Bitcoin may never be a sustainable currency for anything besides buying illegal goods on a Deep Web market, despite flirtations from online retailers like Amazon and Overstock.com. But the technology that underpins it is a major breakthrough -- it’s basically a database that anyone can check and write to but that nobody can delete. This underlying construct, known as a blockchain, makes the bitcoin perfect for tracking property and other assets in the real world.
Several enterprising companies are using the blockchain to keep track of objects with substantial value, including stocks and art and land. And it’s not just startups and cryptocurrency fanatics who are embracing the blockchain -- major institutions are experimenting with it as well, including Nasdaq, which runs the second largest stock exchange in the United States.
What Is The Blockchain?
The reason bitcoin works is the blockchain, which works like this: A network of computers around the world checks every bitcoin transaction and records it in a database, which is how you can be sure your bitcoins are yours and haven’t been spent before. Essentially, it’s a ledger that millions of computers agree on. The beauty of the blockchain is that it can timestamp anything -- sort of like a notary.
This isn’t theoretical. If you’d like to prove that your business plan -- or novel or a prediction -- exists, you can embed a note in the blockchain using an inexpensive service called Proof of Existence.
The service, created by Manuel Araoz, essentially takes your document and slices it up to create something mathematicians call a hash -- a string of letters and numbers that uniquely and provably corresponds to your document and the time it was uploaded.
That hash is then listed in the comment section of a tiny bitcoin transaction, say, a cent or two, creating a record that your document exists -- but not a copy of your document itself -- on computers around the world. For example, here’s proof that my first draft of this story existed at 12:15 pm EDT. You can also find that proof here, here, and here.
But Araoz isn’t satisfied with providing a notary service. He tells International Business Times he’s working on a new blockchain application -- for tracking land.
Digital Gold In The Hills
Araoz isn’t the only entrepreneur who thinks the blockchain is a great fit for real estate. Last week, Reuters reported that the country of Honduras entered into a deal with American bitcoin startup Factom to build a land title registry using blockchain-based technology.
“Using the blockchain with land is more of a longer play. You’re going to need a nation or region or state to connect the legal dots,” said Peter Van Valkenburgh, director of research at bitcoin lobby Coin Center.
Instead of passing a deed when you sell your house, the deed could be a hash included in a fraction of a bitcoin. That piece of Internet money then becomes a “colored coin.” That colored coin might be involved in a transaction that’s only a few cents, but you’re actually passing an asset.
Factom CEO Peter Kirby’s pitch is that his technology will reduce fraud. Currently, Honduran land is managed by the government, which means corrupt cronies could potentially steal prime real estate. But if all land needs to have a title confirmed by the blockchain, not even well-connected criminals could claim they own something they don’t.
It’s like writing on a dollar bill that the owner of that bill also owns 123 Real Street. Only the ownership of that bill is public and can be checked by anyone with access to the Internet.
Nasdaq is taking a similar approach to using the blockchain for keeping an eye on private equity. Although publicly traded stock holdings are regulated and watched by the Securities and Exchange Commission, smaller, private companies often track their owners through certificates. The Nasdaq Private Market subsidiary will start using blockchain technology to supplement that process in the fourth quarter.
Nasdaq’s program is small scale, and it’s only a pilot program. But it’s still an important sign. As IBM’s UK financial technology lead Richard Brown writes, “we now have a brand-name firm experimenting for real.”
It’s not just big companies that might be able to benefit. Artists could use it to prove a work’s provenance. A German company, Ascribe, thinks the blockchain can be better than a certificate of authenticity -- and might eventually lead to the end of unattributed pictures floating around sites like Tumblr and Instagram.
“Blockchain is very useful to secure intellectual property, but unless it can touch the lives of everyday creators, it won't be adopted,” Ascribe CTO Trent McConaghy wrote in an email. “This will be a multibillion-dollar business across many industry verticals.”
Security Questions Loom
Bitcoin’s not a perfect tool for online accounting. There’s no evidence that shows Satoshi Nakamoto, the pseudonym for the anonymous creator of the protocol, seriously considered the blockchain as a tool for proof of existence, instead preferring to focus on its digital cash properties.
For instance, if all land was exchanged using the blockchain, the additional transactions could significantly slow down the network and bump up against transaction limits. There’s also the question of security.
“If you’re securing tokens that are potentially worth the value of a house, then there are even more incentives to hack it,” Van Valkenburgh said. “We have to move slowly into this realm, because we can’t put a lot of value into something that’s new and not expect there to be growing pains.”
Companies could also decide to use a blockchain that’s based on bitcoin, but separate, like the ledger and payments system produced by Ripple Labs. But for now, bitcoin’s “the only game in town” because it’s the biggest network by far, according to Van Valkenburgh.
Using the blockchain as a ledger may not be as sexy as using virtual money to buy drugs, but if the blockchain becomes part of everyday accounting practices, the business opportunity may be enormous.