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d down, k up, everybody's a game theorist, titcoin, build wiki on Cardano, (e-)voting, competitive marketing analysis, Goguen product update, Alexa likes Charles, David hates all, Adam in and bros in arms with the scientific counterparts of the major cryptocurrency groups, the latest AMA for all!
Decreasing d parameter Just signed the latest change management document, I was the last in the chain so I signed it today for changing the d parameter from 0.52 to 0.5. That means we are just about to cross the threshold here in a little bit for d to fall below 0.5 which means more than half of all the blocks will be made by the community and not the OBFT nodes. That's a major milestone and at this current rate of velocity it looks like d will decrement to zero around March so lots to do, lots to talk about. Product update, two days from now, we'll go ahead and talk about that but it crossed my desk today and I was really happy and excited about that and it seemed like yesterday that d was equal to one and people were complaining that we delayed it by an epoch and now we're almost at 50 percent. For those of you who want parameter-level changes, k-level changes, they are coming and there's an enormous internal conversation about it and we've written up a powerpoint presentation and a philosophy document about why things were designed the way that they're designed. Increasing k parameter and upcoming security video and everybody's a game theorist My chief scientist has put an enormous amount of time into this. Aggelos is very passionate about this particular topic and what I'm going to do is similar to the security video that I did where I did an hour and a half discussion about a best practice for security. I'm going to actually do a screencasted video where I talk about this philosophy document and I'm going to read the entire document with annotations with you guys and kind of talk through it. It might end up being quite a long video. It could be several hours long but I think it's really important to talk around the design philosophy of this. It's kind of funny, everybody, when they see a cryptographic paper or math paper, they tend to just say okay you guys figure that out. No one's an expert in cryptography or math and you don't really get strong opinions about it but game theory despite the fact that the topics as complex and in some cases more complex you tend to get a lot of opinions and everybody's a game theorist. So, there was enormous amount of thought that went into the design of the system, the parameters of system, everything from the reward functions to other things and it's very important that we explain that thought process in as detailed of a way as possible. At least the philosophy behind it then I feel that the community is in a really good position to start working on the change management. It is my position that I'd love to see k largely increased. I do think that the software needs some improvements to get there especially partial delegation delegation portfolios and some enhancements into the operation of staking especially. E-voting I'd love to see the existence of hybrid wallets where you have a cold part a hot part and we've had a lot of conversations about that and we will present some of the progress in that matter at the product updates. If not this October certainly in November. A lot of commercialization going along, a lot of things going on and flowing around and you know, commercial teams working hard. As I mentioned we have a lot of deals in the pipeline. The Wyoming event was half political, half sales. We were really looking into e-voting and we had very productive conversations along those lines. It is my goal that Cardano e-voting software is used in political primaries and my hope is for eventually to be used in municipal and state and eventually federal elections and then in national elections for countries like Ethiopia, Mongolia and other places. Now there is a long road, long, long road to get there and many little victories that have to begin but this event. Wyoming was kind of the opener into that conversation there were seven independent parties at the independent national convention and we had a chance to talk to the leadership of many of them. We will also engage in conversation with the libertarian party leadership as well and at the very least we could talk about e-voting and also blockchain-based voting for primaries that would be great start and we'll also look into the state of Wyoming for that as well. We'll you know, tell you guys about that in time. We've already gotten a lot of inquiries about e-voting software. We tend to get them along with the (Atala) Prism inquiries. It's actually quite easy to start conversations but there are a lot of security properties that are very important like end-to-end verifiability hybrid ballots where you have both a digital and a paper ballot delegation mechanics as well as privacy mechanics that are interesting on a case-by-case basis. Goguen, voting, future fund3, competitive marketing analysis of Ouroboros vs. EOS, Tezos, Algorand, ETH2 and Polkadot, new creative director We'll keep chipping away at that, a lot of Goguen stuff to talk about but I'm going to reserve all of that for two days from now for the product update. We're right in the middle, Goguen metadata was the very first part of it. We already have some commercialization platform as a result of metadata, more to come and then obviously lots of smart contract stuff to come. This update and the November update are going to be very Goguen focused and also a lot of alternatives as well. We're still on schedule for an HFC event in I think November or December. I can't remember but that's going to be carrying a lot of things related multisig token locking. There's some ledger rule changes so it has to be an HFC event and that opens up a lot of the windows for Goguen foundations as well as voting on chain so fund3 will benefit very heavily from that. We're right in the guts of Daedalus right now building the voting center, the identity center, QR-code work. All this stuff, it's a lot of stuff, you know, the cell phone app was released last week. Kind of an early beta, it'll go through a lot of rapid iterations every few weeks. We'll update it, google play is a great foundation to launch things on because it's so easy to push updates to people automatically so you can rapidly iterate and be very agile in that framework and you know we've already had 3500 people involved heavily in the innovation management platform ideascale and we've got numerous bids from everything. From John Buck and the sociocracy movement to others. A lot of people want to help us improve that and we're going to see steady and systematic growth there. We're still chipping away at product marketing. Liza (Horowitz) is doing a good job, meet with her two three-times a week and right now it's Ouroboros, Ouroboros, Ouroboros... We're doing competitive analysis of Ouroboros versus EOS, Tezos, Algorand, ETH2 and Polkadot. We think that's a good set. We think we have a really good way of explaining it. David (David Likes Crypto now at IOHK) has already made some great content. We're going to release that soon alongside some other content and we'll keep chipping away at that. We also just hired a creative director for IO Global. His name's Adam, incredibly experienced creative director, he's worked for Mercedes-Benz and dozens of other companies. He does very good work and he's been doing this for well over 20 years and so the very first set of things he's going to do is work with commercial and marketing on product marketing. In addition to building great content where hope is make that content as pretty as possible and we have Rod heavily involved in that as well to talk about distribution channels and see if we can amplify the distribution message and really get a lot of stuff done. Last thing to mention, oh yeah, iOS for catalyst. We're working on that, we submitted it to the apple store, the iOS store, but it takes a little longer to get approval for that than it does with google play but that's been submitted and it's whenever apple approves it or not. Takes a little longer for cryptocurrency stuff. Wiki shizzle and battle for crypto, make crypto articles on wiki great again, Alexa knows Charles, Everpedia meets Charles podcast, holy-grail land of Cardano, wiki on Cardano, titcoin Wikipedia... kind of rattled the cage a little bit. Through an intermediary we got contact with Jimmy Wales. Larry Sanger, the other co-founder also reached out to me and the everpedia guys reached out to me. Here's where we stand, we have an article, it has solidified, it's currently labeled as unreliable and you should not believe the things that are said in it which is David Gerard's work if you look at the edits. We will work with the community and try to get that article to a fair and balanced representation of Cardano and especially after the product marketing comes through. We clearly explain the product I think the Cardano article can be massively strengthened. I've told Rod to work with some specialized people to try to get that done but we are going to work very hard at a systematic approval campaign for all of the scientific articles related to blockchain technology in the cryptocurrency space. They're just terrible, if you go to the proof of work article, the proof of stake or all these things, they're just terrible. They're not well written, they're out of date and they don't reflect an adequate sampling of the science. I did talk to my chief scientist Aggelos and what we're gonna do is reach out to the scientific counterparts that most of the major cryptocurrency groups that are doing research and see if they want to work with us at an industry-wide effort to systematically improve the scientific articles in our industry so that there are a fair and balanced representation of what the current state of the art are, the criticisms, the trade-offs as well as the reference space and of course obviously we'll do quite well in that respect because we've done the science. We're the inheritor of it but it's a shame because when people search proof of stake on google usually wikipedia results are highly biased. We care about wikipedia because google cares about wikipedia, amazon cares about wikipedia. If you ask Alexa who is Charles Hoskinson, the reason why Alexa knows is because it's reading directly from the wikipedia page. If I didn't have a wikipedia page Alexa would know that so if somebody says Alexa what is Cardano it's going to read directly from the wikipedia page and you know and we can either just pretend that reality doesn't exist or we can accept it and we as a community working with partners in the broader cryptocurrency community can universally improve the quality of cryptocurrency pages. There's been a pattern of commercial censorship on wikipedia for cryptocurrencies in general since bitcoin itself. In fact I think the bitcoin article is actually taken down once back in, might have been, 2010 or 2009 but basically wikipedia has not been a friend of cryptocurrencies. That's why everpedia exists and actually their founders reached out to me and I talked to them over twitter through PMs and we agreed to actually do a podcast. I'm going to do a streamyard, stream with these guys and they'll come on talk all about everpedia and what they do and how they are and we'll kind of go through the challenges that they've encountered. How their platform works and so forth and obviously if they want to ever leave that terrible ecosystem EOS and come to the holy-grail land of Cardano we'd be there to help them out. At least they can tell the world how amazing their product is and also the challenges they're having to overcome. We've also been in great contact with Larry Sanger. He's going to do an internal seminar at some point with with us and talk about some protocols he's been developing since he left wikipedia specifically to decentralize knowledge management and have a truly decentralized encyclopedia. I'm really looking forward to that and I hope that presentation gives us some inspiration as an ecosystem of things we can do. That's a great piece of infrastructure regardless and after we learn a lot more about it and we talk to a lot of people in ecosystem. If we can't get people to move on over, it would be really good to see through ideascale in the innovation management platform for people to utilize the dc fund to build their own variant of wikipedia on Cardano. In the coming months there will certainly be funding available. If you guys are so passionate about this particular problem that you want to go solve it then I'd be happy to play Elon Musk with the hyperloop and write a white paper on a protocol design and really give a good first start and then you guys can go and try to commercialize that technology as Cardano native assets and Plutus smart contracts in addition to other pieces of technology that have to be brought in to make it practical. Right now we're just, let's talk to everybody phase, and we'll talk to the everpedia guys, we're going to talk to Larry and we're going to see whoever else is in this game and of course we have to accept the incumbency as it is. So, we're working with obviously the wikipedia side to improve the quality of not only our article but all of the articles and the scientific side of things so that there's a fair and accurate representation of information. One of the reasons why I'm so concerned about this is that I am very worried that Cardano projects will get commercially censored like we were commercially censored. So, yes we do have a page but it took five years to get there and we're a multi-billion dollar project with hundreds of thousands of people. If you guys are doing cutting-edge novel interesting stuff I don't want your experience to be the same as ours where you have to wait five years for your project to get a page even after government's adopted. That's absurd, no one should be censored ever. This is very well a fight for the entire ecosystem, the entire community, not just Cardano but all cryptocurrencies: bitcoin, ethereum and Cardano have all faced commercial censorship and article deletions during their tenure so I don't want you guys to go through that. I'm hoping we can prove that situation but you know you don't put all your eggs in one basket and frankly the time has come for wikipedia to be fully decentralized and liberated from a centralized organization and massively variable quality in the editor base. If legends of valor has a page but Cardano didn't have one until recently titcoin, a pornography coin from 2015, that's deprecated, no one uses it, has a page but Cardano couldn't get one there's something seriously wrong with the quality control mechanism and we need to improve that so it'll get done.
Don't blindly follow a narrative, its bad for you and its bad for crypto in general
I mostly lurk around here but I see a pattern repeating over and over again here and in multiple communities so I have to post. I'm just posting this here because I appreciate the fact that this sub is a place of free speech and maybe something productive can come out from this post, while bitcoin is just fucking censorship, memes and moon/lambo posts. If you don't agree, write in the comments why, instead of downvoting. You don't have to upvote either, but when you downvote you are killing the opportunity to have discussion. If you downvote or comment that I'm wrong without providing any counterpoints you are no better than the BTC maxis you despise. In various communities I see a narrative being used to bring people in and making them follow something without thinking for themselves. In crypto I see this mostly in BTC vs BCH tribalistic arguments: - BTC community: "Everything that is not BTC is shitcoin." or more recently as stated by adam on twitter, "Everything that is not BTC is a ponzi scheme, even ETH.", "what is ETH supply?", and even that they are doing this for "altruistic" reasons, to "protect" the newcomers. Very convenient for them that they are protecting the newcomers by having them buy their bags - BCH community: "BTC maxis are dumb", "just increase block size and you will have truly p2p electronic cash", "It is just that simple, there are no trade offs", "if you don't agree with me you are a BTC maxi", "BCH is satoshi's vision for p2p electronic cash" It is not exclusive to crypto but also politics, and you see this over and over again on twitter and on reddit. My point is, that narratives are created so people don't have to think, they just choose a narrative that is easy to follow and makes sense for them, and stick with it. And people keep repeating these narratives to bring other people in, maybe by ignorance, because they truly believe it without questioning, or maybe by self interest, because they want to shill you their bags. Because this is BCH community, and because bitcoin is censored, so I can't post there about the problems in the BTC narrative (some of which are IMO correctly identified by BCH community), I will stick with the narrative I see in the BCH community. The culprit of this post was firstly this post by user u/scotty321"The BTC Paradox: “A 1 MB blocksize enables poor people to run their own node!” “Okay, then what?” “Poor people won’t be able to use the network!”". You will see many posts of this kind being made by u/Egon_1 also. Then you have also this comment in that thread by u/fuck_____________1 saying that people that want to run their own nodes are retarded and that there is no reason to want to do that. "Just trust block explorer websites". And the post and comment were highly upvoted. Really? You really think that there is no problem in having just a few nodes on the network? And that the only thing that secures the network are miners? As stated by user u/co1nsurf3r in that thread:
While I don't think that everybody needs to run a node, a full node does publish blocks it considers valid to other nodes. This does not amount to much if you only consider a single node in the network, but many "honest" full nodes in the network will reduce the probability of a valid block being withheld from the network by a collusion of "hostile" node operators.
But surely this will not get attention here, and will be downvoted by those people that promote the narrative that there is no trade off in increasing the blocksize and the people that don't see it are retarded or are btc maxis. The only narrative I stick to and have been for many years now is that cryptocurrency takes power from the government and gives power to the individual, so you are not restricted to your economy as you can participate in the global economy. There is also the narrative of banking the bankless, which I hope will come true, but it is not a use case we are seeing right now. Some people would argue that removing power from gov's is a bad thing, but you can't deny the fact that gov's can't control crypto (at least we would want them not to). But, if you really want the individuals to remain in control of their money and transact with anyone in the world, the network needs to be very resistant to any kind of attacks. How can you have p2p electronic cash if your network just has a handful couple of nodes and the chinese gov can locate them and just block communication to them? I'm not saying that this is BCH case, I'm just refuting the fact that there is no value in running your own node. If you are relying on block explorers, the gov can just block the communication to the block explorer websites. Then what? Who will you trust to get chain information? The nodes needs to be decentralized so if you take one node down, many more can appear so it is hard to censor and you don't have few points of failure. Right now BTC is focusing on that use case of being difficult to censor. But with that comes the problem that is very expensive to transact on the network, which breaks the purpose of anyone being able to participate. Obviously I do think that is also a major problem, and lightning network is awful right now and probably still years away of being usable, if it ever will. The best solution is up for debate, but thinking that you just have to increase the blocksize and there is no trade off is just naive or misleading. BCH is doing a good thing in trying to come with a solution that is inclusive and promotes cheap and fast transactions, but also don't forget centralization is a major concern and nothing to just shrug off. Saying that "a 1 MB blocksize enables poor people to run their own" and that because of that "Poor people won’t be able to use the network" is a misrepresentation designed to promote a narrative. Because 1MB is not to allow "poor" people to run their node, it is to facilitate as many people to run a node to promote decentralization and avoid censorship. Also an elephant in the room that you will not see being discussed in either BTC or BCH communities is that mining pools are heavily centralized. And I'm not talking about miners being mostly in china, but also that big pools control a lot of hashing power both in BTC and BCH, and that is terrible for the purpose of crypto. Other projects are trying to solve that. Will they be successful? I don't know, I hope so, because I don't buy into any narrative. There are many challenges and I want to see crypto succeed as a whole. As always guys, DYOR and always question if you are not blindly following a narrative. I'm sure I will be called BTC maxi but maybe some people will find value in this. Don't trust guys that are always posting silly "gocha's" against the other "tribe". EDIT: User u/ShadowOfHarbringer has pointed me to some threads that this has been discussed in the past and I will just put my take on them here for visibility, as I will be using this thread as a reference in future discussions I engage:
When there was only 2 nodes in the network, adding a third node increased redundancy and resiliency of the network as a whole in a significant way. When there is thousands of nodes in the network, adding yet another node only marginally increase the redundancy and resiliency of the network. So the question then becomes a matter of personal judgement of how much that added redundancy and resiliency is worth. For the absolutist, it is absolutely worth it and everyone on this planet should do their part.
What is the magical number of nodes that makes it counterproductive to add new nodes? Did he do any math? Does BCH achieve this holy grail safe number of nodes? Guess what, nobody knows at what number of nodes is starts to be marginally irrelevant to add new nodes. Even BTC today could still not have enough nodes to be safe. If you can't know for sure that you are safe, it is better to try to be safer than sorry. Thousands of nodes is still not enough, as I said, it is much cheaper to run a full node as it is to mine. If it costs millions in hash power to do a 51% attack on the block generation it means nothing if it costs less than $10k to run more nodes than there are in total in the network and cause havoc and slowing people from using the network. Or using bot farms to DDoS the 1000s of nodes in the network. Not all attacks are monetarily motivated. When you have governments with billions of dollars at their disposal and something that could threat their power they could do anything they could to stop people from using it, and the cheapest it is to do so the better
You should run a full node if you're a big business with e.g. >$100k/month in volume, or if you run a service that requires high fraud resistance and validation certainty for payments sent your way (e.g. an exchange). For most other users of Bitcoin, there's no good reason to run a full node unless you reel like it.
Shouldn't individuals benefit from fraud resistance too? Why just businesses?
Personally, I think it's a good idea to make sure that people can easily run a full node because they feel like it, and that it's desirable to keep full node resource requirements reasonable for an enthusiast/hobbyist whenever possible. This might seem to be at odds with the concept of making a worldwide digital cash system in which all transactions are validated by everybody, but after having done the math and some of the code myself, I believe that we should be able to have our cake and eat it too.
This is recurrent argument, but also no math provided, "just trust me I did the math"
The biggest reason individuals may want to run their own node is to increase their privacy. SPV wallets rely on others (nodes or ElectronX servers) who may learn their addresses.
It is a reason and valid one but not the biggest reason
If you do it for fun and experimental it good. If you do it for extra privacy it's ok. If you do it to help the network don't. You are just slowing down miners and exchanges.
Yes it will slow down the network, but that shows how people just don't get the the trade off they are doing
I will just copy/paste what Satoshi Nakamoto said in his own words. "The current system where every user is a network node is not the intended configuration for large scale. That would be like every Usenet user runs their own NNTP server."
Another "it is all or nothing argument" and quoting satoshi to try and prove their point. Just because every user doesn't need to be also a full node doesn't mean that there aren't serious risks for having few nodes
For this to have any importance in practice, all of the miners, all of the exchanges, all of the explorers and all of the economic nodes should go rogue all at once. Collude to change consensus. If you have a node you can detect this. It doesn't do much, because such a scenario is impossible in practice.
Not true because as I said, you can DDoS the current nodes or run more malicious nodes than that there currently are, because is cheap to do so
Non-mining nodes don't contribute to adding data to the blockchain ledger, but they do play a part in propagating transactions that aren't yet in blocks (the mempool). Bitcoin client implementations can have different validations for transactions they see outside of blocks and transactions they see inside of blocks; this allows for "soft forks" to add new types of transactions without completely breaking older clients (while a transaction is in the mempool, a node receiving a transaction that's a new/unknown type could drop it as not a valid transaction (not propagate it to its peers), but if that same transaction ends up in a block and that node receives the block, they accept the block (and the transaction in it) as valid (and therefore don't get left behind on the blockchain and become a fork). The participation in the mempool is a sort of "herd immunity" protection for the network, and it was a key talking point for the "User Activated Soft Fork" (UASF) around the time the Segregated Witness feature was trying to be added in. If a certain percentage of nodes updated their software to not propagate certain types of transactions (or not communicate with certain types of nodes), then they can control what gets into a block (someone wanting to get that sort of transaction into a block would need to communicate directly to a mining node, or communicate only through nodes that weren't blocking that sort of transaction) if a certain threshold of nodes adheres to those same validation rules. It's less specific than the influence on the blockchain data that mining nodes have, but it's definitely not nothing.
The first reasonable comment in that thread but is deep down there with only 1 upvote
The addition of non-mining nodes does not add to the efficiency of the network, but actually takes away from it because of the latency issue.
That is true and is actually a trade off you are making, sacrificing security to have scalability
The addition of non-mining nodes has little to no effect on security, since you only need to destroy mining ones to take down the network
It is true that if you destroy mining nodes you take down the network from producing new blocks (temporarily), even if you have a lot of non mining nodes. But, it still better than if you take down the mining nodes who are also the only full nodes. If the miners are not the only full nodes, at least you still have full nodes with the blockchain data so new miners can download it and join. If all the miners are also the full nodes and you take them down, where will you get all the past blockchain data to start mining again? Just pray that the miners that were taken down come back online at some point in the future?
The real limiting factor is ISP's: Imagine a situation where one service provider defrauds 4000 different nodes. Did the excessive amount of nodes help at all, when they have all been defrauded by the same service provider? If there are only 30 ISP's in the world, how many nodes do we REALLY need?
You cant defraud if the connection is encrypted. Use TOR for example, it is hard for ISP's to know what you are doing.
Satoshi specifically said in the white paper that after a certain point, number of nodes needed plateaus, meaning after a certain point, adding more nodes is actually counterintuitive, which we also demonstrated. (the latency issue). So, we have adequately demonstrated why running non-mining nodes does not add additional value or security to the network.
Again, what is the number of nodes that makes it counterproductive? Did he do any math?
There's also the matter of economically significant nodes and the role they play in consensus. Sure, nobody cares about your average joe's "full node" where he is "keeping his own ledger to keep the miners honest", as it has no significance to the economy and the miners couldn't give a damn about it. However, if say some major exchanges got together to protest a miner activated fork, they would have some protest power against that fork because many people use their service. Of course, there still needs to be miners running on said "protest fork" to keep the chain running, but miners do follow the money and if they got caught mining a fork that none of the major exchanges were trading, they could be coaxed over to said "protest fork".
In consensus, what matters about nodes is only the number, economical power of the node doesn't mean nothing, the protocol doesn't see the net worth of the individual or organization running that node.
Running a full node that is not mining and not involved is spending or receiving payments is of very little use. It helps to make sure network traffic is broadcast, and is another copy of the blockchain, but that is all (and is probably not needed in a healthy coin with many other nodes)
He gets it right (broadcasting transaction and keeping a copy of the blockchain) but he dismisses the importance of it
When we were a much smaller society, people could trade in the community pretty easily, but as the distance in our trade grew, we ended up inventing institutions such as banks, markets, stocks etc. that help us to conduct financial transactions. The currencies we are operating with nowadays are bills or coins, controlled by a centralized authority and tracked by previously mentioned financial institutions. The thing is, having a third party in our money transactions is not always what we wish for. But fortunately, today we have a tool that allows us to make fast and save financial transactions without any middlemen, it has no central authority and it is regulated by math. Sounds cool, right? Cryptocurrency is this tool. It is quite a peculiar system, so let’s take a closer look at it. by StealthEX
Layers of a crypto-cake
Layer 1: Blockchain
First of all – any cryptocurrency is based on the blockchain. In simple words, blockchain is a kind of a database. It stores information in batches, called blocks that are linked together in a chronological way. As the blockchain is not located in one place but rather on thousands of computers around the globe, the blockchain and the transactions thus are decentralized, they have no head center. The newest blocks of transaction are continuously added on (or changed) to all the previous blocks. That’s how you get a cryptocurrency blockchain. The technology’s name is a compound of the words “block” and “chain”, as the “blocks” of information are linked together in a “chain”. That’s how crypto security works – the information in the recently created block depends on the previous one. It means that no block can be changed without affecting the others, this system prevents a blockchain from being hacked. There are 2 kinds of blockchain: private and public. Public, as goes by its name, is publicly available blockchain, whereas private blockchain is permissioned, which only a limited number of people have access to.
Layer 2: Transaction
In fact, everything begins with the intention of someone to complete a transaction. A transaction itself is a file that consists of the sender’s and recipient’s public keys (wallet addresses) and the amount of coins transferred. The sender begins by logging in into his cryptocurrency wallet with the private key – a unique combination of letters and numbers, something you would call a personal password in a bank. Now the transaction is signed and the first step which is called basic public key cryptography is completed. Then the signed (encrypted) transaction is shared with everyone in the cryptocurrency network, meaning it gets to every other peer. We should mention that the transaction is firstly queued up to be added to the public ledger. Then, when it’s broadcasted to the public ledger, all the computers add a new transaction to a shared list of recent transactions, known as blocks. Having a ledger forces everyone to “play fair” and reduce the risk of spending extra. The numbers of transactions are publicly available, but the information about senders and receivers is encrypted. Each transaction holds on to a unique set of keys. Whoever owns a set of keys, owns the amount of cryptocurrency associated with those keys (just like whoever owns a bank account owns the money in it). This is how peer-to-peer technology works.
Layer 3: Mining
Now let’s talk about mining. Once confirmed, the transaction is forever captured into the blockchain history**.** The verification of the block is done by Cryptocurrency Miners – they verify and then add blocks to the public ledger. To verify them, miners go down on the road of solving a very difficult math puzzle using powerful software, which is that the computer needs to produce the correct sequence number – “hash” – that is specific to the given block, there is not much chance of finding it. Whoever solves the puzzle first, gets the opportunity to officially add a block of transactions to the ledger and get fresh and new coins as reward. The reward is given in whatever cryptocurrency’s blockchain miners are operating into. For example, BTC originally used to reward miners in 50 BTC, but after the first halving it decreased to 25 BTC, and at present time it is 6.25 BTC. The process of miners competing against each other in order to complete the transactions on the network and get rewarded is known as the Proof-of-Work (PoW) algorithm, which is natural for BTC and many other cryptocurrencies. Also there are another consensus mechanisms: Proof-of-Stake (PoS), Delegated Proof-of-Stake (dPoS), Proof-of-Authority (PoA), Byzantine Fault Tolerance (BFT), Practical Byzantine Fault Tolerance (pBFT), Federated Byzantine Agreement (FBA) and Delegated Byzantine Fault Tolerance (dBFT). Still, all of them are used to facilitate an agreement between network participants. The way that system works – when many computers try to verify a block – guarantees that no computer is going to monopolize a cryptocurrency market. To ensure the competition stays fair, the puzzle becomes harder as more computers join in. Summing it up, let’s say that mining is responsible for two aspects of the crypto mechanism: producing the proof and allowing more coins to enter circulation.
Types of cryptocurrency
In the virtual currency world there are a bunch of different cryptocurrency types with their own distinctive features. The first cryptocurrency is, of course, Bitcoin. Bitcoin is the first crypto coin ever created and used. BTC is the most liquid cryptocurrency in the market and has the highest market cap among all the cryptocurrencies.
The term ‘altcoins’ means ‘alternatives’ of Bitcoin. The first altcoin Namecoin was created in 2011 and later on hundreds of them appeared in crypto-world, among them are Ravencoin, Dogecoin, Litecoin, Syscoin etc. Altcoins were initially launched with a purpose to overcome Bitcoin’s weak points and become upgraded substitutes of Bitcoin. Altcoins usually stand an independent blockchain and have their own miners and wallets. Some altcoins actually have boosted features yet none of them gained popularity akin to Bitcoin. More about altcoins in our article.
Token is a unit of account that is used to represent the digital balance of an asset. Basically tokens represent an asset or utility that usually are made on another blockchain. Tokens are registered in a database based on blockchain technology, and they are accessed through special applications using electronic signature schemes. Tokens and cryptocurrencies are not the same thing. Let’s explain it more detailed: • First of all, unlike cryptocurrencies, tokens can be issued and managed both centralized and decentralized. • The verification of the token transactions can be conducted both centralized and decentralized, when cryptocurrencies’ verification is only decentralized. • Tokens do not necessarily run their own blockchain, but for cryptocurrencies having their own blockchain is compulsory. • Tokens’ prices can be affected by a vast range of factors such as demand and supply, tokens’ additional emission, or binding to other assets. On the other hand, the price of cryptocurrencies is completely regulated by the market. Tokens can be: • Utility tokens – something that accesses a user to a product or service and support dApps built on the blockchain. • Governance tokens – fuel for voting systems executed on the blockchain. • Transactional tokens – serve as a unit of accounts and used for trading. • Security tokens – represent legal ownership of an asset, can be used in addition to or in place of a password. Tokens are usually created through smart contracts and are often adapted to an ICO – initial coin offering, which is a means of crowdfunding. It is much easier to create tokens, that is why they make a majority of coins in existence. Altcoin and token blockchains work on the concept of smart contracts or decentralized applications, where the programmable, self-executing code is ruling the transactions within a blockchain. By the way, the vast majority of tokens were distributed on the Ethereum platform.
Generally a fork occurs when a protocol code, on which the blockchain is operating, is being changed, modified and updated by developers or users. Due to the changes, the blockchain splits into 2 paths: an old way of doing things and a new way. These changes may happen because: a disagreement between users and creators; a major hack, as it was with Ethereum; developers’ decision to fix errors and add new functionality. The blockchain mainly splits into hard forks and soft forks. Shortly speaking, coin hard forks cannot work with older versions while soft forks still can work with older versions. Hard fork – after a hard fork, a new version is completely separated from the previous one, there’s no connection between them anymore, although the new version keeps the data of all the previous transactions but now on, each version will have its own transaction history. In order to use the new versions, every node has to upgrade their software. A hard fork requires majority support (or consensus) from coin holders with a connection to the coin network. If enough users don’t update then you will be unable to get a clean upgrade which could lead to a break in the blockchain. Soft fork – a protocol change, but with backward compatibility. The rules of the network have been changed, but nodes running the old software will still be able to validate transactions, but those updated nodes won’t be able to mine new blocks. So to be used and useful, soft forks require the majority of the network’s hash power. Otherwise, they risk becoming set out and anyway ending up as a hard fork.
As it comes from the name, stablecoins are price-stabilized that are becoming big in the crypto world. Still enjoying most of the “typical-cryptocurrency” benefits, it is standing out as a fixed and stable coin, not volatile at all. Stablecoins’ values are stabilized by pegging them to other assets such as the US Dollar or gold. Stablecoins include Tether (USDT), Standard (PAX), Gemini Dollar (GUSD) which are backed by the US Dollar and approved by the New York State Department of Financial Services.
Now that we hacked into cryptocurrency, you probably understand that it is much less mysterious than it first seemed. Nowadays, cryptocurrencies are making the revolution of the financial institution. For example, Bitcoin is currently used in 96 countries and growing, with more than 12,000 transactions per hour. More and more investors are involved, banks and governments realize that these cutting edge technologies are prone to draw their control away. Cryptocurrencies are slowly changing the world and you can choose – either stand beside and observe or become part of history in the making. And remember if you need to exchange your coins StealthEX is here for you. We provide a selection of more than 300 coins and constantly updating the cryptocurrency list so that our customers will find a suitable option. Our service does not require registration and allows you to remain anonymous. Why don’t you check it out? Just go to StealthEX and follow these easy steps: ✔ Choose the pair and the amount for your exchange. For example BTC to ETH. ✔ Press the “Start exchange” button. ✔ Provide the recipient address to which the coins will be transferred. ✔ Move your cryptocurrency for the exchange. ✔ Receive your coins. Follow us on Medium, Twitter, Facebook, and Reddit to get StealthEX.io updates and the latest news about the crypto world. For all requests message us via [[email protected]](mailto:[email protected]). The views and opinions expressed here are solely those of the author. Every investment and trading move involves risk. You should conduct your own research when making a decision. Original article was posted onhttps://stealthex.io/blog/2020/09/29/how-does-cryptocurrency-works/
semi-quick answers to common questions of new people
so people often ask similar questions over here and because they are getting probably kinda annoying over time to many I just try to answer as many as I find. if you have more that would fit here, add them to the comments
can I recieve coins without the ledger being connected to a computer
how does that work?
basically crypto currencies work like a bank-only currency, all funds are in the Consensus network which basically works like the bank of the currency, they carry out the transactions and verify you are not trying to overspend. all transactions are basically in an accounting book which is referenced to check your currency balance (which is the blockchain)
tldr: does your debit card need to be online for your account to recieve funds? nope.
I just sent/recieved coins, why are they not showing yet?
as the cryptocurrency's bank while being central to the currency (as in no currency can ever leave the network) the bank in itself is not a central institution but anyone can be part of it, and one of the major things that need to exist because of this is Consensus, or in plain english: agreement. because of this, a few blocks need to pass so nobody can manipulate the chain by calculating a different chain that overrides a transaction with a different one (double-spending)
tldr: the network of many needs time to agree whose transactions are processed in what order and therefore need a bit of time
(which in case of bitcoin is typically an hour after the transaction has set into a block)
my transaction does not get into a block
chances might be your fees are too low, while you cannot directly fix this in Ledger live, other wallets allow you to send another transaction with the same "transaction number" (aka nonce) and higher fees which as soon as it gets placed into the chain, invalidates the old one as each number can only be used once.
my bitcoin address changes everytime I try to recieve in Ledger live, is that normal?
yes. it is a privacy mechanism of the standard of how ledger generates addresses, basically allowing you to stay a little bit more private.
you CAN use your old addresses if you really want but it is obviously less private
how does that work and how do I make sure the address is correct?
simply said: complex math. if you for example enter "my secret -> Bitcoin 1" into the sha256 algorithm you get 3f667104b9efdc247d860a35d9343ec2af6adf16ee87d44bcd4a6c2af572bab8, if you however enter "my secret -> Bitcoin 2", you get 58f5c09c46585dca9bf50b2d3beb48766254138c1f89df8111cf7e012b4d7004 which cannot easily be correlated to each other, it's the same concept but more complicated.
for verification, plug in your ledger when recieving and verify your address by using the Ledger's display.
do I need to backup my currency keys often?
nope and in fact there is nothing to backup except your seed phrase. Ledger uses a technique called deterministic wallets, which allows your secret and a standardized sequence of math operations to determine your keys addresses and everything.
the above answer literally illustrates the concept, where you would throw your secret and data about which currency and the how many-th account you need into a complex piece of math and get your data out.
TLDR: all you need are your 24 words.
can I create hidden wallets on my ledger which cannot be easily accessed?
sure. but be warned, THIS IS ADVANCED.
there is a feature called a passphrase, which you can add onto your 24 words (which is why it is sometimes called a 25th word, but it can literally be anything), which works as a way to create a new set of addresses. however unlike your 24 words, there is no checksum and as it can literally be anything it is case sensitive and everything, so be careful when noting it down.
you can either attach the passphrase temporarily (gone when you turn off your ledger) or set up a second PIN with that passphrase stored on your ledger
HELP: I lost my:
if you have your 24 word seed (and passphrase if you use it, you can just reset by entering 3 wrong PINs and recover
if not, sorry, your assets are gone, so KEEP A BACKUP OF YOUR SEED
Ledger Passphrase PIN:
if you have your passphrase, just enter your main PIN and re-attach your passphrase
if you have your ledger PIN, you can move away your coins to an exchange or a new seed (which you either initialize using a second ledger or you use a software wallet for the short term while being SUPER careful (or as a compromise, new 24 words you generate offline) and transfer your funds over there, in case you used a software wallet or an exchange, reset your ledger afterwards and create a new set of 24 words and transfer back to them.
in case you use a passphrase you either need both PINs or main pin and passphrase
in case you do not have the above, it's sad and all is gone yet again.
if you have a passphrase PIN and you know it, you can TEMPORARILY attach a new phrase to your ledger to get new addresses, switch back to the passphrase using your PIN and send the funds over to your new passphrase's addresses.
if not, be sad.
Ledger Live Password
you can just reset ledger live. ledger live is just an application to watch your currency and prepare transactions for your ledger to sign. its contents LITERALLY DONT MATTER
if you dont need the privacy added by the password you can set up ledger live without any password as well.
long story short: your ledger live password doesnt matter, your PINs dont matter too much, but SERIOUSLY, BACKUP YOUR SEED AND PASSPHRASE
I cannot recover, why cant the Ledger makers help me?
unlike in a real life bank which can verify your human identity and issue new keys, to the Consensus network, YOUR KEYS ARE YOUR IDENTITY, and your 24 words are effectively your keys. aside from your backup THERE IS NO BACKUP.
Someone claims to be from [Ledger, the Police, the network of a coin etc.] and wants my 24 words/passphrase to verify something, should I tell them.
I did say your ledger effectively is your debit card, and your 24 words and passphrase are effectively a template for making a new one with full access to your account. and unlike a debit card in real life might have, there are no spending limits aside from the fact you cannot go below zero, and there is no fraud department, or chargeback.
IF ANYONE HAS YOUR KEYS, THEY CAN EMPTY YOUR ACCOUNTS, ALL OF THEM.
Aave - an open source and non-custodial protocol to earn interest on deposits & borrow assets
Akropolis - an undercollateralised lending protocol aiming at DeFi yield optimisation and interest-rate sharing
Atomic Loans - a lending platform that accepts trustless BTC collateral via custom Bitcoin scripts
bZx - a decentralized protocol that enables lending and borrowing for margin trading
Compound - an open-source money market protocol on Ethereum that lets users lend or borrow assets against collateral
DeFiner - a globally available, decentralized lending marketplace to securely borrow and lend digital assets through smart-contracts
Force Protocol - an open financial platform providing a wide range of financial services including lending, banking and stablecoins
Maker - a decentralized credit platform on Ethereum that supports Dai, a stablecoin whose value is pegged to USD and backed in ETH or BAT
Nitrogen Network - a decentralized P2P network for secured loans
Swap Rate - a DeFi interest rate swap tool built on the Opium protocol
Augur - a decentralized oracle and peer-to-peer protocol for prediction markets on Ethereum that lets anyone create a market around the outcome of any real-world event
ACO - a decentralized and non-custodial options trading protocol
Balancer - a non-custodial portfolio manager, liquidity provider, and price sensor
Bancor - a protocol on Ethereum for non-custodial token exchange using pooled liquidity
DeversiFi - a high-speed, non-custodial Layer 2 exchange built with STARKs technology, allowing for 9,000+ tps with deep liquidity, low fees, privacy and speed.
DEX AG - a trading interface that finds you the best price from 11 different DEXes
dYdX - a non-custodial trading platform on Ethereum geared toward experienced traders
Gnosis Protocol - a fully decentralized trading protocol that allows anyone to add any trading token pair
Hegic - an on-chain peer-to-pool options trading protocol built on Ethereum
Helena - a smart contract platform with gamified prediction markets
Jelly Swap - a peer to peer trading tool across different blockchains using atomic swaps
KyberSwap - a permissionless cross-chain atomic swap protocol, enabling trading of tokens across different chains
Leverj - a secure and decentralized high performance plasma based exchange
Local Ethereum - a non - custodial peer-to-peer ETH marketplace featuring end to end encryption and on -chain escrow.
Loopring DEX - a non-custodial Layer 2 DEX built on top of the Looping protocol
Market Protocol - a protocol on Ethereum which offers tokenized leverage trading of any asset through synthetic pricing
MCDEX - a decentralized derivatives trading platform for perpetuals & futures
MerkleX - a decentralized exchange that uses a decentralized clearing network. Merklex allows traders to set limits on what can happen to their funds.
Nuo Network - a non-custodial platform on Ethereum that provides a decentralized debt marketplace. Users can lend, borrow, or margin trade any supported cryptoasset
Ren - a provider of inter-blockchain liquidity for all decentralized applications
Set Protocol - a protocol designed to create, manage, and obtain baskets of tokenized assets
Synthetix - a decentralized platform on Ethereum for the creation of Synths: on-chain synthetic assets that track the value of real-world assets
Tokenlon - a DEX with off-chain matching, and on-chain settlment via 0x
UMA - a decentralized protocol to enable the creation, maintenance, and settlement of financial contracts for any underlying asset
Uniswap - a fully decentralized on-chain protocol for token exchanges on Ethereum that uses liquidity pools instead of order books
Veridex - a Mesh connected 0x relayer with trading, swap and market making tools
Flexa - a payment network that enables merchants to accept digital currencies without the risk of fraud or volatility through off-chain collateralization.
Fuse - a blockchain payment integration for businesses
Request Network - an open network for transaction requests. It allows anyone to create, store and access invoices and receipts in a universal, decentralized network.
Alpha Wallet - a mobile-based wallet built for Dapps. Do everything with only a few taps.
Argent - a secure smart contract wallet built for simplicity, security and usability.
Ash - a wallet interface focused on DeFi asset management powered by Melon Protocol
Atomex - a multicurrency HD wallet with built-in hybrid atomic swap exchange
Coinbase Wallet - a non-custodial, DeFi enabled mobile wallet that lets you securely store your tokens and collectibles
DEXWallet - a mobile wallet for decentralized finance
Eidoo - a non-custodial wallet that allows users to store, exchange and transact cryptoassets with a wide range of DeFi services and tools
Math Wallet - a multi-chain non-custodial wallet with embedded browser functionality and DApp store
Meet.One - a multi-chain DeFi wallet, non-custodial and easy-to-use
Monolith - a decentralised banking alternative, powered by Ethereum
My Crypto - an easy to use app that helps you create, import, and manage all your wallets
My Ether Wallet - a free, easy-to-use and open-source client-side interface that helps you interact with the Ethereum blockchain
Gnosis Safe - a secure way to manage funds and interact with decentralized applications on Ethereum
HB Wallet - a non-custodial DeFi-enabled wallet available on multiple platforms
Poketto - a wallet that you can actually show to your parents
Bamboo Relay - a 0x relayer built to trade, lend, and borrow tokens directly from your wallet.
Dca.land - an automated & decentralized dollar cost averaging tool
DDEX - Decentralized Margin TradingTrade with leverage and earn passive income in DeFi
DeBank - an all-in-one DeFi wallet with on-chain DeFi stats
DeFi Saver - an easy to use management portal for MakerDAO CDPs and compound protfolios
DeFi Snap - a simple dashboard that helps visualize all DeFi assets and liabilities
dForce Network - a decentralized finance protocol, starting with the first synthetic indexed stablecoin - USDx
Dharma - a peer-to-peer marketplace on Ethereum for non-custodial lending and borrowing of cryptocurrencies built on an extensible open source protocol
EasyCDP - an interface for MakerDAO that vastly simplifies the process of opening and managing a CDP
FiatDex Gateway - a simple browser-based interface to interact with the FiatDex protocol which allows users to trustlessly swap fiat to crypto
Frontier - a mobile interface integrating all DeFi Protocols and Wallets, enabling users to Track, View & Manage positions in real-time without giving away their private keys
InstaDApp - an intuitive interface on top of the MakerDAO protocol that’s optimized for users lacking advanced technical or financial experience
iearn.finance - a simplified aggregator that optimizes lending into the highest yielding protocols
Melon - an open-source, community-run protocol for asset management on Ethereum. Melon lets users create, manage, and invest in decentralized funds composed of ETH and ERC20s
Totle - a decentralized liquidity provider where you can swap and transfer tokens while automatically getting the best prices from decentralized exchanges
Unspent - a dashboard for all crypto and open finance activity: investing, trading, lending & borrowing
Zerion - an easy to use trustless banking interface utilizing popular DeFi protocols
0x - a protocol for p2p exchange of tokenized assets. ZRX is the governance token that allows to vote on protocol upgrades, and earn liquidity rewards shared by liquidity providers.
Ampleforth - a digital-asset-protocol for smart commodity-money.
Augmint - a smart contract platform that issues stable tokens targeted 1:1 to the EUR backed by collateral
Betoken - An open crypto fund managed by code and meritocracy
Connext - a non-custodial layer 2 payment-channel technology that enables off-chain, instant payments with low (or zero) transaction costs, helping scale the Ethereum network and paving the way for use cases like micropayments
DAI - a decentralized stablecoin soft-pegged to the US Dollar
DFOhub - an Ethereum-based Research & Development project that provides a framework for DFO's, on-chain companies with proprietary assets and voting tokens as programmable equities
EPNS - a service that allows dApps, Smart Contracts & Services to send push notifications to their users in a decentralized way
Lightning Network - a Layer 2 protocol on top of Bitcoin that seeks to improve scalability by moving small and frequent transactions off-chain, allowing for fast peer-to-peer transactions and low fees.
Liquidity Network - a Layer 2 scalability solution that enables gas-less, near-instant trustless transactions & token swaps
Loom Network - a DPOS layer 2 scaling solution that allows developers to run large-scale applications on top of Ethereum
Loopring - an open source protocol for decentralized exchanges designed to provide matching-as-a-service, and its orders are unidirectional and do not differentiate takers and makers giving complete control to traders
mStable - a single standard unifying stablecoins swapping and lending that also reduces friction and fragmentation
Neutral - a meta-stablecoin system built using a basket of multiple stablecoins to generate a lower volatility token with a reduced risk profile
Nest - a decentralized and transparent price oracles network
Nexus Mutual - a decentralized insurance platform where people can share risk particularly against smart contract bugs, failure or other black swan events
Opyn - an insurance and risk management layer for DeFi
PhishFort Protect - a crypto open source browser plugin that protects users in the DeFi space from phising
pToken - a trustless and trasparent 2-way peg to teleport tokens across blockchains, without friction
rDAI - a DeFi primitive that splits principal and interest in DeFi investments, and streams accrued interest to chosen addresses
Reserve - a decentralized stablecoin protocol enabling global and frictionless payments
Tokentax - an easy to use cryptocurrency & DeFi taxes calculator
USDx - USDx is a decentralized and synthetic indexed stablecoin introduced by dForce. USDx's underlying stablecoins include USDC, TUSD and PAX
WBTC - an ERC20 token that is backed 1:1 by bitcoin.
xDai - an Ethereum sidechain with 5-second block times, low gas prices, and a native token that’s also called xDai.
0x Tracker - a trade explorer for 0x protocol and decentralized ERC20 token price index
Coin Interest Rate - a dashboard showcasing borrowing and lending rates for USDC and DAI
DefiScan - a read-only DeFi profile explorer for Compound, Uniswap, and SpankChain
Etherscan - a block explorer and muti-purpose analytics platform for Ethereum
Eth Gas Station - a consumer oriented metrics & analytics platform for the Ethereum gas market
Loan Scan - a dashboard showing the best rates to earn passive income or lowest rates to borrow crypto
UniswapROI - a calculator to help you analyze your investments in Uniswap and find the best liquidity pools
Whois0x - a database of wallet addresses and their linked social media accounts that also provides easy to understand DeFi stats for each address
Defi Nerd - a lending & borrowing reviews and rates comparison ressource for crypto assets
DeFi Prime - a list of the best Decentralized Finance Products
Defi Rate - a trusted resource for DeFi research, news and interviews with a strong focus on lending rates
EthHub Weekly Newsletter - a trusted resource on all things Ethereum
Chris Blec - a collection of demos for various DeFi products, targeted to beginner & intermediate users.
Into the Ether Podcast - a podcast focusing on all things related to Ethereum, the leading blockchain for decentralized applications.
Wyre Podcast - a podcast where Thomas Scaria interviews founders of top DeFi projects twice a month. Giving insight to their business as well as the technical challenges that they have overcome.
Bankless - the ultimate guide to crypto finance written by Ryan Sean Adams
DeFi Tutorial - a newsletter focused on teaching and educating readers about DeFi with hands on video tutorials
DeFi Value - a place to better understand and evaluate Decentralized Finance
DeFi Weekly - a weekly in-depth review of technical achievements within decentralized finance
Dose of DeFi - a weekly newsletter that specializes in deep dives on topics in the space
EthHub Weekly Newsletter - a collection of the week's Ethereum and cryptocurrency news curated by the founders of EthHub
The Defiant - a curated list of daily news in the DeFi space explained and conensed down to a digestable level by Camila Russo
Concourse Open Community - an open community of builders, enthusiasts and researchers working towards a free, bountiful and decentralized future for everyone
Dai para principiantes - a spanish-first Dai and Defi educational website, tutorials & active community
DeFi Nation - a DeFi-oriented community featuring discussions, walk-throughs, Q&A calls and more
Ethereum Italia - an Ethereum focused community in Italy with a strong presence on all social media
Hola DeFi - a DeFi product directory for the Spanish-speaking community
Addressing Common Arguments For Limiting BTC's Block Size
For a while, I've seen many BTC maximalists bring up arguments about why the block size for Bitcoin should be limited to 1 MB. I have made this post to address most of these arguments. If you disagree, feel free to make your point in the comments!
Limiting block size is what helps keep nodes cheap, and helps decentralize Bitcoin.
Let's do some math here... With the block size of BTC being 1.00 MB, and having ~144 blocks a day, 365 days a year, there are roughly 52,560 blocks in a year. Using this data, 52.5 GB of storage will be used up in an entire year (we'll make the assumption that someone running a node buys 1 hard drive a year to store all this data). Looking at Amazon, the average cost for 64.0 GB of storage capacity for a flash drive is roughly $10.00. This means on average, someone running a node is paying roughly 80 cents per month for storage. Okay, now let's look at the internet aspect of things. The average internet speed globally is around ~75 Mbps (which is more than enough for both BTC and BCH) and will likely run for around ~$40 a month (this is a rough figure, and slightly pessimistic, but let's take it). Therefore, doing some math: ($40.00/month + $0.80/month) x 12 months = ~$490.00/year Okay, so it roughly costs $490.00 a year which is just a little over $1/day for running a node. Let's see how much more expensive BCH is when running the same type of node: For BCH, everything stays the same, except for storage costs. Since the block size is 32 times bigger than BTC, doing the math, BCH will take up roughly 1.7 TB of data. For a 2 TB hard drive, the cost is roughly $60. For an entire year, that will cost about $5 per month for storage. Taking this into consideration, we can calculate how much it will cost to run a BCH node for storage and internet: ($40.00/month + $5.00/month) x 12 months = ~$540.00/year So in conclusion:
As we can see, it really isn't that much more expensive, and this isn't even factoring in how much cheaper digital storage will become over time. As digital storage becomes bigger, we can also expand block size, and not have to worry about centralization.
The market has decided that BTC is better, therefore BCH is not Bitcoin.
While yes, based on hashing power, this is true, Bitcoin being Bitcoin is not about hashing power. It is about what Bitcoin was intended to do. Bitcoin was created by Satoshi as a form of peer-to-peer electronic cash system. Even in the whitepaper of Bitcoin, Bitcoin is not working the way it was intended to. From the whitepaper:
The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions.
It says it right here, one of the issues with current forms electronic payments is high transaction fees, and how they make small, everyday purchases expensive, making it bad for regular, everyday purchases. Currently, looking at the fees, BTC costs roughly $0.50 for every transaction (fees vary every single block, but this is the current average), regardless of the transaction amount. That means if I'm making a purchase at a coffee shop for $2.00, it is going to cost me $2.50 effectively for the coffee. That means that I am paying 25% of my transaction value just to transfer my own money. What incentive would I have to make that purchase, especially when I could just use normal cash, and not pay ridiculously high fees for a normal transaction? Let's compare this to BCH. Right now, the average fee for BCH is about $0.0025 for every transaction. When comparing that even to a $2 purchase, the fee is negligible and makes effectively no difference to the transaction amount. As we can see, BCH is far cheaper for everyday normal transactions, a.k.a. electronic cash.
Bitcoin only has high transaction fees because of the higher transaction volume, and Bitmain has spammed transactions to make BTC look bad.
As far as I know, I don't recall Bitmain spamming transactions on the network (I could be wrong on this). If someone has evidence of this, I will gladly retract this. As for transaction volume (number of transactions), we can use comparable numbers from when BCH and BTC were both having extremely high transaction volumes:
No. of transactions (BTC)
No. of transactions (BCH)
Average Transaction Fee (BTC)
Average Transaction Fee (BCH)
Note: The peak fees for both blockchains were $52.00 for BTC and $0.90 (which is still bad for BCH. The difference is that BCH has taken steps to ensure that kind of transaction fee would never happen again, even faced with the same amount of traffic on the network.)
The Lightning Network (an off-chain solution) is a better solution to Bitcoin's current problem than increasing the block size (an on-chain solution), and has a much higher transactions per second capability than BCH.
Yes, the Lightning Network may have a higher transaction per second capability when compared to BCH, but it comes at a cost: centralization. The aim of Bitcoin was to make a peer-to-peer electronic cash system with a high transaction per second capability, but it also is supposed to have 3 distinct properties to it. Bitcoin should also be:
Cheap (fees should be negligible, no matter how low the transaction amount)
When you take away any one of these characteristics, it becomes A LOT easier to make a currency with a higher transaction input capability, but it ignores the goal of what Bitcoin is supposed to be. For example, if you have a system of cash that is: Cheap and secure, but not decentralized: XRP (Ripple) Credit Cards Paypal Lightning Network Cheap and decentralized, but not secure: LTC (Litecoin) (DOGE) Dogecoin Plenty of other low-use altcoins Secure and Decentralized, but not cheap: BTC (Bitcoin) XMR (Monero) BCH manages to have all 3 characteristics, all while having a transaction capability of more than 200 transactions per second. Not to mention that setting up a node on the Lightning Network is a complicated, tedious, and painful process to go through, just to put your fund somewhere where they aren't safe (you risk losing your funds pretty easily, especially if you're an everyday person who doesn't have much knowledge when it comes to technology). Not only is this the case, but eventually the funds from the Lightning Network will have to be settled on the blockchain, and when adoption increases, the fees will increase as well, meaning that you will be charged a ridiculously high amount for withdrawing your own money. To add to this, nodes that are run by people with more resources will eventually become Lightning Hubs, meaning that they are the only few who you can go through to send a transaction to whoever you want. This makes Lightning Hubs the new intermediaries for financial transactions. Does this all sound familiar? It is literally banking right now, but with the name 'Bitcoin' slapped on top of it. Anyway, these are all the arguments I have heard from BTC maximalists. If you have any more arguments, feel free to comment them below, and I'm willing to change my mind if you make a good point.
A key challenge is that secrets cannot be placed on the blockchain. Encrypted secrets can, but with PoW, there is no way to allow a secret to be revealed if and only if something happens on the blockchain. A trusted party must hold the key, and do/not do the right thing. There are several attempts to address this issue, usually with a network of trusted parties with collateral. PoS may offer a new model, leveraging known public keys of validators. The underlying assumption is that validators can be requested to decrypt a short key, and that they can be trusted to only do it when required by the protocol. This is a fairly straightforward to implement. Alice encrypts S using the public keys of the validators such that m of n are needed to decrypt it. A transaction proves to the validators that in a proposed block, all the conditions are met, and S is published along with the aggregated signatures of the validators. It is easy to introduce incentives to validators to participate in this. Several challenges with this model:
Validators change. Is there an easy way to "transfer" the ability to decrypt S? Decrypt ones part and encrypt with keys from a new validator?
Ideally, we want the ability not just to reveal S, but to apply something on it. Maybe S is a private bitcoin key (that with some fancy math Alice proves she created encrypted without her knowing it), and the revealed data is using S to sign a transaction to an address that only now is determined. This needs to happen without any individual validator having the ability to know the secret.
In this model, validators are not punished for decrypting S off-chain, selling this private data. This is a small risk for low-value data, but mitigating it will require re-writing the slashing model.
OVERVIEW Rarely has any technology such as blockchain attracted the public and media organisations. Institutions designed to catalyze the fourth industrial revolution are experimenting with technology, and investors have invested hundreds of millions of dollars in blockchain companies. This is a low-risk, experimental environment with error protection. Innovation is a combination of creativity and implementation. Ideas often must go through an evolutionary or cyclical phase before they are ready for commercialization. In fact, the cycle is so long that it is too expensive, inefficient in terms of time and money to generate and generate ideas, and in most cases almost never reaches commercial value. Thus, almost 99% of venture capital firms fail. A fast growing technology that has come to enhance the blockchain technology is CYPHERIUM. ￼ CHALLENGES FACING THE BLOCKCHAIN TECHNOLOGY The Bitcoin framework is one of the most notable usage of blockchain innovations in circulated exchange based frameworks. In Bitcoin, each system hub seeks the benefit of putting away a lot of at least one exchanges in another square of the blockchain by comprehending a complex computational math issue, here and there alluded to as a mining verification of-work (POW). Under current conditions, a lot of exchanges is ordinarily put away in another square of the Bitcoin blockchain at a pace of around one new square like clockwork, and each square has an inexact size of one megabyte (MB). As needs be, the Bitcoin framework is dependent upon a looming versatility issue: as it were 3 to 7 exchanges can be handled every second, which is far underneath the quantity of exchanges handled in other exchange based frameworks, for example, the roughly 30,000 exchanges for each second in the Visa™ exchange framework. The most huge disadvantage of the Nakamoto accord is its absence of irrevocability. Conclusion implies once an exchange or an activity is performed on the blockchain, it is for all time recorded on the blockchain and difficult to turn around. This is fundamental to the wellbeing of money related repayment frameworks as exchanges must not be saved once they are made. For Bitcoin's situation, noxious on-screen characters can alter the exchange history given enough hash power, causing a twofold spending assault, given that there is sufficient motivator and money related practicality to complete such assaults. Given that mining gear leasing and botnets are at present predominant around the world, such an assault has become achievable. Because of this absence of conclusiveness, Nakamoto accord must depend on additional measures, for example, confirmation of-work to forestall pernicious exercises. This hinders the capacity ofNakamoto accord to scale in light of the fact that a exchange must hang tight for various affirmations before coming to "probabilistic absolution". In this way, wellbeing isn't ensured by Nakamoto agreement, and so as to secure the system, each exchange must experience extra an ideal opportunity to process. For Bitcoin's situation, an exchange isn't considered last until in any event six affirmations. Since Bitcoin can just process a couple of exchanges every second, the exchange cost is preposterously high, making it unreasonable for little installments like shopping for food or eatery feasting. This extraordinarily frustrates Bitcoin's utilization as an installment strategy in this present reality. ￼ CYPHERIUM SOLUTIONS Cypherium's exclusive algorithm, CypherBFT conquers burdens of the earlier craftsmanship by giving a circulated exchange framework including a gathering of validator hubs that are known to each other in a system however are undefined to the next system hubs in the system. As utilized thus, the gathering of validator hubs might be alluded to as a "Board of trustees" of validator hubs. In a few explanations, the framework reconfigures at least one validator hubs in the Committee dependent on the consequences of confirmation of-work (POW) challenges. As per some uncovered epitomes, a system hub that isn't as of now a validator hub in the Committee might be added to the Committee on the off chance that it effectively finishes a POW challenge. In such an occasion, the system hub may turn into another validator hub in the Committee, supplanting a current validator hub. In elective epitomes, a system hub may become another validator hub in the Committee dependent on a proof-of-stake (POS) accord. In yet another epitome, a system hub may turn into another validator hub in the Committee dependent on a verification of-authority (POA) agreement. In other elective exemplifications, a system hub may turn into a new validator hub in the Committee dependent on a mix of any of POW, POA, and POS accord. ￼ In some revealed exemplifications, the new validator hub replaces a validator hub in the Committee. The substitution might be founded on a foreordained guideline known by all the hubs in the system. For model, the new validator hub may supplant the most established validator hub in the Committee. As indicated by another model, the new validator hub may supplant a validator hub that has been resolved to have gone disconnected, become bargained (e.g., hacked), fizzled (e.g., because of equipment breakdown), or in any case is inaccessible or not, at this point trusted. In the praiseworthy exemplifications, the circulated framework expect that for an adaptation to non-critical failure of f hubs, the Committee incorporates at any rate 3f +1 validator hubs. Since the validator hubs in the Committee might be every now and again supplanted, for instance, contingent upon the measure of time required to finish the POW challenges, it is hard for vindictive outsiders to identify the total arrangement of validator hubs in the Committee at some random time. ￼ BENEFITS OF CYPHERIUM BLOCKCHAIN TECHNOLOGY Cypherium runs its exclusive CypherBFT accord, tied down by the HotStuff calculation, and can genuinely offer moment irrevocability for its system clients. With its HotStuff-based structure, the CypherBFT's runtime keeps going just 20-30 milliseconds (ms). A few affirmations are all that is required to for all time acknowledge a proposed obstruct into the blockchain, and it just takes 90ms for these affirmations to come to pass, making the procedure essentially quicker than the two-minutes required by EOS. Cypherium's CypherBFT, which additionally uses HotStuff, doesn't have to pick between responsiveness and linearity. Cypherium's double blockchain structure incorporates the velocities of a dag, however its review for clients can occur a lot more straightforward and quicker, which adds to the accessibility of data and makes the data more decentralized. As per some revealed epitomes, the validator hubs in the Committee may get exchange demands from other system hubs, for instance, in a P2P organize. The Committee may incorporate at any rate one validator hub that fills in as a "Pioneer" validator hub; the other validator hubs might be alluded to as "Partner" validator hubs. The Leader hub might be changed occasionally, on request, or inconsistently by the individuals from the Committee. At the point when any validator hub gets another exchange demand from a non-validator hub in the system, the exchange solicitation might be sent to the entirety of the validator hubs in the Committee. Further to the unveiled epitomes, the Pioneer hub facilitates with the other Associate validator hubs to arrive at an accord of an attitude (e.g., acknowledge or dismiss) for an exchange square containing the exchange solicitation and communicates the accord to the whole P2P arrange. In the event that the accord is to acknowledge or in any case approve the exchange demand, the mentioned exchange might be included another square of a blockchain that is known to in any event a portion of the system hubs in the system. In conclusion, CYPHERIUM'S distributed smart-contracts block-chain is ideal for a good number of use cases which include (but not limited to): Finance Messaging Voting Notarization Digital Agreements (Contracts) Secure data storage A.I (Artificial Intelligence) IoT (Internet of Things To know more about CYPHERIUM kindly visit the following links: WEBSITE: https://cypherium.io/ GITHUB: https://github.com/cypherium WHITEPAPER: https://github.com/cypherium/patent/blob/maste15224.0003%20-%20FINAL%20Draft%20Application%20(originally%200003%20invention%201)%20single%20chain%20in%20pipeline.pdf TELEGRAM: https://t.me/cypherium_supergroup TWITTER: http://twitter.com/cypheriumchain FACEBOOK: https://www.facebook.com/CypheriumChain/ AUTHOR: Nwali Jennifer
Is All Cryptocurrency Mining Harmful to Our Environment?
https://preview.redd.it/bl0g74xrwm651.png?width=1400&format=png&auto=webp&s=13a69a7971ef9dc39dd3c571687331f77c6b52c1 Blockchain technology is now widely adopted in many fields, including banking, finance, administration, legal affairs, and investments. It can also be used for health and environment, and it shows its potential as it is utilized more and more worldwide. In the case of FLETA, we have developed a blockchain-based eCRF system, a clinical trial data collection tool, that helps people manage clinical trial data and contribute to the healthcare industry. However, at the same time, blockchain technology is blamed for its harmful influence on the environment. The reason for it is cryptocurrency mining. It is known that Bitcoin and many other cryptocurrencies are not entirely eco-friendly. The only way to create Bitcoins, since there is no central bank that issues the digital asset, is through miners. The miners solve cryptographic problems by using software specially designed for mining. Of course, energy is used when miners use the software to mine those cryptocurrencies. In the case of Bitcoin, only the fastest miner who solves the mathematical problem gets the mining reward, and miners compete to be the one. As the price of Bitcoin has increased, more people have participated in mining. This phenomenon caused severe competition among the miners, and the problems miners have to solve became much more complicated. As a result, miners need high-performance mining equipment that requires more energy than before to win the competition. Moreover, an increased number of miners and difficulty of problems also provoke a large amount of electricity consumption. Cryptocurrency miners are responsible for solving provided math problems, which is obtained using software specially designed to solve cryptographic problems. Of course, energy is used when miners use software for mining those cryptocurrencies. In the case of Bitcoin, only the fastest miner who solves the mathematical problem gets the mining reward, and miners compete to be the one. As the price of Bitcoin has increased, more people have participated in mining. This phenomenon caused severe competition among the miners, and the problems miners have to solve became much more complicated. As a result, miners need high-performance mining equipment that requires more energy than before to win the competition. Moreover, an increased number of miners and difficulty of problems also provoke a large amount of electricity consumption.
How much electricity is used for Bitcoin mining?
According to Digiconomist, it estimates that currently, the electricity expenditure in Bitcoin mining exceeds that of countries such as Denmark, Bulgaria, and Belarus, and accounts for more than 25% of Holland’s energy consumption, 15% of Australia or 10% of the United Kingdom. For example, according to the International Energy Agency (IEA), cryptocurrency is positioned as one of the businesses that consume the most electricity worldwide. If these cryptocurrencies were a country, they would be ranked 41st nation that consumes much power annually, according to Digiconomist.
So How Can We Use The Technology to Solve Our Problem?
As mentioned, cryptocurrency mining consumes a lot of energy, which inevitably harms the environment. Then, how can we prevent this problem from the blockchain industry? One of the solutions is choosing one of the many alternatives to the traditional Proof of Work consensus protocol. Proof of Stake, for instance, is far more eco-friendly since mining equipment is unnecessary.
How is FLETA Contributing to Saving the Planet
FLETA is a platform created for the deployment of decentralized applications. FLETA does not use a proof of work consensus algorithm as it has created its own. Proof of Formulation (PoF) is a new consensus model that replaces the traditional PoW. This new consensus protocol eliminates the possibility of unnecessary forks and allows blocks to be generated in a designated order. This consensus algorithm does not require a lot of electricity, similar to Proof of Stake that is eco-friendly. FLETA is not only infinitely scalable but also offers a high transaction processing speed using its original block design. The ability to infinitely scale is achieved through a multi sub-chain system. Whenever a DApp is created on top of FLETA, a new sub-chain is also deployed, which means that every single dApp can be operated independently and without affecting other DApps.
FLETA also has created an eco-friendly consensus algorithm Proof of Formulation that allows the platform to be more scalable and efficient. Developers can easily build their DApps on top of FLETA and enjoy all the benefits of the platform like higher transaction speed, scalability, and being able to operate independently.
PoW or PoS: The Difference Between Mined and Non-Mined Crypto
The whole crypto world discusses how Ethereum will switch from Proof of Work to Proof of Stake now. This change can significantly affect the cryptocurrency market. What are the positive and negative sides of PoW and PoS? Cryptocurrencies can be divided into two types: those that can be mined (Bitcoin, Litecoin, Monero) and pre-mined ones (Ripple, Stellar, Cardano, EOS, NEO).
What is the big difference?
Although they differ in the method of generation, the basis of both types of crypto is the same: verification. Every transaction processed by the network must be verified by someone to ensure that virtual money has not been spent twice. Here we are talking about the difference in the verification process. Transaction groups are combined into a block; after verification, the block joins other previously confirmed blocks, and create a chain of transactions, or blockchain.
PoW: Mined Crypto
Mining is a process in which individuals, groups, or companies solve complex mathematical equations to verify transaction blocks using powerful computers. These math problems are part of the encryption process that protects transactions from cybercriminals and third party access. The first who solves the problem and signs a block of transactions receives a reward. The miner, who confirmed the block of transactions e.g. in the Bitcoin network, receives a reward in BTC.
Disadvantages of Mined Crypto
Mining can be very expensive due to the large amounts of electricity consumed. In mined crypto with less capitalization, competition is usually lower than in BTC.
BTC mining requires special ASIC chips, that are combined into huge farms. Electricity is one of the main expenses for these projects. That is why China, where electricity is relatively cheap, has become a home to four of the five largest Bitcoin mining companies in the world.
Mining farms have to spend significant money funds on new equipment, which becomes out of date very fast.
Large projects need additional cooling, as servers and graphics cards heat up to high temperatures during operations.
The Proof-of-Work model is potentially vulnerable to a 51% attack (when a group of people with 51% of the computing power gains control of the network and its participants). For popular cryptocurrencies such as Bitcoin (BTC), Litecoin (LTC), and Monero (XMR) this is not a problem due to their large capitalization. However, minor cryptocurrencies with long block processing times and low daily volumes are risking a lot.
PoS: Non-Mined Crypto
At the other end of the spectrum are pre-mined cryptocurrencies such as Ripple (XRP), Stellar, Cardano, EOS, and NEO. In the PoS model, super-powered computers are not needed, and participants do not compete for the right to sign the next block. Thus, the costs of this approach are significantly lower. Transaction verification is carried out by cryptocurrency owners. The more cryptocurrencies you have, the longer you own it, the higher the probability that you will be selected to check the transaction block. Certain mechanisms are built into the system that prevents the dominance of large cryptocurrency holders over the verification process. There are many random ways to select owners who get the right to sign a transaction block. This ensures that small holders have a chance to participate in the process.
Disadvantages of Non-Mined Crypto
Despite the fact that the costs of the Proof-of-Stake method are lower, PoS has its drawbacks.
Such cryptocurrencies are not threatened by an attack of 51%, however, another trouble replaces it — a person who posses 51% of all tokens in circulation can gain control of the network and its participants. Of course, in the case of cryptocurrencies with high capitalization, the possibility of this scenario is low, but small partners may suffer from this vulnerability.
The Proof-of-Stake model also gives major owners additional votes in determining the future development of the network. Most NEO tokens) belong to several founders, for instance. This helps increase transaction speed and reduces consensus-building time, but also makes cryptocurrency too centralized. In other words, in the PoS model, large players gain significant power, which is theoretically impossible with the PoW model.
Which method is better?
Both methods have their pros and cons. Nevertheless, sooner or later, some of the largest mined currencies (e.g. BTC) will reach their token limit. At this point, they will have to switch to Proof-of-Stake. Since it significantly reduces power consumption and doesn't require powerful computers, gradually all crypto including BTC will switch to a non-mined model just like Ether did.
The Intellectual Foundation of Bitcoin比特幣的智識基礎. By Chapman Chen, HKBNews
https://preview.redd.it/w6v3l8n3zxu41.jpg?width=2551&format=pjpg&auto=webp&s=fb0338a36a1a321d3781f43ff5eb6929d8b92edc Summary: Bitcoin was invented by the anonymous Satoshi Nakamoto as recently as 2008, but it is backed up by a rich intellectual foundation. For instance, The 1776 First Amendment separates church and state, and contemporary American liberation psychologist Nozomi Hayase (2020) argues that money and state should similarly be separated. Just as Isaac Newton’s study of alchemy gave rise to the international gold standard, so has the anonymous creator Satoshi Nakamoto's desire for a “modernized gold standard” given rise to Bitcoin. Indeed, Bloomberg's 2020 report confirms Bitcoin to be gold 2.0. Montesquieu (1774) asserted that laws that secure inalienable rights can only be found in Nature, and the natural laws employed in Bitcoin include its consensus algorithm and the three natural laws of economics (self-interest, competition, and supply and demand). J.S. Mill (1859) preferred free markets to those controlled by governments. Ludwig von Mises (1951) argued against the hazards of fiat currency, urging for a return to the gold standard. Friedrich Hayek (1984) suggested people to invent a sly way to take money back from the hands of the government. Milton Friedman (1994) called for FED to be replaced by an automatic system and predicted the coming of a reliable e-cash. James Buchanan (1988) advocated a monetary constitution to constrain the governmental power of money creation. Tim May (1997) the cypherpunk proclaimed that restricting digital cash impinges on free speech, and envisioned a stateless digital form of money that is uncensorable. The Tofflers (2006) pictured a non-monetary economy. In 2016, UCLA Professor of Finance Bhagwan Chowdhry even nominated Satoshi for a Nobel Prize. Full Text: Separation between money and state The 1791 First Amendment to the U.S. Constitution enshrines free speech and separates church and state, but not money and state. "Under the First Amendment, individuals’ right to create, choose their own money and transact freely was not recognized as a part of freedom of expression that needs to be protected," Japanese-American liberation psychologist Nozomi Hayase (2020) points out (1). The government, banks and corporations collude together to encroach upon people's liberties by metamorphosing their inalienable rights into a permissioned from of legal rights. Fiat currencies function as a medium of manipulation, indulging big business to generate market monopolies. "Freedom of expression has become further stifled through economic censorship and financial blockage enacted by payment processing companies like Visa and MasterCard," to borrow Hayase's (2020) words. Satoshi is a Modern Newton Although most famous for discovering the law of gravity, Isaac Newton was also a practising alchemist. He never managed to turn lead into gold, but he did find a way to transmute silver into gold. In 1717, Newton announced in a report that, based on his studies, one gold guinea coin weighed 21 shillings. Just as Isaac Newton’s study of alchemy gave rise to the international gold standard, so has the desire for a “modernized gold standard” given rise to Bitcoin. "In a way, Satoshi is a modern Newton. They both believed trust is best placed in the unchangeable facets of our economy. Beneath this belief is the assumption that each individual is their own best master," as put by Jon Creasy (2019) (2). J.S. Mill: free markets preferable to those controlled by governments John Stuart Mill (1806-1873) the great English philosopher would be a Bitcoiner were he still around today. In On Liberty (1859), Mill concludes that free markets are preferable to those controlled by governments. He argues that economies function best when left to their own devices. Therefore, government intervention, though theoretically permissible, would be counterproductive. Bitcoin is precisely decentralized or uncontrolled by the government, unconfiscatable, permissonless, and disinflationary. Bitcoin regulates itself spontaneously via the ordinary operations of the system. "Rules are enforced without applying any external pressure," in Hayase's (2020) words. Ludwig von Mises (1958): Liberty is always Freedom from the Government In The Free Market and its Enemies, theoretical Austrian School economist Ludwig von Mises (1951) argues against the hazards of fiat currency, urging for a return to the gold standard. “A fiat money system cannot go on forever and must one day come to an end,” Von Mises states. The solution is a return to the gold standard, "the only standard which makes the determination of the purchasing power of money independent of the changing ideas of political parties, governments, and pressure groups" under present conditions. Interestingly, this is also one of the key structural attributes of Bitcoin, the world’s first, global, peer-to-peer, decentralized value transfer network. Actually, Bloomberg's 2020 report on Bitcoin confirms that it is gold 2.0. (3) Von Mises prefers the price of gold to be determined according to the contemporaneous market conditions. The bitcoin price is, of course, determined across the various global online exchanges, in real-time. There is no central authority setting a spot price for gold after the which the market value is settled on among the traders during the day. Hayek: Monopoly on Currency should End Austrian-British Nobel laureate Friedrich Hayek’s theory in his 1976 work, Denationalization of Money, was that not only would the currency monopoly be taken away from the government, but that the monopoly on currency itself should end with multiple alternative currencies competing for acceptance by consumers, in order "to prevent the bouts of acute inflation and deflation which have played the world for the past 60 years." He forcefully argues that if there is no free competition between different currencies within any nation, then there will be no free market. Bitcoin is, again, decentralized, and many other cryptocurrencies have tried to compete with it, though in vain. In a recently rediscovered video clip from 1984, Hayek actually suggested people to invent a cunning way to take money out of the hands of the government:- “I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can’t stop” (4). Reviewing those words 36 years hence and it is difficult not to interpret them in the light of Bitcoin. Milton Friedman Called for FED to be Replaced by an Automatic System Nobel laureate economist Milton Friedman (1994) was critical of the Federal Reserve due to its poor performance and felt it should be abolished (5). Friedman (1999) believed that the Federal Reserve System should ultimately be replaced with a computer program, which makes us think of the computer code governing Bitcoin (6).[\](https://en.wikipedia.org/wiki/Criticism_of_the_Federal_Reserve#cite_note-:2-12) He (1970) favored a system that would automatically buy and sell securities in response to changes in the money supply. This, he argued, would put a lid on inflation, setting spending and investment decisions on a surer footing (7). Bitcoin is exactly disflationary as its maximum possible supply is 21 million and its block reward or production rate is halved every four years. Friedman passed away before the coming of bitcoin, but he lived long enough to see the Internet’s spectacular rise throughout the 1990s. “I think that the Internet is going to be one of the major forces for reducing the role of government," said Friedman in a 1999 interview with NTU/F. On the same occasion, he sort of predicted the emergence of Bitcoin, "The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A." (8) “Of course, Friedman didn’t predict the block chain,” summed up American libertarian economist Jeffery Tucker (2014). “But he was hoping for a trustless system. He saw the need.” (9). Bitcoin Computer Code as Constitution in the Buchananian Sense American economist cum Nobel laureate James Buchanan (1988) advocates constitutional constraints on the governmental power to create money (10). Buchanan distinguishes a managed monetary system—a system “that embodies the instrumental use of price-level predictability as a norm of policy”—from an automatic monetary system, “which does not, at any stage, involve the absolute price level” (Buchanan 1962, 164–65). Leaning toward the latter, Buchanan argues that automatic systems are characterized by an organization “of the institutions of private decision-making in such a way that the desired monetary predictability will emerge spontaneously from the ordinary operations of the system” (Buchanan 1962, 164). Again, "Bitcoin regulates itself through the spontaneous force of nature, flourishing healthy price discovery and competition in the best interest of everyone" (Hayase 2020). Shruti Rajagopalan (2018) argues that the computer code governing how the sundry nodes/computers within the Bitcoin network interact with one another is a kind of monetary constitution in the Buchananian sense. One of Buchanan's greatest inputs is to differentiate the choice of rules from the choice within rule (Buchanan 1990). One may regard the Bitcoin code as a sort of constitution and "the Bitcoin network engaging in both the choice of rules and choice within rules" (Rajagopalan 2018) (11). Tim May: Restricting Digital Cash may Impinge on Free Speech Cypherpunks are activists who since the 1980s have advocated global use of strong cryptography and privacy-enhancing technologies as a route to social and political liberation. Tim May (Timothy C. May [1951-2018]), one of the influential cypherpunks published The Crypto Anarchist Manifesto in September 1992, which foretold the coming of Bitcoin (12). Cypherpunks began envisioning a stateless digital form of money that cannot be censored and their collaborative pursuit created a movement akin to the 18th Enlightenment. At The 7th Conference on Computers, Freedom, and Privacy, Burlingame, CA. in 1997, Tim May equated money with speech, and argued that restricting digital cash may impinge on free speech, for spending money is often a matter of communicating orders to others, to transfer funds, to release funds, etc. In fact, most financial instruments are contracts or orders, instead of physical specie or banknotes (13). Montesquieu: Laws that secure inalienable rightscan only be found in Nature In his influential work The Spirit of Laws (1748), Montesquieu wrote, “Laws ... are derived from the nature of things … Law, like mathematics, has its objective structure, which no arbitrary whim can alter". Similarly, once a block is added to the end of the Bitcoin blockchain, it is almost impossible to go back and alter the contents of the block, unless every single block after it on the blockchain is altered, too. Cypherpunks knew that whereas alienable rights that are bestowed by law can be deprived by legislation, inalienable rights are not to be created but can be discovered by reason. Thus, laws that secure inalienable rights cannot be created by humankind but can be found in nature. The natural laws employed in Bitcoin to enshrine the inalienable monetary right of every human being include its consensus algorithm, and the three natural laws of economics (self-interest, competition, and supply and demand) as identified by Adam Smith, father of modern economics. Regarding mathematics, bitcoin mining is performed by high-powered computers that solve complex computational math problems. When computers solve these complex math problems on the Bitcoin network, they produce new bitcoin. And by solving computational math problems, bitcoin miners make the Bitcoin payment network trustworthy and secure, by verifying its transaction information. Regarding economic laws, in accordance with the principle of game theory to generate fairness, miners take part in an open competition. Lining up self-interests of all in a network, with a vigilant balance of risk and rewards, rules are put in force sans the application of any exterior pressure. "Bitcoin regulates itself through the spontaneous force of nature, flourishing healthy price discovery and competition in the best interest of everyone," to borrow the words of Hayase (2020). A Non-monetary Economy as Visualized by the Tofflers In their book, Revolutionary Wealth (2006), futurists Alvin Toffler and his wife Heidi Toffler toy with the concept of a world sans money, raising a third kind of economic transaction that is neither one-on-one barter nor monetary exchange. In the end, they settle on the idea that the newer non-monetary economy will exist shoulder-to-shoulder with the monetary sector in the short term, although the latter may eventually be eclipsed by the former in the long run. What both the Tofflers' The Third Wave (1980) and Revolutionary Wealth bring into question is the very premise of monetary exchange. The vacuum left over by cash in such a non-monetary economy may be filled up by Bitcoin as a cryptocurrency. Satoshi Nakamoto Nominated for Nobel Prize by UCLA Finance Prof. UCLA Anderson School Professor of Finance Bhagwan Chowdhry nominated Satoshi Nakamoto for the 2016 Nobel Prize in Economics on the following grounds:- It is secure, relying on almost unbreakable cryptographic code, can be divided into millions of smaller sub-units, and can be transferred securely and nearly instantaneously from one person to any other person in the world with access to internet bypassing governments, central banks and financial intermediaries such as Visa, Mastercard, Paypal or commercial banks eliminating time delays and transactions costs.... Satoshi Nakamoto’s Bitcoin Protocol has spawned exciting innovations in the FinTech space by showing how many financial contracts — not just currencies — can be digitized, securely verified and stored, and transferred instantaneously from one party to another (14). Fb link: https://www.facebook.com/hongkongbilingualnews/posts/947121432392288?__tn__=-R Web link: https://www.hkbnews.net/post/the-intellectual-foundation-of-bitcoin%E6%AF%94%E7%89%B9%E5%B9%A3%E7%9A%84%E6%99%BA%E8%AD%98%E5%9F%BA%E7%A4%8E-by-chapman-chen-hkbnews Disclaimer: This article is neither an advertisement nor professional financial advice. End-notes
So I was discussing this last week and honestly it all felt too simple, so I'm trying to get some stronger counterpoints to this argument. Goes something like this. You have some pool miner that wants to do a 51% attack. Lets assume the attack has three phases, the first phase is to try to accumulate 51% of the hashing power, next is the accumulation of more hashing power by ejecting other pools from through reorg. Finally when they aquired enough mining power they could blacklist exchange hotwallets or all manner of nefariousness. Lets further assume that everyone will act purely in their own self interest. For simplicity lets call the attacker "Spectre Pool".
Assuming Spectre Pool can hit something like 41% of the hashing power, the first goal is to accumulate more resources to hit 51%. Since pool mining is a commodity market, all Spectre has to do in this imaginary world is offer more than the market rate. Since they are already at 41% hashrate, they need to entice another 10% of the market to come to their pool. The obvious way to do this would be to offer a "new customer bonus" or something like that. Some promotion where they pay 1% above market price for the hashing power of pool members. So, given a network hashrate of 116.73 EH and a market rate of 0.101 USD/TH per day, the cost they would have to bear to offer a 1% promotion to entice 10% of the network would be: 116.73_EH / 0.101_USD/TH * 10% * 1% = 1,155,742 USD per day for each 1% "bonus" So, assuming they were willing to spend that much on "marketing", and that all miners worked in their own self interest, eventually they could lure enough miners over to achive 51%. Once they hit this threshold they could scale back on the "marketing" and thus reduce their daily burn.
Once at 51%, the next attack of Spectre will be to put their smallest competitor out of buisness. Lets call that the "Bond Pool", and pretend that Bond has 1.5% of the network hashing power. To put Bond out of buisness, with 51%, Spectere will need to reorg whenever Bond wins a block. By reorging to a chain without Bond, this will put Spectre one block behind and they will need to catch up. Once the reorg begins, Spectre will need to produce the longest chain on its own while starting one block behind. So we need to determine how long (statisticly) it will take Specter to produce n+1 blocks and compare that to how long (statisticly) it will take Bond to win one block. Although this can be hammered out in an iterive calculation, a better approach will be an algebraic solution. Lets walk through the equations:
d - The delta above majority. So at 51%, d=1%
n - The length of reorg that the minority pool could attempt
t - The pre-attack blocktime based on hashrate (assume 10 min)
M (aka Mp) - The percent of hashpower held by minority (49%)
S (aka Sp) - The percent of hashpower held by Spectre (51%)
m (aka Mt) - The blocktime durring attack on the minority chain
s (aka St) - The blocktime durring attack on the Spectre chain
n*m = s*(n+1) - Break even, when minority mines n at the same rate Spectre mines n+1
You can put the following into a GeoGebra CAS calculator to substitute and simplify the equations solve(n*m = s*(n+1), n) M = 1/2-d S = 1/2+d m = t/M s = t/S solve(n*m = s*(n+1), d) n = s/(m-s) b = m*M/p solve(b = s*(n+1),p) This will produce the following equations for the values we are interested in. m(t,d): t/(1/2-d) # from `m` define s(t,d): t/(1/2-d) # from `s` define n(s,m): s/(m-s) # from `n` solve d(n): 1/(4*n+2) # from `d` solve p(d): 2*d # from `p` solve b(t,p): t/p # from `b` define Plugging the equations into excel produces the following (assuming t=10)
So once d=0.98%, Specture will have 50.98% of the hashing power, allowing him to eject 1.96% of all blocks mined at will. Of course this is all statistical, so Spectre will want some margin for randomness. So it would make sense to attach 1.5% of the blocks when Spectre reaches 51% So once Spectre reaches 51% he has enough hashing power to prevent any of Bonds blocks (1.5%) from being included. Spectre can win a reorg (statistically) every 8.5 hrs and Bond can only produce a block (statisticly) every 11.1 hours. So once this attack starts, Spectre simply flashes his promotion to lure the miners in the Bond pool (who are receiving no reward) over to the Spectre pool. If he only gets one third of them, then he can increase his influence to 52% Doing the same math again, with 52% Spectre can ice out any pool who has up to 4% of the hashing. Then running the promotion, Spectre will try to get 40% of the "homeless miners". Now Spectre's power grows to 55% giving him the power to ice out 10% of his competitors. This can cascade on and on until Spectre is the only public pool left. Now, at 51% the attack and reorgs take many hours, but as more and more pools get targeted, more and more miners will jump ship and end up at Spectre so long as they can hold the promotion. Bond's only choice would be to either close up, or leverage everything and mine at a loss for weeks hoping that Spectre eventually drops below the threshold for his attack. Of course Spectre has even more tremendous expenses. To offer the 1% promo to 10% of the network would cost Spectre $1.16 million / day, or 3.52 million per month for each percent of miners it lures over. So going from 41% to 61% would cost Spectre $70.3 million / month, but at that point he can attack 20% of the network giving him a reach of about 80% which is pretty much the entire pooled mining capacity today. Seems like $70 million is a small price to pay to buy the entire bitcoin network. Other expenses Spectre would accrue would be related to the attacks and reorgs. The early attacks will take hours and throughout Spectre needs to continue payouts to the pool even though he is generating no BTC durring the attack. So long as his chain is orphaned, his blocks have no value. Only after the attack and reorg when his chain becomes longest will he be able to claim the block reward for all the blocks he minded. This (in my opinion) will the the hardest challenge. The first attack and 25 block reorg will require Spectre to put his entire 51% hashing power on an orphaned chain for 8 hours requireing $208.6 million in payouts. Once he wins the attack and the chain reorgs he can cover his expeses with the block reward, but borrowing $208 million for 8 hours is still a very difficult thing to pull off. The interest alone on the attack is over $40,000 (20% interest compounded continually). Below is a table of the calculations
Levrg / Block
Of course, once Spectre gets 2/3 of the hashing power he controls the entire chain since he can include or exclude any block he wants. So this "Total Self Interest" simulation of a 6 day attack puts Spectre's expenses at $10.3 million in promotions and $71,000 in interest, or about $10.4 million total. 1 - All "hashes" are hashes per second 2 - TH = 1012 or 10004 hashes per second 3 - EH = 1018 or 10006 hashes per second 4 - Assume a market rate of 0.101 USD / TH / day 5 - Assume an average daily network hashrate of 116.73 EH
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