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blockchain nonfinancial transactions

A No Nonsense Guide to NFTs

Nonfungible tokens (NFTs) are all the rage these days. People are paying millions for NFTs that exist mainly as bits and pieces of computer code. At times like these, it’s useful to keep Gartner Group’s Hype Cycle in mind. A new idea is being hyped. Is it all smoke? Or is there some fire beneath it?

Without being overly technical, let’s look at the attributes of any item (token/document/image/currency, etc.) stored in a blockchain. Here’s what you get:

  • It’s indelibly time-stamped – anyone, anywhere in the world can verify exactly when the item was added to the blockchain. It follows that the item (whatever it is) must have been created before that date.
  • It’s unmodifiable – when we write checks, we use ink because it can’t be modified. The blockchain brings the same benefit to digital items.
  • It can’t be eradicated – nobody can destroy an item stored in the blockchain.
  • There’s only one original – you can make copies, but the original is the real deal. And the original is easy to identify.
  • Any transaction involving the item (a sale, for instance) will similarly be time-stamped, unmodifiable, and ineradicable.

What kinds of items would benefit from these attributes? Here are some categories:

  • Legal documents – any document stored on the blockchain is essentially inviolable. We know its entire history and anything/everything that’s been done to it. I can foresee a future where only blockchain-stored documents will be legally enforceable. Indeed, I think I’ll store my will as an NFT so there can be no debate amongst my heirs as to what my intentions are.
  • Ownership records – property records can result in unending discord if there’s any doubt about their veracity. For instance, if land ownership records disappear, how do we decide who has the right to use the land? The Peruvian economist, Hernando de Soto, suggests that land titles and deeds should be stored in a blockchain to preserve their integrity.
  • Idea precedence – the entire scientific establishment is driven by idea precedence. Who made the discovery first? Who can claim credit for creating a new idea? Millions of dollars in royalties and patent rights can ride on date stamps. Blockchain dates are easily verified and inalterable.
  • Artwork – a newly discovered Van Gogh painting recently sold for $19 million. Yet I can buy a nice poster of the same artwork for roughly $20. We all know that the original is worth much, much more than a copy. Yet how do we know if a digital item is an original? The blockchain knows. Indeed, this is the use case for the current NFT mania – it differentiates the digital original from digital copies.
  • Provenance – where did the item come from? Whose hands did it pass through? Was it stolen or did it come to market legitimately? Dealers in historical artifacts wrestle with these questions every day. A token on the blockchain can record not only the item itself but also everything that has happened to the item over time.

Ultimately, the blockchain is about trust. Do we trust paper documents to accurately record who owns a piece of land? Or whether Scientist X created an idea before Scientist Y? Or whether an artwork can legally be sold? Once the hype settles down, I think the true value of the blockchain is that it can help us verify facts, enforce legal rights, and establish a climate of trust. That’s not hype.

Blockchain Beyond Bitcoin

Blockchain - It's not just for Bitcoin anymore.

Blockchain – It’s not just for Bitcoin anymore.

In 1979, Paper Mate introduced the world’s first ballpoint pen with erasable ink. Technology analysts considered it an important breakthrough and the news made headlines around the country. Many of us thought, “Wow! Finally I can write in ink and then erase it. How cool is that?” After a few moments of reflection, we had a second thought, “Why would I ever want to do that?”

Before erasable ink, we thought of ink’s permanence as a drawback and a disadvantage. After erasable ink appeared, we realized that ink’s permanence was actually its primary benefit. Write it once and you know it will never go away. If you might want to erase something, use a pencil.

In an odd way, permanence may also be the primary benefit of the blockchain technology that underlies Bitcoin. We think of databases as interactive, up-to-date records of the world as it is. The closer to real-time, the better. If you want to know what’s happening right this millisecond, high-speed databases will tell you.

But what if you want to know what happened some time ago? And what if you want assurances that the information you retrieve is tamper-proof and immutable? In other words, what if you want the electronic equivalent of permanent ink?

That’s exactly what blockchains on distributed ledgers give you. You can’t change the blockchain unless you can decrypt it – and that’s very difficult. Even if you can decrypt it on one network node, many original copies exist on other nodes. It’s fairly easy to restore the status quo ante. You can be very confident that the information you retrieve is unchanged from the original. It’s an immutable, permanent record.

The blockchain/ledger technology allows Bitcoin to keep a permanent record of all transactions. That’s important if you want to create a trusted financial system. But why stop at financial transactions? Are there other transactions that might benefit from permanent, tamper-proof records?

Indeed, there are. Here are a few that are in production or beta today:

  • Ascribe – allows artists to “…lock in attribution [and] securely share and trace where your digital work spreads.”
  • Storj – a potential weak point of cloud storage is that, ultimately, your data is assigned to one server. What if that server fails or is corrupted or hacked? To improve security and privacy, Storj breaks your data into blockchains and stores it on multiple servers.
  • BitHealth – while Storj can store most any kind of data, BitHealth focuses on healthcare data. It claims to provide highly secure, uninterruptible, tamper-proof health data around the world.
  • Everledger – where did your fancy diamond come from? How did it get here? Where is it insured? For how much? Everledger keeps a permanent, immutable “ledger for diamond certification and related transaction history.”
  • Proof Of Existence or Bitproof — you want to prove that you had an idea at a certain date (preferably before anyone else). You could file a patent application. But that’s expensive, time-consuming, and public. Or you could register your document in the Proof of Existence or Bitproof blockchain databases.
  • Warranteer – you buy a product that comes with a warranty, which is described in a document. The product goes bad at approximately the same time that the document goes missing. Why not save the warranty in Warranteer’s blockchain, cloud-based database?

I could go on and on. (If you want to dig deeper, click here, here, and here). While Bitcoin popularized the technology, blockchain extends far beyond the financial world. Indeed blockchain may disintermediate and disrupt supply chains around the world. If so, the world will get much more efficient. Is that what we want?

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