offerings”).
I am always happy to act as a resource for someone considering starting or joining a blockchain venture, so please feel free to contact me at www.mdiaccess.com.
On December 18, 2017, Bitcoin was trading at $19,939, and, as of this writing on November 27, 2018, BTC closed at $3,822.
Many thanks to John for his information and expertise on this complicated topic!
John Heiderscheidt is a lawyer and an entrepreneur with a focus on mission critical infrastructure, digital assets, cryptocurrency, and blockchain projects. You can set an appointment to discuss these topics with Mr. Heiderscheidt via the appointment portal atwww.mdiaccess.com.