When Anurag Sharma bought a house recently, one number in the transaction struck him: $3,000. That’s how much it cost in title insurance, a service that effectively does nothing but verify the accuracy of property records, ensuring that the person selling the house is the one who really owns it, free and clear of liens.
“I was thinking, this is exactly what blockchain can resolve,” Sharma says. “This is something we can change … there are so many inefficiences in processes today. We pay so much to middlemen just to make sure that we can trust information.” Sharma, a cybersecurity expert and blockchain specialist for WithumSmith+Brown, believes that all kinds of middlemen could someday be eliminated by blockchains.
Sharma will speak at the Princeton Regional Chamber of Commerce on Thursday, September 6, from 11:30 a.m. to 1:30 p.m. at the Princeton Marriott. Tickets are $75, $50 for members. For more information, visit www.princetonchamber.org.
“Blockchain” is a way of solving a fundamental problem with all business transactions: trusting the other party. It’s a collection of records linked using cryptography — like a database — that is distributed across a network and available to anyone on the internet rather than being stored in a single centralized location.
Traditionally, companies and individuals do business through a trusted third party that they know will carry out the transaction: a bank, a government that prints currency, a credit card company, and so on. These systems rely on both parties communicating with a central agency. But with a blockchain the trust is distributed among peers. “It can be done in a manner in which each and every participating entity can trust the transaction,” Sharma says.
The most famous example of this concept is Bitcoin, a cryptocurrency in which transactions are recorded on a blockchain record, copies of which are stored on the computers of everyone who uses the currency. Because there is no central computer keeping track of the Bitcoin data, no single user can alter the “blockchain,” which is a record of all of the Bitcoin transactions that have ever been made. Each Bitcoin has a unique number, and the distributed blockchain ensures that no one can spend the same Bitcoin twice.
New Bitcoins are generated via a controversial mechanism: wasting electricity. Bitcoin “miners” allow the Bitcoin network to use their computers to verify transactions, and they also “mine” for bitcoins by chugging through an intentionally wasteful mathematical puzzle that will randomly reward the miner with a new Bitcoin now and then. Currently, Bitcoin mining worldwide uses as much electricity as a medium-sized country. The entire Bitcoin network is only capable of processing seven transactions per second, making it thousands of times slower and more costly than traditional banking services.
While Bitcoin in its current state may be useless for conducting actual transactions like it was intended, it has proven to be a valuable vehicle for speculation for early investors. When the cryptocurrency was founded a decade ago, a Bitcoin could be purchased for pennies of real money. Now each Bitcoin is worth about $7,000 (the price is highly volatile.)
If this all sounds weird and inefficient, Sharma says that’s because blockchain technology is nowhere near its full potential.
Bitcoin, along with several other cryptocurrencies (such as Etherium and Litecoin) are currently the most prominent examples of blockchain technologies, but Sharma believes that blockchains can solve all kinds of business problems, such as the title insurance.
(Another model of title insurance can be found in Iowa, where it is a government-run service that only costs a flat rate of $110.)
As it happens, the open, peer-to-peer model of Bitcoin is not the only way to do a blockchain. There are hybrid systems that combine peer-to-peer verifications with some element of centralization. For example, Sharma says, in a hypothetical title insurance blockchain, there would be a central authority that restricted the users of the blockchain only to trusted record-keeping agencies, but allowed anyone to view the transaction record.
“If you look at the scale, you could have a centralized system where you have a single database which drives all transactions, then moving from that to the opposite end of the scale, where there is no central entity and all participants or the majority of participants control transactions, you can stop midway at a couple of points,” Sharma says.
“Somewhere in the middle would be a hybrid system where you can restrict participation while keeping the information public. A lot of government documentation, public records, would fall into that space where you want to restrict who can add transactions but the information is supposed to be public and everybody should be able to access it.” Conversely, an application where privacy was needed could allow more people to add records but would restrict who could view the data.
Sharma compares blockchains in their current state to the Internet of the 1990s. Many people saw potential in the new technology, and there were just as many skeptics. Ultimately, many of the early Internet pioneers crashed and burned in the dot-com bubble of 2000, but the idea never died.
“Bitcoin has become an asset in itself, and people are speculating on its value, which I think is part of the whole process of growing any new technology,” Sharma says. “If you remember the Internet boom and bust, that is bound to happen. There is going to be interest in a new technology and a bubble surrounding it, and 50 to 60 percent of those concepts would then just die off, but you would still have a good amount of solid use cases that would really generate value and efficiencies.”
Sharma believes some of the best use cases for blockchain are in the financial world, where transaction costs are sometimes high. “We might see some use in the next couple of years,” he says. Certain transactions could be automated on a blockchain to save “millions of dollars a year,” Sharma says. Many banks are also exploring blockchains, but are running into legal questions since banks are heavily regulated.
Sharma also thinks companies could use blockchains to make their supply chains more efficient and cut out middlemen.
Sharma grew up in India, where his father was a chemical engineer and his mother a housewife. He earned a bachelor’s degree and an MBA in India before moving to the U.S. in 2005, where he worked with cybersecurity firm Verisign. “I’ve always had an interest in technology, computer science, and electronics,” Sharma says. He has worked with WithumSmith+Brown for the last 13 years, starting in cryptography and cybersecurity and moving to blockchain as the technology has matured. Today many of his clients are New York-based cryptocurrency startups.
“This is one of those areas where I really can get chills when I think about what is possible,” Sharma says. “We are still scratching the surface as far as the technology and applications are concerned. Every day you could talk to somebody who has a different business problem to solve, and say, ‘awesome, this is something for blockchain.’ I’m really excited about the next five to ten years and how it could impact our day-to-day lives.”