What They Aren’t Telling You About Blockchain

[LuxAlex]

I have been a long time lurker and listener here at freedomainradio and its time I contribute. I want to talk about the unseen impact and the power of asymmetric cryptography, for those who don't know, cryptography is what enables spies to communicate confidentially and what makes web-banking secure. It also happens to be the underlying math of Blockchain.

Considering all the talk is about the amazing rise of blockchain technology and all the new features and use cases. There even is talk about the efficiencies it will provide to governments and banks. But there is something unfolding in front of our eyes that often is forgotten to be mentioned. Not many have identified what it is. However it is very profound, I’d argue that it’s even more profound than the inception of the Internet.

Looking at how the Internet impacted our world, what industries it changed and how politics had to adapt to it, you can get an idea of what change blockchain will cause.

The Internet is mainly used for direct information sharing and entertainment. A great encyclopaedia and a place for people to connect. New industries have been created and others have been crushed. For example publishing companies who didn’t adapt and stuck to print only, quickly saw themselves losing to the competition.

The Internet disrupted by being a really efficient communication layer, the blockchain is really efficient at providing a layer of trust. A unifying settlement layer, where transactions, agreements and contracts are secured. The internet completely changed the landscape for companies who provided traditional ways of communication and information, and so will blockchain for companies who provide trust services. Such as Notary services, banks, exchanges, online payment providers, casinos and many more.

Blockchain is decentralised, meaning there is no central point of control and no government can change the consensus rules of the network. Communications within a network can easily be encrypted and make it about as difficult for governments to prohibit its traffic on the Internet as the use of torrent file sharing applications. Once you build a currency on top of these properties, you get something truly unprecedented. It will be extremely difficult for Central banks to devalue and governments to interfere with your freedom to own, spend and use your blockchain token or currency. This means everyone suddenly has access to a Swiss bank account that can be accessed from around the world, on every phone and every computer. No one is able to look into your account, freeze your account or seize your funds.

What is even more important is the efficiency at which blockchain delivers these services and tools. This efficiency is also the main reason for the current adoption momentum. Fundamental free market principles predict that the most efficient service, using the least amount of resources and providing the most value to the user will gain a major portion of a market. Blockchain is so incredible efficient due to the elimination of overhead infrastructure, such as the ones companies have offering the same service. You have no wages, rent or bills to pay.

The social and political impact is going be huge once a critical mass is reached. Currencies backed by banks and governments won’t be able to compete with the efficiency and confidentiality of blockchain-based digital currencies and fiat currencies are ultimately going to fail. The consequences of a widespread adoption of such an alternative currency is politically detrimental to today’s society. A society which is only sustained by central banks artificially keeping interest rates low and with an increasingly indebted government.

In the end the incredible efficiency that blockchain has to offer will make the government’s monopoly on force useless. In the old world, if you didn’t pay your taxes, the government could walk to your bank, freeze your account or forcefully remove your funds. In the new world that will be ushered by blockchain, governments will have a hard time even figuring out how much you own in the first place or what transactions you made, what you got payed for or what you bought.

“Let me issue and control a nation’s money and I care not who writes the laws.”Mayer Amschel Rothschild (1744–1812), founder of the House of Rothschild.

With blockchain, the people issue and control the nation’s money.

[Boss]

Yea right now China is banning Bitcoin. The price dropped but quickly went back up. It just shows you bitcoin is unstoppable. Even if the US tries to ban it I suspect the same drop and return. Every fiat currency in history has collapsed and there is no valid argument that the failing US(http://www.usdebtclock.org/) will somehow last. 

 

There still needs to be better scalability but I suspect that to be solved as soon as demand increases https://en.bitcoin.it/wiki/Scalability

[kenstauffer]

I'm skeptical of blockchain. Pretend I wrote the following:

==========

"Williams said that before we get carried away by all the blockchain magic, though, we need to look at how each distributed-ledger system is put together, and look at its performance.

What, specifically, does the ledger record? How smart or flexible is the ledger? Who is involved? Who do we have to trust? What is the basis of consensus? And how is the ledger distributed?

Spend a little time thinking through the trust, privacy, and security aspects of each of those components, and I suspect the magic will start to wear off.

As for performance, well, Williams points out that Bitcoin transactions do have a cost. His back-of-the-envelope calculations suggest that once you add in the cost of the hardware needed to process the blockchain, and the energy it consumes, it's around $6 per transaction.

And it takes quite some time for individual Bitcoin transactions to be confirmed as having consensus approval: around 10 minutes on average."

Excerpted From:
http://www.zdnet.com/article/lets-quit-the-blockchain-magic-talk/

=======================

[LuxAlex]

On 19/09/2017 at 1:22 PM, Boss said:

Yea right now China is banning Bitcoin. The price dropped but quickly went back up. It just shows you bitcoin is unstoppable. Even if the US tries to ban it I suspect the same drop and return. Every fiat currency in history has collapsed and there is no valid argument that the failing US(http://www.usdebtclock.org/) will somehow last. 

 

There still needs to be better scalability but I suspect that to be solved as soon as demand increases https://en.bitcoin.it/wiki/Scalability

You won't be able to regulate Bitcoin, that's what central banks and governments slowly are realising. Blockchain will be there and ready when fiat takes its last breath.

I am very aware of the scalability issue, I actually wrote an article about it some time ago, here: https://medium.com/alvalor/blockchain-and-the-importance-of-scalability-30dcc0479762

On 20/09/2017 at 12:02 PM, kenstauffer said:

I'm skeptical of blockchain. Pretend I wrote the following:

==========

"Williams said that before we get carried away by all the blockchain magic, though, we need to look at how each distributed-ledger system is put together, and look at its performance.

What, specifically, does the ledger record? How smart or flexible is the ledger? Who is involved? Who do we have to trust? What is the basis of consensus? And how is the ledger distributed?

Spend a little time thinking through the trust, privacy, and security aspects of each of those components, and I suspect the magic will start to wear off.

As for performance, well, Williams points out that Bitcoin transactions do have a cost. His back-of-the-envelope calculations suggest that once you add in the cost of the hardware needed to process the blockchain, and the energy it consumes, it's around $6 per transaction.

And it takes quite some time for individual Bitcoin transactions to be confirmed as having consensus approval: around 10 minutes on average."

Excerpted From:
http://www.zdnet.com/article/lets-quit-the-blockchain-magic-talk/

=======================

This is a very healthy attitude, there is a lot of fraud going on right now. A lot of people jumping on the hype bandwagon.

But you also have to keep in mind that when people pay 6$ for a transaction, they aren't just using Bitcoin for its efficiency, but because of it being an irreversible transaction immune to central manipulation and control. 

[barn]

Hi @LuxAlex

So I fell this time for the title... (I'll watch out next time)

Unfortunately I have not learned what I had hoped to be was going to be a counter argument or a potential risk factor for that matter and pretty much feel like I went through an "elevator - pitch" style promotional article. Have nothing against bitcoin other than it's been always a shaky ground and while many aim to change that I think they are forgetting that you can't circumvent an intrinsically rooted flaw... us, humans.

The way I see it, regardless what tech or method is being rolled out; it is destined to get corrupted(until the day) :

1. the same human ingenuity that popped it into existence until we aren't more evolved will eventually sand it down (happened not long ago = internet ISP register anyone? , NATO oversees it now... Good riddance)

2. top-down evolution of morals/rationality has never worked. All great changes came from deep within our sluggish and quite sometimes masochistic chugging along, without much thought or control.

3. One more thing we won't be able to see through, handing over it's operation completely to computers... solar storms anyone?

4. People even just a decade ago were much more capable, we did loose quite a bit along the way. So actually we devolved our culture in expense of gaining more tech? Red flags anyone?

5. Roughly within 2 years we'll have computers approximately with the same capacity as a human brain (oh, hi there! yes, I'm talking about you... with respect)

Now given Moore's law of doubling, after that we'll have within another 2 years a computer with twice... Nope. Wrong.

The moment computers start approaching our capacity the evolution of computing power will skyrocket at an unimaginable speed. Yes, we might be shining our new landlord's boots within max a decade. Naturally this is the worst case scenario, but I wouldn't want to have my monetary system entrusted to 'it'.

Barnsley

 

[ofd]

The only thing missing from btc being even more succesful and used as a method of payment is it's own success. Member the guy who bought pizza for several btc some years ago? Today, nobody wants to be the guy so nobody actually uses btc to pay for items. Why would you spend money that grows valuable more and more each week?

[luxfelix]

@LuxAlex What are your thoughts on Etherium, Litecoin, Dogecoin, and/or the cryptocurrency equivalent of the IMF's special drawing rights (baskets of most stable currencies)?

I recall the recent Segwit2x fork recently closed -- I don't completely understand the process -- is this an indication that Bitcoin, in particular, is having difficulty moving from a speculative form of investment into a more stable form useable on a day-to-day basis?

[Tyler H]

Hedge with bitcoin cash. If you had BTC before the fork then you have BCH. Hodl. 

[PeterZ]

How can bitcoin have value if I can create my own crypto-currency with the same technology ?

I understand that what makes something valuable is the high demand for it, but I fail to see how something virtual created out of nothing can have this much value. Bubble again ?

[barn]

4 hours ago, PeterZ said:

How can bitcoin have value if I can create my own crypto-currency with the same technology ?

I understand that what makes something valuable is the high demand for it, but I fail to see how something virtual created out of nothing can have this much value. Bubble again ?

Isn't this a great question?

What's a bubble? Why does it happen? Why did the (for example) property bubble burst?

Is crypto currency just another 'fiat-currency' or is it similar to physical gold?

What is 'mining' bit-coin?

Can you fake having more crypto currency than you actually possess?

Why is sending money with crypto currency internationally near-instantaneous?

My dude, they are all good questions upon having found an answer your grasp of the topic will be complete. (including risks and limitations)

Barnsley

 

 

Edited November 28, 2017 by barn
word repetition

[Tyler H]

10 hours ago, PeterZ said:

How can bitcoin have value if I can create my own crypto-currency with the same technology ?

I understand that what makes something valuable is the high demand for it, but I fail to see how something virtual created out of nothing can have this much value. Bubble again ?

It’s not created out of nothing, people have to expend resources in order to create it (electricity, a lot of electricity).

What makes it difficult to recreate is adoption. Bitcoin has every quality that is required for a currency except mass adoption, which it is currently marching towards. If bitcoin is taken down it will be taken down by bitcoin cash - which is closer to the original vision of the currency.  

[Tyler H]

10 hours ago, barn said:

What's a bubble? Why does it happen? Why did the (for example) property bubble burst?

My amateur understanding-

A bubble is when the perceived value of a good rises significantly above equilibrium (where supply equals demand). False market signals are created through speculation or government intervention and the value of a good rises (the bubble is inflated) above what it would be without this intervention or speculation. When the intervention is stopped or speculation corrected (when air is no longer blown into the bubble), or for whatever reason is recognized as a temporary inflation due to factors that will cease, the market realization of this results in a rapid decrease in price (the bubble pops).

The property bubble burst because the government told banks they had to give loans to certain groups of people based on factors other than their ability to pay the loans back. In return the banks were guaranteed the government would cover the losses.  Of course this incentivized the banks to make poor investment decisions which led to a massive surplus in homebuyers, driving demand for housing, raising prices, and stimulating the construction industry.  When people who could not afford to make their mortgage payments started defaulting creating a surplus of empty homes, the false market signal to build more houses was realized and the value of people’s homes collapsed.  People who were using their housing as ATMs, borrowing against their equity, were now in a tremendous amount of debt. The construction industry which was artificially stimulated was now not needed.  Men who were drawn to the industry were now not needed leading to a spike in unemployment, not to mention the industries that didn’t grow which could’ve sustained these men had they not been lured away by high paying, in demand construction jobs.  John A. Allison’s The Financial Crisis and the Free Market Cure is great for more of this.  Stef interviewed him if you want to listen to that podcast here.

 

10 hours ago, barn said:

Is crypto currency just another 'fiat-currency' or is it similar to physical gold?

There are a lot of different cryptos but Bitcoin is like to gold and nothing like fiat in that significant resources must be expended in order to produce it, there is not a monopoly on it’s production, there is a limited supply, and its adoption is entirely voluntary. It’s better than gold in its security, fungibility, transferability, durability, and divisibility, but lacks the adoption gold has attained.

 

10 hours ago, barn said:

What is 'mining' bit-coin?

Mining refers to the process of creating bitcoins and adding blocks to the chain. Each block contains the transaction data on the network, creating an unalterable ledger of account. The goal is that every ten minutes a new block is created and added to the blockchain. To achieve this timeline, a math problem is created that a computer must solve. Depending on the amount of processing power being applied to solve this problem (i.e. how many people are mining) the harder the problem becomes. If it is too easy and there are a lot of miners, then the blocks are solved and created too quickly, if the reverse is true then the blocks are solved too slowly and the transactions take too long to be confirmed. So as the value of the coin increases, more people are drawn to the profits, more people mine, the blocks are solved more quickly, the difficulty of the problem adjusts upwards, and now it becomes more expensive to mine. If the value drops, less people mine, the blocks are solved slowly, the difficulty adjusts downwards, and it now becomes less expensive to mine. The reward for miners expending their resources and recording transactions are bitcoins, a reward that is halved every 210,000 blocks, resulting in an asymptotic climb towards 21 million. 

 

11 hours ago, barn said:

Can you fake having more crypto currency than you actually possess?

As far as I know, no. Someone would need to match or exceed the processing power of the entire network in order to fake a block and get the network to recognize it as legitimate. If they had this processing power under their command they could just mine and make far more than they could counterfeit. Or they could point that horsepower at a careless exchange and steal the private keys. Don’t keep your coins on an exchange!

There are always mutterings about replay protection (where people might be able to double spend) during a fork, but that seems to be an avoidable vulnerability that can only happen through transactions directly following a contentious fork. 

 

 

11 hours ago, barn said:

Why is sending money with crypto currency internationally near-instantaneous?

It’s recorded on a network, it’s the internet of money!

 

I think these are good answers, but my grasp of the topic is nowhere near complete. Take it with a grain of salt from an amateur, and please correct me if I’ve gotten anything wrong. I hope this was helpful. 

[barn]

On 11/28/2017 at 11:32 PM, Tyler H said:

A bubble is

Hi.

Fantastic. Appreciate the time and effort it took you to contribute, furthermore provide a link to a very informative and 'cut to the chase' discussion type interview :

here with John A.  Allison

the book's

On 11/28/2017 at 11:32 PM, Tyler H said:

The Financial Crisis and the Free Market Cure 

 

On 11/28/2017 at 11:32 PM, Tyler H said:

I think these are good answers, but my grasp of the topic is nowhere near complete. Take it with a grain of salt from an amateur, and please correct me if I’ve gotten anything wrong. I hope this was helpful. 

The only positive contribution I might add to what you've written is to grade it down to plain English with more clarifiers, allegorical examples...(maybe a tad bit about derivatives and how regulations inversely affected trading) but that isn't the point. Like, those who want, can now scout for more on the sub-questions.

(hat raise), cheers!

Barnsley

[barn]

Adding that :

I haven't yet invested and still trying to weigh it's potential against gold or silver.

I just think, investing in the self is much more worthy (to me that is, as of yet).

Plus I'm kinda on the fence, due to the constant pushback it receives, while gold has been around for thousands of years and changed little if none.

Barnsley

[Tyler H]

On 11/30/2017 at 1:46 AM, barn said:

(hat raise), cheers!

Thank you Barnsley!

Specie is a great way to hedge against inflation, but I don’t think its value relative to other goods will increase much over time. 

Bitcoin, I think, will be either a huge success or a regretful failure. If mass adoption occurs then each coin could be worth hundreds of thousands, perhaps millions of dollars.  You could, with limited risk, make a significant return on investment. Of course I would never suggest investing any amount you aren’t prepared to lose. 

In regards to the pushback, digital currencies like bitcoin remove the power from the elites to manipulate the economy and fund things like war and the welfare state, a major source of that power itself. I think the biggest fight is still yet to come.  There will be a lot of pushback and it will get worse.

I would absolutely agree that the best investment you can make is that which you mentioned; in yourself. Having a valuable skill is the original currency. 

[PeterZ]

On 11/28/2017 at 1:08 PM, Tyler H said:

It’s not created out of nothing, people have to expend resources in order to create it (electricity, a lot of electricity).

What makes it difficult to recreate is adoption. Bitcoin has every quality that is required for a currency except mass adoption, which it is currently marching towards. If bitcoin is taken down it will be taken down by bitcoin cash - which is closer to the original vision of the currency.  

Using electricity doesn't mean that what I create has value. I could run some random algorithm, it doesn't make the result valuable because I used electricity. The same way that digging random holes in the ground doesn't make that work valuable.

I agree with you that what make bitcoin valuable is the adoption by people, and the trust they have in the currency. In that way, it is no different than the US dollar. It is pragmatic mass delusion.

Personally, I think that crypto-currencies will fail because most people are not smart enough to understand the technology and to properly secure their accounts. I see too many people who owns bitcoins and don't understand what are the private and public keys, or they make a mistake and send bitcoins to an unknown account. It difficult to trust something you don't understand and that's why I think it will not be easily adopted by the masses.

On 11/28/2017 at 3:17 AM, barn said:

What's a bubble? Why does it happen? Why did the (for example) property bubble burst?

A bubble is when speculative buying outweighs fundamental buying by a large margin. In other words, most people buy because of the price increase, and the price increases because more people buy. This happened with the property bubble (with the help of mortgage companies who lowered their standards and the government who back them up).

On 11/28/2017 at 3:17 AM, barn said:

Is crypto currency just another 'fiat-currency' or is it similar to physical gold?

Compared to fiat currencies :
  - Similarities : The value is a function of mass adoption and trust. Easy transactions.
  - Difference : The final supply is fixed and not centrally controlled.

Compared to gold :
  - Similarities : The final supply is limited and not centrally controlled. It is 'mined'.
  - Differences : It is purely virtual. You cannot do anything else than using it has money. You cannot hide the private key.

On 11/28/2017 at 3:17 AM, barn said:

What is 'mining' bit-coin?

It depends on the crypto-currency we are talking about, but the simple way to see it is that mining is the creation of a piece of original data that has particular characteristics (proof-of-work) and that can be exchanged after it has been created. The algorithm used for mining has to be open source and agreed upon by the community, similarly to an open standard.
Mining is considered energy/time consuming because the proof-of-work is hard to obtain (mathematically speaking). For example, bitcoin requires that the result of a data going through a specific hashing function (I believe it's SHA-256) has a certain number of leading zeros, which is a very difficult problem to solve.

On 11/28/2017 at 3:17 AM, barn said:

Can you fake having more crypto currency than you actually possess?

Nope, unless you possess a very large percentage of the total number of ledgers.

On 11/28/2017 at 3:17 AM, barn said:

Why is sending money with crypto currency internationally near-instantaneous?

It's not really near-instantaneous anymore, because the number of transactions have increased by a lot.
For most people, it seems it is near-instantaneous because when you check your account online, you are checking the local ledger who already integrated the transactions, but I've heard some people complaining it took a few hours/days to get their bitcoins.

On 11/29/2017 at 10:52 PM, barn said:

Adding that :

I haven't yet invested and still trying to weigh it's potential against gold or silver.

I just think, investing in the self is much more worthy (to me that is, as of yet).

Plus I'm kinda on the fence, due to the constant pushback it receives, while gold has been around for thousands of years and changed little if none.

Barnsley

I'm in the same mindset. I prefer to focus on concrete things and skills that have value for me and my family.
One of the experience that made me realize that bitcoin is likely a bubble is when my dentist (who has no experience in finance or technology) told me to buy bitcoin.
We talked about it and she didn't know about the private/public keys. She didn't secure her account with a paper wallet or hardware wallet. She didn't know that if coinbase gets hacked, she will loose all of her money, and it's irreversible ... And she didn't know that government cannot control the crypto-currency, but they can control the exchanges.
Anyway, she didn't know much and I've realized most new bitcoin fans don't know much either.

[barn]

On 12/06/2017 at 5:22 AM, PeterZ said:

One of the experience that made me realize that bitcoin is likely a bubble is when my dentist (who has no experience in finance or technology) told me to buy bitcoin.
We talked about it and she didn't know about the private/public keys. She didn't secure her account with a paper wallet or hardware wallet. She didn't know that if coinbase gets hacked, she will loose all of her money, and it's irreversible ... And she didn't know that government cannot control the crypto-currency, but they can control the exchanges.
Anyway, she didn't know much and I've realized most new bitcoin fans don't know much either.

That's a very healthy observation if you ask me. Even if there are those who only see 'magic' while others know how it is performed, large crowds had gathered time and time again to see/be part of 'the magic' happening and it probably won't change for a few more thousands of years. Knowledge is economic potential, such as others' laziness and superficiality.

From where I stand (layman), your understanding of the topic is good enough to actually start learning about the different methods bitcoin can be connected with 'monetary devices' (at least that's what I would do next). Hand in hand with continously researching the background of the 'operators' and their commitment to security, keeping bitcoin 'untainted from central control' if (in any way) that's achievable on the long run. (because to me it seems the majority in the sector is trying to demote crypto from it's true form to something 'manageable'... my suspicion, that's the wrong direction.)

(two cliché-s, I hope I'm not boring you with.)

Great starts makes great finishes.

contrasted with

It ain't over 'till it's over.

I saved your comments as they further helped me simplify articulating characteristics and added valuable experience based info.

Have a good one,

Barnsley

[Tyler H]

On 12/5/2017 at 11:22 PM, PeterZ said:

Using electricity doesn't mean that what I create has value.

I didn’t say it did. 

My argument is that if it were easy to produce, it would be hyper-abundant and therefore, by virtue of supply and demand, be of very little value.  Expending resources does not ensure value, but it allows for value to be found. It is necessary but not sufficient.

 

On 12/5/2017 at 11:22 PM, PeterZ said:

I agree with you that what make bitcoin valuable is the adoption by people, and the trust they have in the currency. In that way, it is no different than the US dollar. It is pragmatic mass delusion.

I didn’t say that either.  Adoption alone does not make bitcoin valuable.  Adoption happens because bitcoin already provides value outside of adoption.  Now the more people who recognize that value the greater that value becomes, but it is not only adoption that contributes to the value of the currency. It needs the other aspects required of a good currency: fungibility, durability, scarcity, divisibility, and transferability.  Without those characteristics it has no value as a medium of exchange and widespread adoption would be, as you say, pragmatic mass delusion.

I argue pragmatic mass delusion does not apply to bitcoin, or even fiat. The adoption of bitcoin is voluntary, the adoption of fiat is not.  People see the value bitcoin can provide as a currency and as a system of ownership tracking, and invest in promoting that goal, creating awareness, and educating people.  On the other hand, with fiat, people are forced to use the currency at the point of a gun; they have no choice.  

On 12/5/2017 at 11:22 PM, PeterZ said:

One of the experience that made me realize that bitcoin is likely a bubble is when my dentist (who has no experience in finance or technology) told me to buy bitcoin.

How many people invested in bitcoin are like this woman? I’d be willing to bet that most people don’t know how bitcoin operates, and there are some people like this woman who invest blindly, or perhaps on the advice of a trusted friend, but how do you know there are so many like her? So many as to draw the conclusion that bitcoin is a bubble?

[luxfelix]

Will there be certain signs to indicate that Bitcoin will be adopted as a national currency?

(Any relevant historical precedents for other currencies as well?)