Blockchain Proof of Concept, Medical Cannabis Seed to Sale Tracking

Industry: Government, Medicinal Cannabis

Overview: Utilize a Distributed Ledger Technology (DLT) or Blockchain Solution to create a trusted, immutable record for confirming registration, licensing, certification, credentialing, and payment processing. Also includes a tracking system component for chain of custody, supply chain management, and inventory management.

Challenge: Within the highly regulated medical cannabis industry there was a need for a secure solution that offered immutability, redundancy, transaction management, and provenance in an easy to use format that insured trust.

Solutions: Utilize DLT network through a web application interface.

Technologies: Hedera Hashgraph, Cross-platform mobile applications

 

Summary:

The Medicinal and Recreational Cannabis industries are currently in early stages of growth. There are still several states that don’t offer medical cannabis, and even fewer offer access to recreational cannabis. As the highly regulated industry grows there is an increasing demand for trusted technology solutions that can answer the need for end to end tracking throughout the supply chain and purchasing process with proven trust and improved auditability.

Throughout its cycle of cultivation, extraction, testing, distribution and retail, cannabis must be tracked and documented at each step, and able to be easily audited by regulatory agencies. While many existing legacy technologies may have this capability, distributed ledgers have those features inherently, so DLT was chosen as the ideal technology behind the platform.

Some DLT platforms, most notably Blockchain, still have some technical shortcomings such as scalability and transaction speed. For this reason we turned to Hedera Hashgraph’s recently launched public network. Hedera’s platform offers many similar features including the same trust and immutability that other Blockchain Platforms can offer, but with vastly superior speed, efficiency, and scalability.

The solution includes an immutable data store (the Ledger) that cryptographically secures, holds and manages Credentials of Patients, Pharmacy/Retail Centers, and Cultivators – in alignment with the verification of Regulators. Smart Contracts are able to govern and validate transactions between all actors in the system, at every junction between the parties. In addition, the solution used the same technical capabilities to track and audit Product Inventory, Transformation, and Destruction activities. There was also an option to use a cryptocurrency as a payment mechanism, which is an important aspect of the system. It enables regulators to transparently collect applicable taxes at the time the transaction is executed, and has the potential to ease the difficulties that legal marijuana businesses encounter due to existing banking regulations.

Cannabis Tracking – Customer Purchase Example Walkthrough

Download the Cannabis Tracking Design Walkthrough PDF

Blockchain Proof of Concept for Helios Energia, a Real Estate Investment Firm

Industry: Financial Services, Real Estate

Overview: Our client was looking to build a proof-of-concept to demonstrate the tokenization of ownership of real estate, and ability to fractionalize said ownership of real property.

Challenge: Helios Energia, a Real Estate Investment Firm was exploring the idea of creating an application that demonstrated the ability to fractionalize ownership of real estate to lower the barrier of entry for investments.

Solutions: Utilize a Blockchain network to tokenize property within a portfolio so ownership can be easily verified, and fractionalized between several parties.

Technologies: Angular, Iconic, Hyperledger Fabric and Composer, Node JS, IBM Cloud Kubernetes container

 

Summary:

Helios Energia, a Real Estate Investment Firm approached TxMQ with an idea to fractionalize property ownership of an investment portfolio to lower the barrier of entry for potential investors. The idea is very similar to crowdfunding a product or service, but also creates an opportunity for real estate ownership for those who may not have the immediate capital or knowledge to invest on their own.

When the Helios team came to TxMQ, immediately it was identified that Blockchain would be a perfect match for their needs. This particular project required the property asset to be digitally tokenized so that ownership could be shared and verified in a secure trustless environment. The ability to tokenize assets is one of the main selling points for Blockchain adoption, and there are many new use cases that have been realized due to this unique feature.

In this case we delivered a Proof-of-Concept that conceptually showed it was possible to tokenize assets on a Blockchain which opened up the opportunity to fractionalize these assets for ownership. TxMQ delivered a Kubernetes containerized application, available on mobile UX interface for ease of management, and visibility.

Screen Shots, and UX examples for Proof of Concept:

DLT Applications: Tracking medication through the healthcare supply chain

This article was originally published by MCOL.com on 12/19. 

It’s no secret that we have a dangerous opioid epidemic in the United States, as well as in many other parts of the world. Efforts to address the issue have come from both industry and government entities alike. In 2017, there were 47,600 overdose deaths in the U.S. involving opioids, which led to the U.S. Department of Health & Human Services (HHS) declaring a healthcare crisis. In April 2017, HHS outlined an Opioid Strategy, which included, among other components, the desire to create methods to strengthen public health data reporting and collection to inform a real-time public health response as the epidemic evolves.

Opioids are strong pain medications that mimic the pain-reducing qualities of opium, and when used improperly, are extremely dangerous and highly addictive. The increasing epidemic has highlighted the need for organizations to keep secure, reliable and actionable product lifecycle data, ensuring that they can track the entire supply chain for sensitive medications. In addition to meeting regulatory compliance requirements, cost and efficiency benefits may also be realized through tighter tracking and better data. Most importantly, it can help to cut down on the lives that are lost because of opioids and other medications being misused.

Healthcare Supply Chains

When discussing technology integration in a highly regulated industry like healthcare, it is hard to find solutions that work to both reduce costs and improve efficiencies, while still maintaining high levels of security and usability. This is why many healthcare organizations are turning towards supply chain management for new solutions; it will still improve efficiencies and cost, but it rarely involves personal health information, making it easier to satisfy regulatory requirements. In cases that use blockchain or distributed ledger solutions, it can also use immutable data and analytics, which can address suppliers’ fears of being hacked or losing sensitive proprietary information. On top of that, supply chain management can provide results to healthcare organizations to ensure that the solution is working effectively. In a 2018 Global Healthcare Exchange survey, nearly 60 percent of respondents said that data and analytics improvements were their highest priority. Supply chain management has many benefits for healthcare organizations, without having to work around highly regulated and secure data.

Supply chain management involves tracking supplies from the distributors or manufacturers, all the way through the healthcare organization to the patients receiving the medication or supplies. Many organizations still track supplies by hand, which can result in high margins of error. Also, many healthcare management systems are not integrated with each other, which means that patients can take advantage of these systems and access dangerous medications more easily. As healthcare systems move beyond hospitals and into non-acute sites, supply chain management becomes increasingly complex and difficult to manage. With supply chain management, healthcare organizations can track down errors and find out who made the error and when. When prescription drugs are involved, this would include knowing which patients, physicians, or prescribers are abusing the system by accessing more pain medications and opioids than they actually require or by over-prescribing more than should be allowed. This can help end addictions and overdoses.

Distributed Ledger Technology Solution

Accurate, timely information is critical in any supply chain. In the pharmaceutical industry, regulatory oversight and the potential for serious consequences for patients make supply chain traceability even more important. The ability to assess the behavior of the participants—patients, providers, distributors, manufacturers and pharmacists—within the supply chain is a useful tool in the battle against substance abuse. Developing a controlled substance management system as a robust, compliant supply chain management solution can help to track the movement of orders and medications through the pharmaceutical supply chain, from manufacturer and distributor to pharmacy and patient. Participants generate activity daily by consuming medication and refilling their prescriptions when they run out. Similarly, pharmacies and distributors place orders when supplies run low. Building this solution on a distributed ledger technology such as Hashgraph allows for increased security, immutable, time-stamped data, fast throughput, and easy customization to meet the needs of healthcare providers. It can even be customized to flag violations of laws or best practices, such as refilling prescriptions too often or over-prescribing.

Distributed ledger solutions have the ability to enforce rules on each participant with regards to the amount of medication that can be consumed, manufactured, distributed or prescribed. Patients’ refills can be limited based on their needs. Physicians, pharmacies and distributors have limits on the amount of medication they can prescribe or order in a given period of time to ensure that they are not abusing the system either. Participants who exceed these set limits are flagged by the system and can be removed, meaning that they are no longer able to order, prescribe or refill specific substances. This system can track a number of elements or components. In this case, it could track the distributor, the manufacturer, the prescribing physician, the pharmacy, the medication or opioid, and the patient. Time-stamped, immutable data allows for healthcare organizations to easily see when an error or an abuse of the system took place.

Distributed leger solutions are built on a system of nodes and each node processes each transaction. Each record or transaction is signed using the signature of the previous transaction to guarantee the integrity of the chain or the ledger. This means that these systems are difficult to breach or hack. Although supply chain management does not directly use confidential patient health information, it is important that all solutions that are integrated into a healthcare system are secure to ensure that data cannot be manipulated, allowing for further abuse of dangerous medications.

Finding a Solution

To save lives, it is imperative to find effective solutions to issues facing healthcare and the opioid epidemic. Unfortunately, within this industry, it can be hard to innovate due to privacy and regulations. Distributed ledger technology has the chance to innovate and potentially save lives when implemented as a sensitive medication supply chain management system. Its high-security, transparency and immediate auditability makes it an effective solution to track how harmful medications are being abused and to put an immediate stop to these issues. Technology already exists to solve these problems; it is only a matter of the healthcare industry taking these solutions seriously and implementing them before more lives are lost.

 

Hedera Hashgraph – A Quick and Very Simple Explanation

What is Hedera Hashgraph?

Hedera Hashgraph is a Distributed Ledger Technology (DLT) and consensus algorithm. Even though Hashgraph is actually a DAG (Directed Acyclic Graph) it has been referred to as“Blockchain on Steroids” and “Blockchain 2.0” because it addresses many of the issues most DLT’s are currently facing with broader adoption.

Why do we need another DLT?

Hedera Hashgraph is a fast, fair and secure infrastructure to run Decentralized Applications or DApps. This technology is ridiculously fast, has a high throughput (potential for over one million transactions per second), and is asynchronous Byzantine Fault Tolerant (a-What?), and the only DLT that has a mathematically proven consensus mechanism.

Quick Answer: It works, it’s secure, and fixes the issues that have been holding back Blockchain from becoming a viable enterprise-grade technology since it’s inception.

Want to learn more about Hashgraph and other DLT’s reach out below and let us know. We’d love to talk about how to utilize Distributed Ledger Technologies to disrupt your industry by turning your use-case into a fully functioning Decentralized Application.

 

Introducing Aviator DLT by TXMQ’s DTG

In 2017, TxMQ’s Disruptive Technologies Group created Exo – an open-source framework for developing applications using the Swirlds Hashgraph consensus SDK. Our intention for Exo was to make it easier for Java developers to build Hashgraph and other DLT applications. It provided an application architecture for organizing business logic, and an integration layer over REST or Java sockets. Version 2 of the framework introduced a pipeline model for processing transactions and the ability to monitor transactions throughout their life cycle over web sockets.

TxMQ used Exo as the basis of work we’ve delivered for our customers, as well as the foundation for a number of proofs-of-concept. As the framework has continued to mature, we began to realize its potential as the backbone for a private distributed ledger platform.

By keeping the programming and integration model consistent, we are able to offer a configurable platform that is friendlier to enterprise developers who don’t come from a distributed ledger background. We wanted developers to be able to maximize the investment they’ve made in the skills they already have, instead of having to tackle the considerable learning curve associated with new languages and environments.

Enterprises, like developers, also require approachability – though from a different perspective. Enterprise IT is an ecosystem in which any number of applications, databases, APIs, and clients are interconnected. For enterprises, distributed ledger is another tool that needs to live in the ecosystem. In order for DLT to succeed in an enterprise setting, it needs to be integrated into the existing ecosystem. It needs to be manageable in a way that fits with how enterprise IT manages infrastructure. From the developer writing the first line of code for their new DApp all the way down to the team that manages the deployment and maintenance of that DApp, everyone needs tooling to help them come to grips with this new thing called DLT. And so the idea for Aviator was born!

Aviator is an application platform and toolset for developing DLT applications. We like to say that it is enterprise-focused yet startup-ready. We want to enable the development of private ledger applications that sit comfortably in enterprise IT environments, flattening the learning curve for everyone involved.

There are three components of Aviator: The core platform, developer tools, and management tools.

Think of the core platform as an application server for enterprise DApps. It hosts your APIs, runs your business logic, handles security, and holds your application data. Each of those components is meant to be configurable so Aviator can work with the infrastructure and skill-sets you already have. We’ll be able to integrate with any Hibernate-supported relational database, plus NoSQL datastores like MongoDB or CouchDB. We’ll be delivering smart contract engines for languages commonly used in enterprise development, like Javascript, Java, and C#. Don’t worry if you’re a Solidity or Python developer, we have you on our radar too. The core platform will provide a security mechanism based on a public key infrastructure, which can be integrated into your organization’s directory-based security scheme or PKI if one is already in place. We can even tailor the consensus mechanism to the needs of an application or enterprise.

Developing and testing DApps can be complicated, especially when those applications are integrated into larger architectures. You’re likely designing and developing client code, an API layer, business logic, and persistence. You’re also likely writing a lot of boilerplate code. Debugging an application in a complicated environment can also be very challenging. Aviator developer tools help to address these challenges. Aviator can generate a lot of your code from Open API (Swagger) documents in a way that’s designed to work seamlessly with the platform. This frees developers to concentrate on the important parts and cuts down on the number of bugs introduced through hand-coding. We’ve got tools to help you deploy and test smart contracts and more tools to help you look at the data and make sure everything is doing what is supposed to do. Finally, we’re working on ways to use those tools the way developers will want to use them, whether that’s through integrations with existing IDEs like Visual Studio Code or Eclipse, or in an Aviator-focused IDE.

The work doesn’t end when the developers have delivered. Deploying and managing development, QA, and production DLT networks is seriously challenging. DLT architectures include a number of components, deployed across a number of physical or virtual machines, scaled across a number of identical nodes. Aviator aims to have IT systems administrators and managers covered there as well. We’re working on a toolset for visually designing your DLT network infrastructure, and a way to automatically deploy that design to your physical or virtual hardware. We’ll be delivering tooling to monitor and manage those assets through our own management tooling, or by integrating into the network management tooling your enterprise may already have. This is an area where even the most mature DLT platforms struggle, and there are exciting opportunities to lower frictions when managing DLT networks through better management capabilities.

So what does this all mean for Exo, the framework that started our remarkable journey? For starters, it’s getting a new name and a new GitHub. Exo has become the Aviator Core Framework, and can now be found on TxMQ’s official GitHub at https://github.com/txmq. TxMQ is committed to maintaining the core framework as a free, open source development framework that anyone can use to develop applications based on Swirlds Hashgraph. The framework is a critical component of the Aviator Platform, and TxMQ will continue to develop and maintain it. There will be a path for applications developed on the framework to be deployed on the Aviator Platform should you decide to take advantage of the platform’s additional capabilities.

For more information on Aviator, please visit our website at http://aviatordlt.com and sign up for updates.

 

 

 

 

Keeping Up With Disruptive Enterprise Technologies

Staying Current with Enterprise Technology

2018 has been a very exciting year so far for Enterprise Technology. We see the steady migration from legacy systems to cloud and other flexible platforms. The new kids on the block, Blockchain and Distributed Ledger Technologies (DLT), Hyperledger, Ethereum, and Hashgraph have been making huge strides. We now are seeing more ideas and use-cases coming to fruition through POC’s, moving one step closer to fulfilling the promise of DLT as a viable enterprise platform and TxMQ’s Disruptive Technology Group is helping to prove it.

Are you a disruptor or just waiting to be disrupted?

I was recently speaking with an IT Leader of a large corporation talking about the future of Technology…IoT, AI, and of course Blockchain/DLT. As we started to talk about Blockchain I asked him if they had any plans for it, he said: “Yes!, I plan to laugh at the people who think Blockchain will matter in a year.” Of course, he was being sarcastic but I was disturbed by his comment. At TxMQ we believe that emerging technologies should matter to folks who make it their profession. Every IT Leader should understand the benefits of Blockchain, and the potential disruptive power of all newer technologies. New technologies need to be evaluated on how they might change your business and your industry. If you’re a Technology or Business leader in any industry, and you’re not looking to the future you are just waiting to be put out of business.

For all you skeptics out there: at this point, it’s not a question of if, but when Blockchain or another DLT will disrupt your industry and change the way you do business.

It may not help you buy that Lambo you’ve had your eye on, but it will change both your business and industry by streamlining processes, increasing transparency in supply chains and transactions, and even create new revenue streams.

As an IT solutions provider with almost 40 years helping clients large and small maintain IT resources, integrate solutions, and prepare for the future of technology, TxMQ is working harder than ever to ensure that you are equipped for the next evolution of the technology within your industry so you can offer customers the best service, improved products, and remain competitive.

With this in mind, we recently launched our Disruptive Technologies Group led by industry veteran Craig Drabik. Despite years of head-banging to Death Metal groups like Tool, Pantera, and even the occasional Winger album (don’t judge), he has maintained genius technical abilities and an impeccable work ethic that has helped us make groundbreaking achievements in the DLT space.

Currently, TxMQ DTG is working on several revolutionary projects focusing on DLT, creating new ways to track & trace, share confidential information, and process transactions. You may have already heard about our Partnership with Intiva Health. This is a very interesting project which gave us the opportunity to be one of the first Salesforce Developers to replace the data layer within Salesforce.com with Distributed Ledger Technology, leveraging its benefits. With this integration, users are able to securely manage credentials, shortening the time for validation, saving hundreds of hours, and potentially save so much money that even your CFO would blush.

When all is said and done, Distributed Ledger Technologies, when applied correctly to the right use case, can drastically improve the way you do business. While it is true that there is nothing that Blockchain or other DLT’s can do now that “traditional” technologies can’t do, but it may just be the right tool for the process you are looking to improve. If you could use a toaster, why would you use the oven to toast a piece of bread?…with new technologies, new efficiencies are realized.

If you haven’t had a chance yet to learn about DLT, reach out to us or visit us at DTG.TxMQ.com for more info. While it may not be on the Final Exam, you do need to know what this is and how it applies to your business…or you could just wait for the next fresh-faced kid with decent coding skills to take over your industry. No pressure.

Webinar: Blockchain & Distributed Ledger Technology: The Good, The Bad, and The Ugly

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Webinar: Blockchain & Distributed Ledger Technology: The Good, The Bad, and The Ugly

This informative webinar on blockchain and distributed ledger technology, presented by TxMQ’s Chuck Fried, with co-hosts Craig Drabik and Miles Roty, dives into distributed ledger technology and how it has the potential to transform entire industries.

Distributed Ledger Technology has the potential to be truly transformational.

  • By 2022 at least one innovative business built on blockchain will be worth $10 Billion.
  • By 2030 30% of the global customer base will be made up of things, and those things will use blockchain as a foundational technology with which to conduct commercial activity.
  • By 2025, the business value by blockchain will grow to slightly over $176 Billion, then surge to exceed $3.1 Trillion by 2030.

How will Blockchain and Distributed Ledger Technology affect your industry?

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The Case for the Crypto Crash

The Case for the Crypto Crash

Anyone who knows me knows that I am a big supporter of, and believer in distributed ledger technology, or DLT.
It has the potential to revolutionize the way we build certain types of solutions, and the way certain systems, software, and institutions, even people, interact.
That being said, I also believe a strong argument can be made that crypto currencies, at least in their current incarnation, are destined to fail.
Full disclosure: I own no crypto currencies.
There is a foundational flaw in the use case of cryptocurrency. It is NOT easily transacted; often having lengthy or ungainly settlement times, requiring in almost all cases, conversion to fiat currency, and it’s generally ill suited to the very task it was designed to perform: storing value for transacting business.

It’s hard for people to use crypto currencies.

I have heard first hand, countless stories of transactions intended to be conducted using crypto currencies, where the parties wouldn’t agree to them without one or the other agreeing to guarantee value to some fiat currency.
If this continues and people aren’t able to use cryptocurrency as a currency, what then? Normal market rules would dictate a crash to zero.
But is this a market that follows normal market rules? What exactly is normal?

Fiat Currency, or Fiat Money:

Let’s back up and look at fiat currency. Take the US dollar.
Early on, the United States dollar was tied to the gold standard. The United States Bullion Depository, more commonly known as Fort Knox, was established as a store in the US for gold that backed the dollar.
In 1933, the US effectively abandoned this standard, and in 1971, all ties to gold were severed.
So what happened? Effectively nothing. Yet the US backs the dollar.
Why? The US dollar is intimately tied to our financial system by the Federal Reserve, which, as demonstrated for better or worse in the financial crisis of 10 years ago, will do everything in its power to shore up the currency when needed.
So we operate today with the shared belief, some might call it a shared delusion, that there is value in the money we carry in our wallets and in the bank statements we see online.

Is cryptocurrency approaching this level of shared belief?

Who will step in if crypto crashes? In short, no one. There is no governing body, by design, behind any cryptocurrency.
As I write this, all crypto currencies are down over 10%, some are down over 20%. Nothing will prop it back up other than buyers: speculators hoping to buy on the downswing, hoping to hold until it rises again.
So, is this a normal market? I say no, it is not. I see no ultimate destination on this journey, other than disappointment.
If you have risk capital to play with, go ahead, risk some on crypto if you wish.
Personally, I would rather invest my money in companies I can understand, with business models that make sense. That being said, in my case, this also means investing in my company’s work to build solutions on the technology underlying crypto currency, or distributed ledger technology.

You may be asking yourself, how can he support distributed ledger technology and not have faith in cryptocurrency?

The answer here is simple. The technology is solid, the use case of crypto is flawed. Java is solid, but not all java applications are good applications. Crytpo currency is just another application running on distributed ledger, and as I have posited herein, a bad one.


Chuck Fried is the President and CEO of TxMQ, a systems integrator and software development company focused on building technical solutions for their customers across the US and Canada.
Follow him at www.chuckfried.com, or @chuckfried on Twitter, or here on the TxMQ blog.

Economic Theory and Cryptocurrency

This post was originally published on ChuckFried.com, with permission to repost on TxMQ.com.

Economic Theory and Cryptocurrency

In a rational market, there are basic principles, which apply to the pricing and availability of goods and services. At the same time, these forces affect the value of currency. Currency is any commodity or item whose principle use is as a store of value.
Once upon a time, precious metals and gems were the principle value store used. Precious jewels, gold, and silver were used as currency to acquire goods and services. Over time, as nations industrialized, trading required proxy value stores, and paper money was introduced, which was tied to what became the gold standard. This system lasted into the 20th century.
As nations moved off the gold standard, Keynesian economics became a much-touted model. Introduced by John Maynard Keynes, a British economic theorist in his seminal, depression era work “The General Theory of Employment, Interest and Money”, it introduced a demand side model whereby nations were shown to have the ability to influence macro economics by modifying taxes and government spending.
Recently, crypto currency has thrown a curveball into our economic models, with the introduction of virtual currencies. Bitcoin is the most widely known, but there are multiple other virtual currencies or crypto currencies as they are now called because of the underlying mathematical formulas and crypto graphic algorithms which govern the network these are built on.

Whether these are currencies or not is itself an interesting rabbit hole to climb down, and a bit of a semantic trap.

They are not stores of value, nor proxies for precious goods, but if party a perceives a value in a bitcoin, and will take it in trade for something, does that not make it a currency?
Webster’s defines currency as circulation as a medium of exchange, and general use, acceptance or prevalence. Bitcoin seems to fit this definition.
Thus the next question…

What is going on with the price of bitcoin?

Through most of 2015, the price of one bitcoin started a slow climb from the high 200s to the mid 400s in US dollars; that in itself is a near meteoric climb. The run ended at around $423, for reasons outside the scope of this paper, actual pricing is dependent on the exchange one references for this data.
2016 saw an acceleration of this climb, with a final tally just shy of $900.
It was in 2017 where the wheels really came off, with a feverish, near euphoric climb in the past weeks to almost $20,000, before settling recently to a trading range of $15-$16,000 per bitcoin.
So what is going on here? What economic theory describes this phenomenon?
Sadly, we don’t have a good answer, but there are some data points we should review.
First, let’s recognize that for many readers, awareness of bitcoin happened only recently. It bears pointing out that one won’t buy a thing if one is unaware of that thing. Thus, the awareness of bitcoin has played a somewhat significant role in driving up it’s value.
To what extent this affected the price is a mystery, but if we accept this as given, clearly as more and more people learn about bitcoin, more and more people will buy bitcoin.

So what is bitcoin?

I won’t go deep here since it’s likely if you are reading this, you have this foundational knowledge, but bitcoin was created by a person, persons, or group using the pseudonym Satoshi Nakomoto in 2009. It was created to eliminate the need for banks, or third parties in transactions; it also allows for complete anonymity of the holder of the coin.
There is a finite upper limit of the maximum number of bitcoins that can ever be created. There is a mathematical formula described in detail in various online sources, including Wikipedia, so I won’t delve into that here. This cap, set at 21 million coins, will be reached when the last coin is mined (again, see Wikipedia). This is variously estimated to likely occur in the year 2140.

What makes Bitcoin Valuable?

So this ‘capped’ reality also adds to value, since like most stores of value, there is a rarity to bitcoin, a fixed number in existence today, and a maximum number that will ever exist.
In addition, more and more organizations are accepting bitcoin as a payment method. This increase in utility, and subsequent liquidity (it’s not always easy to sell units of bitcoin less than full coins) has also increased the perceived value of the coin.
Contributing to this climb in value recently has been the CryptoKitties phenomenon; a gaming application that rose to popularity far more rapidly than its creators could have foreseen. The subsequent media exposure thrust blockchain, and correspondingly bitcoin, further into the limelight, and the value continued to spike.
Lastly, the CBOE Options Exchange announced that on Monday, December 11th, they will begin trading bitcoin futures. Once again, this action broadcast to a widening audience that bitcoin was real, viable, and worth looking at as a part of some portfolios.; adding both legitimacy, as well as ease of trade to the mix.
The number of prognosticators calling bitcoin a farce seems near equal to the number calling for a coin to hit a $1 million valuation in 4 years. Who will be right remains to be seen.
For the moment, this author sees this as a bit like Vegas gambling. It’s fun, it’s legal, but you can also lose every penny you gamble; so bet (invest) only what you can afford to lose, and enjoy the ride.

What Digital Cats Taught Us About Blockchain

Given the number of cat pictures that the internet serves up every day, perhaps we shouldn’t be surprised that blockchain’s latest pressure-test involves digital cats. CryptoKitties is a Pokémon-style collecting and trading game built on Ethereum where players buy, sell, and breed digital cats. In a matter of a week, the game has gone from a relatively obscure but novel decentralized application (DAPP) to the largest DAPP currently running on Ethereum. Depending on when you sampled throughput, CryptoKitties accounted for somewhere in the neighborhood of 14% of Ethereum’s overall transaction volume. At the time I wrote this, players had spent over $5.2 million in Ether buying digital cats. The other day, a single kitty was sold for over $117,000.

Wednesday morning I attended a local blockchain meet-up, and the topic was CryptoKitties.

Congestion on the Ethereum node that the player was connected to was so bad, gas fees for buying a kitty could be as high as $100. The node was so busy that game performance was significantly degraded to the point where the game became unusable. Prior to the game’s launch, pending transaction volume on Ethereum was under 2,000 transactions. Now it’s in the range of 10,000-12,000 transactions. To summarize: A game where people pay (lots of) real money to trade digital cats is degrading the performance of the world’s most viable general-purpose public blockchain.

If you’re someone who has been evaluating the potential of blockchain for enterprise use, that sounds pretty scary. However, most of what has been illustrated by the CryptoKitties phenomenon isn’t news. We already knew scalability was a challenge for blockchain. There are a proliferation of off-chain and side-chain protocols emerging to mitigate these challenges, as well as projects like IOTA and Swirlds which aim to provide better throughput and scalability by changing how the network communicates and reaches consensus. Work is ongoing to advance the state of the art, but we’re not there yet and nobody has a crystal ball.

So, what are the key takeaways from the CryptoKitties phenomenon?

Economics Aren’t Enough to Manage the Network

Put simplistically, as the cost of trading digital cats rises, the amount of digital cat trading should go down (in an idealized, rational market economy that is). Yet both the cost of the kitties themselves – currently anywhere from $20 to over $100,000 – and the gas cost required to buy, sell, and breed kitties has gone up to absurd levels. The developers of the game have also increased fees in a bid to slow down trading. Up to now, nothing has worked.

In many ways, it’s an interesting illustration of cryptocurrency in general: cats have value because people believe they do, and the value of a cat is simply determined by how much people are willing to pay for it. In addition, this is clearly not an optimized, nor ideal, nor rational market economy.

The knock-on effects for the network as a whole aren’t clear either. Basic economics would dictate that as a resource becomes more scarce, those who control that resource will charge more for it. On Ethereum, that could come in the form of gas limit increases by miners which will put upward pressure on the cost of running transactions on the Ethereum network in general.

For businesses looking to leverage public blockchains, the implication is that the risk of transacting business on public blockchains increases. The idea that a CryptoKitties can come along and impact the costs of doing business adds another wrinkle to the economics of transacting on the blockchain. Instability in the markets for cryptocurrency already make it difficult to predict the costs of operation for distributed applications. Competition between consumers for limited processing power will only serve to increase risk and likely the cost of running on public blockchains.

Simplify, and Add Lightness

Interestingly, the open and decentralized nature of blockchains seems to be working against a solution to the problem of network monopolization. Aside from economic disincentives, there isn’t a method for ensuring that the network isn’t overwhelmed by a single application or set of applications. There isn’t much incentive for applications to be good citizens when the costs can be passed on to end-users who are willing to absorb those costs.

If you’re an enterprise looking to transact on a public chain, your mitigation strategy is both obvious and counter-intuitive: Use the blockchain as little as possible. Structure your smart contracts to be as simple as they can be, and handle as much as you can either in application logic or off-chain. Building applications that are designed to be inexpensive to run will only pay off in a possible future where the cost of transacting increases. Use the right tools for the job, do what you can off-chain, and settle to the chain when necessary.

Private Blockchains for Enterprise Applications

The easiest way to assert control over your DAPPs are to deploy them to a network you control. In the enterprise, the trustless, censorship-free aspects of the public blockchain are much less relevant. Deploying to private blockchains like Hyperledger or Quorum (a permissioned variant of Ethereum), gives organizations a measure of control over the network and its participants. Your platform then exists to support your application, and your application can be structured to manage the performance issues associated with blockchain platforms.

Even when the infrastructure is under the direct control of the enterprise, it’s still important to follow the architectural best practices for DAPP development. Use the blockchain only when necessary, keep your smart contracts as simple as possible, and handle as much as you can off-chain. In contrast to traditional distributed computing environments, scaling a distributed ledger platform by adding nodes increases fault tolerance and data security but not performance. Structuring your smart contracts to be as efficient as possible will ensure that you make best use of transaction bandwidth as usage of an application scales.

Emerging Solutions

Solving for scalability is an area of active development. I’ve already touched on solutions which move processing off-chain. Development on the existing platforms is also continuing, with a focus on the mechanism used to achieve consensus. Ethereum’s Casper network proposes to change the consensus mechanism to a proof-of-stake system, where miners put up an amount of cryptocurrency as proof that they aren’t acting maliciously. While proof-of-stake has the potential to increase throughput, it hasn’t yet been proven to be.

Platforms built on alternatives to mining are also emerging.

IOTA has been gaining traction as an Internet of Things scale solution for peer-to-peer transacting. It has the backing of a number of large enterprises including Microsoft, is open-source, and freely available. IOTA uses a directed acyclic graph as its core data structure, which differs from a blockchain and allows the network to reach consensus much more quickly. Swirlds is coming to market with a solution based on the Hashgraph data structure. Similar to IOTA, this structure allows for much faster time to consensus and higher transaction throughput. In contrast to IOTA, Swirlds is leaderless and Byzantine fault tolerant.

As with any emerging technology, disruption within the space can happen at a fast pace. Over the next 18 months, I expect blockchain and distributed ledger technology to continue to mature. There will be winners and losers along the way, and it’s entirely possible that new platforms will supplant existing leaders in the space.

Walk Before You Run

Distributed ledger technology is an immature space. There are undeniable opportunities for early adopters, but there are also pitfalls – both technological and organizational. For organizations evaluating distributed ledger, it is important to start small, iterate often, and fail fast. Your application roadmap needs to incorporate these tenets if it is to be successful. Utilize proofs of concept to validate assumptions and drive out the technological and organizational roadblocks that need to be addressed for a successful production application. Iterate as the technology matures. Undertake pilot programs to test production readiness, and carefully plan application roll out to manage go-live and production scale.

If your organization hasn’t fully embraced agile methods for application development, now is the time to make the leap. The waterfall model of rigorous requirements, volumes of documentation, and strictly defined timelines simply won’t be flexible enough to successfully deliver products on an emerging technology. If your IT department hasn’t begun to embrace a DevOps-centric approach, then deploying DAPPs is likely to meet internal resistance – especially on a public chain. In larger enterprises, governance policies may need to be reviewed and updated for applications based on distributed ledger.

The Future Is Still Bright

Despite the stresses placed on the Ethereum network by an explosion of digital cats, the future continues to look bright for distributed ledger and blockchain. Flaws in blockchain technology have been exposed somewhat glaringly, but for the most part these flaws were known before the CryptoKitties phenomenon. Solutions to these issues were under development before digital cats. The price of Ether hasn’t crashed, and the platform is demonstrating some degree of resilience under pressure.

We continue to see incredible potential in the space for organizations of all sizes. New business models will continue to be enabled by distributed ledger and tokenization. The future is still bright – and filled with cats!