Bitcoin for farmers – Part I
Bitcoin is currently a point of discussion around many braais. With a price of more than R700 000 per coin and an increase of 380% in value over the past twelve months, this is understandably so. This three-part series takes a deep dive into Bitcoin and distributed ledger technology, I explain in simple terms how it how it works and expand on how it can be applied in the food and agriculture sector.
It is not exactly clear what caused the sudden increase in the value of bitcoin, but the fact that companies like Tesla are now also starting to buy and accept these coins may be a contributing factor. The total value of all bitcoins in circulation is just less than $650 billion. To put this figure into perspective: The value of all the shares on the JSE was $1 000 billion at the end of last year. While the price increase is remarkable, the technology driving it and the applications for it are even more exciting.
The technology that supports bitcoin saw the light in 1991 when two researchers proposed a so-called blockchain that could be used to capture and order transaction in a way that cannot be tampered with. Simply put, a blockchain is a special database. A database is a collection of data stored electronically which consist of a collection of tables that house information. Several people can use the database simultaneously to obtain data, add new data or change the existing data. A traditional database is housed on a central computer(s) or server(s) with administrators tasked with managing and controlling access to it.
With a blockchain on the other hand, no single individual oversees it, but the blockchain is managed by a network of independent computers who do not have to know or trust each other. The data is grouped into blocks of a specific size. These blocks are connected chronologically – hence the chain. Every computer (node) in the network has a complete copy of the whole blockchain with the data blocks being organised chronologically, one after the other. If a malicious actor would want to manipulate the blockchain, such an actor would have control more than 50% of the computers in the network so that the blockchain could be altered at the same time. Unlike a traditional database, anyone can have access to the blockchain, but the transactions contained therein are anonymous since only the address of the person relating to each transition is known.
This is where Bitcoin comes into the picture. When someone receives Bitcoin or transfers it to someone else, the transaction is noted in the latest block of the blockchain. To prevent someone from creating fictional transactions or transferring Bitcoin from someone else to him/herself, all the computers in the network compare their record of all the transactions in the block with one another, but only one node in the network can add a new block to the blockchain.
Nodes compete for this by solving cryptographical problems which involve the guessing of semi-random numbers. When a computer in the network solves such a problem and can present proof of this, it can add the new block to the chain, and it is rewarded with a specific amount of Bitcoin (at present this is 6.25 Bitcoin, this will likely halve during 2024).
This reward serves as compensation for the expenses that the owner of the successful computer incurred during the process – mainly electricity and maintenance costs. The energy used in this way is substantial because the degree of difficulty of the problems increases continuously. It is estimated that it is currently more than the total energy use of Denmark.
In the vernacular, the new Bitcoin is mined and the computers solving the problems and called miners. These terms derive from the analogy with goldmines, in the sense that they also must expend energy to mine a new piece of gold. Likewise, the extraction of gold is also getting progressively more expensive as the low-cost reserves are depleted. Unlike gold, the amount of Bitcoin that can be mined is restricted to 21 million, with 18,6 million in circulation already.
In contrast to the comparatively transparent gold mine industry, the origin of Bitcoin is veiled in uncertainty and is not governed by a central institution or company/companies. The inventor(s) of the blockchain as used by Bitcoin merely introduced it under the pseudonym Satoshi Nakamoto and made the code public. Consequently, there are more than 2 000 cryptocurrencies today.
However, crypto currencies are not the most important impact that blockchain technology can have on the world. The biggest benefit is that it enables the creation of an indisputable chronological public ledger of transactions that no one can tamper with – one that is reliable enough to ensure the value of more than R700 000 for one Bitcoin.
In agriculture, blockchain technology can be used to keep a record of grain and other contracts, to guarantee the authenticity of stud animals, confirm the ownership of cattle since it allows for the creation of a unique and unchangeable digital brandmark, enable the traceability of products in the agricultural value chain and many others.
In addition to agricultural applications, it can also be used to accelerate payments between banks, capture individuals’ medical records and the temperature of vaccines, and establish the ownership of digital assets like music and art. It can even be used to eliminate election manipulation by creating a digital voter’s roll that cannot be tampered with.
Given all of these uses it begs the question why this is not taking place already, however for these benefits to materialise several technical hurdles must first be overcome. That will be discussed in the blog in series of three.