The Future of Blockchain and Cryptocurrencies Explained
Dr. David Krause, Marquette
University
January 2018
 |
| Campbell Harvey |
In his Innovation and Cryptoventures class at Duke University, Campbell
Harvey states, “Blockchain is a distributed ledger that provides proof of
ownership and allows for the efficient, secure exchange of ownership. It is
called blockchain because transactions are grouped together in blocks. Each
block is cryptographically linked to the previous block. A public blockchain is
transparent and distributed and anyone can put it on their computer. It
requires no trust; however, you cannot change any entry in the blockchain. It
is immutable.”
Avie Tevanian, tech-industry legend, recently was
interviewed about blockchain and cryptocurrencies by Barron’s,
“Many people say, ‘I don’t know about bitcoin, but I believe in blockchain.’ That’s
a cop-out because most people still can’t explain blockchain. They don’t really
believe in bitcoin, but want to say something positive about it. Yes,
blockchain is a distributed public ledger, but what we’re really talking about is
strong cryptography based on mathematics that is being used to create the
distributed ledger of bitcoin transactions. Bitcoins don’t exist in a material
way. Nothing is actually mined, computers are being paid in bitcoin for adding
transactions to this distributed ledger.”
Tevanian continues, “So this is one of the world’s
biggest collaborative math projects. But is it creating something of value? We know that only 21 million bitcoins will be
created. They have a value somewhere between zero and a very large number. Some
people say bitcoin has no value; you can’t do anything with it. In fact, there
are technical reasons why it doesn’t make sense to use bitcoin to pay for small
transactions. But bitcoin makes sense as an asset for people who want to store
a value of something that can be traded for something else in the future.” |
| Avie Tevanian |
Continuing the Barron's interview, he said, “Say you don’t trust the banks or you’re worried about
a natural disaster and want to have some cash available. Some people put cash
in a mattress, or a safe. Or you can put it in something attributed to you that
shows you have something of value that you can use in the future. The simple
comparison is to gold, and it’s not a bad one. Gold is a store of value.
Similarly, people can convert currencies or energy into bitcoin. This is what
bitcoin miners are doing: using energy for mining, and being paid in bitcoin
for their work. You can keep bitcoin safely from others, and transfer it
without being easily tracked. These features can be put to use for nefarious
but also good purposes. In due time—I don’t know if it is five years, or 10, or
20—bitcoin’s value will be extremely high.”
The interview continued, "You are assuming that people will come around to
recognizing that the bitcoin database can be a store of value? Tevanian responded, “Yes. They aren’t going
to figure out the math, but they will figure out that the doomsday scenarios
don’t make sense. Under one scenario, the government bans it. That can’t
happen, although the government can tax and regulate it. But that only slows it
down, allowing other countries to take better advantage of it. China has tried
to clamp down on bitcoin by not allowing people to buy it, but China has the
biggest bitcoin-mining operations in the world. If you want to buy bitcoin in
China and can’t use your bank account to do it, you can buy energy and convert
that to bitcoin.”
He further stated with Barron's, “Blockchain technology is separable from
bitcoin. It has other uses that are just starting to take off. Blockchain could
be used to record real estate titles, for instance. The information is public;
it is securely encrypted, and you would have a permanent ledger of all real
estate records. But it is probably too early to invest in blockchain.”
Bianco Research’s economist, Jim Bianco, recently posted
on his blog, “The
following is a simple explanation of the blockchain which we have heard and
like. Right now anything put on the internet is a “copy.” That includes this
post. Anyone can copy and paste an exact replica of it. This destroys
intellectual property. The blockchain allows files to remain original without
the option of being copied, but can be transferred when permission is granted
via a distributed ledger and a private key (aka “the blockchain”). A
cryptocurrency is just a different type of property that is unique to its owner
and cannot be copied. Again, it can be distributed to other parties via the
blockchain.”
Bianco suggests viewing the 2016 Ted
Talk “How the blockchain is changing money and business” by Don
Tapscott to better understand the basics of blockchain and the potential impact
on the financial industry.
He continues with an example of how the blockchain/bitcoin
can save newspapers. “To explain in more detail, consider the following
example. You write an article. You offer the first 50 words as a teaser. To
read more, enter your private key and for some nominal fee of a few cents you
can access the rest. There is no registration, no monthly fee, no passwords. It
can be as effortless as reading it for free. In this example the author gets
paid and is protected. The person that bought that copy cannot copy and paste
it and send it to others via email. What they can do is “transfer” it to
someone else. But then it is gone from their computer.”
 |
| Jim Bianco |
Bianco wrote, “Currently, microtransactions like this
are too expensive because the standard credit card swipe fee is 30 cents plus
2% of the transaction. The hope of a cryptocurrency is the fee for transaction
payments is essentially zero. This happens because there is no intermediary
(like a bank or credit card company) standing in the middle demanding
payment. This is what the internet is
missing – a way to instantly and safely send a few pennies to someone without
being charged an exorbitant fee.”
He continued, “Why will you happily pay 3 cents (or 5
or 10) to read an article? Think of all the monthly charges you pay for
intellectual property. Start with video (cable, Netflix), then go to
newsletters/newspapers (WSJ, NYT) and end with sites you pay for access (i.e.,
ESPN). If you are like many, you are overpaying, probably in excess of $300 or
$400/month. The blockchain can help solve this by allowing sites to piecemeal
out their intellectual property.”
According to Bianco, “This can also benefit content
providers. When their work goes viral, they will get tens of thousands, or
hundreds of thousands to pay them 3 cents. Netflix can allow users to stream
video for 1 cent a minute. So when everyone says Netflix’s “Stranger Things” is
really good, you don’t have to worry about setting up an account and password
and entering a credit card. Just click your private key and in 2 seconds you
start watching for 1 penny a minute. If you don’t like it after 25 minutes, turn
it off and you’re out a whole quarter! By making things more efficient, users
(like us) pay less and content providers (like Netflix and The NY Times) get a
lot more. It restores the value of intellectual property and stops pirating.”
He concludes, “That is just one example of why
cryptocurrencies/blockchain have so much potential. It can make transactions so
much smoother and cheaper. This could fundamentally rewrite many business
models, especially banking and financial services.”
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