Skookum Jim and Blockchain Applications

APR 04, 2014

Author: Mark A Campbell, Research Principal, Trace3

In August 16, 1896 a Yukon trapper named “Skookum Jim” discovered gold on the banks of Bonanza Creek. Word finally reached Seattle and San Francisco a year later triggering the Klondike Gold Rush – the frozen north was invaded by 40,000 “Cheechakos” (newcomers). Thousands of claims were filed, boom towns sprang up and Dawson City saloons were selling French champagne for $60 a bottle ($1,600 in today’s money).

But in only 14 months it was all over. In the summer of 1898 the Cheechakos horde swarmed to Nome, then Fairbanks, Nevada, Kenya…

Only a few found lasting wealth in the Klondike:

  • The “Sourdoughs” – The first strikers, like Skookum Jim, made fortunes from royalties
  • The Media – Robert Service and Jack London each had a shedload of international bestsellers
  • The Provisioners – Who sold the prospectors everything from whisky to gold pans
  • The Consolidators – The long-term thinkers who bought and merged low-grade Cheechako claims for pennies on the dollar then set up huge dredging and strip mining operations.

Fast forward to 2014.

Although Bitcoin is still in the claim staking stage of the Klondike timeline, we can already make a few predictions as to whom the winners will be:

  • The Sourdoughs – The early miners (and probably Satoshi Nakamoto, Bitcoin’s mysterious father)
  • The Media – Who get endless blog-fodder from peddling Bitcoin hopes and fears (like me)
  • The Provisioners – Those selling 21st century cyber-gold-pans (like custom ASICs)
  • The Consolidators – And who will that be?

Here’s a guess…..

Bitcoin uses an underlying open-source algorithm called “blockchain”, which has several mathematical certainties built into it (including a sexy NP-Complete problem for you math geeks). The algorithm is used to form a series of data structures, called blocks, each of which has a hash of the previous block forming a chain that allows anyone to traverse from block to the block until reaching the “genesis” block.

This, interestingly enough, has the effect that as more blocks are added to the chain it becomes more secure. This chain is stored across distributed systems without a central controlling authority creating an effect called “distributed consensus”; meaning, given any Bitcoin, anyone can verify if it is valid, who owns it, when it was mined and if its lineage traces back to the Bitcoin genesis block.

I spoke with David Chen from Lightspeed Venture Partners, who “cannot imagine that in five to ten years blockchain will not be everywhere, as Bitcoin or the next generation”.

What is “the next generation”?

Ok, time to take out the “Men in Black” pens and forget any reference to Bitcoin – whewmph, whewmph. Let’s now just look at how blockchain and distributed consensus together can be applied to a whole host of real-world problems.

One example is Domain Name Services (DNS). The internet has a set of distributed files that map computer names to their more cumbersome IP addresses. Today, this is controlled by a swarm of DNS servers that pass information around amongst themselves. It is insecure (allowing bad people to do something called IP hijacking), slow (changes can take hours to propagate) and data can be lost if key servers go wonky at the wrong time – kind of like the DMV, I guess. A blockchain DNS systems would be simpler, faster and more secure.

How about some less mundane examples? Blockchain-based digital contracts require no lawyer, notary or interference by the courts. Expand this concept and you can create corporations (something called a “Digital Autonomous Group”), virtual identity cards (for real or pseudo-identities), exchanges (there is already a blockchain-based exchange dealing in gold, silver and platinum), media distribution and secure voting platforms (direct democracy – say what?).

Although we are out of the “cyber-anarchist” phase of blockchain, Lightspeed agrees that we are still in the early days. They are watching this space closely, even providing seed round funding for a block-chain startup, Ripple Labs, last year.

They are not alone. Several other big-time tech VC firms, among them Andreessen Horowitz, are eyeing blockchain-ers like Twister, Mastercoin, Ethereum, MaidSafe, Keybase and BitShares X. Even respectables like JP Morgan Chase and eBay have filed patents for their own blockchain solutions.

Is one of these the new blockchain strip miner? Only time will tell, but remember…

There are strange things done in the midnight sun

By the men who moil for gold;

The Cremation of Sam McGee, Robert Service

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