This literature review research examines the rise of blockchain technology, its close relationship with bitcoin and other digital currencies as well as the affordances of blockchain technology. The report examines the various ways in which blockchain technology is currently being used across a range of industries as well as potential use cases for other industries. This case study concludes by showcasing the potential for blockchain technology to disrupt education both now and in the future.
This report presents the results of an empirical inquiry which investigated blockchain technology, how it is being used today and its value proposition for higher education. In particular, the study will attempt to ascertain the perceived opportunities that enhance and barriers that hinder the takeup of blockchain technology in education. The case study was designed as an intensive examination of a single case which includes a one hour Skype interview with a prominent thought leader in the form of Georgios Papageorgiou from the Master of Science in Digital Currency degree program at the University of Nicosia plus an informal face-to-face conversation with Dr Jason Potts, Associate Professor at the School of Economics at RMIT University and the use of a survey tool (see Appendix A).
A short survey was developed using SurveyMonkey and distributed via social media on LinkedIn, Twitter, this blog and also by email. The survey was extensively promoted over several weeks on Twitter using a range of popular educational hashtags such as #edchat, #edtech, #education and #edutech. Other hashtags used included #blockchain, #highered and #smartcontracts.
The survey was designed to appeal to anyone who is in any way interested in education and/or information and communication technologies. This includes teachers, educational researchers, lecturers, educational designers, learning designers and educational technologists.
The survey offers respondees the opportunity to think about how blockchain technology could be effectively deployed at their place of employment as well as how blockchain technology could be used in education in general.
Although heavily promoted on Twitter and to a lesser extent LinkedIn, for one reason or another, less than a handful of people completed the survey. Perhaps the small number of respondees may be attributed to the fact that blockchain technology is both fairly new and quite technical. As such, only a very small number of people are likely to know what blockchain technology is let alone feel comfortable trying to predict how it may be used in the future. The upshot of which was a dearth of data. Consequently, it was simply not possible to compile the data and attempt to draw conclusions of any sort about the future of blockchain technology.
What is a blockchain and what are its affordances?
Davidson, De Filippi & Potts (2016) state that a blockchain is a highly transparent, resilient and efficient distributed public ledger. In essence, a blockchain is an encrypted, distributed ledger technology through which digital transactions can be securely made and recorded without approval from a central certifying authority such as a financial institution or a clearing house. A blockchain ledger (or database) is distributed in the sense that it is cloud-based, consisting of digital data that is geographically spread across a peer-to-peer network of personal computers. Moreover, a blockchain is a global and open resource in the sense that no company or person owns the technology. Blockchain technology provides a permanent, unalterable record of every single cryptocurrency transaction that has ever been verified.
In addition, blockchain technology is the architecture that underpins the use of bitcoin and many other digital currencies. A blockchain can be either public or private. Whilst a public blockchain can be viewed by anyone with an Internet connection, with a private blockchain, participation in the network is restricted to individuals and devices within the one organisation.
The most obvious affordance of blockchain technology is that it does not rely on a trusted third party in the way that centralized systems do. Blockchain technology is a potential game-changer for many industries including banking, insurance, energy management, and education. The potential benefits of blockchain technology extend into political, humanitarian, social, and scientific domains (Swan, 2016, p. viii) and may give rise to new organisational and institutional forms of economic governance (Davidson, De Filippi, & Potts, 2016, p. 7).
In the financial services sector, blockchain technology provides the opportunity for more accurate tracking of customer repayment histories, across borders and banks, reducing the risk of defaulters. In education, blockchain technology could potentially give individuals as well as institutions the ability to store secure public records of personal achievement. In healthcare, blockchain technology could allow hospitals and other parties in the healthcare value-chain to share access to their networks without compromising data security and integrity. In energy management, blockchain technology may enable customers to transact in decentralized energy generation schemes such that people will generate, buy, and sell energy to their neighbors. These are just some of the ways in which blockchain technology has the potential to impact a wide range of industries.
What is the nature of the relationship between bitcoin and blockchain?
In order to understand the importance of blockchain technology you first need to know the history of bitcoin which necessitated the use of the first blockchain. Blockchain technology first appeared in theory in a white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System”, written and published in 2008 by an unknown person or entity using the name Satoshi Nakamoto. In this paper, Nakamoto argued for an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party (Nakamoto, 2008).
Most people have only a vague understanding of bitcoin the cryptocurrency, and very few have heard of blockchain the technology. Consequently, the words bitcoin and blockchain are sometimes used interchangeably depending upon the context. In some situations the word blockchain is used to refer to crytocurrencies as a general term, the infrastructure used in bitcoin specifically or it is sometimes used to refer to smart contracts.
How does a blockchain network operate?
Blockchain technology is the architecture that underpins the use of all cryptocurrencies including bitcoin and ether and provides a permanent, unalterable record of every single cryptocurrency transaction that has ever been verified (see Appendix B). Each and every time a cryptocurrency is traded this creates a transaction which is checked for authenticity by the nodes in the network and is either accepted or rejected.
Each transaction is verified by way of a consensus whereby at least 50% of all nodes in the network must authenticate the transaction. It should be noted that nodes are not required to verify transactions created in the network however there is a financial incentive to do so in the form of a bitcoin micropayment. As noted by Flynt (2016), only nodes with the time, inclination, hardware and software are likely to verify each individual transaction.
In particular, the node which is the first to verify the authenticity of any given transaction receives payment in the form of a very small percentage of a cryptocurrency such as bitcoin or ether. This process of verifying a transaction is done by requiring a participant’s computer to perform a significant amount of computational work (‘proof of work’) in the form of a puzzle that is hard to solve (i.e., it takes a lot of work), but easy to verify (i.e., everyone else can check the answer very quickly).
The first node in the network to solve the puzzle wins the prize in the form of a micropayment. This process of solving a puzzle is widely referred to as “mining”. The payment is then credited to the winning node’s ewallet and the transaction in question is permanently assigned to a block on the blockchain.
Once the transaction has been recorded on the blockchain it cannot be amended or deleted. As such, a blockchain provides a permanent record of every single cryptocurrency transaction that has ever been verified. See Appendix A for an infographic from PwC on the actual process.
Are there any challenges associated with blockchain technology?
There are some major problems and perils that need to be overcome before blockchain technology can really start to take off. Bitcoin is the first decentralized digital currency and was introduced in 2009. Bitcoin quickly became the world’s most popular digital currency. However, as a payment system, bitcoin is merely the first step. There are many other payment systems that are currently being developed with most of them being underpinned by blockchain technology.
Currently, it takes approximately 10 minutes for a bitcoin transaction to be verified. In other words, anyone transacting in bitcoin must wait up to 10 minutes for their transaction to be verified and added to the blockchain. Suffice to say, some potential users of blockchain technology may be put off by the fact that there is a time delay with all digital currency transactions. For example, whilst a bitcoin transaction is normally verified in about 10 minutes, an ether transaction is normally verified in about 12 seconds and a stellar transaction is normally verified in about a minute. Consequently, its possible that blockchain technology may take time to build momentum since some potential users of cryptocurrencies may be unwilling to accept online transactions that are not verified in real time.
This is a major impediment to blockchain technology. As humans we are hardwired to want things now. We want instant gratification. Most of what we do in the digital world is done in real time. When we login to our bank account and transfer money from one account to another it happens almost instantaneously. When we buy an ebook on Amazon we have access to our purchase almost immediately on our Kindle. When we go to the Ticketmaster website and purchase tickets to an event we receive an email almost immediately containing the tickets we have just purchased. In other words, whenever we transact online its almost always in real time.
However, with digital currencies we are required to wait anywhere from 12 seconds to 10 minutes for a transaction to be added to the blockchain. Having to wait up to 10 minutes is too long for financial transactions where timing matters to get an asset at a particular price, and where latency exposes traders to time-based arbitrage weaknesses such as market timing attacks (Tapscott & Tapscott, p. 257).
Moreover, blockchain technology lacks the transactional capacity needed to scale up should the user base increase quickly. In particular, due to the limited size of a block (1MB), the network is restricted to processing a maximum of seven transactions per second. By comparison, other transaction processing networks such as VISA verify 2,000 transactions per seconds whilst Twitter verifies 5,000 transactions per second (Swan, 2015, p. 82).
One of the biggest challenges of blockchain technology is that the proof of work (PoW) mechanism consumes a lot of energy since the computer performing the mining operation must spend a considerable amount of computational power and electricity just to provide the proof of work. Moreover, the proof of work (PoW) mechanism is not only costly to the miner who must pay for the electricity they use but is also detrimental to the environment since the mining operation will result in an increase in carbon emissions.
For this reason, in an effort to reduce their energy costs, some bitcoin mining companies have elected to move their operations to countries such as Iceland where there is an abundance of dual source energy in the form of geothermal and hydroelectric energy. Other mining companies have chosen to move to Iceland for ethical as well as business reasons. In particular, as well as reducing their energy costs, they are conscious of their large carbon footprint and want to be seen to be doing something about it.
There are other consensus mechanisms that are currently being developed. These include proof of stake (PoS), proof of activity, proof of burn, proof of capacity and proof of storage. A proof of stake blockchain allows a person to mine a digital currency based on how many coins they currently hold in that currency. In other words, the person is unable to mine the currency unless and until they can prove their “stake” in that particular currency. Proof of activity is another mechanism; it combines proof of work and proof of stake, where a random number of miners must sign off on the block using a cryptokey before the block becomes official. Other blockchains such as Ripple and Stellar, rely on social networks for consensus such that newcomers need social intelligence and reputation to participate.
It should be noted that bitcoin mining will no longer reward new coins once 21 million coins have been mined with the last bitcoin expected to be mined sometime around 2140. In other words, once the last bitcoin has been mined there will be no financial incentive for bitcoin mining to continue to be practiced. As a result, many miners are likely to abandon Bitcoin mining altogether and may move on to mining other cryptocurrencies. However, in the short term at least, this does not solve the problem of energy inefficiency in the sense that the energy which was being used to mine bitcoins will simply be transferred to some other cryptocurrency which may or may not be as energy hungry. In other words, the problem will still exist.
However, over the last year or so, there has been some debate around block size. In particular, the only plausible way to solve this issue would be to increase the block size from 1MB to 20MB. Increasing the block size would mean that a larger number of transactions could be processed per second which would no doubt help to make the blockchain network a more appealing proposition.
How is blockchain technology being used today?
Blockchain technology is nascent and in a phase of tremendous dynamism. At this stage, there’s no evidence of any significant large scale deployment of blockchain technology by any of the major global financial institutions. However, many of the world’s top companies have some sort of internal R&D effort aimed at understanding how the Blockchain will affect their business. Some of these companies have formed consortia so that they can run a proof of concept and demonstrate the feasability of a particular use case involving blockchain technology. For example, in 2016, a consortia consisting of Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore (IDA) proved that Letter of Credit transactions can be executed on a blockchain. Other financial institutions that are active in this space include Deloitte and JPMorgan.
IBM is a leading voice in the world of blockchain research and development and has recently announced its intention to open a Blockchain Innovation Center in Singapore with the Center’s first project being to improve efficiency of multi-party trade finance processes and transactions.
Another leading voice in the blockchain stratosphere is R3 which is an alliance of the world’s largest insitutions, with a mission to realise the benefits of distributed ledger technology. This blockchain technology company leads a consortium of 45 financial companies in research and development of blockchain usage in the financial system. The consortia includes several Australian financial institutions namely Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation.
As well as the financial industry, there are opportunities for blockchain technology in many other industries including healthcare, voting, ride sharing, cloud storage, energy management and real estate.
How might blockchains be used in the future?
Davidson, De Filippi & Potts (2016) assert that blockchain technology is a disruptive new technology that could give rise to new organisational and institutional forms of economic governance. Several researchers maintain that blockchain technology is critical to the success of the Internet of Things (IoT) where we register our devices, assign them an identity, and coordinate payment among them using bitcoin. According to Tapscott & Tapscott (2016), the Internet of Things cannot function without blockchain payment networks, where bitcoin is the universal transactional language.
What are smart contracts?
A smart contract is a piece of code that executes a complex set of instructions on the blockchain. Here are some examples of smart contracts:
- A smart contract connected to the Internet of Things (IoT) could unlock the door of a car or a house
- A smart contract could be deployed as a pledge system and automatically release funds from the wallets of donors who have made an online funding pledge to a nominated charity if and when the fundraising goal of the charity is reached
- A smart contract could automatically transfer the ownership of a vehicle title from the financing company to the individual owner when all the loan payments have been made.
- A smart contract could automatically make an inheritance gift available on either the grandchild’s eighteenth birthday or the grandparent’s date of death.
Moreover, in 2015, Visa and DocuSign developed a proof-of-concept in which they demonstrated the use of smart contracts for leasing cars without the need to fill in forms.
How might blockchains be used in higher education?
For the vast majority of learners today their academic transcripts are managed and controlled by various educational institutions. The learner gets a piece of paper but if anybody wants to verify that credential they have to go back to the educational institution that issued the piece of paper in the first instance. Some researchers see the potential of the blockchain as a way of reaffirming the learner’s ownership of their own record. As a result, most of the research currently being undertaken is around credentialing and open badges. The table below provides a brief overview of some of this research:
|Teachur is an open-source platform for building educational objectives, assessments, lessons, courses and degrees tied to the blockchain.|
|Sony is exploring blockchain based applications for learning by using the technology to send academic records between two parties.|
|In October 2015, the Holberton School of software engineering announced plans to share academic certificates on blockchain from 2017.|
|As part of its Master of Science degree in Digital Currency, The University of Nicosia offers a free introductory MOOC titled DFIN-511 Introduction to Digital Currencies. Students who successfully complete the course are issued with an academic certificate the authenticity of which can be verified through the bitcoin blockchain. Moreover, the University also accepts bitcoin for payment of tuition and other fees.|
|OpenLearn has been trialling a private blockchain for storing educational records. In particular, students register for courses and receive badges which can be viewed in a student Learning Passport with all transactions being timestamped and cryptographically signed on the blockchain. Moreover, OpenLearn have also experimented with using the blockchain to certify the authenticity and validity of student work contained in ePortfolios|
|In 2015 MIT Media Lab developed a system to issue digital certificates on the bitcoin blockchain. The system makes it possible to verify who a certificate was issued to, by whom, and validate the content of the certificate itself.|
|BadgeChain is an open repository of posts, news, and notes from Team BadgeChain. The Team consists of experienced badge enthusiasts who are exploring the intersection of blockchain technologies, learning recognition, and digital credentialing.|
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