The crypto currency Bitcoin turned many into millionaires overnight and was on the tip of everyone’s tongue, especially once it reached an all-time high in 2017. Public interest in Bitcoin and the technology behind it, the blockchain, dropped in keeping with currency’s abrupt fall. So what is going on with the technology today?
2008 was not a good year for the global financial markets - to put it mildly. After the real estate bubble in North America burst in 2007, US investment bank Lehman Brothers’ bankruptcy marked the initial peak of the global financial crisis that is still impacting the world today. Like dominos, the fall of Lehman Brothers brought other banks - and over time entire countries - to their knees. All around the globe people watched in horror as the system they had blindly trusted for decades fell apart. This led to an anonymous white paper published in 2008, a strategy paper that introduced the idea of a new virtual currency: Bitcoin transactions, it argued, would go directly from one party to another and not through the banks. The new currency triggered a huge hype and reached a market value of around 17,000 euros per Bitcoin in 2017. But public interest faded when a massive price slump followed at the beginning of 2018.
What made Bitcoin so revolutionary, however, was not just the new currency itself. The technology behind it - the blockchain – was perhaps even more innovative. And while Bitcoin has lost much of its attractiveness today, the blockchain still has a lot more to offer. Essentially, the protocol creates a diverse, transparent accounting system that is both decentralized and virtually tamperproof. This may sound abstract and insignificant at first, but it has the potential to significantly change many aspects of our society. The blockchain could make many processes more transparent and some institutions even superfluous.
Sharing electricity and shopping contentiously
Electricity sharing projects, such as the Microgrid in New York's Brooklyn borough, are one way the blockchain can drive change. Microgrids are regional, self-contained power grids. As in other places, some Brooklyn households have solar systems on their roofs that automatically feed excess electricity back into the public grid or, in this case, the neighbourhood grid. A blockchain keeps track of all transactions and automatically ensures that residents can sell their electricity peer-to-peer at fair prices using ‘smart’ contracts – contracts recorded in the blockchain. So the sun covers any additional energy needs with no need for an intermediary.
The American Provenance start-up has found another way to empower consumers and promote sustainability in the textile sector. It uses the blockchain’s counterfeit protection to make supply chains transparent. Conscious buyers can scan a code on an item in a shop to call up a record of every production step from the cotton harvest to the finished jeans. Provenance argues this system ensures better compliance with standards than government monitoring or certified labels since both producers and processing companies document their work independently of one other. In theory at least: obviously buyers cannot check whether the information entered into the blockchain is an accurate representation of what happened on the ground.
Is the blockchain really secure?
Still, the blockchain could bring major changes, especially for the estimated 2.5 billion people worldwide who have no access to the banking system. Various companies are working on crypto currencies especially designed for regions with high rates of poverty. Customers can register using just a simple smartphone, an Internet connection and the verification of biometric data, creating a financial infrastructure that can grant microloans to small businesses, for example. Like Bitcoin, these new crypto currencies are unbureaucratic, tamper-proof and not subject to central supervisory authority, when implemented properly.
This last example in particular also highlights a major problem: data security. While Bitcoin users access their wallets via a pseudonymous address and a password, the crypto currencies designed for poorer regions of the world rely on biometrics for the sake of simplicity, and participants are identified by an iris or face scan or fingerprint. Since permanent storage is in the nature of the blockchain, security leaks could irrevocably release the private data of millions of people. In addition to the physical characteristics of those affected, all of their transactions would also be made public. This could also be a problem in Europe, where experiments into digital identities for refugees are ongoing.
In 2019, two years after all the hype surrounding the blockchain, it is clear the technology has taken root in some areas. Even the crypto currencies created alongside Bitcoin are no longer purely objects of speculation. Despite some more dire predictions, institutions such as banks and electricity providers have not been replaced, though some have gotten some healthy competition.