It seems as though everywhere I look these days, I see articles about blockchain and how it will disrupt our world. From finance to food systems, any sector that uses transactions is about to be transformed. And if you’re weary of hearing the term disruption being thrown around, stick with me because blockchain is already living up to its hype.
What Is Blockchain?
Blockchain is like a distributed ledger. Picture a public spreadsheet that permanently records every transaction. No one can edit or delete any of the entries, and everyone interested has his or her own copy.
Of course, blockchain is more complicated, but that’s the main principle. Its purpose is to reduce costs, increase efficiencies, reduce opportunities for fraud and crime and increase access to basic financial tools.
Because it’s distributed, complete copies exist in many different places, which is how it prevents fraud. Because it’s decentralized, the power to control its contents is just as distributed as the data itself.
One of the fundamental disruptions of blockchain is that it removes traditional intermediaries. It is easiest to see in the world of finance. Bitcoin, a cryptocurrency, transacts without banks, clearing houses or governments. Any transaction of value can be done using blockchain without (for better or worse) red tape and regulation.
Here are the five principles of blockchain from Harvard Business Review:
1. Distributed Database
Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary.
2. Peer-to-Peer Transmission
Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes.
3. Transparency with Pseudonymity
Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.
4. Irreversibility of Records
Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term chain). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered and available to all others on the network.
5. Computational Logic
The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.
Who’s Behind It?
It’s a little unclear who actually invented the technology that started out as the basis for Bitcoin in 2009. Satoshi Nakamoto is the pseudonym of a group of programmers, or a single programmer, who created the technology. People have come forward claiming to be Nakamoto, but to date, the interested community doesn’t seem inclined to believe the claims.
The most celebrated use of blockchain technology, cryptocurrencies, are all the rage. Bitcoin has become newsworthy because of the surge in its price (from $600 per coin in 2014 to $17,000+ per coin today). Many people believe Bitcoin is in a price bubble. It takes about $800-$1,500 dollars to mine (create) a Bitcoin, and some have pegged its intrinsic value at $1,000 per coin.
Even more interesting, the Chicago Board of Trade and CME are trading Bitcoin futures, and Wall Street stalwarts are piling up money in cryptocurrency hedge funds. Will the bubble burst? Only time will tell. By the time you read this, it may already have.
If you are really interested, the top 10 Altcoins (alternatives to Bitcoin) are: Ethereum, Ripple, Litecoin, Dash, NEM, Ethereum Classic, Monero, Zcash, Decred and PIVX. Or, if you think this is getting a little too serious, you can trade CryptoKitties.
Bitcoin is not as convenient as cash. However, much like gold or any precious metal, quantities of Bitcoin are limited. Scarcity, and its impact on price, is built right in. Think of it more as a trading investment.
Ethereum is considered a cryptocurrency, but also uses blockchain technology for smart contracts. According to the Ethereum Foundation, a Swiss nonprofit organization, Ethereum is a “decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.”
Keep your glossary handy because you will need to know Solidity, a language you use to create a tradable digital token, and trustless crowdsale, a verified way to transact.
The tokens use a standard coin API so you can transact with standard digital wallets. To get going, install the command line tools and get after it! Mercifully, there are friendlier interfaces for those of us who don’t use command line tools.
Blockchain as a Service
Few of us understand exactly how our phones work, but because UX designers have made them usable, we can’t imagine an hour (or 10 seconds) without them. The same thing is happening to blockchain as companies like Microsoft, Deloitte and IBM roll out their Blockchain as a Service (BaaS) models.
Operating blockchain still requires some coding so it helps to have programming experience, but BaaS makes the technology much more accessible. I was able to set up a transaction using IBM’s Blockchain Platform in just a few minutes. Believe me, that means it is accessible!
Let’s use cooperatives as an example of how this might work in ag. A co-op and its farmer-owners are set up securely within a blockchain network accessible via a browser or mobile interface. The network is open and not anonymous, and that is part of the security for everyone. All participants have access to the database (or cryptoledger), which is updated every few minutes. That is also part of the security.
Transactions happen when two entities (Farmer A and the Cooperative or Farmer A to Farmer B) agree on the transaction, and it is included in a block and then authenticated by the miners of that blockchain. Once it receives enough confirmations, it is considered a valid transaction. It benefits the cooperative and the farmer through increased security and transparency.
An organization called AgriLedger has introduced a proof-of-concept mobile app that would act as an interface for small farmers around the world. Their mission is to connect farmers with cooperatives and secure transactions for them.
Will their technology succeed? So far it doesn’t seem to be a reality, but we are all witnesses to the entrepreneurialism that birthed the internet. It is only a matter of time before verification chains from farm to fork are built on blockchain technology.
A New Internet?
Some claim that blockchain will grow to be as important to society as the internet. Some even think it will replace the internet. For now, we can look at Cosmos, a network of blockchains broken into zones and hubs. It’s effectively an internet of blockchains using a middleware called Tendermint.
Or you can visit TokenMarket, which is a centralized marketplace for tokens, digital and blockchain-based assets. You can use these tokens to help you launch your ICO (Internet Coin Offering – instead of IPO) and crowdsale your startup cryptocurrency or business by offering new coins or tokens in exchange for Bitcoin or Ethereum. The pre-created token can be easily sold and traded on all cryptocurrency exchanges—if there is demand.
Just the Beginning
If this seems overwhelming, just wait. This is actually a very incomplete list of what’s happening with blockchain, which in its infancy is already massive and mushrooming. And, however unlikely it feels right now, eventually blockchain will be ubiquitous and comprehensible for all of us, and we’ll use it without a second thought.
Until then, I’d love to hear what you are learning about blockchain! Contact me at firstname.lastname@example.org.