Many non-techies first heard about the digital currency Bitcoin as something people could use to anonymously buy illicit drugs and weapons, or even to hire an assassin, through websites such as Silk Road.
But Bitcoin’s image has improved in recent years as more people hear about and begin using cryptocurrencies for more conventional purchases, said Lamont Black, an assistant professor of finance at DePaul University.
“Some people are like, ‘Oh, Bitcoin is just for money laundering and drugs,’” Black said. Online black markets were perhaps an inevitable consequence after Bitcoin’s unknown creator(s), known as Satoshi Nakamoto, circulated a paper in 2008 introducing the “peer-to-peer electronic cash system.” However, Black said he believes Nakamoto’s main reason for floating the concept was to determine whether society could move to a payment system that excludes banks and other “trusted third parties.”
Black explained why he’s bullish on Bitcoin—and the technology that underpins it, known as blockchain—before an audience of investors, computer programmers, and others Thursday during a conference held at Marquette University in Milwaukee. At the event, numerous professionals with expertise in blockchain discussed current and potential future applications of the technology, as well as some possible roadblocks to mass adoption.
For the uninitiated, blockchain is a way to create a public record of transactional data so that those transactions later can be authenticated, but which also allows the parties involved to keep certain information private by encrypting it. A blockchain is designed so that data about a transaction between two or more parties are stored in “blocks,” which are then linked together sequentially. These chains are visible to the public, but those involved in an exchange can use encryption tools to ensure that certain information contained in individual blocks is kept private.
Marc West, chief technology officer at the Brookfield, WI-based banking software company Fiserv (NASDAQ: [[ticker:FISV]]), said blockchain can offer “greatly improved speed, security, transparency, and efficiency” compared with current technologies banks and credit unions use to process payments and deposits, among other functions.
West described how blockchain works by comparing it to safe deposit boxes at banks that can only be unlocked by inserting two distinct keys. Typically, an account holder holds one key to the box, and a manager at the bank holds the other. The bank manager does not necessarily know what’s inside the deposit box, West said, only that she has one of the keys needed to unlock it; this is similar to storing money or information in a blockchain, he added.
“Here’s the difference with a blockchain: I can mint a third, fourth, fifth, [and] sixth key,” West said, before asking the audience to envision a virtual safe deposit box containing 100 $1 bills, and suppose he gave a digital key to another man allowing him to unlock the box and take one of the dollars out.
“I can specify, by serial number, which dollar” the man is allowed to take, West said. “He can pick that dollar up whenever he wants. Because I know his public key and who he is and everything else, I can turn around and know it went to him. And because [blockchains are almost without exception] immutable, I can make sure that it didn’t go to somebody else and that … nobody went back and rewrote history to say it wasn’t picked up. It’s much more about recording who has ownership, not the actual asset underneath it.”
Blockchain offers the promise of new products and efficiency gains in insurance, pharmaceuticals, and other industries. But many banks and financial services firms
