Blockchain and the bootleggers
The launch of the Oregon Blockchain Venture Studio raises a few questions about blockchain, the "distributed ledger" technology behind cryptocurrencies like Bitcoin and Ethereum.
The OBVS is an incubator program hosted by the digital agency R/GA. Investment partners include Business Oregon (the state), Intel, Nike, Oregon Health and Science University, Portland State University and the blockchain research organization Smith + Crown. Companies chosen by the studio will receive $100,000 in capital.
Oregon is up against places like Malta in the Mediterranean. The tiny island becoming a blockchain hub, luring companies such as Binance or Bitbay, two recognized exchanges.
Companies across the United States are flocking to blockchain. Take, for instance, Bonafi, a seven-person startup in Valencia near Los Angeles. Their technology is designed to disrupt the use of counterfeit automobile parts. Apparently, it is common for a mechanic to pay full price for and then install a perfectly well-packaged BMW part without knowing it is an unauthorized copy.
Bonafi staff designed a sticker the size of a quarter that contains a near-field radio frequency chip. The stick can attachto product packaging. It uses the same technology as Apple Pay and Samsung Pay. It needs no power. A scanner or a smart phone provides the power when scanning the chip.
"The chip contains the location, the time, date, product info, serial number, description, when the package departs, when it arrives, when it passes through ports..." CEO Steve Kuh explained to the Business Tribune.
"Then all that information is recorded on blockchain so no one can touch it. Or if they do they can figure out it's been tampered with."
A blockchain is a shared, encrypted database in which every field is visible to everyone using it. No one can change anything without possessing the key to the cryptography. No one can change anything without the knowledge of everyone else. This is called a "trustless" environment, since users trust the technology rather than each other.
"At the end of the day someone with a phone app can scan a product and see if it's genuine. The phone app makes it easy to use the platform we're creating. It solves an issue for customer to find out if it's a real part."
Counterfeit brake discs have been shown to have longer stopping distances than the real thing, and counterfeit air bags have also been found faulty and dangerous.
"This tech is also a useful in other industries: pharmaceuticals, electronics, food...You hear all the time about lettuce that went bad, or meat that started in Nebraska and you don't know where it went. With blockchain technology you would have access to who had used it." He said many of them don't know how to do an accurate recall. "They have to resort to traditional news outlets to let people know."
Kuh says the technology could enable health officials to trace a food-borne parasite or bacteria back to its origin and enable more accurate recalls.
The firm originally thought they could authenticate designer handbags, which are so often bootlegged. Then they realized the pharmaceutical industry, at $200 billion a year, is the biggest one being harmed. The next biggest markets are electronics, then food.
The more consumers who demand the Bonafi chip, which is designed by ST Microelectronics and made by NXP, a large semi-conductor company, the less counterfeit products will sell. They cost around 25 cents each.
Bonafi chose the car industry because one of the technical directors had worked supplying parts to Hyundai. No manufacturers have signed on yet.
"It takes a very long time to convince large auto manufacturers to sign up."
Kuh says they are using Hyperledger's open source blockchain infrastructure. Hyperledger's website says: "Think of (Hyperledger) as an operating system for marketplaces, data-sharing networks, micro-currencies, and decentralized digital communities. It has the potential to vastly reduce the cost and complexity of getting things done in the real world.
"It was built by IBM and is supported by hundreds of companies. It's a well-defined platform, unlike Ethereum or Bitcoin. It works quicker and is well-suited for data apps such as ourselves.
"Ethereum and bitcoin are geared toward payment, ours is more checking and transfer," says Kuh.
It's not plug-and-play, however. It still takes a team of engineers. "It's like Internet back in the early 1990s. It was built by the government 20 years before and wasn't until Netscape came out with an interface it became easy to use for consumers. That's essentially what we're trying to do."
The business model is a reward system of tokens. "We're expecting the buyers would be interested in communicating with the manufacturers of the product. Manufacturers will reward buyers to give user feedback: did they like the taste, the color, a fashion good..."
Consumers are getting smarter at letting people know what they like, which is leading to the monetization of big data. "We're enabling manufacturers to engage more closely with consumers."
The rewards might be 10 cents on a bottle of wine, or several dollars for a cell phone.
Manufacturers would send a Bona token to the consumer as thanks for the scanning and feedback, and these could be bought and cashed in on an exchange, like stocks.
He points out that because SEC regulations are stuck in the 1930s, no security token exchange has been built yet in the USA.
"They're playing catch-up, but that's the way it goes," he says.
To build a blockchain database integrated with a service still takes an army of people, he says. For instance, to make a StubHub-type ticket service, "That's probably one year's work for at least five people."
Not so fast, says Shidan Gouran. He's the President and CEO of Global Blockchain Technologies Corp, an investment company which has an incubator in Vancouver B.C. (Gouran mined his first Bitcoin in early 2010 and has been involved with Cryptocurrencies ever since.)
"Blockchain is really just a database. Last year everyone thought it applied to them but it doesn't," Gouran told the Business Tribune.
He says the place for blockchain is in "a system with a lot of individual, independent companies, where no one trusts each other, where you want a database not owned by one group. You want a 'common,' like the air and water, and where everyone has access to read and write to the database, and no one can lie."
That makes it suited to payment networks, finance and supply chains.
"I don't think it would start with Nike and those people," he said. "It starts from a government perspective." His firm is working with the government of Dubai on a trade and finance organization for the Port of Dubai which has all their ports connected by way of blockchain, for shipping and providing letters of credit.
"You start there, with large commodity houses, oil companies, or import and export companies."
Another example is computer storage. He says legacy companies like HP and IBM "completely lost the market to Amazon Web Services and Microsoft's Azure. But they themselves can be disrupted. With blockchain you can create a peer-to-peer marketplace that's trustless in buying and selling storage."
Normally it's hard for departments within a big company like IBM to borrow excess capacity from each other, because security and accounting have to get involved and it ends up being easier to go outside to a firm like AWS. With blockchain, "Accounting is automated, security is automated, it's a massive deal inside the enterprise."
"Then Azure and AWS become a user interface on the network, and the search engine becomes more important than the nodes. We got back to a decentralized web."
He says that with blockchain anyone can build an Amazon or Facebook, and that threatens great disruption of the status quo.
"Artificial intelligence isn't disrupting, because they have more data and better engineers than you, but to grab the database and make it a common, that disrupts the world in the way the Internet did initially."
He adds that it's still early days. "We're far from that now. We're at 1992."
Reporter, The Business Tribune
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