The Bits Behind The Blockchain

When many of the players in payments talk about the power of bitcoin these days, they aren’t talking about bitcoin at all.

And for good reason. Volatility, illegal use cases, exchanges gone caput and operators gone corrupt have sullied the reputation of the crypto-currency’s poster child.

But when the conversation shifts too much toward what bitcoin is doing wrong, these players quickly point to what the technology powering bitcoin is doing right.

Behind – or underneath, more accurately – the virtual currency of bitcoin, lies the blockchain.  To better understand the blockchain technology, we asked Marwan Forzley — CEO of Align Commerce – a startup using the blockchain to make cross-border payments easier —what made it better than the more conventional methods of sending money. Forzley recently spoke with MPD CEO Karen Webster about how the block chain makes it possible for  data and money to be stored forever and shared securely. As for  bitcoin part of it?  Forzley said  that there are two sides to that coin: the currency part of bitcoin and the protocol or the application that enables the movement of money and data from one point to another. The blockchain is the distribution ledger that records a bitcoin transaction over the exchange network, which runs the bitcoin software.

“There’s the bit part of bitcoin, which is essentially using the technology and that technology is called blockchain,” Forzley explained. “Think of that technology as the distributor and ledger that essentially keeps track of the transactions where a bunch of nodes on the network are all synchronized about how the transactions are being recorded.”

Blockchain, he said, is like a second rail — another way to move money from one point to the other. Similar to how information is transcribed on the Internet, the blockchain moves the transaction securely from one party to another – bitcoin, the currency, in this instance, is just the container in which that money or data travels on that journey.

“That piece of technology, which is powering the currency concept is actually a very useful technology to move value from the sender to the receiver. That technology functions very similar to the way the Internet works in that you have nodes on the Web that are essentially moving information,” Forzley said. “This blockchain was constructed in a very similar format.”

The Blockchain Race

In a New York Times article examining the subject, entrepreneurs (like Forzley) explained how they are using the blockchain to transfer lots of sensitive “cargo” – including sensitive data such as contracts, wills, licenses, patents, or essentially anything that needs a third-party authorization.

“There’s a race going on to extend the blockchain’s capabilities,” Adam Ludwin, a co-founder of Chain.com, a startup looking to help developers build bitcoin applications, told the Times.

The blockchain has also been getting the attention of investors who see the value of the technology. Blockstream has recently raised $21 million to help develop blockchain’s technology. And some believe that having investors backing the technology may just be the first step in the public getting behind the concept.

“Anytime there’s a broker — anytime there’s an expert attesting to the validity of something — all of that could be obviated by the blockchain,” Keith Rabois, a partner at Khosla Ventures, which invests in Blockstream and Chain, told the Times. “It’s not a guaranteed success, but the upside is so large that as a venture investor, it’s an extremely attractive investment opportunity.”

But how exactly does the blockchain move money around the globe? Forzley explained that there are companies and exchanges — similar to a currency exchange, but with a modern-day twist — that take on those roles.

“So when I’m basically moving money from — take, for example, Germany to the U.S. — I am essentially moving Euro into the exchange and from the exchange to USD,” Forzley said. “So from the exchange, the bitcoin part becomes essentially a container  in the same way you have containers with boxes in it. Bitcoin becomes a container that has units of value and these units of value are real payments.”

The blockchain, of course, isn’t the only way to move money around the globe in a modern way — but Forzley believes that it can solve a big business headache – moving money across borders in near real time, quicker and cheaper.

Forzley believes that because payments using this protocol can essentially be programmed in the same way a piece of code would be programmed to run over the Web, the blockchain offers that same degree of flexibility, but with enhanced security measures.

“You can get the funds transferred essentially in real time. That’s one of the key things about this technology — the speed of it is superior. The technology is built from a global basis. If you look at the payments systems around the world, they are all mainly built as a domestic vehicle. The interesting thing about the blockchain is that there is no concept of domestic payment. This word is actually a global construction so you move money from point a to point b without necessarily having boundaries that the buyer and seller need to be in the same domestic setting at the same time,” Forzley explained.

“It gives you time advantage, it’s secure, you can build all kinds of applications right into the instructions of the payment. So, for example, you can build customer services, you can build conditional payments — these are all advanced ways of moving money and it’s all built into the protocol itself and that’s where it brings an advantage to the traditional way of doing things.”

As regulators eye bitcoin and how to crack down on the cryptocurrency due to its somewhat anonymous  and cryptic nature (like in the case of the Silk Road), there’s also a push to regulate how blockchain technology is operated and owned. But Forzley believes that would be a good move in helping the technology gain more traction in the global payments industry.

“I think regulation is a good thing for the industry and the industry has been asking for it. I think the complexity here is — because of the global nature of this technology— that the regulatory environment is a little tough in that there is multiple countries involved. …I think regulatory authority with respect to this technology would be something that is very valuable, and it is getting there.”

Bitcoin Tracker | Week 64

Another week, another dose of bitcoin in the news. As always, some good and some bad. Women and bitcoin will be celebrated in their own holiday this weekend (March 8). But then there’s always bad bitcoin PR to balance out the good — like how the bitcoin name got tangled up into a story about ISIS again. Just another week for bitcoin…

Bitcoin is trading up from last week’s price of $249.90 and is at $272.56 according to the PYMNTS.com Bitcoin Price index.

As always, if you have any news you’d like to share, please send it our way at contactus@pymnts.com.

On the Plus Side …

Oh yes, it’s ladies night — for bitcoins! Sunday, March 8, will mark the first-ever Bitcoin Women’s Day — a day to recognize the women who’ve made contributions to the bitcoin community and to encourage more women to get involved in using bitcoin. The new bitcoin holiday is being paired up with International Women’s Day. Who knew bitcoin had its own holiday for women? (Bitcoin-loving men are encouraged to celebrate, too).

March 4, 2015: The Bitcoin Investment Trust (BIT) has the seal of approval from the FINRA to trade the fund publicly on an electronic platform.

March 4, 2015: Europe’s largest military surplus dealer announced it will accept bitcoin. It plans to use BitPay to expand its global payment reach.

March 4, 2015: Abine — an online privacy company —  launched Bitcoin Anywhere, a card that allows Coinbase users to pay online using bitcoins.

March 4, 2015: A new social messaging app, Wiper, added a bitcoin wallet to its list — and it’s built into the app.

March 5, 2015: California’s legislature is considering a license for Bitcoin exchanges that would require maintaining bank-style reserves against possible losses.

On the Dark Side …

Can bitcoin escape its connection to ISIS? The Washington Post reported that a teen from Northern Virginia was arrested for allegedly aiding a man’s travel to Syria to join ISIS. That same teen, according to BuzzFeed‘s report, claimed he had an affinity for bitcoin and had founded the first Arabic-based bitcoin exchange on the Web, though the site was not functioning as of this week, the report said. Some reports indicate the Bitcoin-ISIS connection are all rumors, but rumors don’t help Bitcoin’s reputation — particularly when they keep showing back up in the news.

March 4, 2015: The bitcoin mining business may not be all it’s cracked up to be. MegaBigPower will buy back the mining hardware for unprofitable bitcoin miners.

March 4, 2015: Speaking of ISIS, or at least IS, a tipping service banned a user who allegedly was trying to donate to the Islamic State visa bitcoin.

March 4, 2015: It’s been one year since Mt. Gox went bankrupt, and there’s still no report as to why. That means millions of bitcoins went missing and no one seems to know how or why.

March 5, 2015: Remember those 50,000 bitcoins that were seized in relation to the Silk Road online illegal drug marketplace? The Feds started auctioning them off. The auction was for an estimated $13.5 million worth of bitcoins that were sold in 20 blocks.

March 5, 2015: Another turbulent week for Bitcoin as it rode a rally high for a week or so and dipped off again (before jumping back up).