A budding blockchain hub in Los Angeles is gaining traction as digital currencies such as bitcoin heat up amid a wave of speculation.
Bitcoin’s value has risen more than 300 percent from a year ago, buoyed by investors who see cryptocurrencies as a way to conduct monetary transactions that cut out third-party financial institutions.
Bitcoin closed at $2,629 on July 5 – up from $640 a year earlier.
The verdict is still very much out on whether bitcoin – or one of the many other cryptocurrencies that have sprung up recently – will see widespread adoption, but the underlying software, called blockchain, is moving rapidly into the mainstream in any case.
“There have been a lot of new developments in the last year,” said UCLA Anderson School of Business professor Bhagwan Chowdhry. “The promise of blockchain is there and it’s quite big. A number of industries are likely to be affected. Anything related to documentation or verification – these are easy targets.”
Companies such as Venice-based Gem are already in the process of developing applications to undercut established business practices using blockchain, which is essentially a ledger that allows the reconciliation of transactions between two or more parties without the need of a centralized system.
A traditional system would have one party wire a payment in dollars to a second party using a third party – typically a bank. A public blockchain system – such as bitcoin – processes the transaction on a decentralized network of computers running special software that authenticates the movement of currency between two parties with – so far at least – absolute certainty. The bank’s manual accounting of who owns what and who owes whom is replaced by an automated register of every transaction.
Gem founder and Chief Executive Micah Winkelspecht said financial institutions are leaders in blockchain adoption – though they’re currently focused on internal testing, with most still a long way from bringing actual products to market in the form of applications.
Industries ranging from health care to automotive to real estate are also looking at potential applications.
“Banks were the first to see the promise of blockchain because bitcoin was a digital currency,” Winkelspecht said. “But you can look at almost any system that has a central repository of information and apply blockchain to it.”
Toyota Research Institute – the research and development division of Toyota Motor Corp. – tapped Gem to help create a usage-based car insurance product in which a roster of metrics including speed, braking patterns and other driving inputs are automatically relayed to an insurer. Blockchain is used to coordinate that exchange of data and make certain the different inputs and parties involved are identified and associated correctly.