Category Archives: Bitcoin
The record of all Bitcoin transactions that these computers are constantly updating is known as the blockchain.
Criminals have taken to Bitcoin because anyone can open a Bitcoin address and start sending and receiving Bitcoins without giving a name or identity. There is no central authority that could collect this information.
Bitcoin first took off in 2011 after drug dealers began taking payments in Bitcoin on the black-market website known as the Silk Road. Although the Silk Road was shut down in 2013, similar sites have popped up to replace it.
More recently, Bitcoin has become a method for making ransom payments for example, when your computer is taken over by so-called ransomware.
The records of the Bitcoin network, including all balances and transactions, are stored on every computer helping to maintain the network about 9,500 computers in late 2017.
If the government made it illegal for Americans to participate in this network, the computers and people keeping the records in other countries would still be able to continue. The decentralized nature of Bitcoin is also one of the qualities that have made it popular with people who are suspicious of government authorities.
Anyone helping to maintain the database of all Bitcoin transactions the blockchain could change his or her own copy of the records to add more money. But if someone did that, the other computers maintaining the records would see the discrepancy, and the changes would be ignored.
Only a small percentage of all transactions on the Bitcoin network are explicitly illegal. Most transactions are people buying and selling Bitcoins on exchanges, speculating on future prices. A whole world of high-frequency traders has sprung up around Bitcoin.
People in countries with high inflation, like Argentina and Venezuela, have bought Bitcoin with their local currency to avoid losing their savings to inflation.
One of the most popular business plans is to use Bitcoin to move money over international borders. Large international money transfers can take weeks when they go through banks, while millions of dollars of Bitcoin can be moved in minutes. So far, though, these practical applications of Bitcoin have been slow to take off.
There are companies in most countries that will sell you Bitcoins in exchange for the local currency. In the United States, a company called Coinbase will link to your bank account or credit card and then sell you the coins for dollars. Opening an account with Coinbase is similar to opening a traditional bank or stock brokerage account, with lots of identity verification to satisfy the authorities.
For people who do not want to reveal their identities, services like LocalBitcoins will connect people who want to meet in person to buy and sell Bitcoins for cash, generally without any verification of identity required.
The price of Bitcoin fluctuates constantly and is determined by open-market bidding on Bitcoin exchanges, similar to the way that stock and gold prices are determined by bidding on exchanges.
Bitcoin mining refers to the process through which new Bitcoins are created and given to computers helping to maintain the network. The computers involved in Bitcoin mining are in a sort of computational race to process new transactions coming onto the network. The winner generally the person with the fastest computers gets a chunk of new Bitcoins, 12.5 of them right now. (The reward is halved every four years.)
There is generally a new winner about every 10 minutes, and there will be until there are 21 million Bitcoins in the world. At that point, no new Bitcoins will be created. This cap is expected to be reached in 2140. So far, about 16 million Bitcoin have been distributed.
Every Bitcoin in existence was created through this method and initially given to a computer helping to maintain the records. Anyone can set his or her computer to mine Bitcoin, but these days only people with specialized hardware manage to win the race.
Plenty. But these other virtual currencies do not have as many followers as Bitcoin, so they are not worth as much. As in the real world, a currency is worth only as much as the number of people willing to accept it for goods and services.
Bitcoin was introduced in 2008 by an unknown creator going by the name of Satoshi Nakamoto, who communicated only by email and social messaging. While several people have been identified as likely candidates to be Satoshi, as the creator is known in the world of Bitcoin, no one has been confirmed as the real Satoshi, and the search has gone on.
Satoshi created the original rules of the Bitcoin network and then released the software to the world in 2009. Satoshi largely disappeared from view two years later. Anyone can download and use the software, and Satoshi now has no more control over the network than anyone else using the software.
What Is Bitcoin, and How Does It Work? – The New York Times
Late last week, I noticed a spike in what we might think of as a certain financial index. It wasnt the trading in a financial instrument per se, but in the online traffic in a column I had written in December 2013. The column examined the recent crash in the price of bitcoins, which had plummeted to $600 from $1,200 in just two days. The headline read:
The bitcoin crash of 2013: Dont you feel silly now?
What was causing the spike in readership of that piece more than three years later was that the price of bitcoins was surging toward $5,000, a point it breached during the day on Friday. A few bitcoin true believers had dug out that old story and were, metaphorically, waving it in my face. Tweets citing the piece and asking if it wasnt me who should be feeling silly came pouring into my Twitter feed. Suddenly I was a meme.
So heres my short answer. No, I dont feel silly, but vindicated. If the recent run-up in bitcoin price proves anything, its that the virtual currency is still a dumb investment.
Not only that, but the surge undermines the case for bitcoins ostensibly chief purpose, as a medium of exchange. To understand why, we can start by scrutinizing the recent bitcoin surge or as financial historians might view it, the bubble.
First, the surge is of very recent vintage. From the end of 2013 through January this year, bitcoin as an investment was essentially dead money: Leaving aside some peaks and valleys, it traded in the $800 to $900 range in December 2013, and about the same in December 2016. (Im using coindesk.com price quotes as a benchmark.) Bitcoin crossed the $1,000 barrier in earnest around the end of January and really took off at the end of March. From then through last week, bitcoin quintupled in price. Since bitcoins were introduced only in 2009, the surge represents only a narrow sliver of a very brief lifespan. Tulips live longer.
Whats more, Fridays peak was gone by Saturday, when the price fell to as low as about $4,600. Thats a drop of 8% in a matter of hours. Is that significant? Think of it this way: If the Dow Jones Industrial Average fell by 8% in a day, that would be a plunge of more than 1,700 points. Most market participants, its safe to say, would regard a one-day collapse of that magnitude as cataclysmic. Since Saturday, by the way, bitcoin has continued to head lower. As I write, its quoted at about $4,350.
Bitcoins will undoubtedly rise in quoted value again, and also fall again, I wrote in 2013. The one inevitability about them is their volatility, to which there’s no end in sight.
Thats still true. As an investment, therefore, bitcoin is not for the average household. Even professional plungers might quail at such a volatile financial instrument.
What about people using bitcoin as a medium of exchange? Among bitcoins virtues, ostensibly, is that its anonymous, and theoretically easy to convert into or out of national currencies. This makes it relatively convenient for anyone needing to move financial assets around, out of the eyesight of government foreign exchange regulators, tax authorities or law enforcement agencies. The infamous Silk Road black market for drugs took payment exclusively in bitcoins until it was busted in 2013, for example. Ransomware perpetrators, who lock up institutions computers until theyre paid off, typically prefer bitcoins.
Bitcoin is popular among businesspersons in places such as Greece, Spain and China, where the impulse to get capital out of the country confronts strict government policies aimed at keeping it in. You can buy bitcoins from home and convert it into dollars, sterling or euros. These transactions are anonymous and electronic, typically performed via a virtual wallet maintained at a bitcoin exchange firm. Your capital exists in cyberspace, everywhere and nowhere like Schrodingers quantum cat, until you convert it into a recognized currency and deposit it in a safe offshore account.
Yet most bitcoin value appears to be held by investors, not used for trading or capital flight. Thats the conclusion of a research team headed by Susan Athey of Stanford. In an August 2016 paper, the researchers observed that the risk of bitcoin investing derives from the fact that its almost entirely virtual, with its supply governed if thats the right word by a mathematical algorithm. (Bitcoins are created by users of supercomputers solving an increasingly complex mathematical puzzle; by its terms, the supply of bitcoins can never exceed 21 million.)
Since Bitcoin is not backed by an underlying asset and instead has a fully fluctuating exchange rate. they wrote, there is substantial risk about its future value. Under those circumstances, speculative bubbles can form given many of the fluctuations that have occurred with Bitcoin exchange rates, the idea of bubbles seems salient. We may be in one right now.
That should give pause to anyone using bitcoins to transfer value. Consider yourself a Chinese or Greek business person using bitcoins to spirit, say, $50,000 in your local currency abroad. You convert that to 10 bitcoins at the peak last week; if you wait more than a day to convert it out of bitcoins, you get only $45,000 back. Wait until today, and youre down to $43,000. Thats a sizable transaction tax.
Factor in the instability of bitcoin exchange firms, which have experienced a string of failures, technical problems and government seizures tied to criminal activity for almost as long as there have been bitcoins. The bitcoin thesis is that its mathematical underpinning eliminates the need to rely on trust relationships with ones transaction counterpart, as long as one trusts the algorithm. But when the firm holding your wallet shuts down, who do you trust then?
This may be why bitcoin still accounts for a minuscule proportion of financial transactions worldwide. The capitalization of the bitcoin market that is, the 16.5 million bitcoins in existence multiplied by $4,350 each comes to just under $71.8 billion. The worldwide stock of broad money, which includes notes, coins and financial accounts, was placed at $82 trillion by the CIA as of the end of 2016. In market cap, bitcoin ranked just ahead of the Romanian leu, in 60th place and that was only after its quintupling in price this year. For comparisons sake, the market value of all U.S. dollars alone as of Dec. 31 was $13.2 trillion.
Oh, sure, let’s rely on bitcoin as a global reserve currency: The price action in bitcoin since July 2010 shows extreme volatility.
Oh, sure, let’s rely on bitcoin as a global reserve currency: The price action in bitcoin since July 2010 shows extreme volatility. (Coindesk)
What bitcoin has that the Romanian currency lacks is a fan base that sees it in ideological terms. These fanatics believe that its a viable alternative to what they call fiat money, which is currency subject to central bank buying and selling. The central banks, they further believe, are devoted to maintaining inflation, which can only sap those currencies of their value over time.
What they dont acknowledge, however, is that bitcoin is even more vulnerable to externalities such as government policies. Experts seeking to explain this years bitcoin bubble have pointed to factors including a speculative hysteria akin to the tulip mania of the 1600s or the South Sea bubble of the 1700s; and more welcoming policies enacted in Japan and Korea. On the other side of the cliff, however, the subsequent fall in prices has been blamed in part on a hostile policy issued by the central bank of China.
The real value of bitcoin may reside not in the price of these virtual coins, but the underlying technology, which is known as the blockchain. Blockchains, put simply, are ledgers or databases that arent maintained by a government agency, corporation or other centralized authority, but their community of users. Theyre encrypted to prevent unauthorized or secret tampering, which makes them especially secure. Bitcoin can be viewed as blockchains proof of concept.
Indeed, bitcoin is facing competition from other virtual currencies purporting to exploit blockchain more effectively. Investors are pouring into the blockchain space, hoping to get in on the ground floor of a technology with broader application for business and government than merely as a way to move money around.
That doesnt mean those investors have much faith in the market price of bitcoin. As is often the case in financial markets the real money is to be made via investments for which the actual value of the underlying asset is irrelevant. (Thats why brokers prefer to take a commission on every transaction, regardless of its price.)
As I wrote in 2013, bitcoin may well rise in price, but it may also fall after all, its done both, big time, in the last week. As an investor you may end up getting rich. But you may also end up looking very, very silly. Whether the price is $1,000 or $5,000, that will always be true.
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Bitcoin’s price hit $5000 last week. It’s still a dumb investment – Los Angeles Times
At least Beanie Babies have the alternative use for kids to play with. David Merkel
Safe to say the Aleph blogs David Merkel is not a fan of digital currencies.
In his latest bearish slam lobbed at bitcoin BTCUSD, +1.21% Where money goes to die, he explained why he believes most of the players in the crypto market will eventually disappear along with the fortunes of late-to-the-party speculators.
The lure of free money brings out the worst economic behavior in people, Merkel wrote. That goes double when people see others who they deem less competent than themselves seemingly making lots of money when they are not.
He says that digital currencies have three primary weaknesses: Theyve got no intrinsic value, cant be used to settle all debts public and private, and are less secure than insured bank deposits.
While bitcoin, as is typically the case these days, managed to shake off the declines brought on by an announced crypto crackdown in China, Merkel didnt back away from his grim outlook.
In fact, he gave China credit for trying to limit the emergence of new cryptos.
A good argument could be made that they all should be made illegal, he wrote in his blog post. Its almost like we let any promoter set up his own Madoff-like scheme, and sell them to speculators.
Of course, theres no shortage of fervent bitcoin backers whod quickly dismiss Merkels argument, like one crypto exec who recently said he sees bitcoin potentially reaching $250,000.
To get an idea of just how explosive the growth in cryptocurrencies has been, check out this chart from Visual Capitalist:
Sure, its certainly been an amazing ride for those getting in at the right time, but pain awaits those chasing similar returns, according to Merkel.
New asset classes that have never been through a failure cycle tend to produce the greatest amounts of panic when they finally fail. And, all asset classes eventually go through failure, he wrote. Ultimately, most of the cryptocurrencies will go out at zero. Dont say I didnt warn you.
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Why Beanie Babies make for a better investment than bitcoin – MarketWatch
Bitcoin fell by another $300 on Tuesday after the fallout of a Chinese ban on cryptocurrency crowdfunding methods saw the price of the digital coin slump earlier this week.
The virtual currency fell from $4,584 to $4,350 on Monday following the announcement of a regulatory clampdown on initial coin offerings (ICOs). Many start-ups rely on ICOs as a means to raise funds by selling off new digital tokens to the market. Total ICO investments peaked above $1.2 billion this year.
Although analysts contend that the price of bitcoin shouldn’t necessarily be linked with China’s ICO crackdown, the cryptocurrency hit a low of $4,037 on Tuesday, according to Coindesk’s price index. This follows an all-time high of more than $5,000 over the weekend, meaning the currency fell by almost 20 percent in the space of a few days.
“The price action has certainly been led by this Chinese salvo – but healthy profits and moving traders to take gains off the table too until the panic calms,” Charles Hayter, chief executive and founder of digital currency comparison website CryptoCompare, told CNBC via email.
The bitcoin analyst said that the cryptocurrency crackdown was expected due to “irrational excesses” in the Chinese market.
“The Chinese market has been perhaps the most virulently exuberant in terms of its irrational excesses and across the world regulators are looking to gradually turn up the regulatory heat on this ICO phenomenon,” he added.
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Bitcoin dips another $300 after China’s cryptocurrency crackdown – CNBC
Perhaps one of the biggest draws of cryptocurrencies like Bitcoin has been its murky tax status. Throughout the history of the industry there have been few if any set procedures and guidelines regarding the leading digital currency, prompting investors to wonder whether profits from their mining and investing in this area could be seen as “free cash” from the perspective of the IRS. Now, a report by Coin Telegraph suggests that it may not be so easy, although the results are yet to be determined. The IRS will reportedly examine how cryptocurrencies like Bitcoin should be treated with regard to income taxation.
When it comes to taxing, the fact that Bitcoin has recently split into two different currencies has some speculating that the tax implications may be favorable for investors. Earlier in the summer, Bitcoin developers and miners reached an agreement to adopt a new set of protocols, one result of which was that Bitcoin “forked” into two different currencies: the original Bitcoin, as well as a newer “Bitcoin Cash.” The newer currency aims to have a faster verification process by virtue of its larger blocks, enabling more users to conduct a larger number of transactions without clogging the network and slowing down processing times.
Investors holding Bitcoin prior to the fork received Bitcoin Cash at the time of the fork, provided that their wallets or exchanges of choice supported the divide. The nature of the split has some wondering if they will be taxed or not.
There aren’t preexisting guidelines on how Bitcoin and Bitcoin Cash are taxed, but analysts do seem to agree that there are applicable taxes on sales of either or both of the two currencies. If an owner of Bitcoin Cash sells his holdings and receives the profit as capital gains income, it is taxable.
According to the Notice 2014-21 from the IRS, “virtual currency is treated as property for US federal tax purposes.” This means that transactions on digital properties like cryptocurrencies can be taxed as well. To the IRS, it seems that Bitcoin is a capital asset which can be subject to short-term capital gains (if sold after less than a year) or long-term capital gains if sold for a longer duration. The tax rate will be 15-20% based on the value as determined by the fair market price.
The vigilance of the IRS regarding cryptocurrency profits may require that many investors change their approach to taxes. Because specific tax law may differ from state to state, it’s perhaps most helpful to speak with an accountant familiar with the local procedures in order to ensure compliance, particularly for those who deal in cryptocurrencies.
Sequoia Capital and IDG Capital are investing in Beijing-based Bitmain Technologies Ltd., the worlds largest bitcoin mining organization, according to people familiar with the matter.
Bitmain is raising $50 million from several venture firms to boost its profile among mainstream investors, said one of the people, who asked not to be named because the matter is private. Sequoia and the other firms also plan to provide the company with more guidance on management, the people said.
Bitmain, which produces chips and machines for mining bitcoin and operates its own mining facilities, has benefited from the rise in the currencys market value, now about $75 billion. The startup told Bloomberg TV in August that its own valuation is in the billions and its weighing a possible initial public offering. Bitmain has said that its planning toproduce chips for artificial intelligence and invest in mining facilities in the U.S.
Bitmain, Sequoia and IDG didnt respond to email queries about the investment.
Inside Bitmains bitcoin mining facility in Ordos, Inner Mongolia.
Photographer: Qilai Shen/Bloomberg
The company led by founders Wu Jihan and Micree Zhan has been at the center of disputes over how to expand use of the cryptocurrency. Operating the largest mining collective — a network of computers that verify transactions made on the bitcoin distributed ledger– Wu has championed the idea of increasing block sizes of the network that were previously capped at 1 megabyte to enable faster transactions. Opponents have criticized the proposals for giving miners too much power and came up with alternative proposals.
A split occurred within the community in August, causing bitcoin to become two currencies– the original bitcoin and an offshoot called bitcoin cash.
As Bitcoin Risks Big Split, Along Comes Minor One: QuickTake Q&A
With assistance by Yuji Nakamura
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Sequoia, IDG to Invest in China Bitcoin Mining Giant – Bloomberg
Just two days after achieving a historic high of over $5,000 on September 2, bitcoin’s price has plummeted to below $4,400.
The notable sell-off the biggest in the crypto markets since July 15 began immediately after the record high of $5,013.91had been reached Saturday,and has continuedtoday, according to data from CoinDesk’s Bitcoin Price Index.
Starting the session at$4,631, the digital asset traded sideways for a time (with a high of $4,636), until around 07:00 UTC, when a sharp drop was observed taking bitcoin to a low of $4,345 for the session.
At press time, the price had recovereda tad to$4,367 a drop of 5.7 percent ($263) for the day so far.
The downwards movement reflects a general drop in the cryptocurrency markets.
A glance at CoinMarketCap data reveals that most digital assets are down today, with only a couple of cryptocurrencies showing in the green.
Amid losses across allthe top 10cryptocurrencies, notably, ethereum is down 14.53 percent, litecoin is down 15.37 percent, and monero has dropped 12 percent.
Looking at the markets as a whole, since reaching a record high of around $180 billion, the combined market cap for all cryptocurrencies is now $152 billion a drop of $28 billion.
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Bitcoin Price Drops By Over $250 as Crypto Markets Lose Billions – CoinDesk
The price of the world’s best known digital currency briefly crossed the $5,000 mark on a major index for the first time on Friday evening ET, before retreating about 5% in subsequent hours.
The idea of Bitcoin breaking the symbolic milestone of $5,000 would have been unthinkable to most people at the start 2017, when the price topped $1,000 for the first time. If you’re keeping track, the digital currency is up 500% this year, and nearly 2200% since mid-2015, when it was in the doldrums at around $220.
There appears to be no single reason for the recent run-up. Instead, it can likely be explained by the same factors driving this year’s cryptocurrency bull run: Publicity-driven speculation; New financial products creating unprecedented liquidity; Trading surges in Asian markets; Institutional investors treating digital currency as a permanent new asset class.
Meanwhile, the $5,000 milestone is likely to trigger a new round of chatter that Bitcoin and other cryptocurrencies are in a bubble and vulnerable to a major price collapse. Bitcoin has experienced a series of spectacular crashes in the past (most recently in 2014 when it dropped around 75%) but has always recovered.
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Finally, it should be noted that Bitcoin crossed $5,000 on an index used by the trade publication Coindesk, but not by other major indexes. This is significant because Coindesk’s BPI index includes prices from several Asian exchanges, where prices are typically higher than US or European one. Here’s a screenshot showing the milestone (the time shown is GMT):
A more conservative price estimate can be found on an index created by the Winkelvoss twins, are among the world’s biggest holders of Bitcoin. Known as the Winkdex, the index only draws data from U.S.-dollar denominated exchanges. As you can see, the index’s calculation shows how Bitcoin prices approached the $5,000 mark, but did not break it:
Bitcoin is not the only cryptocurrency to achieve new highs this week. Ethereum nearly crossed the $400 mark for the first time while another smaller rival, Litecoin, briefly broke through the $90 mark.
As of Saturday late morning ET, Bitcoin was trading between $4,500 and $4,600.
This is part of Fortunes new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.
It’s the biggest sell-off since mid-July.
At press time, the total value of all publicly traded cryptocurrencies was $166 billion, a figure that was down more than 7 percent from a high of nearly $180 billion last night.
That’s when bitcoin, surging on technical improvements and growing investor optimism, topped $5,000 on the CoinDesk Bitcoin Price Index for the first time.
The decline was similar to what was observed on bitcoin, with average global prices declining from a high of $5,013.91 to a low of $4,619.97, a more than $250 decline.
Overall, it was the largest sell-off in the cryptocurrency markets since July 15, when the total value of the asset class plunged roughly 12 percent from $72 billion to $63 billion. However, that decline was part of a multi-day sell-off that saw prices drop more than 25 percent on what was then concern over bitcoin’s technical roadmap.
At press time, market observers seemed split on how to read the market movement.
In remarksto CoinDesk, some stated it might be too early to say the market has peaked given the recent upswell in institutional interest and the finite nature of new cryptocurrency creation.
On the latter point, some went so far to speculate the decline could be a “bear trap,” one that quickly opens the door for larger gains.
“Since bitcoin is getting a lot of media attention lately a lot of people are looking for a moment to enter the market,” Bram Ceelen, founder of cryptocurrency brokerage AnyCoin, told CoinDesk.
Others pointed to declines in July and May as evidence the market has still retracted, even during its 2017 rally, and that further declines were possible.
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The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [emailprotected].
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Bitcoin Drops Below $5000 as Crypto Markets See $13 Billion Sell-Off – CoinDesk
HARI SREENIVASAN: Im walking on Wall Street with author Don Tapscott. Hes written a dozen books on technology and sees one that could change everything around us. Hes not the only believer. While the Dow Jones Industrial Average is up about 20 percent in the past year, Bitcoin, a digital currency, is up more than 700 percent, with a total value of near $80 billion. Thats more than American Express. The surge has people wondering whether Bitcoin is in a bubble.
For Tapscott, that question is missing the real story.
DON TAPSCOTT, AUTHOR BLOCKCHAIN REVOLUTION: The real pony here is the underlying technology called the blockchain.
HARI SREENIVASAN: Tapscott and his son co-wrote a book called Blockchain Revolution, named after the technology that supports bitcoin and other so-called cryptocurrencies. Theyre called that because of the cryptography, or computer code, that makes them secure.
Tapscott says the technology is the key to creating trust in peer-to-peer transactions, like sending or receiving money without a bank or a credit card company in between.
DON TAPSCOTT: Trust is achieved not by a big intermediary; its achieved by cryptography, by collaboration and by some clever code.
HARI SREENIVASAN: Heres how the blockchain works: when you send or receive an asset, the transaction is recorded in a global, public ledger. A network of millions of computers store copies of that ledger and work to validate new transactions in blocks. When each block is verified, its sealed and connected to the preceding block, which in turn is connected to every block that has ever been validated, creating a secure blockchain.
DON TAPSCOTT: There is now an immutable record of that transaction. And if I wanted to go and hack that transaction, say to use that money to pay somebody else, Id have to hack that block, plus the previous block, in the entire history of commerce on that block chain, not just on one computer, but across millions of computers simultaneously all using the highest level of cryptography while the most powerful computing resource in the world is watching me. The way I like to think of it is that is a blockchain is a highly processed thing sort of like a chicken nugget, and if you wanted to hack it, itd be like turning a chicken nugget back into a chicken. Now someday someone will be able to do that. But for now, its going to be tough.
HARI SREENIVASAN: Tapscott predicts these global ledgers, or blockchains, could affect several parts of the economy during the next decade, in particular, the financial industry.
HARI SREENIVASAN: In a blockchain future, what happens to the New York Stock Exchange?
DON TAPSCOTT: Well, a likely scenario is it becomes a fabulous museum, and it is a beautiful building when you think about it. But buying and selling a stock can be done peer-to-peer now using new blockchain platforms.
HARI SREENIVASAN: He says routine transactions, like using a credit card or making online payments with PayPal or Venmo, could be replaced with instant, peer-to-peer blockchain transactions, speeding up how long it takes and shrinking the costs.
DON TAPSCOTT: Think about something like you tap your card in a Starbucks and a bunch of messages go through different companies. Some of them using, you know, 30-year-old technology, and three days later, a settlement occurs. Well, if all of that were on a blockchain there would be no three-day delay. The payment and the settlement is the same activity. So it would happen instantly and in a secure way. So thats either going to disintermediate those players, or if those players are smart, theyll embrace this technology to speed up the whole metabolism of the financial industry.
HARI SREENIVASAN: Beyond upending financial transactions, Tapscott imagines a future where a blockchain could be used to transfer any kind of asset, from a users personal data to intellectual property.
Some of that has already begun. This is Consensys, a technology start-up in Brooklyn, New York. Joseph Lubin founded Consensys and helped develop the Ethereum blockchain, the second biggest blockchain in the world after Bitcoin. Ethereum launched in 2015.
JOSEPH LUBIN, CONSENSYS: Ethereum is by far the most powerful blockchain platform out there. It has the most expressive programming language.
HARI SREENIVASAN: Meaning Ethereum can do something pretty radical: it allows for what are known as smart contracts to be built into the code. So it can also transfer a set of instructions or conditions.
DON TAPSCOTT: Its kind of like what it sounds like its a contract that self-executes, and it has a payment system built into it. Sort of like a contract that has built in lawyers and governments and a bank account.
HARI SREENIVASAN: At Consensys, one project applies this idea to music.
JESSE GRUSHAK: Click buy album
HARI SREENIVASAN: Jesse Grushack is the founder of ujo, a music platform for artists to distribute their music through the blockchain. Artists decide what price to sell their music and pocket more from their intellectual property.
JESSE GRUSHAK, UJO MUSIC: Were looking at how to make the music industry more efficient, but at the end of the day, our top level goal is getting artists paid more for their work and all their creative content.
HARI SREENIVASAN: But ujo is not yet easy to use. There is only one album on the platform, and it requires users to buy music with ether, the cryptocurrency used on the Ethereum blockchain.
JESSE GRUSHAK: The blockchain is still in its infancy right now. Its still kind of in the Netscape phase, really, of the internet. You dont have that AOL, you dont have that landing page that opens the world up to you. Its still a little nerdy, its still a little technical but were working really hard to kind of make it usable, make the user experience seamless because really this technology we want to be in the hands of everyone.
HARI SREENIVASAN: When he said, a little nerdy, he wasnt kidding. In order to get an idea, I went out and bought some crypto-currencies online and the process was not easy. Certainly not as easy as going to the bank to get cash or calling a stockbroker to buy a stock. But then, using my first email account in the early 90s, that wasnt easy either.
DON TAPSCOTT: I think were in 1994. And in 94, we had the internet and most people were using it for a single application, email. And thats kind of like Bitcoin is today. The application is called a currency, but were starting to see the rise of the web as we did in 94. A general purpose platform for building applications that changed many, many industries.
HARI SREENIVASAN: Youve literally written the book on the blockchain. How do you know that this is actually working, that people are believing in this, investing in this, understanding the potential in this?
DON TAPSCOTT: In every single industry now, companies are starting to implement pilots to explore how this technology can change their operations.
HARI SREENIVASAN: Tapscott points to retailer Walmart, which has done a pilot using a blockchain to track food safety, and manufacturer Foxconn, which is experimenting with using a blockchain to track its supply chain.
Still, this blockchain believer acknowledges it has a lot left to prove.
HARI SREENIVASAN: Theres several critics out there that kind of look at this and say, This is like tulip mania. This cryptocurrency stuff, this is a bubble, bigger than Ive ever seen before. Theres a bunch of people that dont know a thing about whats going on that just want to see something go up.
DON TAPSCOTT: Well, for sure theres a hype cycle that were into now. But the biggest impact will be that blockchain itself is going to change the fundamental operations of banks, of retail companies of supply chains, of manufacturing companies, of governments, and of every institution in society.