Is blockchain the most important 'brand new idea' since the Internet?



Intro: It took another Greenfield in Sydney to finally focus my mind on another brand new idea which I believe will become the most important new technological leap forward since the birth of the Internet. The other Greenfield is, of course, my son Max who during this winter in Sydney has been diving deep into the world of blockchain and crypto currency while its is too cold to swim on Bondi beach!

So what is Block Chain technology and why have crypto currencies just crashed?

It was in 2008 as the disaster of the credit crunch was rolling out across the world that a new idea called Bitcoin was invented using a new encryption technique on the Internet. At that time we thought it was just another way to win tokens on a computer game in one of the virtual worlds... it was only taken seriously by the gaming community and we all just hoped that our children wouldn't borrow our credit cards and buy up virtual tokens online as they played on their playstations all night! Well that was the start of something that this weekend, nearly 10 years later, has just about become mainstream news.

Its become mainstream because the Chinese Government has banned the issuing of tokens. Yes tokens, tokens that new online technology businesses are issuing to raise money to fund the creation of new decentralised applications in the hope that their innovation will have a value that they can pay you back in and then you can exchange for other cryptocurrency or fiat currency. (If that is difficult to understand, I will explain).

The main point is this, earlier this year the US Government stated that any ICO (initial coin offerings e.g tokens and new cryptocurrencies) will be included in new exchange and financial tax rules managed by the IRS, this didn't seem to have much effect on the market and in a way legitimised this new technology.

At the beginning of September 2017 the Chinese Governement , however, decided to ban the issuing of ICOs. China had been a vast market for new offerings and there had been many many scams with perhaps $billions of dollars going into these new offerings. The Chinese Government were aware that many were being used to get cash out of China. The Chinese Government,in a way, quite rightly although with a heavy hand banned the issuing of tokens. For me this sort of action again legitimises that there is a future in this technnology and for this reason I am now an even firmer beleiver that block chain and private/public key encryption (which is not knew really) will become the dominant technology that will democratise many of the centralised and corporation lead business both on and offline. Wow I here you say, surely the owners and shareholders of these huge businesses won't let this happen. The answer is they won't have much option and the best way forward is for them to incorporate the technology into their current operations now. That includes any business involved in banking, finance, insurance, sales and data management. (Data management being music, films, voting, logistics etc).

So what are the fundamentals to all this and what is it all about? Currently the internet, Governments and businesses work on a centralised structure. Somewhere at the the core of any enterprise or political system there is a controlling entity, a board of directors, a prime minister etc. This means, in finance for instance, currency value is controlled and effected by a central control mechanism. (fiat) Paypal is managed by a central register, database and ledger as are all banks. Ebay is run from the central management. Anyone who uses money and banks has to trust the centre, trust the controller. It has just about worked forever but did nearly break in 2007/8.

The key to block chain technology is the fact that computer power and the Internet has allowed a new structure to be created that is not dependent on central control (Now you understand why Xi Jinping doesn't like it!).


Simply put blockchain is a peer to peer ledger that everyone has a copy of every transaction. Every new transaction updates the block, if this new block on the ledger is acknowledged as correct by the network then it becomes part of the overall chain and cannot be undone. Everytime there is a change a block is created and the chain updated. Obvioulsy this requires a lot computer power and connectivity, fortunately that is exactly what we have in the internet, amazing connectivity and a lot of computer power. The clever part of the systems is that every change to the block is encypted and requires very high performance computers to resolve the block change before it can be updated. This allows the following a controlled updating of the block chain which are really just packets of data and a way for virtual value and creation of new virtual value. The clever bit is that everytime a block is resolved the owner of the computer that solved the algorithm receives a payment. This payment is a token (yes we are back to gaming again) but in the case of the most successful blockchain created in 2007 these tokens are called Bitcoins!

So its easy build a block chain and issue a load of tokens and wait for someone to start trading in them instead of real money (real money.... hang on.... that begs a question!). In effect this is exactly what Bitcoin is and it is successful only because people have trust in it and are willing to exchange if for goods and services... hang on that is money!! Yes its money with no borders, no control, and no trust needed.... maybe....

So what's to stop someone building the biggest server farm in the world and cracking every new block and building a collosasl store of tokens (Bitcoins in this example) well as the 'currency' will act like any commodity if there is over supply the value would drop and at some point the cost of computers and power would be more than the value of the earnt tokens (coins) so it wouldn't be worth it anymore and the 'currency' would stablise... maybe...

So there is one final device that most cryptocurrencies have put in place and that is a cap on the number of 'tokens' that can ever be mined (mined is the world use for the computers that are solving the block algorithms). This effectively means that currency inflation is finite, which is another interesting idea!

There is a lot detail, however, to ensure block chain transactions are very safe and this involves public and private key encryption. This proven technology ensures that real data is never seen on the block chain every piece of data is encrypted in to a #(hash) code which is completely unique and however small a change to the data a completely new hash code is created. These can only be read with the correct private key. More info on this type of encryption may be found at: https://en.wikipedia.org/wiki/Public-key_cryptography


https://en.wikipedia.org/wiki/Blockchain

So where does this put us today?


The Crypto currency market is very unstable there are hundreds of new entries to the market. But the smart money is looking not just at the crypto currencies but the underlying blockchain technology because it is really this that is going to change the way the Internet works.


Why the technology is as important as the money?

A block chain is fundamentally a de-centralised peer to peer network where nothing can be duplicated this is completely diffierent to the way the Internet works currently. Today the Internet copies everthing and this has created the massive changes we have seen in the music film, and software businesses. It has also meant that those businesses who hold the most information on their uses and manage that information the best are the most successful (Google, Microsoft, Facebook). Block Chain technology will mean that firstly you will be able to transact and communicate on the Internet without giving away any information unless you want to. This doesn't mean that the Internet becomes a scammers paradise because the block chain will automatically but confidentially prove who you are but due to encryption the actual details do not have to be known. This means that your Paypal, Ebay, and Facebook accounts cannot be hacked if they are managed on a blockchain technology platform. This also means that conventional banks and other financial insitutions using blockchain could be much safer. This technology also has the opportunity to be frictionless, with much lower transaction charges and more importantly would enable all to benefit. For instance Facebook, Twitter, Ebay, Google and thousands of other online businesses only exist because you and I add content. Content is king as is always said but until now the only people to have the wealth of Kings is the owners of these sites. In a true blockchain world, everyone who contributes would gain some benefits, maybe this would be in tokens that could be traded in any crypto currency you liked.

So a new online world would have to address a new economy but then again in any revolution there are always changes. It is interesting that today there are really only a handfull of online technology business that existed before the Internet and are still dominat today, Microsoft and Apple being two of the biggest, all the rest are new. Blockchain would also help creators of original content as their work could not be copied for free. Photos, music and films creators could be paid correctly for their endeavours.

But there is more that this technology can achieve. As I have said transactions on the blockchain can be trusted without fully revealing all information. Trust is the fundamental part of any transaction and this is why we have contracts and lawyers imagine if we could put transactions and contracts onto a block chain, suddenly we have a complete audit trail and proof of ownership automatically. Smart contracts as they are already called will become common place soon.


And there is more:

For food and drug security from cradle to grave the provenance of any product can be trusted if the information and is contained and managed by a blockchain database.


Finally personal identification... yes in the end the blockchain could create the technology to enable a passport to be obsolete.

http://ide.mit.edu/news-blog/blog/digital-identity-key-privacy-and-security-digital-world

So today,Summer 2017, we are in the middle of a crypto currency bubble with values dropping 20% overnight and bouncing back the next day. The total capitalisation of all cryptocurrency is less than the value of Apple but this is really just the top of this technology ocean navigating a few storms. Plunging deep into the technology behind these waves is a simple concept of decentralisation and sharing of data which will fundamentally change the way we understand trust.


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