[Video: https://www.youtube.com/watch?v=pyuCJkLF2Jo ]
[Paper: http://www.ofnumbers.com/wp-content/uploads/2014/04/Bitcoins-Public-Goods-hurdles.pdf ]
Presentation given at the Institute for the Future on March 27, 2014. Note: there are numerous footnotes containing additional quotes and references of each slide. It covers the technical and economic limitations of Bitcoin in its current state, the financial incentives for operating a mining pool, the financial incentives for working as a developer and the various public goods issues surrounding a communal effort including special interest groups and lobbying.
Similaire à Future Opportunities and Economic Challenges for Cryptoledgers: Trends and speculative possibilities of frictionless trustless asset management
Similaire à Future Opportunities and Economic Challenges for Cryptoledgers: Trends and speculative possibilities of frictionless trustless asset management (20)
2. ◦ The chart does not fully capture the costs of storing private keys
which is increasingly expensive yet necessary for those uninterested
in hosting the keys locally
◦ Furthermore “payment clearing” is not cheap as the costs to
maintain the network shift in relation to the market price of bitcoins
themselves
3. Bitcoin versus Credit
Card and Bank Wire
◦ The typical bitcoin transaction
is processed and confirmed
(6x) in about an hour
◦ International Bank Wire can be
a matter of days
◦ Credit card varies
Estimated cost:
~$15 for Bitcoin*
~$50 for Credit Card
~$40-$80 for Bank Wire
*Based on costs of running the
network divided by number of
transactions
4. Cannot beat them on speed and
confirmations, go where Visa is
not
Paypal is not in 60 countries
hence WordPress adopted Bitcoin
Goldman Sachs report: $210
billion of savings in three areas:
◦ Retail, online merchants, remittances
◦ Remittances are $550 billion annually
Average African migrant pays 12.4% in
remittance fees
5. Slow transaction rate
◦ Block speed of ~10 minutes
per confirmation
◦ 7 per second with BTC
versus 10,000+ per second
with Visa
◦ Not adequate for
decentralized HFT
M-PESA handles 43% of
Kenya’s GDP because it is
sent instantly via SMS
6. None of the benefits of
centralization yet with all
of the costly overhead of
decentralization
◦ CAP theorem
Consistency, Availability,
Partition tolerance
7. ASIC centralization
◦ Depreciating capital good provides
incentive to create ‘pumped’ alts
after profitable period of BTC
mining ends
Coiledcoin & Eligius
Hasher versus miners
◦ Not transparent (“selfish-mining”)
Mining pool centralization
◦ Though efficient payments and
value-added centralization on edges
(Coinbase/BitPay)
◦ BIP 70
8. 5460 satoshi to prevent DDOS and
‘bloat’ yet impacts microtransactions
9. No financial incentive to be a
core developer
No financial reward for
contributing code on a regular
basis (i.e., a job)
Only 2-3 funded developers
(Gavin, Jeff and half of Mike)
Tragedy of the crypto
commons, growth by volunteer
work
10. $200 million - $1 billion in hardware for
mining*
◦ Funds went to utility oligopolies and silicon
companies, not software developers or
ecosystem
‘Regulatory capture’ – miners will not
switch to a fork that does not repay their
investment (e.g., Proof-of-stake) so status
quo remains
◦ Network roughly same speed as 5 years ago,
10 minute confirmation times
If Visa spent $200 million and was no faster, CTO
would be fired
11. ◦ Centralized, managed pools
◦ April 1, 2013: 51,925 GH/s
◦ March 25, 2014: 37,582,751 GH/s
723x increase in hashrate, yet roughly same network performance
12. Digital signature superficial illustration
of a corporation
◦ Blend between stakeholder versus
shareholder
Wall separating fiduciary responsibility is
nebulous
◦ No clear decision makers, no clear
responsibilities, no governance or
accountability determined via private keys
Cargo cult handwaving (Vanuatu as seen in
picture)
13. Historically: incentive not to build the
ecosystem because speculating BTC is
less risky than developing services (this
may be changing)
Buying and burying bitcoins around the
globe instead of building part of the
ecosystem
Jesse Powell perseverance versus the
free-rider problem
Socialize the labor, privatize the gains
SugarCRM, MySQL, MongoDB, Jira, all
succeeded in the market due to a
dedicated company
14. Does one-size fit all?
Subsidized all you can eat
“Unlimited is not unlimited”
with transaction fees
TINSTAAFL
FedEx, Disneyland, CDNs
Tragedy of the commons
◦ Communal
◦ “Public goods” animosity
towards MSC, CC, XCP
15. The incentive to provide this public good (hashing), via a
private method (seigniorage via the coinbase), lessens with
block reward halving
Hashrate is treated as “public good” (non-scarce/rivalrous)
Inclusion of tx is a private good due to block size
Incentivize via transaction fees
Future: free floating, determined by miners (planned)
Supply limitation 1 MB block, have to increase block size
◦ Trade off between block size, speed and decentralization
Cost of actual network costs is likely higher, certainly not free
Actual costs masked by price appreciation and token dilution
16. What is a financial transaction? Real quotes this past week
regarding the OP_RETURN change:
◦ “It’s called a free ride.”
◦ “Too many people were getting the impression that OP_RETURN
was a feature, meant to be used.”
◦ “Not acting like bitcoin is your personal property.”
◦ “Every full node has consented to download and store financial
transactions.”
◦ “The community agrees and the protocol is updated.”
◦ “All data storage attempts, even the OP_RETURN stuff, are
technically abuses the protocol was never intended for.”
Cookies, JavaScript, AJAX (unintended uses from original
internet protocols)
◦ Permissionless invention
Counterwallet uses Insight from BitPay Bitcore fork
17. Dev quote: “Then contact more than
a couple of pools. This statement
sounds like you wish to force
miners to include your transactions;
surely you didn't mean it that way?”
How to contact unknown miners?
“Hello unknown mining pool, I
would like…”
Decentralized, anonymous mining?
What if they only spoke Putonghua?
18. All but 0.000146% of
multisig outputs are
unrelated to either
Mastercoin or Counterparty
March 24, 2014
CoinSecrets.org lists recent
metadata embedded in the
Bitcoin blockchain using
OP_RETURN outputs
19. “Bitcoin won’t succeed unless
there are a lot of Bitcoin
companies building the Bitcoin
infrastructure / Bitcoin economy.
So there seems to be a classic
public good / positive
externality problem here: People
are better off free riding on the
efforts of others, but if
everybody did that there would
be nothing to free ride on.”
Koen Swinkels
24. How to fund 30 developers working on 8
projects?
◦ “IPO” can receive actual financial compensation, no
longer just motivated by goodwill, altruism and
ideology
4,700 bitcoins raised by Master Foundation
2,130 bitcoins ‘burned’ by Counterparty
Solve other use-cases:
◦ Real estate title tracking (developing countries)
◦ Middle office automation (no need to worry about
bloat if it is internal)
◦ HMO can share medical records, m-of-n
multisignature transaction to work with health care
providers
◦ Crowdequity and content rewards (LTBCoin,
JoinMyIPO)
25. If you built the best, most elegant
solution, people might still not use
it:
◦ Stephen Pair noted Betamax vs VHS
◦ BeOS
◦ Itanium
◦ Gentoo
“I want an OS not a hobby”
Consumers may just care for
simplicity and “smart fine print”
◦ Geeks and early adopters care about
tokens for payments, later adopters
may not (i.e., do you know or care how
Visa’s transfer mechanism works?)
◦ Android and Mac OS X versus Gentoo
and FreeBSD
26. Only Ripple protocol (distributed)
can today, perhaps POS with fast
block times can in the future
◦ GeistGeld had 15 second blocks (but
many orphans)
◦ Litecoin has 2.5 minutes blocks (max
28 transactions per second)
◦ Dogecoin has 1 minute blocks (70
transactions per second)
◦ NXT has 1 minute blocks, 255
transactions per minute (~4 tx/s)
◦ Ripple has 5-10 second ledger
closings, 100-1000 tx/s
Coinbase, Circle, Bitstamp effective
and efficient but centralized (in the
long run consumers may be okay
with that)
27. Pamela Morgan, Chicago-based smart contract attorney
◦ Bloat does not matter if it is internal
◦ Proof of existence can be done right now, can maintain
confidentiality -- able to prove the exact copy of the document
◦
Preston Byrne – London, based securitization attorney
◦ Taking Munibit, developed by Startup Cities Institute (to help
mitigate and prevent leakage of funds in institutions of
developing countries)
One public input and one output address for all funds (transparent
to public)
Use a cryptoledger internally to monitor trading desks
28. Sometimes good is good enough (e.g.,
Yamaha vs Steinway piano)
Incentives are being overlooked (e.g.,
developer pay, ASIC depreciation)
Special interest groups may exert pressure
and lobby due to a “public goods” issue
‘Jawboning’ against alts will not work in the
long-run (i.e., “Slackware or bust!”)
Bitcoin (the protocol), despite these
shortcomings, will still likely flourish in the
near term
Tools are agnostic and open-source,
multiple new use-cases by new parties
Let a thousand cryptoledgers bloom
30. Block rewards for Dogecoin were halved on February 14th
LTC hashrate moved back to trend line
◦ MiddleCoin, CleverMining, HashCows, WafflePool, Hashbros
31.
32.
33. Adam Back, invented
Hashcash which is the proof-
of-work algorithm used in
Bitcoin
◦ Designed to prevent spam such
as email and DDOS
Bitcore fork of bitcoinjs from
BitPay
0.9 bitcoind / 40 or 80-byte
hash
◦ SPV
◦ Fund devs with assurance
contracts?
34. If lowest hanging fruits are securities, how to convince
professionals at electronic exchanges to do that?
◦ Chris Odom with Open-Transactions is a one man army, perhaps he can
solve it with federated voting pools?
Andreas Antonopoulos:
◦ Antonopoulos compares the invention of the blockchain to nuclear fission.
"There's the discovery of fission, then there's building an actual nuclear
reactor and then there's the electricity that comes out of it. And
everybody's focusing on the price of the electricity that's coming out of it,
and they're missing the point that fission in itself changes physics,
changes energy, changes everything, really. Maybe you can ban electricity,
maybe you can regulate reactors. But you certainly can't make people
forget that fission exists. And you can't make that discovery disappear."
35. Many Western residents have few immediate incentives to use BTC
(other payment methods “good enough”)
Users in developing countries have more incentives but capability
limitations (few smartphones, unreliable internet connection,
shared devices)
◦ There are roughly 253 million unique mobile phone subscribers in Africa
(many have two SIM cards) and an estimated 70% of the population on the
continent are underbanked or have no access to a bank
Private key storage and usage too complicated for regular user
Meaningless string addresses not user friendly
Technology advocates in the defense position still –> wait-and-
see easier and less risky
36. In 2013, the 50 top global accounting networks and
associations grew by an average 3% in 2013, earning a
combined $169.7 billion in fee income
Ernst & Young 12th annual Global Fraud survey:
◦ 39% of respondents reported that bribery or corrupt practices occur
frequently in their countries
◦ In Indonesia, 60% of respondents consider making cash payments to
win new business acceptable
◦ In Vietnam, 36% of respondents consider it acceptable to misstate a
company's financial performance
37. Pamela Morgan, Chicago-based smart contract attorney
◦ Smart contracts cannot be nullified due to technical limitations
◦ Bloat does not matter if it is internal
◦ Provide a method for elections (corporate, civic) providing greater
transparency, instant results, unforgeability
◦ Proof of existence can be done right now, can maintain confidentiality
◦ Able to prove the exact copy of the document
Prove that a Will exists
“Documents need to be secured and protected so that they can be delivered to
another party (judge/heir/executor) when they are needed. One issue is ensuring
document integrity - that the document presented today hasn't been altered - that
it's the exact same document. PDF version of a document uploaded to the
blockchain can provide that proof. For around $3. It is so inexpensive, why wouldn’t
you do it?"
38. Preston Byrne – London, based securitization attorney
◦ Taking Munibit, developed by Startup Cities Institute (to help
mitigate and prevent leakage of funds in institutions of developing
countries)
One public input and one output address for all funds (transparent to
public)
Use a cryptoledger internally to monitor trading desks
Can be used as an automated accounts reconciliation to compare with
trusted ledgers
Traders have trading limits but can game the books since accountants
are 1-2 weeks behind)
Subledger.com could be used
Exposure can be controlled, flags raised, books impossible to forge due
to digital keys required
Use cases: Jérôme Kerviel, Nick Leeson, Kweku Adoboli, LIBOR fraud and
manipulation
39. 70 year leases are often
40-50 year leases
4 million rural Chinese
evicted each year
Local gov’t generate
70% of annual income
from land sales
120-150 million
migrant workers
without urban hukou’s
Notes de l'éditeur
Presentation given at the Institute for the Future on March 27, 2014. Event details: www.iftf.org/our-work/people-technology/technology-horizons/plustech/cryptocurrencies-tech/
Train picture inspired by the popular sock puppet twitter handle @DorianSatoshi who mentioned Blocktrain: https://twitter.com/DorianSatoshi/status/443088216560631810
Or in other words: “Proof of choo-choo”
One reviewer of this presentation thought that I should point out that while the Bitcoin system is theoretically trustless, in practice many users accept many risks and in fact use trusted 3rd parties still for various services (though this may change).
I would like to thank the following people for reviewing the slides and providing feedback: Dave Babbitt, Kevin Barnett, Isaac Bergman, Preston Byrne, Joseph Chow, Petri Kajander, Jonathan Levin, Taariq Lewis, Adam Marsh, Pamela Morgan, Ryan Orr, Koen Swinkels, Eddy Travia and Andrew White.
In terms of risk aversion (or risk incentivization), one memorable quote Ryan Orr recently mentioned in a conversation: “It seems that the Bitcoin ecosystem has aggregated all of the world’s most hard core speculators.”
Thus do not consider my citation of these platforms or solutions as an endorsement.
Table is from: The Bitcoin Central Bank’s Perfect Monetary Policy by Pierre Rochard
Guess what? Dollar bills are madeof cotton from CNN|Money
More discussion at: Charles Stross takes on the Bitcoin community
Environmental impact of eurobanknotes from European Central Bank
Cotton and U.S. Currency from Cotton.org
In the chart above, there should probably be an asterisk next to “Built-in” because authentication is probably the most expensive part of Bitcoin because to perform authentication oneself, one must have a computer downloading and storing the entire blockchain and confirming the transactions – there is an entire subindustry of wallet and security providers now. The blockchain is nearly 14 GB already with relatively little usage. Besides computational cost of creating proof-of-work transaction evidence (which is already being addressed by altcoins through proof-of-stake, etc.), ledger size is another big issue that is being tackled (e.g., SPV). Thus adding contract storage to it could make it even more costly (though this itself does not mean it will not be included or implemented in Bitcoin or other systems). Xapo alone raised $20 million earlier this year to provide wallet, vault and insurance coverage for users. See Xapo Raises $20 Million for ‘Ultra-Secure’ Bitcoin Storage from CoinDesk
There should also be another asterisk next to Counterfeiting Precious Metals. Gold-coated tungsten bars are a common way to defeat this, see Fake gold bars turn up in Manhattan from MyFoxNY: http://www.myfoxny.com/story/19578206/fake-gold-bars-turn-up-in-manhattan
Another asterisk should be placed next to Transportation, because it is not free. On-chain Bitcoin transfers are more expensive than traditional credit card transfers, not cheaper. However, the cost of bitcoin transfers is currently being masked by monetary inflation. Each day, 3600+ bitcoins(now worth over $2 million) are added to the network, all of which go to those running the network. 60,000 transactions a day, so bitcoin miners are receiving $35+ per transaction they process.
Here is Ken Shirrif’s explanation: http://www.dgcmagazine.com/bitcoin-a-jack-of-all-trades-is-the-master-of-none/How Bitcoin Is Paid For
Bitcoin transactions cost above $50 per transaction, which is very high, but it feels low because this cost is paid for through the creation of new bitcoins that equally dilute everyone’s bitcoins.
The person making the transaction doesn’t pay the fee, all holders of Bitcoins pay what amounts to an inflation tax out of dilution of their Bitcoin value. From the user’s perspective of sending money with Bitcoin, it feels practically free!
This situation will change once 21 million Bitcoins have been created and the blockchain reward falls to zero. Once the Bitcoin mining reward falls to zero, the entire cost of Bitcoin mining (transaction processing) will have to be borne by transaction fees.
The current transaction fee is over 4% even with an average transaction of $1200. If Bitcoin were to become a retail payment system, the transaction fee would be over 100%.
In order to maintain the current mining reward, even if Bitcoin block size were made a lot larger, the average transaction fee would have to be about $1 per transaction. For a retail sized transaction ($33) that is the about same cost as credit cards or paypal. So Bitcoin is not cheap, it just feels cheap because block rewards are currently covering the cost of mining (transaction processing).
This high transaction cost is once again, due to Bitcoin’s dark-net features. Other digital currency systems like e-gold were able to issue precious metal contracts that were never diluted by inflation. Their transaction fee was 0.5%, capped at 50c.
See also: Gridcoin and Computing for Good attempt to diminish the “wasted” electricity towards an activity with productive utility.
Via ICE Cubed Exchange: https://twitter.com/ICE3X/status/447739456020156417/photo/1
The actual transaction fees vary per transaction depending on demand, with rates over the past 3 months fluctuating see: https://blockchain.info/charts/cost-per-transaction-percent
Remittances flows to Latin America and the Caribbean remain stable at $61bn from Inter-American Development Bank and Remittances to Guatemala increased by 14.5 percent in January from The Tico Times
Migrants from developing countries to send home $414 billion in earnings in 2013 from World Bank
African Migrants Could Save US$4 Billion Annually On Remittance Fees, Finds World Bank from World Bank
See also: the report at Scribd and coverage from CoinDesk
Special thanks to Tuur Demeester for highlighting this chart in a tweet: https://twitter.com/tuurdemeester/status/443779660002754562
Pay Another Way: Bitcoin from WordPress
Bitcoin – A Jack of All Trades is the Master of None by Ken Griffith
Comparing VISA and DoD I.T. by Paul Strassmann
From oil painter to the C-suite from Financial Times and M-Pesa helps world’s poorest go to the bank using mobile phones from The Christian Science Monitor
David Evans, a law professor at the University of Chicago, recently published a payment platform comparison between M - PESA (in red) and Bitcoin (in blue). Professor Evans uses a different title “Chart 1” than what is in this manuscript. See Bitcoin Payments: Igniting Or Not? by David Evans
In addition to the Hardfork Wishlist, Vitalik Buterin has a running list of issues facing cryptocurrencies: Big Problems in Cryptocurrency
Note: The M-pesa platform is back by the banks and national currency and its success has been largely attributed to its agent network. According to an email exchange with Michael Youssefmir, an engineer at Google who has previously published mobile data pricing on Ghana, “MPESA was successful because Safaricom had a monopoly and regulators failed to regulate before the system took hold. Successful mobile money systems in the class of MPESA must become defacto standards. The fragmentation and regulation that occurred in other African countries is exactly why we keep having to talk about Kenya and only Kenya. As a defacto standard that is resistant to regulation, bitcoin is an ideal currency and system to serve as mobile money in the developing world.”
Comments from: https://bitcointalk.org/index.php?topic=395761.msg5841599#msg5841599
And: https://bitcointalk.org/index.php?topic=395761.msg5858703#msg5858703
Pool chart as of March 25, 2014: http://bitcoinchain.com/pools/
Additional comments: http://www.reddit.com/r/Bitcoin/comments/21b4pm/developers_battle_over_bitcoin_block_chain/
Tweet permalink: https://twitter.com/jgarzik/status/429058872725102593
Decentralized pools like P2Pool would help alleviate some of that concern , yet there are financial incentives for “hashers” to use larger pools that create imbalances that are discussed in Hashers are not miners, and Bitcoin network doesn’t need them.
See also An Introduction to BIP70 by Kevin Greene
Selfish Mining: A 25% Attack Against the Bitcoin Network by Vitalik Buterin http://bitcoinmagazine.com/7953/selfish-mining-a-25-attack-against-the-bitcoin-network/
Eligius is a mining pool that was diverted to kill an alt, Coiledcoin, deemed as a “scam” by Eligius owners Luke-Jr. See his comment: https://bitcointalk.org/index.php?topic=56675.msg678006#msg678006
https://bitcointalk.org/index.php?topic=395761.msg5896415#msg5896415
ArtForz is accused of doing the same thing to i0coin: https://bitcointalk.org/index.php?topic=56675.msg678135#msg678135
One incentive to DDOS an altcoin is to prevent competition from occurring. Warren Togami (lead developer of Litecoin) warned Litecoin users that they should not antagonize Bitcoin users for this reason, as Bitcoin users have the financial means and technical prowess to DDOS Litecoin forums, exchanges, pools, etc. This phenomenon is not new either as pool operators over the past 4 years have been attacked by a variety of actors (hackers, competitors, etc.). Competitors could hire a botnet to take down a competing pool, the less competition, the more possible chances your own pool has of hashing blocks. It happens globally too as seen with Huobi, which underwent a DDOS on the weekend of March 22-23.
Tokenholicism is a new term that can describe those fixated solely on token prices.
Firms like Coinbase are well-positioned to provide extra value (full stack abroad, vertical integration – getting rid of middle men) and are not necessarily tied to one cryptocurrency.
Transaction fees will ultimately be floated too, which may increase the costs depending on the popularity, see 4 New Bitcoin Features Revealed by Core Developer Mike Hearn from Cryptocoins NewsAnother issue pool owners face is "selfish mining" which is best described in Selfish Mining: A 25% Attack Against the Bitcoin Network by Vitalik Buterin.
Permalink to Gavin Andresen’s comment: http://www.reddit.com/r/Bitcoin/comments/1sk3df/bitcoin_086_released_updates_to_block_size_limits/cdyrab7
It seems that the financial incentive at this time is for most core developers to develop bitcoin alternatives which, when paired with the open-source nature of these protocols (SHA256d and Scrypt-based) plus ASICs, to fundraise. This may just be a phase, or it could be a never-ending cycle.
Bitcoin Core Development Falling Behind, Warns BitcoinJ’s Mike Hearn from CoinDesk
Following the Money: Trends in Bitcoin Venture Capital Investment by Garrick Hileman
Image from A Guide to Bitcoin Mining: Why Someone Bought a $1,500 Bitcoin Miner on eBay for $20,600 from Vice
I emailed Garrick Hileman for clarification as to the source of the $200 million and he noted that the figure comes from a report by Gil Luria at Wedbush Securities. The larger number $1 billion is more likely estimate due to the amount of personal self-funded operations that have never been disclosed since the genesis block.
It should be noted, as Ryan Orr mentioned, that in any infrastructure related project, especially those that are “publicly funded” there is typically a bubble of investments that go underutilized.
See: Pricing Security by Camp & WolframWhy Information Security is Hard -- An Economic Perspective by Ross AndersonMeasuring the Costs of Retail Payment Methods by Hayashi & Keeton
Chart via: https://blockchain.info/charts/hash-rate
In terms of hash rate volatility: this is evidence of miners getting smart with incentives and switching off to lower difficulty next period. For more mining pool, network, and exchange analysis see, Neighbourhood Pool Watch Bitcoin
Richard Feynman first popularized this superficial hand-waving phrase 40-years ago through his memorable lecture, Cargo Cult Science. The name is derived from the actions of a South Pacific tribe located on the island of Tanna in Vanuatu. See In John They Trust from Smithsonian
Unilateral Statement Regarding Mt. Goxfrom an Insider by Jesse Powell
For the free-rider problem and cryptocurrencies see Why start or invest in Bitcoin companies? Why not free ride Instead? by Koen Swinkels
This is not to say that altruism and charity cannot or will not succeed in developing the ecosystem further, rather this is a description of how the process is currently being done.
Economics is the study of human interaction with scarce resources. While individuals and companies may privately control digital signatures, the protocol itself is arguably a “public good” and thus has all of the issues and limitations related to the “commons” and free-riding thereof. It is an application of game theory, a type of prisoner’s dilemma. See Academics Spy Weaknesses in Bitcoin’s Foundations from Technology Review
While the analogy is imperfect, a public highway and the Bitcoin protocol share similar traits. You have toll roads (miners to pay for transactions), adopt-a-highway volunteers (developers), speed bumps (dust limits). Yet know one owns the protocol so all decision making becomes a matter of public policy debates (i.e., debates on github over what to include and what not to include). Additional value and utility is created on the edges that require investment, yet historically most start-ups fail.
Despite the enthusiasm, competence and funding, the likelihood of success is not a given for any startup. And based on years of experience there are ways to try and mitigate and plan around known issues of founding a new company. See Death and startups: Most startups croak 20 months after their last funding round from Venture Beat, The Venture Capital Secret: 3 Out of 4 Start-Ups Fail from The Wall Street Journal, Fighting co-founders doom startups from CNN|Money, Why Small Businesses Fail: SBA from About.com and How Many New Businesses Fail in the First Year? from eHow
Bitcoin needs to scale by a factor of 1000 to compete with Visa. Here’s how to do it. from the Washington Post http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/12/bitcoin-needs-to-scale-by-a-factor-of-1000-to-compete-with-visa-heres-how-to-do-it/
In contrast, see the information video at Keep Bitcoin Free: http://keepbitcoinfree.org
Another interesting discussion on the block size issue is Is there a consensus on the blocksize limit issue? on reddit
One reviewer of this presentation argued that:
“I think participants in the network (bitcoin users) essentially treat it as if it is non-scarce, but fundamentally it isn't. One reflection of its scarce nature is that people do pay for it in the form of the inflation tax (if it were truly scarce one would expect it to be free, like air). The problem is that the vast majority of the costs of a transaction are not paid by the person doing the transaction but offloaded onto everybody else. Another thing that brings out the ultimately scarce nature is a comparison to alt coins: for many alt coins the network simply doesn't reward those who secure it well enough so that the supply of computing power is insufficient to meet demand. That is not currently the case with bitcoin, but that could change.”
In another conversation, this time with Jonathan Levine, he noted that: “The private good market game has to provide adequate incentives for miners to provide the optimal amount of hashing power. There are two markets and it is not likely that we will get an equilibrium in the private goods market which does not lead to welfare loss in the public goods market. Hashrate is a public good, it is non-scarce and non-rivalrous that everyone benefits from. No one is excluded from trading -- it cannot exclude. In addition there is a private goods game, the inclusion of transactions. Because there limited block size, only so much data can be included. This transaction cost is masked through seigniorage, through block rewards. Current transactions costs are not borne on users all of whom free ride. The private good has to fund the public good, it has to create a revenue stream of paying tax fee to be included in a block. Thus there are two markets, which is not currently efficient as the actual transaction cost.”
In creating this presentation I consulted with Ryan Orr, a professor at Stanford who specializes in developing and analyzing infrastructure projects. According to him, “Hardware costs as 1/8th market cap does not bother me so much. All public infrastructure systems experience a bubble at the beginning and a period of overinvestment. It happened in railroads, telecom, etc. Oftentimes the early investors in infra-systems lose their investment and it is the 2nd owner of the systems that make the money. This overinvestment does not impact the cost of service provision to the users though, i.e., it is not necessarily passed thru in the form of fees to the users. The example is all of the early investors in fiber optics losing their investment, and then Google buying up the dark fiber for just a fraction of the initial installation cost, but ultimately the fiber optic system still provies an incredibly valuable service to the users and the users are not forced to pay more because the initial investors made an error of judgment.”
The above quotes come from the following links from real Bitcoin developers last week. Bitcoin developers noted that OP_RETURN was not intended to be used as a general data store function and that it was to be used solely for encrypted keys. In contrast, Counterparty developers created their platform with the understanding that OP_RETURN would include 80-byte hash that can be used as a data store function. Last week, with the release of 0.9 bitcoind, Counterparty developers found out that the 80-byte space was lessened to 40-byte, which prevents them from full utilizing their platform as intended. This led to a number of discussions and arguments. The issue of who can make the decision, who has to ask for permission, how permission is supposed to take place (a BIP) and other issues were raised during this process.
https://bitcointalk.org/index.php?topic=395761.msg5798088#msg5798088
https://bitcointalk.org/index.php?topic=395761.msg5806919#msg5806919
https://bitcointalk.org/index.php?topic=395761.msg5815887#msg5815887
https://bitcointalk.org/index.php?topic=395761.msg5816797#msg5816797
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https://bitcointalk.org/index.php?topic=395761.msg5830975#msg5830975
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https://bitcointalk.org/index.php?topic=395761.msg5841599#msg5841599
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https://bitcointalk.org/index.php?topic=395761.msg5870628#msg5870628
Additional comments: http://www.reddit.com/r/Bitcoin/comments/21b4pm/developers_battle_over_bitcoin_block_chain/
https://bitcointalk.org/index.php?topic=395761.5840
“If OP_RETURN was meant to stop/curtail the multisig behavior (Unspent Outputs) and hereby reduce blockchain bloat, then I fear by reducing the size of OP_RETURN from 80 to 40 bytes, you've inadvertently made multisig MORE ATTRACTIVE to all the metaprotocols and you've made OP_RETURN less attractive. The cost of paying the miners fees has not reduced the ability to survive with multisig.
We (All the metaprotocols) WANT to use OP_RETURN as it is in everyone's interests to do so, but if you hobble the feature's functionality such that the costs to use OP_RETURN are too high to consider, then markets will find other, less costly alternatives to achieve its goals.”
Perhaps another appropriate meme would be from Lionel Richie “Hello, is it me you're looking for?”
Core Development Update #5 by Gavin AndresenDevelopers Battle Over BitcoinBlock Chain from CoinDesk An Open Letter and Plea to the Bitcoin Core Development Team from Counterparty Hashrate chart via Blockchain.info Charts
It is almost impossible as an outsider to know just how many “hashers” there are today due to ASIC performance. It is likely that there are significantly fewer hashers today than in 2012. One source of information could be from mining operators, who have a database of workers, yet the likelihood of disclosure is quite low.
Above quote from Luke-Jr: https://bitcointalk.org/index.php?topic=395761.msg5844476#msg5844476
Similar to the quote attributed to Henry Kissinger: “Who do I call if I want to call Europe?” See Kissinger says calling Europe quote not likely his from Businessweek http://www.businessweek.com/ap/2012-06-27/kissinger-says-calling-europe-quote-not-likely-his
Image and data via: https://bitcointalk.org/index.php?topic=395761.msg5869343#msg5869343
Source: Why start or invest in Bitcoin companies? Why not free rideInstead? By Koen Swinkels
Talking Bitcoin With the Winklevosses, Naval Ravikant, and BalajiSrinivasan from TechCrunch Why would you invest in a Bitcoin-related company instead of Bitcoins? by Adam Draper The quote from Peter de Vroede is: http://www.quora.com/Startups-in-2014/Why-would-you-invest-in-a-Bitcoin-related-company-instead-of-Bitcoins
Pictured: Samuel Brannan, Philip Armour, John Studebaker, Levi Strauss and Wells Fargo
From Chapter 3, Great Chain of Numbers: http://www.ofnumbers.com/2014/03/04/chapter-3-next-generation-platforms/
Note that Counterparty will likely become Turing complete as well (they will probably use Vitalik Buterin’s library). They are working on it and will release it on testnet first. Many thanks to Taariq Lewis for his feedback and pointing this out.
One other reviewer jokingly referred to Goxcoins (not related to the Humint project) as a type of proof-of-burn.
These platforms are discussed at length in Chapter 3: http://www.ofnumbers.com/2014/03/04/chapter-3-next-generation-platforms/
From Chapter 9 in Great Chain of Numbers, numbers as of March 1, 2014: http://www.ofnumbers.com/2014/03/04/chapter-9-conclusions/
Credit: Bitcoin Series 24: The Mega-Master BlockchainList by Antonis Polemitis from Ledra Capital
These pictures are included in the blockchain, more is discussed in: Hidden surprises in the Bitcoin blockchain and how they are stored: Nelson Mandela, Wikileaks, photos, and Python software by Ken Shirriff
Backed by $5 Million in Funding (4,700 BTC), Mastercoin Is Building a Flexible, New Layer of Money on Bitcoin from MarketWired
See I burned BTC through blockchain.info, how do I access my XCP? from Counterparty.co and the exact address was 1CounterpartyXXXXXXXXXXXXXXXUWLpVr. On the first day a user would receive 1500 XCP for 1 BTC. By the end of the fundraiser, it was 1000 XCP for 1 BTC. Ultimately 2,648,756 XCP were created in total.
Another funding alternative that two people have independently mentioned to me this past month: is that a group of developers could release a crypto-currency which asks for tiny donations per transaction to fund development.
There are 200,000 Chinese students in the US currently. One potential application of LTBCoin and crowdequity is to enable talented individuals to issue tokens as a way to fund future endeavors (in return for shares/dividends). This could be a method for immigrants to raise funds in a non-traditional way, since they may not have a credit history to obtain a Small Business Loan from a bank.
In terms of next-generation platform, Pair thinks that, “while there are several ambitious projects currently being developed to remove the perceived ‘ugliness’ in the current protocol, I see this endeavor as Betamax versus VHS. VHS won out in the format war despite lower fidelity and it is possible that the new innovations which arise from the ‘2.0’ projects will be adopted and integrated back into Bitcoin. In the past, I’ve worked on several software projects that required a team to simultaneously solve 10 to 12 hard problems, without which the underlying functionality could not be capitalized off on. Thus, unless these teams make substantial progress on all fronts, they may be taking on too many things at one time. In our perspective, “the perfect is the enemy of the good,” that is to say, HTTP is not as elegant as a lot of other projects that were being developed at the same time, but it is now widely used because it worked good enough – and because the other competing teams suffered from trying to make the most elegant, perfect solutions.” Chapter 7: http://www.ofnumbers.com/2014/03/04/chapter-7-how-to-get-involved-with-the-crypto-ecosystem/
Original announcement thread: [ANNOUNCE] New alternate cryptocurrency - Geist Geld at Bitcoin Talk forum https://bitcointalk.org/index.php?topic=42417.0
One Million Gateways is a new project by Andrew White to create thousands and potentially a million gateways (exchanges) in which cryptocurrencies can be exchanged for other value (e.g., hard assets)
Charlie Lee's Litecoin presentation at BTC Miami Conference has some interesting notes about early altcoins (video) (slides)
There are a seemingly endless amount of alts with different timings. Another notable one is Florincoin which has 40 second blocks and transaction comments limited to 528 characters, see
See the Appendix for more information.
Centralized, vertical stacks are arising within this decentralized ecosystem including notably Coinbase and BitPay. Other organizations and parties may adopt cryptoledgers internally, including governmental departments. This has happened before with all other technology – especially open-source tech – thus it is likely that it could be done again. See for example, Nathanael Burton’s use of OpenStack at the NSA: http://www.openstack.org/summit/portland-2013/session-videos/presentation/keynote-openstack-at-the-national-security-agency-nsa
‘Jawboning’ is a term given by financial analysts to describe policy makers such as central bankers who do not issue new policies but instead talk or rationalize via the press was to what direction the market and market participants should go. The term came about originally during the Kennedy and Johnson administration regarding inflation.
One other reviewere discussed these other ‘public goods’ comparissons:
- French academy versus permissionless English- Slang off label use- Colloquialism- Custodians- Grey market of language
Note: this presentation was done to explain the motivations for 2.0 development and is not in any way a slur against the hard work of the community. To their credit, volunteers have rewritten and built upon the original Bitcoin protocol and like the ancient ship of Theseus, roughly 70-75% of the code in bitcoind is new -- is not from Satoshi. See Satoshi Nakamoto's Neighbor: The Bitcoin Ghostwriter Who Wasn't from Forbes
See Block reward schedule: http://en.wikipedia.org/wiki/Dogecoin
Chart via: http://bitinfocharts.com/comparison/hashrate-ltc-doge.html
These are multi-alt pools that point miners/hashers to a Scrypt-based alt that is most profitable at the time: https://bitcointalk.org/index.php?topic=456564.0
Graph data via: http://coinmarketcap.com/ltc_90.html
Graph data via: http://coinmarketcap.com/doge_90.html
See Hashcash.org and Episode #77 from LTB: http://letstalkbitcoin.com/e77-the-adam-back-interview/#.Uy-fwYVBprE
Introducing Bitcore from BitPay and Insight.bitcore.io
Last year Adam published a brief autobiography on Bitcointalk: https://bitcointalk.org/index.php?topic=225463.0
Core Development Update #5 by Gavin Andresen: https://bitcoinfoundation.org/blog/?p=290
Why BitcoinMatters for Bankers from American Banker
Voting Pools: How to Stop the Plague of BitcoinHeists, Thefts, Hacks, Scams, and Losses from Bitcoinism
While Open-Transactions is theoretically ledgerless, in practice it seems more like a system of micro-ledger pools - a neat way to cut down on the amount of ledger data needed to be stored per user for authentication.
Unrelated but one reviewer pointed this out to provide a smile in a serious conversation: https://twitter.com/aniceberg/status/432522111576715265
According to an email exchange with Michael Youssefmir, an engineer at Google who has previously published mobile data pricing on Ghana, “MPESA was successful because Safaricom had a monopoly and regulators failed to regulate before the system took hold. Successful mobile money systems in the class of MPESA must become defacto standards. The fragmentation and regulation that occurred in other African countries is exactly why we keep having to talk about Kenya and only Kenya. As a defacto standard that is resistant to regulation, bitcoin is an ideal currency and system to serve as mobile money in the developing world.”
For perspective, from The Economist last year, “Mobile-money schemes in other countries, meanwhile, have been held up by opposition from banks and regulators and concerns over money-laundering. But M-PESA is starting to do well in other countries, including Tanzania and Afghanistan, and last month it was launched in India. At the same time, operators in some other countries are doing an increasingly good job of imitating it.” Why does Kenya lead the world in mobile money?
Fewer than one in three Africans has a mobile phone from Reuters and The Sleeping Giants Of African Mobile Payments from TechCrunch
I would like to thank Petri Kajander for the feedback on this slide.
Deloitte replaces PwC as biggestglobal firm from Economia
12th Global Fraud Survey from Ernst & Young
Personal interview, March 23, 2014. Website is Empoweredlaw.com
Proofofexistence.com
BTProof.com
Preston Byrne helped me extensively with Chapter 2 in my book, Great Chain of Numbers. He is a fellow at the Adam Smith Institute.
There may be existing systems such as those offered from Wall Street Systems (or the older Trema Finance Kit) that can provide similar functionality.
See Chinese Land-Use Rights: What Happens After 70 Years? from China Smack, China’s Real Estate Riddle from Patrick Chovanec, You May Own your Apartment, but who Owns the Land Underneath Your Feet? by Thomas Rippel, If Beijing is your landlord, what happens when the lease is up? from China Economic Review and Chinese fear homes are castles in the air by Stephen Wong
See China’s Land Grab Epidemic Is Causing More Wukan-Style Protests from The Atlantic and China Tackles Land Grabs, Key Source of Rural Anger from The Wall Street Journal
See China land price fall threatens local finances from Financial Times and China’s land-seizure problem from Chicago Tribune
Internal Migration in China and the Effects on Sending Regions from OECD
See Hukou system and China: Urbanization and Hukou Reform from The Diplomat
Image from The Tragedy of the Commons from Penn State