Bitcoin, Blockchain, and the Digital Trust Frontier

The Half a Billion Dollar Midnight Snack

On May 17, 2010, Laszlo Hanyecz was curious, and hungry.

That night, the Florida-based programmer posted an interesting offer on a technology Internet forum:

“I’ll pay 10,000 Bitcoins for a couple of pizzas.”

A few days later another forum user ordered him 2 large pizzas from a Papa John’s and Laszlo sent him the agreed payment; 10,000 Bitcoins, or about $41 worth (at the time).

Known for being the first documented purchase of goods with Bitcoin, today the Bitcoins spent on those two pies would be worth over $570 million dollars. Doh!

A Whole New Digital World

Popularized by its meteoric rise in value over the past few years, celebrity endorsements, and innovative underlying technology, Bitcoin, and cryptocurrencies alike (“crypto” for short), are now entrenched within the worldwide digital, business, and financial landscapes.

Yet no one could’ve anticipated the growth of Bitcoin, and digital assets like it, in those early days as they’ve gone from essentially worthless novelties for software engineers to tinker around with to major investment vehicles today.

Just last month Bitcoin (BTC) hit a market capitalization of over $1 trillion dollars for the first time. To put into perspective, that puts Bitcoin’s market cap above the likes of market behemoths Facebook (FB) and Tesla (TSLA). All digital currencies combined have a market cap of around $1.7 trillion!

Speaking of titans of industry, Tesla invested $1.5 billion in Bitcoin last month, joining other leading companies and investment banks like Microstrategy (MSTR), Galaxy Digital Holdings (BRPHF), and Grayscale Investments (GBTC) betting big on Bitcoin and other cryptocurrencies.

Blockchain is global with geo-political implications as well. It’s a technology that innately transcends borders, class, and culture, and many countries are investing heavily in it. China just released their five-year plan with specific focus on researching and implementing blockchain tech.

Tesla’s celebrity CEO Elon Musk, and frequent title holder as the richest person in the world, is a strong crypto supporter while fellow tech innovator and “Shark Tank” star billionaire Mark Cuban is onboard and added ever-expanding crypto payment options to his Dallas Mavericks NBA team’s merchandise store. A non-fungible token (NFT), a unique blockchain digital item like art or trading cards, just sold for $69 million! Even rockstar legends and rap moguls are getting on the hype train.

Suffice to say it’s looking like crypto is here to stay.  But how does it work, and why is it so popular?

Blocks and Chains

Bitcoin and other cryptocurrencies function using a technology called blockchain. Blockchain is simply list of digital records that are linked by a computer program. These “blocks” of data are “chained” together using advanced cryptography to protect the information in each block.

Though a person, group, or pseudonym named Satoshi Nakamoto is credited with the creation of the first cryptocurrency, Bitcoin, in 2009, the origins of blockchain tech go back to 1991 where researchers first surmised a way to certify digital documents.

What’s the Big Deal?

Today blockchain technology is arising everywhere and continues to grow in popularity because of its unprecedented ability to build digital trust platforms that embed that trust directly into the fabric of its structure.

• Decentralization

Core to blockchain is the concept of decentralization. Instead of one entity, such as a bank, government, or company controlling all the information, a blockchain’s entire database is distributed among all the members of the network equally anywhere in the world, ensuring no single party regulates the data. This means users can conduct transactions directly, without the need for a centralized intermediary.

• Immutability

Because each new block of data is cryptographically linked to the previous block, and that block to its previous block and so on, and because no single party controls the database, the data in these records cannot be changed*.

• Transparency and Accountability

All data transactions are direct between two parties within a blockchain and are transparent in the distributed database making it inherently auditable. Every participating user has a complex unique ID visible to all (whether or not they choose to reveal their identity), and is linked to each of their transactions.

• Smart Contracts

Introduced by blockchains like Ethereum (ETH), smart contracts are software built into the blockchain intended to facilitate, verify, or enforce the negotiation or performance of a contract. They expand the usefulness of blockchains beyond just currency by providing the means to add computational logic to securely automate any type of transaction and innovate applications for business purposes.

Use Cases

Sparked from Satoshi’s whitepaper in 2009, blockchain technology has emerged as one of the world most innovative technologies used by millions around the world.

In addition to the aforementioned financial and business utilities, blockchain applications have found utility in a plethora of other ways, with innovative uses cases being created every day.

One key use has been within supply chain management and blockchain’s’ ability to facilitate secure and transparent “track-and-trace” modalities. Corporations like shipping giant Maersk (AMKBY) have built a blockchain platform to change the way shipping assets are tracked. Blockchain networks have addressed food supply channels to combat outbreaks and increased trust and transparency in agricultural and meat supply chains worldwide. There was even a Halal Blockchain Network (HBN) created to support adherence to Islamic food prescriptions.

A 2018 World Economic Forum report identified a number of ways that blockchain technology could power solutions to mitigate the climate crisis. Blockchain’s decentralized nature has the ability create more sustainable resource management to provide decision makers with comprehensive information from all stakeholders. It has the potential to open up access to capital to a whole new class of investors. It can create more efficient green energy marketplaces like what IBM is doing with their Energy Blockchain Labs initiative. It can better automate disaster preparedness, humanitarian relief, and even help end slavery in the fishing industry. The potential for innovative identity management and cybersecurity platforms is just hitting the tip of the iceberg.

All Peaches and Cream? Not Quite

For all its benefits and built-in controls, blockchain technology does bring with it some challenges.

• Environmental

Blockchains, such as Bitcoin, often require significant computing power to exist as member computers need to process extremely resource-intensive computations, referred to as “mining”, to support the complex cryptographic calculations integral to the system operation. The computing power required can often come at great environmental cost, even to the point of contributing to global climate change. Mitigating methods to intense physical computing requirements have been introduced, but it still remains a major concern.

• Reputation

Just as it has its advocates, blockchain applications, especially the volatility inherent with those that deal with fiat assets such as Bitcoin, have garnered suspicion and doubt of its long-term success and sustainability. Even though the last few years have seemingly proven its staying power, it still has its many detractors.

• Government Intervention

Despite its decentralized nature, government intervention is still a serious threat to blockchain viability. Countries like Saudi Arabia, Iceland, and Bolivia have legislatively banned cryptocurrencies like Bitcoin under the pretense of it facilitating illegal activity because of its anonymous nature. Rightly or wrongly, it is seen as a threat to central control and regulation by some governments.

• *51% Attack

Primarily a strength of blockchain technology, its distributed nature of building and verifying data also has a potential weakness called the 51% Attack. Though extremely unlikely, due to the validation mechanisms in certain blockchains, an entity that could somehow control 51% of a blockchain’s computing power, could theoretically “out-vote” all the other participating members and manipulate the data indiscriminately. Despite major penalties such as outright bans for nefarious behavior on a blockchain, and the highly unlikely scenario of someone obtaining 51% of the network’s worldwide computing power in major blockchains like Bitcoin, it still remains a technical threat, more so for smaller cryptocurrencies.

A New Frontier

Believe it or not, Bitcoin and other blockchain networks are still in their relative infancy as far as emerging technologies are concerned. In only a little over a decade it has become a worldwide phenomenon in finance and commerce, with the potential to revolutionize many other industries.

“It’s like the early days of the internet – brand new, no one really knows what it’s going to be.” –Mark Cuban

But maybe Bitcoin will flounder, investors will jump ship, and blockchain tech will end up on the Island of Misfit Tech Toys like Betamax, Pets.com, and the Nintendo Virtual Boy.

Even if that happens though, they’ll never be able to take May 22, #bitcoinpizzaday away from us.