"I don't think much of bitcoin, but I'm very excited about blockchain technology." This is one of those generic remarks I often hear bandied about, often by people who've never used bitcoin or even tried out the tech. Can you like one and not the other? Or is that like saying "I like the combustion engine but I don't like cars"? I spent some time at the World Blockchain Forum last week, and today I'd like to share with you some of the discoveries I made.
What is blockchain?
Blockchain is the breakthrough technology behind bitcoin. It solved a problem that had dogged computer programmers for some 30 years the problem of double spending and, in doing so, made it possible for an apolitical system of internet money to function. That is to say, it made it possible for person A to send non-government money to person B instantly, across the internet, with no middle-man processing the transaction. MoneyWeek's very own Merryn Somerset Webb, for example, made her first internet cash transaction just this week, at 8.30 on Monday evening. While refereeing an internal dispute between progeny 1 and progeny 2, she sent 50c of bitcoin cash from her phone in Edinburgh to my phone here in London, while I sat between my progeny 1 and progeny 2 (of 4), none of whom have any kind of dispute ever. I now have her 50c on my phone, and the money changed without any bank processing the transaction. It is as private and direct as if she had handed me 50c in cash.
Now that the breakthrough of the blockchain has been made, the technology is progressing at incredible pace. Computer scientists are experimenting and discovering all sorts of new applications for the technology beyond an alternative money system for the internet.
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Just a quick FYI. Essentially, the blockchain is a system of permanent record that keeps growing. Rather than that record being maintained by one central body, it is maintained on a large number of different computers around the world. Hence it is described as "distributed ledger technology". Because so many copies of the record are held, it cannot be tampered with. Once an entry is made it is permanent. If one computer fails, the record remains preserved on all the others. Because the system is decentralised, it has no central point of failure and cannot therefore be shut down. The functionality of the system is transparent and automated, and designed by open source. That's what it is. So what might you use it for?
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Some of the many pending uses for blockchain
One company I saw present, VideoCoin, is a sort of AirBnB for unused hard drive space. The CEO, Halsey Minor, estimated that about 30% of computer capacity around the world, especially in the vast data centres belonging to the likes of Google and Amazon, goes unused. VideoCoin's decentralised encoding, storage and content distribution network will, he said, reduce the cost of encoding, storing, and distributing internet video by more than 50%, by making use of the world's unused computer resources.
Another, Tykn, is designing a digital identity system specifically for refugees, NGOs and others in war-torn situations. The CEO, Tey Al-Rjala, himself a refugee from Syria, described how he had to carry 14kg of paperwork as he moved from camp to camp on his journey. Proving who you are, where you have come from and so on is one of the greatest problems in the nightmare existence of the refugee. His new application digitises information a way that is compliant with international security systems so as to reduce the bureaucratic hell. In addition it enables aid and other workers in war-torn environments to quickly prove who they are and what jobs they have done, so as to be able to get on with whatever needs doing without delay. Finally, it enables charities and so on to track exactly where aid money has gone and how it is being spent.
Trevor Koverko, CEO of Polymath, explained why the next crypto bull market would be in asset-backed coins. Tokens, which represent some kind of security, he said, are growing at a much faster rate, and will soon overtake the market cap of utility tokens (the likes of bitcoin and other altcoins) to be the next big drivers of growth. He then had his chief scientist, Adam Doassa come on stage. I watched as Doassa created and issued a fully compliant security token with all sorts of complicated contractual restrictions and conditions live on stage in under three minutes.
Koverko's parter, a film producer by the name of JD Seraphine, then described how he raises money for films by issuing such security tokens, which represent a share in the film and its profits. All the conditions of the contract are programmed into the token, so that they execute automatically as the venture progresses. His experience is that those who fund his films become its most vocal champions, and so he is able to dramatically reduce his advertising spending. Thus do his films become more profitable more quickly. Everyone's a winner, as they say. A film about Atari founder, Nolan Bushnell, is in the works. Watch this space.
The problem with me and conferences is that I come away wanting to invest in everything. You can't dance with all the girls, a friend of mine used to say, and how right he was. Nevertheless, what is going on is extremely exciting. Bitcoin, cryptocurrencies the entire sector is in a bear market at the moment. This is no surprise given the excesses of 2017. The market badly needed to pause, consolidate and retrace.
People ask me how long this bear market will last. The most obvious parallel is with dotcom in 2000. That bear market lasted around 30 months from peak to trough. I'm not sure crypto has even had its dotcom moment yet. We may still be in the 1990s, when bear markets lasted just a few months. This one will be longer than that. For sure this will be no commodities bear, when depression grips for 20 years. The sector is too young, too dynamic., there is too much going on. I'm going to guess 12 to 18 months, something like that, along the lines of the 2013-14 bear market. The low, in other words, should be in by next June.
