We all remember the excitement last December when the price of Bitcoin, the most famous of the cryptocurrencies, rose to $19,000 from only $3,000 three months earlier. This made a lot of lucky investors very rich, but what exactly were they buying? Bitcoin was invented as an electronic alternative to cash that cannot be spent more than once, unlike other digital substitutes. Just as a real coin cannot be spent by the same owner twice, every transaction made using Bitcoin is tracked, so that attempts to spend the same coin twice would be spotted. This chain of information – the “blockchain” – is almost impossible to alter and every user has a local copy, rather being part of a centralised system like a bank or government. This means transactions must be broadcast to all users after being converted into blocks by a group of users called “miners”.
Miners verify the transactions by competing to solve mathematical problems using their computers, a process known as “proof of work”. The winner adds their block to the chain and is rewarded with a certain amount of Bitcoin that currently stands at around 12.5 (roughly translating to $80,000) and is programmed to half every four years. As time has gone on, the competition between miners has risen continually and the mathematical problems have had to increase in difficulty in order to maintain an average rate of block generation at 1 every 10 minutes. The computation required to solve these problems is incredibly power consuming, in fact mining for Bitcoin alone is estimated to use electricity at the same rate as the whole of Austria, despite only being about to verify a small number of transactions per second.
Although several companies do accept Bitcoin (including Oxford’s JimBob’s), it has largely failed as a useable currency. The power-hungry property of cryptocurrencies is just one of their major downfalls. The slow speed of processing causes congested networks when transaction rates are high. There is no protection for consumers, for instance if your USB stick holding your Bitcoin was lost, you would not be covered by insurance, and despite its promised security, its decentralised nature creates opportunities for hackers and fraudsters. Furthermore, as seen with the severe peak in price last December, it is very volatile and unstable, qualities not exactly ideal for a currency. The combination of these not minor issues has meant cryptocurrencies haven’t lived up to their hype, however with the recent vast investments and exploration in their technology, who knows where they could be in 10 or 20 years’ time.
Although several companies do accept Bitcoin it has largely failed as a useable currency
The blockchain technology underlying cryptocurrencies is perhaps more exciting and versatile. In its own right, blockchain has a variety of uses that retain the decentralised and immutable nature of Bitcoin, but can remove the public aspect, giving access only to trusted users and removing the need for proof-of-work systems. Possible applications range from ensuring the legitimacy of diamonds, to distributing medical records.
The University of Oxford has very much jumped on the blockchain bandwagon. There is a student blockchain society, a new Research Centre for blockchain research, and even a university being established by members of university faculty. The Woolf University is on track to become a full degree-granting institution in the European Union. It is based in Malta, which has recently been coined the “Blockchain Island”, but intends to offer mostly online teaching through Oxbridge style one-on-one tutorials. The idea is that the student and the teacher would both “check-in” via an app, setting up a smart contract based on blockchain technology that ensures the teacher gets paid and the student earns micro-credits. A further supposed advantage of blockchain would be strengthening the validity of student degrees, meaning they cannot be forged or their value cannot be lost if the institution goes out of business. In addition, credits could be earned through various providers and collated, making international teaching more feasible.
Finally, administrative costs could potentially be saved through automation. Joshua Broggi of the Philosophy department, who founded Woolf, thinks of it as “uber for students, Airbnb for academics”. The university aims to deliver students good quality education for lower fees and ensure better job security for academics. Certainly a good policy, but only time will tell if the benefits of using blockchain extend beyond building hype and publicity.