Satoshi Nakamoto is most widely known as the alleged creator of Bitcoin, the world’s first functioning cryptocurrency. For BitCoin to work, Nakamoto had to invent Blockchain, which may prove more impactful on society than cryptocurrencies.
Blockchain technology functions as a “decentralized, online ledger maintained by computer networks” which verifies and records “transactions, then distribute[s] the ledger to all users.” The ledger allows each user of the system “to ensure the validity and accuracy of the transaction and prevents one party to the transaction from lying about the details or failing to perform.”
The validity and accuracy of blockchains are instituted through a system known as proof of work. In cryptocurrency systems such as BitCoin, LiteCoin, and Ethereum, each transaction can only be completed by members of the system who compete against others to solve a complicated mathematic puzzle. Regarding BitCoin specifically, the members of the system who complete these puzzles are known as “miners,” and they are rewarded in a certain number of BitCoins for their efforts in completing the transaction after an additional 99 BitCoin transactions have taken place. This creates an incentive to not only validate the current transaction, but to also ensure that future transactions are correct.
While the mining process of BitCoin’s proof of work system ensures that the blockchain stays intact, it also tends to absorb a tremendous amount of electricity. This is so because individuals and countries are taking constructing massive coin mining facilities so as to win the race to complete transaction puzzles and thereby generate revenue. As a result, states such as Wyoming and Oregon have adopted legislation which attempts to encourage miners to move operations to their states using the incentive of cheap electricity.
The potential environmental effects posed by proof of work blockchain-powered cryptocurrencies is overwhelming. Today, BitCoin alone requires the same amount of electricity as three million homes.
Scientists theorize that by 2019, the energy required to power BitCoin would be equivalent to the amount of electricity currently used by the entire world.
Coin mining centers are usually set up in places which offer the cheapest electricity. China, which has comparatively cheap energy provided by coal, has been able to mine the largest number of coins.
While there are potential environmental downsides associated with blockchain technology when used to power cryptocurrencies, the technology itself could positively affect society in the long-term. The Linux Foundation created a new type of blockchain technology, known as Practical Byzantine Fault Tolerance (PBFT), and installed it in a program known as HyperLedger. PBFT, endorsed by companies such as IBM and Intel, utilizes a voting system where other users vote on a member to validate each transaction, thereby eliminating the competition required by the proof of work system.
The energy efficiency offered by new blockchain systems such as PBFT allow governments “to scale for business needs,” which “means processing significantly more transactions per second at minimal cost, while accommodating an ever-expanding user base.” The regulatory energy agency of Chile recently decided to use “Blockchain to authenticate information like marginal costs, average market prices, fuel prices, and compliance with renewable energy law.” In the United States, eight states have passed legislation authorizing its use to “order studies of the technology for government use, legalize blockchain-based electronic signatures,” and permit corporations to use blockchain to maintain corporate records and “track stocks on the digital ledger.” There is pending blockchain legislation in thirteen other states directed at tapping the technology for purposes such as managing tax records, business licenses, Medicaid rosters, food stamps, and creating digital marketplaces for snow removal, recycling, and other services.
The appeal of the technology has garnered an equal amount of attention from the commercial sector, which has been followed by the filing of a copious number of blockchain patents from different areas of industry. Regarding energy, blockchain will allow “consumers to buy and sell energy from multiple providers in an open market using transparent and secure payment systems in real time.” Oil dealers are developing “a blockchain technology based platform for physical trading of oil.” Other potential uses involve voting identification, car leasing, trading stocks, selling real estate, insurance, health records, tracking guns, wills and inheritance, and finance.
As a result, there are entire firms dedicated to dealing with the actual and potential implications which blockchain technology poses to different industries. As more industries implement technology into their daily operations, the legal and commercial repercussions of scientific innovations such as blockchain will increase in kind.