Making dollars and sense of blockchain

With cryptocurrencies such as Bitcoin taking the world by storm, it seems the technology that underpins them – blockchain – is having its moment.

But experts say blockchain is still a long way from reaching its potential as perhaps the underlying technology of the 21st century.

Bitcoin was touted as the future of money, but what is the future of blockchain technology beyond it?Credit: Bloomberg

Blockchain is a digital ledger containing information, which can not be altered once it is recorded in that ledger.

This is achieved by adding to the information a tag, called a hash, which is generated by making a computer solve an extremely difficult computational problem. The process is called “proof of work” and is both the great strength and one of the major criticisms of blockchain technology.

This digital tag is now permanently associated with that “block” of information, and it permanently links it in sequence to all the other blocks of information in the chain. Any computer can recognise and verify the information because of the blockchain in which it sits.

While Bitcoin and other cryptocurrencies have seen huge surges in value in recent months, there has been volatility, leading to fears the sector is another tech bubble in the making.

The market in fake Indigenous artwork in Australia is estimated at $200 million annually. On top of that, many actual Indigenous artists are at risk of exploitation, having their work bought up and resold at marked-up prices without any of it flowing back to them and their communities.

Brisbane-based entrepreneur and Quandamooka man Adam Robinson said he had been worried about the issue of counterfeit Indigenous artwork, before he realised he could use emerging blockchain technology to help secure it.

IndigiLedger founder Adam Robinson (right) with artist Richard Bell in his studio.

IndigiLedger founder Adam Robinson (right) with artist Richard Bell in his studio.Credit:QUT

He set up his company IndigiLedger to use the cutting-edge blockchain to help secure the trade of authentic artwork.

“We created a business rules engine – how can an Indigenous person create a piece of art and describe that as traceable and authentic?” Robinson said.

The company records a piece of Indigenous art in an online ledger, which forms the basis of its blockchain. That is then encoded into a “digital fingerprint”, which can be attached to the artwork and scanned by anyone seeking more information about it.

“On scanning and looking at the Indigenous product or artifact, using that one-off ID, the consumer is able to engage with that chain of traceability,” Robinson said. “So they know that what they’re getting is 100 per cent authentic.”

Because it is linked to a blockchain, the information encoded on the ID can not be altered once it is entered, and it is extremely hard to fake.

Since launching in late 2020 Robinson said the company has secured “tens of thousands” of pieces of Indigenous artwork which have travelled around the world.

“Our north compass is to work with Indigenous businesses, because a lot of the other sectors are being looked after already by other blockchain providers,” he said.

“That’s what we’re really enjoying, we’re dealing with one of the harder sectors to bring on board with this, so if we can get this right then there’s a universal nature to what we do, we can spread our wings further.”

Because the technology is still so relatively new, even people who claim to understand how blockchain works can struggle to explain it to others.

“I attended one of the biggest blockchain meet-ups in the world, in Manhattan two years ago,” Griffith University ICT expert Professor Vallipuram Muthukkumarasamy said.

“In the opening statement the organiser said the previous year, 2018, they had 17,000 people show up and two of them could explain what blockchain was.

“This year, they said, we hope it will be four.”

They had 17,000 people show up and two of them could explain what blockchain was. This year, they said, we hope it will be four.

Every individual Bitcoin that exists in the digital world has been “mined” using computers and a hash added to them.

Whenever someone trades a Bitcoin, everyone involved in the transaction can see the hash and verify that it is a real Bitcoin. This is what prevents someone mocking up a digital wallet with 1 million “Bitcoins” inside.

Beyond Bitcoin and other cryptocurrencies, experts have long seen potential in blockchain technology for things such as securing supply chains, providing secure data transfers without the use of passwords, and verifying the provenance of items such artwork, as it is being used by IndigiLedger.

Crucially, there is no central bank regulating the flow of Bitcoins, and no central arbiter deciding what data passes through a system. The verification comes from all the nodes in a given network agreeing that the data they can see is the same across every node.

Dr David Hyland-Wood, a multi-disciplinary engineer and blockchain entrepreneur, said at its core, a blockchain system creates trust where usually there is none.

“The thing about blockchains is, when you strip away all the stuff about ‘non-fungible tokens’ and cryptocurrencies and what have you, fundamentally, they’re trust engines,” he said.

“They can prove that the nodes that operate the blockchain all agree with something, their records are immutable, meaning they can’t be overridden. It’s not like a traditional database where you can rewrite history – you can’t do that on a blockchain, the whole thing would stop working.”

There has been a big boom in interest in blockchain systems over the past few years, and 2020 saw interest climb from sectors which had not been thought of as needing blockchain.

Lachlan Feeney is the founder and chief executive of Brisbane blockchain consulting company Labrys, which has moved to capture the market of existing companies wanting to explore what blockchain can enhance about their business.

He said he saw a huge climb in inquiries in 2020, including from large players such as Downer EDI, which has contracted Labrys to help it set up blockchain to manage its mining maintenance services. He also counts at least one state government on his books, although said he could not say which one, or what project was being developed.

Feeney said more broadly, many companies would find blockchain useful to develop trusted methods of getting data to one another, which was becoming more difficult as the internet advanced, not less.

Lachlan Feeney, founder and CEO of Brisbane-based blockchain consultants Labrys.

Lachlan Feeney, founder and CEO of Brisbane-based blockchain consultants Labrys.

“At the moment, most organisations work with centralised servers, all of their data sits on these servers and they don’t communicate with servers at other organisations,” he said.

“What we find is many organisations still today can’t get their servers to talk to each other, so they end up downloading files and emailing them to one another.

“So what we’re working on doing is building blockchain infrastructure within organisations which can store data between different organisations and allow communication between different IT systems.”

This sort of functionality, Feeney said, would see the technology taken up into the future.

“To this day when people talk about blockchain, people think of Bitcoin, but for my business and for the blockchain sector as a whole we’ve moved way beyond Bitcoin,” he said.

More than one tech commentator has noted that blockchain appears to be a solution in search of a problem, a novel technology that does not yet have any actual real-world use.

Professor Muthukkumarasamy said the same could be said for the internet in the 1980s.

“The internet came in in the early ’70s and the World Wide Web came in in the late ’80s, and we are now harvesting the fruits of that,” he said.

“The blockchain is similarly a new technology, it’s the applications which take time. For the applications to get into the mainstream, a lot of research needs to happen to understand the feasibility, the opportunities and the threats.”

One of the downsides of blockchain, and cryptocurrencies in particular, is the associated carbon footprint. Because of the huge computational power required to mine cryptocurrencies, much criticism has been directed at the sector for its seemingly wasteful use of resources.

Recent research by experts based in China predicted that within three years, computers used to mine for Bitcoin would use as much power as a small country. The paper, from Tsinghua University and the Chinese Academy of Sciences, found that the energy consumption from Bitcoin mining would peak in 2024 at about 297 terawatt-hours. That is more than the entire of annual greenhouse gas emissions outputs of several countries, including Italy and the Czech Republic.

Professor Muthukkumarasamy said the problem with Bitcoin and other cryptocurrencies was they required extremely difficult problems to be solved by computers to generate their blockchains, and that becomes an issue once the system is scaled up to a global level.

However, he said that problem could be solved by devising a blockchain framework which was able to scale more sustainably.

“We can have a private blockchain, we can have a consortium blockchain, we can have a hybrid blockchain, we can have lots of things depending on their application,” he said. “We just need to come up with an appropriate consensus mechanism, then we can run it.”

A bitcoin ATM vending machine in the Chatswood Chase shopping mall in Sydney.

A bitcoin ATM vending machine in the Chatswood Chase shopping mall in Sydney. Credit:Louie Douvis

Dr Hyland-Wood said, ultimately, the hype around cryptocurrency and the naysayers predicting the technology would amount to nothing were all just noise. What matters is getting a product to market that people can use.

“When crypto prices are high everyone wants to jump on the bandwagon, when crypto prices are low, then everyone thinks the world is ending, they want to throw the baby out with the bathwater. The truth is always somewhere in the middle,” he said.

“The early applications of blockchains, I would say, have unambiguously failed. Bitcoin did not make a world cryptocurrency that everyone’s using to buy coffee.

“However, what you see happening is that technologists have a new important tool in the toolkit.”

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.