Blockchain going physical
As a guest speaker at various events, I am occasionally asked to talk about topics other than Bitcoin and payment transactions. Recently I had the pleasure of giving a lecture on the application of blockchain technology in the insurance sector. Presentation finished, any question? On your marks, get set, go! And there it was, the question that inevitably comes up — like the next tweet by Donald Trump. Where will the price of Bitcoin be in one year’s time? As if I knew. The honest answer is somewhere between zero and 1 million. Why 1 million? Because John McAfee bet his manhood on it[1], and that number sounds cool. Why zero? Because practically anything can happen at any time. Even that someone finds a shortcut for the calculation of private keys from addresses, which would make Bitcoin practically worthless — as unlikely as that may be. Normally, someone would then throw in the equally unavoidable question as to what constitutes a Bitcoin’s value. Welcome to the philosophy lesson! Someday I’ll write a fat tome about it and give the questioner the choice of whether he/she wants to be struck dead with it or die from boredom reading it. A concept like value is so terribly subjective, and the object of evaluation is so utterly polarizing, that opponents and proponents of cryptocurrencies resort to a battle of words, in which they often clash and debate loudly. The coin is to the hodler[2] as the maple[3] is to the gold bug.[4] By the way, gold bugs can hardly ever do anything with Bitcoin. Go visit the Precious Metals Fair in Munich and treat yourself to the fun of getting an exhibitor or visitor involved in a conversation about Bitcoin. Then you will know what I mean.
“The Gods Must Be Crazy” is the title of a good old film that came to mind recently. A bushman is put in prison because he kills a goat for his own use. Unfortunately, though, it’s not his goat, although that doesn’t make any difference to him. The protagonist of the film bails him out from a sense of pity and gives him money, against his friend’s advice. What happens? The bushman continues his journey, and not much later the brilliant camera shot shows the bundle of money blowing across the ground in the gentle wind of the savannah and the little guy disappearing into the distance. He doesn’t need the scraps; the concept of money is foreign to him. Even if the analogy is somewhat askew (as if already subjected to the warping influence of the Precious Metals Fair), the parallel is still there. Because even with cryptocurrencies it is practically impossible to convey the properties and possibilities of blockchain technology to someone who has no use for it. This is simply due to a small problem that I will go into shortly.
Bitcoin is already 10 years old, and with it the technology of the blockchain in its entirety. Adherents of the scene know that its individual elements have existed for some time already, and that the Bitcoin blockchain has not produced anything fundamentally new technology-wise, but merely represents a clever idea for assembling known techniques in such a way that values can be transferred without a third party. This is irrelevant in practice, though; and almost exactly 10 years ago, this clever idea became public in the form of the Bitcoin Whitepaper written by a guy named Satoshi Nakamoto. The first 5 years of this glorious decade were reserved for the so-called “early adopters” and “early movers” — that bunch of filthy rich slipper- and hoody-wearing millionaires and billionaires who were lucky enough to hear about Bitcoin from a nerdy buddy over a beer “Bit… what?”. Of course they had a few dollars to put aside thousands of the coins which, back then, traded for fractions of centimes. The cleverer ones — those who still call themselves millionaires today — did not deposit their coins on a hard drive, which may then be disposed of in the garbage dump, as happened to a certain Mr. Howell[5],[6]. And they also did not cash in early in the belief that two dollars[7] was a suitable price for an exit. Some of these millionaires-to-be today have the cult status of travelling minstrels, sharing their grief with the audience about how much tey lament not having held back on their Bitcoin sale. “That Lamborghini out there, I’d own it now, if it wasn’t for…”
Apart from the folklore, the following 5 years were much more exciting. There were big scandals and somewhat emotional moments in which fortunes were made or lost. Hacks, bankruptcies, bad luck and breakdowns included, such as the famous Mt.Gox collapse. There were also some real companies, with real employees, more or less well-thought-out business models with sometimes brilliant ideas. Everything is still “beta[8]”, few of them ever really made a profit, apart from the infamous ICOs[9]. The people who really made money in this phase were the exchanges and exchange offices, and the banks with their horrendous fees for blockchain companies to open bank accounts. And why is it so?
Because speculating Bitcoin and Co is still a promising business model today, undisputedly topping the headlines. And that’s exactly what I mean by the small problem of the blockchain. The good ideas simply drown in the noise of the speculators, which gives all passive participants the impression that this “terrible Bitcoin stuff” is just a gigantic pyramid scheme. That’s nonsense of course, but how can you get that across when the good idea isn’t being trumpeted into the world by Microsoft, IBM or other industry giants? It will only happen little by little. Moreover, it’s actually very difficult to turn something as complex as the blockchain into a working business model. And with blockchain technology there are perhaps a handful of experts worldwide who are really familiar with the technology and at the same time possessing the required business acumen. Do you have any idea how much you have to pay for these experts?
During my lectures, from time to time someone wants to understand the details of blockchain technology, and I occasionally get tempted to explain it to them in just a few minutes. You know, not just the “why” (that one is easy to understand) — but the real “how” — it takes a lot of brains to get that part. Do you remember the pitiful contemporary who is looking for the hard drive on the garbage dump? Where are the Bitcoins really? Do you know?
You can explain the “how” with a huge abstraction, but unfortunately at the price that you’re actually explaining nonsense, just like the analogy with the bee and the flower. Whoever makes the mistake of getting carried away to a “technical” explanation deserves a stone throwing at him. I am a repeat offender and have a rather sizable collection of stones: small, large, pointed, flat …
So where are Howell’s Coins? Are they in the trash? No, they’re not, not physically anyway. This is something else that almost makes people lose their minds when they try to understand the principle of the blockchain. The Bitcoins are, and always remain, on the Internet; and they can’t go away. They’re just a few bytes that are cryptographically assigned to a key. So, what’s on the garbage dump if it is not Bitcoins? It is only the key that remains, correct? Of course, this is the case. Only the key is in the trash, and Howell would really move mountains (of trash) to get it back. Practically, the Bitcoins are not gone, they’re still there — but unfortunately frozen, and therefore equally worthless as the piles of rubbish around them. Theoretically Howell still has his bitcoins, but at the same time he does not. Fascinating, isn’t it? Now, please put those stones down!
Well, the unfortunate truth is that a Bitcoin actually can’t be touched. Do you think the coin you can buy online or the chip card or note with the printed QR code is really the Bitcoin? They are only carring materials of a key — just like Howell’s hard drive. You cam never print, store or touch the Bitcoin itself.
It is widely accepted that you can’t touch nuclear fission (honestly, I would discourage you from trying), but you can touch the current coming out of the line (even if you’d better not). Nuclear fission is complicated to explain in detail, so is electric current, but it is understandable at least by its nature. But the foodmixer that is powered by electricity is ultimately a familiar part of everyday life, and you can touch it (I assume you’re enough of a house-husband to know what end of the mixer is the more dangerous one).
So the small problem with blockchain technology is that you need something physical, or at least tangible, to allow you to get familiar with it. And because it’s so difficult to build something even tangible with it, the technology has quite a hocus-pocus reputation with the average person.
Over the last year and a half, all across the world people have been experimenting with the digitalization of real objects. The principle is always the same. Pragmatism at its finest. Since one cannot teleport an object from one place to another (at least not yet), digitalization is limited to documenting and “tokenizing” the claim to the object, i.e. storing it in a blockchain as a digital coin — or “token”. Whoever has the token is entitled to the physical good. No transport, no teleportation, just a claim. It was similar with the emergence of paper money, with its substitute — IOU (“I owe you” — so a certificate of debt) — for a real deposited object, typically a piece of gold. It’s funny somehow, that we are now repeating this development with the blockchain; and this time, so it seems, without the banks. Tokens are still one order of magnitude more flexible than a scrap of paper, though, so the analogy ends here. I can do a whole lot of things with such a token. If I want to, I can limit ownership rights digitally and even meet the extremely cumbersome requirements of the regulators and supervisors of printed and digital money. A token can “consume” itself when used, and it can be unique or not. It can trigger a script and thus any subsequent reactions when it is transmitted. In short, a token is something akin to a banknote with brains, arms and legs; and since anyone can now issue such a token, there is practically no limitation to the rights that go with it.
How about, for example, the right to intellectual property?
A little example? I have a quadcopter, and I openly admit that I am a terrible pilot. Even Quack[10] looks down on me with disdain. The propellers tremble with fear every time I insert the batteries, because they know at least one of them is making its last flight today and will then go where no propeller has ever come back from: in the bucket under the sink. 3D printers don’t cost much today, and they are becoming more and more advanced. What could be more obvious than simply reprinting the propellers? But here’s the catch: Unfortunately, it’s more complicated than me just showing the printer one of the last surviving propellers and saying, “Well, buddy. Now take a good look at that one, and you’ll do another one like that, won’t you?” The small machine needs a 3D print file, otherwise it won’t work; and the person who owns this file usually doesn’t want to give it away for free. Why doesn’t he want to? Because he can’t control how many different propellers I’m going to replace with it. He’ll make more of a killing by selling me the propellers individually. But things can get much worse. Instead of printing them only for myself, I could sell them to pilots just as bad as, or even much worse than, me. They might chop up several dozen propellers a day; so even if I print them with his file, he earns zilch from my small business. So he doesn’t put the file up for offer, but the printed propellers instead. Indeed, he would be foolish not to.
Propellers are cheap commodities, like toothpicks. Let’s take car parts as an example — assuming that printers will become much bigger and more precise than they are today. Nowadays there are so many objects that can be printed. It is possible to create mobile phone housings, all kinds of decorations, handles, furniture, textiles and food[11] — and this is just the beginning! 3D printing technology is in its infancy and is developing rapidly.
So how do I get someone to give me his or her 3D print file? It will only work if a) I can persuade the person to trust me that I will delete it after using it, and, b) there is a mechanism that does the job reliably. If that succeeds, then you can establish something as ingeniously simple as self-printing as a business model.
Indeed, a number of companies[12] are currently developing practical solutions that use end-to-end encryption to ensure that the 3D print file, and thus the valuable intellectual property, can no longer be copied freely. It’s a Herculean task, because in the end data is usually not directly protectable (we know that from music, right?), but encryption (aka cryptography) solves the problem. And since we are talking about cryptography, and the blockchain is a kind of deus-ex-machina implementation of cryptography, its use for copy protection is obvious.
Hey, presto! Finally, it gets tangible — a practical example of Blockchain. Of course, you could solve something like that without Blockchain. So-called Digital Rights Management (DRM) has been an issue since Napster, and Apple has solved it quite cleverly. But that was and is a very central solution where it is always a single company that can dictate the rules and has its hand on the technology. For the first time, we have the opportunity to decentralise the market and create fair conditions with the help of blockchain technology. No longer can individual providers or marketplaces with their sometimes horrendous fees act as the brokers for such data, but every participant can benefit from it. THIS is what’s really special about the idea of revolutionizing something like 3D printing using tokens; and that’s what Blockchain is all about: decentralization of processes and markets without deliberately created entry barriers or fees. At the same time, the blockchain can also be used conveniently to indelibly document something like authorship of intellectual property or similar. It might sounds inspirational and visionary, but it is gradually becoming reality, step by step.
Speculation with the price of Bitcoin and Co will still move the most money for many years to come, but the real value of the technology will come with the gradual spread of applications such as 3D printing and copy protection into everyday life — because you can actually do something with it.
That’s why in blockchain forums you can already see company names that even ordinary people are familiar with. IBM, Microsoft, JP Morgan are all there, along with other well-known banks, insurers, retailers, transport companies, tour operators… the list is long. And everyone wants to secure a piece of the large crypto-cake that is being baked (or printed). 2019 will be the year in which tangible technologies and solutions come into the market. Let’s see if I can organise and print a cupcake via the blockchain…
And sorry for the scoundrel who sends me a cobblestone for my self-printing idea!
[1] https://blockberg.io/john-mcafee-will-eat-his-own-dick-if-bitcoin-not-1-million-by-end-of-2020/
[2] This was originally supposed to be “holder”; i.e., someone who holds coins and does not sell them. The spelling mistake was spread on Reddit and became a cult meme.
[3] A maple leaf is an ounce of gold.
[4] This is what they call someone who invests in precious metal, mostly with the ulterior motive that the economy and all currencies will soon go down the drain, and the gold will help them feather their own nest.
[5] http://www.manager-magazin.de/finanzen/artikel/bitcoin-brite-james-howells-warf-bitcoin-festplatte-auf-den-muell-a-1182083.html
[6] https://www.stern.de/digital/online/bitcoin--80-millionen-festplatte-landet-auf-muellhalde---und-bleibt-auch-dort-7776230.html
[7] NB: We are currently at a price of around 3800 USD per Bitcoin as of10 Jan 2019
[8] An immature predecessor to a product that will soon be available
[9] Initial Coin Offerings: A means by which a crypto startup can raise its investment capital through the sale of coins, for a service that does not yet exist, the value of which has mostly increased through speculation, making the service so expensive that nobody would use it anyway and would rather trade with the coins …
[10] https://www.duckipedia.de/Quack
[11] https://www.3d-grenzenlos.de/magazin/thema/lebensmitteldrucker/
