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Cryptocurrency in California
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Entrepreneurs in blockchain, the digital ledger technology that buttresses bitcoin and other virtual currencies, say consumers are on the cusp of a new “blockchain decade.”
The 2030s will be that decade, San Diego blockchain chief executive Brian Foote said, where “a lot of things we do will have blockchain behind them” including auto purchases and home mortgages, as well as to how we store and carry banking, driver’s license and insurance information.
Blockchain technology already has a running start supporting everything from digital mobile wallets and non-fungible tokens — or NFTs — to online gaming and other digital entertainment, to the billions of cryptocurrency transactions recorded on its ledgers.
California, one of the world’s leading economies, is staking out how it will lead the way in cultivating, regulating and adopting the still-emerging technology.
But what is blockchain and why should it matter to consumers?
Blockchain began and is commonly described as an encrypted, public digital register that records virtual currency transactions and stores that information. Transactions in cryptocurrency, for instance, are verified by users or ”miners” who then solve intricate algorithms to validate the transactions.
Camille Crittenden, former chair of California Blockchain Working Group, whose members were charged by state leaders with evaluating the risks, benefits and legal implications of state agencies’ use of blockchain technology, defined blockchain more plainly.
“It’s a cryptographically secure, distributed database of records,” Crittenden said. “The other distinguishing feature is that it’s immutable….You can’t go back and erase records. So there’s always a permanent record of transactions on the blockchain.”
What is blockchain?
Transactions form the storage units or “blocks” in the encrypted database known as the blockchain. Those blocks form the links to the chain and a history of transactions that everyone using the network can view. Any changes to or tampering with the information contained in those blocks will break the chain and alert the network and its members.
Foote, CEO of the San Diego-based blockchain services firm Humbl, likens the technology to cellular phone minutes or megabytes of data that store a user’s information, adding new blocks as storage in the previous blocks is exhausted.
“Digital ledger technology allows you to (conduct transactions) in a ‘trustless’ manner” — meaning users do not have to rely on a third party intermediary to complete the transaction — said Bruce Rafael, a portfolio manager at Bay Area-based Tauron Digital Asset Funds.
The prospect of eliminating third-party middlemen from banking and other financial transactions — referred to in the crypto world as decentralized finance or “DeFi” — has been a key selling point of blockchain technology.
Foote discussed that in a recent San Diego television interview.
Consumers, Foote said, are “tenants of their data on the web. You rely on brokers, brokerages, middlemen to perform simple functions in your daily life.”
The decentralized nature of blockchain technologies, Foote said, allows its users to conduct business directly. That prospect has become more attractive to consumers during a pandemic that has dramatically changed how we shop, work and conduct business, he said.
Both Foote and Rafael have had a front–row seat to blockchain’s evolution from cryptocurrency chassis to foundational piece for a variety of other services.
Blockchain technology girds Humbl offerings from mobile wallets — digital ways to store credit, debit and ID cards that allow users to make purchases using mobile smart devices — to storehousing medical records and providing secure credentials for government agencies.
Rafael, whose firm manages digital assets for investors, notes blockchain’s role in facilitating trustless smart contracts — self-executing contracts stored as programs in the blockchain that run automatically once each party’s conditions are met.
It’s in spaces like those where Crittenden, the former state blockchain working group chair, foresees the technology’s future even as she acknowledges the skepticism surrounding the technology because of its links to cryptocurrency’s sinking value and recent high-profile, blockchain-related security breaches.
Her working group’s 2020 report recommended blockchain pilot programs at California’s Department of Motor Vehicles to create digital wallets for drivers’ IDs and erect secure blockchain platforms to share drivers’ records across states; at the state’s Department of Food and Agriculture to trace more quickly the sources of food-borne contamination and accelerate safety recalls; and to increase accessibility and storage at the state archives.
“I think blockchain has certainly been associated with cryptocurrency, so there’s a lot of skepticism probably around using a fundamental system like this in a scenario that’s associated with the sort of speculative financial markets and where the value is so volatile,” Crittenden said. “But I think it does have opportunities just for improving the reliability and transparency of storage of records, especially when there’s a potential lack of trust between partners.”
Crypto industry watchers are also thinking about how Californians will adapt and are adapting to a blockchain environment. University of California, Berkeley researcher Christine Parlour is an expert in the digital economy, decentralized finance and the blockchain.
“Usually, we think that consumers adopt products that make their lives better. Given our generally high standard of living, there are not obvious use cases for consumers here as there are in other countries,” Parlour said. “That said, one of the benefits of blockchain will be to make our processes more streamlined and cheaper — think signing stacks of documents to buy a house. Making these processes easier, faster and cheaper will make everyone better off.”
Parlour says consumer regulations such as those directed by California Gov. Gavin Newsom in his May executive order on the crypto industry and blockchain could reassure uncertain users.
“Regulatory uncertainty is one of the reasons why some consumers are uncertain about entering the crypto sphere,” Parlour said. “Clearly outlined consumer protections or ‘caveat emptor’ signs will let everyone know where they stand, reduce uncertainty and encourage adoption.”
Digital asset manager Rafael says though it is in non-fungible tokens — owner-transferrable digital financial securities stored in the blockchain — where blockchain technology will gain traction in the marketplace.
“In blockchain, where the rubber will meet the road is with NFTs,” Rafael said. “I’d keep my eyes on the NFT space.”
Rafael sees academic degrees and other credentials minted and sent as NFTs to be portably stored and easily accessed by users in mobile wallets. Those digital documents could then be “whitelisted” — the process of allowing pre-approved programs, Internet protocols or email addresses access to that information.
But it’s in gaming and entertainment where Rafael sees mass adoption of blockchain-enabled goods and services taking hold, from NFTs for concert tickets and music releases to tokenized blockchain video games.
“That’s where the mass adoption will come from,” Rafael said. “We’ll see more adoption from the entertainment side of things.
But getting to the “blockchain decade” will take time, Rafael said.
“We need to get to the point where the technology is adopted by individuals on the retail level, where people use blockchain in the open and know they’re using blockchain,” he said. “Music, games — if that can gain adoption, we’ll get close to adoptability by the end of the decade.”
Rafael talked about his “golden three” markers for consumers in the market: social adoption, entertainment adoption and financial incentive.
“If it socially keeps their interest, entertainment options are part of it and there’s money to be made in it,” Rafael said, “it will be very hard to ignore.”
This story was originally published July 7, 2022 10:47 AM.