Like many, we’ve been following the bitcoin drama for a while now, but only recently have we begun to wrap our heads around bitcoin’s latest progeny, blockchain – the similarly decentralised, smart contract platform that has some of the biggest technology companies in the world taking quick notice.
Now, a 21-year-old Canadian/Russian has developed a new blockchain-based platform, Ethereum, to expand the potential for using blockchain for all sorts of smart contracts that could have a wide range of uses and implications in any transactional business that has traditionally relied on a intermediary.
Early Ethereum adopter Mark Pascall (of 3Months) has set up Ethereum NZ, a Techweek AKL-hosted conference (which has spread to Wellington) aimed at educating and inspiring New Zealanders on the uses of Ethereum and related technologies. The conference is the first of its kind in New Zealand and is attracting more than just startups, hackers and futurists: senior executives from some of New Zealand’s biggest banks, law firms, communications and government departments quickly bought tickets.
We asked Pascall to give us a primer on the technology and the conference.
You're presenting the ‘Ethereum for Dummies’ portion of the conference so, to start from the start, what is blockchain?
The way I like to explain it to somebody who has no knowledge of bitcoin and blockchain is that since the dawn of humanity we've transacted with each other using intermediaries – trusted people or organisations that sit between us because, generally, we don't trust each other. We trust each other with small amounts face-to-face, but for bigger amounts or where were on different sides of the world, we need a bank or a credit card company or Uber or TradeMe, and that's the way it’s worked since the beginning of society.
Seven years ago, this guy called Satoshi Nakamoto, who we may or may not know who he is, wrote a white paper and wrote some code and released it into the open source world. He did something absolutely groundbreaking. He created the maths – very clever cryptography principles and other clever programming – that allowed two people to transfer value without a trusted middle-man. He put it out seven years ago and called it bitcoin and it basically works, for the last seven years, it hasn't been broken.
The guts of what he did was to create a distributed, peer-to-peer database. So when I transfer a bitcoin to you, which is quite easy now with smartphone wallets, I'm not actually giving you anything, I'm not giving you any digital token, all we're doing is agreeing to update a ledger, a database of all bitcoin transactions. And that database is replicated around the world and validated by the consensus of the network. So there's no central authority, there's no single server, there's just a network participating on this consensus mechanism.
Early on in the bitcoin journey, people realised something else. Not only could you store that transaction, you could start to include some rules around that transaction, I might include the rule that I will only give you a bitcoin is these two other people authorise it – a multi-signature transaction – so I can put in business logic, but the problem is there that the bitcoin code, it had quite a narrow focus, it didn't allow those business rules to be encoded into the system. By design, it didn't have a programming language that allowed you to do that sort of thing.
So two years ago, a Russian-Canadian guy, Vitalik Buterin figured he could use the concepts behind bitcoin but start again. He decided to build a new distributed network database, but with a new focus. He wasn't going to start another currency, what he was trying to was to create a platform for creating these rules, essentially a smart-contract platform so that programmers could build complex smart contracts, complex interactions between people, using the same concepts of a distributed database. He crowdfunded US$19 million a couple of years ago and set about doing that, and called it Ethereum, an open source project developed all around the world.
Ethereum went live last year, but it was all pretty quiet other than in the cryptocurrency world, until January, when the number of nodes of the network suddenly went exponential and the value of Ether - the fuel you use to pay for smart contract, so it kind of has it's own currently which was sitting around US$.50 shot up to around US$15 and now hovering around US$10. So the market woke up to the concept, it went out of beta about a month ago.
So Etherium is a full programming language for developers to start writing smart contracts, so they can build interactions. The really exciting thing about those whole concept is that most of our global commerce is made up of organisations who act as intermediaries and essentially facilitate these transactions and so this technology could challenge that whole system of commerce. Everything from Uber or TradeMe or a will, there are so many transactions that could be created on the block chain that could be created without the intermediary taking a cut or being a target for hackers and ultimately having to trust that third party with our money.
So that’s the Ethereum platform, what’s the Ethereum event?
I started planning the event just when Etherium was starting to wake up. It was going to be quite a small thing, just in Auckland, but it’s grown in interest and we're going to two cities [Auckland and Wellington], we've got three international speakers, we've got the mayor of Wellington and the US Ambassador coming along, we've got all sort of CEOs and CTOs and board directors, all coming along now.
What we're trying to do is target the non-technical business entrepreneur. There's plenty of technical meetups going on around this technology. What we're trying to do is raise awareness in the business community so it's mostly going to be an education and inspiration event to talk about the basics of Blockchain and ethereum and some of the potential it holds. I personally think it's a fantastic opportunity for new zealand to take a lead internationally. It's a first step, but I think given that most of our banks are foreign owned and were small enough a country to take a lead on this disruption and have startups and innovations come out and help drive this forward and redefine how we interact.
What are the ways we could take a lead? Obviously the possibilities are infinite, but what are early adopters using blockchain and Ethereum for?
There's fascinating stuff going on in the rest of the world. We've got Estonia, which has created a virtual e-residency concept – you can become a resident of Estonia and get a passport without being there and they're using blockchain for that.
There's a lot of money in Silicon Valley going into this space, but it's early days. Slock.it are creating smart locks that are connected to Ethereum blockchain, so a physical lock that you can put on a bike or a house, so there are applications for airbnb or bike rental, or anything where you could program some business rules into the lock and have it completely trusted.
If you think about an organisation, a company, you could create a whole company as a series of smart contracts on the blackchain, lots of smart contracts interacting with each other to essenatilly create a company and that's what slock.it have done. Two days ago they've announced that they've had the second biggest crowdfunding project in history, raising US$25 million [now over US$30 million] and they're only halfway through. But it’s not on the traditional crowdfunding sites, they’ve issues an Ethereum based currency, their own currency, and people are buying that. When you buy their currency you have voting rights and you’ll be able to participate in the governance in the organisation, so it's a completely new way of running organisations potentially.
Other applications include land registries, a new eBay called OpenBazaar. Anywhere where you want to automate a transaction and not have a middle man taking a cut or being a target for corruption or attack, because in a distributive network that has no attack points, Ethereum and all blockchain technologies are unstoppable, they can't go down. The data that goes in there is essentially immutable, it cannot be changed. The cryptography and the maths means you cannot change that value in that database, as opposed to any other centralised system that are always going to be targets for hackers.
Obviously it’s still in its infancy, but what are the barriers to mainstream uptake?
There’s plenty of legislation and there are incumbents with patches to protect. The banks have been very resistant to the whole bitcoin story and have shut down people bringing bitcoin ATMs into the country, but I think they're now beginning to realise that they need to be part of the disruption or they may end up being irrelevant. There are worries, quite rightly, from government, because you’re essentially accelerating globalisation because you've got a system that doesn't have any geographic boundaries so it can't be controlled by governments, as opposed to, y'know, money. So there are a few hurdles around how society works.
One of the barriers around the currency aspect of it, bitcoin, has been pretty contentious, because it’s been used for things like drug dealing and because a lot of exchanges around the edges of the bitcoin network, which allow you to get money in and out, are centralised startups with dodgy people running them, they’ve been hacked so that’s produced a lot of bad press. And the fluctuating value of bitcoin, which goes up and down quite a lot depending on supply and demand, so it's more volatile than most currencies, so it hasn't been widely accepted as money yet, but there are many projects underway to address that.
Buy tickets here. Wellington is currently sold out, but a bigger venue is being sought. Stay tuned for more info.
Idealog has been covering the most interesting people, businesses and issues from the fields of innovation, design, technology and urban development for over 12 years. And we're asking for your support so we can keep telling those stories, inspire more entrepreneurs to start their own businesses and keep pushing New Zealand forward. Give over $5 a month and you will not only be supporting New Zealand innovation, but you’ll also receive a print subscription, an Idealog t-shirt and a copy of the new book by David Downs and Dr. Michelle Dickinson, No. 8 Recharged (while stocks last).