171023 Blockchain

Key to Bitcoin’s success is the underlying blockchain technology, an example of a distributed network. Blockchain is a brilliant solution to the problem of trust. Trust makes the world go ’round.  Put simply, without trust online payments would never work.  Sure, you could send virtual currency to someone over the internet but how would they know if it were real or not.  How do they know if you haven’t sent the same virtual currency to someone else?  In a traditional money/currency scheme, a central clearinghouse or ledger is kept to note all transactions.  Those are examples of centralized networks where all nodes can be traced back to a central point.  That’s the system in place today for the entire banking system throughout the world.  The problems with that kind of system are many.

With a centralized banking system, secrecy is key.  There are fees necessary for someone to do the accounting and it all takes time.  With all of the safeguards that have been put in place, there is still fraud.  I’ve been told it was as much as seven percent on the credit card network at one time.  For example, a wire transfer takes an enormous amount of information, filled out on a form at the bank.  Addresses, balances, and permissions have to be verified.  Even so, wire transfers take hours and have enormous sending and receiving fees associated with them.  Blockchain does away with all of that.  Openness is key and transactions are completed in a matter of seconds, with no fees at all.  There is a very small processing fee for any transaction.

The enigmatic inventor of blockchain, Satochi Nakamoto, created a brilliantly simple yet elegant solution to the problem.  Transactions would be distributed throughout the network.  A block would be created with each new set of transactions.  Usually, blocks have about 1000 bytes (1K).  The new block is chained to several existing blocks through a simple but elegant process.  The new block is not considered bonafide until several existing blocks authenticate its existence.  When it is authenticated, it is added to the chain.  The chain grows ad infinitum.  Multiple existing blocks authenticating new blocks is key to the issue of trust.  Bitcoin has used blockchain since 2009.  There have been many millions of transactions thus far.  Blockchain works!

171018 Cryptocurrencies

Cryptocurrencies are encoded currencies; money programmed to exist only on the Internet.  Most are based on blockchain technology, a methodology developed by Satochi Makamoto, the enigmatic inventor of Bitcoin.  Blockchain has become suddenly a raging success, discovered by Wall Street, the insurance industry, manufacturers of all types, social media developers, sports teams and municipalities around the world.  The list of applications actually goes on and on because anywhere a secure ledger is required, blockchain is a desirable solution.  The operable word is SECURE.  Every entry is public and shared throughout the network, instantly.  New entries are not accepted until they can be verified by a secure number of existing portions of the ledger’s network, making it completely trustworthy.  That’s key.  If an information network can be trusted implicitly, then it can be built upon in all sorts of manners and ways.  People, companies, and organizations of all variety are rushing to do just that.

Blockchain’s first application, Bitcoin, has seen huge success and continues to thrive eight years since its inception.  Following that, hundreds, if not thousands, of other cryptocurrencies have come into being.  Each one designed to optimize some aspect of its nature to an advantage.  Whether it’s faster, or smaller or holds more information, each cryptocurrency’s advantages make it more or less desirable.  It’s difficult to understand why the world would need hundreds of cryptocurrencies.  Perhaps it doesn’t.  We’ll soon find out.  But, for now, think of it this way.  American Airlines issues “Airmiles” credits for use by its customers.  Virgin Atlantic does the same only theirs are called “Virgin Airmiles.” And, wouldn’t you know it:  American Airlines doesn’t accept Virgin’s miles.

The problem is more nuanced than that, however.  In the world of barcoding, for example, there are several different types of barcode, each designed to do something well; better than any of the other barcodes.  Datamatrix holds vast amounts of information in a small space. Code 39 is very forgiving. It can be printed poorly, be covered in mud, and are still just as readable.  UPC and EAN are highly restrictive; a focused set of rules makes them difficult to forge, keeping fraud at a minimum.  In the world of cryptocurrency, forward-looking programmers are envisioning all sorts of problems these new monies will encounter and proposing alternatives. Some will prove to be good solutions, some not.  Only time will tell.

171010 Bitcoin, Plain and Simple

Bitcoin is a virtual currency.  That means it has no physical being.  It exists as an idea or as information.  Just as I would pay for a vacation flight with ‘Airmiles’ I accumulated on my credit card promotional program; there is nothing physical that represents an ‘Airmile.’  It’s just an idea.  But Airmiles can be used to purchase items from a catalog. You get Airmiles by spending money and taking trips when signed up for the program.

Satochi Nakamoto began Bitcoin in 2009.  No one has ever met Mr. Nakamoto.  Some people do not believe that is his real name.  But he wrote a detailed paper designing the whole system, then programmed it, gave it over to a group to continue his work and has disappeared.  But that’s the stuff of another blog.  Let’s stick to the topic; an explanation of Bitcoin.

Bitcoin is an idea, too.  You get Bitcoin by going to a Bitcoin exchange and trading another currency for it; U.S. dollars, for example.  USD->BTC

Bitcoin is a cryptocurrency.  That’s a new term.  Cryptocurrency is an encoded currency.  Currency, like money, is used to transfer value from one person to another.  A virtual currency is encoded so that it appears on a computer, but there is no real paper or metal manifestation of it.  It is only on a computer.  Just as I couldn’t pull an Airmile out of my pocket, I can’t find any Bitcoin there, either. All of the images you see on the Internet of shiny gold coins with the Bitcoin symbol are just art.  That is not what Bitcoin is.  It doesn’t look like anything because it does not have a physical existence.   Just as if someone gave you a big red heart saying, “This is my love,”  that is only a representation of their love but not love itself.

But just because it’s virtual and doesn’t have a presence in the real world, doesn’t mean it doesn’t exist.  Bitcoin is very real.  Today one Bitcoin is worth USD 4775.  It is its trustworthiness that makes Bitcoin compelling.  If someone puts a Bitcoin in your Bitcoin wallet, you can be sure it is real, and you just received its full worth.  That’s not true about most other currencies.  For example, if someone gave you a check made out to you from a bank for one thousand dollars, how would you know if it was good or not?

To explain why Bitcoin is trustworthy I have to describe how the network works.  I know technical descriptions are not everyone’s cup of tea.  I’m not going to do that here.  But, I will do that later on in this blog because it’s interesting and worth knowing about if you want to understand Bitcoin.  For now, let’s teach by way of example.  We now live in the age of the Internet.  Just about everything we do, in one way or another, involves the Internet. Satochi Nakamoto started by thinking about designing a genuinely trustworthy system to exchange value from one person to another.  The first assumption or guideline would be: everyone must know what everyone else knows.  No secrets.  On the Internet, that’s not complicated to do.  If you send everyone a complete copy of what you have, then everyone has the same thing.  If anyone doubts what they have is accurate, they can check with anyone else in the system.  In the case of Bitcoin, who is “everyone?” “Everyone” is anyone who owns any amount of Bitcoin.

As new owners appear in the Bitcoin network, they are called ‘nodes.’ A ‘node’ doesn’t connect to every other ‘node’ but a few.  These connections are called a ‘chain.’  You might have heard the term ‘blockchain’ or ‘blockchain technology’ when speaking of Bitcoin.  Bitcoin is base on blockchain technology.  That’s what I am describing here.  You would say ‘blocks’ are added to the chain when connecting node.  With each new transaction, the nodes connected to the sender of Bitcoin are checked,  and then the receiver, in turn, is connected to a new node.  Checking takes some time and why Bitcoin transactions are never instantaneous.

All of these are computer transactions.  Since this would be a decentralized system, that is to say; there would be no centralized headquarters or command responsibility, no single company or government would own the network, Satochi Nakamoto had to figure out a way for someone to get paid for doing the computing to manage the transaction.  He also had to figure out a way that anyone could be allowed to do this work, that it would be accurate and trustworthy.  He did all of that.  Again, some future blog post will explain the details of those parts of the network. The people who do the work are called ‘miners.’  Miner and mining are not entirely accurate terms.  He isn’t going to dig and find Bitcoin like digging and finding gold.  It is only similar to gold mining in that new Bitcoin appears after the miner does his work.   End Part I

171004 Blockchain-based Asset Tracking

The headline read “US Treasury Pilots Blockchain-based Asset Tracking System” and I thought, “What a great application.”  For anyone who has been part of, or, worse yet, in charge of, asset tracking you know what a nightmare it can be.  I naively thought I could implement such a program at a company I worked for once.  Boy, was I wrong!

We were having trouble with lost, misplaced and stolen equipment from the workplace so I instituted an asset tracking program which required someone (me) going around from room to room and recording each item, description, quantity or condition of an item for the record.  Then, for the program to work everyone was responsible for entering, editing and updating the database whenever a change was made.  That was never going to happen.  But I learned the hard way.

Someone brought a chalkboard from one floor to another with every intention of bringing it back as soon as they were finished with it.  Stuff happens.  During the meeting, the boss decided to keep a small group on to work on the schedule outlined in the diagram on the blackboard.  That blackboard would have to stay for the duration of the project.  No one entered that fact into the inventory database and the blackboard went missing, as far as anyone responsible for inventory was concerned.  The program devolved into a nightmare because records weren’t being updated, new items were added and old ones subtracted without the fact being recorded.  After a while, the paper labels and the ledger book were ignored and could not be trusted.

Some asset management programs require the location of the item AT ALL TIMES such as airport luggage.  Others, such as my equipment inventory program have a location field in the data but that is just wishful thinking.  You see the problem, though.   See tracking program has different requirements, and, based on the level of participation, different outcomes.

Using blockchain, at least one problem is eliminated.  The data can be trusted.  Now, if procedures for the proper input to the blockchain can be established and maintained, there might be an asset tracking program worth its weight in gold.

170818 Bitcoin Bubble

Why the bitcoin surge is not a bubble. Bitcoin has been around since 2009.  It was, by design, made to only have 21,000,000 bitcoins at its maximum including all coins that have yet to be issued to miners who will maintain the blockchain network behind Bitcoin.  16M are already in use.  The rest will be issued to miners for their work.  So, in a sense, bitcoin is very rare.  The designer, Satochi Nakamoto (maybe assumed name) laid out a plan that isn’t complete for 100 years.

How rare is Bitcoin?  Think about this. There are 5.5 billion ounces of golden the world.  There are 7.5 billion people in the world which works out to about 3/4 ounces of gold for every man woman and child on the planet.  If gold is about $1325. these days, that equals about $1000 in gold per person.  If the 21 million Bitcoins were to someday be as popular as gold in representing wealth, each person would have .0028 bitcoin.  If .0028 bitcoin equals $1000, then a whole bitcoin would equal $375,000.00.  Possible? xxxx xxxxx says bitcoin will be worth $100,000 by the end of 2018.  This gives you some idea of bitcoin’s potential worth.  Let’s say we were talking about US dollars.  How many dollars are there in the world? Including cash and certificates of deposit, I’ve seen some estimates of 25 trillion dollars.  That would be about $3333. per person on the planet.  Today, bitcoin at its current value is worth about 88 billion dollars, about half the value of General Electric Corporation.  Not bad for a startup. 🙂

170913 Hernando de Soto

HandshakeIn May 2015, ($3948) Hernando de Soto attended the first annual Blockchain Summit, hosted by British billionaire Richard Branson.  de Soto is the author of a 2000 non-fiction work entitled: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. ISBN 0-465-01614-6 It’s a fascinating read.

He has been advocating the need to have secure documents that memorialize property.  He gives the example of a young couple, here in the U.S., buying property, putting as little as 20% down in cash and going to the bank to borrow the rest, 80%. The couple now has a mortgage, which allows them time and capital to spend on improving the property, among other pursuits they may have, such as starting a family or business.  In a sense, they created capital by taking that mortgage loan.

The bank feels safe and secure knowing the couple is the rightful deed-holders of that property.  Moreover, the bank knows they have the support of an excellent legal system, police department, judges, and lawyers should they have some entanglement with the loan.  Furthermore, they know there is a host of other systems in place that will help secure the property such as a fire department, utilities, and local government.  Trash will be collected and should the need arise, the couple has the support of a local hospital and doctor.  There is a Building Department to ensure good practices are followed, a health inspector, and government planning for roads and bridges.  All of this helps the bank to feel safe in making the loan.

Now, de Soto continues, imagine the same couple wanting to purchase a similar property of similar value in Guatemala.  They go to a bank and ask for a loan.  The bank says, “How can we be sure that you are the owners? Just yesterday a man who claims to own the same property came to see us.”  No loan.  Without all of the various systems in place that helps ensure the value of the property by insuring ownership and more importantly TRUST, that couple cannot leverage their cash to buy property or invest in a business or all of the other things capital makes possible.

Blockchain technology, what Bitcoin and other cryptocurrencies are based on, does just that.  It ensures trust between trading partners.  Even strangers are able to trust each other in a Bitcoin transaction.  It’s no wonder Branson invited de Soto to speak at the Blockchain conference.  de Soto understands how important TRUST is to capitalism.  Blockchain technology holds great promise for any system that requires trust.

thoughtworms.com

IMG_5188Welcome.

Thoughtworms are interesting bits of information that preoccupy the thinker, continually reappearing in a person’s mind, after it is no longer the focus of attention or subject of discussion.  A thoughtworm is that little fact that did not appear to be of significance, at first, that grows in direct proportion to the amount of time you spend dwelling on it.

A thoughtworm is something you figure out over time, by discovery or solution.  Just how thoughtworms fit into your world view is not immediately apparent.