August 2021

 

The BlockChange.

How the blockchain is changing the world.

 

Coins

Bitcoin is not the blockchain. It’s an example of how the blockchain can be used… just like a website is not the internet, but just one of its many uses.

So let’s start with bitcoin. It is a way of storing value. There are other ways of storing value like cash, gold, stock certificates, cowrie shells, works of art… the list is endless. There are two things that they all have in common:

1 – Their supply is limited and

2 – We’re willing to spend our time “working” for them.

None of the stores of value mentioned above have any ‘real’ value. Yes, you can make jewelry out of gold or cowrie shells, but that’s not why they have value.

How much value each item stores is rather arbitrary. Basic economics suggests it depends on its scarcity, but that has been proven wrong by the global increase in money supply and its non-effect on money’s value. The origin of the term “clip joints” comes from the practice of shaving a bit of gold or silver from the edge of a coin that passes through one’s hands. Ostensibly, this would make the coin worth less. The same thing happens each time a dollar is printed – every other dollar is worth a little less. But, like the overprinting of the dollar, nothing happens until somebody notices and is no longer willing to do the same amount of work for that coin. Hasn’t happened, yet.

The supply of bitcoin is programmatically limited to 21 million coins. This will probably occur around 2140. This cannot be changed. Nobody can ‘clip’ the bitcoin as governments have ‘clipped’ their currencies by printing more. This makes it intrinsically more stable than a currency because it cannot be controlled or manipulated by governments. In my opinion, it is likely that at some point in the near future governments will try to control, or even outlaw crypto currency. Franklin D. Roosevelt outlawed gold ownership in 1934.

Bitcoin, and other coins have value because like gold, dollar bills, and cowrie shells, people are willing to spend their time working for them.

Smart Money

Investopedia defines: A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code controls the execution, and transactions are trackable and irreversible.

Cryptocurrency is created by a program. Programs can be written do transfer that money. Simple examples include a program that automatically transfers one coin from my account to my son’s account every year on his birthday. A smart contract can be written to release funds when specific proof of delivery is confirmed.

Perhaps the most innovative use of a smart contract is Steve Wozniak’s EFFORCE that pays people for energy efficiency. Anyone looking to improve the energy efficiency of their industrial processes can register the request on his platform. After evaluating the required investment an Energy Performance Contract (EPC) is created that will award them WOZX coins. The value of these coins is based on the value of energy efficiency to the people of the world. If you invest in these coins by buying them on the open market then the value of the coins that you (and energy efficiency producers) own increases. I own WOZX coin because I believe in Steve Wozniak’s vision and in the increasing value of energy efficiency.

Blockchain

The blockchain is simply a ledger that records all of the transactions. There are over 10,000 copies of the blockchain kept on computers all over the world (called nodes). Blocks, or transactions, are added through a complex verification process and kept on all 10,000 copies. People are paid transaction fees for this adding service, called GAS fees. It is not possible to make a change in the middle of the blockchain. Imagine a ledger book with numbered pages, with one transaction written in pen on each page. You can’t erase it, and you can’t add or tear out a page.

A blockchain is easy to create – as easy as a webpage. It’s a small program. There are currently about 40 million of them. It’s more difficult to get nodes to maintain your blockchain, or to get people to add transactions to the blockchain. For this reason, many new coins use existing blockchains. My partner, Rudhir Sharan, created a coin for me called WPZ “Pet Coins” that will use the Etherium or DOGEcoin blockchain.

A blockchain can store ANY transaction.

Art on the Blockchain – NFT’s

A non-fungible token is a block of data on the Etherium blockchain that represents a unique digital asset such as a digital photo, video, or program.

To best explain what this means, consider the fact that Coca Cola is a sponsor of the Olympics. It basically means nothing except the company has given the Olympics money so that they have ‘bragging rights.’ They don’t own anything, control anything, or have the right to do anything except brag about it. Yet it’s worth $3 Billion. That’s an example of the value of “bragging rights.”

Another simple example: Imagine you just bought “The Starry Night” Van Gogh painting and donated it to the Boston Museum of Fine Arts. You still own it, but you don’t control it or even have possession of it. Perhaps your name will appear on a “Donated by” plaque. You don’t have the right to put the tag on it as it’s the property of the museum, but the museum might let you. Your family, for generations will look at that with pride. Bragging Rights.

So how can you sell bragging rights? Let’s look at the Carbon Trading Exchange. If I run a manufacturing plant then I am going to have carbon emissions. All plants do. Imagine that a plant like mine typically produced 10 tons of carbon of month. This is acceptable and I have government approval to create this much carbon. Now imagine that, by making significant investments, I save 1 ton a month. What’s that worth? How do we create a system where I can be financially incentivized to invest in carbon-reduction. The best answer is that we fine the plants that are not investing in carbon-reduction, and give me that fine. So an old plant producing 11 tons gets charged $1,000 for the extra ton which goes to me for saving a ton.

This is called the carbon exchange. I earn one carbon tag for saving one ton. The carbon tag is like a ‘bragging right.’ I sell this tag for $1,000 to the old plant that’s producing 11 tons. The government allows the old plant to produce 10 tons and they purchased my reduction to cover the extra ton. This is how you can earn a ‘bragging right’ and sell that right to someone else.

The value of the bragging right depends on how much people and governments care about carbon emissions. If people start protesting climate change then governments may raise the fine increasing the value of the carbon tag.

Similarly, if you decide that you want to do something about climate change, you might start buying the carbon tags yourself for $3,000 each. The old plant now must pay even more for their ton, or upgrade their equipment.

This is how NFT’s work. 3F Music bought the digital rights to the 850 million views 2007 video “Charlie Bit My Finger” for $700m after heavy bidding at auction. Even though the video is all over the internet already and out of 3F’s control, they still ‘own’ it. You can buy an NFT. There are some internet cartoons available for as little as 5 cents. Will they ever be worth $700 million? Probably not. What would you pay, for example, for the digital right to Homer Simpson – the bragging rights to the cartoon would probably be valuable. The copyright owner would still be the ‘owner’ and control the cartoon, but you would own the digital rights – just like you would own the carbon tag or the right to say you donated the Van Gogh to the MFA.