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20 ISE Magazine | www.iise.org/ISEmagazine N management Blockchains and bitcoins By Paul Engle Not a day goes by when we are not bom- barded with references to blockchains and bitcoins. The latter, which exist only in the ether, are worth nearly $18,000 apiece at the time of this writing. Bitcoins have a lot to offer. They entirely bypass the traditional finan- cial services industry. You don't need a bank account and don't have to notify your local government of transactions, which are less expensive than the cost of transferring funds internationally using traditional banks. Bitcoins travel anywhere an in- ternet connection is available and are popular in geographies without a stable banking system. You don't need an ATM to perform transac- tions, although bitcoin ATMs exist in Switzerland, where banking is ubiquitous. Still, a few problems come to mind. First, no one seems to know who created the bitcoin nor how they are "mined." Experts estimate that about 16.7 mil- lion bitcoins exist, a number that grows by about 100,000 per month. They can vary in value by 40 percent in one day. It's a bit like a chain letter of massive proportions. They're also popular with groups that do not want their transac- tions monitored by authorities. Think drug dealers, tax evaders, blackmailers and terrorist organizations. Promoters claim that they are a nearly perfect, safe and reliable vehicle to store value and perform transactions due to the nature of the foundational technol- ogy, blockchains. Still, bitcoin fraud has occurred and will be repeated as crimi- nals improve their methods. Blockchains were described in Janu- ary 1991 in the Jour al of Cryptography. The idea was that cryptographic meth- ods could timestamp and digitally sign documents. As documents change hands, senders timestamp their digital signature on the file. This information could not be altered easily. As the file continues to be received, edited and re- sent, a new "block" is created and at- tached to the chain. Blockchains depend upon a peer-to- peer network rather than being stored in a central location. The data resides on tens, hundreds or thousands of serv- ers called "nodes" and are reconciled frequently, sometimes as often as every five minutes. Promoters point to this peer-to-peer network as a nearly fool- proof fraud control. No single node can tamper with the blockchain because the file will be reconciled immediately and corrected by the other nodes. However, our experience indicates that computer criminals quickly learn to bypass controls. Users represent the weakest link and are victimized by in- nocent-looking emails with malware. This malware quickly overcomes secu- rity controls and allows remote operators to access personal information and assets. Uses of blockchains may include con- tracts, supply chains and file storage. Promoters would have us believe that traditional forms of financial services and transactions have become obsolete. Observers note that blockchains may be useful for some applications but may not displace traditional forms of documenta- tion overnight. Others warn that blockchains and bit- coins represent an enormous financial bubble, bound to deflate with serious consequences for investors in the cryptocurrency. Blockchains clearly have value for certain applications. Bitcoins remain a popular cryptocurrency, especially for certain users and ge- ographies. Investors appear to be making large bets on the technology, despite the risks. Will we be paid in bitcoin rather than dollars in the future? Unlikely given that national governments prefer to control their currencies and levy taxes based on financial transactions. Bitcoin appears best suited for the un- derground economy. Don't expect the local Walmart to accept them anytime soon. Paul E gle is a ma ageme t co sulta t with a BA i a ce. He has more tha 0 years of experie ce i a ageme t, operatio s, product developme t, sales a d marketi g, strategic pl i g d busi ess process improveme t. You may co tact him at paulfe gle@outlook.com. Will we be paid in bitcoin rather than dollars in the future?