Sorry, what is blockchain again?
Simply put, blockchain is a technology anyone can use, not a product owned by a single company. Fundamentally, it’s a ledger of transactions — whether of goods, payments, or data — that functions without a central intermediary.¹
When a transaction takes place, it’s verified by every member of the network, a process known as “consensus.” Once verified, it’s time stamped and added to a “block” of other recent transactions, which is then “chained” to the (very long and ever growing) list of transactions that preceded it. In this way, blockchain is transparent, distributed, immutable, and secure.
Is blockchain the same thing as bitcoin?
No, but the confusion is easy to understand. Bitcoin is just one (very famous) example of how blockchain technology can be used. Blockchain made its debut, in 2008, in a white paper by someone² using the pseudonym Satoshi Nakamoto. It offered a clever solution to the “double spend problem” — in short, how do you ensure that a digital currency, which is easy to replicate, can only be spent once? Bitcoin, a cryptocurrency built on blockchain, appeared the following year.
Smart people who spend a lot of time thinking about these things seem to agree that, while bitcoin may be a speculative bubble, blockchain itself has enduring potential to change our world.
So other than bitcoin, what good is blockchain?
The proposed uses of blockchain include real estate, finance, supply chain management, smart contracts, medical records, gun ownership, asset tracking, car sales, wills and inheritances, public records, public benefits, charitable donations, intellectual property, prescription drugs, music streaming, ridesharing, and energy management. The list grows longer every day.
One facet of blockchain we’re paying particularly close attention to is the use of “mining” to replace obnoxious website advertising.
Cryptocurrencies depend on miners, who validate transactions by racing to solve difficult math problems in exchange for a small monetary reward — a process that requires massive computing power. Technologists have proposed that, instead of serving ads to website visitors, companies could instead use a small portion of the visitor’s CPU to mine currency while they’re browsing the site.³ Mining might be a welcome alternative to the endless barrage of digital ads, and an important revenue stream for websites contending with increasingly sophisticated ad-blockers. Users could even choose to “donate” processing power to websites — say, The New York Times — whose mission they support or free content they enjoy.
Is all the blockchain hype justified?
Kind of. Certain firms, particularly those acting as middlemen, will absolutely see their business models challenged; meanwhile, hedge funds, car dealerships, central banks, and title companies may have their hegemony questioned. The Harvard Business Review, for one, has argued that “blockchain will do to banks and law firms what the internet did to media.” That might be true — there’s no shortage of TED talks claiming much the same — but we’re not there yet.
The ability to trace your Fair Trade coffee or alpaca sweater to its source is a neat trick, but it’s not a killer app.
Today, we’re still somewhere high on the Peak of Inflated Expectations. As with any new technology, there will be disappointments — and a few spectacular failures — before blockchain gains traction and widespread acceptance. As futurist Roy Amara has put it, “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”