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