Blockchain Now!

Reuter’s reports that Germany’s justice and finance ministries have proposed to launch a state-run register to boost the use of blockchain. We’ve seen these same efforts repeated with other governments across the globe. While bitcoin is slowly being adopted, its underlying blockchain technology is being widely adopted. That the blockchain regulations, policing of the blockchain technologies, and the registration of blockchain based exchanges are being put in place now will later prove useful to a bitcoin economy.

Blockchain technology replaces a centralized network with a decentralized, distributed network. Instead of a central clearinghouse for all transactions, exchanges are made throughout the network. Instead of a physical token for each transaction, such as printed shares of stocker each trade, trades can be made in blockchain technologies entirely digitally. In order for investors to pay their fair share of taxes on blockchain transactions, both the government agency and the tax payers have to have the apps that allow them to compute the necessary amounts. To follow up on complaints of foul play, emergencies, and general police detective work, law enforcement agencies need to know what blockchain technology is and how to deal with it. There is no difference between researching a transaction made in a blockchain network for real estate and for a bitcoin transaction. The list goes on, but in short, learning to work with blockchain is the very skill required to work with bitcoin.

Bitcoin

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Bitcoin is a cryptocurrency.  “Crypto” meaning encoded; “currency” meaning money.  It was invented by someone named Satoshi Nakamoto in 2009.  He was trying to solve the problems of digital currency such as using money online for shopping or banking.  His solution was so thoroughly thought out that one could say he gave birth to Bitcoin whole and fully formed.  In 2008 he published a white paper describing his invention, then formed a group of programmers who could create and follow his design. He then disappeared and no one knows who he is or where he is to this day.

Bitcoin is the result of something else Nakamoto created called a blockchain.  A blockchain is a distributed, decentralized network.  You all know what a centralized network is where every node in the network is directly attached to a central hub.  Our online banking systems work like that.  Every transaction goes through a central hub.  A decentralized network might have several hubs scattered throughout the network.  This would be what you would imagine our fire department looks like with stations scattered throughout the city.  A distributed, decentralized network is slightly different from these.  With a distributed, decentralized network there are no hubs.  Every intersection in the network between two or more users is considered a node.  Each node has several neighbors.  A blockchain is a distributed, decentralized network of nodes.  The Bitcoin blockchain has over 11,000 nodes at the moment.

In Nakamoto’s design for Bitcoin, each node would have a computer running the Bitcoin blockchain program.  The program would do several things.  It would each a ledger of every transaction made anywhere on the network at any time from the beginning of the network until the present.  It would communicate with its neighbors.  A typical node might have five or six neighbors.  Remember, this is all running on the Internet so a cyber-neighbor on the Internet does not mean it is a physical neighbor.  The nearest neighbor for a node in New York could be Chicago, London or South Australia.  The time for a signal to travel around the world is a small fraction of a second.

distributed network

When some at node A gives a Bitcoin to someone at node B that is called a transaction.  A transaction would be written as “A gives B one Bitcoin”.  The program at node A tells its neighbors this transaction.  Let’s say its nearest neighbor is node C.  The program at C receives the message “A gives B one Bitcoin” and records it as a new transaction and marks it as “Pending”. It then checks all previous transactions to see if A really has enough Bitcoin to give one Bitcoin to B.  If it finds the current amount of Bitcoin at A is sufficient to pay B one Bitcoin it sends a message back to A and B and says “Transaction confirmed” meaning that transaction can proceed.  Node A and B record the confirmation and write “Transaction pending.  1 confirmation”. C then goes on to tell all of its neighbors about this new transaction.  Node C tells D, E, F, G, and H.  They, in turn, check their ledgers to confirm that the transaction is authentic and allowable and send back confirmations if they do.  The process continues until Node A and B have 1000 confirmations.  At that point the transaction is considered authentic and allowed to proceed.  “Pending” status is changed to “Confirmed.” The 1000 confirmations make the network very, very difficult to cheat.  You would have to get 1000 strangers whom you do not know in advance to collude with you in order to cheat the system.

The transactions continue until there are a sufficient number of transactions to fill a block.  A block is about 1 kilobyte of data. When that happens the block is attached to the previous block to continue the chain. Now, Satoshi Nakamoto realized that he would have to get people to maintain all of these nodes, with a computer and a large disk drive at each one.  He created a very unique method for doing that.  These people would be called “miners.” A Bitcoin miner had 1) to be motivated to do the work, and 2) be chosen at random so that no one could take over the system for themselves.  His solution was this: he would pay them (in Bitcoin) for doing the work, and, he would create a very difficult mathematical problem for people to solve.  The problem was so difficult that even with a super-fast computer the miner would take about ten minutes to solve the problem.  And, the solution would be totally random so that even smart, fast computers did not have an advantage over anyone else doing the same thing.  The problem was to guess the password for the next blockchain.  This would be a random thirty-character password that took even the fastest computer about ten minutes to guess and looked something like this: 00RasOd2FsM5Gsdfd88up8pUs5QdWss:426SD38E1a.

The miner that guessed the password correctly was paid 12 bitcoin and had the privilege of creating the next block and communication that to the network.  Twelve (12) bitcoin today is worth over $100,000 so there are many people who want to do mining.   There are a total of 21,000,000 bitcoin in the system.  There will never be any more than that.  16,800,000 have already been distributed and there is enough bitcoin to pay miners for the next 100 years.  In the year 2108, the miners will have to charge fees to do the work.

Bitcoin is just one cryptocurrency.  Since it was created in 2008, there have been many more cryptocurrencies created.  To date, there are over 1500 cryptocurrencies recorded.  Not all will survive.  Each one was designed to do something different from the others.  There are currencies which are just for real estate.  There is one just for contracts.  There are several for online gaming, sports gambling, international finance and so one.  Their creators hope that they become popular and successful.  Some will.  Some won’t.  The most popular ones today are Bitcoin, Ethereum, Litecoin, and Ripple.  To see the Bitcoin network in action take a look at bitlisten.com. Since all transactions are public, at this URL the programmer created a bubble for each transaction and displays the size of the transaction in the bubble as they appear.

So what’s the big deal about Bitcoin?  Why all the fuss? How to get Bitcoin? How to keep Bitcoin safely? What are bitcoin wallets? These and many more questions are subjects for future discussion.  You can read more about Bitcoin at bitcoinARL.com.

 

On Leaving the Poor Box Unattended

friar tuck poor box--robin-hoods-robins

It’s difficult to think what the advantages and new possibilities are for blockchain because we don’t think about strangers being trusted partners, especially on the internet.  We assume everyone is potentially a bad player.  For example, we’re not accustomed to trusting a website visitor unless they have been verified.  How do we know that visitor isn’t here to do malicious mischief for personal gain, to steal from other users, or harm someone else?

But let me give you an example:  Try to imagine a doctor’s office hosting an online public calendar, where any one of their present or future patients, without having to log in, can enter an appointment with name, date or time.  “Too much chaos,” you say? “The temptation for someone to grab another person’s appointment as their own would be too great.”

Ah!  But there it is.  No one can change your appointment but you, if that calendar were set up as a blockchain calendar.  Every transaction is recorded and you are given both a public key and a private key when you make an appointment.  The public key is accessible and known by everyone but only you know the private key.  For convenience sake, only your computer knows your private key so that you don’t have to think about it.  Anyone else would be denied access.  Secretaries no longer have to be a central clearinghouse.

It seems counterintuitive because we have been dealing with sites on the internet that are either open access without restrictions or sites requiring username/password protection.  Now, we have a third alternative that allows open access but provides strict, trustworthy private controls.  That’s valuable, indeed.

Blockchain: Not a Bubble

three menBlockchain, the technology behind Bitcoin and other cryptocurrencies, is a big deal.  Huge.  Blockchain offers a degree of security, trust, and anonymity, so often sought in contracts and financial dealings, yet seldom achieved.

Imagine if you were to buy a beautiful, three-bedroom home in a nice neighborhood with a yard and a garage. The day you move in with your family, three men with baseball bats burst through the front door and order you to leave. “This house is the property of Carlos Danger,” they tell you.  You don’t want heads of your family to be smashed to a bloody pulp so you follow instructions and scram.  In most parts of the U.S., you would be calling the police in hopes of justice.  In many other parts of the world, that would be that; end of the story, end of the house.

It is only because we have all of the other social systems in place, including the police, the legal system, the jury system, jails, insurance, banks, currency, Department of Buildings, Department of Sanitation, Fire Department, Real Estate Boards and elected officials that our ability to purchase and own property in the U.S. is somewhat secure.  In many other parts of the world, it is not.

Blockchain provides a methodology for the same kind of security without the need for rangers with guns, or police with Tasers, or lawyers with Court Orders.  Because blockchain provides this new found security, trust, and anonymity, all sorts of new currencies will appear representing all sorts of values and worth.  Remember Airmiles?Airmiles are valuable forms of currency for travelers.  There will be cryptocurrencies for travel, for health, for sports gambling, for online gambling, stocks, international monetary trade, insurance, cybersecurity, petrol and just plain old spending money.  Many coins will be very good ideas.  No one can predict which currencies will be the most valuable but many will be around for a long time to come.

The Value of Blockchain

bank safe dialAre you old enough to remember when backups to your laptop were a huge headache? Do you remember your joy when you were introduced to using the cloud for computer backups? A huge burden had been lifted from your back.  No longer would you be required to find gigabytes of free space to make copies of your data on an external hard-drive.  No longer would you have to worry about whether the backup copies of your keychain passwords would work.  No longer did you have to spend hours on the phone with various application company tech support specialists explaining why the backup to their software was necessary but the passwords no longer worked.

More recently I remember having to run iTunes with my iPhone connected to my computer so that the phone would be backed up “automatically.” Today, iCloud is a little more “automatic.”

If you experienced any of this, then you can appreciate what it means that blockchain frees you from the tyranny of security, fraud, and theft of your valuable data. Having data in a blockchain means that you no longer need to worry about whether the data has been tampered with.  You no longer need to worry if the data is original.  You no longer need to concern yourself with whether or not the data has been edited or modified in any way since you received it.  That’s huge.

Having blockchain means you can meet a perfect stranger on the street, transact any sort of financial transaction or the exchange of goods and services, and be confident that the transaction will be recorded, held secure into posterity.  The value of the currency you gave or took, the integrity of the information you divulged or accepted, is now and will be just as secure.  That’s is worth a fortune.

Bitcoin: Not Ready for Prime Time

 

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Not one in a hundred bitcoin users knows these are barcodes or what they do.

The bitcoin community is delusional. All of the features the bitcoin enthusiasts claim make bitcoin great do not yet exist.  Yet these bitcoin cowboys act as though they do and that defies explanation. Based on the blockchain technology, bitcoin is supposed to be the next generation of finance.  It is supposed to be secure, anonymous, and fast.  But having now purchased, traded, exchanged, spent, and gifted bitcoin, the reality is — bitcoin promises all of those features but delivers none.

 

The most well-known, well-used bitcoin exchange is Coinbase. It now boasts more customers than Charles Schwab with 100,000 new customers signing up daily.  It is extremely slow.  I went to bed last night, rather than wait beyond the 30 minutes Coinbase asked me to wait to see the confirmation of my transaction.  The program upon which the exchange is written is barebones.  The protocols customers have to follow to execute transactions are so poorly designed, so unstable and so unreliable that if it was a student computer science project it would get failing grades.  One customer in a hundred understands what the QR code does.  The Internet service provider, Spectrum, which I use to connect to the Internet goes down daily and is so unreliable that you would think I live in a third-world country not the Financial District in Manhattan.  That’s not bitcoin’s fault but it doesn’t help speeds or reliability.

I break out in a cold sweat whenever I have to copy and paste one of those nasty thirty-character addresses that may or may not be correct.  How would you know the difference? The only advice I get is “This had better be a BTC address or your crypto may be lost forever.” Or, what is going through my mind at that moment is the story about the scam which involves a dormant program which resides on your computer, waiting for you to make a bitcoin transaction.  At the moment the transaction is sent, the pirate program substitutes their address for yours so you never know what hit you. Bitcoin transactions might be instantaneous but you have to be so cautious and move so carefully that it rather feels like an awful lot of work.

The transit might be instantaneous but the mining, confirmations and blockchain building takes forever.  Transactions at the speed of light? An hour or more is not uncommon.

I’m sorry to say the whole Bitcoin environment will have to evolve into something that is much, much safer, faster and foolproof before it can ever go Mainstream.  Think of automobiles.  When you take the keys and go for a spin you barely have to give the act of driving or the car itself a second thought.  Bitcoin has to evolve into something just as safe and reliable.  Otherwise, there are going to be accidents, thefts, mislaid property, and unintended consequences.  And, we will never realize the promise of a blockchain based currency.

171130 Selling Certainty

Screen Shot 2017-11-30 at 7.55.21 PMBlockchain technology, the basis for Bitcoin and other cryptocurrencies, has been broadly acclaimed for what it does: create trustworthy, distributed, decentralized networks.  Until now we have relied on centralized clearinghouses to manage and process ‘the books’ for most of our important infrastructural ledgers such as credit, banking, stocks and bonds, real estate, insurance and investments of all kinds.  Those systems have their own inherent problems, something that blockchain overcomes nicely.  Moreover, blockchains have been shown to be inherently trustworthy.  So where we were once forced to keep secret our usernames and passwords and garner our administrative privileges carefully, we may freely distribute our wallet addresses so that others can make payments to us, all without fees or fear of theft.

What does it mean for you? Let’s explain it in more personal terms.  Let’s say you meet a stranger on the street who offers you a $200 personal check for the hat on your head.  Would you take it?  The hat cost you $50 and you have no love for this hat but losing it to a fraudulent check would be a bummer. You’re not comfortable with that arrangement and say no.  Now, let’s do that again.  The stranger says “I don’t have that much cash but I’ll give you the equivalent in bitcoin.  Bitcoin is $10000 at the moment so I’ll give you $200 as .005 bitcoin, ok?” Bitcoin is based on a blockchain.  You take out the Coinbase app on your smartphone, a bitcoin exchange, show his bitcoin wallet camera your address and the transfer is made instantly.  Very comfortable with that payment, you say “Thank you.”

For too long our society has been burdened with the need for more and more security.  We have locks on everything public.  We have passwords, administrative levels, and private keys for everything, both actual and virtual.   We all carry around a heavy set of keys, passcards and ID badges in our wallets.  If we begin switching over to blockchain for all of the things that need to be safe, secure, private and accessible, we will no longer need all of those levels of security.

You will begin seeing blockchain applied to real estate, contracts, building passes, insurance, as well as currency.  Blockchain will be applied to more and more things that you would have thought did not need ledger journal entries.  Every time blockchain is applied reduces the need and therefore the costs of security.  That’s a good thing.