Blockchain investment growing in Nevada, but what is it?
Correction: This story has been updated to reflect $400 million investment in Nevada
As more and more companies work to use blockchain for a long list of financial and other purposes, the questions most often raised by regular folks are, what the heck is blockchain? And how does it work?
Technically, it’s what is referred to as a “distributed ledger” — in effect a database that exists not just in one place or on one computer but in dozens or hundreds of computers, each of which maintains a copy of every transaction or “block.”
Matthew DiGesti of Blockchains LLC at the Reno Tahoe Industrial Center and Reno state Sen. Ben Kieckhefer say most people don’t need to know how blockchain works any more than they have to understand how email or their laptop works.
“The reality about blockchain is most people will never see it,” said Kieckhefer, who sponsored the legislation that opened Nevada to blockchain. “It’s a background function. Things will be running on blockchain and people will never know it so people don’t have to understand it for it to have a dramatic effect on their lives.”
DiGesti said everyone’s financial information is already in a database — but one owned by their bank or credit union. That means when you want to do a transaction with some one who doesn’t use the same bank you do, there have to be two databases in two different banks involved. A blockchain such as Bitcoin isn’t owned by one entity.
He says blockchains consist of blocks containing information recording a transaction. Each of those blocks is linked or chained together by a unique, computer generated 64-character key. That key in each block is tied to the next block. The system’s security is based on the fact that, if anyone changes any of the information in a block, the computer program automatically generates a new 64-character key that no longer ties to the key in the preceding and next blocks, in effect breaking the chain.
He said while Bitcoin, the first commercially successful blockchain, is financial, many potential uses don’t involve cyber-currency.
“It’s tailor-made for supply chain management,” he said.
DiGesti said since Kieckhefer’s first blockchain legislation passed in 2017, more than $400 million has been invested in Nevada.
He said Walmart rolled out a blockchain pilot to track food safety in products such as a head of lettuce all the way from the farm where it was grown to the shelves in their produce section. In the past, he said, if there was a health issue with that head of lettuce, it could take nearly six days to trace that lettuce back to the origin of the problem.
“With blockchain, it was less than three seconds,” he said.
He admitted, however, that Walmart has unique leverage to get everyone to use that system because of the company’s size and economic power.
Another example, he said, is Titanseal of Reno, a company that put together a pilot digital marriage certificate system using blockchain with the Washoe County recorder’s office. It was, he said, “wildly successful” and used by 3,400 people.
DiGesti said the per certificate cost to the recorder was nearly 30 percent less than the paper version and was processed within 24 hours, arriving in the couple’s email.
West Virginia, he said, did its own pilot program using blockchain in a local election for overseas military voters that was also successful.
He said one major threat to the spread of blockchain in creating cyber-currency is opposition from governments — including Congress — that see those currencies as a threat to their hard currency, such as the U.S. dollar.
But he said Facebook is seriously considering creating its own currency that would be completely outside of government control and, he added, Facebook isn’t alone.
China, he said, is moving forward in a pilot program that would unite all services from health care to court appearances in a blockchain system.
Because of how that ledger of transactions is decentralized and protected by that unique key, blockchain has long been considered unhackable. But Mike Orcutt, a senior reporter for the MIT Technology Review, says some systems are now getting successfully attacked by hackers. He said, however, nearly all the attacks were aimed at the exchanges where people buy, sell and hold crypto-currencies, not at the transaction ledger itself.
“We shouldn’t be surprised,” Orcutt said in an analysis. “Blockchains are particularly attractive to thieves because fraudulent transactions can’t be reversed as they often can be in the traditional financial system.”
He said, however, that, if set up properly, “this system can make it extremely difficult and expensive to add false transactions but relatively easy to verify valid ones.”
One of the few ways hackers can invade and take control of a blockchain is to somehow take control of over half — 51 percent — of the network’s computing power. Orcutt said according to the website Crypto51, renting enough power to attack Bitcoin would cost more than $260,000 an hour.
He said many of those kinds of attacks can be blamed on “poor basic security practices.”
For the financial, crypto-currency blockchains, Orcutt predicted the attacks will continue. There’s much less incentive to attack blockchains dedicated to supply chain management such as that pilot run by Walmart and other non-monetary systems.
But the issue has created a number of start-up companies developing ways to improve blockchain security to prevent hacks.