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Cryptographically bound peer-to-peer networks (henceforth called “crypto” for short) are going to be one of the defining technologies of our lifetimes. They enable fundamentally new forms of social organization.

These are bold claims. Once you “get” crypto, you’ll understand how crypto enables a new kind of social structure. I’ve tried to - and failed - to explain this concept to many people. Understanding the deepest and most profound implications of crypto can be difficult as crypto challenges many basic tenets of modern social structures and capitalism.
Background

Many of the best businesses in the world claim to be peer-to-peer (P2P) networks. These networks connect supply and demand in ways that was never possible before.Obvious examples include eBay, Uber, AirBnB, the New York Stock Exchange, and Facebook.

But there many others: Apple connects developers to consumers, Amazon connects merchants with consumers, Google connects website owners to searchers, insurance companies and banks connect their customers through pooled capital.

Networks that connect latent supply and demand are the foundation of the economy. These networks have created tens of trillions of dollars of economic value. These networks grow to be very large because of network effects. Once a network achieves critical mass, it becomes nearly unstoppable.

But there’s a problem.These networks aren’t really peer-to-peer, even though they claim to be. Rather, they are mediated by network operators, who levy a tax on network participants. Some of this tax is absolutely necessary. Someone has to pay for eBay’s servers, for AirBnb’s insurance offerings, for Amazon’s customer support, etc.

But one part of the tax isn’t necessary: profits (queue Uber jokes).In time, all network operators become rent seekers. Most are from day one.When crypto libertarians talk about “trustless” commerce, they’re talking about cutting out the middlemen and rent seekers: the network operators. They’re talking about connecting network participants to one another - both businesses and consumers - without middlemen extracting rents.

This can be hard to imagine. Without a network operator, whose going to build the app? Who's going to run the servers? How are consumers going to connect together? Who defines the rules of the transaction? How do you ensure equitable payment?

Who manages refunds, reviews, and customer service?

The short answer: trustless, cryptographically bound network protocols. Huh?

Let’s walk through four increasingly abstract examples to illustrate this.


Decentralized Cloud

A significant majority of the world’s computing resources (compute, storage, bandwidth) are unutilized at a given point in time. Consumer and business hard drives lay mostly empty, and CPUs hum along at 3% utilization. Despite this, Amazon, Google, Microsoft, IBM, etc. continue to build new data centers.

This is bonkers. Filecoin, STORJ, Sia, Swam, and SAFE are protocols that allow anyone to securely store files on other people’s hard drives.

File owners can always retrieve files, and the people storing the files have no idea what they’re storing. At a high level, this is accomplished this in a remarkably simple way: using standard file encryption, Shamir sharding, and distributed hash tables for content-based addressing.

Each protocol creates a market in which people with unused storage space and bandwidth can compete to store other people’s files and generate income.

Because these protocols leverage people’s excess storage capacity that would otherwise sit unutilized and generate $0 revenue, these protocols will offer storage that’s much less expensive than that offered by large data centers who buy storage with the intent to rent it out.

I won’t dive into things like enterprise-grade support in this post, but it’s worth noting that these protocols are designed to allow organizations to compete on value-added layers such as support.

Each of these protocols is truly peer-to-peer. You store your content on other people’s hard drives. You don’t have to care about who stores them. No one stands between you and your files. There is no middle man, no rent-seeker. You store your files on the network and you pay the network.

Golem and Elastic do basically the same thing but for compute rather than storage.For decentralized storage and compute, the mega opportunity is not “decentralized Dropbox.” Most people are on the free tier of Dropbox! The real opportunity for these protocols is in powering Internet applications.

In time, most (maybe all?) apps – to do lists, note taking apps, chat apps, finance apps, etc. – won’t have to run in a private data center; rather, apps will run on the global mesh network of everyone’s computers.
Decentralized Prediction Markets

Augur is a decentralized prediction market. What does that mean? Let’s contrast it with a famous centralized prediction market: Las Vegas sports betting. Vegas casinos take about 10% of total bet volume as a fee, called the take rate. They justify this fee by saying it’s necessary to arbitrate the outcome.

You’re paying the casino 10% for three things:

1) to act as an escrow,

2) report who won the game,

3) and to distribute proceeds to the winner.

This should not cost 10%. This is insanity. The problem with a decentralized prediction market is that if no one is in a room somewhere flipping a switch to say who won the game, how do you resolve the bet?

You can’t just leave it up to a vote of market participants. If the odds on a bet are 9:1 and the 1 ends up winning, you don’t want the 9s to just outvote the 1s.

What Vegas does for 10%, the Augur protocol will do for about 1%. Network participants in the Augur network, $REP holders, will be paid by the network to truthfully report event outcomes.

How?
The Augur network runs on smart contracts. In simple terms, smart contracts act as trustless escrow services that are bound by code (no human intervention) and release money based on some predetermined criteria. You will not stake bets in the Augur network using Augur’s native’s REP token.

Rather, you’ll stake bets in other cryptocurrencies such as Bitcoin and Ether. Services such as Oraclize will automatically relay the outcome of the basketball game from nba.com to the Augur smart contract. With the score of the game, the smart contract will resolve the bet and distribute the funds to the winner.

If anyone who was on the losing side of the bet believes that nba.com was incorrect (e.g. it was hacked) or that Oraclize manipulated the data, they can challenge the outcome by staking more money.

At this point, the Augur smart contract asks REP holders to vote on the outcome of the basketball game. If REP holders vote in a way that overrules the challenger, the challenger loses the bond she put up to initiate the challenge.

Additionally, REP holders who vote “incorrectly” - defined as those who vote against the majority of REP holders - also lose some REP. Thus, bet-losers are only incentivized to challenge the outcome reported by Oraclize if they believe a majority of REP holders will report a different outcome than that reported by Oraclize.

The same is true of REP holders: they’re incentivized to vote in a way they believe all other REP holders will vote.This system works because REP holders are independent of market participants and because REP holders are global and pseudo-anonymous, making large-scale collusion nearly impossible.

Bet-losers and REP holders cannot easily identify and try to coerce REP holders to collude to report a false event outcome. Even if REP holders did collude and intentionally misreported an event outcome, people would lose faith in the Augur network and the value of REP tokens would plummet, harming the colluders.

All of this logic is handled by the Augur protocol, which lives on the Ethereum blockchain. No one in the world, including governments, can remove this smart contract or change the rules of the protocol. The protocol is like chemistry. You can’t break the laws of chemistry.

I'm a prolific writer in the crypto space. Follow me on Twitter @kylesamani and subscribe to Multicoin's free research for some of the best insights in crypto.

Continue to page 2 of this Forbes report here: https://www.forbes.com/sites/ksamani/2017/10/04/blockchains-a-new-social-order/#3ae1931a6a29

Bitcoin and blockchain have been all over the news recently. From being the currency of choice for HBO hackers to making headlines as a get-rich scheme, it seems they are ubiquitous in today's business and tech discussions.

But how can you invest in it? What is it? Is it stable? Will it last?

What Is Bitcoin And How Do I Get Some?

Bitcoin is a cryptocurrency with no banks or other intermediaries necessary to conduct transactions. It was designed as open-source software in 2009 by an individual or group known simply as Satoshi Nakamoto with the intention to minimize transaction costs and deregulate currency from government control.

The most popular way to buy Bitcoins is through Bitcoin wallets such as Coinbase. However, one doesn’t need a bank account to buy Bitcoin. It is important to note that Bitcoins aren’t printed like dollars or Yen; they are produced by dozens of computers worldwide, using software that solves mathematical problems. The safety and security of this currency reside with a technology called blockchain.

Well Then, What Is Blockchain?

Despite what others might think, blockchain is not a currency in and of itself; it is a technology that is a form of a decentralized database. Using this technology, you can read and write records of digital transactions -- monetary or otherwise.

Rather than having a central administrator like a bank, broker or government, a decentralized database has a network of replicated ledgers that replicate nearly instantaneously online and are available to anyone with access to the network. Like most other types of networks, they can either be private or public.

Most importantly, their record is permanent. Since there isn’t a central record for a hacker to corrupt, hacking methodologies that commonly impact large centralized databases (like a bank would use) would not be able to influence records kept with blockchain. Instead, a hacker would need to identify and hack hundreds, if not thousands, of computers at the exact same time.

Even being able to ID all of the computers is essentially impossible. Blockchain’s decentralized, open, cryptographic nature allows people to trust each other and transact peer to peer. This is significant because it makes the need for intermediaries obsolete since the records are put in time stamp blocks that can't be rewritten.

The security of this technology is unprecedented. Other possible uses (registration required) outside of cryptocurrencies include house deeds, insurance documents and academic transcripts.

Are Blockchain Cryptocurrencies Stable?

First off, what makes a currency stable?

Traditional economic thought asserts that a currency needs five things to be stable:

1) It should be a global reserve currency,

2) its liquidity should be high,

3) it should have a strong demand,

4) its country (issuer) should have a strong economy and

5) it should be linked to gold.

continue reading page 2 of this article  here: https://www.forbes.com/sites/forbestechcouncil/2017/10/04/the-future-of-cryptocurrencies-relies-on-r...

Blockchain technology is no longer just for startups.Now even the big businesses are getting on board.In the latest example, Oracle announced Monday it will release a new platform next year that's designed to help businesses use blockchain technology for supply chain management and smart contracts.

"Blockchain holds the promise to fundamentally transform how business is done, making business-to-business interactions more secure, transparent, and efficient," said Amit Zavery, senior vice president of Oracle Cloud Platform, in a press release.

Oracle's platform, which is currently in beta testing, is designed to provide "pre-assembled" tools for enterprises to use for anything that requires contracts, transactions, or tracking.

The platform is built on top of Hyperledger Fabric, an open-source blockchain endorsed by other enterprise competitors including IBM, Cisco, SAP, and Intel. Oracle joined the Hyperledger Project, which is part of the Linux Foundation, as a supporting member in August.

Just like the technology behind bitcoin, Hyperledge Fabric is a digital ledger. It's designed to be extremely difficult to tamper with, thus reducing the likelihood of fraud.While many blockchains are public — which means the data on them can be seen by anyone with the technological know-how — Hyperledger is private.

That's so businesses can use it without revealing proprietary information. Blockchains are often thought of in the context of bitcoin or other cyber currencies. But increasingly, companies outside of finance are using blockchain technology to replace long-held authentication practices in law, real estate, and shipping.

IBM, for example, is working with food distributors like Walmart to integrate blockchain technology into their supply chain processes to help reduce the spread of food-borne illnesses. Brian Behlendorf, the executive director of the...continue reading: http://www.businessinsider.com/oracle-to-offer-blockchain-platform-for-smart-contracts-supply-chains...

Bitcoin has many cousins and competitors. None have grown more popular than Ethereum, a global computer network with its own virtual currency, called Ether.

What is Ethereum?


Ethereum is a global computing network operating according to rules defined by Ethereum software. Those rules allow the Ethereum network to be programmed to complete certain types of computing tasks, with every computer on the network completing the task in parallel to ensure it is done correctly. Generally the tasks involve money.

The creator of Ethereum, Vitalik Buterin, has likened it to a global smartphone that can be programmed to operate according to the apps built on top of it. The apps are called Dapps because they are run by a decentralized network of computers.

Mr. Buterin says he chose the name because it refers to “the hypothetical invisible medium that permeates the universe and allows light to travel.” He announced Ethereum in late 2013, but it didn’t go into operation until 2015. Continue reading the main story



Ethereum is not a virtual currency?


The Ethereum network has its own virtual currency, Ether. In the simplest sense, Ether are needed to pay the other computers on the network to complete tasks. It isn’t free to use the network.People have also decided to buy and hold Ether, betting that it will become more valuable as more people want to use the network and need Ether to pay for the network’s computing power.


What does Ethereum have to do with Bitcoin?


Mr. Buterin was a Bitcoin aficionado, and he was inspired by its success. But he set out to build something that could do more than Bitcoin: He wanted to build a system that would make it possible to program more complex financial transactions. Photo






Racks of servers at a facility in China “mining” Bitcoins and Ether. Credit Gilles Sabrie for The New York Times The shared records of the Ethereum network — of every transaction and computation it has ever performed — are known as a blockchain, just as the shared records of all Bitcoin transactions are known as a blockchain.

But Ethereum’s blockchain database is totally independent of Bitcoin’s blockchain.

Why would you want to use this network?

Let’s say two companies want to conduct a complicated financial transaction, like settling a stock option. Neither company trusts the other company to conduct the transaction on its computers. Both companies could hire a third party, like a stock exchange, to conduct the transaction, which is what they generally do today.

But that forces them to trust that third company and to pay that company fees. With Ethereum, they can conduct the transaction on a shared computer that allows them both to check the records, ideally saving on fees.As this example suggests, Ethereum has proved attractive to financial companies that have to complete lots of complicated financial transactions with competitors they don’t trust.

Many banks are looking at how Ethereum could be used as a central operating system for various trading markets, replacing today’s exchanges and middlemen. JPMorgan Chase has even created its own version of Ethereum, known as Quorum.Other companies, like Samsung and Toyota, have experimented with Ethereum as a way to keep track of products moving through supply chains that involve many players.

Photo




Kim Si-wan, advisor at Coinone, an offline cryptocurrency exchange in South Korea, explaining virtual currency market trends. Credit Jean Chung for The New York Times Dozens of large companies around the world came together this year to create the Enterprise Ethereum Alliance.

The group is working to develop versions of the Ethereum software that are battle tested enough to be used in a corporate setting.

Does that mean the world’s biggest companies will corner the market on Ether?

The versions of the Ethereum software that companies are building will most likely be used to set up private networks that would be totally separate from the public Ethereum network and that would not use the Ether currency. Some people, though, are betting that these private networks will eventually be plugged back into the public network.


How do you buy Ether?

Just as with Bitcoin, you can buy Ether from people who already own them on virtual currency exchanges. Most large countries have exchanges where a variety of virtual currencies can be bought with the local currency.

How are Ether created?

Just as with Bitcoin, Ethereum are “mined,” or created by computers joined into the Ethereum network. These computers are in a race to...continue reading: https://www.nytimes.com/2017/10/01/technology/what-is-ethereum.html

Last year, Christopher Plant, a real estate agent from Philadelphia, paid $1,000 to buy four tickets to the hit musical Hamilton from an agent on Craigslist. However, when he tried entering the Richard Rodgers Theatre to watch the event with his family, he was turned away because his tickets were counterfeit.

Plant can consider himself lucky. He paid about 1.5 times the face value of the Hamilton tickets. Earlier this year, thousands of people bought tickets to an Ed Sheeran concert from secondary markets at eight times the face value. Many of those were found to be fake too.

Fraud, bots and touts—people who purchase tickets from official dealers and resell them at higher prices—are some of the endemic problems that riddle the event ticketing market. Organizers and ticket selling services have tried to counter these problems with various methods and technologies.

 Governments have tried to regulate it.However, progress leaves much to desire. Ticket touting is said to be a multibillion dollar market, and online ticket fraud continues to rise year-over-year.

Some experts and companies are placing their bets on blockchain, the technology that is disrupting various industries. Here’s how blockchain  might solve the challenges of the industry.

Blockchain’s solution to ticket-sale challenges

Blockchain is a distributed ledger of transactions, a datastore that is stored and simultaneously updated on multiple nodes. All transactions registered on the blockchain are permanent and irreversible.

As opposed to the opaque and walled-garden architectures that govern current online services, the blockchain is transparent and auditable by outside parties, and enables peer-to-peer transaction of digital information.

Bitcoin was the first application of blockchain. However, the technology is showing promise in many other industries and has proven to be an effective tool in fighting cyberthreats.

One of the key problems that blockchain solves is that of double spending. Once an amount of Bitcoin is transferred from one address to another, it can’t be replicated. This is a feature that has helped solve the problem of piracy and fraud in other domains such as gaming and music, where registering and maintaining ownership of digital assets is a perennial problem.

A handful of companies are exploring how the double-spending prevention functionality of blockchain can be used to prevent the production of fake event tickets. Upgraded Inc, a startup based in Walnut Creek, CA, has developed a mobile app that sells tickets on the Ethereum blockchain, where ownership of data is clearly defined.

Upgraded uses smart contracts, programs that run on the blockchain, to add smart features to digital tickets, such as setting restrictions for resale or forcing scalpers to transfer some of their profit to the event owner. To further prevent fraud, Upgraded has also added features such as hiding ticket barcodes before the event or while the user is away from the event venue.

London-based Aventus uses the Ethereum blockchain to transparently track ticket sales and associate a unique identity to each ticket. When purchasing tickets, users upload a token that represents their identity. This can be a voice sample or a mug shot or credit card information.

The information is hashed and tied to the ticket record registered on the blockchain. When ownership of the ticket is transferred to another user, the ID information is updated and stored on the blockchain as well. This can come useful in fighting automated programs that purchase tickets from online platforms.

Blockchain has its own challenges

While the idea of selling tickets on blockchain is great, caveats and prerequisites remain. Companies such as EventBrite, TicketMaster and StubHub already own a large percentage of the market, and are not likely to relent their dominance to blockchain startups any time soon.

For Sandy Khaund, founder and CEO of Upgraded, there exists a middle ground. “My goal isn’t to replace Ticketmaster or StubHub. It’s to be the Intel chip inside of ticketing,” he said in an interview with Forbes.

“When you go to Ticketmaster, you get a drop-down that says PDF, postal service or will call. In the short term, I want to be the fourth option. In the long term, I want to be the only option. The other three options should not exist.”Others, such as Russia-based startup KickCity, aren’t optimistic about ticketing giants embracing blockchain anytime soon.

That’s why the company focuses on creating incentives for the end users to switch to platforms that work on blockchain. KickCity provides a fully-featured, decentralized event marketing platform.

The platform revolves around KCY, its proprietary cryptotoken, and Ethereum smart contracts to allow for reward-based event promotion, ticket processing and transactions, and event community building.

“KickCity is focused on providing reasons for events organizers and everyday event users to switch to blockchain,” says Gideon Nweze, the CEO and founder of the company. “It’s basically a referral system in blockchain which rewards users who invite friends and rewards those who buy tickets. It’s very important to...continue reading : https://thenextweb.com/contributors/2017/09/30/ticket-touting-fraud-soaring-blockchain-might-fix/#.t...

By Tim Sandle     17 hours ago in Health

Several startup companies are finding new and important ways to bring blockchain technology to healthcare. The cryptographically-secured, distributed ledgers can be used for everything from supply chains to medical records.
According to new analysis from CB Insights, several startups are pioneering blockchain technology into the health and pharmaceuticals market. The types of applications stretch from medical record interoperability; data security; patient or supplier reimbursement; and pharmaceutical supply chain management.

Big players are also working on blockchain technologies for healthcare. For instance, IBM Watson has entered into an agreement with the U.S. Food and Drug Administration to see whether blockchain technologies can better secure share patient data.

This will start with oncology data in the form of electronic medical records, clinical trials, genomic data, and health data from mobile devices, wearables and the Internet of Things.

Transparency in healthcare

In terms of startups, the CB Insights report details five companies that have secured significant investment in order to develop healthcare related blockchains.

The first is PokitDok, which is developing a secure network for all sources of patient data. This will include pharmacies and data collected wirelessly from medical devices.

Partnering with Intel, PokitDok are calling their solution Dokchain. The primary aim is to provide an identity management system to validate that each party involved in the transaction is who they say they are, whether patient or health provider.

A second area is with transparency. This would mean when a medic writes prescription, this would become logged on the chain with the pricing clearly stated for the patient. T
he electronic capture of the prescription also assists with inventory and order management of medical supplies and drugs.

Portable patient records

The second startup is Patientory, which aims to add portability to patient data. This means a patient's health record becomes electronic and it can be moved across health institutions.

Blockchain technology allows for new records, be they visits of images, to be added. All of the data is then visible to the patient and to any other institution granted access.

Medical claims process

Third comes Gem, which develops blockchain applications for healthcare and supply chain management. The focus here is on the medical claims process, making the technology viable for countries with privatized healthcare.

The company's GemOS platform allows patients, providers, and insurers to view a patient’s health timeline in real-time in a secure manner.


Digital patient records

Fourth is Guardtime, which has a major contract with the Estonian e-Health Authority to secure over 1 million patient records. This is in order to integrate health data with the health cards that citizens carry and also to add stronger data integrity and security to the health records process.

Tracking organ donations

Fifth, and finally, is Chronicled, which has produced a platform to allow for the tracking of a range of products including pharmaceuticals, blood, and human organs. These products are critical to human health and they often have a tight time expiry and they need to be kept at low temperatures (cold chain management). This makes safely tracking each step something of great importance.

Read more on Digital Journal: http://www.digitaljournal.com/life/health/blockchain-technology-set-to-transform-healthcare/article/503744#ixzz4u7iBdyKy

However, not all people share the same view about the disastrous consequences of the latest hurricanes and climate change in general. Sir Richard Branson, the English business magnate, investor and philanthropist, shared his thoughts on Facebook:

“When I opened the door after Hurricane Irma, I looked out over Necker Island, saw the horrendous devastation and felt enormously sad and worried for the whole BVI. But I also felt extremely angry at climate change deniers and more motivated than ever to help unite the world behind climate action.”

Energy - a huge source of CO2

Unfortunately, the biggest polluters are people. 7.5 billion People live in today’s world, and they produceCO2 in various ways, sometimes without even realizing it. Do you pollute when reading this article? Yes. You see, this article is read on an electronic device that needs electricity and nowadays the world is running on dirty energy. Moreover, the demand for electricity continues to grow every day.

To be exact, 78.4% of the total energy consumption is produced by polluting the environment and increasing climate change[1]. Due to a drop in the investment level this year, it became difficult to reach the 100% renewable energy target[2].

Without higher investment into renewable energy, the fight against climate change will not be successful. 2008, when prices in the global oil market have reached record levels, developed countries have started to increase their use of alternative energy sources and develop renewable energy programs.

With new technologies and decreasing prices for renewable energy production, the shift from dirty to clean energy became foreseeable. But the most important thing is that it will not require decades to see the change.Empowering the sharing of economic principles in the energy sector.
One of the ways used to increase renewable energy production and its use in the world is to create the necessary clean energy supply according to the market price, but to reach this, somebody has to finance the renewable energy production.

Access to the missing capital can be created by empowering every person to become part of the change. Sharing economic principles in the energy market could solve the problems faced by the producers of renewable energy projects and generate good returns for everyone.
With the help of blockchain and smart contracts, it is now finally possible to create global and transparent networks for the distribution of green energy, where each one of us can become green energy producers, buyers or investors in green energy.


PEXELS.COMWindmills on Shore

Investing in Green Power has become easier and easier for everyoneWith the aim of fighting back against global warming, entrepreneurs have started creating platforms that are tokenizing energy and enabling the transparent global financing and trading of green energy. Technology ensures full transparency – everyone can know where and what energy they’ve bought and when it was produced as well as consumed.

This makes the buying of future energy production safe, profitable and liquid. From the perspective of a renewable energy producer, this allows the sale of tokenized energy to cover the construction costs of renewable energy plants.With such a business model based on novel technology, everyone can buy energy tokens globally, regardless of the place a person lives.

As an example, such platforms would enable Koreansto buy the clean energy in Spain, where the energy is produced according to the market price, and make profits from the difference between the price paid for the energy upfront and the price of the energy at the moment of its production.
With such monetary benefits, who would not want to invest in green energy and save the planet? The first platform offering such a solution is We Power, whose model increases a renewable energy producer’s return on equity ratio by 25% and offers energy buyers a return of 17-20%.

How does it work?

Blockchain platforms connected to the energy infrastructure can connect energy tokens with the data about the energy that will be produced at a certain point in time. The energy tokens represent the ownership right of a specific amount of energy to be produced in the future. The ease of buying and selling tokens allows the global trading of tokenized energy on a blockchain.

The trades are done through the conclusion of smart contracts, which represent power purchase agreements and indicate when the energy will be produced, what price was paid for it, and calculate the difference between the price paid and the market price.


The smart contracts ensure liquidity and standard purchase rules for everyone. Investors can easily transfer them and exit from their investments made in renewable energy. Once the energy is produced, it can be either used by the token owner or sold to the energy market at the current market price.

Starting with renewable energy project financing, such platforms could become the next generation of utility companies based on the core principles of decarbonisation, democratization and decentralization. Eventually, every one of us will join together in the movement to stop the pollution of our planet by investing in and using green energy.

Discover even more blockchain reports like this on HuffPost here: http://www.huffingtonpost.com/entry/revealed-the-real-secret-of-green-power-powered-by_us_59ce1d3ae4...

By David Trilling


Bitcoin is no longer just for geeks in obscure corners of the internet. Today you can use the digital currency to fly to Britain, buy an apartment and enroll in the London Sushi Workshop. Fans like its libertarian footing, how it dodges government control and how – especially in this privacy-challenged era – it boosts anonymity.

But some detractors blast bitcoin and other cryptocurrencies as a “fraud,” while others argue that they fuel cybercrime.Unlike the American dollar or British pound – which are guaranteed by central banks that set interest ratesand print currency, stabilizing their value – bitcoin is decentralized.

No one controls it. In part for that reason, its value has yo-yoed wildly.

After more than quadrupling against the dollar between January and August 2017, bitcoin fell by a third in the first two weeks of September. Some blamed a crackdown on digital currencies in China and the “fraud” comments from J.P. Morgan Chase CEO Jamie Dimon, who comparedbitcoin to the Dutch tulip bubble of the 17th century.

Yet as Fortune magazine noted, bitcoin meltdowns have been a regular feature of its brief lifetime.This volatility makes it unlikely bitcoin (or another cryptocurrency, such as ethereum) will become an effective store of value (like gold) or a unit of account (like the dollar) anytime soon. You wouldn’t want to be paid in bitcoin, since your real (i.e., dollar-denominated) salary would fluctuate all over the place.

And you wouldn’t want to spend bitcoin today if you think it’d be worth a lot more tomorrow.In this explainer, we discuss what makes bitcoin different from the old-fashioned greenback and why some governments are trying to ban it. We describe how the blockchain technology behind the system could revolutionize many other industries.

And we look at how a bitcoin outgrowth known as initial coin offerings (ICOs) is testing regulators.How bitcoin worksAny bitcoin transaction – let’s say between a buyer (me) and a seller (the London Sushi Workshop) – creates a unique digital code that is stored in an online, open ledger known as a blockchain.

Everyone has access to the blockchain, but no one can see who those buyers and sellers are unless they wish to be identified. Each has a unique, pseudonymous address for the transaction.





The London Sushi Workshop’s balance, which has grown because I paid my tuition, is a series of codes, also known as personal keys. The sushi school can keep them in “cold storage” – offline on something like a USB stick – or print them out. Or the school can keep them in something called a “wallet,” which is run by an online third party and, just like your physical wallet, can be stolen (or in this case hacked).

When the London Sushi Workshop wants to convert bitcoins to dollars or pounds, it can make the transaction through an online exchange (also third parties, which have likewise been hacked, resulting in losses for individuals) and transfer the cash to a bank account.This decentralization puts bitcoin beyond the reach of regulators, but also creates risks.

Third parties in the “wallet” or “exchange” businesses do not offer the kind of insurance you get at a bank. And, like with cash, if you print your bitcoin codes and stash them under your bed, you run the risk of losing all in a fire or robbery.

Blockchain and miningAn anonymous programmer calling himself Satoshi Nakamoto introduced bitcoin in a 2008 paper. The widely cited paper may be best remembered for something else, though: Nakamoto also introduced the first working blockchain, the technology underpinning bitcoin.

Blockchain is an online ledger of all transactions that’s available for anyone to view and copy, but that no one individual controls. Instead, it lives on many computers, where it is constantly updating itself. This decentralization and openness ensure a transaction can’t be faked – because that transaction wouldn’t appear on all the other copies of the ledger.

If one copy of the ledger does not match the rest, that copy will stand out. Thus blockchain is sometimes called a “distributed ledger” or “distributed ledger technology” (including by J.P. Morgan Chase, which is researching how to use it).For the bitcoin blockchain, powerful computer networks called “miners” validate the most recent transfers, ensuring someone doesn’t send money they don’t have.

These miners’ computers compete with one another to verify and then lock the transfers onto the ledger, where they never can be changed, adding a new block of confirmed transactions about every 10 minutes.

As an incentive for constantly checking and verifying bitcoin transactions, the miner that succeeds in creating a new block is rewarded in new bitcoins that he has created. These days, the reward is 12.5 bitcoins and there are about 16.5 million bitcoins in circulation (worth, as of this writing, about $65 billion in U.S. dollars). By design, the reward drops by half about every four years until, sometime a few decades from now, the miners have created 21 million bitcoins.

The creator artificially capped bitcoin at that number, ensuring the currency cannot be debased by oversupply; the coins can, of course, be divided into smaller and smaller units.Because the database is distributed across such a broad network, hacking it would require enormous computing power. Any would-be fraudsters with that much computing muscle would find it more profitable to mine the blockchain and create new bitcoins.

The blockchain solves the “double-spending problem” that plagued earlier cryptocurrencies, whereby someone could spend the same money in two places (or counterfeit it). Today, sending the same bitcoins to two different sellers would create a “fork” in the blockchain, immediately rendering one of the transactions invalid.

Likewise, it’s not possible to alter a transaction record. To go back and change a link in the chain, you’d have to change all the links that follow. That would require more computer power than all the computers that are managing the blockchain put together. The altered chain wouldn’t match; it would be a clear counterfeit.

These days, miners often work with specialized computer farms that use loads of electricity; sometimes they share resources to form “mining pools.” You could run a mining application in the background of your work computer, but it likely wouldn’t net you anything besides a slower computer.

(Check out this Quartz feature on a farm using subsidized, coal-powered electricity in China, which is home to 58 percent of the world’s major mining pools, according to a University of Cambridge study; the U.S., the second-largest host, has 16 percent.)  

The promise of blockchain

Some researchers see blockchain as having revolutionary applications beyond bitcoin, such as trading stocks, safely storing data and managing supply chains, all without a middleman. It is a “foundational” technology, argues a 2017 paper by two Harvard Business School professors, with the potential – perhaps in decades – to render accountants, traders and even contract lawyers superfluous.

Blockchain “has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge.”Initial coin offeringsA new trend in cryptocurrencies is the “initial coin offering,” or ICO.

ICOs raised $2.2 billion in the first nine months of 2017, according to one industry estimate. These are not bitcoins, but essentially a new digital currency used to fund a specific product.ICOs work like this: A company raises capital by selling virtual coins or tokens. Perhaps these coins could be used later to participate in the project, or they offer some other future reward.

But they do not offer the same rights demanded by a venture capitalist or shareholder. Indeed, though they sound suspiciously similar, an ICO is not an IPO – initial public offering (which is when a company begins selling shares to the public and becomes listed somewhere like the New York Stock Exchange).

Rather, an ICO happens well outside the regulated banking industry.The Securities and Exchange Commission (SEC) – the regulator of U.S. financial assets – has warned investors that some ICOs may constitute fraud, and that some coins may in fact function like securities and need to be regulated as such.

Canada’s securities regulator has issued a similar statement.Government responseGovernments don’t like bitcoin much. Its anonymity allows users to operate in the shadows, sell narcotics, capitalize on ransomware (software that hijacks a computer until the owner pays a ransom in a cryptocurrency) and maybe, some fear, finance terrorists.

Plus, there are tax implications. In most countries, citizens are required to pay taxes on earnings. But the taxman can’t peer into your bitcoin holdings the way he can look at your Bank of America statement (though, by law, Americans are required to pay taxes on bitcoin profits).

And finally, cryptocurrencies undermine government authority. North Korea may be using bitcoin to evade sanctions.

In September 2017, China took steps to ban cryptocurrency transactions shortly after banning new ICOs. After both announcements, bitcoin’s value tumbled.

Bitcoin supporters argue that the community can regulate itself. But Tim Swanson, a scholar of cryptocurrencies at the Singapore University of Social Sciences, wrote on his blog in September 2017 that the idea the cryptocurrency community can police itself ignores its users’ self-interested motivations.

Some users, trying to drum up demand, discount the threat posed by hackers (who exploit weaknesses in third-party systems used to store bitcoin). Others lobby against regulations because “much of the original bitcoin infrastructure was set up and co-opted by bitcoiners themselves, some of whom were bad actors from day one.

”A cat-and-mouse game between regulators and bitcoiners seems likely to occupy both communities, as well as scholars and governments, for the foreseeable future. Proposals for an outright ban are unlikely to end the conversation, since, to work, any ban would require harsh punishments, says a 2017 paper in the Journal of Economic Behavior and Organization.One potential solution is for governments to issue their own cryptocurrencies.

A September 2017 reportfrom the Bank for International Settlements – the Basel-based arbiter for central banks – describes some projects in the works. Sweden, for example, is thinking about using blockchain technology in some of its central bank’s currency-trading infrastructure.

In America, some have proposed “Fedcoin” as a government-backed crypto-dollar. Though Fedcoin may attract users, it is unlikely, suggests one American central banker, to satisfy diehard bitcoiners.

Other resourcesBecause there is no official organization or bank behind bitcoin, this explainer referenced a number of community forums for data, such as bitcoin.org and the Bitcoin Foundation, which the Washington Post once described as the “closest thing the anarchic bitcoin community has to an official public face.

”The Initiative for Cryptocurrencies and Contracts at Cornell University publishes some of the most cutting-edge research.This blogpost by freeCodeCamp is a fun and easy-to-follow bitcoin explanation.Oh and, by the way, the bitcoin blockchain occasionally splits. Fortune explains. Fortune’s blockchain reporter, Jeff John Roberts, also has an intriguing look at what happens to your bitcoins when you die.

A good overview of bitcoin, who uses it, who mines it and where, is this 2017 paper from the University of Cambridge Center for Alternative Finance.Selected studies:

• On bitcoin volatility:
  • Bitcoin is up to 30 times more volatile than the dollar;
  • How mining and economics affect bitcoin’s price;
  • “Bitcoin is a poor hedge and is suitable for diversification purposes only.”

• On security:
  • Bitcoin exchanges would be safer if they demonstrated solvency;
  • Cryptocurrencies like bitcoin risk routing attacks;
  • What would be needed to trace a bitcoin transaction.

• On blockchain:
  • Using blockchain to manage inventories;
  • Some blockchain security concerns;
  • Which industries and companies could benefit and be hurt by the technology.

Last updated: September 28, 2017  We welcome feedback. Please contact us here. 


A project of the Harvard Kennedy School's Shorenstein Center and the Carnegie-Knight Initiative, Journalist’s Resource is an open-access site that curates scholarly studies and reports.