 Payments company Circle has stopped letting its customers buy and sell Bitcoin because it says it has failed to become a meaningful part of its business. They look at it as kind of speculative or fun. And they're not into that, they're into payments. Instead, Circle has launched Spark, an open source way of using the blockchain to exchange other money in digital wallets. Meanwhile, the R3 blockchain, we've talked about them on Daily Tech Headlines and right here on Daily Tech News Show, launched Corda, an open source blockchain-based platform to record, manage and automate legal agreements between business partners. And I know anybody who's followed this show has noticed blockchain, blockchain coming up more and more. I'm going to try to explain it, Scott. Let's start with the simple version. What is your understanding of what the blockchain is? All right. So my limited understanding of the blockchain is it is a mechanism by which things can be verified as being a real thing. It's not bad. That is not wrong, actually. It leaves out some important details, but nothing you've said is wrong in that as far as I understand it. All right. So the way, let's stick with money, because I think money is the easiest one to wrap your head around, and it can apply to things like contracts and things later. If I want to send you a dollar right now, even through PayPal, well, if I'm sending within PayPal, it's not this way. But let's say, you know, you need to pull a dollar out of your bank account and send it to me. A central clearinghouse has to validate that transfer. So it makes sure like, okay, Tom has a dollar. He's not pretending he has a dollar. That is Scott Johnson's account that this dollar is going to. It's not somebody intercepting the dollar. We're going to validate that. We're going to log that transaction. So if anybody needs to check and make sure that it happened, that we can know it happened, but that third party can be corrupted. Somebody could start, you know, they could get hacked. It can cause problems, plus even more so than that. It takes three days. If you've ever added or removed money from a PayPal account, it takes three days. The reason it takes three days to do a transaction like that is this third party clearinghouse, and that clearinghouse charges a fee. So forget any other fees that are involved. There's another cost to doing that way. The blockchain changes that. If I want to send a dollar to you, Scott, a transaction is published on the network that says, Tom, send it a dollar to Scott. And we want to add that to the blockchain. All right. And then you have all these nodes, which are essentially the computers added to the network. Now in Bitcoin, anybody can be a node, but you'll hear about these consortiums and these financial tech places doing their own, what's called permissioned networks, which means they control the nodes. They decide what does, but it's just computers that are looking at this on the network and saying, okay, let's validate this transaction. We all have a copy of a ledger of all the transactions on the network. So if Tom doesn't have a dollar in his account, I can tell that by looking at this ledger. And if Scott isn't actually Scott, or there isn't any Scott, I can tell that by looking at this ledger. So there are two things that has to happen. One is validate that transaction. And then the other is create an encryption key that binds it to the previous transaction. Small making sense so far. It is so far. Yeah. What you just said though. What's that? Because one of the big holdouts on this stuff for me, at least my grasp of it has always been, especially with Bitcoin. Well, if everyone controls it, then nobody controls it. You know what I mean? Like this feeling of, I'm a big open source guy. I love the idea that everybody's working on stuff. And then we're all freely just making software about like a bunch of hippies. But occasionally something like this, what deals with money, which deals with people's livelihoods, what deals with their ability to survive and so on. It kind of freaks me out to think that well, just any computer can be a Bitcoin node, or any computer can be part of the blockchain. And that just immediately gives me just a little bit of pause. Like whoa, well then who's controlling, who's watching the watchers? Like it's that whole thing. Like how do I know any of this is legit when it's everyone can be a thing and no one can be a thing. And so the encryption part seems key to this. Well, the encryption part is really not as key as you think it is. The key isn't so much like locking the encryption, keeping someone from changing things. The key says we are making sure that this transaction follows the previous one. So let's say the previous transaction was Tom got $10 into his account, right? That's a real simple one that you can check and look at the ledger and like, oh, Tom had $10 put into his account. So he can give a dollar to Scott because he's got 10 there. And he'll have nine after that. You go through, it's much more complicated than that obviously, but it goes through and it calculates all of that ledger information. It's software, it does it fast. And it says, all right, we're going to link this so that it can't be removed. You're going to make sure that there's a key that connects this transaction to that so you can't easily change it and go, oh no, this transaction happened before that. So now Tom owes us money, no. And the other reason you can't do that is you have multiple nodes. So each block is not just recorded in one place. Multiple users on the system copy the block and software checks the blocks against others to ensure they're right. If one block is changed by Scott, let's say what your worry happens and Scott, you go in and say, haha, I'm going to change this dollar that Tom's given me to $5 on my ledger. A thousand other users will look at that and go, nope, that block's corrupted. That's not what we have. We have $1 and it gets kicked out. What if me and eight other friends that are nodes all collude and do it? Does that change anything? Okay, not eight other friends because you've got thousands of nodes, right? You have way more nodes than that. But that is a concern with Bitcoin because the validation is conducted by miners and one of the concerns is if the miners go above 50%, like if everybody gets all the mining resources above 50%, they could control the network and it would become centralized. But that's the issue. As long as you keep it uncentralized, then you don't have that intro. If you get enough people to collude, then yes, suddenly you have a centralized system de facto and that is a weakness to it. So there's lots of arguments in the Bitcoin community about how to make sure that you don't get all of those resources centralized with permissioned systems like they want to use for things like contracts and Big Jim is talking about import and export. You have an organization running the entire network and so they basically say, we're not going to let anybody in here to run a node. We make sure that the people running the node are trustworthy and we still, it's mostly in numbers. You make it very difficult for someone to run enough nodes to be able to change that system. Plus, and I even knew it when I said it, but the entire point of the technologies surrounding the creation of Bitcoin and how blockchains work and all of that, the entire idea is decentralization. So me colluding to a point of greater than 50% control would probably, A, would probably never get to that point and B, if it ever did. I mean, the entire thing exists as an antithesis to control. So that makes sense to me that there's not, the security is by diversity, not by control. And that's a really unique idea when it comes to money. And that's the only reason I think it throws people. I know that's why it throws me because it's just, it's about money. It's about goods and its services and applying my brain to it being transacted, verified and linked and chained in this way. It's just such a new bit of thinking, even though I guess banks have done this exact thing or the results are the same, it's just been controlled by the banks or the banking system. Well, yeah. And this is, and you're like, what if we get eight people to collude? Those eight people will all be invalidated, right? If you got eight people in a central clearing house to collude, you could do some damage, right? So first of all, getting eight people to collude is more difficult than it sounds, especially if they get caught. And you also have, you make it way harder because you need way more than eight people. In fact, you don't need people, you need resources. You need to own nodes. So you need to either flood the thing with nodes, which means you have to own a lot of machines. It's just very difficult. It's not impossible. And Bitcoin has had some fears that they were getting close to it happening, but it's a trick to pull off. And if you're controlling the network more, it makes it even more difficult. Now, if you're controlling the network, obviously the organization that controls the network is the weak point there. But it's still way faster because you don't have a central clearing house. Everything just happens in software and it happens distributed and automatically and it doesn't cost because you don't have someone running a server in the central area saying, okay, I am going to process this now and you owe me $49 for that. You have everyone who wants to participate in the system adding nodes to it, which makes it better and faster for everyone. And so they don't mind contributing the low cost of running those nodes because it pays off in the end. All right, so that all makes sense to me and it makes perfect sense. If one of the factors in here always, and I'm probably wrong in this assumption, but it's a very, everybody on the dark web is using Bitcoin. Everybody in places that are a little sneaky and dark on the internet, they're using Bitcoin for transactions. It is the currency used to hold people's computers hostage when they run some sort of encryption thing, lock your computer down and say, well, we're basically kidnapping your data unless you pay us $500 in Bitcoin or whatever. So it already has that kind of reputation. My feeling has always been, well, that's because it's just not regulated in a way that traditional banking is. If eight people collude in a company in a banking system, they are committing federal crimes and will be justly dealt with if they're caught. If somebody does this in the blockchain or in Bitcoin or something like that, are the stakes the same? And so couldn't somebody as big as an ISP who would suddenly be able to seize 50% because they happen to be the ISP through which all these nodes have to communicate through? Could they do some sort of hostile takeover of control and not be held in any sort of account? That sounds extreme, but you know what I'm saying. Yeah, I think you're answering your own question because the efforts that you would have to go to to do that are going to be so noticeable that people are going to step up and say, well, hold on, you are violating several antitrust laws by doing that. You're violating money laundering laws for doing that. And it's not about Bitcoin. Again, you're conflating Bitcoin and blockchain in your objection because you're saying Bitcoin is used to ransom people. The only reason Bitcoin is used to ransom people is that's a less traceable way because it doesn't go through a central server right now. But that doesn't mean blockchain has to work that way. Blockchain is a public ledger and blockchain can say, okay, we're going to have a blockchain that's run by R3, which means we know who runs the nodes. So if anyone did something weird on our blockchain, we'd know exactly who did it. The issue with Bitcoin is it's so decentralized and open that somebody can anonymously run a node and create an account on it. But that's a Bitcoin issue, not a blockchain issue. Yeah, and there's obviously plenty of conversation getting happening around why that's an issue on the Bitcoin side. On the blockchain side, I totally get it. It's like BitTorn in a weird way. BitTorn can be used to download some illegal movies or that really rad technology is used in tons of ways I won't even know about because it's already doing great things on the internet and it's just working for us. So I totally get that. But then what is to stop like Wells Fargo or the World Bank or anyone else with a big organized system of validation that they currently have in place? Why won't they move to this? Or maybe they are in will. They want to. The R3 consortium is having some people leave it because folks are like, eh, I don't really like the way it's run. That's good. That's what you want to happen is you want to have some conflict around how it's run so that you get a really good running blockchain for whatever it is you're developing it for. So yeah, Wells Fargo is investigating this. Citi is investing. Everybody's investigating it. They want to make sure they've got it right before they switch from a system they all know how it runs to something new because as soon as they switch to the blockchain all of us are going to go, hey, this didn't work and it's because you didn't properly prepare. So right now we're in that system of them saying, okay, we know theoretically this is going to work. How do we make it work in practice? Is there any worry that this is a profit center for them, these fees, the way that it's current? It's the opposite. If anyone's against this, it's the clearinghouses because suddenly they don't get to charge. It's going to be a profit center because it will reduce costs for companies. And yeah, they might not pass all those savings along to you because they're banks and that's what they do. But it should still bring down costs for everybody. Okay. Well, I think I feel like I know more about it than I did before. Yeah. If your goal today was to give Scott some enlightenment in the ways of the blockchain, I feel like it's happened. It's super fascinating to me that what may end up, I mean, as you spoke, it hit me that one day you could see a future in 50 years where the impact of the internet can truly be studied because we've had enough time to think about everything that's come and gone. This sounds like the kind of thing if widely adopted could be the most impactful thing the internet ever did because it involves money and money involves everyday life and every way and every corner of the world. Well, and we didn't even get to that. It doesn't just involve money. It involves the supply chain. So IBM uses the example of diamond mining. When you mine a diamond, you want to know, okay, this is the right diamond and it was mined here and it went through these hands and we have a certification of the clarity and the color and the cut that goes along with this diamond and who's had it and all the way through the supply chain from end to end and the blockchain can do that too because that ledger that says, oh, Tom sent a dollar to Scott can say this diamond with this cut clarity and color from this mine went through these hands and the same thing can happen when nobody can go and alter those records to embezzle some diamonds. Could you be a node today if you wanted? Could you be a... I am a node on the Bitcoin blockchain, yeah. Okay. I don't run very often and I don't have enough CPUs to really gain any free bitcoins from mining, I've got the entire Bitcoin public ledger on my laptop. All right. I think that's the other thing is we have to explain this in human terms of like so-and-so does this and then adds it to the ledger and what we forget is this is all happening by software in nanoseconds. Yeah. And it's not taking up a lot of data. That's the difference and it's also not replicatable by humans. Humans can't do this level of whatever it is it's doing. So it's a really hard comparison. I take some comfort in knowing that a lot of people are like me. They scratch their head at this and feel like everything they've ever known about money is a lie because this seems like this crazy, way advanced way of looking at it that we're just not used to. So maybe the long tail on this is just education and people getting the idea and figuring it out. Another Jay Martin in our chat room has a story about a farm in Provo, Utah using blockchain. A farm? Yeah. Well, I gotta look that up. It's loading slowly for me. Merchant spotlight Lene Fairmay apparently is using Bitcoin and blockchain. You can find it on blockchain.com. We'll throw it in the show notes as well.