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VOL. 133 | NO. 106 | Monday, May 28, 2018

Blockchain Tech ‘is the Shiny New Penny’

Jeannie Naujeck, Nashville Correspondent

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During the General Assembly session that just ended legislators debated a number of hot-button issues: guns, abortion, Confederate statues and medical marijuana.

But tucked among the headline-grabbers was a brief bill, less than 300 words long, that attracted no controversy whatsoever.

Not only did it pass both houses with bipartisan support, it passed with unanimous support – despite being concerned with an esoteric technology that some legislators had never heard of.

The bill that united legislators this session was an official recognition of blockchain, an emerging technology that could transform the operations of any business that depends on secure, transparent, efficient transactions – including some of Tennessee’s most important industries.

Luis A. del Mazo, Jr., right, shares some thoughts on bitcoins and blockchain during a Bitcoins and Beer meet up group at The Village Pub in East Nashville.  (Michelle Morrow/Nashville Ledger)

What likely sold legislators, even if they didn’t quite understand the technology, was its potential to attract new business to the state.

“Any state worth its salt wants to compete for business,” says Joan MacLeod Heminway, a corporate and securities lawyer and professor of law at the University of Tennessee-Knoxville.

“Blockchain technology is the shiny new penny, and everyone wants to jump on the bandwagon, because if you don’t you might get left behind. Tennessee is a very entrepreneurial state, and we like to make sure that if entrepreneurs think they need something we give it to them.”

Many people know blockchain as the technology that powers cryptocurrencies like bitcoin, which hit the news with its huge run-up in value last year, making digital millionaires of those who got in on the ground floor. But the technology has far greater implications for the Tennessee economy.

“Blockchain is a new and exciting industry with almost unlimited potential in different applications,” explains Rep. Jason Powell, a Democrat who sponsored the House bill. Steve Dickerson, a Republican, sponsored it in the Senate.


Blockchain and cryptocurrencies have their own lingo, and you'll probably be hearing a lot more of it in years to come. Here's a glossary of common terms related to these emerging technologies. 

Address: Cryptocurrency addresses are used to receive and send transactions on the network. An address is a string of alphanumeric characters, but can also be represented as a scannable QR code.

Agreement Ledger: An agreement ledger is a distributed ledger used by two or more parties to negotiate and reach agreement.

Attestation Ledger: A distributed ledger providing a durable record of agreements, commitments or statements, providing evidence (attestation) that these agreements, commitments or statements were made.

ASIC: ASIC is an acronym for “Application Specific Integrated Circuit.” ASICs are silicon chips specifically designed to do a single task. In the case of bitcoin, they are designed to process SHA-256 hashing problems to mine new bitcoins.

Bitcoin (uppercase): The well-known cryptocurrency, based on the proof-of-work blockchain.

bitcoin (lowercase): The specific collection of technologies used by Bitcoin’s ledger, a particular solution. Note that the currency is itself one of these technologies, as it provides the miners with the incentive to mine.

Blockchain: A blockchain is a type of distributed ledger, comprised of unchangeable, digitally recorded data in packages called blocks (rather like collating them on to a single sheet of paper). Each block is then ‘chained’ to the next block, using a cryptographic signature. This allows block chains to be used like a ledger, which can be shared and accessed by anyone with the appropriate permissions.

Cryptocurrency: A form of digital currency based on mathematics, where encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Furthermore, cryptocurrencies operate independently of a central bank.

Digital Identity: A digital identity is an online or networked identity adopted or claimed in cyberspace by an individual, organization, or electronic device.

Distributed Ledger: Distributed ledgers are a type of database that are spread across multiple sites, countries or institutions. Records are stored one after the other in a continuous ledger. Distributed ledger data can be either “permissioned” or “unpermissioned” to control who can view it.

Ethereum: An open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. Like Bitcoin, Ethereum is a distributed public blockchain network. Although there are some significant technical differences between the two, the most important distinction to note is that Bitcoin and Ethereum differs substantially in purpose and capability. Bitcoin offers one particular application of blockchain technology, a peer-to-peer electronic cash system that enables online Bitcoin payments. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application.

ICO: Initial Coin Offering

Ledger: An append-only store of records, where records are immutable and may hold more general information than financial records.

Litecoin: A peer-to-peer cryptocurrency based on the Scrypt proof-of-work network. Sometimes referred to as the silver of bitcoin’s gold.

Mining: The process by which transactions are verified and added to a blockchain. This process of solving cryptographic problems using computing hardware also triggers the release of cryptocurrencies.

P2P: Peer-to-peer, or the decentralized interactions that happen between at least two parties in a highly-interconnected network. P2P participants deal directly with each other through a single mediation point.

Participant: An actor who can access the ledger: read records or add records to.

Private Currency: A currency issued by a private individual or firm, typically secured against uninsured assets.

Private Key: A private key is a string of data that shows you have access to bitcoins in a specific wallet. Private keys can be thought of as a password; private keys must never be revealed to anyone but you, as they allow you to spend the bitcoins from your bitcoin wallet through a cryptographic signature.

Ripple: A payment network built on distributed ledgers that can be used to transfer any currency. The network consists of payment nodes and gateways operated by authorities. Payments are made using a series of IOUs, and the network is based on trust relationships.

Replicated Ledger: A ledger with one master (authoritative) copy of the data, and many slave (non-authoritative) copies.

Smart Contracts: Smart contracts are contracts whose terms are recorded in a computer language instead of legal language. Smart contracts can be automatically executed by a computing system, such as a suitable distributed ledger system.

Tokenless Ledger: A tokenless ledger refers to a distributed ledger that doesn’t require a native currency to operate.

Transaction Block: A collection of transactions on the bitcoin network, gathered into a block that can then be hashed and added to the blockchain.

“I think there is tremendous upside, and it’s great that Tennessee has planted a flag to say that we are open for business when it comes to blockchain, and hopefully, can continue to foster either businesses starting up or moving here that are in that space.”

A lot of smart money is betting on blockchain – or its broader term, distributed ledger technology – due to its potential impact on the health care, real estate, transportation and logistics, and even music industries.

In Nashville, health care giants like HCA, established companies such as Change Healthcare, and start-ups like Hashed Health are investing in new blockchain-based products to improve operational efficiency. Music executives and artists are talking about how to leverage blockchain for digital rights managements and payments.

In Memphis, FedEx is piloting blockchain-based solutions to dispute resolutions.

In Chattanooga, home to two of the largest truckload carriers in North America and almost 30 freight brokers, a consortium called the Blockchain in Transport Alliance has sprung up to promote the development of blockchain technology applications for the nearly trillion-dollar freight industry, which includes major players such as Bridgestone.

“With Nashville being a hub for health care IT and Chattanooga being sort of a logistics hub, there is just tons of room for growth and innovation in those markets,” says T.J. Gentle, a startup veteran and attorney with Miller & Martin’s Chattanooga office.

“Block chain technology really started as a grassroots effort from developers who were libertarian-minded and wanted to sort of decentralize transactions from a centralized government or a centralized bank.

“But it turns out that the technology used to create this system is incredibly useful for doing things like validating who people are, securing records and data in a way that makes it easy to see who accessed that information and who has the credentials to access that. So, it lends itself really well to industries where we are emerging as hubs of our respective technology sectors.”

Powell adds even his business, real estate, is abuzz about the possibilities of sharing data securely and simultaneously between the many parties involved in a sale: buyers, sellers, agents, attorneys and banks.

“Every time I go to a conference, someone asks about the application of blockchain in real estate,” he says.

“When you look at some of the numbers and how much money is being invested into certain blockchain initiatives, the ways that it can potentially revolutionize different industries, it’s already making a difference.”

Last year, blockchain startups attracted over $900 million in traditional venture capital rounds (not counting initial coin offerings), according to Crunchbase. Investment this year may well exceed that.

John Davis shares during a Bitcoins and Beer meet up group at The Village Pub in East Nashville. (Michelle Morrow/Nashville Ledger)

“One technology generation ago, some of the world’s smartest people were spending all their time trying to figure out how to get people to click on an ad,” Gentle says.

“Now they’re figuring out how to take this technology and create a better product.”

What is it and how does it work?

Distributed ledger technology – a broader term that includes and is often shortened to blockchain – is an underlying decentralized digital records system that powers digital (or crypto) currencies like bitcoins. (A simplistic but useful analogy is to think of bitcoin as an application of blockchain in the same way that email or Uber is an application of the internet.)

The term “ledger” refers to the total record of all actions associated with a transaction on a blockchain platform. It is distributed to multiple computers, decentralized, shared and replicated, with access allowed to authorized users. Data is encrypted and is immutable unless changed by an authorized user.

Any changes become part of the “ledger” and are updated simultaneously and in real time so that all parties who are verified to access the data can see it at once.

By definition, blockchain is decentralized, so no one governing body – whether it be bank, store, or corporation – “owns” data. Because of this, blockchain allows for peer-to-peer transactions, just as Napster allowed people to share digital music files amongst themselves, cutting out the record labels, music stores, artists and others who normally would have gotten paid from the transaction.

Essentially, distributed ledger technology returns the internet to the open-source Napster days – before platforms like iTunes, Facebook and Airbnb applied corporate business models on top of such transactions. Blockchain technology also helps solve a critical element that was left open during the early evolution of the internet: that of establishing one’s online identity.

In a blockchain environment identities can be established and verified, and “follow” a person through all his or her digital transactions. This can aid and simplify any number of transactions a person participates in through the course of his or her everyday life.

For corporate entities, platforms can be built on blockchain networks to simplify and accelerate business transactions.

Hashing the cost out of health care

Large corporations are starting to invest heavily in blockchain technology. In Nashville, startups like Hashed Health are also generating a lot of buzz. Hashed Health builds blockchain solutions for problems in the health care industry including consumer payments, supply chain management and provider credentialing.

Last year, the company secured $2 million in funding from investors including Martin Ventures and formed a relationship with Change Healthcare, which recently launched its own blockchain-based network that can be used by hospitals, physician practices and insurance companies for tracking medical claims and payments.

Refreshingly, Hashed Health defies the youth-obsessed stereotype of tech companies: its executives bring many years of experience in health care to the table. Because of this maturity and understanding of a complex system, Hashed Health spends plenty of time saying no to projects.

Giles Ward, COO of Hashed Health, a Nashville tech company, that applies blockchain to the healthcare industry. (Michelle Morrow/Nashville Ledger)

“There are so many places where blockchain makes sense that we don’t have to be a disruptive technology,” notes Giles Ward, chief operating officer.

“We have a very sophisticated healthcare system. It’s not efficient, it’s not sustainable, but it’s not dumb. And the low-hanging fruit is of such great value that we can spend the next 10 years providing measurable advancement and value and cost savings and efficiency without ever having to touch the system as it is right now.”

One of those areas is physician credentialing, a necessary but tedious function that is fraught with delays, costs and redundancies.

Whenever a physician makes a career move, a new employer must verify credentials like medical school graduation, residency completions, state licensing, biannual recertifications and more. But that process is repeated over and over throughout a physician’s career. To solve it, Hashed Health has built a product called Professional Credentials Exchange (ProCredX).

“If I graduate from med school and apply for a license with the state of Tennessee, they check, I think, 18 things. And then I get my license and walk over to HCA to apply for a job and they check those same things,” Ward explains.

“Nothing has changed. But it can take months. And even if you don’t move, that stuff is being checked again and again. The block chain provides the signature that says, ‘Here’s a time-stamped and cryptographically guaranteed signature that says nothing in this record has been altered since it was checked.’”

With ProCredX, once a trusted source performs a verification, it becomes a permanent digital asset and “follows” the person so subsequent employers don’t have to check.

“Now, the second and third time that a doctor goes to a new clinic, the employer can just query the system and say, ‘Of the 20 items we need to credential this doctor to practice here, 18 of them have been checked.

Three different people have called Vanderbilt, all three of them said yes, he graduated from med school, and the record they’ve created not only says, I’ve checked it and it’s valid, but those three records look the same,’” Ward says.

“And so, with reasonable certainty you can accept that credential without picking up the phone.”

The product utilizes a central feature of blockchain technology: the ability to establish a verifiable digital identity – a sort of “permanent record” that can follow a person and simplify any number of transactions he or she participates in through the course of his or her everyday life. That element was never established by the early architects of the internet and represents a new phase in its evolution.

“The first phase we had was the information phase, where people for the first time were able to connect to a network and access information all over the world,” Gentle says.

“The next phase was the social phase, where people came online and started interacting with each other.

“This next phase is the internet of value, where we will be able to build on what’s happened in the social phase and use the block chain to create more trust, and the system to verify that who we are talking to is who we think it is, and that companies are doing what they’re supposed to do.”

An invisible change

If distributed ledger technology fulfills its promise, consumers may not even notice. They’ll just find everyday transactions getting faster and easier, powered by large corporations like Google, Microsoft, Intel and IBM that are investing heavily in blockchain platforms.

“If blockchain is adopted in the right way, people won’t even see the difference,” Gentle points out.

“There will just be fewer instances of breaches, of consumer data and more security, more transparency in what’s happening with people’s information and how people transact. And more efficiency.”

Blockchain’s ability to facilitate peer-to-peer transactions will threaten some business models, like banks and credit card companies, who could miss out on their cut if people make direct transactions with merchants. But it also carries increased risk.

“Part of the benefit of the bargain when we use these credit card companies and banks, is that they create the security, a way for us to ensure that the transaction is valid,” Gentle acknowledges.

“Whenever we remove them from the equation by using blockchain in a decentralized network, the parties involved have to become their own bank.”

“What the role of entrepreneurs in the space will be is to make blockchain easy for everyone to use it to create a level of trust and security that right now is only being provided by these corporate entities.”

Thinking smarter

Tennessee’s new law is a moderate but significant step into the potential business applications of distributed ledger technology. It recognizes so-called “smart contracts,” which aren’t contracts in the traditional sense but are an automated series of “if, then” conditions carried out in a blockchain environment.

In smart contracts, when the programmed conditions are met, the transaction plays out to an end result, such as the transfer of assets. If one of the conditions is not met, the transaction is automatically locked.

It’s a logical next step from digital signatures and digital records and is meant to give people confidence that when they’re transacting and operating under Tennessee law, the terms of their smart contract will be enforced and recognized by the state.

Most states have, by now, begun an initiative or passed legislation dealing with some aspect of blockchain technology or cryptocurrencies, according to a survey by The Brookings Institution.

Arizona has also passed a law recognizing smart contracts. Colorado is looking into incorporating blockchain solutions into government functions, and West Virginia is testing a blockchain-based platform for mobile voting in upcoming primary elections.

Some states have taken a wait-and-see stance as the technology develops and federal regulators assess how to classify and deal with some of its offshoots, most notably cryptocurrencies like bitcoins.

Other states have passed laws regulating blockchain-based cryptocurrencies in an effort to stem fraud and abuse from people issuing new digital currencies through initial coin offerings that amount to get-rich-quick schemes. The Securities and Exchange Commission is closely monitoring ICOs to determine whether new digital currencies constitute securities, which would trigger a host of regulatory requirements and costs.

Some have taken a more aggressive approach. Hoping to diversify its economy and attract tech companies, Wyoming has positioned itself as the most blockchain and cryptocurrency friendly state in the nation. It has passed laws that exempt cryptocurrency from state money transmitter licensing requirements, and exempt assets held in virtual currencies from property taxes.

To encourage companies to issue new cryptocurrencies, the state also exempts so-called “utility tokens,” which operate somewhat like an iTunes gift card in that they give the holder access to a digital asset. If a new cryptocurrency is classified as a utility token rather than a security, it will not trigger securities regulations.

And since an increasing number of start-up companies, including some in Nashville, are issuing coins through ICOs to raise capital, any state that deems a new coin issue a utility token instead of a security will be an attractive place to register a business.

Bringing in the smartest mind

Competition for the brightest tech minds is especially keen in places like Chattanooga, which has invested heavily in citywide broadband and incentives for entrepreneurs, and Nashville, where much of the venture capital money is pouring into health care technology.

“A lot of these companies are truly mobile, especially in the startup stage,” explains Gray Sasser, an attorney with Frost Brown Todd in Nashville who advises companies in the blockchain space.

“It’s three or four people, a computer and a server, and they don’t all have to be in the same location. To attract the business, you need to create more than just a regulatory framework. You’re also needing to build that community that would be attractive to technologically-minded companies.”

That’s easier now that Nashville is on the radar of young people looking to leave larger cities.

Two years ago, the Nashville Blockchain Meetup group started with half a dozen people. Now it has 900 members, 200 of whom regularly attend the free and open monthly meetings. They include not only members of tech start-ups, but people from more established companies like Vanderbilt, Bridgestone and HCA.

“I’m so excited about what this is doing for Nashville, the community it’s building,” says Hashed Health’s Ward, who hosts the Meetup.

“This is bringing the Health Care Council and the Tech Council together with the coding community … you look around and there’s no other way all these people are coming together in the same room.”

Ward affirms that Nashville’s ascendance in the national eye is also helping to attract educated workers.

In March, Hashed Health developer Deon Summers traveled from Nashville to Washington, D.C., to participate in a blockchain code-a-thon.

There he met Zhenting (Zhen) Zhou, a developer from New York City. The two became friends while they built a blockchain-based system that rewards refugee families monetarily for completing tasks around mental health, legal support, education and health care.

They won first place (and 1 bitcoin.) Shortly after, Zhou moved to Nashville to work for Hashed Health.

“Now we have a brilliant programmer who left New York and came here. He said, ‘I’ve heard Nashville’s cool. I’ll come to Nashville,’” Ward says.

“So, you’ve got to build some of your own but you’ve got to make something bright and shiny, and Nashville is doing its part in being a good place to come.”

But in the end, what creates the conditions for growth and brings the tech sector to Tennessee may be the same business-friendly, low-tax policies that have always attracted more traditional companies. Tennessee’s lack of income tax is an especially strong sell now that people can no longer deduct state income tax, Ward notes.

“The way that crypto assets are taxed, these are going to be big dollar decisions,” he adds.

“It’s cheaper for me to pick up my family and move to Tennessee, if I can find a good school in a good neighborhood to live in, than it would be to stay where I am. And so, Nashville, here we come.”

PROPERTY SALES 28 290 16,197
MORTGAGES 33 165 10,087
BUILDING PERMITS 184 608 38,544
BANKRUPTCIES 33 125 7,597