Contributor at StartupNation
Ann Logue is a lecturer in finance at the University of Illinois at Chicago and a writer specializing in business and finance. She is the author of four books on investing in Wiley’s for Dummies series and has written for Barron’s, Entrepreneur and Newsweek Japan, among other publications. She lives in Chicago and holds the Chartered Financial Analyst designation.
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There are so many stock phrases thrown out by bitcoin fans that it’s hard to know where to begin. One of the more interesting ones is “It’s the blockchain that’s really valuable, you know.” And that is probably true.
It’s also much easier to explain than bitcoin. Essentially, blockchain is a sort of record of every transaction that took place involving a single bitcoin. Money moves around in a similar fashion. For example, you put a dollar in a tip jar when you buy your morning coffee. When the barista’s shift ends, he goes for a haircut and pays in cash. That’s two transactions involving that same dollar bill.
Each time a bitcoin is used, a bit of code (called a block) is added to its identification code. The number of blocks is called the height of the blockchain. One can then follow the chain of transactions along the way, and the act of the transaction creates a record. This is unlike cash, where there is no proof that it was you who put the money in the tip jar and no proof that it was your specific bill that was then handed over to the barber.
Related: Should Your Business Accept Bitcoin?
With cash, creating a record of transactions (a ledger) is often required by law, but that doesn’t mean all parties involved do so. The barista and the barber both have taxable income from that buck you send out into the world, but that doesn’t mean that they will report it.
Electronic transactions are usually recorded, so if you use your phone’s app to send a tip from your spending account to the coffee shop’s, the bank will have an automatic record of what happened. Of course, one could imagine the sorts of catastrophic events that might lead to the bank losing all of its records. Also, the bank’s records include the names of the parties involved, and there may be situations where records should be kept anonymously.
Blockchain was first introduced in the same paper that introduced bitcoin to the world, but beyond that, there is no need to use bitcoin in order to use a blockchain. And, as the person or persons who developed bitcoin have never been publicly identified, there is no intellectual property issue with using blockchain. As a result, there has been a lot of investigation of its uses by such serious businesses as IBM and McKinsey & Company.
Unless your business is using cryptocurrencies, it probably has no use for blockchain – at least not yet. The first time you run into it will probably involve intellectual property or inventory management. For example, blockchain could be used to track who uses a picture, helping a freelance photographer control the usage rights.
Or, it could form a strong chain of custody for the transfer of hazardous materials rather than relying on the signatures (and honesty) of all the people who handle it.
Most startups and entrepreneurs likely won’t deal with blockchain any time soon, unless they are working on a project that involves a much larger company. However, as it diffuses through supply chains, your likelihood of coming across it increases. There are likely to be different asset management and accounting applications used long after cryptocurrency fades from popular memory.
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