Everyone's Talking About Cryptocurrency's Price. But What About Its Purpose?

There's a technological revolution happening right under our noses.

The world is currently witnessing the rise of what might be the most transformative technology mankind has encountered since the internet.

If you ever go online or read the newspaper, there's a good chance you've heard about the tip of this iceberg. Cryptocurrencies like Bitcoin and Ether are rising in value and drawing the interest of entrepreneurs, political talking heads, media outlets, and regular old consumers looking to make a quick buck. The investment opportunity was how I got roped into cryptocurrency; I made an initial investment and then watched the value of my crypto increase by more than 9,000 percent in a little over a year, a return on investment that is virtually unheard of in any normal market. Bitcoin is now in the biggest asset bubble the world has ever seen. (For full disclosure, I still own Ether.)

But these "coins" — as they're known — are just the public-facing, surface-level manifestations of something much more profound. It's called blockchain technology, and there's a good chance it will be reshaping the way you use the Internet, protect your identity and buy goods and services in the near future.

Ether's growth over the last year.
Ether's growth over the last year. coinbase.com

Much like the Internet in its early days, blockchain technology is challenging to understand even for its biggest enthusiasts. Perhaps the simplest way to think of it was offered to me by Amanda Gutterman, the chief marketing officer of Consensys, a venture production studio that's helping develop applications that will be used on the Ethereum blockchain.

"Imagine you had a magical piece of paper that a bunch of different people all over the world have, and you can write whatever you want to write on the piece of paper," Gutterman said. "But at the same time, whatever you wrote would show up on everyone else's piece of paper. You can add to it, but you can't erase anything. You can't change it, and you can trust completely that everyone has the same piece of paper showing the same truth on it. What would you put on this piece of paper?"

How the "magic" works

The first thing people decided to put on their so-called "magical piece of paper" was a ledger. By definition, a ledger is a book or file that records economic transactions. That's where the cryptocurrencies come in: Bitcoin is a currency that is bought, moved, and traded on a public blockchain called Bitcoin. Ether is the currency that is bought, moved and traded on a public blockchain called Ethereum. Public blockchains are those that anyone can join and whose transactions are available and viewable by anyone. There are private blockchains, too, which are generally used by businesses and require you to have an invitation to use it. Bitcoin and Ethereum are just two of thousands of different blockchains out there and they differ substantially from each other (we'll get to that in a minute).

While there have been times where the applications using these blockchains were compromised or the blockchain itself was ground to a halt by overuse, they are — according to the developers behind them — far more secure than the current systems use to protect identities or handle banking.

These blockchains — and the currencies that function on them — are also appealing to users because they can theoretically eliminate third parties. As Gutterman put it, humans spend a lot of money paying banks, governments and institutions to be the final voice on everything from a person's identity to how much money they have in their bank account. Usually, that comes in the form of a "fee for services" on your bill. But this new "trust technology," as she calls it, creates a shared, immutable and nearly-impossible-to-hack record that is not owned by any one entity. Instead, most blockchains are fueled by you and something called nodes — a series of computers connected to whatever blockchain you are using. 

Imagine this: when you send a money transfer through your bank, your data goes to a giant center that is controlled and owned by, say, Wells Fargo. Once it arrives there, Wells Fargo ensures that your payment is sent where you wanted it to go. On a blockchain, a piece of data never goes to a centralized hub. Instead, a group of transactions passes through a chain of encrypted blocks, hence the technology's name: blockchain. At each block, algorithms are run to verify that the transaction matches what came before it, and thus confirm that the transaction has not been tampered with. 

Emma Kapotes / A Plus
Emma Kapotes / A Plus

All of the different nodes offer a fraction of the computing power that one giant data center would need to make a digital transaction work. They also make sure the data matches, is not tampered with and is stored publicly for everyone to see. If one block is "hacked," or damaged, or altered, not matching the other information on the blockchain, an algorithm will break the chain and the transaction will not be completed.

"Every time we hear about some major hack of some major entity that had left a bunch of people's identity compromised, we're reminded that centralized storage of data isn't the best way to do it," Gutterman said. "It's the equivalent of robbing a house vs. robbing a town — in order to harm a system of nodes you're going to have to actually harm an entire town."

But the concept of a decentralized, peer-to-peer transaction has greater implications than just buying and selling currency. 

"Oranges and a computer"

All blockchains are not created equal.

That's a fundamental part of the space that is often misunderstood from the outside.  While the Bitcoin blockchain serves as the godfather of the technology, it is also considered the most primitive of the blockchains. Other blockchains serve much different purposes. For example, Gutterman, whose employer Consensys develops on the Ethereum blockchain, said Bitcoin and Ethereum are not apples and oranges. 

"It's oranges and a computer," she deadpanned. "When Bitcoin started becoming popular, people wanted to build more sophisticated financial products and applications on the Bitcoin blockchain. But they found they couldn't or that it was very difficult because language associated with the Bitcoin blockchain is really simplistic. It was only designed to be a currency."

Ethereum's breakthrough was what's known as a smart contract, often described as a series of if-then statements that can self-execute. It went beyond just an exchange of currency. In a simple example, you could use the blockchain to issue a will. Right now, a will typically requires a lawyer to draft it, a bank to hold the funds, and a board of trustees to authorize withdrawals. Each cost money, reduce efficiency and open the door to tampering. With the Ethereum blockchain, you could program a simple smart contract: If person X dies, money from their account will be sent to person Y. It could be applied to gambling: If player X and player Y put money in escrow, and event Z takes place, then send all of the money to the player who guessed correctly. Without the middleman, these transactions can go through in a more efficient manner.

Joe Lubin, co-founder of Ethereum and Consensys, at the Consensys office in New York City.
Joe Lubin, co-founder of Ethereum and Consensys, at the Consensys office in New York City. Consensys

One of the great criticisms of Bitcoin is that it's no longer what it set out to be, a currency that didn't use any third parties and thrived on efficient peer-to-peer sales. Ethereum, and other newer blockchains, hope to live up to their mission statement without resigning to a similar fate. Bitcoin's limitations left an opening for Ethereum to use similar but more complex technology and it was conceived with these failings in mind.

There are other more technically complex differences, too. One is the relationship between the blockchain and its associated cryptocurrency. The Bitcoin blockchain functions to promote the Bitcoin currency. For Ethereum, the relationship is flipped. Because Ethereum isn't owned by anyone, it is a shared common resource. Gutterman described it as a "world computer" and said that Ether is "the gas that fuels the Ethereum network." Just as having dozens of tabs open in a web browser would slow your computer down, so too would Ethereum's blockchain be slowed if too many people are using it at once. So Ether, the currency, serves as an economic disincentive to overuse — you have to have Ether to use Ethereum — and keeps the blockchain manageable. And every blockchain serves a different purpose.

A ledger that gives back?

Like many new tech phenomenons, blockchain technology is selling itself as a tool for bettering the world. But there's something beneath that notion of striving for good that vibes with a growing global sense of distrust in the government, major institutions and the wealthy. Blockchain enthusiasts and developers see themselves as having an opportunity to reshape the world's power structure and connect users, much like Facebook or pioneers of the Internet did. 

Almost every person I've interviewed or heard speak about blockchain technology led with the idea that they want to make the world a better place for everyone, particularly the poor, those in the developing world, the disenfranchised and the billions of Internet users who are unaware of how their data is being taken advantage of in their day-to-day life. 

The reality, of course, is a bit more complex. Bitcoin was used famously on the now-defunct Silk Road, where illegal drugs and fake IDs were sold. Bitcoin has also been tied to other, much darker activities: human trafficking and arms deals can be conducted with more anonymity through Bitcoin, something that caught the eye of financial regulators back in 2013. Now, some Russian officials are openly floating Bitcoin and cryptocurrencies as a way to avoid the regulations imposed on them by other nations. 

This doesn't mean people aren't trying to leverage the technology for good, too. Perhaps nothing exemplifies this more than Blockchain For Good, a think tank that has hosted two major conferences in San Francisco and London where the most prominent minds in the space shared their ideas for how blockchain can improve society.

Cécile Baird, one of the founding partners of Blockchain For Good and a communications consultant for blockchain startups, says that the value (and volatility) of currencies like Bitcoin and Ether have essentially distracted people from the human values the developers of blockchain technology are trying to emphasize. Much like Gutterman said, Baird believes that instead of focusing on growing their bank account, people in the space should focus on how they can apply these technologies to improve the world.

"The Internet has created a whole new way for us to interact, but now it's broken," Baird said. "It has empowered us, it has brought on more peer-to-peer global transactions and interactions, and we've seen some more business models, but they've all gone back to just being the same old thing." 

For Baird and others like her, blockchain technology offers an opportunity to overhaul not just the Internet, which they see as now being driven by corporate interests, but the systems we use every day.

One of the most critical applications of blockchain is going to be how we collect, store, use and sell our personal data. Baird sees a future where consumers own their data, which will be kept securely on a blockchain, and sell it off at their discretion, as opposed to the model we have now where we willingly give our data over to banks, Internet Service Providers, corporations like Apple and social media sites like Facebook so they can distribute it at will. Gutterman, too, offered this as one of the most revolutionary uses of the blockchain.

"In order to use basically any web application, you have to log in through some kind of service that's going to take your identity and monetize it and you're not going to benefit from that," Gutterman said. "With self-sovereign identity, you actually own all of your identity, and you can sell it to people if you want. You own it, you index it, and you negotiate what happens to it."

Right now, there are 1.1 billion people in the world that don't have access to a government-provided identity like a driver's license or social security number; 2.2 billion have no access to banking. These groups are targets for blockchain developers. In fact, self-sovereign identity is already a reality in Brazil, where the Brazilian Ministry of Planning, Budget and Management successfully piloted the identity platform uPort, which works on the Ethereum blockchain. Consensys also successfully piloted uPort in Switzerland, and Gutterman says there are "a number of other not-yet disclosable government projects" in the works.

The implications of the developing world embracing this technology could be profound. Much like how developing countries leap-frogged copper wire technology and went straight to 3G cell phone service, or how countries not dependent on oil leap-frogged more "advanced" countries with renewable energy, there's a good chance these developing countries could be using a safer, more secure and more equitable form of identification before a country like the United States completes the transition to blockchain technology.

And it doesn't stop there.

Baird imagines a world where secure blockchains let people vote in elections electronically, making global democracies safer and more accessible. She sees social media companies moving away from ad revenue and instead distributing and selling storage on the blockchain to cover their costs, creating more independent information sources. Blockchain technology could disrupt the massive sharing economy, including companies like Uber and Airbnb. When you use Airbnb, for instance, there is a user and provider who are trusting the Airbnb platform. You see an Airbnb house with a good rating and you know your host is reliable. But when you pay for that Airbnb rental, the platform takes a fee off the top. Eliminating the intermediary could make these transactions cheaper, and with blockchain technology you can accomplish the same level of trust on a peer-to-peer transaction without the platform in between.

The United Nations is paying attention 

Even Bitcoin has gone beyond just being a currency. While smart contracts have become associated with Ethereum, Bitcoin is also working to implement smart contract technology, albeit more cautiously and with more trouble. That might end up being handy in the Republic of Georgia, where BitFury, an application that uses the Bitcoin blockchain, piloted a program issuing 300,000 Georgians a legal title to their land. The implementation eliminated backlogs and inefficiencies in the government system that would leave some people waiting months for a title on land they already owned. Now, the official, legal transfer of a land sale can take seconds. 

At a United Nations panel I attended on blockchain technology in November, BitFury's deputy global chief communications officer John Mercurio explained that the BitFury Group's founder, Valery Vavilov, was inspired by blockchain because of his parents' experience: they lost almost all their wealth and property, which was stored on paper and easy to forge, when the Soviet Union fell. BitFury saw that one in three people possess a legal title to their land across the globe, and began to look at ways to solve the issue. In Georgia, before BitFury got involved, land titling was widely considered one of the most inefficient and corrupt government services provided by the country.

"In 2004, it took 39 days and eight different steps to register a property in Georgia," Mercurio said. "All documents were on paper. Inefficiency, I think, breeds corruption: so if you were waiting in a long line at one of these government agencies, you could pay 100 dollars to change your number in line. And of course, things like that happened all the time."

That year, the Georgian government created the National Agency of Public Registry (NAPR). Its goal was to eliminate government waste and corruption in land titling. NAPR's first step was digitizing the data: moving satellite photographs and deed data onto a digital format and making it searchable. That data, though, became a liability. Even though going digital helped improve inefficiencies, Georgians still distrusted the government and felt there was internal corruption on top of liabilities around the data being secure. So NAPR approached BitFury about creating a more secure, transparent system. 

Now on the Bitcoin blockchain, if someone tried to alter the data of a land deed the "hash," or unique documentation of a block of data, would not be verified. Mercurio estimated that it'd take a coordinated effort and cost $500 million to try to alter even a single hash, making it virtually impossible — by the virtue of money and resources — to alter enough hashes to seriously compromise the data. This creates an almost immutable trust in the system, and that system has thrived. In February, the government of Georgia announced it would be expanding the use of blockchain technology for land deeds, and signed a Memorandum of Understanding that Georgia and BitFury would begin experimenting using Bitcoin's blockchain for other government services: birth certificates, passports, wedding certifications and ID cards are all possibilities.

The United Nations has gone beyond experimenting with relatively dry government functions like land deeds. The World Food Programme (WFP), widely considered the largest aid organization in the world, started using the Ethereum blockchain to deliver $1.4 million in food vouchers to 10,500 Syrian refugees in Jordan in May, according to QZ. The program is called Building Blocks. Using the blockchain has slashed costs for sending aid across the globe, according to the United Nations, and it has plans to grow the program.

"We need to bring the project from the current capacity to many, many, more," Houman Haddad, the WFP executive leading the project, told QZ. "By that I mean 1 million transactions per day."

Haddad recently spoke at an Ethereum Foundation conference in Mexico, and said the use of the blockchain has been a valuable step forward. WFP uses iris scanners inside refugee camps that "identify the customer and settle their entitlement payments by verifying the data with various UN databases," QZ reported. Now, though, Building Blocks is used to keep a ledger of the transaction on a private Ethereum blockchain. It has eliminated fees related to financial service companies which acted as the in-betweens for the transaction. It also improved privacy for those receiving the vouchers and allows the WFP to track its own network rather than relying on reports from an outside source.

While other United Nations organizations have been slower to adopt the blockchain technology, the success at the WFP is expected to overcome the bureaucratic delays in the coming future.

Ethereum and Consensys co-founder Joe Lubin. 
Ethereum and Consensys co-founder Joe Lubin.  Consensys

A vision for the future

At the Blockchain for the United Nations talk in November, Dario de Martino, the co-chair of Morrison and Foerster's Blockchain + Smart Contracts Group, offered a few astounding predictions about blockchain technology, courtesy of the World Economic Forum Report (WEFR).

By 2020, he said, the WEFR estimates that 77 percent of financial services firms will adopt blockchain. There have already been 2,500 blockchain patents filed, and plenty more are coming. And, perhaps most astonishingly, he predicted that 10 percent of all global domestic product will be stored on blockchains by 2027. On top of the applications already mentioned, he sees blockchain technology being used to decentralize healthcare data and medical records and used to track and reduce food contamination.  

But how will the blockchain become such a prominent part of our lives? 

Gutterman, Baird, Martino and other experts in the space are confident that the complexities of blockchain technology won't hold it back from more practical use. Gutterman pointed to the simple fact that most people who use the internet probably couldn't give a coherent explanation of how it works. The truth is, even the Internet never overcame or fixed that understanding gap — instead, people just created easy to use applications that were built using the Internet. 

"Almost everything we touch will be run, on some level, with blockchain," Gutterman said. "People won't have to touch the blockchain, there will just be higher quality apps, tools and services they want to connect with."

The interactions those people have with the blockchain is something advocates of the technology hope will continue to serve some kind of "higher purpose." Baird, who has interacted with the developers behind these applications, says she trusts the community to push forward with a humanitarian vision.

"We can never lose sight of the human aspect, and I think as an industry as a whole we need to always remember that," Baird said. "We can all get carried with greed and money and ourselves, but we must never forget that the idea for this is more about the very, the many, not the few."

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