Brian Forde, MIT Media Lab’s director of digital currency, explained how bitcoin and the blockchain could transform the way the world does business during a podcast interview presented by Inc. Uncensored. A team of Inc. editors, led by Editor James Ledbetter, introduced Forde and asked him to give an overview of bitcoin and the blockchain before posing questions.
Forde explained how the blockchain could replace some repetitive work done by lawyers, insurance companies and bankers, and how the blockchain could bring a new era of digital rights management that could change the music and media industry.
Forde said the best way to think about the blockchain is “assets over IP.” The Internet has been used as an information-sharing platform, but for commerce and transactions, “it’s still not that good.” It’s still easier to go to a store and hand someone a credit card than to enter all the information that a person has to enter onto a website to do an online transaction. “It’s not an easy transaction.”
The online transaction is even harder outside the U.S., Forde noted. In some countries, many people don’t have credit cards. Therefore, they can’t do online commerce. ”There are a lot of people who are not using the Internet to its fullest potential.”
The neat thing about bitcoin, he noted, is “for the first time you can start to make electronic transactions, without needing a bank.”
Asked to explain the difference between bitcoin and blockchain, he said bitcoin is a currency and the blockchain is the ledger that registers the currency. “Blockchain and bitcoin were invented together.”
The topic then moved to mining, which Forde called the aspect that makes the bitcoin blockchain the most secure ledger. “It’s never been hacked.” The blockchain consists of thousands of servers that compete to process all of the bitcoin transactions over a span of 10 minutes. The winning miner gets rewarded 25 bitcoins for doing this work.
A miner would need 51%of the servers to fudge the ledger, Forde noted. Getting a hold of that many servers would make fudging the ledger impractical. “You wouldn’t earn any money by doing it. That also is what prevents anyone from acting as a gatekeeper.”
“For the first time, we have this permissionless innovation platform for entrepreneurs.”
Ledbetter then asked Forde to talk about blockchain applications independent of bitcoin.
Forde noted that the singer Imogen Heap released a song on the Ethereum blockchain. This addresses the problem of ownership of media caused by the digitization of media entertainment. When movies and music became available online, consumers did not have to rent DVDs or CDs. To address the loss of ownership, artists are distributing their music on the blockchain. “What that does is it changes the power,” Forde said. “It is a form of digital rights management.”
You take a fraction of a bitcoin, such as a “nanocent,” and assign it to something. It can be a song or a title to a house. With the nanocent tied to the asset, “you prove to the world that you own that.”
Imogen Heap did this at an Ethereum hackathon in London, Forde said. She enabled developers to build blockchain applications for playing her song. Once the artist releases a song to the blockchain, it incentivizes developers to build applications for playing the song.
The conversation then moved to smart contracts. A smart contract is a computer program attached to a statement. For instance, a person can write a will, and instead of going to a lawyer, they write a computer program that describes the will. The computer program can automatically probate the will on the blockchain. You don’t have to go to a lawyer to probate the will.
Forde said for people living in a cash-based economy, bitcoin is a game-changer. In the U.S., however, innovations like smart contracts will benefit things like dispute resolution. People making a bet will be able to send money to escrow accounts and have the funds redistributed based on the outcome of a game. “It just automatically resolves a bet that you and I had.”
Taking this a step further, “insurance companies would really like this.” A computer could rewrite the liability of an insurance contract for a certain period. If a person wanted to rent a car for an hour, the insurance contract could cover them for that hour, then reassign the coverage once that hour is up. “All of a sudden it starts to enable a huge cost savings in writing these contracts.”
It would be possible for someone to write computer programs to perform specific tasks like rewriting insurance contracts, but “who controls the back-end access for whether that will execute or not?” Forde asked. “That’s where something like the blockchain can be really helpful in that no one controls it, so that it will execute without your interference or someone else’s interference.”
Blockchains are not needed for every database function people may have, Forde said.
“A blockchain is really good when you have two parties who may not trust each other.” With the bitcoin blockchain, the ledger cannot be changed. A database, on the other hand, can be changed or edited.
Moving to the role of government, Forde said there are anti-money laundering and know-your-customer rules that bitcoin wallets comply with. But the government in general is allowing bitcoin to develop before creating a lot of regulations. More important, he said, is the opportunity for the government to use bitcoin.
Governments could issue benefits using a cryptocurrency like bitcoin.
Countries could improve financial inclusion and increase access to credit and insurance. “You’re giving a significant amount of your population a wallet,” Forde said. The wallet would allow companies of all sizes to service customers that would have been too expensive to serve previously.
“What you’re essentially doing is giving each person a web browser; you’re giving them a digital wallet. And giving them that is incredibly powerful, to receive remittances, to access credit or insurance or other things that would have been too costly previously.”
He said governments are already looking at these possibilities. “This is happening quicker than you think.” In Kenya, an electronic payment system has been built by a company called Safaricom which is owned by Vodafone. However, this creates a monopoly to run 30% to 40% of the payments, similar to Visa, MasterCard, and American Express. Forde said it is important that governments don’t create these monopolies.
Does the blockchain get congested by use? Forde said the bitcoin blockchain is growing and congestion issues have emerged. “These are challenges that will need to be addressed and people are coming up with different technological solutions to address them.”
Featured image from Shutterstock.
Last modified: March 4, 2021 4:47 PM