How powerful is Bitcoin?
Bitcoin isn’t owned by anyone. Think of it like email. No one owns it.
Bitcoin transactions are irreversible. This means that no one, including banks, or governments can block you from sending or receiving bitcoins with anyone else, anywhere in the world.
With this freedom comes the great responsibility of not having any central authority to complain to if something goes wrong. Just like physical cash, don’t let strangers hold your bitcoins for you, and don’t send them to untrustworthy people on the internet.
Recently, a luxury hotel called the Seehotel Jagerwirt in Turrach, Austria found that all of its electronic doors were locked by hackers and could not be opened unless the hotel made a bitcoin payment to the hackers. As hackers become more sophisticated, we’ll see the constant battle between legitimate businesses and criminals, each one trying to leapfrog the other’s technology. Bitcoin is useful for criminals and people involved with them. So far, it’s not useful for much more other than that.
In spite of its dark character, bitcoin is important because of the technology that makes it work. That technology is called blockchain computing and you’ll be hearing more about it. The effect of blockchain computing is similar to the internet’s effect on traditional computer networks. Where pre-internet networks had a central hub with spokes that communicated only through the hub, the internet allows every node on a network to communicate directly with every other node. That change is profound.
What is Blockchain Computing?
Blockchain computing is a system that can securely contain an entire set of records within it, referred to as blocks. What makes blockchain computing unique is that copies of the entire system can be kept simultaneously on millions of computers located anywhere. Just as the internet obsoleted the hub and spoke nature of a network, blockchain technology does away with the idea that information is stored in a limited number of locations. Blockchain allows information to reside on multiple systems, even millions of them, simultaneously. When a new entry is made into the blockchain, the entire system updates in every location, instantly. An unlimited number of copies of the entire system, updated right to the present moment, is maintained everywhere in the world. Anyone can add a new record to the system but changing an old one would require the consent of every computer on which the data resides, it’s virtually impossible. And that means the records are completely reliable.
One of the things that intermediaries like banks, insurance companies, property title companies, traders and many other intermediaries count on to collect fees is their reputation for integrity. You send money through a bank because you know it will get there and their recordkeeping is accurate. But if you and a stranger could exchange money without needing a bank or having to pay fees to Paypal or another intermediary, you would. With blockchain, you can. Because a blockchain’s records can be stored on millions of computers around the world, you can always be comfortable that the records are accurate and trustworthy. That means you can use the blockchain instead of an intermediary to send and receive money from strangers and do many other things.
Say a company issues stock for the first time. It records the stock on the blockchain. Each owner of every share is also likewise recorded along with every price paid. If you choose to buy shares in the company, your entry is recorded as well. The contract that releases the shares to you is also on the blockchain and it executes automatically when you send the money. When you’re ready to sell, you post it on a database, even on Craigslist, and agree on a price with a buyer. When they send you the money, the same contract mechanism registers the shares in the buyer’s name. No broker, no NASDAQ, no New York Stock Exchange, no intermediaries of any kind. The stock exchanges would no longer have a purpose, everything would be done peer-to-peer.
If the record of the ownership of the home you live in were on blockchain, the accurate history of your home’s ownership could be on millions of computers all over the world. It would virtually eliminate the need for title insurance or at least make your premium ridiculously cheap.
If food is registered on blockchain by the grower, then the distribution company that buys it from the farmer can do likewise and so can everyone else in the supply chain right up to the grocer. You know what you’re eating is authentic because the blockchain guarantees it.
Your car’s component parts can all be registered on the blockchain. So can your car’s service record. The blockchain can verify whether your car is safe to drive and a buyer of your used car will have a better idea of what they’re getting.
Your medicine can be likewise authenticated. You could buy it from any source in the world because the blockchain would guarantee it.
Your personal identity can be proven by the blockchain. No more ID, just the blockchain linked to your finger or eye.
And on and on. Anytime you need authentication the blockchain can potentially provide it. It is limitless. It has the potential to obliterate the need for intermediaries of almost any type.
Almost anything that requires trust or verification can be accomplished by the blockchain.
Is Blockchain Hackable?
As a practical matter, blockchain can’t be hacked. The records on all the many computers that are holding identical information are interlocked. If one computer’s blockchain updates are hacked, it will be rejected by the system. Changes can only be made if the innumerable sites where the blockchain resides all consent to the same change and that makes it unhackable. The only way the system can be hacked would be if all the system locations in the world, possibly located on millions or billions of computers, could be hacked simultaneously. It’s possible in theory but the undertaking would be so massive that only a government-scale effort could even contemplate it and it wouldn’t be a small government effort, it’s a moonshot of an effort. It’s possible only in theory, it’s never been done and no one knows if it can. It is a far greater undertaking, by many orders of magnitude, than hacking into a major bank or Google or any of the more protected sites in the world today. While it’s theoretically hackable, it may be the most massive, complex hack possible.
Where Is This Leading?
The blockchain’s authentication possibilities are limitless. Data, contracts, identities, can all be stored on the blockchain. The blockchain will reduce the power of all verifying institutions, organizations and intermediaries.
Among those whose power and influence will be reduced is the government. The ways in which we rely on government, and the government’s power and influence, will be reduced. When John Lennon wrote the song Imagine, he said, “Imagine there’s no countries, it isn’t hard to do.” It’s still hard to imagine no countries but so many changes are coming with the implementation of blockchain computing, anything is possible.
My firm, Triangle Capital LLC, does mergers, acquisitions and capital-raising for companies in fashion, retail, apparel, accessories and consumer products.