Out-of-the-Box Cryptocurrencies and the blockchain Business Information Review 2019, Vol. 36(1) 39–44 ª The Author(s) 2019 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/0266382119836314 journals.sagepub.com/home/bir Luke Tredinnick London Metropolitan University, UK It has often been noted that the Internet was forged in the crucible of the US West Coast counterculture; a characteristic libertarian attitude was consequently hard-wired into its underlying design (Naughton, 2000; cf. Tredinnick, 2008, 2009). That libertarian attitude faded as commercial and national interests came to dominate the World Wide Web; indeed, the dominant debate today is as likely to be about the power of state control, surveillance capitalism and transborder political interference (e.g. Zittrain, 2008; cf. Laybats and Tredinnick, 2016a,b). It is comforting then perhaps that in one area the political radicalism that fired network culture has been rekindled: cryptocurrencies. They embody the political idealism of cyberculture, robustly individualist, resistant to political, state and regulatory interference, and rooted in distributed trust networks. Through them the political ideals of the early internet have begun to penetrate the most conservative of corporate boardrooms. Cryptocurrencies have become one of the emerging technological trends of the last five years. Moving beyond their original association with the dark web, illicit trading and ransomware, they are becoming a part of the fabric of digital transactions, and their underlying technologies promise to offer solutions in many kinds of business processes where control over extended chains of transactions dependent on trust and susceptible to fraud is a factor, from managing supply chains to securing intellectual property rights. But what are cryptocurrencies, how do they work and what role do they have in the information world? This issue of Out-of-the Box explores the disruptive potential of cryptocurrencies and the promise of their underlying technologies. What are cryptocurrencies? Cryptocurrencies (sometimes cryptoassets) are digital assets that are designed to be used as forms of exchange somewhat like traditional money. As the name implies, they exploit strong cryptography to secure exchange. Like most traditional currencies, today they do not possess an intrinsic value; their value is set through transactions. As a consequence, cryptocurrencies tend to be volatile. However, while in one sense just another kind of money, cryptocurrency is unlike traditional currencies in several important ways. They are not controlled by any central authority such as a national or transnational central bank. No organization or agency underwrites the value of the currency or issues more currency into the system. Scarcity is maintained through the equations that are used to validate transactions. Cryptocurrencies are by their nature decentralized and as a consequence offer a form of exchange independent of state control. It is these characteristics that exemplify libertarian ideals of cyberculture. The oldest and most well-known cryptocurrency in widespread use is bitcoin. It was first mooted in a 2008 paper published under the name of Satoshi Nakamoto – a pseudonym used to conceal the identity of the creator, either an individual or more probably a collective. The identity of Satoshi Nakamoto remains a mystery to this day. The open-source bitcoin software was released a year later, and in 2009, the network was initiated when the genesis block of the bitcoin blockchain was mined. Bitcoin flourished from its inception, its initial growth driven by dark web applications most famously the Silk Road website; the essentially anonymous nature of transactions and the lack of central authority made it ideally suited to illicit trading and criminal enterprise. But over the last five years, the value of bitcoin has largely been driven by speculation rather than by crime, and the currency has increasingly found uses in mainstream commercial contexts. Bitcoin, or currencies very much like it, may very well become staple parts of our everyday financial environment of the twenty-first century. That of course poses a number of challenges around regulation, security and the role of the nation state. When you spend bitcoins, you do not transfer a physical artefact but a piece of code that is moved from one digital wallet to another. These transactions rely on peer-to-peer networking. Normally, the workload of distributing files across a digital network is managed by servers; with peer-to-peer networks that workload is distributed across the devices attached to the network each of which takes a Corresponding author: Luke Tredinnick. Email: l.tredinnick@londonmet.ac.uk 40 share of the processing overhead. As a consequence, there is no single authority over that distribution, and no central record of the transactions that have taken place. But if there is no central authority, then how is the unique status of each bitcoin maintained? What is to stop someone spending the same bitcoin twice? This problem is known as the doublespending problem and was solved by the real innovation of bitcoin: the blockchain. The security of bitcoin is maintained through the use a distributed ledger – the blockchain – which records transactions across the bitcoin network and which now extends beyond 150 gigabytes of data. The unique identity of each bitcoin is ensured by a total transparency in transactions through which each bitcoin can be traced back to the moment it was created. Imagine that each banknote in circulation was accompanied by a record of every individual and organization that had handled it and that up-to-date copies of those records were also held in libraries and by individuals across the world. Imagine that each time a purchase was made using cash, these records were checked to reconcile each note with the individual recorded as last owning it. Forged or stolen banknotes would immediately be identified because the records would not tally. This is in principle how the blockchain secures the unique identity of each bitcoin in the network. Because of the speed of digital networks that reconciliation takes place very rapidly although not quite instantaneously – it generally takes around 10 minutes to confirm a transaction. The distributed nature of the blockchain and the way in which it is compiled make it impossible to change any record within the blockchain without changing every subsequent record: New transactions can be added but old transactions cannot be erased. This makes the blockchain not only transparent but tremendously robust, robust enough on which to run a currency system. In addition, if it is robust enough for currency, then it is surely robust enough for countless other uses where transparency and trust play a role. The underlying technology of the blockchain has therefore become of interest in a wide variety of contexts beyond cryptocurrency. The details are a little complicated but worth understanding as they have important consequences, and we shall address them in the second part of this Out-of-the-Box column. New bitcoins are created by ‘mining’ and the concept of mining is integral to how the currency works. However, the metaphor with its roots in mineral deposits is a little misleading. Bitcoins are not ‘mined’ in any conventional sense – that is to say that bitcoins are not uncovered from an existing deposit. Mining is the process by which the blockchain ledger of transactions is updated and transactions validated. The computers dedicated to this essentially race each other to complete new blocks in the blockchain recording transactions that have been broadcast across the bitcoin network, and if they are successful, they are rewarded with new bitcoins. The whole system is designed Business Information Review 36(1) so that the reward is reduced over time, and the difficulty of creating new blocks in the blockchain increases limiting the total supply. The total amount of bitcoins available to be mined is around 21 m. At the time of writing, over 17.5 million of these have already been mined, leaving 3.5 m bitcoins still to be created. That does not sound very many, but in practice bitcoins are usually traded and exchanged in fractions that can be as small as 100 millionths of a bitcoin (commonly known as a Satoshi after bitcoin’s creator/s), which leaves plenty of currency units to be shared by everyone. Bitcoin is by far the most well-known and widely used cryptocurrency currently in existence. The total value of bitcoin currently stands at around US$63 billion but has topped US$300 billion in the recent past; over 300,000 transactions in bitcoin take place every day and every day around 2000 new bitcoins are mined. However, bitcoin is only one of an ever-growing array of cryptocurrencies, and it seems likely that while pioneering the practical implementation of cryptocurrencies and helping make them both more widely known and more widely accepted, it may well be superseded in time. In the last 10 years, cryptocurrencies have proliferated at an alarming rate; there are currently well over 1000 cryptocurrencies and cryptoassets in existence. Some of the other major cryptocurrencies or altcurrencies (alternatives to bitcoin) currently in use include the following:  Litecoin: Launched in 2011, it has lower overheads in generating blocks in its blockchain and therefore faster transaction rates. At the time of writing, Litecoin’s market capitalization stood at US$2.6 billion.  Ether: Launched in 2015, Ethereum is an opensource distributed computing platform that incorporates its own cryptocurrency: Ether. In 2016, as the result of a flaw in the platform, US$50 million of Ether was stolen and Ethereum forked into two blockchains with the theft reversed in the new version. Ether has a market capitalization of around US$12.5 billion.  ZCash: Launched in 2016, ZCash is a distributed open-source cryptocurrency that provides extra privacy protection. It currently has a market capitalization of around US$250 million.  XRT: Launched in 2012, Ripple is a distributed open-source real-time gross settlement system and currency exchange that uses a native cryptocurrency named XRT. Unlike other common cryptocurrencies, XRT does not rely on mining and therefore the Ripple network runs on lower cost and environmental overheads. XRT currently has a market capitalization or around US$12.5 billion. The total cryptocurrency sector currently stands at around US$120 billion, down from a peak of over 41 Tredinnick US$800 billion at the start of 2018. This recent decline in the value of cryptocurrencies across the board underlines the volatility of the sector and makes it difficult to reliably predict the future of cryptocurrencies. Indeed, the sector has also been subject to widespread fraud; it has been estimated that since 2017 over US$100 million has been lost in initial currency offerings in which developers have little or no intention to develop a sustainable financial product (Lucey and Corbet, 2018). Even the future of bitcoin itself seems uncertain on account of several fundamental problems associated with the bitcoin network (see Bianchi, 2019):  The rising costs of mining: Because mining is designed to become more difficult over time, the profitability of mining is not guaranteed, threatening the entire infrastructure which underpins the validation of transactions.  Power consumption: The rising processing power required in bitcoin mining increases power consumption requirements, which not only has the potential to undermine the viability of the system but also has considerable environmental consequences.  Market manipulation: Research into the cryptocurrency markets suggests their value is largely uninfluenced by wider economic conditions and is subject to potential market manipulation such as pump and dump trading.  Regulatory concerns: The rise of cryptocurrencies has increased interest and action to regulate the sector to avoid market manipulation and fraudulent activity. While bitcoin has benefitted from the network effects of being first, the intrinsic overheads in processing the currency may be its Achilles heel. Nevertheless, as proof of concept, bitcoin and the other currencies have demonstrated the means of exchange that is independent of state control, the feasibility of trading in such currencies and the general reliability of the underlying technology, if at the same time underlining its risks and volatility. However, the risks of cryptocurrency are perhaps begging to change as the sector matures. In February 2019, JP Morgan announced JPM Coin which draws on cryptocurrency principles although is not quite a cryptocurrency as it is not planned to be traded. Cryptocurrencies – whether independent of government control or underwritten by central banks or major financial organizations – may very well become the way that all money works in the future. commercial organizations and regulating bodies. Nevertheless, they have increasingly come into the mainstream of business transactions. The list of major companies accepting payment in bitcoin grows daily and currently includes Microsoft, Expedia and PayPal. Cashpoints that allow conversion between bitcoin and other currencies are appeared across London and other major world cities (you cannot of course withdraw bitcoins because they have no material unit but you can convert bitcoin into ready cash). There is of course a voguish element to this that reflects the hype associated with the sector, but cryptocurrencies do also offer some real advantages to business, particularly in ecommerce context. These include  Generally lower transaction costs that traditional forms of payment. The decentralized nature of cryptocurrencies means that banks are not required to verify transactions, leading to significantly lower transaction costs.  Faster processing of transactions. Cryptocurrency transactions are generally processed in real time or close to real time, which is particularly significant for large transactions.  Cryptocurrencies work worldwide and do not incur international currency exchange costs.  Transactions are final which can help mitigate fraudulent transactions, and both parties have to approve the transaction. Regulation, taxation and accountancy principles have been slower to catch-up with the growth of cryptocurrencies, which have presented challenges to accounting standards; in most circumstances, cryptoassets are regarded as intangible assets rather than currencies (EY, 2018). However, this relative lack of regulation is starting to change. In the last couple of years, the Australian Accounting Standards Board, Financial Accounting Standards Board, Accounting Standards Board of Japan and International Accounting Standards Board have begun to examine the financial reporting of cryptoassets. In December 2018, HMRC issued guidance on the taxation of cryptocurrencies and other assets in personal taxation, but tellingly note that ‘the tax policy may evolve as the sector develops’ (HMRC, 2018). The rapidly evolving nature of the sector obvious makes medium-term financial planning more complex, and by itself this represents a risk in the adoption of cryptocurrencies in commercial contexts. What about the blockchain? Cryptocurrencies and the commercial sector The emergence and rapid adoption of cryptocurrencies over the past 10 years poses both opportunities and problems for Cryptocurrencies may not quite be at the forefront of many organizations’ plans right now, but the underlying technology of the blockchain has far wider applications and has drawn significant interest. Blockchains have potential to transform the ways in which we maintain the security and 42 integrity of trust in all kinds of transactions: goods, information and even ideas. To understand why the blockchain matters, it is worth spending a little time understanding how blockchains work and how they provide a secure solution to problems of trust in many kinds of contexts. A blockchain is a constantly growing sequence of records called blocks that are associated with one another in a secure way using cryptographic principles and that can be held in common without compromising the security of those records. Blocks can be of any size however the larger the block the slower the process of creating new blocks (or the greater the latency of the system), and therefore in many applications the size of each block in a blockchain is prescribed. What is stored in a blockchain is immaterial to how they work. The blockchain associated with bitcoin records exchanges of currencies between digital wallets, but in other contexts, they may just as well record stages in a supply chain, executable code associated within smart contracts, asset registries or digital rights management (DRM) records. Blockchains provide a persistent and robust continuous record that is all but impervious to subsequent manipulation. It solves two key problems and lends itself to contexts in which those problems arise: how to maintain secure yet distributed records and how to mitigate the double-spending problem (which arises in contexts outside of money such as intellectual property rights). Those characteristics make it suitable for many different kinds of contexts but also perhaps should incite the interest of information and records management professionals. Blockchains are built one block at a time with each new block linked to the chain by referencing its parent block. The security of this relationship is ensured by including in each new block the cryptographic hash of its parent block using cryptographic rules that are defined in the protocols for the blockchain. Cryptographic hash functions are oneway algorithmic processes that map data of arbitrary size to data string of fixed size called the hash; the hash is straightforward to derive from the original data, but the original data are virtually impossible to reconstruct from the hash and any small changes in the original data will lead to very large and essentially unpredictable changes in the resulting hash. This means in effect that once a new block is added to a blockchain, the previous blocks become locked, and it becomes virtually impossible to change the data in the preceding blocks without breaking the integrity of the chain. Therefore, blockchains allow secure and reliable records of transactions to be held in common in open legers that can be accessed and appended by multiple parties in a transparent and robust way. It is these properties which have created excitement about the potential of blockchains in applications way beyond cryptocurrencies and cryptoassets. Some of the areas in which blockchains are being developed out outlined below. Business Information Review 36(1)  DRM and intellectual property: Managing intellectual property rights in digital audio, video, images and text present some of the challenges of mitigating the double-spending problem in digital money: If an asset is held as a digital file, then what is to stop a duplicate of that file being made and circulated? DRM software has provided a solution of sorts but rather like malware protection it is always fighting an arms race with DRM crackers and additionally tends to add restrictions to the use of content that infringe on the legitimate rights of the content owner. There has been increasing interesting in using blockchains to manage and track digital rights and to authenticate micropayments as a part of the rights management system. In the third quarter of for example 2018, Sony announced the development of a DRM system based on the blockchain. Although the details of the planned product are still sketchy, Sony claims that it could be applied to almost any form of digital content. Microsoft has similarly been developing blockchain approaches to DRM within the Xbox ecosystem. It remains to be seen whether blockchain approaches will have any real advantages over traditional approach to DRM or whether they can ever be anything other than an additional layer of protection on top of traditional DRM but the research and development going into this area highlights the disruptive potential of the blockchain.  Document and records management: An area that will perhaps be of particular interest to information and knowledge professionals is the potential of blockchains in document and records management. Although proprietary systems typically incorporate version management and auditing capabilities that echo the potential function of blockchains in document and records management, the peer-to-peer architecture of blockchains arguably streamlines this process, adds security and reduces dependency on third-parties. Embedded within a blockchain and distributed ledger, such systems allow people or organizations to share and collaborate on records or documents while maintaining trust in the integrity of those records, even in cases where the identities of individuals updating or adding to those records are unknown. One context in which blockchain approaches to records management is being developed is patient health records in medical contexts. MedRec, a project developed by the Massachusetts Institute of Technology, is a proof-of-concept using the Ethereum network’s smart contract capacities to pool patient data under the control of the patient. In the UK, MedicalChain is developing the MyClinic service using blockchains to improve security, transparency and privacy of patient records. 43 Tredinnick  Asset registries: Cryptocurrencies are in many contexts treated as intangible assets, and the function of blockchain in securing transactions therefore has a natural affinity with the transfer of other tangible assets, such as land or works of art. There have been several pilots and proofs of concept of the use of blockchains in property transactions – in Georgia, Sweden and Honduras. In principle, the transparency and security of blockchains would allow more secure and more efficient land and property transactions. Nevertheless, there are significant barriers to scaling-up these approaches and there have been no significant moves to implement this approach at a regional or national level. The art world has however turned to blockchain approaches with increased interest over the past two years. The ability of blockchains to track ownership and provenance in an open and transparent way makes it an attractive solution to the problems of art theft and misappropriation. The 2018 Ethereal Summit emphasized the role of blockchain in the artworld, and in November, Christy’s New York partnered with blockchain registry Artory to record transactions entirely using blockchains.  Supply chain management: Another killer application for the blockchain has been supply chain management. By their nature throughout the twentieth and twenty-first centuries, supply chains in manufacturing and retail have tended to become increasingly extended, extended across multiple national borders and implying complex and expensive administrative and auditing practices. The complexity of many supply chains makes it difficult to ascertain the trustworthiness of transactions across the chain. Blockchains provide a natural solution that allows robust records to be shared by partners across a complex and fragmented supply chain providing a total record of transactions that offers greater transparency, robustness in respect of fraudulent transactions and increased efficiency. Blockchains could also automate payments across the supply chains using smart contract applications (see below). There are countless examples of the development of blockchain approaches to supply chain management over the last three years, often using radio-frequency identification chips to link physical artefacts to the distributed leger.  Smart contracts: Smart contracts are digital contracts that can execute their own terms once certain conditions pertaining to the agreement have been achieved; for example, automating payment on delivery of a product or on completion of a particular set of tasks. Therefore, smart contracts not only record agreements between parties but can also enforce those agreements. Because smart contracts are relatively immutable once they have been established, in principle they increase trust in transactions and mitigate fraud. The Ethereum platform was designed to support smart contracts by allowing executable code to be incorporated into blockchains. That of course raises a number of problems in itself, with the potential for flaws in the code to be difficult to rectify leading to security vulnerabilities. Nevertheless, smart contracts have begun to find applications, particularly in crowdfunding contexts where the smart contracts improve the security of transactions by operationalizing the contract only when clear and transparent conditions have been met, such as for example are particular funding target has been reached. The explosion in the development of blockchain solutions in these contexts and many others suggests that there are perhaps currently inflated expectations about the potential of blockchains to improve efficiency and transparency in many kinds of transactions. As we know from past experience, the hype is likely to fade over time, and the true benefits become clearer as a more realistic understanding of the advantages and disadvantages takes hold. In many contexts, blockchains may not offer any real advantages over traditional centralized databases. Nevertheless, while blockchains may not be the universal solution that they perhaps appear to be, it is also clear that in specific contexts they provide a way to maintain robust, secure and open records that facilitate commercial transactions of many kinds. Declaration of Conflicting Interests The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article. Funding The author(s) received no financial support for the research, authorship, and/or publication of this article. References Bianchi D (2019) Five reasons bitcoin could enter a more extreme death spiral. Available at: https://economia.icaew.com/opin ion/january-2019/five-reasons-bitcoin-could-enter-a-moreextreme-death-spiral (accessed 17 February 2019). EY (2018) IFRS (#) Accounting for crypto-assets. Available at: https://www.ey.com/Publication/vwLUAssets/EY-IFRSAccounting-for-crypto-assets/$File/EY-IFRS-Accountingfor-crypto-assets.pdf (accessed 17 February 2019). HMRC (2018) Policy paper: cryptoassets for individuals. Available at: https://www.gov.uk/government/publications/ tax-on-cryptoassets/cryptoassets-for-individuals (accessed: 17 February 2019). 44 Laybats C, Tredinnick L (2016a) Information security. Business Information Review 33(2): 76–80. Laybats C, Tredinnick L (2016b) Post truth, information and emotion. Business Information Review 33(4): 203–206. Lucey B, Corbet S (2018) Why bitcoin proves regulation is the biggest challenge facing cryptocurrency. Available at: https:// economia.icaew.com/opinion/august-2018/why-bitcoinproves-regulation-is-the-biggest-issue-facing-cryptocurrency (accessed 17 February 2019). Naughton J (2000) A Brief History of the Future: The Origins of the Internet. London: Weidenfeld & Nicolson. Tredinnick L (2008) Digital Information Culture: The Individual and Society in the Digital Age. Oxford: Chandos Publishing. Tredinnick L (2009) Post-structuralism, hypertext and the world wide web. Aslib Proceedings 59(2): 169–186. Business Information Review 36(1) Zittrain J (2008) The Future of the Internet and How to Stop It. New Haven: Yale University Press. Author biography Luke Tredinnick is a senior lecturer and course leader for the BSc Media and Communications. He teaches across a range of undergraduate and postgraduate modules in the media and communications area on diverse topics including media genres, media history, identity, and digital culture. Luke has published widely, including three books, and numerous chapters and research articles. His currently research interests focus on digital media, digital culture, information and digital history, post-structuralism, semiotics, writing and textuality. Luke is co-editor of the academic journal Business Information Review (SAGE), and on the editorial board of the academic journal Library and Information History (Maney). He is a fellow of the Higher Education Academy and member of the Faculty Research Ethics Review Panel (RERP).