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Gordon Fletcher, University of Salford
Efforts to explain Bitcoin and cryptocurrencies in general have generally focused on how they are both a new form of money as well as a challenge to existing forms of money.
Cryptocurrencies are novel as they are only possible because of the ready availability of high-speed computing and networks. They are a challenge to today’s currencies because of their decentralised nature, taking them out of national governments’ control. Small signs that Bitcoin has filtered into the popular imagination include its appearance in US courtroom television drama The Good Wife, in an episode called “Bitcoin for Dummies”.
What has been given less attention is the mechanism that makes the bitcoin network possible, the blockchain. To own and use bitcoin or any other cryptocurrencies requires no knowledge of how the blockchain works. Nevertheless the concept is relatively straightforward. It is best thought of as a complete ledger of every bitcoin transaction ever made, of which every bitcoin user has a copy that is constantly updated as new transactions are made.
But this accounting analogy is something of a disservice; the blockchain has the potential for so many other uses beyond exchanging value that it shouldn’t be ignored.
Smart contracts
Foremost among those pushing alternative uses is the Ethereum project. Although it also provides its own cryptocurrency, ether – it sold 61m ether in its opening sale this month, raising around US$15m – the project sets out to do much more.
Ethereum includes a programming language, EtherScript, with which users can systematically set out a contract in a programmable form – a smart contract. Current examples of smart contracts are digital rights management such as is included in some digital media files, which is a smart contract means of enforcing copyright licensing. Or software that automatically throttles network traffic to within acceptable limits is a form of smart contract to deliver and enforce service-level agreements between service providers and clients.
Ethereum smart contracts are notated in a form of logic similar to that found in typical contracts, and are programmed into the blockchain, where they reside, as binding, self-enforcing and self-executing statements. The use of the blockchain means that each contract is distributed across the network with time triggers agreed and written into the contract. As each contract is widely distributed there is no prospect of dispute at a later date.
Some may recoil from this mix of cryptocurrency, programming language and contract law, while others may see the appeal of a secure and unbreakable contract written systematically and consistently in a common (programming) language. Various controversial claims around Ethereum suggest it will remove the need for lawyers, or even the need for bankers.
Beyond digital cash
The immediately obvious applications for Ethereum are financial, so uses such as new cryptocurrencies and peer-to-peer gambling are those that are regularly cited. But disentangling Ethereum from its cryptocurrency heritage opens up still wider potential applications.
The Ethereum White Paper outlining the concepts and aims of the project describes how using the blockchain can be used to form decentralised autonomous organisations (DAO). In effect, any business process that requires trust and knowledge can be programmed into the blockchain as a smart contract so that it functions automatically and consistently when a small financial transaction is injected into it in order to activate the contract.
By becoming a DAO, organisations can benefit from the sharing of resources including computing power. Being distributed places corporate security in the hands of the network rather than any one individual. The principles of collective organisations can also be boosted with the use of the blockchain to potentially determine the outcomes of debates and discussions conducted systematically through the network.
While there are few practical examples yet, there are many potential uses. Using Ethereum’s blockchain to define “prior art” could redefine how intellectual property included in patents is created and defended. In a similar way open innovation could become a more powerful mechanism by using the blockchain as an arbitrator that offers attribution of original ideas in the correct chronological order. The blockchain can also be applied to education, used to verify attendance and identity for exams held at remote locations. More ambitious applications could capture entire business processes and ensure their compliance throughout an organisation – the effects on running entire businesses could be as revolutionary as any claim to bring about the end of lawyers.
Just as there was enormous excitement with the realisation of what cryptocurrencies like Bitcoin were capable of, so too will there be excitement around the different applications for Ethereum. Bitcoin was the first of many cryptocurrencies, and Ethereum is just the first to exploit the blockchain in novel and creative ways.
Others are already arriving, for example IBM’s Adept project takes the blockchain in an entirely different direction, putting it at the centre of a future internet of things. Here the blockchain is used to authenticate devices so they can communicate with each other, using the blockchain to store a record of devices that have done so. This would offload much of the computing-intensive processing required, meaning longer battery life for internet of things devices.
Ethereum and Adept, and those that will follow, could change the way we do so many things, redefining how trust is traced and recorded, and the ways in which organisations store and exchange knowledge and value. Watch this space.
Gordon Fletcher, Centre for Digital Business, University of Salford
This article is republished from The Conversation under a Creative Commons license. Read the original article.