Blockchain, Bitcoin basics and their place in the future of your business

The other day on Fox Business, Charles Payne noted how the Long Island Iced Tea Corporation changed its name to include the word “blockchain” – it’s now The Long Blockchain Corporation – and its stock price tripled overnight.

Such is the power of blockchain.

Okay, I’m kidding about the “power” of blockchain; what was demonstrated here was the weakness of investors’ minds. However, there are three things every business owner (and investor) should note here:

  • Names can be deceiving. The ice tea company hadn’t fundamentally changed anything about its operation when it changed its name. They were still brewing tea.
  • Blockchain technology has created a lot of buzz. This is because it’s essentially a computer network database system that is impervious to hackers.
  • Blockchain technology does – or at least will – have practical applications for businesses of all sizes.

Blockchain is getting well more than its 15 minutes of fame because it’s the data backbone of Bitcoin. It is secure because the entire array of Bitcoin computers across the globe has a copy of every transaction. Imagine the old days of keeping accounting ledgers in large books, ala Bob Cratchit working for Ebenezer Scrooge. Now imagine 100s of Bob Cratchits around the world instantaneously entering identical transactions. Further, these transactions can only be entered using a private secret code or key. Every computer on the network has to agree on the transaction and its results.

These transactions, by the way, are grouped together in blocks and ordered (by time) like your kids would create a choo-choo train out of blocks. The coolest technology comes in at this point; A mathematical question must be solved to place a block in the chain and it isn’t easy. One computer would be too slow, but with many computers testing different solutions at the same time, it takes about 10 minutes to get a solution, according to what I’ve heard.

In any case, the important thing to understand is that blockchain is a secure system, its weakness is in that it’s not scalable…at least not yet (people are working on it).

Startups are busy brainstorming and developing applications that utilize blockchain technology. (Harold Stark has a good rundown on several blockchain startups in this Forbes article.) Businesses of all sizes will eventually benefit from its robust security. I expect you’ll soon see apps and cloud services available in areas where money, inventory, data, and contracts are involved, such as:

  • Payments
  • Financial markets (any marketplace really)
  • Insurance
  • Healthcare
  • Record keeping
  • Shipping and receiving
  • Peer-to-peer exchanges

If you look at this list, you’ll notice that there is an underlying similarity between most of them and it’s most obvious with my last entry. Anytime you have dealings between two individuals, two companies, or individuals and companies, blockchain could be part of the infrastructure that handles the process. After all, that’s really what’s happening when today’s cryptocurrencies are being bought and sold.

I have no idea if the recent incredible increase in the value of Bitcoins represents a bubble or is an indicator of its long-term value – or even if cryptocurrencies are here to stay. I’ll let the market figure that out. However, creative entrepreneurs and technology experts will certainly find some great ways to use blockchain in coming months and years. I’m sure that it will become, in the long run, as user friendly as PayPal, Quicken, email, and other apps we use daily.

Finally, if you’d like some “fun facts” about BitCoin, check out this infographic, 58 insane facts about Bitcoin.