Beyond bitcoin. Your life is destined for the blockchain
Blockchain entrepreneurs are working towards a future where everything from renting an apartment to betting on an election is guaranteed by a distributed public ledger. Is this the beginning of the end for the middlemen?
Leanne Kemp is using the blockchain in an unconventional way: to fight crime. The system created to run the bitcoin cryptocurrency has often been associated with less than reputable activities – from drug trafficking to ransomware payments – but Everledger is using the blockchain for good. Kemp’s London based firm tracks diamond ownership, helping traders and insurers monitor the provenance of jewels and spot stolen or conflict zone diamonds.
So far, 858,890 diamonds have been entered onto the firm's ledger. Each gem is scanned to glean forty unique points that are condensed into what Kemp calls "the diamond’s digital thumbprint". This is then attached to the smallest quantity of bitcoin available (a satoshi, in homage to the cryptocurrency’s pseudonymous creator) transforming the coin into a stand-in for the diamond on a blockchain ledger. The unique ID moves every time the diamond changes hands, leaving an unalterable digital trail of ownerships back to its origin. Everledger also built a smaller, private blockchain for transactions within the industry. The company has so far received £500,000 in funding.
Kemp, who has a background in both technology and jewellery, thinks the model could be adapted for items other than diamonds, from art to watches and even luxury cars. Finding a surefire way to confirm something’s provenance has far-reaching implications. “The question of authenticity is key because, for instance, counterfeit goods are funding terrorist activities,” Kemp tells WIRED. “We can apply this technology to solve very big problems: ivory poaching, blood diamonds, all these big ‘blood problems’ that are helping cartels, terrorists and criminals.”
When Kemp first heard of bitcoin she didn’t care about its potential as a new form of money. What piqued her interest was the computer-powered infrastructure where the “digital gold” was being exchanged: the blockchain. “When I saw bitcoin, for me, it was just natural that you could decouple currency and ledger,” she says. The bitcoin-mania that propelled it to a peak value of £625 in November 2013 has faded in the face of the cryptocurrency’s volatility and limited scalability. But in its place is the promise and potential of the blockchain.
When Satoshi Nakamoto created bitcoin in 2008, his anarcho-libertarian idea was to let people directly exchange electronic money. His model removed the need for central banks, governments, or PayPal-like corporations to act as guardians and enforcers of financial transactions. Bitcoin’s guarantor is the blockchain, a ledger of every transaction that is distributed across a vast network of computers or nodes.
The ledger is public, available for anyone to check, and its content is updated collectively by thousands of computers. Some of these computers invest considerable amounts of power to cluster transactions into time-stamped blocks, a process called mining. While the system was devised for payments, its features – security, decentralisation, transparency – have piqued interest in a myriad of other industries. And from Greece to Estonia, governments are looking at how the blockchain could make bureaucratic tasks quicker and tamperproof.
A 2016 report by the UK government’s chief scientific advisers claimed the technology had the potential to help governments collect taxes, deliver benefits, issue passports, record land registries and “in general ensure the integrity of government records and services”. And now banks, the intended victims of the blockchain revolution, are asking firms such as R3 to create private, closed ledgers that borrow some elements of the technology to streamline inter-bank cross-border transfers.
The failure of Tokyo-based bitcoin exchange MtGox led many to question the cryptocurrency's future
Credit YOSHIKAZU TSUNO/AFP/Getty Images
The growing interest in blockchain has morphed its concept into something new. Before, the blockchain was simply the spine of the bitcoin network, but today the technology is being used on a burgeoning list of distributed ledgers with varying degrees of openness, security and complexity.
As Everledger shows, there are some companies that are still using the original bitcoin blockchain, and in innovative ways. Israeli company Colu, for instance, has specialised in ‘colouring’ coins – that is, inscribing metadata on minuscule amounts of Bitcoin in order to transform them into representations of real-world assets (the ownership of a car, the copyright on a song, etc.). Amos Meiri, founder of Colu, says this system could be used “for a bunch of applications, from speeding up financial trading, to making management of music copyright transfer much easier.”
“We are also increasingly focusing on digital local currencies,” he says. “We have worked together with Barbados to issue ‘digital dollars’ on the blockchain.” Although bitcoin transactions are slower than on banking systems in developed countries, they represent a sea-change in areas such as the Caribbean.
For some, the blockchain isn’t capable of powering its own revolution. Ethereum, a public blockchain platform created by Russo-Canadian programmer Vitalik Buterin, builds on Nakamoto’s premise but proposes to do away with middlemen everywhere, not just in finance.
Ethereum is a blockchain on steroids designed for more than trading cryptocurrency units or ‘coloured’ assets: developers can use it to build programs that interact with the world based on public rules enshrined in so-called smart contracts. Think of a software application that runs a fleet of self-driving cabs and automatically calculates the price of each ride according to some criteria. These criteria are predetermined in the software’s contract and known to all customers.
Such rules cannot be circumvented – not even by the person who has written the code – and, if they are changed, it will be immediately visible. Users will not have to just hope the company does not swindle them: they know everything it is programmed to do. This is not only about transparency: other smart contracts could allow the cars to pay for their own maintenance and fuel; if its shareholders decide the company needs a new logo, it could follow the rules set up in another contract to launch a competition and outsource the final decision to a service like Amazon’s Mechanical Turk. A company governed by a cluster of smart contracts could essentially run itself.
Like bitcoin’s ledger, the software’s code and data are not hosted on any particular server, but scattered across all the computers running Ethereum. This makes it impossible to take down. Uber meets Skynet.
“The industrial revolution allowed us, for the first time, to start replacing human labour with machines,” 22-year-old Buterin wrote in Bitcoin Magazine in 2013. “But this is only automating the bottom; removing the need for rank and file manual labourers [...] Can we remove the management from the equation, instead?”
His creation might allow for the rise of a legion of fully transparent, self-managing, immortal companies (nicknamed decentralised autonomous organisations, or DAOs), and trigger the decentralisation of the internet on the side.
Conceived of in 2013 and launched in its initial version in 2015, Ethereum has already caught the attention of the likes of Microsoft, IBM and Deloitte. In May, The DAO, a stateless, decentralised venture capital firm whose investments are entirely decided by its shareholders, became one of the first ether companies. The firm raised capital of $168 million from cryptocurrency donations, setting a world record for a crowdfunding campaign.
“This is a company whose governance is entirely transparent,” says Stephan Tual, chief operating officer at blockchain firm Slock.it and one of the people who worked on The DAO’s framework. “It’s entirely controlled by its users, by those who have invested in it. In a normal company the governance rules, the way decisions are taken are hidden by power plots, intrigues, lies. Here we have code – and rules cannot be changed.”
How The DAO invests its money will not be decided by a board, but by its shareholders, who have up to two weeks to vote for or against a proposal. Once the vote has closed, changes are implemented by The DAO. This could be problematic: some have raised doubts as to whether a stateless company’s actions would have legal value under the national laws of the countries where it invests.
Supporters of bitcoin argue the blockchain technology that underpins it will usher in a new era of decentralised systems
Credit PHILIPPE LOPEZ/AFP/Getty Images
One of the first investment proposals The DAO will assess is Tual’s own firm. Slock.it is working on applying blockchain technology to the internet of things. Based in Mittweida, Germany, Slock.it has developed a physical smart lock that abides by Ethereum contracts. Ownership and control of these locks would be managed on the blockchain. Want to unlock a bike or an apartment door? You’ll need to make a payment through the blockchain.
Rather than relying on companies such as AirBnB to rent out rooms or apartments, individuals could use the blockchain to capitalise on unutilised space through peer-to-peer blockchain payments. Tuals calls this scenario the “atomised sharing economy.” In Tual’s ideal world, people would be able to rent out their possessions – a drill, a lawnmower, a car – for a couple of hours and get paid for it.
“If you were to look at the blockchain startup environment only one year ago, finance would have dominated three quarters of it. That is natural, as bitcoin was the blockchain’s first child,” says Jamie Burke, founder of blockchain-focused investment firm Outlier Ventures. “What’s happened over the last months, is this explosion of startups proposing different [blockchain] applications to a vast range of areas.”
From prediction markets Augur to digital democracy project BitVote, the blockchain is expanding. In the health sector, Healthchain is letting patients monitor who has access to their medical records. “Many of these projects are very obvious,” says Burke. “But right now it’s not really about coming up with new ideas – it’s all about building the one that works best.”
According to the investment firm’s database, there are currently 878 blockchain startups worldwide, many of which were founded over the last two years. Burke estimates that 70 per cent of them will fail within a few years. Within this group the main distinction is between companies that believe in open source, public blockchains – such as Ethereum and bitcoin – and those that are working to create permissioned ledgers, accessible only to a certain number of known parties. The latter approach is preferred by consortiums of banks and financial organisations, which put a premium on privacy and speed and are generally mistrustful of the bitcoin environment.
This rift in the nascent cryptocurrency industry is being compared to the early days of the internet when companies relied on closed intranets for internal communications. But, over time, the internet opened up. If analogous to cryptocurrency, this hints that banks – the greatest of all middlemen – will eventually embrace Satoshi’s transparent utopia.
“What we learnt back then is that intranets are useful for specific, narrow things, and they become less secure and less innovative over time,” says Bitcoin-expert-cum-evangelist Andreas M Antonopoulos. “Systems that live on the internet are constantly exposed to attacks, and become more robust. In other words, what we discovered with the internet is that closed and controlled system are not more secure – open systems, open blockchains, are.”
