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Separating Bitcoin and Blockchain to uncover value

  • Posted on August 3, 2017
  • Estimated reading time 3 minutes
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Recently, I visited our Melbourne office while in town for the Melbourne Blockchain Summit.  One of my colleagues asked, "So, Lucas…what is a good analogy to explain blockchain?"  What a great question! 

Not to discredited the author of the original Bitcoin white paper but, the bitcoin protocol didn’t actually invent anything new. Like a brilliant chef, Satoshi Nakamoto took well-seasoned ingredients from the math and cryptographic community plus networking protocols from the software engineering pantry, sprinkled with a bit of economic value, and baked for one year.  Voila!  A new protocol was born.

It may actually come as a surprise, but the original white paper does not actually mention the word “blockchain” anywhere.  The author, however, was often vocal and proclaimed that bitcoin (or currency), would simply be the first app to use this new technology.  It was then expected that new currencies, whatever they may be, would emerge.  These are often ones we cannot see now but retrospectively will be blindingly obvious.  

In my opinion, this illustration by Satoshi, was a very thoughtful and clever tactic.  Perhaps the best way to introduce a new technology is when money is involved, or even better, produced out of “thin air.”  We all use money every day, but perhaps very few of us question its value.  I still remember as a child being fascinated with the idea that the Australian Dollar can be bought and sold with USD.  You buy money with money?  Later in my life, a virtual world called Second Life emerged.  This online-only world used a currency called Lidon dollars where players or citizens could buy virtual “hand crafted” goods. These dollars or virtual items were even sold in marketplaces like eBay for “real’ currency.  Yes, you read that right.  But if we think about it, the time and experience of these users in programing demands that there should be a financial value assigned.  This was an important step towards the concept of digital cash.

My favourite artist is the Russian painter Kandisky.  To some, the simplicity of his art may look no sophisticated than a child in kindergarten.  The point being beauty, or value, perhaps lays squarely in the eyes of the beholder.  Collectively, we agree things have value, so thus it must.  That being said, the classic example of this paradox, is the 1940s German case where bank notes where burnt in order to heat homes.  The perceived value of a currency was nothing, but the benefit of fuel for warmth and cooking was realised. It is similar for a blockchain, which is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered without changing all subsequent blocks and the agreement of the network. That’s why I think blockchain might be appropriate for winemakers

In an age of information, where many of us are connected to the internet, seamlessly sharing information in the form of text, image, music, etc., we surely have asked, “Why can’t we send money?”  And why does it take the banks take so long when even Aunt Betty can send an email off her iPad instantly?  The question has been asked within the computer science community since the 70s, why can’t we digitise cash?

In essence, a blockchain is simply the technology that enables a digital value to be assigned to a commodity and traded securely through the internet.  

Did you know that 1/6 of the world’s population is undocumented? Accenture, Avanade and Microsoft have come together to develop a blockchain and biometric solution to support ID2020.

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