Announcing a Return to our Roots: The All-New Bitcoin Magazine

The Greater Promise of a Blockchain


         The Greater Promise of a Blockchain

Bitcoin is dead! It must be true, Reuters told me. Charlie Stross will be pleased. The party’s over. Everyone go home. It’s time for some quiet reflection.

Wait a minute. Bitcoin’s not dead. Hold on. How does a computer protocol die anyway?

The viability of Bitcoin: it’s a debate that seems to go on forever. It may be difficult to comprehend, but out there in cyberspace are places where Bitcoin is still a curiosity. There, this technology is superficially considered and routinely dismissed. What is being overlooked?

Detractors will often tell you that money needs government. They’ll remind you of tulips and speculative manias. They seek to distract. Long-winded diatribes on the history of money are commonplace. Readers are taken on pointless journeys through antiquity. The most obscure historical references are routinely cited.

Ignore the arguments for a moment. Instead, observe the humans making them.

You will necessarily find the most near-sighted of creatures: the economic analyst. The technology communities of the world are already committing. For them Bitcoin is a no-brainer. It’s their job to spot disruptive technology.

This is key. Bitcoin is a technological innovation: purely disruptive in form and function. Arguments by economists that ignore the technology are worthless.

Those with the loudest digital voices continue to produce the most noise: failing to engage the technical. Perhaps this can be forgiven. With only a casual glance Bitcoin could seem full of bizarre phenomenon.

But really, what does it take to think? Shouldn’t complete analysis precede grandstanding? Maybe then we could all be spared the mind-numbing horror of another diatribe about tulips.

Bitcoin is an idea expressed in the language of mathematics. Its time has come. To analyse it as only a monetary phenomenon will lead you down the garden path.

Fundamentally Bitcoin is a solution to a long-standing computing network problem.

The Problem of Byzantine Generals

Bitcoin is, first and foremost, a ledger. The units of account are earned onto the ledger. The ledger is the blockchain.

The computing problem is that, given a large group of users, each will want to create a false ledger entry, assigning themselves more units. Before Bitcoin a central party was the only solution. However a central point of failure is best avoided.

The Byzantine generals problem uses an allegory to explain. Some generals and their respective armies are outside a city. They want to invade. They know that if at least half of them attack at the same time they’ll win. But they must attack at the same time. If not, they’ll lose. They can only co-ordinate via messages.

Treachery is possible and some generals may send fake messages. How to know if a message is true? Faced with potential dishonesty, how can such a large and disparate group co-ordinate the time for attack?

The solution: attach a cost to sending the message and ensure, through the network, that only one general can send a message at a time. The cost is a proof-of-work scheme. And eureka, we‘ve finally found it. A message cannot be faked: it will not contain the math solution needed to authenticate it.

A dishonest general can only succeed if the majority of the generals collude with him. This is unlikely. The system rewards generals for their resource intensive math work in maintaining the system.

Voila, a time-stamped, cryptographic-ledger, distributed over a decentralised peer-to-peer network: a technological marvel that can’t go away. To dismiss it is foolhardy. The implications are too far-reaching.

The Future Applications of a Blockchain.

Economic analysts are obviously preoccupied: tulips or Beanie Babies for this article guys? It’s heady work. Nevertheless innovation continues in earnest. Behind the scenes we’re really starting to hit hyper-drive.

Those with vision and understanding are taking this technology and building things, amazing things: tools and protocol layers.

Our future is clear. In this strange world of decentralized networks, agents will interact with each other intimately and directly, from afar, for everything. At the core of all these networks will be a blockchain.

All internet-based trusted third parties are now redundant. The corporate dead walk among us. The network is its own autonomous entity for achieving consensus.

For an economic analyst like Mr Edward Hadas, for example, perhaps the ultimate proof of just how unsettling a blockchain will be are ‘coloured coins’. Here the units of account on a given blockchain are tied directly to the shares issued in a company (as an asset example).

Take a given quantity of Bitcoin, tie them to a given quantity of shares in a company and let them move around the ledger.

If the blockchain agrees on asset ownership through time and transferring that ownership is trivial then there is no need for expensive stock exchanges. Assets like company shares become so liquid that they could be used in any transaction, person-to-person.

Bitcoin enthusiasts are conservative revolutionaries. But the possibilities are truly endless and the mind often boggles.

One further example for the economically minded: Decentralised Autonomous Corporations (DACs). For a full analysis of a DAC see Vitalik Buterin’s article on bootstrapping a DAC. Essentially this is a network of economic agents interacting with each other according to rules allowed for by a common protocol. It is a decentralised company.

Bitcoin is often described as the world’s first DAC. A common protocol (business rules) underpins a network of users who contribute their land, labour, capital and enterprise (factors of production) to providing value (the network and ancillary services).

The DAC rewards economic agents by assigning them units of account on the ledger. The network is its own ecosystem and actors can be thought of as bootstrapping an economy. DACs can take a variety of forms but the blockchain is always at the core. In every case the community self-organizes and hierarchy becomes redundant.

Societal Implications: A Greater Vision.

The blockchain is the heartbeat of a new decentralised organism. This creature will completely reshape society in its own image.

This should be embraced. Our society is too complex to manage centrally. But even if this is ignored, it will not matter. This change is inevitable. The industrial age necessitated hierarchy: monolithic centres of power exercising inordinate amounts of control. Our information age does not.

Hierarchy limits freedom and causes irrational economic behaviour. It stifles the human spirit and distorts natural market mechanisms.

With Bitcoin’s blockchain all manner of mutually agreed, decentralised relations are possible, at distance.

This new flattened society will be based on mutual contracts made possible by a blockchain. Deposit, escrow, dispute mediation, insurance, trading and micro-transactions are all possible with this technology and the costs are negligible. Property can be both registered and transferred through the blockchain.

Let’s see a tulip or a Beanie Baby do that.

(Inspired in no small part by the vision of Andreas Antonopoulos and the ignorance of Edward Hadas).


Op Ed: SEC’s Latest Declaration Creates Legal Minefield for Digital Assets

This broad, authoritative declaration is not unexpected, as, to date, the SEC has stated that all digital assets — regardless of whether they function as alt coins or utility tokens — are securities at least initially and, thus, subject to its jurisdiction.

Huhnsik Chung and Nicholas Secara

Op Ed: Cryptocurrency’s Unrealized Opportunities for U.S. Tax Professionals

Tax accountants and firms that specialize in cryptocurrency will emerge to capture and service this market. The first movers will be the ones who stand to capture the oversized profits.

David Kemmerer

Op Ed: Anatomy of the Tether Attack: Are Stablecoins Vulnerable?

Last month's attack on Tether contains a cautionary tale: Only those coins that can survive such attacks have the slightest chance of becoming the “holy grail" of stablecoins.

Henry He

Op Ed: 10 Takeaways From Recent French Guidance on Blockchain and the GDPR

The CNIL wisely points out, “Blockchain is not always the best technology for all processing of data; it may be the source of difficulties for the controller with respect to its GDPR obligations.”

Laura Jehl