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Five Benefits of Cryptocurrency: A Fresh Economy For The Future

Five Benefits of Cryptocurrency: A Fresh Economy For The Future

Over the last duo of years the term cryptocurrency has been rapidly gaining the public eye. You might be more familiar with terms like Bitcoin, Litcoin and Ether. These are all cryptocurrencies.

In fact, there many! Just take a quick look

Just a ordinary google trend search shows you the commence of the growth

But before you proceed reading, I want to give a brief primer of cryptocurrency

A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption technologies known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. While Bitcoin attracted a growing following in subsequent years, it captured significant investor and media attention in April two thousand thirteen when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months. Bitcoin sported a market value of over $Two billion at its peak, but a 50% plunge shortly thereafter sparked a furious debate about the future of cryptocurrencies in general and Bitcoin in particular. So, will these alternative currencies eventually supplant conventional currencies and become as ubiquitous as dollars and euros someday? Or are cryptocurrencies a passing fad that will flame out before long? The reaction lies with Bitcoin.

HOW WILL CRYPTOCURRENCY WILL HELP YOU?

The world is becoming more and more economically unsafe. This is not to say we are not growing. But asNassim Taleb states in his book. Antifragile. Our economic machine is like a glass jaw. one petite punch to it and it all comes crushing down! Both long term and brief term this is not good for you and all of the hard working citizen of the world.

“FRAGILITY IS THE QUALITY OF THINGS THAT ARE VULNERABLE TO VOLATILITY.”

– NASSIM NICHOLAS TALEB

So below, I will outline some pros and cons of us adopting a global acceptance of Cryptocuurency. And my hopes with this is…you will walk away with having found fresh found respect for cryptocurrency.

PROS AND CONS OF CRYPTOCURRENCY

The benefits of cryptocurrency over current fiat currency tech

Example: Central governments can’t take it away

Recall what happened in Cyprus in March 2013? The Central Bank wished to take back uninsured deposits larger than $100,000 to help recapitalize itself, causing meaty unrest in the local population. It originally desired to take a percentage of deposits below that figure, eating directly into family savings. That can’t happen with cryptocurrency/bitcoin. Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you. For those who find their trust in the traditional banking system unravelling, that’s a big benefit.

Let’s take a look at some of the improvements that can be made to fiat currency by shifting towards digital cash:

ADVANTAGES OF CRYPTOCURRENCY

  • Fraud: Cryptocurerncies are digital and cannot be counterfeited or reversed arbitrarily by the sender, as with credit card charge-backs.
  • Identity Theft: When you give your credit card to a merchant, you give him or her access to your utter credit line, even if the transaction is for a puny amount. Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency use a “push” mechanism that permits the cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further information
  • Instant Settlement: Purchasing real property typically involves a number of third parties (Lawyers, Notary), delays, and payment of fees. In many ways, the bitcoin/cryptocurency blockchain is like a “large property rights database,” says Gallippi. Bitcoin contracts can be designed and enforced to eliminate or add third party approvals, reference outer facts, or be finished at a future date or time for a fraction of the expense and time required to finish traditional asset transfers.
  • Access to Everyone: There are approximately Two.Two billion individuals with access to the Internet or mobile phones who don’t presently have access to traditional exchange systems. These individuals are primed for the Crytocurrency market. Kenya’s M-PESA system, a mobile phone-based money transfer and micros financing service recently announced a bitcoin device, with one in three Kenyans now wielding a bitcoin wallet. (Let me repeat that again. 1/Three)
  • Lower Fees: There aren’t usually transaction fees for cryptocurrency exchanges because the miners are compensated by the network (Side note: This is the case for now). Even however there’s no bitcoin/cryptocurrency transaction fee, many expect that most users will engage a third-party service, such as Coinbase, creating and maintaining their own bitcoin wallets. These services act like Paypal does for cash or credit card users, providing the online exchange system for bitcoin, and as such, they’re likely to charge fees. It’s interesting to note that Paypal does not accept or transfer bitcoins.

“THE BLOCKCHAIN KEEPS EVERYONE Fair, AND A Entire LAYER OF BANKING BUREAUCRACY IS Liquidated, LOWERING COSTS.” — PAUL VIGNA

MOST Significant. YOU OWN IT

There is no other electronic cash system in which your account isn’t wielded by someone else. Take PayPal, for example: if the company determines for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you (Trust me, this has happen to me many times) It is then up to you to hop through whatever hoops are necessary to get it cleared, so that you can access your funds. With cryptocurrency, you own the private key and the corresponding public key that makes up your cryptpcurrency address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).

THE BAD THINGS ABOUT CRYPTOCURRENCY

Overall, cryptocurrencies have a long way to go before they can substitute credit cards and traditional currencies as a device for global commerce.

Bottom Line: Cryptocurrency is a baby. It will needs years and years of exposure to the global system, before the masses begin accepting it.

CRYPTOCURRENCY DISADVANTAGES:

  • Fact is many people are still unaware of cryptocurrency aka Digital currency
  • People need to be educated about it to be able to apply it to their lives.
  • Businesses need to embark accepting it
  • They need to make it lighter to sign up and get began.

HIGH RISK OF LOSS

Timothy B. Lee, adjunct scholar at the Cato Institute and regular contributor to Forbes.com, identifies four reasons to be cautious about bitcoins:

  • Lack of Security. There is no safety net or ideal way to protect your bitcoins from human error (passwords), technical glitches (hard drive failures, malware), or fiduciary fraud. According to an article in the UK edition of Wired, eighteen of forty web-based businesses suggesting to exchange bitcoins into other fiat currencies have gone out of business, with only six exchanges reimbursing their customers. The authors of the investigate estimate that the median lifespan of any bitcoin exchange is three hundred eighty one days, with a 29.9% chance that a fresh exchange will close within a year of opening.
  • Enlargened Regulation. While relatively benign guidelines are presently in place, law enforcement agencies could determine that bitcoins are a “giant money laundering scheme,” and enact more stringent regulations that would diminish the currency’s value.
  • Limited Scaling. The design of the system thresholds the speed and number of transactions processed, making it unlikely that bitcoins will substitute conventional credit card transactions.
  • Lack of Applications. While acknowledging bitcoins’ popular use for illegal transactions, Lee questions how useful bitcoins truly are. To be truly disruptive to existing fiat currencies or electronic payment systems, Bitcoin would need applications for low-cost international money transfers, the creation of complicated electronic contracts, or use in Kickstarter-style fundraising campaigns or micropayment transfers.

FINAL THOUGHTS

There are always pros and cons to any situation in life. To be able to make a good decision, you need to weigh the good and bad meticulously before finalizing your choice. With Cryptocurrency, it’s more about mass acceptance than technology. The technology is here. Only time will tell when the rest of the world (governments, citizens) will say…YES!

Five Benefits of Cryptocurrency: A Fresh Economy For The Future

Five Benefits of Cryptocurrency: A Fresh Economy For The Future

Over the last duo of years the term cryptocurrency has been rapidly gaining the public eye. You might be more familiar with terms like Bitcoin, Litcoin and Ether. These are all cryptocurrencies.

In fact, there many! Just take a quick look

Just a elementary google trend search shows you the begin of the growth

But before you proceed reading, I want to give a brief primer of cryptocurrency

A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption technics known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. While Bitcoin attracted a growing following in subsequent years, it captured significant investor and media attention in April two thousand thirteen when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months. Bitcoin sported a market value of over $Two billion at its peak, but a 50% plunge shortly thereafter sparked a furious debate about the future of cryptocurrencies in general and Bitcoin in particular. So, will these alternative currencies eventually supplant conventional currencies and become as ubiquitous as dollars and euros someday? Or are cryptocurrencies a passing fad that will flame out before long? The reaction lies with Bitcoin.

HOW WILL CRYPTOCURRENCY WILL HELP YOU?

The world is becoming more and more economically unsafe. This is not to say we are not growing. But asNassim Taleb states in his book. Antifragile. Our economic machine is like a glass jaw. one petite punch to it and it all comes crushing down! Both long term and brief term this is not good for you and all of the hard working citizen of the world.

“FRAGILITY IS THE QUALITY OF THINGS THAT ARE VULNERABLE TO VOLATILITY.”

– NASSIM NICHOLAS TALEB

So below, I will outline some pros and cons of us adopting a global acceptance of Cryptocuurency. And my hopes with this is…you will walk away with having found fresh found respect for cryptocurrency.

PROS AND CONS OF CRYPTOCURRENCY

The benefits of cryptocurrency over current fiat currency tech

Example: Central governments can’t take it away

Recall what happened in Cyprus in March 2013? The Central Bank wished to take back uninsured deposits larger than $100,000 to help recapitalize itself, causing gigantic unrest in the local population. It originally dreamed to take a percentage of deposits below that figure, eating directly into family savings. That can’t happen with cryptocurrency/bitcoin. Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you. For those who find their trust in the traditional banking system unravelling, that’s a big benefit.

Let’s take a look at some of the improvements that can be made to fiat currency by shifting towards digital cash:

ADVANTAGES OF CRYPTOCURRENCY

  • Fraud: Cryptocurerncies are digital and cannot be counterfeited or reversed arbitrarily by the sender, as with credit card charge-backs.
  • Identity Theft: When you give your credit card to a merchant, you give him or her access to your utter credit line, even if the transaction is for a petite amount. Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency use a “push” mechanism that permits the cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further information
  • Instant Settlement: Purchasing real property typically involves a number of third parties (Lawyers, Notary), delays, and payment of fees. In many ways, the bitcoin/cryptocurency blockchain is like a “large property rights database,” says Gallippi. Bitcoin contracts can be designed and enforced to eliminate or add third party approvals, reference outward facts, or be finished at a future date or time for a fraction of the expense and time required to finish traditional asset transfers.
  • Access to Everyone: There are approximately Two.Two billion individuals with access to the Internet or mobile phones who don’t presently have access to traditional exchange systems. These individuals are primed for the Crytocurrency market. Kenya’s M-PESA system, a mobile phone-based money transfer and micros financing service recently announced a bitcoin device, with one in three Kenyans now wielding a bitcoin wallet. (Let me repeat that again. 1/Trio)
  • Lower Fees: There aren’t usually transaction fees for cryptocurrency exchanges because the miners are compensated by the network (Side note: This is the case for now). Even tho’ there’s no bitcoin/cryptocurrency transaction fee, many expect that most users will engage a third-party service, such as Coinbase, creating and maintaining their own bitcoin wallets. These services act like Paypal does for cash or credit card users, providing the online exchange system for bitcoin, and as such, they’re likely to charge fees. It’s interesting to note that Paypal does not accept or transfer bitcoins.

“THE BLOCKCHAIN KEEPS EVERYONE Fair, AND A Entire LAYER OF BANKING BUREAUCRACY IS Eliminated, LOWERING COSTS.” — PAUL VIGNA

MOST Significant. YOU OWN IT

There is no other electronic cash system in which your account isn’t wielded by someone else. Take PayPal, for example: if the company determines for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you (Trust me, this has happen to me many times) It is then up to you to hop through whatever hoops are necessary to get it cleared, so that you can access your funds. With cryptocurrency, you own the private key and the corresponding public key that makes up your cryptpcurrency address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).

THE BAD THINGS ABOUT CRYPTOCURRENCY

Overall, cryptocurrencies have a long way to go before they can substitute credit cards and traditional currencies as a implement for global commerce.

Bottom Line: Cryptocurrency is a baby. It will needs years and years of exposure to the global system, before the masses embark accepting it.

CRYPTOCURRENCY DISADVANTAGES:

  • Fact is many people are still unaware of cryptocurrency aka Digital currency
  • People need to be educated about it to be able to apply it to their lives.
  • Businesses need to begin accepting it
  • They need to make it lighter to sign up and get began.

HIGH RISK OF LOSS

Timothy B. Lee, adjunct scholar at the Cato Institute and regular contributor to Forbes.com, identifies four reasons to be cautious about bitcoins:

  • Lack of Security. There is no safety net or flawless way to protect your bitcoins from human error (passwords), technical glitches (hard drive failures, malware), or fiduciary fraud. According to an article in the UK edition of Wired, eighteen of forty web-based businesses suggesting to exchange bitcoins into other fiat currencies have gone out of business, with only six exchanges reimbursing their customers. The authors of the explore estimate that the median lifespan of any bitcoin exchange is three hundred eighty one days, with a 29.9% chance that a fresh exchange will close within a year of opening.
  • Enlargened Regulation. While relatively benign guidelines are presently in place, law enforcement agencies could determine that bitcoins are a “giant money laundering scheme,” and enact more stringent regulations that would diminish the currency’s value.
  • Limited Scaling. The design of the system boundaries the speed and number of transactions processed, making it unlikely that bitcoins will substitute conventional credit card transactions.
  • Lack of Applications. While acknowledging bitcoins’ popular use for illegal transactions, Lee questions how useful bitcoins truly are. To be truly disruptive to existing fiat currencies or electronic payment systems, Bitcoin would need applications for low-cost international money transfers, the creation of sophisticated electronic contracts, or use in Kickstarter-style fundraising campaigns or micropayment transfers.

FINAL THOUGHTS

There are always pros and cons to any situation in life. To be able to make a good decision, you need to weigh the good and bad scrupulously before finalizing your choice. With Cryptocurrency, it’s more about mass acceptance than technology. The technology is here. Only time will tell when the rest of the world (governments, citizens) will say…YES!

Five Benefits of Cryptocurrency: A Fresh Economy For The Future

Five Benefits of Cryptocurrency: A Fresh Economy For The Future

Over the last duo of years the term cryptocurrency has been rapidly gaining the public eye. You might be more familiar with terms like Bitcoin, Litcoin and Ether. These are all cryptocurrencies.

In fact, there many! Just take a quick look

Just a ordinary google trend search shows you the commence of the growth

But before you proceed reading, I want to give a brief primer of cryptocurrency

A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption technics known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. While Bitcoin attracted a growing following in subsequent years, it captured significant investor and media attention in April two thousand thirteen when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months. Bitcoin sported a market value of over $Two billion at its peak, but a 50% plunge shortly thereafter sparked a furious debate about the future of cryptocurrencies in general and Bitcoin in particular. So, will these alternative currencies eventually supplant conventional currencies and become as ubiquitous as dollars and euros someday? Or are cryptocurrencies a passing fad that will flame out before long? The reaction lies with Bitcoin.

HOW WILL CRYPTOCURRENCY WILL HELP YOU?

The world is becoming more and more economically unsafe. This is not to say we are not growing. But asNassim Taleb states in his book. Antifragile. Our economic machine is like a glass jaw. one puny punch to it and it all comes crushing down! Both long term and brief term this is not good for you and all of the hard working citizen of the world.

“FRAGILITY IS THE QUALITY OF THINGS THAT ARE VULNERABLE TO VOLATILITY.”

– NASSIM NICHOLAS TALEB

So below, I will outline some pros and cons of us adopting a global acceptance of Cryptocuurency. And my hopes with this is…you will walk away with having found fresh found respect for cryptocurrency.

PROS AND CONS OF CRYPTOCURRENCY

The benefits of cryptocurrency over current fiat currency tech

Example: Central governments can’t take it away

Reminisce what happened in Cyprus in March 2013? The Central Bank desired to take back uninsured deposits larger than $100,000 to help recapitalize itself, causing fat unrest in the local population. It originally wished to take a percentage of deposits below that figure, eating directly into family savings. That can’t happen with cryptocurrency/bitcoin. Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you. For those who find their trust in the traditional banking system unravelling, that’s a big benefit.

Let’s take a look at some of the improvements that can be made to fiat currency by shifting towards digital cash:

ADVANTAGES OF CRYPTOCURRENCY

  • Fraud: Cryptocurerncies are digital and cannot be counterfeited or reversed arbitrarily by the sender, as with credit card charge-backs.
  • Identity Theft: When you give your credit card to a merchant, you give him or her access to your total credit line, even if the transaction is for a puny amount. Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency use a “push” mechanism that permits the cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further information
  • Instantaneous Settlement: Purchasing real property typically involves a number of third parties (Lawyers, Notary), delays, and payment of fees. In many ways, the bitcoin/cryptocurency blockchain is like a “large property rights database,” says Gallippi. Bitcoin contracts can be designed and enforced to eliminate or add third party approvals, reference outer facts, or be ended at a future date or time for a fraction of the expense and time required to finish traditional asset transfers.
  • Access to Everyone: There are approximately Two.Two billion individuals with access to the Internet or mobile phones who don’t presently have access to traditional exchange systems. These individuals are primed for the Crytocurrency market. Kenya’s M-PESA system, a mobile phone-based money transfer and micros financing service recently announced a bitcoin device, with one in three Kenyans now wielding a bitcoin wallet. (Let me repeat that again. 1/Three)
  • Lower Fees: There aren’t usually transaction fees for cryptocurrency exchanges because the miners are compensated by the network (Side note: This is the case for now). Even tho’ there’s no bitcoin/cryptocurrency transaction fee, many expect that most users will engage a third-party service, such as Coinbase, creating and maintaining their own bitcoin wallets. These services act like Paypal does for cash or credit card users, providing the online exchange system for bitcoin, and as such, they’re likely to charge fees. It’s interesting to note that Paypal does not accept or transfer bitcoins.

“THE BLOCKCHAIN KEEPS EVERYONE Fair, AND A Entire LAYER OF BANKING BUREAUCRACY IS Liquidated, LOWERING COSTS.” — PAUL VIGNA

MOST Significant. YOU OWN IT

There is no other electronic cash system in which your account isn’t wielded by someone else. Take PayPal, for example: if the company determines for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you (Trust me, this has happen to me many times) It is then up to you to leap through whatever hoops are necessary to get it cleared, so that you can access your funds. With cryptocurrency, you own the private key and the corresponding public key that makes up your cryptpcurrency address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).

THE BAD THINGS ABOUT CRYPTOCURRENCY

Overall, cryptocurrencies have a long way to go before they can substitute credit cards and traditional currencies as a contraption for global commerce.

Bottom Line: Cryptocurrency is a baby. It will needs years and years of exposure to the global system, before the masses embark accepting it.

CRYPTOCURRENCY DISADVANTAGES:

  • Fact is many people are still unaware of cryptocurrency aka Digital currency
  • People need to be educated about it to be able to apply it to their lives.
  • Businesses need to begin accepting it
  • They need to make it lighter to sign up and get began.

HIGH RISK OF LOSS

Timothy B. Lee, adjunct scholar at the Cato Institute and regular contributor to Forbes.com, identifies four reasons to be cautious about bitcoins:

  • Lack of Security. There is no safety net or ideal way to protect your bitcoins from human error (passwords), technical glitches (hard drive failures, malware), or fiduciary fraud. According to an article in the UK edition of Wired, eighteen of forty web-based businesses suggesting to exchange bitcoins into other fiat currencies have gone out of business, with only six exchanges reimbursing their customers. The authors of the explore estimate that the median lifespan of any bitcoin exchange is three hundred eighty one days, with a 29.9% chance that a fresh exchange will close within a year of opening.
  • Enhanced Regulation. While relatively benign guidelines are presently in place, law enforcement agencies could determine that bitcoins are a “giant money laundering scheme,” and enact more stringent regulations that would diminish the currency’s value.
  • Limited Scaling. The design of the system boundaries the speed and number of transactions processed, making it unlikely that bitcoins will substitute conventional credit card transactions.
  • Lack of Applications. While acknowledging bitcoins’ popular use for illegal transactions, Lee questions how useful bitcoins truly are. To be truly disruptive to existing fiat currencies or electronic payment systems, Bitcoin would need applications for low-cost international money transfers, the creation of sophisticated electronic contracts, or use in Kickstarter-style fundraising campaigns or micropayment transfers.

FINAL THOUGHTS

There are always pros and cons to any situation in life. To be able to make a good decision, you need to weigh the good and bad meticulously before finalizing your choice. With Cryptocurrency, it’s more about mass acceptance than technology. The technology is here. Only time will tell when the rest of the world (governments, citizens) will say…YES!

Related video:

On the dangers of a blockchain monoculture

On the dangers of a blockchain monoculture

Let’s turn to the definitive source, Satoshi Nakamoto’s seminal paper “Bitcoin: A Peer-To-Peer Electronic Cash System”. Let’s look for the very first reference to “blockchain”. Hmm, there doesn’t seem to be one. The paper contains numerous references to a “proof-of-work chain”, and one reference to a “chain of blocks”, but other than that neither “blockchain” or “block chain” ever make an appearance in the Bitcoin paper.

So if it’s not defined in the Bitcoin paper, what does “blockchain” actually mean? I’ve asked a lot of people this question, ranging from renowned cryptographers and distributed systems experts to Bitcoin enthusiasts to people not particularly versed in either Bitcoin, distributed systems, or cryptography. No two people have ever given me the same reaction. I can attempt to take a crack at the question myself.

Here are the interesting properties of the Bitcoin “blockchain” as I see them:

  • Replicated log: Bitcoin uses a transaction log which is replicated from the winning miner to all of the peers in the network. Log-based replication is an increasingly popular instrument for building distributed systems, and is used by many databases and message queues.
  • Merkle tree: The Bitcoin paper describes incorporating Merkle trees into the interior structure of blocks, but overall I think “Merkle tree” describes the structure of Bitcoin’s replicated log / “proof-of-work chain”. While not described in the paper as such, I would argue that the overall structure of the Bitcoin “blockchain” is effectively a very flat-looking special case of a Merkle tree. Perhaps the vapid, log-like structure (which feels a bit like a fast-forwardable git history) is why “Satoshi” chose to describe it as a “chain” in the Bitcoin paper. That said I think Satoshi’s expertise around Merkle trees is generally questionable: Bitcoin’s Merkle trees previously had oddly violated behavior (CVE-2012-2459) and utilize a “naive” construction without type flags for leaf versus interior knots, leading me to believe Satoshi is not an academic cryptographer (the Bitcoin paper is also lacking in details around the structure of the “blockchain” which are typically present in academic papers on cryptographic protocols). If we take the hash-based structure of the “blockchain” independent of the use of a proof-of-work function, I think it largely resembles Merkle log proofs as used by systems like Certificate Transparency.
  • Decentralized “consensus by lottery” using a proof-of-work: The real innovation of Bitcoin, in my opinion, is the use of a lottery-like mechanism to determine the next “block” to insert into the “Merkelized” replicated log, specifically the proof-of-work function and difficulty ratcheting mechanisms that increase the amount of work required in response to the number of miners working on the problem. Indeed the paper talks fairly a bit about a “proof-of-work chain”. However, in discussing the definition of “blockchain” with several people, whether or not a “blockchain” necessarily includes a proof-of-work was one of the most contentious topics. There are several reasons why “blockchain” advocates may want to distance themselves from being necessarily tied-by-definition to a proof-of-work function, which I’ll cover later in this post.
  • “Transactions” authenticated with public-key cryptography: Bitcoin uses an elliptic curve practically no one else uses called secp256k1 (the rest of the crypto world has largely moved on to Curve25519) to digitally sign all transactions with an algorithm called ECDSA. But truly it’s not the elliptic curve or signature algorithm that are significant (for what it’s worth I don’t think Bitcoin chose particularly good ones), so I think it’s stupid to base the definition of a “blockchain” on e.g. the use of elliptic curve cryptography and ECDSA (especially as there’s interest in the Bitcoin community in moving to Schnorr signatures). In my opinion, a “blockchain” is defined by the use of public-key cryptography in general for authenticating transactions. What’s a “transaction”? The word “transaction” has a very specific meaning in both databases and finance which I’ll go into below. Bitcoin meets a limited definition of one but not the other.
  • Public decentralized transaction ledger: Bitcoin “solves” one particular problem: decentralized public transaction ledgers. “Blockchain technology” as it exists today in Bitcoin is effectively a decentralized reconciliation system which maintains a global transaction ledger without a central authority. There are many proposals to use the Bitcoin blockchain for other purposes, which I’ll discuss below.
  • Broadcast protocol: Bitcoin broadcasts all transactions to all knots in a peer-to-peer system. This has a lot of interesting properties (and is an idea I explored in my experimental messaging system “Confusion”) but has inherent scalability boundaries.
  • Scripting language / “Smart contracts”: a very cool feature I will acknowledge exists and give a quick hat peak to Ethereum, but I will not be discussing it in this post. I think “smart contracts” can exist outside of blockchains and that not everyone using “blockchain technology” is necessarily interested in them. Apologies if you think these are what make the blockchain the blockchain but I don’t, and may address this subject in depth in a subsequent blog post if there’s enough interest.

When we look at the list above, what makes Bitcoin unique? To me, it’s indeed about the “proof-of-work chain” treatment to creating a replicated transaction ledger. So as far as I’m worried, as soon as we eliminate the “consensus-by-lottery” using proof-of-work part of the “blockchain”, it starts to lose meaning and lapses into a much more general set of ideas which solve a similar class of problems but have been in use for decades, are distinct from Bitcoin, and are in no way “blockchain technology”.

I would argue the etymology of “blockchain” can be traced to a sort of mutated, colloquial term for Satoshi’s original “proof-of-work chain” concept, and that as soon as you budge beyond consensus-by-proof-of-work you are no longer using a “blockchain”. That is to say: I think systems which are not transaction ledgers and do not use Bitcoin’s consensus-by-lottery using a proof-of-work function treatment are not “blockchains”. I’ll again call out Certificate Transparency again as a system which has many of the same properties as the Bitcoin blockchain, but which I would not define as a “blockchain” and whose creators would very likely not describe it as a “blockchain” either.

Note to “that guy” on Hacker News: yes, there were cryptocurrencies before Bitcoin. I’m aware. You don’t need to educate me on them. But they don’t count, sorry.

The Bitcoin blockchain: the world’s worst database

Would you use a database with these features?

  • Uses approximately the same amount of violet wand as could power an average American household for a day per transaction
  • Supports three transactions / 2nd across a global network with millions of CPUs/purpose-built ASICs
  • Takes over ten minutes to “commit” a transaction
  • Doesn’t acknowledge accepted writes: requires you read your writes, but at any given time you may be on a blockchain fork, meaning your write might not actually make it into the “winning” fork of the blockchain (and no, just making it into the mempool doesn’t count). In other words: “blockchain technology” cannot by definition tell you if a given write is ever accepted/committed except by reading it out of the blockchain itself (and even then)
  • Can only be used as a transaction ledger denominated in a single currency, or to store/timestamp a maximum of eighty bytes per transaction

But it’s decentralized!

While Bitcoin does a reasonable job of modeling financial transactions denominated in the one and only one cryptocurrency that is Bitcoin, it generally fails to live up to the ideals of a “transaction” in databases, and what it manages to do comes at an incredible cost in terms of violet wand and time. Bitcoin fails to achieve the properties of byzantine fault tolerance, which is perhaps a bit unreasonable to ask in order for Bitcoin to be considered sound, but from a less formal perspective Bitcoin has no acknowledgement protocol for accepted “transactions” beyond reading your current view of the “blockchain”, and because Bitcoin’s “consensus-by-lottery” mechanism is inherently racy by design (who can solve the proof-of-work the fastest? We’ll call that an accepted write. Uhoh, two people solved it at the same time) we can never be fairly sure that a particular transaction we don’t yet see in the blockchain will eventually be committed (and no, the mempool is not some magical band-aid that can solve this problem). Compare this to pretty much any database or realtime payment system in the world, where getting a speedy “ack” (or error) of some sort, and having it mean something, is considered a basic feature. Even MongoDB can do better than this.

As a side-effect, Bitcoin can also be used as a decentralized “timestamping” / audit log service (as noted in the original paper), however there are more efficient protocols which can solve the decentralized audit log problem. Yet again I’ll look to Certificate Transparency, which solves the problem of verifiable audit logs without the use of a proof-of-work function, making it much lighter and less computationally intensive to append to, query, and audit. For these reasons, I specifically call out Bitcoin’s blockchain as being most noteworthy as a decentralized ledger, and nothing else.

Next-generation protocols

Before Bitcoin, the state-of-the-art in decentralized reconciliation over the Internet generally involved SCPing around GPG encrypted batch settlement files and processing them with zSeries mainframes. This is slow moving, not lightly auditable, and clearly leaves a lot of room for improvement.

Bitcoin was a excellent demonstration of what is possible. But as the entire Bitcoin ecosystem approaches a gross payment volume size nearing that of single top ten US retailer (and about 1/Ten,000th the transaction volume of VISA), the “publish all transactions to everybody” treatment Bitcoin uses is commencing to demonstrate its thresholds. Bitcoin’s scalability is ultimately limited by the number of transactions that can fit in a block and the rate at which blocks are published to the network, and the fight over a switch to a larger block size has grown increasingly dramatic. But even if Bitcoin adopts a larger block size, the fact it’s already hitting scalability thresholds despite its comparatively petite transaction volume does not bode well for the “blockchain” treatment, especially as “blockchain technology” is being touted as a potential solution for systems which operate at numerous orders of magnitude higher transaction volume than Bitcoin.

The “central” problem (pun intended, sorry) is that despite claims of being “decentralized”, the blockchain represents a single ledger which is global to the entire Bitcoin ecosystem. It seems Satoshi’s back-of-the-napkin math doesn’t truly work out, and publishing all transactions to everyone is expensive in terms of bandwidth and storage. There are attempts within the Bitcoin ecosystem to address this deficiency, for example blocks could be made larger as proposed in Bitcoin-XT, or some transactions could be moved to “sidechains” as proposed in systems like the Bitcoin Lightning Network. But the Lightning Network is useful only for a ledger that is denominated in Bitcoin, and we still have to deal with the “central” Bitcoin blockchain, whose size is likely to proceed to increase despite the addition of various “sidechain” mechanisms. (Edit: Several people have pointed out the Lightning Network permits for offline transactions and its not a “sidechain”, and also that the Lightning Network can support non-Bitcoin denominated transactions)

For solving the general problem of over-the-Internet decentralized reconciliation tho’, we’ll need “blockchains” denominated in currencies other that Bitcoin too. But now we have a fresh problem: how do we exchange different currencies or other financial instruments inbetween blockchains denominated in different currencies? While this problem may show up to have a straightforward reaction, it becomes a bit more difficult when you take into account that moving money inbetween ledgers actually involves integrating with those ugly legacy systems I was talking about earlier which can already stir money denominated in “legacy” fiat currencies. Turning your Bitcoins into cold hard cash denominated in the currency of your choice is perhaps the cryptocurrency’s thickest problem beyond scalability (see Mt. Gox and the many thefts related to shady Bitcoin exchanges on /r/sorryforyourloss).

The solution to all of these problems requires taking a step back from Bitcoin and re-evaluating the actual problem we wish to solve. The “proof-of-work chain” treatment used by Bitcoin is ultimately attempting to solve a distributed consensus problem, where we have many parties who want to reconcile a transaction ledger over the Internet. Bitcoin uses digital signatures to ensure the integrity of each transaction, and via proof-of-work by hand selects an authority to determine which transactions are included in a particular block. However, there are far more efficient distributed consensus algorithms than this which don’t involve a proof of work. So perhaps we should consider those.

Decentralized ledger protocols

Next generation decentralized transaction ledgers are a topic I’ve blogged about before, but as this is a quickly evolving field some of my “picks” have switched. I would like to call out the following projects as ones that are interesting to me today:

  • Interledger: a protocol for making payments across different payment networks developed by Ripple Labs † . Interledger uses escrows to treat movement of funds inbetween ledgers which effectively provide the same function as Bitcoin exchanges but as first-class citizens within the Interledger network. The Interledger protocol is formally modeled using TLA+, also used by Amazon for building mission-critical systems. Per the paper: “Unlike previous approaches, this protocol requires no global coordinating system or blockchain.”
  • Stellar SCP: a formally modeled distributed consensus algorithm designed for Internet-scale operation, which provides global agreement among localized “quorum shards”. SCP provides distributed transaction ledgers denominated in the currency of your choice. Stellar plans to launch a cryptocurrency called “Lumen” using the protocol.

Bitcoin-NG

My Death of Bitcoin blog post also touched on the idea that the blockchain could be subject to incremental refinement in the same way the Watt steam engine massively improved on the previous Newcomen steam engine. A few months later we spotted exactly that with Bitcoin-NG (paper), a protocol that inverts the ordering of Bitcoin consensus: a miner is very first elected leader by winning the proof-of-work “lottery” by mining a “key block”, and then once elected leader becomes a transaction broker who can mint “micro-blocks” via digital signature until the next leader is elected. Decoupling leader election from the publishing of transactions permits the overall system to have a much higher throughput as the rate fresh transactions are published is no-longer coupled to the rate at which the proof-of-work problem is solved.

Cothority

I’ve referenced Certificate Transparency several times in this post, but it has a few drawbacks: it’s a point-solution specifically for the purpose of X.509 certificates, and as a system that merely logs and audits what certificates CAs provide to it, it has no consensus protocol and therefore cannot be used for things like finding the canonical certificates for a given domain name.

For what Certificate Transparency is attempting to accomplish, this is flawlessly fine. However, given the several years they’ve spent working on it, it feels like a bit of a shame that it only serves the purpose of authenticating X.509 certificates when the general idea behind it seems much more powerful. This is perhaps how people feel about “the blockchain” when they see it applied only to Bitcoin. Edit: Google is working on a “General Transparency” key/value store called Trillian based on the same ideas as Certificate Transparency.

Cothority is a framework for building collective authority systems using a Merkelized log ala CT, a consensus algorithm, and threshold signatures (using Ed25519 for threshold Schnorr signatures). By combining the ideas of consensus systems with a CT-like witness protocol, it provides a generalized framework for auditable decentralized trust and consensus which can be used for many of the same things people are pitching “blockchain technology” for without the need for a costly proof-of-work-based “consensus by lottery”.

These two photos are taken from Philipp Jovanovic’s 32C3 talk on Cothority, where they were juxtaposed as two potential solutions to the same problem. While I think Bitcoin-NG is a brilliant optimization on the original Bitcoin design (and one I’d strongly suggest Bitcoin adopt some variant thereof), Cothority provides many of the same properties without a proof of work function.

The correct Blockchainiac response to a mention of Ripple Laps is to disregard the TLA+ descriptions of the Interledger protocol in the back of their paper and instantly write an essay on Hacker News about how Ripple is a scam and therefore by an ad hominem fallacy they can’t produce anything of merit. But surely Bitcoin isn’t a ponzi scheme, it’s the real deal!

Blockchain! Blockchain! Blockchain!

Lately I’ve seen a lot of systems of the sort I previously wouldn’t have classified as “blockchains” (because they do not use a proof-of-work chain) who previously seemed to be distancing themselves from Bitcoin and the proof-of-work treatment go Total BLOCKCHAIN:

This is Tendermint, a protocol I highlighted in my last blog post as being based on a proof-of-stake system and distributed consensus protocol, as opposed to a proof-of-work scheme like Bitcoin. Now there is no mention of proof-of-stake anywhere on their web page.

Is Tendermint a blockchain? I guess there’s no question about it now! Whatever Tendermint turns out to be, its creators leave little room to doubt that it is, indeed, a BLOCKCHAIN (blockchain blockchain).

Hyperledger, another protocol I highlighted in my last blog post, has also undergone a blockchain makeover. Their old web site now redirects to https://blockchain.linuxfoundation.org/ (as reported on by LWN), where we no longer see any mention of “Hyperledger”, just Enterprise Blockchain Two.0 technology!

With this much ambiguity as to the actual definition coupled with hyperrepetition, “blockchain” is prompt on its way to becoming the fresh “cloud”: one of those words whose actual meaning is nebulous and unspecific, but whatever it is it must be so significant people can’t shut up about it!

Now don’t get me wrong: I like Hyperledger and Tendermint, or at least, I thought I did. Per my individual rubric above however, neither of these systems are “blockchains” because they do not use a proof-of-work-based consensus protocol.

The good decentralized database in the sky

The excellent thing about a nebulous term is that it knows no thresholds. What can’t you put in the blockchain? Perhaps we could encode Wikipedia into the blockchain, or store the entire archive of Netflix movies in the blockchain. All of archive.org could go in the blockchain. We could budge the entire World Broad Web into the blockchain so all web pages are permanent and live forever.

The only real question is: what can’t you put in the blockchain?

Well, the response is: not much. The Bitcoin blockchain’s capability to store data is greatly limited by its “publish everything to everyone everywhere” nature.

eighty bytes per transaction is pretty much the limit, and the system is already hitting scalability bottlenecks at a relatively modest scale.

To go beyond that, we need a different protocol. We can’t just throw “blockchain technology” at the problem. The relevant algorithms do not exist in the Bitcoin codebase. We need a different protocol.

This is a problem many people have attempted working on for a very long time. I’ve blogged about it before. There have been many pretenders to the throne: Xanadu, FreeNet, GNUnet, MojoNation/MNet, Tahoe-LAFS, OneSwarm, BitSpray, MaidSafe, IPFS. I’ll note MojoNation specifically as a system that attempted to tie storage service to a cryptocurrency.

So far the leading technology for the decentralized database seems to be BitTorrent, which predominates Internet traffic. But it doesn’t make for much of a database, only a blob store. Perhaps you’re now thinking: TorrentChain! Yeah, that’s been attempted. But I don’t think the fine database in the sky is going to be unlocked by cobbling together disparate parts into a Rube Goldberg apparatus.

Believe me that I would like to see the craziest fantasies of what people hope to accomplish with decentralized systems realized. But the blockchain is most likely not the technology that is going to do it.

Conclusion

I feel “blockchain technology” has not delivered a lot of practical value: compared to most payment systems the value Bitcoin moves and the transaction rate are both rather insignificant (and Bitcoin is all that matters: all other blockchain-based systems stir practically nothing by comparison). Bitcoin is hitting scalability boundaries under a relatively modest payment volume.

The only thing I think “blockchain technology” has actually delivered on is hype: a press release with “blockchain” in the title garners media attention (I direct you back to the opening paragraph of this post if you doubt that). Old financial institutions recruiting for “blockchain” positions are a lot more likely to find talented engineers than if they have job reqs to maintain decades-old legacy systems. I won’t dispute that “blockchain” is pretty much assured to engender a lot more excitement in your average engineer than “ledger”, “reconciliation”, “settlement”, or “notarization”.

In the meantime, “blockchain technology” advocates need a litany of big-name positive endorsements of “blockchain” to lend credibility to the idea, even if it’s little more than voicing interest in the concept. Thus we wind up with a positive feedback loop of hype without anyone actually delivering on anything valuable.

That’s not to say that the idea of decentralized transaction ledgers and timestamping systems lacks merit, but I don’t think copying and pasting Satoshi-and-friends’ codebase all over the place is the best way to go about solving the problem. If you’re doing that, please at least take a look at Bitcoin-NG and fix the violated Merkle trees.

In Blockchainiac terms, I don’t want there to be “on-chain” and “off-chain”. I want “sidechains all the way down”. I want systems that are built from the ground up to support that model. Bitcoin doesn’t scale. Decentralize the blockchain!

I want protocols that are formally proven to come to consensus correctly, not protocols that are formally proven to be violated.

I want each transaction to use less electro-stimulation than I do in a day. Much less. I want the entire system to use a lot less electro-therapy than the entire nation of Ireland.

I want more than three transactions per 2nd.

I want consensus quicker than every ten minutes. Ten seconds is a lot better.

The most interesting ideas I’m observing are coming from people who describe their protocols as requiring no blockchain.

I worry the media are providing undue attention to questionable ideas simply because there’s a lot of “buzz around blockchain”.

I worry that the hype surrounding the “blockchain” might lead those who award research budgets to favor blockchain-based solutions over those that are blockchain-free.

I worry financial institutions might pick a “blockchain”-based solution where a blockchain-free solution might be by all quantitative metrics better in every regard, simply because they’ve heard what a big deal “blockchain” is.

But perhaps my concerns are overblown, and this is just a giant semantic argument. Maybe “blockchain technology” is just becoming a meaningless all-encompassing umbrella term for decentralized protocols. Can it do ledgers? Sure! Data? Why not? Computation? Brainy contracts baby!

Perhaps “post-blockchain” protocols will commence branding themselves as “blockchain technology” just to stay relevant.

“Cyber” is commencing to grow on me, so why not “blockchain” too? Who needs a metaverse; I’ll see you on the blockchain.

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