Bitcoin meant to reinvent money. It turns out to be reinventing commerce itself.

It’s easy to think of blockchain technology in the context of cryptocurrencies. After all, blockchains and Bitcoin were invented in the same gust of genius. But although cryptocurrencies can’t exist without blockchains, the reverse isn’t true. Blockchains, it turns out, can keep track of anything of value: money, real estate, art, stocks, plane tickets, and even medical records. And that changes pretty much everything.

A blockchain is an openly accessible but anonymized database of electronic transactions—similar to a ledger. Each transaction is time-stamped and reported to the shared database; each record is checked and added to a chain of data blocks that let people see a history of each user’s transactions.

Once you start seeing blockchain as a transaction ledger and currency as only a commodity, it starts to become apparent that blockchain technology might apply to nearly any business at all.

Managing transactions

Let’s say there is a commodity called a Zorkmid (ZM). If I wanted to sell you five ZMs, for instance, we would both need anonymous identities on the ZM blockchain. The blockchain would register our transaction so everyone else could see it. Importantly, the blockchain checks to make sure I’m not selling the same ZM twice, any more than I could spend the same dollar bill twice or sell the same land twice. Once I give you a ZM, I can’t give it to the babysitter.

The blockchain ledger is duplicated across many different computers. It doesn’t take much imagination to understand the communications and computational cost of those updates, particularly with the high volume an electronic currency might require.

The size of the Bitcoin blockchain, for instance, has surpassed 140 GB, and there are about 5,000 nodes online full time that need to be updated constantly. With a cryptocurrency such as Bitcoin, the computation that authenticates the chain is performed by “miners,” who are paid in bitcoins. For other blockchains, with fewer transactions, a central authority might charge a transaction fee, usually called a “token,” to maintain and distribute the ledger, in addition to paying miners.

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Trust, but verify

Blockchains can be used to establish a chain of trust for any transaction at all, from real estate to art to stocks to content. Any market that requires transparency might benefit from using blockchain. Bitcoin, it’s turning out, is the test case for something much more interesting.

“It looks to me like Bitcoin was sort of an experiment in feasibility,” says Bert Fry, co-head of the fintech group at New York law firm Pryor Cashman. “Can you create an authoritative ledger essentially by agreement of all the nodes on a distributed network? The answer that Bitcoin has provided us is yes.”

One leap forward is the idea of a blockchain-based “smart contract,” or programmable money. The 2-year-old digital currency Ethereum supports smart contracts, which transfers money only when certain conditions are met: a physical good is delivered, a stock reaches a certain price, the clock strikes 12. Those contracts, enforced by blockchain, allow for interesting applications.

Take, for example, the Ukrainian real estate market. In an attempt to stimulate property prices and foreign investment, the Ukrainian government is building a blockchain-based database of real estate, which can then be bought and sold through an Ethereum blockchain. A U.S. company called Propy acts as a digital title registrar and go-between among the buyer, seller, notary, and property registrar. When all parties agree and the money—Ethereum or bitcoin—is transferred, the electronic title deed is sent to the buyer.

Fine art sales can work the same way, with the added problem of authenticating the underlying physical asset. “The way people typically do that,” says Fry, “is to show the line of ownership. Then if you can show the chain of control, you can be comfortable with that piece of art—it really is that thing that was created by Gauguin, Picasso, etc. There are different art houses that keep track of these records. There are what, to my mind, look like title companies that specialize in doing the diligence before an art transaction is consummated, to really make sure that art is authentic.”

Fry points out that a lot of art is never displayed but just sits in a box on a shelf in a warehouse. “In a weird way, the art stuff kind of starts to look a little like the securities transactions," he says. "An enormous amount of art is sitting in warehouses in Geneva. People transfer that art without really seeing it. The lot identified by this row and that height now belongs to me. I may or may not be interested in displaying it. If I want to loan it out to a museum, that's how they would go get it, but if I want to transfer it, it may never leave that spot before I transfer it.”

Guarantee uniqueness

A San Francisco startup called Chronicled has experimented with putting a permanent ID tag on artwork. The tag’s number is registered on a blockchain, which contains information about the artwork and lets people buy and sell it.

Once a blockchain can contain programmatic logic or content, all sorts of things become possible. Walmart is experimenting with using blockchain to track parts of its global food supply chain through China. Enthusiast publisher TEN has discussed placing content on the blockchain, unlocking it for a reader when it’s paid for by the reader or an advertiser. Advertisers like the idea because the blockchain can tell them exactly when a piece of content is bought.

Credit card companies, however, are worried about blockchain, Fry says. “I think that people can see that you could set up something that was really parallel to the business of Visa and MasterCard that allowed transactions to occur on a completely immediate basis, totally reconcile each transaction, and where you can be assured that people aren't going to spend money they don't have.” There would be costs in maintaining a blockchain of that size and speed, but it may well be below the 2 percent to 3 percent that existing credit card clearinghouses take.

Transactions that trigger only under certain conditions sound a lot like a stock exchange, and the financial technology community is thinking hard about those implications, Fry says. “Regulators are very interested in this idea that the blockchain might facilitate transactions in securities and the recordation of those transactions. I think blockchain that's being run by an exchange is going to look just like any other infrastructure that exchange uses.”

In fact, Fry says, the very idea that a blockchain transparently tracks all transactions makes for a more orderly market. “You could have a public blockchain, a blockchain the regulators would have access to, which is where the transactions are happening. You can make whatever statistical analysis you want of it. You can ask people about trades that you're seeing, because you're seeing them. They're anonymized, but you're the SEC—you can find out who; you can ask and get information about who matches onto those accounts.”

Nasdaq already uses blockchain to operate a market for shares in private companies and is reportedly testing a system to operate proxy voting on the Tallinn Stock Exchange in the technology-forward country of Estonia.

“I think there was this notion early on that regulators didn't like Bitcoin because it's so anonymous,” Fry continues. “Actually, what the FBI and others have found is, it's really not. Right now, the model we have is, people in the market do stuff and they report it to a regulator, who has to then figure out what to do with that data. Here, if you got to a model where the transaction is the report and allows a regulator to be more immediately involved in transactions and less involved in the paperwork, collecting data about transactions—they're pretty excited about it.”

When the blockchain was invented, it was meant to underpin a specific electronic currency: Bitcoin. But the idea of value exchange goes much deeper than cryptocurrency, and while we may not be on the verge of commonplace blockchain commerce, it sure looks like the world is headed that way.

“One of the things I think is going to happen if the blockchain continues to go in the direction it's going,” says Fry, “is we probably won't have this conversation again about the blockchain, any more than we currently have long conversations about the cluster of servers that are used to make the Internet work. It's basically invisible to us. We just use the Internet. We talk about typing stuff in and getting answers from Google. There's a huge process that underpins that, but we don't care about it. We just use it.”

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