Tag Archives: bitcoin

The Beauty of Blockchains

A rainbow of color blocks.Last year I wrote about the Bitcoin revolution and some of the implications to our financial, currency, and trading systems. At that time, a single Bitcoin was worth $1,100 but now is only worth $379. There are wild price swings and talk of dissent among Bitcoin developers, as outlined in a recent Wall Street Journal article. Whether Bitcoin or some other crypto-currency survives in the long run, I think the most interesting story is the blockchain technology behind the rise of Bitcoin and the wide-ranging uses for this development.

Blockchain Explained

A blockchain can best be described as a ledger or database that exists simultaneously on hundreds or even thousands of systems. All of these copies are cryptographically connected to ensure data security.

In the case of a Bitcoin, every time a coin or a fraction of a coin is used, that transaction is recorded on the ledger. The database or registry records who had the coin and who now has the coin, which prevents a coin holder from spending the same coin multiple times. Because this registry is replicated in several identical databases simultaneously, someone attempting to hack into a system to steal the coin would have to hack into all of the systems at the same time. Changing only one instance of the registry alerts the other systems of the fraud and blocks the transaction. If blockchains can be used for currency, what are other possible uses for this technology?

Title Chains

Anything that requires a title could make use of blockchains. When you purchase a home or a vehicle, you need to know the person selling that property really owns it. A title tracks ownership through the life of the property. When you purchase the property, you are added to the title. This process takes a lot of resources, both human and computer, and is not immune to fraud.

When I sold stock, I had to send my paper certificate to a broker to prove that I was indeed the owner. When I bought stock, the broker sent me a newly issued certificate to prove that I was the owner. Now the exchange is executed electronically, but it can still take up to three days to complete a transaction because of all of the systems and humans involved in the process. All of these transactions could be simplified by secure blockchain technology, which would be quicker and would reduce risk and amount of paperwork.

Developing Countries

I think that developing countries could benefit greatly by using blockchain technology. Many of them do not have a secure title transfer infrastructure which limits their ability to buy and sell goods and services. Blockchains can be registered in small increments, even cents, so they can be used by entrepreneurs wanting to sell locally and worldwide without employing costly brokers.

Thinking on a larger scale, if an entrepreneur wanted to start a company, they could sell fractional shares in the company with each share secured by a blockchain transaction. The computing infrastructure does not need to reside in the community or even in the country but could be anywhere in the world. The transaction costs can be a lot lower, thus ensuring that more of the profit is kept in the community and reinvested for future growth and opportunities.

Thoughts

I am excited by the fact that technologies such as blockchains can create new opportunities. Coupled with other emerging advances, such as green power and wireless communications, this has the potential to be a game changer. Let me know your thoughts.

Author Kelly BrownAbout Kelly Brown

Kelly Brown is an IT professional and assistant professor of practice for the UO Applied Information Management Master’s Degree Program. He writes about IT and business topics that keep him up at night.

Virtual Currency: One Coin To Bring Them All

There has been a wild fluctuation lately in the value of a Bitcoin, which made me take a second look. What is Bitcoin and what is all the fuss? Why the gyrations now? In short, Bitcoin is a virtual currency that is stored and transferred digitally through an electronic wallet. There is strong encryption surrounding the wallet to ensure that only the owner can transfer or trade Bitcoins for goods, services, or other currencies.

History

Bitcoin was developed in 2009 and there are two ways that you can secure a Bitcoin (or block of Bitcoins). You can mine Bitcoins by setting your computer to the task of solving increasingly difficult math problems that assist in Bitcoin transactions. You can also buy and sell Bitcoins on currency exchanges such as MTGox. The number of Bitcoins is mathematically capped at 21 million and it is estimated that the last Bitcoin will be issued in 2140.

Currency value

What fascinates me is the potential of a new currency that is not tied to a country or state and is not regulated by a central bank, yet is tradeable and can be used for commercial transactions. There are several establishments that are beginning to accept Bitcoins for products ranging from a foot-long sandwich to college tuition to attorney services—even a future space journey aboard Richard Branson’s Virgin Galactic! The value of a Bitcoin in the United States has jumped from $13 in January of this year to currently $1,067. Part of the rise in the last two weeks can be attributed to U.S. Senate hearings around virtual currencies, which lent legitimacy to Bitcoin and others.

Competitors

There are competitors such as Peercoin, Litecoin, and Anoncoin, the latter guaranteeing anonymity by operating in the dark corners of the Internet. All of these competitors hope to cash in on the same speculation that has driven Bitcoin to its current heights. Whether people hoard virtual currencies or spend them for goods and services will be the ultimate test as to how history views them. Will virtual currencies be seen as a speculative bubble, similar to the Dutch “tulipmania,” or, if they become legitimate, a means of trading?

Thoughts

At the end of the day, a currency—virtual or fiat—is really just a medium for exchanging unlike goods and services. The lure of Bitcoin is that it is not yet regulated, it can be traded globally without international constraints, and it does not carry the 2-4 percent transaction fees of credit cards. It relies on the collective power of individual computers on the Internet to process transactions. These are the very same computers hoping to mine new Bitcoins by solving the algorithms necessary to process those transactions. In other words, a very symbiotic relationship as long as there is a lure of potential gain. It is a well thought out system and time will tell whether it becomes a new legitimate currency or succumbs to speculation. Be it Bitcoin or a competitor, I believe that this is the new norm in currency.

Do you own any Bitcoins? Would you invest in Bitcoins or use them as currency? What do you find most attractive about virtual currency? What scares you? Let me know.

Author Kelly BrownAbout Kelly Brown

Kelly Brown is an IT professional, adjunct faculty for the University of Oregon, and academic director of the UO Applied Information Management Master’s Degree Program. He writes about IT and business topics that keep him up at night.