Blockchains are set to go mainstream. As opposed to bitcoin – the currency – the underlying blockchain technology is embraced by prominent companies, banks, and even governments. A brand new industry is emerging based on this technological advancement that allows multiple entities to agree on a single version of a database with no need for a trusted third party.

However, much of this blockchain industry does not actually use Bitcoin’s blockchain. Rather, several startups are building various types of blockchains, or shared-ledger technology that uses some of Blockchain’s efficiencies. There is a simple reason for this strategy: Bitcoin’s architecture is limiting in scope.

However, some properties of Bitcoin’s blockchain are unmatched; it is, by far, the most secure open and decentralized ledger out there. That’s why a new wave of blockchain-startups, including companies such as Factom, Tierion and DocuSign, is now seeking to marry the best of both worlds.

They use Bitcoin as an anchoring technology, used to secure alternative chains and data layers.

Limitations & Security

Peter Kirby is the CEO of Factom, a well-known blockchain startup which is building a data layer on top of Bitcoin, and working on a land registry program with the Honduran government. Speaking to Bitcoin Magazine, Kirby explained why it makes sense for companies to avoid using Bitcoin in some cases.

You don’t see a lot of really, really advanced stuff being built on Bitcoin, because Bitcoin has some major limitation,” Kirby said. “Obviously there’s a speed limitation; you need to wait 10 minutes for transactions to confirm, and sometimes you want three, maybe six confirmations. But you don’t always have an hour to wait on an application. Additionally, there’s a cost issue. If bitcoin’s value goes way, way up, it means all your costs change. And finally, the most important one, there is a capacity issue. Bitcoin can’t handle more than, like, seven transactions per second.”

But that does not mean Bitcoin’s blockchain is useless, Kirby emphasized. One property of Bitcoin’s blockchain has been impossible to copy so far: its unique security proposition. Bitcoin’s immutability relies on mining power to secure the network against 51 percent attacks. In other words, it uses computing power to stop anyone from “changing the past.”

And, over the last six years, Bitcoin has garnered a record amount of hashing power.

Bitcoin is an amazing network, and it’s got a lot of horsepower; some 500 petahash worth,” Kirby continued. “If you think of blockchains as a brick-stacking machine, where every time you write something you stack bricks on top of that, Bitcoin stacks the most bricks by 100,000 times. For every brick that another system stacks, Bitcoin stacks a ton.”

Anchoring

This unique security proposition has opened the door to a new application of the original Bitcoin blockchain: anchoring. Rather than transmitting and processing all information, some of the newer blockchains and alternative data-layers do most of the work on their own chain or ledger, and simply tap into Bitcoin’s security without putting a big footprint into the system.

This is done using cryptographic tools called Merkle trees. Data – any type of data – can be scrambled and compressed into a hash: a seemingly random string of numbers. This hash can be much shorter than the original data, but is also impossible to unscramble, deeming it useless to anyone who doesn’t have the original data. But anyone who does have the original data can scramble that data in the exact same manner. If the hash turns out the same, it essentially verifies that the original hash was made using the same data.

A Merkle tree, then, consists of multiple hashes hashed together into a new hash, called a Merkle root. As such, hundreds of pieces of data can all be compressed into a Merkle root. And using the magic of cryptography, anyone who has any of the original data can use the Merkle root to check whether that original data is part of the Merkle tree.

Major companies such as Philips are experimenting with Bitcoin’s blockchain using Merkle trees. The electronics and health care giant recently established a partnership with Tierion, a blockchain startup that lets users create a verifiable record of any data, file, or business process on the Bitcoin blockchain.

Elaborating on the specifics of this approach, Tierion CEO Wayne Vaughan told Bitcoin Magazine:

Tierion can anchor millions of records in the blockchain, even though Bitcoin can only handle seven transactions per second. Every 10 minutes we construct a Merkle tree of the recently received records and publish the Merkle root in a Bitcoin transaction. Tierion uses information from this process to create a blockchain receipt for each individual record. Anyone with a blockchain reciept can verify the contents and timestamp of a record, without even needing to know about Tierion. They can just check the Bitcoin blockchain.”

Explaining why this might be useful, Vaughan said:

Imagine you’re a manufacturer with a complex purchasing process. You can connect your existing procurement systems to Tierion, or one of the other tools that anchors data in the Bitcoin blockchain, to timestamp and verify the contents of each purchase order and approval. This lets you create a verifiable audit trail of a purchasing process that spans multiple partners.”

This strategy is even being adopted by legacy payment systems. Visa recently announced a partnership with DocuSign to publish contracts on Bitcoin’s blockchain while using the existing payments rails as provides by Visa itself.

In our DocuSign/Visa connected car example, we’re generating transaction information and posting it to an open system which provides a secure, tamper-proof container which is also time-stamped,” DocuSign founder and Chief Strategy Officer Tom Gonser said. “This container can then be accessed by any application to pick up our transaction and process it, knowing that it is authentic.”

The future of Bitcoin 2.0

These companies, therefore, believe anchoring could very well be the future of Bitcoin as a 2.0 technology. Bitcoin itself might never be the platform that’s used to record every single stock trade, or all the world’s data. But it could evolve to be a fundamental and secure base layer, on which more advanced solutions are constructed. Bitcoin is being rediscovered as a building block, much like the IP layer of the internet itself.

TCP/IP moves the data packets, HTTP manages images and visualization, and then fancy stuff like Flash and HTML5 get built on top of that,” Kirby said. “We think that blockchain technology will be built the same way. Bitcoin at the core, and a data layer on top on which you write stuff… fancy applications like Storj and distributed computing like Ethereum on top of that…”

He added, “The world of banking and finance is kind of apprehensive about Bitcoin in general; they’re always coming up with reasons why Bitcoin is not perfect. But it doesn’t need to be perfect, it just needs to be there.”

Vaughan agreed.