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What Is Bitcoin? Eleven Things You Need To Know About The Digital Currency

What Is Bitcoin? Eleven Things You Need To Know About The Digital Currency

The rise of Bitcoin marks the very first time you’ve most likely heard the words “trendy” and “currency” uttered in the same sentence. And given the momentum it’s seen lately, both in international headlines and on exchanges, the whirr around digital currency is only going to grow in the next year. Here are answers to eleven pressing questions that will help even the largest Bitcoin neophyte sound in the know at cocktail parties and water coolers in 2014.

Bitcoin is the most popular type of digital currency, an online-only alternative form of money. Bitcoin represents two things: Capital “B” Bitcoin refers to the payment network, the entire system behind making payments, while lowercase “bitcoin” refers to the unit of currency itself. The payment network and the currency are both decentralized, meaning that — unlike traditional currency — they are not created, managed or regulated by a central figure.

Libertarians tout the “people power” that Bitcoin enables. Because there is no central authority, two people anywhere in the world can transact loosely, with no fees and no bank account, instantaneously. They can’t be censored or have their money confiscated or managed, which happens in some unstable countries. Freedom from government means the rules of bitcoin are set by the market, without political interference. Supporters say that freedom from political interference, along with bitcoin’s limited supply, makes bitcoin a more stable store of value than currencies that can be inflated or deflated through control of the money supply.

Why am I hearing so much about it now?

Bitcoins have been around for more than five years, but gained attention at the end of last year for both positive and negative reasons. On the positive side, request for the currency spiked a whopping Five,000 per cent in 2013, driving the price of a bitcoin from about $13 U.S. in January to more than $1,000 U.S. in November, largely because of request in China.

Shortly after prices peaked at $1,073, China cracked down on Bitcoin use, forbidding banks from dealing in the currency, and prices plunged. The U.S. bust and seizure last fall of $25 million in bitcoins from the Silk Road — an online exchange for criminals — also shone a spotlight on the digital currency. Still, most of the attention these days surrounds its acute price appreciation and the host of merchants and venture capitalists moving into the space.

Currency Manipulation

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At the most basic level, bitcoins are traded from one person’s digital wallet to another. Think about it as a peer-to-peer network like file-sharing, in which a network of computers interact with one another, but there is no centre of control, and what they share isn’t files but money. Bitcoin exchanges have also been set up where units can be bought or sold on the open market at the going average rate, plus a fee that goes to the proprietor of the exchange. Increasingly, bitcoin ATMs are being set up where users can trade cash for bitcoins for a fee.

How do you make a transaction?

Bitcoin owners hold digital wallets — there are a number to choose from. A buyer sends money to the seller’s bitcoin address, generally over a mobile phone, and both are issued an e-receipt for the deal. Because it’s not a physical currency, bitcoins can be divided infinitely, so a holder can buy a coffee for a fraction of the current value of a bitcoin.

Every time a transaction is made, it is recorded on a public ledger called the Block Chain, which is collective among all Bitcoin users.

Bitcoins are “mined” similarly to gold, meaning there is a finite supply in the world. However, instead of pick-axes in the ground, bitcoin miners use increasingly sophisticated computers to solve increasingly difficult computer algorithms. Each time a miner solves one of these cryptographic puzzles (think a sort of a global math riddle race), she is paid in the currency, adding it to the money supply. The current maximum of mineable bitcoins in the world is twenty five every ten minutes.

Like gold, there is a finite number of bitcoins in the world, with a threshold of twenty one million bitcoins and the last expected to be “mined” in 2140. There are about twelve million presently in circulation. Just like a traditional currency, the going rate for a bitcoin is based on supply and request on global exchanges, and is measured against local currencies. The standard unit of representation is called a BTC, similar to a CAD or USD. Bitcoins hold a fictional value just as much as the lump of paper we hold with $100 written on it.

The origins of Bitcoin are shrouded in mystery. In two thousand eight a Japanese programmer or group of programmers operating under the pseudonym Satoshi Nakamoto published a paper describing digital currency. In 2009, Nakamoto launched software that created the very first Bitcoin network and bitcoin unit of currency. Contact inbetween Nakamoto and the community faded in 2010, when he/they gave away control over Bitcoin properties.

What makes it different from other currencies?

The finite number of bitcoins and decentralized nature of Bitcoin are two key characteristics that set it apart from established currencies. The lack of a connection to a central authority means it cannot be artificially manipulated to set monetary policy, under which central banks can release or restrict the supply of money to ease economic cycles.

What are some of the other types?

Bitcoin is just one of many digital currencies flooding the market. Other popular internet currencies include PeerCoin, LiteCoin and Ripple, each of which has unique properties. There are also several novelty coins making headlines such as the Coinye (a play on Kanye West) and the Dogecoin (modelled after the internet meme). While bitcoins are designed for buying and selling in a marketplace, other currencies can perform functions tailored to real estate or derivatives trading, for example. The Royal Canadian Mint is even devising its own, called the Mint Chip and backed by the Canadian dollar.

What are some of the concerns?

There are several barriers that could prevent the Bitcoin experiment from succeeding, including concerns about online security, a lack of regulation and the anonymous nature of transactions. Some observers wonder whether the bitcoin’s acute appreciation signals the value of the coin stems from a speculative bubble that could burst at any point, leaving it worthless. In addition, bitcoin has no immobile value, one of the key characteristics of a good currency; it is near unlikely to quote the value of a carton of milk or a pair of pants in bitcoin.

Related video:

Wallet, Accounts and Addresses – TREZOR Blog

Wallet, Accounts and Addresses

In this article, we explain the basic terms that are used in TREZOR and other cryptocurrency wallets. Understanding them will help you better understand how TREZOR works.

Last time, we looked at what Seed, PIN and Passphrases are, explaining what roles do these three contraptions play when it comes to the security of your cryptocurrencies. If you need to refresh your memories, go after the link below. Some of the today’s terms will be lighter to understand if you have read the previous article.

In this article, we explain the basic terms that are used in TREZOR and other cryptocurrency wallets. Understanding…blog.trezor.io

Wallet

This is most likely one of the most used terms you will see in the cryptocurrency world. While it may seem fairly straight-forward, confusion can arise when the term is used in a wrong context. Let’s have a closer look at what do we mean by the word “wallet”.

Compare the TREZOR with your wallet that you carry with you on a daily basis. In the wallet, you most likely have debit cards to different bank accounts, credit cards, private documents, fiat bills, maybe even for different currencies. The wallet in your TREZOR is similar — there are separate pouches for different currencies: one for Bitcoin, one for Ethereum, but also for your U2F identity, etc. Everything you need is in one wallet.

Does it not sound like something familiar? Like the Recovery Seed? Exactly! Each seed generates only one wallet. Your TREZOR is the key to this wallet. Therefore, under normal circumstances*, you have exactly one wallet “in” your TREZOR.

This wallet is further subdivided into currency-specific wallets, such as Bitcoin wallet, Ethereum wallet (incl. ERC-2o tokens), Litecoin wallet, Zcash wallet, DASH wallet for better orientation. * If you use passphrases, each passphrase generates a separate wallet. If you use two passphrases, you have three wallets in total — the two passphrases, and the empty passphrase.

Accounts

Unlike a wallet, for which you only have one per seed, you can have many accounts (for every currency separately). Compare this to your bank accounts — you might have a Checking account and a Savings account. As they are separate accounts, they are totally independent, save from the fact that they are generated from the same seed. Account one does not see what is in Account Two, etc.

TREZOR Wallet, the web-interface for bitcoin and bitcoin-like altcoins permits you to have up to ten accounts per currency per wallet. This is a practical limitation, as it decreases the flow on our servers.

Notice that for Ethereum this might be a little different. Technically, both ETH and ETC do not use numerous accounts, instead they separate accounts by addresses. More details in the next section.

Addresses

Bitcoin-like cryptocurrencies

Like there are many accounts in a wallet, there are many addresses in an account. You can send your coins to any of the addresses listed under an account, and you can spend them altogether in one transaction when using that specific account. (This is in contrast with accounts — you cannot spend coins in one transaction when sending from different accounts.)

Account one sees all the coins saved under all addresses in Account one (for a specific currency), but it does not see what is in the addresses in Account Two, etc.

Bitcoin also has switch addresses; when you receive your switch, it goes into a fresh address instead of the original one, in order to maintain your privacy. Spending from these switch addresses is as seamless as spending from a normal addresses; you won’t see a difference.

By using different addresses for every transaction you are maintaining a high level of privacy, as you make it more difficult to track where your coins go. It is not possible to deduce that this and that address belong to the same account.

Ethereum, Ethereum Classic and ERC-20 tokens

As previously mentioned, technically Ethereum does not have many accounts. Instead, it considers single addresses as separate accounts. This means that there are no switch addresses, but also that you cannot send one transaction from numerous addresses.

Moreover, ERC-20 tokens are stored on Ethereum (ETH) addresses. In order to send them, you will need to have ethers on the same address as the tokens.

Therefore, this simplifies things a little bit — while using Ethereum only use one address for one account. If you want to separate accounts, use numerous addresses.

We hope that this article was at least as informative as the previous basic guides on TREZOR functionality. Next time, we are going to look at something even more fundamental: how do private and public keys work, and where do they fall into this scheme. (Don’t want to wait? Explore how BIP thirty two works here.)

About Us

TREZOR is the most trusted and ubiquitous hardware wallet in the world. It offers an unmatched security for cryptocurrencies, password management, 2nd Factor, while maintaining an absolute ease-of-use, whether you are a security accomplished or a brand fresh user.

Wallet, Accounts and Addresses – TREZOR Blog

Wallet, Accounts and Addresses

In this article, we explain the basic terms that are used in TREZOR and other cryptocurrency wallets. Understanding them will help you better understand how TREZOR works.

Last time, we looked at what Seed, PIN and Passphrases are, explaining what roles do these three contraptions play when it comes to the security of your cryptocurrencies. If you need to refresh your memories, go after the link below. Some of the today’s terms will be lighter to understand if you have read the previous article.

In this article, we explain the basic terms that are used in TREZOR and other cryptocurrency wallets. Understanding…blog.trezor.io

Wallet

This is most likely one of the most used terms you will see in the cryptocurrency world. While it may seem fairly straight-forward, confusion can arise when the term is used in a wrong context. Let’s have a closer look at what do we mean by the word “wallet”.

Compare the TREZOR with your wallet that you carry with you on a daily basis. In the wallet, you very likely have debit cards to different bank accounts, credit cards, private documents, fiat bills, maybe even for different currencies. The wallet in your TREZOR is similar — there are separate pouches for different currencies: one for Bitcoin, one for Ethereum, but also for your U2F identity, etc. Everything you need is in one wallet.

Does it not sound like something familiar? Like the Recovery Seed? Exactly! Each seed generates only one wallet. Your TREZOR is the key to this wallet. Therefore, under normal circumstances*, you have exactly one wallet “in” your TREZOR.

This wallet is further subdivided into currency-specific wallets, such as Bitcoin wallet, Ethereum wallet (incl. ERC-2o tokens), Litecoin wallet, Zcash wallet, DASH wallet for better orientation. * If you use passphrases, each passphrase generates a separate wallet. If you use two passphrases, you have three wallets in total — the two passphrases, and the empty passphrase.

Accounts

Unlike a wallet, for which you only have one per seed, you can have many accounts (for every currency separately). Compare this to your bank accounts — you might have a Checking account and a Savings account. As they are separate accounts, they are fully independent, save from the fact that they are generated from the same seed. Account one does not see what is in Account Two, etc.

TREZOR Wallet, the web-interface for bitcoin and bitcoin-like altcoins permits you to have up to ten accounts per currency per wallet. This is a practical limitation, as it decreases the flow on our servers.

Notice that for Ethereum this might be a little different. Technically, both ETH and ETC do not use numerous accounts, instead they separate accounts by addresses. More details in the next section.

Addresses

Bitcoin-like cryptocurrencies

Like there are many accounts in a wallet, there are many addresses in an account. You can send your coins to any of the addresses listed under an account, and you can spend them altogether in one transaction when using that specific account. (This is in contrast with accounts — you cannot spend coins in one transaction when sending from different accounts.)

Account one sees all the coins saved under all addresses in Account one (for a specific currency), but it does not see what is in the addresses in Account Two, etc.

Bitcoin also has switch addresses; when you receive your switch, it goes into a fresh address instead of the original one, in order to maintain your privacy. Spending from these switch addresses is as seamless as spending from a normal addresses; you won’t see a difference.

By using different addresses for every transaction you are maintaining a high level of privacy, as you make it more difficult to track where your coins go. It is not possible to deduce that this and that address belong to the same account.

Ethereum, Ethereum Classic and ERC-20 tokens

As previously mentioned, technically Ethereum does not have many accounts. Instead, it considers single addresses as separate accounts. This means that there are no switch addresses, but also that you cannot send one transaction from numerous addresses.

Moreover, ERC-20 tokens are stored on Ethereum (ETH) addresses. In order to send them, you will need to have ethers on the same address as the tokens.

Therefore, this simplifies things a little bit — while using Ethereum only use one address for one account. If you want to separate accounts, use numerous addresses.

We hope that this article was at least as informative as the previous basic guides on TREZOR functionality. Next time, we are going to look at something even more fundamental: how do private and public keys work, and where do they fall into this scheme. (Don’t want to wait? Explore how BIP thirty two works here.)

About Us

TREZOR is the most trusted and ubiquitous hardware wallet in the world. It offers an unmatched security for cryptocurrencies, password management, 2nd Factor, while maintaining an absolute ease-of-use, whether you are a security pro or a brand fresh user.

Related video:

The Top Use Cases For Bitcoin – LibertyLifeTrail by Tone Vays

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The Top Use Cases For Bitcoin

A few weeks ago, CoinTelegraph wrote the article “The seven Uses of Bitcoin and the Best Ways to Buy It” based on comments I made during a Skype talk. There was a lot of information provide that needs extra context as to why these Top seven uses are significant.

Many people see Bitcoin as this amazing payment system that is swifter, cheaper and lighter then traditional payment methods like debit cards, credit cards and Paypal, and while this is certainly true, the Bitcoin Blockchain is much more than that. Let’s face it, instant data transfers are not fresh technology, we all get our emails and text messages within seconds of someone sending them and even money can stir instantly from person to person through the bank. What makes Bitcoin payments special is that they disregard “money transmission” laws by cutting out the middlemen that validates the parties involved on both completes. Because of this property, Bitcoin payments are not only final upon hitting the send button, they are also “permissionless”.

So now let’s talk about which use cases is Bitcoin most valuable for because of the properties mentioned above:

While it is now well know that Bitcoin transactions are not as anonymous as once proclaimed, its use for purchases of good some Governments frown upon remains as strong today as it ever was.

Trio. Gambling : While this use case has already been around and utilized for a few years, it has not yet reached its total potential. It is clearly useful to permit anyone to place bets from anywhere and not having to deal with jurisdictional local currency transfers, but one day bitcoin will permit instant payouts without even creating accounts. There is always counter-party risk associated with these operations until they are fully legalized and perhaps regulated, but bitcoin permits the possibility of placing a bet that pays out to the same address that sent in the funds once the winning outcome is known.

Four. Purchasing Services Government Does Not Approve Of : This Bitcoin use case is fairly fresh and became popular in the same way as WikiLeaks. Once a popular escort site Backpage got cut off from traditonal means to pay for ads like Credit Cards and PayPal, the incident made national news. It introduced this sector of the economy to Bitcoin and this trend is just getting embarked. We have also now seen cam sites operate exclusively on bitcoin as well as more established sites using it as a medium of exchange for more anonymity and privacy.

Five. Hiding Assets from a Soon to be Spouse : This is one of the these use cases few will be willing to admit publicly because it may lead to serious social and family dynamic issues. With the divorce rate being consistently in the 50% area since the late 1970’s, being able to protect some of your assets is a major concern for the shrinking number of people who are thinking about Marriage. It could be awkward to bring up signing a ‘pre-nup’, but if this use case is to be realized, it could make the party with a larger financial stake more open to the idea of Marriage and improve the all time low rates we are watching since the 60’s (and that’s the 1860’s)

6. Hiding Assets from the Government : While an obsessive spouse may think they own you, they do not even come close to how the Government that issues your passport possesses you. This is another one of those use cases few will be talking about publicly. Everyone should see the signs of how the Governments are stepping up Money Laundering Enforcement, and they are now commencing to go after what some used to see as Traditional Tax Havens like Swiss Banks and the Caribbean. The population is already looked upon as Tax Cheats and until we budge to a Voluntary Tax System, people with money will always find ways to protect it from those who will waste it. How big of a use case can it be? Here is one estimate:

7. Transferring Value Cross Borders : While Bitcoin might be used as a way to store & hide your wealth, the real power of the Blockchain will come when large economies rise and fall. This has always happened historically and why the world has had so many global reserve currencies with the USD just the latest one already pushing the bounds of time spent in this position. In the past this value transfer has usually been Gold but in the digital age Gold is becoming much less useful. Additionally there is the difficulty of private citizens moving Gold due to technology like Metal Detectors making it an effortless mark for confiscation, Bitcoin might just find itself very useful.

While the list above may be questionable from a legal perspective, arguments can be made from a moral standpoint that everything mentioned so far should be globally legal and acceptable. This is also the reason why certain other uses for Bitcoin did not make the list. Things like ransom payments for those who’s computer was cryptolockered or accusations of Bitcoin being an enabler of Deep Web Assassination Markets. These use cases are a clear disturbance of property rights or are the initiation of force and therefore should NOT be considered as valid use cases.

The Top Use Cases For Bitcoin – LibertyLifeTrail by Tone Vays

LibertyLifeTrail by Tone Vays

Providing the Devices to live a Free Independent & Healthy Life

Primary Navigation

  • Open
  • Home
  • About
  • Interviews
  • Publications
  • Trading
  • Bitcoin
  • Investments
  • Politics
  • Travel
  • Health & Fitness
  • Educational Devices
    • Learn Bitcoin
    • Learn Economics
    • Learn Trading
  • Calendar
  • Open

The Top Use Cases For Bitcoin

A few weeks ago, CoinTelegraph wrote the article “The seven Uses of Bitcoin and the Best Ways to Buy It” based on comments I made during a Skype talk. There was a lot of information provide that needs extra context as to why these Top seven uses are significant.

Many people see Bitcoin as this amazing payment system that is swifter, cheaper and lighter then traditional payment methods like debit cards, credit cards and Paypal, and while this is certainly true, the Bitcoin Blockchain is much more than that. Let’s face it, instant data transfers are not fresh technology, we all get our emails and text messages within seconds of someone sending them and even money can stir instantly from person to person through the bank. What makes Bitcoin payments special is that they overlook “money transmission” laws by cutting out the middlemen that validates the parties involved on both completes. Because of this property, Bitcoin payments are not only final upon hitting the send button, they are also “permissionless”.

So now let’s talk about which use cases is Bitcoin most valuable for because of the properties mentioned above:

While it is now well know that Bitcoin transactions are not as anonymous as once proclaimed, its use for purchases of good some Governments frown upon remains as strong today as it ever was.

Three. Gambling : While this use case has already been around and utilized for a few years, it has not yet reached its total potential. It is clearly useful to permit anyone to place bets from anywhere and not having to deal with jurisdictional local currency transfers, but one day bitcoin will permit instant payouts without even creating accounts. There is always counter-party risk associated with these operations until they are fully legalized and perhaps regulated, but bitcoin permits the possibility of placing a bet that pays out to the same address that sent in the funds once the winning outcome is known.

Four. Purchasing Services Government Does Not Approve Of : This Bitcoin use case is fairly fresh and became popular in the same way as WikiLeaks. Once a popular escort site Backpage got cut off from traditonal means to pay for ads like Credit Cards and PayPal, the incident made national news. It introduced this sector of the economy to Bitcoin and this trend is just getting embarked. We have also now seen cam sites operate exclusively on bitcoin as well as more established sites using it as a medium of exchange for more anonymity and privacy.

Five. Hiding Assets from a Soon to be Spouse : This is one of the these use cases few will be willing to admit publicly because it may lead to serious social and family dynamic issues. With the divorce rate being consistently in the 50% area since the late 1970’s, being able to protect some of your assets is a major concern for the shrinking number of people who are thinking about Marriage. It could be awkward to bring up signing a ‘pre-nup’, but if this use case is to be realized, it could make the party with a larger financial stake more open to the idea of Marriage and improve the all time low rates we are eyeing since the 60’s (and that’s the 1860’s)

6. Hiding Assets from the Government : While an obsessive spouse may think they own you, they do not even come close to how the Government that issues your passport wields you. This is another one of those use cases few will be talking about publicly. Everyone should see the signs of how the Governments are stepping up Money Laundering Enforcement, and they are now commencing to go after what some used to see as Traditional Tax Havens like Swiss Banks and the Caribbean. The population is already looked upon as Tax Cheats and until we budge to a Voluntary Tax System, people with money will always find ways to protect it from those who will waste it. How big of a use case can it be? Here is one estimate:

7. Transferring Value Cross Borders : While Bitcoin might be used as a way to store & hide your wealth, the real power of the Blockchain will come when large economies rise and fall. This has always happened historically and why the world has had so many global reserve currencies with the USD just the latest one already pushing the bounds of time spent in this position. In the past this value transfer has usually been Gold but in the digital age Gold is becoming much less useful. Additionally there is the difficulty of private citizens moving Gold due to technology like Metal Detectors making it an effortless mark for confiscation, Bitcoin might just find itself very useful.

While the list above may be questionable from a legal perspective, arguments can be made from a moral standpoint that everything mentioned so far should be globally legal and acceptable. This is also the reason why certain other uses for Bitcoin did not make the list. Things like ransom payments for those who’s computer was cryptolockered or accusations of Bitcoin being an enabler of Deep Web Assassination Markets. These use cases are a clear disturbance of property rights or are the initiation of force and therefore should NOT be considered as valid use cases.

Related video:

The Easiest Way to Buy Bitcoin Instantly Online for Investment

The Easiest Way to Buy Bitcoin Instantly Online for Investment

After all this while, Bitcoin has been one of the most amazing currencies to witness in the history of mankind. Bitcoin has outperformed the US dollar, gold, silver, and other fiat currencies. The presence of Bitcoin has also made a few millionaires along the way. It is never too late to buy Bitcoin if it is for long-term investment. If you are totally fresh to the world of Bitcoin, MYF is going to display you the easiest way to buy Bitcoin, almost instantly online.

The Easiest Way to Buy Bitcoin Instantly Online for Investment

There are many ways to buy Bitcoin such as via credit card, bank transfer, cash, and PayPal. Each of them has both their advantages and disadvantages.

#1 Speedy Transaction – Credit Card

The easiest and fastest way to buy Bitcoin instantly is with a credit card or debit card. For example, Coinbase supports credit or debit card purchases provided your card supports ‘3D Secure’. Some banks will require various security steps to authorize a purchase using 3D Secure. Some of the methods you may see will be a text message, a bank provided security code, or security questions.

Once you confirm a purchase with your card on Coinbase, you may be redirected to your bank’s website to verify the transfer. While Coinbase performs testing to ensure compatibility with major browsers, there may be situations where you are not correctly redirected to your bank’s website. If you are incapable to confirm your purchase with your bank because of this, Coinbase will not be able to finish your order.

This is also why purchasing Bitcoin via credit card is one of the safest ways as exchanges like Coinbase requires verification from both the bank and you.

However, you should be aware that buying Bitcoin instantly with a debit or credit card will usually result in higher fees because there are higher transaction and processing fees. Therefore, if you are buying just a puny amount of Bitcoin, using credit cards may be the best choice if you want it quick and effortless.

#Two Big Transaction – Bank Transfer

For buying large amounts of Bitcoin, you should choose to buy with a bank transfer on a reputable exchange such as Bitfinex, Poloniex, GDAX, GEMINI, Kraken, EXMO, YOBIT, and etc.

Fees are always lowest when you choose to transfer funds directly via SEPA (Europe), Wire (US), Rapid (Asia).

In my practice, Kraken is one of my dearest Bitcoin exchanges as it offers the best service for a bank transfer (wire SEPA) deposits. For the time being this is the only deposit method available. Deposit currencies include

Deposit currencies include Euros, US dollars, and KRW (Korean Won). It is super cheap to deposit, withdraw, and trade on Kraken. Daily volumes are always high, and an excellent fee transparency assures low commissions and that you get the cheapest coins.

My 2nd choice will still be Coinbase if you want to buy Bitcoin with a bank account in the US.

Coinbase permits you to connect your bank account via ACH bank transfer and can be connected with twenty six different banks.

Once you supply your bank credentials on Coinbase’s website you can lightly buy Bitcoins through your bank account. The fee for buying Bitcoins with your bank account is %1.49. The good thing about Coinbase is that the site has very high liquidity and won’t “run out of Bitcoins”. It’s also pretty intuitive for beginners.

I would like to emphasize here again that bank transfer is much slower than credit card purchases and it can take up to five days to ultimately see your money in the exchanges. If you’re inwards the Eurozone, Coinbase will also permit you to buy Bitcoins with a SEPA transfer. Fees are basically the same as buying within the US.

It is noted that every Bitcoin exchange is obliged by law to do utter KYC (know your customer). This is to prevent cybercrime and money laundering and some say the government worries that you might be gaining too much economic freedom.

Just realize that this is the fresh age where your ID is scattered all over the internet. For this reason, I would recommend choosing the safest sites only. If you indeed need to stay anonymous when buying, this is possible but the cost per bitcoin will be significantly higher.

#Three Reliable and Favorable Method – PayPal

Albeit buying Bitcoin via credit card is the easiest way, PayPal has also been very favorable of Bitcoin. If you are a big fan of PayPal, there are several platforms you can purchase your Bitcoin such as Virwox and AvaTrade.

VirWox is an exchange of virtual currency, you can buy there Lindens, Bitcoins, and more. It has more than 400,000 registered users and is a 2nd Life Lindens authorized reseller.

AvaTrade is a forex broker that is committed to providing a safe trading environment and is fully regulated and licensed in the EU and BVI, with extra regulation in Australia, South Africa, and Japan.

Inbetween the two, I choose AvaTrade over Virwox as it is more straightforward and it is lighter for beginners to navigate around.

The minimum initial deposit requirement of AvaTrade is $100. In addition to the possibility of instantaneous deposits through PayPal, they accept wire transfers and also facilitates funding through credit cards, NeTeller, Moneybookers, and WebMoney.

The advantages of buying or trading Bitcoin with AvaTrade is that there are attractive promotion and bonuses suggested that can reach up to $Ten,00 in some cases. On top of that, they suggest comprehensive educational resources that even beginners can learn as they go along.

One good thing about AvaTrade is that you can attempt out their free demo account so you can practice before putting your money on the line. If you are an inexperienced trader, AvaTrade provides market analysis to assist you in Bitcoin trading too.

I also would like to highlight that AvaTrade offers zero commissions on Bitcoin trading and no bank fees charged on transactions, making it far more profitable.

Conclusion

Depending on your preference, there are several “easiest” way to buy Bitcoin online and most of them can be done almost instantly. If you are not familiar with any of them, the easiest to buy Bitcoin is of course by credit card. However, please bear in mind that it has the highest transaction fee involves.

Most people that are brand-new to Bitcoin find it much safer & more familiar to buy via a Bitcoin ATM (especially if they just want to attempt out Bitcoin), rather than pouring through Reddit threads to determine which site is safest to buy from. There has been a drastic rise in the number of Bitcoin ATMs all over the world. While the normal trading process (usually through online exchanges) takes up to few days to accomplish, Bitcoin ATMs do that instantly and in a matter of seconds. However, Bitcoin atm is not available in most countries.

As you become more familiar with Bitcoin, you may opt to set up an online trading account, which generally has lower fees such as AvaTrade. If you are certain in trading, you may as well use this platform to make extra profit from it.

Related video:

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you most likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it truly, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, showcase actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains indeed are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should emerge in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To reaction this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent toughly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To assure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a wise trick to order facts in a network of non-trusted peers. The idea is ordinary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They challenge to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a giant number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user wields more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a immobilized time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration immovable despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing mechanisms that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a big amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other arm, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a puny fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a puny fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a immobilized amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electric current into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this instruction is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a brainy contract. A contract is a promise that signing parties agree to make legally-enforceable. A brainy contract is the same, except with the word “technically-“ instead of “legally-“. This liquidates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, very likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner denies to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Brainy contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to possessor
  • cancellation by the holder: transfer $500 from proprietor to loaner
  • end of the rental period: transfer $500 from loaner to holder
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to holder

Upload this brainy contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the proprietor can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on wise contracts are called Decentralized Apps, or DApps.

Brainy contracts naturally extend to clever property, and a lot more wise things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain liquidates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow commence and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t swift, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, witness this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These wise people have seen a large potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and translucent database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to eliminate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of intense disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-built network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Instruments helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a good beginning point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value stir too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and titillating. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a superb way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you most likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it truly, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, demonstrate actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains indeed are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should emerge in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To reaction this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent harshly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To ensure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a wise trick to order facts in a network of non-trusted peers. The idea is ordinary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They challenge to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a gigantic number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user wields more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a stationary time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration stationary despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing mechanisms that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a thick amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other forearm, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a puny fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a puny fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a motionless amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electro-therapy into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this instruction is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a clever contract. A contract is a promise that signing parties agree to make legally-enforceable. A brainy contract is the same, except with the word “technically-“ instead of “legally-“. This eliminates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, very likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner turns down to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Wise contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to holder
  • cancellation by the proprietor: transfer $500 from possessor to loaner
  • end of the rental period: transfer $500 from loaner to possessor
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to possessor

Upload this brainy contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the possessor can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on clever contracts are called Decentralized Apps, or DApps.

Wise contracts naturally extend to brainy property, and a lot more brainy things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain liquidates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow begin and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t rapid, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, observe this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These brainy people have seen a meaty potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and semi-transparent database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to liquidate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of mighty disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-built network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Contraptions helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a excellent embarking point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value stir too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and arousing. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a excellent way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you most likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it truly, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, display actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains truly are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should show up in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To reaction this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent harshly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To ensure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a clever trick to order facts in a network of non-trusted peers. The idea is elementary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They challenge to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a yam-sized number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user wields more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a immobile time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration stationary despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing technologies that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a gigantic amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other forearm, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a petite fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a petite fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a immobile amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electro-stimulation into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this instruction is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a wise contract. A contract is a promise that signing parties agree to make legally-enforceable. A clever contract is the same, except with the word “technically-“ instead of “legally-“. This eliminates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, most likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner denies to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Clever contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to possessor
  • cancellation by the proprietor: transfer $500 from proprietor to loaner
  • end of the rental period: transfer $500 from loaner to proprietor
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to proprietor

Upload this wise contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the holder can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on clever contracts are called Decentralized Apps, or DApps.

Brainy contracts naturally extend to clever property, and a lot more brainy things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain liquidates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow begin and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t prompt, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, observe this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These clever people have seen a meaty potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and semitransparent database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to eliminate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of mighty disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-made network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Instruments helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a excellent embarking point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value budge too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and arousing. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a fine way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you most likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it indeed, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, demonstrate actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains truly are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should show up in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To response this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent harshly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To assure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a wise trick to order facts in a network of non-trusted peers. The idea is ordinary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They rival to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a phat number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user possesses more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a motionless time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration immovable despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing technics that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a thick amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other mitt, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a petite fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a puny fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a motionless amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electro-therapy into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this directive is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a wise contract. A contract is a promise that signing parties agree to make legally-enforceable. A brainy contract is the same, except with the word “technically-“ instead of “legally-“. This eliminates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, very likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner turns down to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Brainy contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to possessor
  • cancellation by the proprietor: transfer $500 from proprietor to loaner
  • end of the rental period: transfer $500 from loaner to holder
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to possessor

Upload this wise contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the proprietor can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on clever contracts are called Decentralized Apps, or DApps.

Wise contracts naturally extend to wise property, and a lot more brainy things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain liquidates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow commence and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t prompt, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, observe this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These brainy people have seen a fat potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and semi-transparent database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to liquidate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of mighty disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-built network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Contraptions helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a excellent beginning point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value budge too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and arousing. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a fine way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you most likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it indeed, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, display actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains truly are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should emerge in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To reaction this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent toughly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To ensure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a wise trick to order facts in a network of non-trusted peers. The idea is plain: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They challenge to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a gigantic number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user wields more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a immovable time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration immobilized despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing technologies that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a thick amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other mitt, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a puny fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a puny fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a motionless amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electro-therapy into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this instruction is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a clever contract. A contract is a promise that signing parties agree to make legally-enforceable. A brainy contract is the same, except with the word “technically-“ instead of “legally-“. This liquidates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, most likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner denies to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Brainy contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to proprietor
  • cancellation by the proprietor: transfer $500 from holder to loaner
  • end of the rental period: transfer $500 from loaner to possessor
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to proprietor

Upload this brainy contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the holder can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on wise contracts are called Decentralized Apps, or DApps.

Wise contracts naturally extend to clever property, and a lot more brainy things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain liquidates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow commence and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t prompt, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, observe this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These brainy people have seen a meaty potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and translucent database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to eliminate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of intense disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-made network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Devices helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a good beginning point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value budge too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and arousing. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a excellent way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you very likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it truly, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, showcase actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains indeed are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should emerge in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To reaction this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent toughly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To assure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a wise trick to order facts in a network of non-trusted peers. The idea is ordinary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They rival to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a phat number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user possesses more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a immovable time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration immobile despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing technologies that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a gigantic amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other mitt, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a puny fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a petite fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a motionless amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electrical play into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this directive is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a brainy contract. A contract is a promise that signing parties agree to make legally-enforceable. A brainy contract is the same, except with the word “technically-“ instead of “legally-“. This liquidates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, very likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner rejects to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Brainy contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to holder
  • cancellation by the proprietor: transfer $500 from possessor to loaner
  • end of the rental period: transfer $500 from loaner to possessor
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to holder

Upload this brainy contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the proprietor can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on clever contracts are called Decentralized Apps, or DApps.

Wise contracts naturally extend to wise property, and a lot more wise things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain eliminates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow commence and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t prompt, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, observe this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These brainy people have seen a giant potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and see-through database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to eliminate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of strenuous disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-made network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Implements helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a superb commencing point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value stir too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and arousing. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a superb way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you very likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it truly, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, display actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains truly are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should show up in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To response this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent toughly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To ensure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a wise trick to order facts in a network of non-trusted peers. The idea is elementary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They contest to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a yam-sized number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user wields more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a motionless time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration immobilized despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing technologies that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a enormous amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other mitt, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a petite fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a petite fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a stationary amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn tens unit into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this instruction is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a wise contract. A contract is a promise that signing parties agree to make legally-enforceable. A wise contract is the same, except with the word “technically-“ instead of “legally-“. This eliminates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, most likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner denies to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Wise contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to proprietor
  • cancellation by the possessor: transfer $500 from possessor to loaner
  • end of the rental period: transfer $500 from loaner to possessor
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to holder

Upload this clever contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the possessor can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on clever contracts are called Decentralized Apps, or DApps.

Wise contracts naturally extend to brainy property, and a lot more wise things. The thing to recall is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain eliminates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow begin and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t rapid, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, see this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These clever people have seen a enormous potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and semitransparent database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to liquidate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of mighty disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-built network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Devices helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a excellent kicking off point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value stir too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and titillating. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a fine way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

The Blockchain Explained to Web Developers, Part 1: The Theory

The marmelab blog

The blockchain is the fresh hot technology. If you haven’t heard about it, you very likely know Bitcoin. Well, the blockchain is the underlying technology that powers Bitcoin. Experts say the blockchain will cause a revolution similar to what Internet provoked. But what is it indeed, and how can it be used to build apps today? This post is the very first in a series of three, explaining the blockchain phenomenon to web developers. We’ll discuss the theory, display actual code, and share our learnings, based on a real world project.

To begin, let’s attempt to understand what blockchains indeed are.

What Is A Blockchain, Take One

Albeit the blockchain was created to support Bitcoin, the blockchain concept can be defined regardless of the Bitcoin ecosystem. The literature usually defines a blockchain as goes after:

A blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signature. Members of the network are anonymous individuals called knots. All communication inwards the network takes advantage of cryptography to securely identify the sender and the receiver. When a knot wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should emerge in the ledger; this consensus is called a block.

I don’t know about you, but after reading these definitions, I still had troubles figuring out what this is all about. Let’s get a bit deeper.

Ordering Facts

Decentralized peer-to-peer networks aren’t fresh. Napster and BitTorrent are P2P networks. Instead of exchanging movies, members of the blockchain network exchange facts. Then what’s the real deal about blockchains?

P2P networks, like other distributed systems, have to solve a very difficult computer science problem: the resolution of conflicts, or reconciliation. Relational databases suggest referential integrity, but there is no such thing in distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take for example the dual spend problem: Alice has Ten$, and she sends twice Ten$ to Bob and Charlie. Who will have the Ten$ eventually? To reaction this question, the best way is to order the facts. If two incompatible facts arrive in the network, the very first one to be recorded wins.

In a P2P network, two facts sent toughly at the same time may arrive in different orders in distant knots. Then how can the entire network agree on the very first fact? To ensure integrity over a P2P network, you need a way to make everyone agree on the ordering of facts. You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The blockchain implements another algorithm, the proof-of-work consensus, using blocks.

Blocks

Blocks are a clever trick to order facts in a network of non-trusted peers. The idea is ordinary: facts are grouped in blocks, and there is only a single chain of blocks, replicated in the entire network. Each block references the previous one. So if fact F is in block 21, and fact E is in block 22, then fact E is considered by the entire network to be posterior to fact F. Before being added to a block, facts are pending, i.e. unconfirmed.

Mining

Some knots in the chain create a fresh local block with pending facts. They challenge to see if their local block is going to become the next block in the chain for the entire network, by rolling dice. If a knot makes a dual six, then it earns the capability to publish their local block, and all facts in this block become confirmed. This block is sent to all other knots in the network. All knots check that the block is correct, add it to their copy of the chain, and attempt to build a fresh block with fresh pending facts.

But knots don’t just roll a duo dice. Blockchain challenges imply rolling a thick number of dice. Finding the random key to validate a block is very unlikely, by design. This prevents fraud, and makes the network safe (unless a malicious user wields more than half of the knots in the network). As a consequence, fresh blocks gets published to the chain at a immobile time interval. In Bitcoin, blocks are published every ten minutes on average.

In Bitcoin, the challenge involves a dual SHA-256 hash of a string made of the pending facts, the identifier of the previous block, and a random string. A knot wins if their hash contains at least n leading zeroes.

Number n is adjusted every once in a while to keep block duration immobile despite variations in the number of knots. This number is called the difficulty. Other blockchain implementations use special hashing technologies that discourage the usage of GPUs (e.g. by requiring large memory transfers).

The process of looking for blocks is called mining. This is because, just like gold mining, block mining brings an economical prize – some form of money. That’s the reason why people who run knots in a blockchain are also called miners.

Note: By default, a knot doesn’t mine – it just receives blocks mined by other knots. It’s a voluntary process to turn a knot into a miner knot.

Money and Cryptocurrencies

Every 2nd, each miner knot in a blockchain tests thousands of random strings to attempt and form a fresh block. So running a miner in the blockchain pumps a giant amount of computer resources (storage and CPU). That’s why you must pay to store facts in a blockchain. Reading facts, on the other forearm, is free: you just need to run your own knot, and you’ll recuperate the entire history of facts issued by all the other knots. So to summarize:

  • Reading data is free
  • Adding facts costs a puny fee
  • Mining a block brings in the money of all the fees of the facts included in the block

We’re not talking about real money here. In fact, each blockchain has its own (crypto-)currency. It’s called Bitcoin (BTC) in the Bitcoin network, Ether (ETH) on the Ethereum network, etc. To make a payment in the Bitcoin network, you must pay a puny fee in Bitcoins – just like you would pay a fee to a bank. But then, where do the very first coins come from?

Miners receive a gratification for keeping the network working and safe. Each time they successfully mine a block, they receive a immobile amount of cryptocurrency. In Bitcoin this gratification is twenty five BTC per block, in Ethereum it’s five ETH per block. That way, the blockchain generates its own money.

Lastly, cryptocurrencies rapidly became convertible to real money. Their facial value is only determined by suggest and request, so it’s subject to speculation. At the time of writing, mining Bitcoins still costs slightly less in energy and hardware than you can earn by selling the coins you discovered in the process. That’s why people add fresh miners every day, hoping to turn electro-therapy into money. But fluctuations in the BTC value make it less and less profitable.

Contracts

So far we’ve mostly mentioned facts storage, but a blockchain can also execute programs. Some blockchains permit each fact to contain a mini program. Such programs are replicated together with the facts, and every knot executes them when receiving the facts. In bitcoin, this can be used to make a transaction conditional: Bob will receive one hundred BTC from Alice if and only if today is February 29th.

Other blockchains permit for more sophisticated contracts. In Ethereum for example, each contract carries a mini-database, and exposes methods to modify the data. As contracts are replicated across all knots, so are their database. Each time a user calls a method on the contract and therefore updates the underlying data, this guideline is replicated and replayed by the entire network. This permits for a distributed consensus on the execution of a promise.

This idea of pre-programed conditions, interfaced with the real world, and broadcasted to everyone, is called a brainy contract. A contract is a promise that signing parties agree to make legally-enforceable. A brainy contract is the same, except with the word “technically-“ instead of “legally-“. This liquidates the need for a judge, or any authority acknowledged by both parties.

Imagine that you want to rent your house for a week and $1,000, with a 50% upfront payment. You and the loaner sign a contract, most likely written by a lawyer. You also need a bank to receive the payment. At the beginning of the week, you ask for a $Five,000 deposit; the loaner writes a check for it. At the end of the week, the loaner turns down to pay the remaining 50%. You also realize that they broke a window, and that the deposit check refers to an empty account. You’ll need a lawyer to help you enforce the rental contract in a court.

Clever contracts in a blockchain permit you to get rid of the bank, the lawyer, and the court. Just write a program that defines how much money should be transferred in response to certain conditions:

  • two weeks before beginning of rental: transfer $500 from loaner to proprietor
  • cancellation by the proprietor: transfer $500 from holder to loaner
  • end of the rental period: transfer $500 from loaner to holder
  • proof of physical degradation after the rental period: transfer $Five,000 from loaner to proprietor

Upload this clever contract to the blockchain, and you’re all set. At the time defined in the contract, the money transfers will occur. And if the holder can bring a predefined proof of physical degradation, they get the $Five,000 automatically (without any need for a deposit).

You might wonder how to build a proof of physical degradation. That’s where the Internet of Things (IoT) kicks in. In order to interact with the real world, blockchains need sensors and actuators. The Blockchain revolution won’t happen unless the IoT revolution comes very first.

Such applications relying on brainy contracts are called Decentralized Apps, or DApps.

Brainy contracts naturally extend to brainy property, and a lot more wise things. The thing to reminisce is that “smart” means “no intermediaries”, or “technically-enforced”. Blockchains are a fresh way to disintermediate businesses – just like the Internet disintermediated music distribution.

What Is A Blockchain, Take Two

In my opinion, the best way to understand the blockchain is to look at it from various angles.

What it does A blockchain permits to securely share and/or process data inbetween numerous parties over a network on non-trusted peers. Data can be anything, but most interesting uses concern information that presently require a trusted third-party to exchange. Examples include money (requires a bank), a proof or property (requires a lawyer), a loan certificate, etc. In essence, the blockchain eliminates the need for a trusted third party.

How it works From a technical point of view, the blockchain is an innovation relying on three concepts: peer-to-peer networks, public-key cryptography, and distributed consensus based on the resolution of a random mathematical challenge. None of there concepts are fresh. It’s their combination that permits a breakthrough in computing. If you don’t understand it all, don’t worry: very few people know enough to be able to develop a blockchain on their own (which is a problem). But not understanding the blockchain doesn’t prevent you from using it, just like you can build web apps without knowing about TCP slow embark and Certificate Authorities.

What it compares to See the blockchain as a database replicated as many times as there are knots and (loosely) synchronized, or as a supercomputer formed by the combination of the CPUs/GPUs of all its knots. You can use this supercomputer to store and process data, just like you would with a remote API. Except you don’t need to own the backend, and you can be sure the data is safe and processed decently by the network.

Practical Implications

Facts stored in the blockchain can’t be lost. They are there forever, replicated as many times as there are knots. Even more, the blockchain doesn’t simply store a final state, it stores the history of all passed states, so that everyone can check the correctness of the final state by replaying the facts from the beginning.

Facts in the blockchain can be trusted, as they are verified by a technically enforceable consensus. Even if the network contains black sheeps, you can trust its judgement as a entire.

Storing data in the blockchain isn’t prompt, as it requires a distributed consensus.

Peak: If you have twenty spare minutes to get a deeper understanding, witness this excellent introduction movie about Bitcoin, which also explains the blockchain:

Why It’s a Big deal

«The Blockchain is the most disruptive technology I have ever seen.» Salim Ismail

«The most interesting intellectual development on the Internet in the last five years.» Julian Assange

«I think the fact that within the Bitcoin universe an algorithm substitutes the functions of [the government] … is actually pretty cool.» Al Gore

These brainy people have seen a big potential in the blockchain. It concerns disintermediation. The blockchain can potentially substitute all the intermediaries required to build trust. Let’s see a few example applications, most of which are just proof-of-concepts for now:

  • Monegraph lets authors claim their work, and set their rules (and fares) for use
  • La Zooz is a decentralized Uber. Share your car, find a seat, without Uber taking a fee.
  • Augur is an online bookmaker. Bet on outcomes, and get paid.
  • Storj.io is a peer-to-peer storage system. Rent your unused disk space, or find ultra cheap online storage.
  • Muse is a distributed, open, and see-through database tailored for the music industry
  • Ripple enables low cost cross-border payments for banks

Many successful businesses on the Internet today are intermediaries. Think about Google for a minute: Google managed to become the intermediary inbetween you and the entire Internet. Think about Amazon: they became the intermediary inbetween sellers and buyers for any type of good. That’s why a technology that permits to eliminate intermediaries can potentially disrupt the entire Internet.

Will it benefit to end users, who won’t need third parties to exchange goods and services anymore? It’s far from certain. Internet had the same promise of intense disintermediation. Yet Google built the very first market capitalization worldwide as an intermediary. That’s why it’s crucial to invest in the blockchain quickly, because the winners and losers of the next decade are being born right now.

You Won’t Build Your Own Blockchain

The technology behind the blockchain uses advanced cryptography, custom-made network protocols, and spectacle optimizations. This is all too sophisticated to be redeveloped each time a project needs a blockchain. Fortunately, aside of Bitcoin, there are several open-source blockchain implementations. Here are the most advanced:

  • Ethereum: an open-source blockchain platform by the Ethereum Foundation
  • Hyperledger: another open-source implementation, this time by the Linux Foundation. The very first proposal was published very recently.
  • Eris Industries: Devices helping to manipulate Ethereum, Bitcoin or totally independent blockchains, mostly to build private networks. Their tutorials and explainers are a superb commencing point for an overview of the blockchain technology.

The maturity of these implementations varies a lot. If you have to build an application now, we’d advise:

  • Eris for a closed Blockchain, or to detect and play with the technology
  • Ethereum for a collective Blockchain

Also, Bitcoin isn’t a good choice to build an application upon. It was designed for money transactions and nothing else, albeit you can program pseudo-smart contracts (but you have to love assembly). The network presently suffers a serious growth crisis, transactions wait in line for up to one hour to get inserted in a block. Miners often select transactions with the highest fees, so money transfers in Bitcoin become more expensive than they are in a Bank. The developer community is at war, and the speculation on the cryptocurrency makes the face value stir too much.

Numbers

How big are blockchains today? Let’s see some numbers.

Conclusion

The blockchain technology is both intriguing and arousing. Could it be the revolution that gurus predict? Or is it just a speculative bubble based on an impractical idea? After reading a lot on the matter, we couldn’t form a definitive opinion.

When we face uncertainty, we know a superb way to lift it: attempting. That’s what we determined to do. Read the next post in this series to see what we’ve learned by building a real world app running on the blockchain.

Related video:

The fourteen Weirdest Things You Can Buy With Bitcoin

Без кейворда

Jun 21, two thousand fourteen at 13:29 UTC by Tom Sharkey

Bitcoin’s value as a payment protocol is hard to deny.

The digital currency offers merchants a number of benefits over traditional fiat and credit card transactions, and for consumers, making payments with bitcoin is secure and convenient.

Even with those benefits, however, there was a time when it was almost unlikely to use your bitcoins to buy anything practical. One of the very very first real-world purchases made with bitcoin was in 2010, when a computer programmer paid Ten,000 BTC (around $6m USD at today’s market price) for two pizzas from Papa John’s.

Fortunately for everybody, companies like BitPay and Coinbase have made it a breeze for businesses petite and large to integrate bitcoin as a payment option for their goods and services.

As a result, there are considerably more options today when it comes to spending your beloved bitcoins. While everyone has their own taste, some of the things that can be bought with the digital currency are just downright bizarre.

Here are the fourteen weirdest things you can buy with bitcoin:

1. A motorized unicycle

For those like myself, who never had fairly enough balance to maneuver a unicycle, this self-balancing motorized model would surely be useful.

Two. Adult Canadian Mammoth tusks

Purchasing these ivory tusks from the extinct woolly mammoth species with bitcoin would be a superb way to bring things total circle inbetween the past and the future, but only if you’ve got about two hundred ninety BTC to spare at today’s market price.

Trio. A Venus flytrap plant

Who hasn’t always wished a carnivorous plant growing in their garden? At under $Ten, these venus flytraps are a catch!

Four. Sriracha-bacon flavored lollipops

Most everybody loves sriracha and bacon, but combining the two flavors? And putting them in a lollipop? These suckers sound pretty irresistible.

Five. An interactive ferrofluid sculpture

Even after watching the informational movie, I’m still not certain I fully understand what’s going on with this ferrofluid sculpture. Regardless, I’m intrigued, and the iron-enhanced device seems joy to play with!

6. Crimson Trinidad scorpion jelly

Some people search near and far for their fix of the best chilli peppers on the Scoville scale. I’m not sure where this Trinidad Scorpion Jelly ranks according to this system, but by the sound of it I would guess pretty high.

7. The very very first Apple Macintosh model – 128k

Now that Apple is eventually coming around to the idea of digital currencies, perhaps one nostalgic bitcoiner will spring for the very very first model Macintosh that Apple released back in 1984.

8. Celtic cross tarot reading cards

We’ve all attempted our arm at predicting the price trends for bitcoin and other digital currencies. Maybe these tarot cards can suggest sage insight that us mortals are simply overlooking?

9. A Robo 3-D printer

While a 3-D printer may not be “weird” per se, this Robo3D printer could surely print out some strange objects. I’ll leave that up to the buyer’s imagination.

Ten. A doge sweatshirt

Wow. This doge sweatshirt indeed makes a statement. Many prints, all over.

11. A handmade bitcoin plush cushion

Some may want to showcase their love of digital currencies without sporting a doge sweatshirt, and for those people there is a handmade bitcoin plush cushion just waiting to be snuggled up with.

12. Spokester bicycle noisemakers

Of course, we all reminisce the old card-and-clothespin trick to make our bicycles sound intimidatingly noisy as kids. Now, someone has actually tapped into the market and made a product that eliminates the need for all of that work!

13. A profitable Yukon gold mine

There’s still a ton of speculation over which is the better investment: gold or bitcoin. This already-profitable gold mine in Canada would be the flawless investment for a super-rich bitcoiner hoping to diversify his or her portfolio.

14. Alpaca socks

Alpacas and bitcoin have a long history together. Yes, you read that right. The llama-like animal has been dubbed the unofficial mascot of bitcoin, and these alpaca socks have become one of the quintessential items that can be bought with the digital currency.

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a stringent set of editorial policies. Have cracking news or a story peak to send to our journalists? Contact us at [email protected] .

Related video:

Regulators See Value in Bitcoin and Other Digital Currencies – MIT Technology Review

Regulators See Value in Bitcoin and Other Digital Currencies

  • by Josh Dzieza
  • November Nineteen, 2013

The financial system contains inefficiencies that could be solved by a decentralized digital currency such as Bitcoin.

The crypto-currency Bitcoin gained some valuable—and surprising—new allies at a U.S. Senate hearing on Monday: financial regulators, law enforcement, and even the chairman of the Federal Reserve. The value of the currency reached a record high shortly after the hearing.

Interested observers might have expected yesterday’s hearing on the potential risks, threats, and promises of virtual currencies to presage a regulatory crackdown: the hearing came just a month after the bust of Silk Road, a legendary online market that accepted bitcoins for guns, drugs, and other illicit goods. Tho’ the hearing was nominally about digital currencies in general, the concentrate was indeed on Bitcoin, a currency that uses cryptographic technics to permit money transfers directly inbetween peers, rather than through a central authority like a bank or PayPal (see “What Bitcoin Is, and Why It Matters”).

Instead of focusing on the potential threat posed by digital currencies such as Bitcoin, the emphasis at the hearing was more on Bitcoin’s promise. For a currency best known for its appeal to drug dealers and tech-savvy libertarians, the hearing was a significant budge toward the mainstream. It was likely also a ease for the growing number of entrepreneurs and venture capitalists looking to Bitcoin for a fresh form of frictionless money transfers.

In testimony from Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network, it was noted that criminals might find Bitcoin appealing for the same reasons legitimate users would: it’s effortless to navigate, has no or low transaction fees, is generally secure, is accessible across the globe with a ordinary Internet connection, and lets users remain “relatively” anonymous.

Several people at yesterday’s hearing seemed intent on debunking the perception that Bitcoin transactions are anonymous. Mythili Raman, assistant attorney general at the Justice Department, said that Bitcoin “is not, in fact, anonymous. It is not immune from investigation.”

Patrick Murck, the general counsel of the Bitcoin Foundation, which oversees the currency’s software program, said “the problem might not be anonymity for criminals, but the difficulty law-abiding people have maintaining their own privacy.”

Bitcoin may not have a central authority like a bank keeping a record of transactions and making sure people aren’t spending the same bitcoin twice, but that’s because a record of every transaction—known as the blockchain—is kept on every computer running the Bitcoin client software. Jerry Brito, a researcher at George Mason University, made the point that Bitcoin’s public ledger would make criminals more likely to launder money with a digital currency that’s centrally managed, such as Liberty Reserve.

Allaire said an even more significant step would be for regulators to clarify their stance on Bitcoin. “As this technology moves from early adopters into mainstream acceptance, it’s critical that federal and state governments understand how Bitcoin fits into existing regulations,” said Allaire, citing fraud and privacy protections and a need to make sure criminals and bad actors are discouraged from using the currency. Murck also welcomed the idea of bringing Bitcoin into the existing financial regulatory system, telling that “applying consistent rules and regulations that encourage technological experimentation is critical to a vibrant entrepreneurial community.”

Allaire said that once regulations are clarified, decentralized digital currencies will permit for worldwide high-speed, low-fee money transfers, an especially appealing proposition in places without stable currencies or reliable banks. “The combination of ubiquitous Internet-connected mobile devices and digital currency represents an chance to expand access to financial services on a worldwide basis,” he said. The next step, according to Allaire, is clarity from the Internal Revenue Service on how it will treat income in the form of digital currencies.

Remarkably, everyone who testified collective his vision to varying degrees. Even the Secret Service’s Edward Lowery and Ernie Allen, president of the International Centre for Missing and Exploited Children, two of the more critical voices in the hearing, emphasized the potential of digital currencies, especially in the developing world. Allen said there was “broad-based agreement on its potential for social good.”

Democratic Senator Thomas Carper of Delaware, who presided over the hearing, compared the concern over digital currency’s nefarious uses to worries about the early Internet in the 1980s, and asked whether it could prove to be a similarly revolutionary—and mostly beneficial—technology. Calvery said the comparison was apt. Even the chairman of the Federal Reserve, Ben Bernanke, chimed in through an open letter, telling that digital currencies “may hold long-term promise.”

The price of Bitcoin skyrocketed during the hearing, according to CoinDesk, which averages Bitcoin prices across large global exchanges. While many Bitcoin advocates on Twitter eyed this hop as proof of the currency’s inescapable rise, it could just as well be cause for concern: can a currency that fluctuates in value by forty five percent in a single day be considered safe? And if you indeed believe Bitcoin is here to stay, and you know supply is limited by design, why would you use it to buy anything when its value might dual in a few weeks?

Such questions represent the next obstacles for Bitcoin to overcome.

Become an MIT Technology Review Insider for in-depth analysis and unparalleled perspective.

Related video:

Quickbooks Bitcoin Import, BitPay

Import your Bitcoin Sales into Quickbooks

In Quickbooks, you do not need multi-currency enabled if your home currency is USD, EUR, or CAD, and you are taking 100% settlement from BitPay in that same home currency.

Very first, create three fresh Accounts in your Chart of Accounts. Income and Expense accounts can only be denominated in your home currency. (if your home currency is not USD, substitute USD below with your home currency)

Your Bank Account should already be in Quickbooks. BitPay’s ACH/EFT transfer will be transferred to “My Bank” which you can switch in the General Ledger transaction after import. Your Quickbooks Chart of Accounts should have these entries:

Here is a Test File to download

In Quickbooks select: File – Utilities – Import – IIF files

If this imports and My Bank USD shows a balance of $100.00 then the file has imported correctly. Look at the G/L to verify the Sales Receipts.

Edit the transfer and substitute “My Bank USD” with the Bank account in your chart of accounts that received the direct deposit from BitPay.

Your BitPay sales are now fully integrated with your financial reports in Quickbooks!

Note that if you keep any % of your sales in Bitcoin, this will not be noted in the download. It will prorate the gross sale to only the % of the gross sale which you lodge in your local currency. Read the next section “Keeping Partial or All Settlement in Bitcoin” to learn more.

Income Statement derived from BitPay import

Balance Sheet derived from BitPay import

How to Download from BitPay

From your dashboard, click on Account Ledger and select your home currency to download.

You will need to specify the date range to download, and then choose Quickbooks IIF file.

We should note that Quickbooks does not support multi-currency very well, even in the two thousand thirteen edition. Nonetheless, we have used the capabilities of Quickbooks to their current maximum potential.

If you take 100% settlement from BitPay in your home currency, you are done!

If you keep a % of your BitPay Sales in Bitcoin, go after the next section to import those from your BitPay BTC ledger.

Keeping Partial or All Settlement in Bitcoin

The Gross, Net, and Fees are % prorated from the total amount of the sale. Meaning if you keep 10% bitcoin and lodge 90% in EUR, your EUR ledger will have an entry signifying 90% of the total gross sale, and your BTC ledger will have an entry indicating 10% of the total gross sale, with the same Order Number so you can match them up in Quickbooks.

Create two more accounts in your Quickbooks Chart of Accounts:

These accounts represent the USD value of your bitcoins, at BitPay and also when shoved to your Bitcoin Wallet.

How to Reconcile your Company’s Bitcoin holdings in Quickbooks

While Intuit’s support for multi-currency doesn’t give all the income/expense reporting needed for bitcoin transactions, it is possible to add your Bitcoin Wallet into Quickbooks, and mark your digital assets to market price every day or every month.

As of the two thousand thirteen edition, Quickbooks cannot:

  1. have an income account in any currency other than your home currency
  2. have an expense account in any currency other than your home currency
  3. permit you to set your home currency to a currency you add (e.g. Bitcoin)
  4. resolve any currency balance to more than two decimal place precision
  5. permit you to specify an exchange rate for each sale
  6. permit you to specify a data source for exchange rates for a currency
  7. permit you to upload a history of exchange rates for a currency
  8. permit an exchange rate with a date & time (only one rate per calendar day permitted)

We encourage Quickbooks users to contact Intuit directly and encourage development in the above eight areas to improve their multicurrency support.

You cannot inject Income or Expenses in BTC, bits. But you can setup a Bank account in bitcoin to announce and value your bitcoin holdings. You will very first need to enable multicurrency support in your Quickbooks. Then, you can add a fresh currency:

Company – Manage Currency – Currency (Fresh)

Related video:

Now That Bitcoins Are Worth More Than Their Weight In Gold, Is It Time For Central Banks To Make Their Own, HuffPost

Now That Bitcoins Are Worth More Than Their Weight In Gold, Is It Time For Central Banks To Make Their Own?

The history of gold trading can be traced back hundreds of years while bitcoin, a digital currency that uses encryption and works independently of central banks, has been around for less than ten.

But the cryptocurrency is now commencing to challenge gold as the investment of choice. Its meteoric rise is such that on March Three, 2017, bitcoin overtook gold for the very first time, trading at US$1,290 compared to US$1,228 for an ounce of gold.

All the gold that has ever been mined would lightly fit under the gams of the Eiffel Tower – in fact, numerous times. Gold’s scarcity is one reason for its value. Another reason is that it’s a very nonreactive metal so it doesn’t tarnish, which is significant if you’ve invested millions and don’t want it to leisurely deteriorate.

Most governments keep some of their funds in gold (as the movie below explains). But albeit gold is seen as a safe haven in times of crisis, it is still subject to the usual market fluctuations of any commodity. Once the bitcoin reaches its total potential (all bitcoins are mined) the value will be much more stable.

What is bitcoin?

Bitcoin is a virtual currency used for electronic purchases and transfers. It has recently been gaining popularity and a growing number of businesses, including WordPress, Overstock.com, and Reddit, now accept it as a form of payment. Microsoft already accepts bitcoin payments through its Windows ten and Windows ten Mobile platforms, while those shopping online at Shopify may use bitcoin as payment.

Bitcoin is also moving outside the virtual space; what may be the world’s very first bitcoin store, House of Nakamoto, opened early this year in Vienna. There, people can buy bitcoins for euros, and vice versa, from a dedicated bitcoin ATM. Drinkers in Cambridge can pay for beers at a pub called The Haymakers.

The number of bitcoins is capped at twenty one million. As of March 2017, there were almost 16.Two million circulating. The supply of coins grows steadily because of the way bitcoin is programmed. Each “miner” (“mining” is lingo for the discovery of fresh bitcoins – anyone with computer skill and access to blockchain software can act as a miner) introduces fresh coins to the supply at a rate of around 12.Five coins every ten minutes.

Mining is the process of adding transaction records to bitcoin’s public ledger of past transactions (blockchain). The blockchain confirms transactions as having taken place to the rest of the network.

Even as far back as 2013, bitcoin was worth almost as much as gold. And, at the end of 2016, the total value of bitcoins in circulation was US$14bn.

A good investment chance?

Investment in digital currencies, such as bitcoin, has emerged as an alternative to traditional forms of money and created a niche that’s driving major innovations in the financial sector, such as peer-to-peer lending, and digital wallets. As traders build up confidence in alternative forms of money and payment mechanisms, bitcoin is seen as a possible investment alternative.

In fact, bitcoin exhibits similar features to gold – limited global supply, maintaining value and hedging against global market volatility. Such is the exuberance in bitcoin investment that it actually outperforms the precious metal, generating an annual comeback of 155% compared to gold’s annual loss of 6% during the same time period.

Even tho’ Bitcoin seems a profitable investment device, its value can be as volatile as the value of the gold, depending on the perceived risk of wielding bitcoin as a commodity. Bitcoins are encrypted for security purposes, but while the coding identifies the currency itself, it does not identify its possessor. If someone hacks the miner system and gets a secret bitcoin code they will eventually become the rightful proprietor.

What, then, is pushing the investment value of bitcoin? One driver is enhancing request from developing countries, especially Brazil, Russia, India, China, and South Africa. These countries are experiencing economic distress and weakening currencies, making their local currencies unpredictable and volatile. As a result, it’s becoming increasingly popular to use bitcoin as a natural hedge against paper currency.

Another contributing factor to the rise of bitcoin is the possibility of a trade war inbetween US and China. US President Donald Trump has indicated that he may impose 45% tariff on Chinese imports. This may lead to a weakening yuan, and capital outflow from China as investors will resort to more stable currencies such as euros.

The hike in bitcoin’s price during financial troubles is also a testament to its enhancing attraction as a hedging instrument.

When Cyprus’s economy crashed in 2013, the price of bitcoins spiked as people resorted to other forms of payment than the national currency. In 2015, when the Chinese currency was in free fall, people in the country turned to bitcoin alongside gold.

And after the Brexit vote in the UK, when global currencies and stock markets tanked, bitcoin’s value rose more than US$100 compared to the previous day. This was mainly due to some of the speculative money flowing out of the pound and yuan making its way to bitcoin.

Enlargened government support

Bitcoin is not just getting enlargened interest from tech-savvy individuals and banks such as Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JP Morgan, State Street, Royal Bank of Scotland and UBS. Governments are also lending support to the cryptocurrency.

The Australian government plans to reduce tax on bitcoin transactions. Current treatment of the digital currency under the goods and services tax (GST) law means that consumers are “double taxed” when using it to buy anything already subject to GST. The government plans to switch this.

Meantime, the UK’s chief scientific adviser has said that governments should use bitcoin’s underlying technology – blockchains – to help with taxes, benefits and passports.

Taking its cue from bitcoin, the US government is planning to launch a legalized cryptocurrency called Fedcoin, which can be exchanged for a physical dollar. Bitcoin is not considered legal tender because it is not backed by any government.

Bitcoin pricing is also motivating the much-anticipated establishment of the very first bitcoin exchange-traded fund (ETF) in the United States. An ETF is an investment company that has no confinements on the amount of shares it can issue.

The approval of a bitcoin ETF would make the cryptocurrency more attractive to risk-averse institutional investors as it would permit an lighter way to build up access to bitcoin than buying it directly.

Such is the dominance of bitcoin that the Bank of England issued a white paper on the subject, investigating the possibility of central banks minting their own cryptocurrencies.

Bitcoin’s appeal, compared to gold, comes from two factors. Very first, it can be used as an effortless medium for payments (for a limited but growing number of transactions), which gold cannot replicate. And with their limited supply of twenty one million, bitcoins are likely to attract higher request compared to gold.

The debate over the supremacy of gold versus bitcoin will proceed. What we can say with certainty is that we cannot use gold to buy bitcoin directly but bitcoin can be used to buy gold. You can determine which you choose.

This article was originally published on The Conversation. Read the original article.

Now That Bitcoins Are Worth More Than Their Weight In Gold, Is It Time For Central Banks To Make Their Own, HuffPost

Now That Bitcoins Are Worth More Than Their Weight In Gold, Is It Time For Central Banks To Make Their Own?

The history of gold trading can be traced back hundreds of years while bitcoin, a digital currency that uses encryption and works independently of central banks, has been around for less than ten.

But the cryptocurrency is now beginning to challenge gold as the investment of choice. Its meteoric rise is such that on March Trio, 2017, bitcoin overtook gold for the very first time, trading at US$1,290 compared to US$1,228 for an ounce of gold.

All the gold that has ever been mined would lightly fit under the gams of the Eiffel Tower – in fact, numerous times. Gold’s scarcity is one reason for its value. Another reason is that it’s a very nonreactive metal so it doesn’t tarnish, which is significant if you’ve invested millions and don’t want it to leisurely deteriorate.

Most governments keep some of their funds in gold (as the movie below explains). But albeit gold is seen as a safe haven in times of crisis, it is still subject to the usual market fluctuations of any commodity. Once the bitcoin reaches its utter potential (all bitcoins are mined) the value will be much more stable.

What is bitcoin?

Bitcoin is a virtual currency used for electronic purchases and transfers. It has recently been gaining popularity and a growing number of businesses, including WordPress, Overstock.com, and Reddit, now accept it as a form of payment. Microsoft already accepts bitcoin payments through its Windows ten and Windows ten Mobile platforms, while those shopping online at Shopify may use bitcoin as payment.

Bitcoin is also moving outside the virtual space; what may be the world’s very first bitcoin store, House of Nakamoto, opened early this year in Vienna. There, people can buy bitcoins for euros, and vice versa, from a dedicated bitcoin ATM. Drinkers in Cambridge can pay for beers at a pub called The Haymakers.

The number of bitcoins is capped at twenty one million. As of March 2017, there were almost 16.Two million circulating. The supply of coins grows steadily because of the way bitcoin is programmed. Each “miner” (“mining” is lingo for the discovery of fresh bitcoins – anyone with computer skill and access to blockchain software can act as a miner) introduces fresh coins to the supply at a rate of around 12.Five coins every ten minutes.

Mining is the process of adding transaction records to bitcoin’s public ledger of past transactions (blockchain). The blockchain confirms transactions as having taken place to the rest of the network.

Even as far back as 2013, bitcoin was worth almost as much as gold. And, at the end of 2016, the total value of bitcoins in circulation was US$14bn.

A good investment chance?

Investment in digital currencies, such as bitcoin, has emerged as an alternative to traditional forms of money and created a niche that’s driving major innovations in the financial sector, such as peer-to-peer lending, and digital wallets. As traders build up confidence in alternative forms of money and payment mechanisms, bitcoin is seen as a possible investment alternative.

In fact, bitcoin exhibits similar features to gold – limited global supply, maintaining value and hedging against global market volatility. Such is the exuberance in bitcoin investment that it actually outperforms the precious metal, generating an annual comeback of 155% compared to gold’s annual loss of 6% during the same time period.

Even tho’ Bitcoin seems a profitable investment implement, its value can be as volatile as the value of the gold, depending on the perceived risk of possessing bitcoin as a commodity. Bitcoins are encrypted for security purposes, but while the coding identifies the currency itself, it does not identify its holder. If someone hacks the miner system and gets a secret bitcoin code they will eventually become the rightful possessor.

What, then, is pushing the investment value of bitcoin? One driver is enhancing request from developing countries, especially Brazil, Russia, India, China, and South Africa. These countries are experiencing economic distress and weakening currencies, making their local currencies unpredictable and volatile. As a result, it’s becoming increasingly popular to use bitcoin as a natural hedge against paper currency.

Another contributing factor to the rise of bitcoin is the possibility of a trade war inbetween US and China. US President Donald Trump has indicated that he may impose 45% tariff on Chinese imports. This may lead to a weakening yuan, and capital outflow from China as investors will resort to more stable currencies such as euros.

The hike in bitcoin’s price during financial troubles is also a testament to its enhancing attraction as a hedging instrument.

When Cyprus’s economy crashed in 2013, the price of bitcoins spiked as people resorted to other forms of payment than the national currency. In 2015, when the Chinese currency was in free fall, people in the country turned to bitcoin alongside gold.

And after the Brexit vote in the UK, when global currencies and stock markets tanked, bitcoin’s value rose more than US$100 compared to the previous day. This was mainly due to some of the speculative money flowing out of the pound and yuan making its way to bitcoin.

Enhanced government support

Bitcoin is not just getting enhanced interest from tech-savvy individuals and banks such as Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JP Morgan, State Street, Royal Bank of Scotland and UBS. Governments are also lending support to the cryptocurrency.

The Australian government plans to reduce tax on bitcoin transactions. Current treatment of the digital currency under the goods and services tax (GST) law means that consumers are “double taxed” when using it to buy anything already subject to GST. The government plans to switch this.

Meantime, the UK’s chief scientific adviser has said that governments should use bitcoin’s underlying technology – blockchains – to help with taxes, benefits and passports.

Taking its cue from bitcoin, the US government is planning to launch a legalized cryptocurrency called Fedcoin, which can be exchanged for a physical dollar. Bitcoin is not considered legal tender because it is not backed by any government.

Bitcoin pricing is also motivating the much-anticipated establishment of the very first bitcoin exchange-traded fund (ETF) in the United States. An ETF is an investment company that has no confinements on the amount of shares it can issue.

The approval of a bitcoin ETF would make the cryptocurrency more attractive to risk-averse institutional investors as it would permit an lighter way to build up access to bitcoin than buying it directly.

Such is the dominance of bitcoin that the Bank of England issued a white paper on the subject, investigating the possibility of central banks minting their own cryptocurrencies.

Bitcoin’s appeal, compared to gold, comes from two factors. Very first, it can be used as an effortless medium for payments (for a limited but growing number of transactions), which gold cannot replicate. And with their limited supply of twenty one million, bitcoins are likely to attract higher request compared to gold.

The debate over the supremacy of gold versus bitcoin will proceed. What we can say with certainty is that we cannot use gold to buy bitcoin directly but bitcoin can be used to buy gold. You can determine which you choose.

This article was originally published on The Conversation. Read the original article.

Related video:

Money Trio

Money Trio.0: How Bitcoins May Switch the Global Economy

An artist rendering of Ross William Ulbricht who is being charged as the mastermind of Silk Road, an encrypted website where users could shop for drugs like heroin and LSD anonymously.

Photograph by Vicki Behringer/AP

After the feds seized and shuttered Silk Road, an online marketplace for illegal drugs, earlier this month, some technology experts commenced sounding the death knell for Bitcoin, Silk Road’s international currency of choice. Instead, we may soon see Bitcoin’s real value.

Invented in 2008, Bitcoin is not the very first attempt at an all-digital, cryptographically based currency. Others have existed in one form or another for almost fifty years, but have either failed to take off or dramatically crashed and burned. Bitcoin is the very first cryptocurrency with the deep structure, broad adoption, and trading momentum to achieve escape velocity.

In practice, Bitcoin blends credit cards’ ease of digital transfer with the relative anonymity of a cash handoff. Like all currencies, the problems it poses are both practical and metaphysical; like cash or credit, Bitcoin is somehow both more and less real than the goods it is traded for.

Until now, the most well-known of these goods have been illegal drugs, like those on Silk Road. But the drug marketplace’s shutdown gives Bitcoin a chance to build up some much-needed legitimacy. "It’s a watershed moment for Bitcoin," Marco Santori, the chairman of the regulatory-affairs committee of the Bitcoin Foundation, told The Fresh Yorker. "Bitcoin’s PR problem, with which it has struggled for the last year or so, is being addressed in a very direct way."

Bitcoin’s future potential was a hot topic this week at emTech, an MIT conference on emerging technologies. In a panel hosted by MIT Technology Review’s Tom Simonite, MIT economist David Johnson and BitPay CEO Stephen Pair discussed Bitcoin’s complicated relationship with paper currencies, credit, and state authority.

Johnson noted that buyers and sellers, banks and governments all care deeply about what money is used for. Money’s use carries associations of value, which in turn helps establish whether a currency, a payment form, and a social model for transactions are legitimate. "It’s hard to bring any of them on board if the money is associated with behaviors consumers are troubled by," Johnson said at emTech.

"The key to the legitimacy of the system for all of these parties is to establish that people using the system are acting legally and responsibly."

In turn, Pair denied that Silk Road’s association with Bitcoin would prove fatal to the cryptocurrency. "Silk Road used a lot of technologies. Very first, it used the Internet. It also used Tor [a network using "onion routing" relays to conceal a user’s location identity] for anonymity. And then it used Bitcoin for payments," said Pair. Silk Road’s shutdown "shows that just because you use Bitcoin doesn’t mean you can evade law enforcement."

If until now, Bitcoin has been a well known outlier, this is its chance to redefine itself as a mainstream contender.

If it’s not to budge drugs or launder money, what is Bitcoin for?

Let’s assume that the Silk Road arrests halt or at least slow Bitcoin’s use at the fringes of the law, at least until those actors tighten up and regroup (and law enforcement does the same). Let’s further stipulate that the number of people interested in Bitcoin as an academic exercise or as an ideological argument about fiat currencies has (like the total number of Bitcoins itself) a hard upper limit.

Pair and Johnson both argue that Bitcoin still has tremendous potential doing what it was built to do: transfer money from person to person without stopping for national borders or rent-seeking middlemen. Those people can be investors, merchants, and even migrant workers, all participating in one of the largest, strangest, but most elegant exchanges the world has ever seen.

Bitcoin’s invention is attributed to Satoshi Nakamoto, a pseudonym for a person or group who, apart from a two thousand eight paper introducing Bitcoin, have remained anonymous and absent, a virtual author.

Bitcoin is backed by no government, and its value isn’t rooted in precious metals. Instead, it’s distributed across the entire network of users, its roots in elaborate digital mathematics. Bitcoin supporters say that this makes the currency immune to manipulation by politicians or oligarchs seeking to stir its value up or down for politics or profit.

"Bitcoin’s integrity is assured by the rules of math and the laws of physics," Pair says. Such rhetoric is common in the world of digital currency, where reverence for Bitcoin has succeeded gold for many hard-money enthusiasts. They’ve entered into an uneasy and unusual alliance with anarcho-technologists who distrust government authority and believe in the power of distributed networks and open-source software.

With governments’ financial and credit troubles in turn causing major problems for their currencies, global investors are looking for something firmer than the promise of a central bank. In September, Tyler and Cameron Winklevoss—Facebook bridesmaids turned Bitcoin entrepreneurs—touted the digital currency as a solution to the world’s troubled currency markets. "It’s Gold Two.0," Tyler Winklevoss said.

Like gold or other precious metals used as specie, Bitcoins are scarce. But their scarcity is algorithmic, as opposed to natural or accidental.

Fresh Bitcoins are added only by being "mined," in the high-tech equivalent of a land rush. Computers on the Bitcoin network race to solve increasingly complicated mathematical problems. The very first to do so has its solution verified by the other knots on the network. Once verified, the Bitcoin can be traded using Bitcoin’s wallet software.

Bitcoin mining ensures a immobilized rate of inflation (relative to itself). It roots the value of Bitcoins in the work needed to solve the puzzle. And the decentralized proof-of-work consensus protocol guards against fraud and counterfeit.

In Pair’s words, Bitcoin "commoditized the process of securing the network." All the work done by financial centers and payment systems to detect fraud or counterfeit for traditional currency and credit markets is done all along the network according to the peer-to-peer protocols for Bitcoin. And the costs of that work are likewise distributed via the system, paid for through Bitcoin mining. This is what lets Bitcoins be traded and exchanged without massive fees.

There are a little over 11.78 million bitcoins in circulation, with a total capitalization of 1.6 billion USD, and typically somewhere inbetween 50,000 and 70,000 bitcoin transactions each day. As more and more computers participate in bitcoin mining—daily unique bitcoin addresses reached a high of over 100,000 this summer—and the mathematical problems needed to earn fresh bitcoins have grown more complicated, the average operating margin for miners has plummeted. Mining has switched from being a frontier gold rush to a relatively mainstream, industrial-grade operation.

Today, essentially every digital transaction and every international transaction involves a use of one form or another of virtual currency or credit.

Transaction and exchange fees, taxes, and payment delays exist to provide short-term credit, guard against counterfeit, excessive withdrawals and other kinds of fraud, and to extract income. Bitcoin is designed to provide the same security assures and convenience of credit, while foregoing its extra processing times and fees.

You lodge with Bitcoin instantly, just like cash. Unlike a credit card exchange, where your credit card number and security information are passed over downright for any transaction, a transfer is authorized only to pay a specific amount.

In principle, Bitcoin’s independence makes it more stable than traditional currencies like dollars or euros. In reality, its value has fluctuated frantically over its four-year-existence.

Today, the price of one Bitcoin has stabilized at about $140 US; it shortly dipped down to $121 USD after Silk Road’s shutdown, but quickly rallied back. But just a year ago, the price of a Bitcoin seemed stable at about $12 USD. Those are some wild swings.

The exchange values matter, both to people who mine or invest in Bitcoins and to users who want to use them for everyday goods and services, which are usually denominated in local currency. (Local currency is also used to pay taxes, which Bitcoin transactions sometimes attempt to avoid.)

But what Bitcoin also does is make digital payments possible for people who not only don’t have PayPal, but don’t have a functioning credit system. In many parts of Africa, Latin America, and south Asia, most people have no access to credit or digital payments; with Bitcoin, that infrastructure comes for free.

Pair’s company, BitPay, converts Bitcoins back and forward into various local currencies without charging a transaction fee. (Instead, it charges a plane monthly rate.) Its clients include hosting companies, computer and electronic equipment companies, and companies that sell internationally.

"With Bitcoin, you can take an international payment with no risk of credit card fraud," says Pair. "We sometimes leave behind that there are many countries where you can’t take a credit card payment. Those countries become isolated from the rest of the Internet economy. For many of these countries, if this payment system works, if the U.S. and Congress can support and tolerate a reputable, well-paid industry, this will be a big connector to the world economy."

The area with the largest potential for Bitcoin worldwide is most likely international remittances: money sent home by workers living abroad. Presently, this money has to be treated by several intermediaries: banks, wire services, and currency exchanges all take their cut. A latest report by Businessweek noted that the average fee for remittances was nine percent of the money transferred, with conversion to cash often costing an extra five percent. Western Union’s profit margins are enormous for an intermediary, almost sixteen percent, and most of its costs are loyal to the technologies moving money from one place to another, assuring the legitimacy of the transfer. In brief, Western Union spends and earns billions to do what Bitcoin does for free.

Instead of Western Union, migrant workers (or businesses operating on their behalf) could use Bitcoin to send payments from one country to another through email, without worry of fraud or needing to support an elaborate exchange or credit market.

It would be real-time, instant settlement at a fraction of the cost. In ten years, instead of international drugs, Bitcoin could act as a genuine lingua franca for international work.

"The vast majority of the planet don’t even own a bank account," Bitcoin evangelist Jonathan Mohan tells PBS Newshour. "And it’s my contention that—and a lot of people think this—that, just as in Africa, they didn’t go to phones. They went directly to cell phones, that, in the same sort of adoption curve, in these developing nations, you’re not going to see them begin getting bank accounts. You’re going to see them just going straight to Bitcoins, because if you own a Bitcoin address, you have a bank account on your phone that you can interact on the global stage with."

There are still real problems. Johnson thinks that Bitcoin has yet to suffer its very first genuine crisis of legitimacy, and its proponents haven’t developed a political strategy to reassure wary states and investors that the currency can play nice. And the rhetoric of many Bitcoin proponents assumes a sophisticated understanding of its underlying technology that is far from widespread, especially among the world’s poor.

Investors and miners can debate the nuances of different cryptographic schema, but for most of us, money is ultimately an article of faith.

It seems unpreventable that money, already virtual, will only become more so as we shift into a digital economy.

"Money has become data," Ben Milne, founder of Dwolla, a real-time payments company, said at emTech. "There needs to be an infrastructure that permits people to exchange whatever they have for whatever they want, that confirms who they are, and confirms that the transaction is legitimate."

He notes that while today, credit cards treat trillions of dollars in transactions, ACH’s virtual transfers where no physical money switches arms treat ems of trillions. If digital companies or currencies can make these transactions more secure, more efficient, and more instantaneous, that can unlock value for everyone, even some of the companies that presently benefit from the high barrier of entry to traditional banking.

And Bitcoin can still affect the world economy even if it does not become a currency that everyone uses or understands. "If Bitcoin becomes widespread, respected, and legitimate, that pressures everyone—all the central banks and banking companies—to bring down those costs in order to stay competitive," Johnson says. "Or everyone could just use Bitcoin," adds Pair.

Related video:

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