Superfad: If bitcoin is a fad, blockchain is the real thing

Thursday, 15 March 2018

Katie Kenny and Laura Walters introduce their new podcast, Superfad.

The second episode of Superfad, a new podcast from Stuff, discusses the hype around cryptocurrencies and blockchain. While Bitcoin seems to be on the slide, blockchain appears here to stay. So, what is it?

You've almost certainly heard the hype about cryptocurrencies, like Bitcoin. But it's the technology behind those systems, called blockchain, that's tipped to revolutionise the internet, and the world.

BLOCK-WHAT?

Late last year, a group from the Edmund Hillary Fellowship produced a paper titled: 'Unlocking Blockchain's Potential.' The paper was co-authored by a number of blockchain experts, including Coinbase co-founder Fred Ehrsam and Mark Pascall of blockchainlabs.nz. It described blockchain as 'the next internet', saying 'over the next 20 years, it will transform society and commerce'.

Essentially, blockchain technology creates a permanent record of something on a public (but anonymous) database. Think: health records, property ownership or supply chains. It can also support contracts - smart contracts! - that promise legally binding, programmable agreements on the blockchain. Rather than trusting a third party, you trust the system to complete the transaction once the defined conditions are met.

Estonia, the tiny post-Soviet nation, has used blockchain to build the most digitally advanced society in the world. Its government is virtual, borderless, and secure and its citizens have state-issued digital identities, which allow them to provide digital signatures when using e-services.

It seems complicated but blockchain technology could make a lot of every day things simpler.

Given blockchain has been around since 2008, it's fair to ask why it's taken so long to gain traction. It's worth noting there are still big obstacles for blockchain to overcome - technological, governance, organisational, and even societal. Blockchain isn't the sort of technology that can just come in and disrupt industries. Rather, it has the potential to create new foundations for economic and social systems. But it will be a slow, steady, and at times, painful, process.

THE SEEDS OF BITCOIN

In 2008, a mysterious programmer, or programmers, going by the name Satoshi Nakamoto published a white paper outlining a peer-to-peer electronic cash system, called Bitcoin. This system didn't require a centralised authority to verify transactions, meaning the real innovation wasn't the currency, but its scaffolding; a secure database scattered across thousands of computers around the world, with 'volunteers' incentivised by small payments to maintain the ledger.

The concept was adopted by anarcho-libertarians who valued blockchain for its imperviousness to state interference. But now there's more mainstream talk about using it to make states and industries run more efficiently, transparently, and in a decentralised way. Sean Au, president of New Zealand's Blockchain Association, says 'now people realise they have to work with governments to get the most out of [blockchain]'.

LIKE GOOGLE DOCS, ON HEAT

We're not going to bore you with nitty gritty details (plus, they vary depending on the type of blockchain), but here's the general idea: 'To me, blockchain is just a very, very large database to store information,' Au says. 'It's distributed — placed around the world — and the other element of it is it's decentralised. No one owns your information, except you.'

Associate Professor Alex Sims, from the Auckland University Business School, adds: 'If you use something like the Bitcoin blockchain, it's like an online spreadsheet that everybody can see and that updates automatically.' (For this reason, people who are used to working with shared documents such as Google Documents tend to find it easier to understand the concept of blockchain.)

'With a normal database, you can go back and make a change and it might be possible for someone to come and figure out you made a change, but that requires a lot of work. With this particular sheet, it's like it's read only. You can't make a change to an existing sheet. If you want to make a change, you've got to have a new sheet with the new change made. So you can see back, at any point in time, exactly where everything was.'

THE SECRET TO ITS SECURITY

In short: It's distributed. Let's say you want to send 0.001 of a Bitcoin to someone, Sims says.

'You have public and private keys, which sounds confusing, but basically, the network will check to make sure I am who I say I am. If more than half of that network says yes, then it goes through.

'That's different from banks, because banks aren't that secure. If you get into their computer system you can get money out. That can't happen with blockchain. If you go into one computer and try to get the money out, you won't be able to because the other computers will say no, no you don't own it.'

Associate Professor Alex Sims of Auckland University says blockchain's paradigm shifting nature can be hard to understand, but it has the potential to be as disruptive as the internet.

This has wider potential.

In a piece for Stuff last year, Sims wrote: 'Instead of our personal health information being held by GPs, doctors, insurance companies and the like, blockchain allows individuals to keep such information and grant access to others to view it.'

POP MUSIC AND STEAK DINNERS

British singer Imogen Heap has been at the forefront of a movement to improve what she calls a 'fair trade' music industry through blockchain. In 2015, she used a blockchain platform to launch the song 'Tiny Human', charging US$0.60 [NZ$0.80] per download. These sorts of initiatives are set to disrupt intermediaries, lower the price for consumers, and increase returns for content creators.

Alternatively, streaming players or digital retailers could move their content distribution platforms to private blockchain ones.

Most artists will tell you royalties take a long time to come through after consumer purchases, Sims says.

'What people are setting up is, say, when you pay iTunes $1.29 for a song, that money is divvied up and given to the various people in real time.

'It's faster, trackable and auditable.'

If a similar system were applied to the food industry, for example, supply chains could be more transparent for all involved.

'There are so many applications coming out,' Au says.

'Some examples include trying to track where that piece of steak you had for dinner came from, or whether those coffee beans were farmed sustainably.'

THE SLOW KIWI

Sims puts it plainly: 'We've dropped the ball. We're slow. Really slow. I've had people contact me from overseas saying, New Zealand prides itself on being nimble and agile, what's going on? We've got Singapore and Hong Kong enticing entrepreneurs. I know Kiwis who are going overseas.'

But it's not just New Zealand's problem, she says. 'Around the world, it's the developing countries who are leapfrogging our legacy systems.'

Stuff technology columnist, Richard MacManus, who features on our latest episode of Superfad, has also written about how it feels like ordinary Kiwis are missing out on a revolution: 'Instead of supporting Bitcoin, our banks are closing down accounts that trade in it.'

Superfad is a seven-part podcast series, brought to you by Skoda. A new episode is released every Friday on iTunes and Stitcher. Join the Superfad group on Facebook and look out for behind-the-scenes extras in a weekly Facebook Live discussion every Monday.