Katherine Pinkard, Bus '14 (MBA), didn't mean to be rude. She should have focused on the remaining speakers following her morning presentation on female entrepreneurship at the 2017 Carey Business School Innovation Factory Summit. Instead, she sat in the back of the conference room, her thumbs rapidly typing into Google three words that would change her professional focus: What is blockchain?
Just a few hours earlier, as Pinkard was exiting the stage, a Johns Hopkins Carey Business School MBA student had approached her. "I asked her what she planned to do after graduation, and she answered that she wanted to go to New York and work for a big bank on its blockchain team," Pinkard recalls. "I had no idea what she was talking about, so I just nodded."
The search results on blockchain—a nascent technology created to decentralize data and enable private, secure transactions including cryptocurrency—pushed Pinkard down a digital rabbit hole. She spent the next year researching the technology.
Pinkard, who is president and co-founder of Pinkard Properties and a fourth-generation commercial real estate professional, sees blockchain as a game-changer for real estate. It also has the potential to revolutionize data sharing in health care, level the financial playing field, and usher in a new web.
"It's new and disruptive," she says. Blockchain allows unparalleled speed via the establishment of smart contracts, which do not require the intervention of third parties. Two parties can agree to deal without banks or even a real estate broker. Pinkard says the technology can democratize real estate investing and create liquidity—in theory.
Her self-education revealed that most of the real estate industry isn't interested (yet) in doing much with blockchain, but her passion for the possibilities remains unabated. Pinkard has hosted Zoom seminars on the topic for the Carey Business School and is working to move her very traditional industry into the new technology. But, often, the reaction she gets is the one she had five years ago. A blank stare.
To save you time Googling, here's the skinny on blockchain. In 2008, programmer Satoshi Nakamoto (who might be a group of people—we'll get to that in a minute) developed blockchain, a system of validation and encryption for a digital token (a block). Each block has its own unique fingerprint (a hash). Once someone makes a change to the information contained within the original block—say, to add the transaction of a sale—a new, unique block is created and receives its own hash. These blocks are linked to one another, forming a chain, allowing users to review how and by whom the information was edited along the way. Think of it as a digital, decentralized public ledger that records transactions in chronological order.
Transparency is key: Everyone on the computer network (nodes) can observe changes to the blockchain.
Image credit: Edmon de Haro
Blockchain hinges on a consensus algorithm, an economic game that incentivizes actors to play by the rules. With proof-of-work, every transaction requires multiple nodes to compete to authenticate a transaction by solving random mathematical questions. Miners who solve the puzzle earn a transaction fee, coins, and the honor of adding a new block to the chain.
With blockchain, nothing can be tampered with, thanks to its system of private and public keys to store, send, and receive transactions. If any of the information in the data inside the block is altered, the signature becomes invalid. Purchase something with cryptocurrency and your blockchain wallet (your account) automatically generates and stores your private key or secret number like a password.
Cryptocurrency, blockchain's biggest story, includes enthusiasts like El Salvador's President Nayib Bukele, who made bitcoin legal tender in his country in September 2021. Earlier this year, Miami's mayor proposed allowing people to pay property taxes or city fees with cryptocurrency. Shortly afterward, a Miami penthouse sold to an anonymous buyer for $28 million—paid entirely in cryptocurrency.
Blockchain is much more than crypto. Health care companies use smart contracts to securely transfer sensitive medical data, and musicians are using it to get paid in full and on time. And the promise of blockchain's decentralized computing is enticing. Right now, most computing is performed on a centralized cloud owned by Google, Amazon, and Microsoft, companies with full control over your data.
With the explosion of the Internet of Things—home security systems, Alexa, etc.—blockchain can provide a higher level of security from hackers looking to steal personal data. It's also a smart place for governments to store Social Security numbers and digital copies of birth certificates.
To understand blockchain's potential, and its peril, you first need to understand where it's been. And like most antiheroes, it's a backstory steeped in mystery.
About blockchain's enigmatic creator, Satoshi Nakamoto: In 2008, Nakamoto's white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" introduced the world to blockchain and created the first block. Nakamoto is not the inventor of cryptocurrency, though Nakamoto did birth the first one, bitcoin, still the reigning champ.
In developing the first blockchain database, Nakamoto solved the double-spend conundrum for cryptocurrency. Think of a $20 bill in your wallet. It exists in a fixed place and time, and when it's spent, it's gone. The challenge of digital currency pre-Nakamoto was that it could be duplicated across several transactions and spent multiple times since it does not occupy physical place.
Behind this straightforward and revolutionary technology lies the mystery of Nakamoto's identity. To this day, no one knows who Nakamoto is or if they are a single programmer or a group, though a few have tried unsuccessfully to claim the pseudonym. Some say that the code is too complex for one person to have created.
In 2010, Nakamoto simply vanished, ending his/her/their affiliation with bitcoin and writing in an email that they "had moved on to other things." Nakamoto has been silent ever since, leaving behind a wake of new ways to think about digital transactions.
And bitcoin, Nakamoto's baby, has taken quite a few on the chin. In November 2021, it dropped nearly 70% in value and hasn't risen above $50,000 since last Christmas. A major cryptocurrency exchange, FTX, has fared worse. FTX in November filed for bankruptcy, leaving an estimated 1 million customers and investors facing losses in the billions of dollars.
Whether you believe that blockchain and cryptocurrency are the next Amazon or the road to hell, almost everyone agrees that the crystal ball is very cloudy on what it means for the present and a post-blockchain internet, or Web 3.0.
Web 1.0 was read-only, static web pages. With 2.0, we can read and write on the web. You can give a big thumbs-up to your friend's Facebook post about #bestlife and photo of kicking back on the beach with a beer. But you don't own that "like"; Facebook does.
The idea behind Web 3.0 is that the power is in your hands. "Web3 is the next evolution of the World Wide Web," explains Jim Kyung-Soo Liew, an associate professor of finance at Johns Hopkins Carey Business School. "It brings back decentralization and gives ownership to the creators who are the network's participants," he says.
That's the dream, but the reality isn't quite there. "People say blockchain is like the internet was in the 2000s, but it's more like the 1990s," says Pinkard. Liew agrees. "Amazon, Google, and Facebook haven't realized the full power of the internet," he says. "We don't know what the business model is for Web 3.0." He describes Web 3.0 as being in the "second or third inning of the internet," but others describe it as the Wild West.
"The biggest misconception about blockchain is that it is more than it really is," says Anton Dahbura, executive director of the Johns Hopkins University Information Security Institute and co-director of the Johns Hopkins Institute of Assured Autonomy. He views it as a very useful software tool. "It's a trusted way to record transactions, but I am kind of puzzled how blockchain has achieved an elite status." He posits that it's the association with cryptocurrency, which he likens to "going to the casino and putting all your money down on the roulette wheel."
Steve Hanke, a professor of applied economics at Johns Hopkins and renowned currency reformer, is famously outspoken and dubious when it comes to bitcoin: "I think its fundamental value is something approaching zero," Hanke says. "It's clearly not a currency. It's not a unit of account, medium of exchange, or store of value. It is nothing more than a highly speculative asset." Hanke, who has traded commodities and currencies for decades, writes extensively on the cryptocurrency ecosystem.
"It's true that blockchains achieve bookkeeping without a bookkeeper and allow individuals to make transactions anonymously and quickly. But the innovation pretty much ends there," he and Matt Sekerke, a fellow at the Johns Hopkins Institute for Applied Economics, Global Health and the Study of Business Enterprise, wrote in The Wall Street Journal in January 2022.
Liew knows the risks are great. A dominant player on a blockchain network with 51% of the power can take that blockchain wherever they want to, he explains. But Liew rests on the side of possibilities. He co-founded SoKat, a digital asset management and full-stack software development company that created the U.S. government's first blockchain to manage federal grants. "Talent is uniformly spread across the world, but opportunities are not," he explains. "People in underdeveloped countries who work at gaming companies may not have access to traditional banking systems, but they can now sustain a living by creating digital value and receiving cryptocurrencies in exchange."
To help others weigh the operational and security risks, he, Dahbura, and a team of Carey Business School students are creating the first Blockchain Risk Map. Inspired by the COVID-19 Dashboard created by the Center for Systems Science and Engineering at Johns Hopkins University, which provides continuously updated COVID-19 data and expert guidance, the Blockchain Risk Map provides the needed transparency for people to understand the risks of blockchain and cryptocurrency, Liew explains.
"The way our Blockchain Risk Map works is that we will actively join each block network as a node and then collect fundamental data from that node and network, which fuels our risk measures," Liew explains. Risks are multidisciplinary, he adds. When using blockchain, operational risks are distinct from investor risks, which vary from security vulnerability risks. The map differentiates all of them as it watches transactions play out in real time.
The data they collect and share is critical to an industry still in its infancy.
In the Old West, the unwritten Cowboy Code was based on fair play, loyalty, and respect for the land and each other. The only blockchain code is the actual computer code. Right now, with any transaction on a blockchain network, there is no recourse for mistakes. The code does not allow for it. Likewise, if a founder of a cryptocurrency exchange chooses to wipe out the exchange, it's gone.
In June, Celsius Network, a cryptocurrency trading and lending platform, posted a memo informing its 1.7 million users that their assets were frozen. In the past year, the company claimed it had $11.7 billion in assets and had made more than $8 million in loans. "Celsius got margin called by a protocol called Compound, and regulators and users said Celsius should pay back their users," David Thomas, a Johns Hopkins undergraduate in Computer Science and president of the student club Blockchain@Hopkins, says. "But they can't. When you borrow from Compound, you put cryptocurrency in a smart contract that is bonded by protocol. Code is law on blockchain. You can argue all day if it's good or bad, but it's certainly accountable."
Celsius, which filed for bankruptcy in July, helped drive last spring's nearly $1 trillion cryptocurrency crash. It's also staging a comeback. The company plans to rebuild and charge fees for transactions. The "benefits" of blockchain—a centralized system without a central bank or other institution making the rules—brings its own obstacles, as entrepreneurs try to scale the technology for mainstream use and stay vigilant against scams.
The pandemic's crypto boom was a scammer's paradise. According to the blockchain research group Chainalysis, "scammers stole $6.2B from victims worldwide in 2021," the Financial Times noted in its Sept. 20, 2022, article, "The Lawless World of Crypto Scams." Giving the government oversight isn't so simple, either. "If you give government a master key to check on compliance, the whole idea of transparency [on a blockchain] goes to waste," says Abhishek Jain, an associate professor in Computer Science at Johns Hopkins. "My information is private, and if one entity can see everything, this goes against the spirit."
In October 2021, in National Review, Hanke and Sekerke wrote that "academic research has found that roughly half of bitcoin transactions involve illegal activity, and that cryptocurrencies are transforming the black markets by enabling 'black e-commerce.' Clearly, this is not the sort of innovation one wants to protect."
Right now, Jain says, blockchain technology doesn't handle the centralized processes people want in order to feel comfortable in the space—borrowing and lending money, purchasing a house with cryptocurrency, for example.
The federal government is currently exploring a Central Bank Digital Currency, a digital form of central bank money, which, for the U.S., means that it's a liability of the highly regulated Federal Reserve. Liew's skeptical. "CBDCs give too much power to the country that originated them," he says. "CBDCs are centralized systems, and few folks in the U.S. want the Treasury to monitor all of their transactions."
But just what will those regulations look like? The industry is trying to figure that out. Hanke's advice? "Use all of the existing laws and regulations that govern banking and securities in the U.S.," he says. "The idea that cryptocurrencies need some new special legislation is utter rubbish."
Entrepreneurs have always used new technology to solve problems, and blockchain is no different. David Thomas sees only a bright future ahead for blockchain, cryptocurrency, and other applications. Two years ago, he created Tyze, a real estate investment platform and associated app for tokenized shares of a property for as little as $1. And he did it at age 19.
Thomas imagines a future where a buyer can purchase a property with less than a dollar in closing costs or own a property with 20 other people and share time based on ownership percentage. "People could borrow against or lend to real estate assets in a real-time money market," he says. "You could have a single mortgage that allows you to live anywhere in the world."
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Next, he's working on a system to enable money markets of tokenized real estate and cryptocurrency. It will be the market to buy and sell real estate in the crypto space, a solution to the problem Pinkard uncovered during her blockchain education five years ago.
She, too, notes the need to regulate this, especially to protect an unsophisticated buyer. "A lot of real estate is opaque, with landlords and tenants not required to reveal information. If you use blockchain, there is the potential to have transparent information. That's not how the commercial real estate business works," Pinkard says.
But Thomas is an optimist as well as an innovator. "I would argue blockchain is the future of real estate," he says. "The ledger is a no-brainer. Real estate needs a single source of truth. There is absolutely no reason why it should take 15 days to perform a title search." He agrees with Pinkard on the benefits of decentralization: "Real estate is already decentralized. Blockchain can make it much, much more efficient."
Blockchain technology and the future of cryptocurrency took a giant leap forward on Sept. 14, 2022, with ethereum's Merge. The community-run technology ethereum that powers the cryptocurrency ether shifted to proof-of-stake consensus with its game-changing Merge, slashing proof-of-work's massive energy consumption and putting many miners out of work. It's estimated that bitcoin, which still relies on proof-of-work, consumes electricity at an annualized rate of 127 terawatt-hours, which exceeds the entire annual electricity consumption of Norway. The Merge—Thomas dubs it the "Moon Landing" for open-source software—eliminated that process and reduced energy consumption by 99.95%.
Asked if blockchain technology will take off, Liew deadpans that it already has. "People are using it," he says. "It's just technology, it's not a spaceship." Allowing that it's not a "panacea," Jain remains excited for its potential. "Can we use blockchain to secure voting or health records?" he ponders. "Not with the current technology, but people are addressing it."
Dahbura envisions the technology going underground, which is where, he explains, any software used routinely needs to be to be truly successful. As for the current state of cryptocurrency, he says, "we are going to be in the volatile place for a long time as we debate regulations, which will be beneficial to the nongamblers in the space."
Liew sees institutional investors, though hesitant, beginning to move into the crypto space. As the industry is regulated, he sees a lot of other tokens and coins disappearing but is hard-pressed to rattle off a list of which will be left standing. "Will the crypto market survive?" Liew asks. "Yes, but the user experience must be drastically improved for this to go mainstream."
It may come down to a generational thing. Baby boomers will likely continue with traditional transactions. "Blockchain and cryptocurrency will have a stronger revolution with the new tech-savvy generation, those with less trust in the government, and countries with weak or failed financial systems," Liew says. Hanke chooses a different "r" word: "I think the whole cryptocurrency fad is little more than a religion—possibly the greatest con job of the 21st century."
Thomas shares his skepticism, but only on short-term adoption of a post-bitcoin, blockchain-enabled Web 3.0. "I'm a long-term optimist. In the near future, I think it's very much up to the people who are building Web 3.0 to make it useful to [older generations], but an accessible Web 3.0 is coming."
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