Bitcoin is dead! Long live Blockchain

OK, maybe a controversial heading given Bitcoin is still here despite the dire warnings of the DeathCross early 2018, but let’s look at this in more detail.

Firstly many people still equate Blockchain with Bitcoin and think the two are synonymous, but as many of you will know they are not the same. Blockchain is a technology, and Bitcoin is a cryptocurrency built on one type of blockchain technology. The technology is also not that new, but builds on previous concepts and technologies: Databases; the Internet and new forms of encryption etc., but like most innovative technologies we’re building on earlier foundations.

So why do I think Bitcoin is dead, or will need to transform to survive… evolve? There are several aspects to this:

COST OF BITCOIN

Firstly, if we think about the old saying “it takes money to make money”, and Bitcoin is no different. The question is though how much does it cost? It’s hard to put a figure on the cost of the Bitcoin network as by definition it is a decentralised, with no central control – one of the aspects of Blockchain that makes it so appealing. This also makes it very hard to work out how much energy the Bitcoin network consumes, but recent study-quantifies-bitcoins-ludicrous-energy-consumption puts the figure at roughly the same energy requirements as the country of Ireland! This is because Bitcoin requires a proof of work to mine new Bitcoins, and this takes a lot of time and effort, add to this that when a new Bitcoin is found it requires a consensus across the majority (51%) of the Bitcoin network to confirm the find.

The following site how-much-it-costs-to-mine-a-single-bitcoin-in-your-country has a nice reference as to the cost per coin based on average electricity costs for several countries:

If we look at Bitcoins price of just under $6200 at time of writing this makes mining Bitcoins a poor investment choice for many countries with costs varying from as little as $531 to an eye watering $26,170

THE WILD WEST!

As well as cost, another problem with Bitcoins, along with almost all other cryptocurrencies, is they are not regulated. OK this is a benefit in that you can be agile, but it also represents a huge risk.

It also leads to massive opportunities for fraud and theft. According to ethereum-cryptocurrency-stolen criminals had, by August 2018, managed to steal nearly a quarter of a BILLION dollars from the Ethereum cryptocurrency platform, although it looks like this may include the Ether secured by White Hat hackers who on realising there was a bug being exploited by hackers want and ‘secured’ the funds until the bug was fixed white-hat-group-rescued-ethereum-stolen

Not sure I would put my trust in ethical hackers to keep my funds secure J

There has also been a number of cryptocurrencies shut down, despite no regulation, as authorities recognise a fraud is being perpetrated, for example: texas-rife-withcryptocurrency-fraud identified 32 companies of dubious nature, that’s in just one state in one country. I wonder how many others are out there. 

We’ve also seen warning from various regulators including Mark Carney, the governor of the Bank of England

VOLATILITY

Finally the price of all cryptocurrencies is hugely volatile and all have plummeted since the start of this year:

Looking at the pricing from this site: https://www.cryptocurrencychart.com/

I couldn’t find one currency higher now than at the start of the year.

Another headline that grabbed my attention while looking at this is this one: 9-billion-wiped-off-value-of-the-cryptocurrency

NINE BILLION! That’s a lot of money investors have lost on one currency in a matter of days.

People seem to be coming to the conclusion that while cryptocurrencies are interesting, they are a tremendous risk that many view as unacceptably high.

It is because of the various points I’ve listed above that makes me believe that cryptocurrencies can’t survive in their current incarnation, they are just too volatile. Near the start of 2018 we saw the launch of Stable Coin which is designed to minimise the fluctuation. For example Tether, which is based on Stable Coin, is pegged to the dollar. Another fintech company has recently launched a stable coin offering that has been certified by the Shariyah Review Bureau. The debate over whether cryptocurrencies are Sharia-compliant or not has centred on the Islamic prohibition on monetary speculation, which clearly other cryptocurrencies are speculative by their very nature.

So, as you can see that the market is still evolving.

BLOCKCHAIN

So given all of the above, why should blockchain be of interest to business? Or should that be, why should business invest in blockchain?

Firstly blockchain is a distributed immutable ledger that, at its simplest, supports trust and audit requirements. I’m not going to go into details on what a blockchain is, there are plenty of articles and wiki’s out there on the topic. .

Let’s break that statement apart:

·        Distributed ledger – this means that each interested party has a copy of the information they are interested in. So in the case of the regulator and the pharma companies the regulator would hold information on multiple pharma companies, but each company would only have access to, and visibility of data pertaining to itself.

Because all interested parties have a copy then when a new block is added all, or a majority depending of the parties, have to agree before the change is applied.

·        Immutable – does exactly what it sounds like. Because of the way the blockchain is constructed, with blocks of data with an ‘address’ to the previous block and the address is based on the content of the previous block. So if the content is changed, then the link is broken, and that means it’s obvious if someone tries to change anything.

For most businesses the trust or audit problems crop up or underpin many of the challenges they face and it’s these business problems blockchain can help solve.

There are many types of blockchain, which you can characterise in different ways. One such is that Bitcoin is open to all, it is ‘permissionless’. This means anyone can join the Bitcoin community. For a business this isn’t really suitable, so instead we use a Permissioned based approach, so the ‘owner’ of the blockchain invites appropriate and interested parties to the blockchain. Unlike Bitcoin you also only get visibility of the information that is relevant to you. Imagine a Loyalty program for a company based on Blockchain, the company who the loyalty program is for clearly is the owner of the blockchain with full visibility of everything. But the users also have visibility, but rather than seeing everyone’s historical transactions and balances only see their own. If the main company has partner companies who users can earn or spend the loyalty points with then they also need to see some of the data, but not necessarily all data, only relevant data is shared with each interested party.

Another key distinction is cryptocurrencies use a Proof of Work (or similar) concept, where as in business you don’t want to use this, otherwise your energy costs to run blockchain would dwarf any benefits of using blockchain technology. As such companies such as Oracle are basing their blockchain solutions on other forms of blockchain, for Oracle this is Hyperledger Fabric.

This sort of approach to blockchain means the solution is scalable – granted Bitcoin is at scale, but the cost if phenomenal, no business would survive long with an energy bill on a par with the country of Ireland.

Finally there is how changes are agreed between the interested participants. In Bitcoin the proof-of-work to find a coin means when a new coin is found the consensus as noted above occurs – i.e. lots of computers check the result and once confirmed the Bitcoin is added to the chain. In Fabric, and other similar approaches, the participants involved in a transaction have to agree, and this has to be a majority typically at least 51% but can other values as defined/agreed when the blockchain is set up.

I won’t cover all the possible use cases, but a couple of interesting ones are:

·        Kodak has launched a scheme to combat the piracy of image use without seeking permission from the owner of the image. Whether a photograph or a created image. One interesting aspect to Kodak is that on the announcement the stock of Kodak increased by a significant amount, yet they have failed to deliver on the promises and the share price when I last looked was lower than before the announcement. Lesson to learn here is despite this being a great idea, you need to follow up on the vision, and focus on the business value.

·        De Beers have started to use blockchain to track diamonds through the supply chain with the aim to combat blood diamonds

·        Switzerland has successfully trialled voting

·        In the US the Department for Homeland Security has started work on using blockchain to secure IoT devices

·        Estonia is using blockchain for a secure e-identity for access to state services etc. 

Those are just a very few of the huge number of projects that are starting to work with blockchain.

So where does that leave companies? For me it’s very interesting that Oracle has had a Blockchain platform now for nearly 6 months and info can be found here, yet little has been publicised of the work on going with a huge variety of organisations from the very small to the country level. While I am not able to speak to these, I can say it amazes me as to the breadth of possible use case. But what is possibly of even more interest is that this technology is now being used as the secure backbone for applications such as “Intelligent Track and Trace” or “Warranty Usage and Tracking”. If you look here you will see four (at time of writing) applications utilising this technology, and that’s just the first set of applications. To put this into context, when Oracle announced its Adaptive Intelligent Applications at the Oracle Open World last year there was just one application. For Blockchain Oracle has announced four applications. Oracle has had AI capabilities for years, yet on the application launch ‘only’ one app was announced (which in its self is impressive). Blockchain on the other hand has four apps after 6 months of the Oracle platform being able to support Blockchain technology. 

So, as I said at the start, I think Bitcoins are dying and I don't believe they can continue in its current form but for blockchain for business the future beckons.

To me this indicates the significance of this technology and while I am personally more interested in AI, I think if you ignore Blockchain you do so at your own risk.

Disclaimer: The views expressed in this article are my own and not necessarily reflect the views of Oracle.