August 4th, 2020

Blockchain and Crypto

What's to be made of the Crypto craze - a beginning OR an end?

"Lions...tigers...bears...oh my!" These last few years you could replace that phrase with "etherium...bitcoin...blockchain...oh my!", as crypto has begun to take front seat in the world's markets and narratives. As with most new developments, there are bulls, bears and unfortunately lots of pigs. Our goal here is to look at the bigger picture of the space and whether its outlook is a new beginning OR an end.  

To start with, what's cryptography? According to Techopedia, cryptography is the practice of constructing and analyzing protocols that prevent third parties or the public from reading or understanding private messages. Modern cryptography finds a nexus in the disciplines of math, computer science, electrical engineering, communication science, and physics. General applications for cryptography are e-commerce, chip-based payment cards, digital currencies, computer passwords, and military communications.

Who is Satoshi Nakamoto? Satoshi Nakamoto is the name used by the pseudonymous person (or persons) who developed bitcoin, authored the white paper, and created and deployed bitcoin's original reference implementation. As part of this process, Nakamoto deployed the first blockchain database and was the first to ever solve the double-spending problem for digital currency by using a peer-to-peer network. Nakamoto also solved the Byzantine General's Problem (BGP). Many people have claimed to be Nakamoto, but no one has ever come forward and affirmed the identity. It's even rumored in Silicon Valley circles that several of the original PayPal founders are Nakamoto. If you want to understand bitcoin, then you really need to dig into Nakamoto, read the white paper, and visit the institute dedicated to bitcoin and bitcoin research. 

What about blockchain? The term bitcoin (lower case 'b') refers to Nakamoto's developed currency itself, but blockchain is the basis for bitcoin. Blockchain is a distributed digital general ledger. It's an official record-keeper that can be used to verify data transactions over time in a way that's both open and virtually unbreakable. It works by recording transactions (blocks) on multiple specialized servers around the world, creating a distributed record of transactions (the chain) that can be verified against one another to determine authenticity. Blockchain technology can be applied far past financial transactions for currency. Any digital transaction that requires a trusted version of past exchanges can benefit from it, including medical records, inventory management, real estate filings and legal documentation. According to Accenture, virtually any industry can leverage blockchain in a wide variety of ways, eliminating paperwork, lessening management overhead, and reducing infrastructure by 30% or more. Scale is one of the number one issues holding back blockchain technology, but we suspect a variant of Moore's Law could arise in this space, making blockchain much more scalable as time progresses. This would be a great thing for us as end-user consumers...but it would probably be bad for businesses like real estate agencies and title companies, for example, who rely on securing property transactions in an archaic fashion to retain perceived authenticity control.  

The beginning or the end? Fad or derivative? While we always remain agnostic at, we also like to 'read the tea leaves' from time to time to draw some perspective and prognosticate. As the world moves further into the Internet of Things (IoT) and becomes more globalized, technology will only continue to grow. Technology is 'non-mean reverting', which means that the things that change as a result of it don't return to what they were before (think Spotify, Amazon, or even old school tech like the steam engine). Technology forever changes the way some things are done. With the potential derivative changes of blockchain and the increased likelihood of digital currency playing a role in the future economy of peer-to-peer cross-world transactions, our 'tea leaves' reading is that this is the beginning of the crypto story rather than the end. As with all beginnings, there are many fits and starts, ups and downs, and the race for the discovery of new applications and techniques, but we're not bearish the macro-crypto picture. This isn't a cryptocurrency recommendation. If you're interested in venturing into that investment space, we recommend you look for the right brokerage custodians that have built solid trust within the marketplace. Blockchain