More than four years ago, Overstock.com became the first major retailer to accept bitcoin as a form of payment for its goods. Today, it accepts more than 40 versions of the digital currency for online purchases.
While bitcoin may have first caught the online retailer's eye, it's the technology behind the digital tokens – blockchain – that has really captured Overstock.com's investment wallet.
[ Further reading: What is blockchain? The most disruptive tech in decades ]
About the same time Overstock.com was embracing bitcoin for payments, it put a venture capital stake in blockchain distributed ledger technology (DLT) through Medici Ventures, its Salt Lake City-based subsidiary created for just that purpose.
Medici Ventures focuses its investments on six key emerging areas of blockchain technology adoption: capital markets; money and banking; identity management; property; voting; and underlying technologies supporting blockchain.
The company has to date invested in a dozen start-ups using blockchain as the basis for their products.
"As cool as we thought bitcoin was it was the underlying technology for it that could be even more transformative," said Jonathan Johnson, president of Medici Ventures. "Simply put, Overstock.com believes blockchain is the future foundation for an economy built on trust but void of the traditional institutions that have backed those relationships."
Blockchain for voting
For example, this year, Medici Ventures lead a $2.2 million funding round for Voatz, a Salt Lake City-based start-up that's developing a blockchain-based system that enables voting via smartphone or tablet.
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Voters can create a Voatz account by entering their phone number or email. They then must submit a picture of themselves and a photo ID and provide either a finger print or a retinal scan as a biometric identity to confirm their eligibility to vote. The system ensures voter anonymity and privacy by storing personally identifiable information off-chain and using a hash table to create an encrypted online identity. The voter is in control of the encryption key.
The blockchain-based voting system can be used not only for public elections, but also college elections, shareholder meetings or any system where a vote needs to be tallied, Voatz claims in its marketing material.
Several leading universities, labor unions, state political parties, church groups and non-profits have already deployed the platform successfully, according to Voatz. The company is now in the process of deploying its technology for town meeting voting in Massachusetts.
Last year, when U.S. Rep. Jason Chaffetz (R-Utah) announced he was stepping down – a move that required the state's 3rd Congressional District to hold a special election – Johnson, who lives in that district, said problems quickly arose. County clerks mailing out the ballots for the GOP primary sent them to both registered Republicans and unaffiliated voters; they also didn't use "privacy" envelopes so voter information could be seen when it was held up to the light.
"The trust institution failed," Johnson said.
All of the industries Medici Ventures invests in are ones where trust institutions are frequently in the middle, Johnson explained, whether it's financial brokers, depository and clearing corporations, or even governments.
"They're in the middle for a reason because when you and I transact and I'm giving you an asset and you're giving me back an asset, we need trust institutions," Johnson said. "I think blockchain technology does that trust transfer through technology."
Blockchain can pre-establish trust in network users by vetting them or the institutions representing their information prior to allowing them to participate in a the electronic distributed ledger.
Blockchain can be openly shared among disparate users to create an unchangeable record of their transactions, each one time-stamped and linked to the previous one. Each digital record or transaction in the thread is called a block (hence the name). The ledger can only be updated by consensus among participants in the system, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of each and every transaction ever made in the system.
As a peer-to-peer network, combined with distributed time-stamping servers, blockchain databases can be managed autonomously to exchange information between disparate parties. There's no need for an administrator. In effect, the blockchain users are the administrator, though in private or "permissioned" blockchains, there can be a central administrating body.
The concept behind keeping blockchain users' identities private for uses such as voting is the same as digital wallets, which have been used for years by cryptocurrencies such as bitcoin; the digital wallets verify whether someone has the actual funds to purchase the digital currency without disclosing the actual funds they have.
A financial services institution that is part of the bitcoin network, for example, simply verifies that there are sufficient funds for a bitcoin purchase without the need to disclose the identity or actual account balance of the banking customer.
Similarly, a blockchain-based voting system would only need to certify that the user is registered to vote without disclosing any personal information – even to the clerks counting the votes.
Blockchain for tracking vaccines
Medici also invested in Factom, a start-up working with the Bill & Melinda Gates Foundation to do supply chain tracking via a distributed blockchain ledger.
Austin-based Factom's blockchain-as-a-service (BaaS) is biometrically tracking vaccines and blood tests performed for tuberculosis and viral infections in Africa.
"The problem was in the past when it was done on a database, governments change, regimes change, and databases get destroyed," Johnson said. "There are a lot of different languages. People are moving around a lot, they're using a lot of different doctors. It's very difficult for the doctors to know if they've been tested in the past."
Factom's BaaS creates an immutable online repository for that information, which can be spread across thousands of server nodes, so no single node or group of nodes can be destroyed, and thereby delete that data.
"When you're trying to ensure permanency, you want it broadly distributed and decentralized. Centralization is what makes it less permanent," Johnson said.
Supply chain management is one of the "big, killer apps" for blockchain, according to Vipul Goyal, an associate professor in the Computer Science Department at Carnegie Mellon University (CMU).
Unlike bitcoin, which uses an open or public blockchain where anyone can see data on the network, private or "permissioned" blockchains can be created within a company's four walls or between trusted partners and centrally administered while retaining control over who has access to information on the network.
Johnson admitted that as transformative as blockchain is for so many uses, it's not always the right solution.
"We looked at a lot of companies that come with a blockchain idea that seems to have blockchain as almost an excuse when a database itself would do just as well as a blockchain," Johnson said. "What really makes the most sense is when trust institutions can't be trusted, or when there are so many trust institutions involved that the cost of friction is significant."
While blockchain deployments can be costly, anytime a company takes on a major upgrade in technology there's will be adoption costs. "But we do those all the time because of the return on the long-term investment," Johnson said.
BaaS also allows companies to dip their toes into blockchain deployments without the capital costs associated with rolling out a new distributed server infrastructure.
A new trust economy
Over the next two years, businesses will increasingly turn to blockchain to establish trust among parties looking to transfer everything from money and movable goods to property, according to a report from Deloitte LLP.
A "trust economy" is now developing around person-to-person (P2P) transactions enabled by blockchain technology and not dependent on more traditional methods such as banks or credit ratings agencies.
"Beyond creating efficiencies by removing the legal and financial intermediary in a contractual agreement, blockchain is assuming the role of trusted gatekeeper and purveyor of transparency," Deloitte said in its report. "In the emerging 'trust economy' in which a company's assets or an individual's online identity and reputation are becoming both increasingly valuable and vulnerable, this latest use case may be blockchain's most potentially valuable."