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My professional opinion as a blockchain researcher: I don’t see the point (yet) (jmkorhonen.net)
296 points by ericdanielski 66 days ago | hide | past | web | favorite | 218 comments



When I first read Satoshi's paper [1], I read it as a solution to the Two Generals' Problem [2]. The problem concerns itself with multiple parties coördinating and communicating over an untrusted channel.

The blockchain got distracted by finance. Modern settlement and clearing is efficient. It's perhaps the most efficient part of the financial system; it is certainly the easiest to upgrade. The difficult stuff, the messy institutional knowledge, customs and tendencies, are unaffected by protocol choice. That's why the same behaviors which plagued the unregulated banking system plague cryptocurrency markets today. People are still people.

There are many systems which require a trusted group of people to reach a consensus in public. (Libor is an example [1]. Notaries appear, prima facie, to be in a similar category.) Immutability is of dubious benefit. But a simple, public consensus mechanism beats checking sundry private APIs and blog posts (how a lot of this is done today). Unfortunately, this class of use cases is negated by a "currency-like" token value.

[1] https://bitcoin.org/bitcoin.pdf

[2] https://en.wikipedia.org/wiki/Two_Generals%27_Problem

[3] https://www.investopedia.com/terms/l/libor.asp


> The blockchain got distracted by finance.

No, it was about finance right from the start, says so right there in the title of the paper ("cash").

It got distracted by politics and greed. What I mean with greed is obvious, and I guess it was kinda inevitable.

Politics is a more interesting angle: many blockchain/bitcoin afficionados seem to be of the Libertarian persuasion who think the main point is to prevent government interference, especially inflation. And they seem to thik this was Satoshi's primary goal as well.

And here I'm a bit baffled: I can't find that in the original paper. Did Satoshi state any political goals in other communications? I gather that he was actively involved in the early Bitcoin community for some time.


> No, it was about finance right from the start, says so right there in the title of the paper ("cash").

I agree with you that Bitcoin was originally conceived to solve digital cash problems (like double spending). But I think the parent's point (which I also agree with) is that the actual utility of modern blockchains, regardless of original intentions, is in strong fault-tolerant systems.

By any reasonable standard, Bitcoin itself has not matured into a strong currency usable for day to day cash payments. It has extremely high volatility, slow transaction verification and very high transaction fees. I think it's good that it was developed (it inspired a lot of follow-up R&D), and you can make a case for it as a store of value, but it's not really suitable as a payments platform whatsoever. But that failure doesn't diminish its main contribution, which is thermodynamically guaranteed cryptographic resilience and fault tolerance.


I think that the area where you want fault-tolerance the most is decentralized cash. If you are going to take control of your money you better do it in a fault-tolerant system. Many people don't care about it today but there are those who do. That's why cryptocurrency is the real killer app for blockchain, like it or not.

To your comments re bitcoin, it sounds to me like somebody complaining that Internet is slow back in the 90s/00s.

EDIT:

I am not pontificating in favor of bitcoin. It's just that the technology is still immature but there is a lot of great and promising work happening today.


> I think that the area where you want fault-tolerance the most is decentralized cash.

...Really? That's one application, sure, but I hardly think it compares to the generalizable usage of cryptographic fault-tolerance assurance in distributed systems. I would consider the elimination of trusted third parties in more well-established and widely used cryptographic protocols (like CAa) or improvements to e.g. NTP node fault-tolerance to be more presently and practically useful than decentralized payments (in particular, because blockchains are much more useful for the former examples than the latter in the present day).

> Many people don't care about it today but there are those who do. That's why cryptocurrency is the real killer app for blockchain, like it or not.

I don't have an emotional investment in what use case becomes the most successful for blockchains in perpetuity, so it isn't a matter of "liking" or "not liking" any particular application. Rather, I'm speaking in terms of present facts, and purposely not making any points about the future.

Sure, people could become passionate en masse about seizing control of their assets in a decentralized, trustless, permissionless, etc systems. I'm not discounting that possibility. But in the present case, blockchains exhibit far more utility for resolving hard problems in domains of computer science than they do for cryptocurrencies.

> To your comments re bitcoin, it sounds to me like somebody complaining that Internet is slow back in the 90s/00s.

I never considered the internet slow in either of those decades because it was all I knew. More to the point, I think you mistake me for someone who is bearish on cryptocurrencies or blockchains in general - I'm emphatically not. I just think that Bitcoin is not going to be the actual winner for that use case, and regardless of future innovations, it is pretty clearly not succeeding now, either, for the reasons I've already outlined.


> To your comments re bitcoin, it sounds to me like somebody complaining that Internet is slow back in the 90s/00s.

To their point though, dial-up modems are (by and large) a relic of the past and have been replaced by better (i.e. faster) methods of internet access.


We still use TCP! The way we access the (internet) network has changed, but the network still works in the same way.


> extremely high volatility

Definitely

> Slow transaction verification

Depends on your definition of slow. The fact that I can send hundreds of thousands of USD across the world in about an hour seems to beat any other method easily available to me.

> very high transaction fees

A month or two ago, sure - TX congestion had driven up fees to ridiculous levels. Now that the congestion has cleared, I can once again send hundreds of thousands of USD across the world for less than a dollar.


> A month or two ago, sure - TX congestion had driven up fees to ridiculous levels. Now that the congestion has cleared, I can once again send hundreds of thousands of USD across the world for less than a dollar.

Congestion has only cleared because the transaction volume has fallen to a two-year low:

https://bitinfocharts.com/comparison/transactions-btc-sma3.h...

The bubble is deflating, in case you haven't noticed.


> Did Satoshi state any political goals in other communications?

The genesis block contains, among other data, a reference to the front page of the January 3rd 2009 edition of The Times;

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Whether this was simply to prove that the genesis block was mined no sooner than January 3rd 2009, or if additionally that date and that news paper was chosen for the headline of that day one cannot know but a lot of people choose to interpret it as a comment on the instability caused by fractional-reserve banking.

https://en.bitcoin.it/wiki/Genesis_block

Edit: Between the time that I opened this tab and when I got around to writing my comment someone else already said it. Oh well.


The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Whoever Satoshi is, he's probably not a Keynesian.


Ah, that leads me to the https://en.bitcoin.it/wiki/Genesis_block which can certainly be interpreted as indication of political intent from Satoshi. Are there any others?


yes:

http://p2pfoundation.ning.com/m/discussion?id=2003008%3ATopi...

>>The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

https://www.mail-archive.com/cryptography@metzdowd.com/msg09...

>>Yes, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

>>Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.


Intended or not, Satoshi ensured, by artificially capping Bitcoin's supply, that Bitcoin would be deflationary.


And he made a great mistake in that, by encouraging hoarding instead of spending.


On the other hand this helped attract early investment and is a reason Bitcoin initially rose to such heights.

There is nothing wrong with a deflationary currency once the rate of supply side deflation becomes small. Worthy investments will still be worthy investments and it helps the wealth of technological progress be distributed to the working class. Federal Reserve Notes are themselves arguably deflationary in nature except that remittance payments to citizens are taxed at 100%.

Bitcoin has other problems though.


I don't think bitcoin "rose to such heights" in terms of success. It appreciated in value arguably due to a speculation despite having no legitimate use (as of yet) due to its deflationary nature. So everyone wanted a piece of the pie before it ran out, the perceived scarcity drove people to get some and hoard. Hoard something that had no use.

In my opinion, a future successful digital decentralised currency should find a way to prevent itself from being seen as an "investment opportunity". That is not what money is for. That attitude creates bubbles, and "get rich quick" types. You can't have functional money without price stability. The deflationary property of bitcoin works against that.

So IMO bitcoin appreciating in value and creating bubbles along the way is not a good thing for bitcoin itself. You shouldn't need to "invest" in a currency, you need to use it. It needs to be trusted and accepted.

Many people remember the million dollar pizza now. No one wants to be that guy. Even if BTC was universally accepted now, not many holders would dare to use it to buy things. Because in their mind, BTC is poised to appreciate in value whereas fiat will collapse, so they'd use their fiat instead. If you have $5 in one hand, and a lottery ticket with perceived high odds you bought for $5, and the store accepts both as payment, why would you use the lottery ticket to buy things?


I agree that bitcoins problems include not having relatively fixed-rate use cases in the future, like paying taxes and your salary. And you make a good point that it will be socially easier for society to adopt a new currency if early investors aren't getting 10x returns for being first.

But any new currency is going to offer the opportunity for capital gains as long as it's competition includes the U.S. Dollar, because almost by definition a better alternative to the dollar would be deflationary relative to the dollar.

My point is that small rates of deflation aren't bad in a currency and bitcoins fixed size is not really a problem as long as you can trade small enough increments. Also fixed size is not even deflationary, it's just fixed unless something beneficial happens on the demand side like manufacturing cars with less materials.

At the same time fixed size is not really a feature though either. You have the whole number line available why not use it?

Bitcoins real problem is that it's not a "victory against entropy" like gold coins were in ancient times or reserve notes which can appease Uncle Sam in the future are today. Bitcoin is quite the opposite in fact, because we are dissipaiting so much concentrated energy to maintain the system. It's ironic because bitcoins greatest success is making us imagine currencies that don't dissipate value.

I'm pessimistic that there is a distributed solution to this beside just electricity or energy itself, and we're obviously not quite at that point technologically yet.


It does have legitimate use cases transferring value digitally being the primary case and also providing means to accept digital payments with little to no fees. Also you invest in whatever your countries currency is via time, so buying BTC with fiat is no different. Deflationary currencies also don’t contribute anymore to hoarding than high savings rates. Bitcoins main issue here is that it’s not a country’s main currency.


>It does have legitimate use cases transferring value digitally being the primary case

I am not convinced that what is being transferred here is value. It's transferring data, but I am not convinced that it is valuable. If it was out only option, then I guess I'd see the value in that, but in the current landscape, I'm not convinced that it is an efficient and sensible way of doing what it is trying to do.

>also providing means to accept digital payments with little to no fees.

Fees are variable. In real world volume (which it can't touch or sustain yet), the network cannot sustain the volume and the fees are exorbitant. I know, you'll say "it will get better, infancy" etc. but I'm not convinced. I don't see the value of decentralisation here so the overhead looks massive to me. And in the end, if bitcoin takes off as a successful alternative for high volume low fee transactions, the centralised industry can compete and they have the upper hand: Centralised version has orders of magnitude less overhead so they can make the fees cheaper than BTC always if it came to that. So that advantage is moot.

>Also you invest in whatever your countries currency is via time, so buying BTC with fiat is no different.

No, it is different. When I earn money, I intend to use it or invest it. I don't see my money as an investment which will appreciate in value if I "hodl" it. Money itself is not an investment. You invest with it.

>Deflationary currencies also don’t contribute anymore to hoarding than high savings rates.

[Citation needed.] Deflation literally is economic crisis where people hoard and refuse to spend which brings economy to a halt. Central banks use their policy to encourage people to spend. Deflation is our "crisis" state.

>Bitcoins main issue here is that it’s not a country’s main currency.

It is an issue but IMO it is quite a bit far from being the main issue. Bitcoin is technologically incapable of being any country's currency right now, the throughput alone is not even close to enough.


The empirical evidence contradicts this theory. Transaction volumes doubled year over year until the block size limit was reached.


Yeah but it was for speculative trading (and gambling, lots and lots of gambling sites), not for "using it" (to buy goods, exchange value). There is nothing to do with all those cryptocoins other than trading them between each other.


When people spend cash at a casino they're not "using it"?


Yes they are, but if that cash only works across casinos (think casino tokens / chips) and nowhere else, would you take it seriously?


Pretty ironic.

Making incentives to not spend 'cash'.


21st century's version of the gold bug :)


It's not really a solution to the Two Generals Problem.

The Two Generals Problem, as stated, implies that a failure to reach consensus about a future decision would be catastrophic and ought to be considered as a failure of the protocol.

By contrast, in blockchains a failure to reach consensus about a future decision is not catastrophic, instead we have a very strong guarantee that we do reach consensus for the whole of the past up to some reasonable time close enough to the present. This is rather "eventual consistency".

I really dislike how many academic and non-academic papers lump all of these difference types of "byzantine generals problem" all into the same phrase. Another aspect is protecting against attacks. Some papers "defend" against attacks by modelling random errors that they also call "byzantine", this is bullshit and sort of like saying Error Correction Codes are equivalent to cryptography.


> It's not really a solution to the Two Generals Problem.

The Two Generals Problem, as stated, implies that a failure to reach consensus about a future decision would be catastrophic and ought to be considered as a failure of the protocol.

Strictly speaking, sure. But I still agree with the parent's point. Bitcoin was the original innovation that inspired later research in proof-of-stake based blockchains. PoS consensus systems do allow for blockchains to be used to resolve consensus for future decisions in the context of deterministic state machines (ironically, somewhat at the expense of strong eventual consistency guarantees provided by proof of work consensus).

> I really dislike how many academic and non-academic papers lump all of these difference types of "byzantine generals problem" all into the same phrase. Another aspect is protecting against attacks. Some papers "defend" against attacks by modelling random errors that they also call "byzantine", this is bullshit and sort of like saying Error Correction Codes are equivalent to cryptography.

Interesting - do you mind providing an exemplary paper or two? I'd like to read them.


> PoS consensus systems do allow for blockchains to be used to resolve consensus for future decisions

I suppose you mean that someone (out of a group G) can commit an instruction saying "the future decision is Y" into the blockchain, and at some time later everyone will be convinced this is the future decision. This is not related to PoS, this will work for pretty much any system that supports smart contracts.

In this situation the decision is not executed in a shared manner - even if one of G gets disconnected from the network, the decision still gets executed by the blockchain. So it is still different from the Two Generals Problem (as stated), where everyone in the group G must participate in executing the decision.

So blockchains still don't solve the Two General Problem. Nor should this be a goal. I think the Two Generals Problem is stupidly strong and really unnecessary in the vast majority of real computing scenarios, including the blockchain.

> Interesting - do you mind providing an exemplary paper or two? I'd like to read them.

It's basically all of them, and I don't think many are worth reading so I don't remember the titles. Search for papers that try to solve the Sybil or Eclipse attacks. (Quite a lot of them rely on trusted authorities, these are not relevant here, I mean the other ones.)


> I suppose you mean that someone (out of a group G) can commit an instruction saying "the future decision is Y" into the blockchain, and at some time later everyone will be convinced this is the future decision. This is not related to PoS, this will work for pretty much any system that supports smart contracts.

No, I specifically mean a voting protocol in which the "round" will not proceed ("the generals will not attack") unless all voters v in the voting set V come to consensus about the values t in the set of transactions T at the next block height ("the city to be attacked", "the time to attack", etc). Then the voting protocol asserts a proof of stake, such that Byzantine voters are penalized and honest/correct voters are rewarded. Then future decision resolution is provably guaranteed, so long as all activity remains deterministic, the cryptography is secure, all voters in the set V are online and active, and proof of stake is a plausible economic incentive.

The caveat here is - pretty obviously - that it's possible for the consensus system to enter an infinite loop if it fails to reach consensus (just like the original problem). So no, it's not perfect, but it is modeling the Two Generals Problem and compartmentalizing it somewhat, though it can't completely resolve it.

Otherwise, I agree with you - the classical Two Generals problem is an inordinate fault-tolerance ideal.


> [..] Then the voting protocol asserts a proof of stake, such that Byzantine voters are penalized and honest/correct voters are rewarded.

How do you decide which one is a "Byzantine" voter? A minority is not necessarily dishonest. If you penalise a minority, at each step at most ceil(n/2-1) of the group will lose their stake, even if they were honest. That sounds overly-harsh.


I believe this is a terminological mistake. In the original formulation, all of the generals are "Byzantine" because they all work for the Byzantine Empire.

In the original paper by Lamport, Shostak, and Pease, the problem is described this way: "We imagine that several divisions of the Byzantine army are camped outside an enemy city, each division commanded by its own general. The generals can communicate with one another only by messenger. After observing the enemy, they must decide upon a common plan of action. However, some of the generals may be traitors, trying to prevent the loyal generals from reaching agreement."

A common way to describe the participants in such a scenario is simply "honest" and "dishonest". The term "Byzantine" has become used in distributed systems research to refer to situations in which we can't be sure of participants' honesty and intentions. However, it doesn't correctly refer only to the dishonest participants.


My point still stands - are you going to punish people simply because you're "not sure" of their honesty? That is what the parent post (to my previous post) was implying.


I didn't mean to question the substance of what you were saying; I was only thinking about the meaning of the term "Byzantine".


The Two Generals Problem is a specific problem, separate from the Byzantine Generals Problem, which is an extension of the Dining Philosophers Problem. There are other papers which advertise "Byzantine" solutions or problems, due to the references to qualities of similar problems. They are all concurrency problems, but they all have different specific criteria and solutions. You can find the related papers under each problem on Wikipedia (they are officially behind paywalls, but you can find the PDFs indexed on search engines)


I understand, however my whole point is that these different other qualities change the shape of the problem (and necessary solutions or impossibilities) completely, often in ways that make it unrealistic for the real-world problems that the paper appeals to in its abstract as motivation. The word "byzantine" is so over-used as well as abused in this field of research, that for a random paper that mentions that word I can't really tell what actual problem it's solving unless I read through it fully in detail. I suggest that a wider more systematic set of terms would help to avoid this problem. e.g. instead of saying "secure" say "unforgeable against a chosen-message adversary" etc.

Lamport's original paper does seem to treat adversaries appropriately, but I've seen many worse papers from recently failing to consider what happens if a malicious peer specifically tries to exploit your "defence" mechanism.


> The word "byzantine" is so over-used as well as abused in this field of research, that for a random paper that mentions that word I can't really tell what actual problem it's solving unless I read through it fully in detail

I wouldn't say this is a problem. It's a useful red flag that you should stop reading this paper, or at the very least question the competency of the authors. Could save hours of your life!


It is a massive problem because it wastes a lot of people's time doing research in this area, trying to read up on previously-done work most of which is uninsightful and useless.

The whole point is that I can't tell if it's a red flag simply by reading the abstract, I have to read the entire paper. The good papers also use the same vague terminology!


There are no known solutions to the Two Generals problem at all, are there? It is proven to be not solvable isn't it?


Right, it's not solvable. But as I stated in the other reply, it's also unnecessary in the vast majority of systems - either failure is not catastrophic, or you only need consensus about the past, or the decision is not executed in a shared synchronised matter, or some other property that means you don't actually need to solve the actual Two Generals Problem.

I really think we need to stop citing it as a "thing", it's like the Halting Problem, stupidly strong and not necessary most of the time. Saying that something "solves" Two Generals is diverting the conversation into pointless impossibilities.


> Modern settlement and clearing is efficient. It's perhaps the most efficient part of the financial system; it is certainly the easiest to upgrade.

This isn't really right. Pre-trade (price discovery and trade matching) are about the most efficient parts around today - in equities in no small measure due to HFT. Post-trade (clearing & settlement) is pretty messy and error prone. Something like $50bn a year is spent on reconciliation processes, mostly in manual operations work. It's certainly reliable, but it isn't especially efficient.

It's also far from being the easiest to upgrade. See the incredible pain most markets go through when they face a mandatory move from T+3 to T+2 settlement. Making changes to post-trade procedures pretty much means a wholesale, industry wide change.

(As an aside, a shared database actually goes quite a long way towards alleviating some of the problems in clearing & settlement - the author makes it clear they see quite a bit of potential in private blockchains, just not public ones. And clearing & settlement is an area well served by private blockchains.)


What is the point of a private blockchain? I thought the appeal of the blockchain was its validity in spite of malicious actors? If your use case is private why is it so hard to have an accurate ledger?


'Private' just means 'limited'. We are still talking about multiple distinct counterparties transacting with each other.

Public blockchains replace the need for trust with, essentially, energy usage. That's what gets you your validity, despite operating in a hostile environment. They give you a shared, single source of truth about the state of whatever system you've embodied on that blockchain. The problem they are solving is the undesirability (or impossibility) of trusting an intermediary.

Private blockchains replace the need for reconciliation between parties who minimally trust* one another with a method for provably ensuring everybody has and will get the same information. They also give you a shared, single source of truth about the state of your particular market, but you get that in an environment where parties on the network are assumed to be behaving well. The problem these solve is the cost and complexity in establishing a trusted third party. It isn't hard technically to have a reliable ledger, but it is hard structurally and operationally.

The point of a private blockchain is to mutualize the infrastructure required to form that single source of truth. You could do it with a trusted intermediary operating a big shared database, but you'd have to set one up in a market where that doesn't exist and assign to them complete responsibility for your record keeping. Private blockchains are a way for parties with a shared problem - the cost of reconciling their independent books - to construct a solution that doesn't require forming and staffing some new industry utility, or abrogating control over their own records (so they can maintain secrecy of trade data, for example.)

*I mean by this, they have stronger economic and legal incentives to cooperate in doing business with each other than they do in ripping off the other guy. Put another way, their horizon for trusting a counterparty extends beyond the immediate transaction on the table at any given moment. This isn't the case in anonymous individual peer-to-peer transactions.


>> Modern settlement and clearing is efficient.

If this is true, why oh why does it take 3 days (in the US) to transfer funds between my own accounts in two different banks?

Why does it take 5-15 days (including multiple "fraud" verification emails, calls etc) to send money from the US to my Indian bank account?

>> ...it is certainly the easiest to upgrade.

It is 2018... why are these systems not upgraded yet?


Because the USA has an antiquated banking system, resistant to change.

My bank in New Zealand has instant clearing to accounts within the same bank, and hourly clearing to other banks. I can transfer money from my Australian account to my New Zealand account using TransferWise within 3 hours, or 2 working days if I use the international transfer service offered by my bank.

One problem with America is that you have so many small banks and credit unions, a small town might have its own bank, that nobody is willing to standardise and agree on new standards. This is why Americans still use cheques, and why adoption of contactless payment using debit/credit cards, as well as chip+PIN (or even swipe+PIN) has been so slow.

Contactless payment is so ubiquitous in Australia and New Zealand that I've had to insert my card literally once all year.

Australia only has half a dozen main banks, which service >90% of the population. For whatever economic implications that has (too big to fail etc.), it has been great for encouraging innovation.


It is also a service culture where they have extra people to help you pack your bags. Meanwhile, Japan, Scandinavian countries and plenty of other first world places are going big on automation. You don't even get bags or a checkout assistant, it is all self-scan and pay by chip and pin (or contactless).

Against this back drop of US service culture the idea is to make it as easy as possible for the customer - they don't have to enter a complicated four digit pin number, they can just sign their signature and if the cashier thinks it looks like the scrawl on the back of the card then the sale is done.

I currently do not have millions of credit card details from a client database on my computer but that has happened before now. If I was criminally minded then I would have been able to sift off a lot of money, however, I have yet to steal a penny, despite also knowing some flaws in the 'double entry system' that I could have hacked to cover my tracks. I am sure that there are many millions of developers out there that have had such data on their laptop at some time. How many go rogue and steal? Not many. But in crypto-land it seems that this situation is reversed, everywhere there is a scam. The good actors are as rare as the bad actors in regular accounting/book-keeping.

So ten years ago when I did have many millions of credit card numbers that could be used (no 3D secure back then), I was trusted but not expressly by a single one of those named in that 'Sybase' database (as it was then). The system then very much worked entirely on trust and generally all those in the chain were trustworthy. I don't feel that banking has moved on in the USA from this trust way of working, things are much more locked down in the rest of the world. This is good for many reasons, I prefer today's customer databases where all the bits you would want to hack are hashed and salted if at all present.

This flakiness of banking in the USA - where a bank is not really any more likely to stick around than a company - means people do flock to the crypto coins precisely because of the 'store of value', there is chance of getting more than 2% return and the perceived risk is not much 'worse'.

Hopefully the net result of this fantasy blockchain nonsense is that we do build out better banking systems that do have a better 'trust model'.

The article does point out the absurdity of pushing around a whole copy of the database to every user and keeping it synced...


We leapfrogged contactless and went directly to mobile payments authorized by a fingerprint or PIN to a user-controlled device, a much better security model.


In my native Sweden people can send money to each other directly from their own bank accounts via a mobile app instantaneously for free over the Swish network. The limits are up to a temporary maximum amount of approx. 18 535 USD (150 000 SEK) and down to a minimum amount of approx. 12 cents equivalent (1 SEK). More than half the population are using it already [1].

Bank wire transfers within the entire EU is regulated by the SEPA framework which basically means that banks are not allowed to charge more for a intra-EU transfer than a transfer within the same country. This allows me to send money between my EU bank accounts for a fee that is usually between 1-3 EUR and never more than that. The transactions take one bank day to clear in my experience.

Currently, the EU equivalent of Swish is being rolled out. It's called "SEPA Instant credit transfer" [2] and will work pretty much the same as Swish, except with coverage over the entire EU.

The money is insured [3] and faulty transactions can be reversed with due process in many cases. [4]

It's unfortunate you have to have these experiences with your banking system - it does not work like that all over the world, however.

Also: Can someone please enlighten me on what we need "the blockchain" here for?

[1]: https://medium.com/@etiennebr/swish-the-secret-swedish-finte...

[2]: https://www.europeanpaymentscouncil.eu/what-we-do/sepa-insta...

[3]: https://ec.europa.eu/info/business-economy-euro/banking-and-...

[4]: https://www.metro.se/artikel/det-h%C3%A4r-g%C3%A4ller-om-du-...


One thing I dislike about wire transfers in Finland (and I would assume similar regulation applies in EU) is that banks will ask the purpose of transactions over certain amount, or the origin of cash when depositing it. I want to use my money however I see fit and I shouldn't need to disclose anything to the bank. This is something that a blockchain could offer me.


Try scaling that model the whole world. How do you get some random country to join it? The costs of maintaining all that regulation framework are astronomical and depend on political circumstances that might change quite quickly (Brexit for an instance). There's just no way that the whole world will have something like that in the next 25 years. So, if you love your banking system, don't switch to bitcoin. It doesn't mean blockchain doesn't have any value for other people/use cases.


> why oh why does it take 3 days (in the US) to transfer funds between my own accounts in two different banks?

Wire transfers are instantaneous [1]. They cost pennies a transaction, a fee banks often cover if you have more than ~$15,000 with them. For smaller transfers, real-time P2P was recently rolled out across most American banks [2]. This was a result of competition from Venmo, which one could think of as a lightning network over ACH [3]. (The latter being Fedwire's net settled and thus slower but cheaper cousin.)

[1] https://en.wikipedia.org/wiki/Fedwire

[2] https://www.zellepay.com

[3] https://en.wikipedia.org/wiki/Automated_Clearing_House


The only thing you have done is emphasize the need to answer his question. When he does an inter-bank transfer, why does it take 3 days for to clear?

I did something similar a few days ago, and while it didn't take 3 days, it did take over a day.


> When he does an inter-bank transfer, why does it take 3 days for to clear?

They chose the cheap, safe option over the fast, risky one. I talked about the difference between net and real-time gross settlement in an earlier comment [1]. TL; DR There is a fundamental trade-off between mutability, speed and cost.

[1] https://news.ycombinator.com/item?id=16154956#16155708


That is 1) to prevent fraud (see "check kiting") and 2) so the holding institution can collect the interest for the day.

This is not a technology problem. Blockchain won't change either of these.


A blockchain certainly change that. If a bank does something for non-technological reasons, it's possible that a blockchain does something else.


You can certainly have instant funds transfers, if you are comfortable with a single security lapse instantly leading to the loss of your life savings.

I'd imagine international transfers are slower proportional to the risk of security lapses when working with disparate organizations (and the difficulty in reversing mistakes.)

Blockchains might be more secure in principle than traditional banks, but blockchains are pretty much all designed so that a single key compromise amounts to a catastrophic failure. Now you can manage this by having manu wallets and many keys to some extent, but at the end of the day it's still much less reliable than just having a bunch of bankers who are paid to take their time and ensure sure all transfers are authorized.


Because prior to 2001, it was illegal to clear the money without the physical check present. [0]

There’s an effort to modernize ACH, but it’s still years away from wide rollout.

[0] https://payment21.com/blog/paper-check%E2%80%99s-death-began...


Planet Money had an episode about this just last month.

https://www.npr.org/sections/money/2018/01/10/576879734/epis...


Agreed. Bitcoin solves some problems with current forms of payment that shouldn't be unique to blockchain. Credit cards and checks are the equivalent of giving vendors your wallet's private key.


The bank is getting an interest free loan from you, because they can. Why would they want to change anything?


In any case, public chain cryptocurrencies are not the solution/upgrade you are looking for.


Yes, I strongly agree with you. In my opinion, blockchains have a lot of legitimate utility, but their applications are mostly the purview of cryptography and traditional Byzantine fault-tolerance. Contrary to popular belief, blockchains (in the abstract) are capable of resolving difficult problems in cryptographic protocols that would otherwise be impossible or rely on trusted third parties. In the context of state machines and distributed systems, they can be used to design exceptionally provable fault-tolerant architectures.

All of that gets dragged in the mud with the giant financial sideshow running rampant through the industry. It's become enough at this point to overshadow the (very legitimate) academic research and engineering work put into blockchains for the last several years.


«Modern settlement and clearing is efficient»

Bitcoin isn't meant to be efficient. It's meant to solve problems that (Satoshi believes) are vastly more important: decentralization, trustlessness, & inflation.

«The blockchain got distracted by finance.»

Payments are the perfect application found, so far, for the blockchain.


> Payments are the perfect application found, so far, for the blockchain.

That statement really needs to be tempered with context.

For some relatively recent blockchains, and for particular tradeoffs that enhance transaction throughput over raw security guarantees, payments are a practical use case, yes. But of course, the parent was talking about Bitcoin, and Bitcoin is a miserable payments protocol.

There really shouldn't be any sentimentality to that second assertion. It's simply a poor currency according to the metrics of price volatility, transaction verification speed and transaction fees. If you redefine the ideal parameters of a payments protocol as trustlessness, permissionlessness and decentralization, then sure, it seems better. But then we're disagreeing on what constitutes a robust payments protocol according to normative statements, not positive ones. I think the only people who would agree Bitcoin constitutes a robust, practical payments protocol are those who really want its qualities in a payments protocol. But in the real world, companies like Stripe have very specifically and publicly abandoned it for their own alternatives.

I do think blockchains can be used as a payments platform, with the caveat that I think proof-of-stake based consensus and various throughput improvements (not lightning network) in other blockchains are the way forward for that use case. Stripe has invested in Stellar, Tendermint/Cosmos can scale up dramatically, etc. I also regard Bitcoin as a cultural landmark of exceptional importance because it inspired many follow-on innovations in research and engineering. However, for most practical applications, I consider Bitcoin to have failed (thus far) in its original goal as a payments protocol, and to be largely superseded in practice by various alternatives.

As you said: Bitcoin isn't designed to be efficient. But if payments were actually the "perfect" application for it, it would actually be efficient, because the utility of a currency becomes higher the more efficient it becomes (e.g. higher liquidity, higher stability, etc). As for blockchains in general, I don't think payments are really the perfect application for any of them, because I disagree that decentralization, permissionlessness or trustlessness are desirable qualities in a payments platform - each of those reduces efficiency, which leaves you with private blockchains that tradeoff one or more of those security guarantees. They can be used for this purpose, but I don't consider them ideal at the moment.

Rather, I think blockchains map well to solutions for hard cryptographic problems and fault-tolerant distributed systems.


«It's simply a poor currency according to the metrics of price volatility, transaction verification speed and transaction fees.»

Bitcoin critics like you always focus on temporary issues. All the points you list are either being solved or fundamentally solvable. It's like criticizing cars from the early 1900s and missing the point that, obviously, they, like Bitcoin, will improve over time. For example:

• Volatility: on the long term it's declining because markets are getting deeper https://mobile.twitter.com/lsukernik/status/8649208737189519...

• Transaction verification speed: new technologies like Lightning Network make them instant; even a 0-conf non-RBF transaction is relatively safe to accept instantly for most use cases (eg. certainly safer than a CC transaction which can be fraudulently charged back.)

• Transaction fees: solvable by off-chain technologies like Lightning, or by increasing the block size (Graphene or UTXO set commitments make this scalable).


It is not obvious that those problems are solvable, nor is it obvious that they're solvable in a way that doesn't simply recreate existing systems. And even if they are solvable, there's no lower bound on when that will occur.

And cars from the early 1900s may very well have been unsuitable to to the purposes for which they were employed in the early 1900s. You can't ask people to build their businesses and trust on a foundation that will "maybe" be poured "sometime" in the future.

You cherry-pick cars in the 1900s while failing to ignore all of the early 1900s technology that didn't succeed because there was no way to improve it. None of that was obvious then, either.


I edited by parent post to show why/how they are solvable.


Tell me more about the bitcoin protocol as a solution to two generals.


it's not about efficiency, its about trust.

few things can do as much harm as an untrustworthy money system or say a damaged "rule of law" - both of which the western world struggles with right now.

we are plenty inefficient with many things (subsidies, war) but inefficiency isn't even in the same league as a broken (fraudulent) money system.


> Modern settlement and clearing is efficient

I am no fan of bitcoin, but here's some anecdata for you:

It takes five full business days for an ACH transfer to clear and become available between my bank and my brokerage.

BTC, for all its faults, can give you sufficient confirmation in about an hour. Many other cryptocurrencies, much faster than even this.


This is a very common rehash of the "blockchain not bitcoin" perspective, and this indicates a lack of understanding of the purpose of bitcoin. Bitcoin/satoshi aren't being coy, though. The Genesis block contains the headline "Chancellor on the brink of second bailout for banks." Bitcoin was created as a democratized money that is outside of central control.

The author thinks that centralized control is not a problem because "there is no lack of trusted enough intermediaries in the financial/accounting sector".

This is something that bitcoiners strongly disagree with, with almost daily news of financial censorship going on, and irresponsible financial institutions continuing to be funded by quantitative easing[1] to engage in carry trade and other gambling (which is somehow considered less risky than a revolutionary new form of hard digital money).

The thing that I think a lot of people miss is that bitcoin is not a technology, it is a combination of technological innovations with economic innovations.

Its the incentives in bitcoin that are critical to the system... this is why "private blockchains" are silly. You might as well use Oracle with version tracking on changes.

Public blockchains, namely bitcoin, have the potential of being genuinely trustworthy in themselves, not based on hoping you don't have counterparty risk.

In 2009, it was the counterpary risks that really amplified the disaster-- all of those CDOs were written assuming there was no possibility of default.

The rest of the financial sector operates at the risk of financial censorship, but financial censorship is not unusual-- everything from banning people from doing business with each other to the elimination of ownership rights for corporate bonds in the GM case. It's not that uncommon.

With bitcoin there is no possibility of default, and very high resistance to financial censorship.

[1] Not to mention that arbitrary issuance of currency basically removes individuals ability to trust that currency in the first place.


> With bitcoin there is no possibility of default, and very high resistance to financial censorship.

I'll concede your second point (due to the decentralization of Bitcoin), but I'm having a hard time accepting "no possibility of default".

What does "default" mean, when applied to a currency? In the 2008 crisis, it was institutions that were in default (or in danger of defaulting); the currency itself was just fine. Over-leveraging could be done with any commodity—it's not limited to traditional fiat currencies.

Your argument seems to hinge on an assumption that centralized banking is mainly made up of bad actors, while decentralized banking is made up of virtuous ones. I don't see why this would be the case. I prefer to assume that everyone is a bad actor (must be my Calvinist upbringing), so we should design systems with this in mind. Government-sanctioned currencies give us the ability—in theory—to have accountability through the political process; certainly, it's not perfect (see USA, 2018), but at least there is the potential to incorporate checks and balances.


> With bitcoin there is no possibility of default

Nobody is stopping you from writing an off-chain loan that defaults, by trampolining back to meatspace trust models for the debt obligation. Sure the effects are likely to be much more contained, but to say there is no possibility of default is not accurate.


Agreed. Its a ludicrous claim. Bitcoin manages ownership of coin, not debt. There's absolutely nothing about bitcoin that stops over exposure. Even if you have the coin reserves, there's nothing showing other loans you've taken so even if the coin is in your wallet, that doesn't prove no one else has a claim to that coin.


I love that you called a claim I didn't make ludicrous. I thin that strawman is murdered.


> In 2009, it was the counterparty risks that really amplified the disaster-- all of those CDOs were written assuming there was no possibility of default ... With bitcoin there is no possibility of default, and very high resistance to financial censorship.

I don't really see how this statement can be justified; I can borrow or have contractual obligations denominated in Bitcoin that I fail to deliver, and you are free to value the contract pre-default at its market value and even take loans against it, amplifying the ripple effects of a default.

In my opinion, the real crisis in 2009 was not the failure of the banks and the financial system; the real crisis was the bailouts -- funneling huge amounts of money created just for that purpose to the very institutions that had proven their inability to manage that money.

My hope for Bitcoin is that it makes such a bailout untenable because it would require real money be spent, or unlimited credit be created, which would expose even large central banks to the problems of sovereign default.


Bitcoin has very few of the properties that one would consider desirable for a currency.

1) Transaction costs. Don't want to beat this horse to death. Some other cryptos improve on this.

2) It's inherently deflationary. Deflation is bad. This ties into another strange thing, which is that the boosters of every coin think they are supporting the long-term adoption of the technology by "HODL"ing but that is the opposite of what people would do with a real currency. I haven't seen a crypto that isn't deflationary.

3) The bitcoin protocol decentralizes some things but centralizes along other dimensions. For mature cryptos its very tough to get the entire community to agree to a hard fork, which means that mundane fraud can't be effectively unwound, like banks could probably do with fiat transactions. I have the most trouble articulating this.


"Bitcoin has very few of the properties that one would consider desirable for a currency."

The desirable properties of currency are: - difficult to counterfeit - fungibility - robustness from degradation (eg: salt works except if you get it wet) - consistent store of value - Easily transportable.

Bitcoin has all of the above, and has better qualities in each regard than both gold and the US dollar.

As for your complaints: 1. Transaction fees are not a problem. You can move a million dollars for $0.20. You can move 1 penny for a millionth of a penny with bitcoin. The "transaction fees" FUD is just a campaign combined with a spam attack and that spam attack has been defeated. Further it becomes irrelevant with lightning.

2. Bitcoin is literally inflationary. It won't stop inflating until 2140. You think its "deflationary" because its price keeps going up, but that's simply a consequence of the technology adoption lifecycle.

The idea that deflation is bad is absurd. Monetary inflation is a form of taxation, or more precisely counterfeiting. It is literally theft. The reason old people have trouble getting by is that the government has stolen their lifetime of savings via inflation. The idea that government propaganda has convinced people that this is somehow good is really quite disgusting.

3) There is no reason to hard fork bitcoin. The only ones that have happened were early days and an accidental one (which nobody noticed because everyone upgraded.) You don't need to hard fork bitcoin.

Unwinding "mundane fraud" is not a feature of gold or the US Dollar so the idea that this is a requirement of a currency is absurd.

Also, you were complaining that it is centralized, but your evidence is that it's so decentralized that you can't reverse transactions?! You said you were having trouble articulating it, so maybe you switched points in the middle.

Anyway, censorship resistance is a good thing-- any method that lets you "unwind mundane fraud" would let a government censor who has what bitcoin.


> It's inherently deflationary

I hear this argument a lot from skeptics, and even from some supporters (though the supporters often contest the "Deflation is bad" follow-up).

I think anyone who says "it's inherently deflationary" should translate that to the phrase "it will always go up in value", which is another way of saying the exact same thing.

Even as a Bitcoin supporter, I find the notion that "it will always go up in value" to be a pretty dubious claim to make, much less a more convoluted argument (that admittedly you did not make) that it cannot be successful (i.e. cannot continue to maintain value) because it is deflationary (i.e. must always increase in value), as those two things are saying the opposite thing.

Practically speaking, in the Keynsian view, any examination of the deflationary/inflationary aspect of Bitcoin has to be tied to the fact that there will be way more "Bitcoin" in circulation than Bitcoin on the blockchain, because of the multiplier effects of banking and credit markets (neither of which exist in any interesting way at the moment, but despite what some of the more fervent supporters believe, there's no reason that fractional reserve banking cannot be denominated in Bitcoin). So trying to make an argument about inflation based on M0 is a bit meaningless -- the state of the credit market is way more important than the supply of specie.


> Bitcoin was created as a democratized money that is outside of central control.

I'm just beginning to learn about blockchains and bitcoins. At the moment, I don't see how bitcoin is democratic. Having read "Miners Aren't Your Friends" [1], I don't see how it's possible to trust a system where "... each miner controls the blocks they generate, they can also exercise control over the state changes in that block," that is, miners can manipulate the order of transactions in a contract. At the very least they can cause extra transaction fees to be charged.

[1] https://blog.keep.network/miners-arent-your-friends-cde9b6e0...


I strongly urge you to read Vitalik Buterin; he's written a great deal on many core subjects in crypto and is a far better writer and analyst than most.

Bitcoin exists and is successful precisely because miners control authorship of the public ledger. The entire point of proof-of-work is to ensure this. The essential observation, and really the key invention of Bitcoin, is that you ensure that no single party can control authorship to the blockchain unless they control a majority of the mining power, which is very expensive. Furthermore, control of authorship is directly correlated to investment in the network; capital investment in mining equipment, continued investment in electricity for hashing, and value extracted from that in the form of the cryptocurrency itself. In other words, those who are most able to attack the network also have the most to lose by doing so. This is the foundation upon which Bitcoin is built.

Ethereum is a different story because of smart contracts and the potential move to proof-of-stake (Casper). But these arguments don't apply to Bitcoin. There are also people involved in Bitcoin that have political/development disagreements with miners, and thus seek to advocate that 'users' can/do control the network. I recommend a critical reading of both 'sides' and to reach your own conclusions.


"Bitcoin was created as a democratized money that is outside of central control"

That sounds nice in theory, but how could it be true?

If you have more/better hardware you get more votes, which equals -> more money more votes.


Still, "more money more votes" is different from "centralized". No matter how many USD I have, I cannot make direct changes to Federal Reserve policy.


Professional blockchain researcher. Huh?

From the witer's bio:

I’m a PhD student at Aalto School of Economics in Helsinki, Finland. In general, I’m interested in evolution – specifically, how complex entities evolve over time.

FWIW, those who are shut out of centrally managed payment systems most definitely understand the point of Bitcoin. For example, see this recent article on Sci-Hub:

https://www.theverge.com/2018/2/8/16985666/alexandra-elbakya...


He has worked as a researcher on a research project by Aalto University (leading technical university in Finland), Ministry of Finance and a few companies that is researching blockchains and their potential effects on society (see e.g. https://medium.com/blockchain-reconnaissance/what-is-project...)

So yes - he is a professional blockchain researcher.


It's just the nature of things and it transcends blockchain. Get an episilon ahead of the general public (waaaay easier in a young field like blockchain), promote yourself, and there you go. I got deeply interesting in Bitcoin in 2012. It was interested seeing all of these self-proclaimed experts in the field pop up--giving talks at conferences, etc. At first I was frustrated by such "charlatans" ("Hey! I don't think of myself as an expert and I know way more than that person..."), but then I realized that these are people who are passionate about subject, have learned a bit more than the average joe, and kudos to them for putting themselves out there and spreading their thoughts/learnings.


Ad hominem?

He finished his PhD thesis last year, and it's not unreasonable for him to have spent the past 15 months doing research on blockchain technologies, give the areas he works in.


I'm not sure how you conclude that the PhD has been earned. The about page uses the future tense, there has been a lot of time to update it, and there's this:

With luck, my thesis will be complete in late 2017 – only three years later than I planned! The extra years have been well spent in researching and writing about environmental issues, particularly energy/environment nexus. This has resulted to two books in collaboration with Rauli Partanen: Climate Gamble and Musta hevonen.

When an author puts credentials in the title of an article, then credentials are on the table as a point of discussion.


>I'm not sure how you conclude that the PhD has been earned.

I didn't say it was. I stated the thesis was finished. These are distinct.

The latter requires a defense of the thesis before a committee, and in pretty much every decent PhD program, is merely a formality since the advisor should not let the student defend until he/she is ready. I had my thesis finished long before I did my defense, and I passed that months before the PhD was conferred, which happens at graduation.

Here's [1] a speech given before his thesis defense, so I suspect he has passed his thesis defense. So either he got his actual PhD at the end of the term or is waiting to get it at the next term end.

>When an author puts credentials in the title of an article, then credentials are on the table as a point of discussion.

Neither PhD nor Doctor appear in the title or in the article. You brought up the PhD silliness. A PhD is neither required nor implied in this post.

You're still stuck on ad hominem. If you want to criticize, do so on the merits of the article, not strawmen you dig up.

[1] https://jmkorhonen.net/2017/12/15/necessity-is-the-mother-of...


You brought up the PhD silliness.

I quoted the author's about page, which says nothing about block chain research. That quote happened to mention a PhD, which I could not care less about. Much more important is the fact that the bio page says nothing about block chain research.

It is you who seems intent on discussing the author's PhD, which you demonstrated in your first response - and your second.

I brought up the author's about page because the author implicitly appeals to authority in the title of the piece by claiming to be a "professional" "blockchain researcher." The article itself says nothing about this research other than it supposedly happened. Nor does it contain anything that I found novel or insightful.

The second part of my original comment speaks to the substance of the article.

A PhD is neither required nor implied in this post.

I never said this, nor do I care what letters appear after a person's name. But when that person tries to claim the mantle of authority in the title of an essay, looking into the author's background is fair game.

Neither the article nor the bio provide evidence that that the author is a "professional" blockchain researcher. The content of the article is mediocre at best, suggesting the author has a weak understanding of the topic at hand. I provided a specific example in my first response.


Ad hominem is wrong, but so is argument from authority.

My professional opinion as a blockchain researcher I’ve spent the last 15 months researching the implications and possibilities of blockchains and related “distributed trust technologies” from a business and societal point of view.

And dirtyaura's comment consolidates the author is some figure we can trust mantra.

In the end, the article states that people should not put their savings into coins but smart contracts are nice. Something others have said before but it's more clickbaity to state that it's coming from a professional blockchain researcher.


Claiming it's an argument from authority is the fallacy fallacy.

An argument from authority goes: "I am an authority therefore the following is correct." This is nowhere near that.

He correctly stated it was his professional opinion that..... He didn't claim the argument is correct because he's a professional. And he is a professional, doing this work in a professional context for 15 months.

So it is absolutely correct to state "my professional opinion is...". He has likely put far more work into this, and certainly with better background and training, than probably anyone on this thread questioning his credentials instead of addressing his message.


It's not a fallacy fallacy since I point out one weakness in the article but do not assume the proposition is wrong for that reason. Actually, if you read my last paragraph, it's obvious that I even agree with the author's argument to some extent. I only attack him for making a boring claim more clickbaity through his credentials.

From my quick skimming, mostly apo questioned the credentials. Yes, you are using ad hominem against the one you accused (rightly of doing so).


I fail to see the link you are drawing from Sci-Hub to Bitcoin. Care to clarify?


With PayPal now closed to her, she [Elbakyan] simply turned to bitcoin donations to keep feeding Sci-Hub’s growth.

...

One 2017 PeerJ study estimated that Sci-Hub owned $268,000 in unspent bitcoin as of August 2017. (Though Elbakyan has publicly disagreed with that estimate, she hasn’t said how much she owns in bitcoin. She claims the exact amount is confidential.)


Furthermore, you can easily use WikiLeaks as an example of Bitcoin being used to transfer value past censorship from banks / payment processors.


> there is no lack of trusted enough intermediaries...

Equifax? Wells Fargo? Happy that your payment card provider sells your purchase history? Or that we spent trillions to bail out bankers mistakes?

What about trust in nonfinancial matters: Voting machines? Google? Facebook? The NSA? The 30 obscure random companies tracking any given web page?

Maybe we trust too readily.


> Are you happy that your payment card provider is selling your purchase history?

Yes, I'd much prefer it to be freely available for all to see.


Except it's linked to one or many pseudonymous wallet addresses, so only linkable to your real name under certain circumstances and/or by TLAs. And that's before anonymizing protocols (available now as separate coins, coming soon-ish to ETH, and probably at some point to BTC)


Or its hidden by RingCT -- confidential transactions (cannot see amounts transacted), and signed with a ring signature so you cannot determine the 'true' inputs and outputs. No reason that cryptocurrency needs to use transparent arithmetic.

The next gen of this is mimblewimble, in which you cannot even determine an individual transaction! The block tx's are simply an aggregate of transaction and balance states!


You're worried about being tracked yet you don't think someone who would track you wouldn't go through the hoops of digging through the chain to do it?


I'm not sure where you get either of those from my comment. TLAs (not just intelligence) can and will do that digging. Marketing/surveillance firms will do it or pay blockchain analytics firms to do it. Anonymizing protocols will probably thwart all but intelligence agencies, though.


Great! When will we have one of those anonymizing protocols?


We have them now! From your GP comment

> (available now as separate coins, coming soon-ish to ETH, and probably at some point to BTC)

See Zcash, Zclassic, Monero, etc. The tech behind Zcash is called ZKSnarks is available for use in ethereum smart contracts as well.


Come on, Monero for example doesn't do this, so your argument might stand against Bitcoin specific, but not against cryptocurrency in general.


I studied the source of the bitcoin blockchain a couple of years ago when the whole "blockchain will change the world" movement began. Although I really liked the elegance of the blockchain, I never understood what the blockchain would solve in a real-world application.

How I see it: blockchaining is an arms race in computing power. In order to sufficiently 'secure' your chain you need to spend more value (electricity) than an attacker is willing (or capable) of spending. This makes blockchains very expensive, slow and an environmental disaster.

Unless a blockchain has tremendous value (like cryptocurrencies currenly have) there is no way to sustain them.


Expensive and slow seems to be the point. An attacker would need to spend an inordinate amount to change just the most recent transactions - this provides high confidence that the chain is immutable and secure. Maybe digital scarcity with trustless, secure transactions is not valuable to you (or the author), but many people do see promise there.

Additionally, the "environmental disaster" claims have always seemed shallow to me. Yes, it is a serious issue if everyone is mining with coal powered electricity, but how did it get so cheap? Isn't it on the government to not subsidize coal? The largest mining companies are finding super cheap energy in renewables (1). In the long run, I feel like mining is what can pay for further investment in renewables. For instance, see the article below about Germany paying customers to use electricity (2). Seems like government level mining might be a good investment.

1. https://globalnews.ca/news/3974083/bitcoin-mining-quebec-can...

2. https://www.independent.co.uk/environment/germany-grids-payi...


> blockchaining is an arms race in computing power.

Distributed blockchains.


That is correct, but a non-distributed blockchain (i.e. something you use locally) sounds like a something that can also be solved by using a database or even your filesystem.

I'm not saying blockchains are bad technology, non-distributed blockchains can be a very good solution to certain problems, but it's not the "world changing" revolution many claim it to be.


What? What would be the point of a non-distributed blockchain? Fundamentally, blockchains are a solution to the distributed consensus problem, where you're not guaranteed anything on the length of time it takes to communicate between two nodes. Also known as asynchronous consensus.

If you're local (or within a small network with bounded, you don't really need asynchronous consensus. Dolev-Strong or any number of other synchronous/semi-synchronous protocols would work fine.


I think LeonM's point WAS that it's unnecessary to qualify "blockchain" with distributed, because as you say, it would be relaively pointless otherwise.


I was more remarking upon

> non-distributed blockchains can be a very good solution to certain problems


In theory, the value of the blockchain is proportional to the value of attacking it; if a particular chain is not very valuable, it doesn't need to have much power securing it.


Many investment opportunities are closed off to willing participants by government regulation, investment minimums, transaction costs and other factors.

Looking at most (not all) of the non-currency alt coins, there is clearly demand for cheap access to new investment opportunities. Yes, a lot of people are going to lose to scams, some have already. At the same time distributed ledgers do solve a very real "access" problem.

Similarly, contracts and banking have not integrated well with the technologies most business uses. Yes, Stripe has reduced payments friction beautifully, and Paypal has brought credit applications and approvals to the checkout process. But big dollar transactions that use Letters of Credit, structured loans, milestone payments, etc... these areas have few programmatic solutions.

Smart contracts are a fast approaching solution to this need, they have no analog in the conventional commercial world, and yes - they will be a game changer.

If my customers can issue an irrevocable L/C, denominated in Etherium for example, that is self executing based on terms mutually agreed in advance, then my business will chose that route over lengthy and expensive bank L/C's. It also means we'd probably choose Quantstamp for contract security, and perhaps SALT Lending to fund the Ether, and possibly expend BNB to covert the currency into Litecoin for storage until such time as we convert to fiat.

That is the promised ecosystem. It is no more expensive or complex than the universe that surrounded EDI, or that describes most business process integrations in common use today.

Its just difficult to look at all this from both a business and programmatic point-of-view simultaneously.


"As it stands, public blockchain is very much a kludgy solution looking for non-existent problem, namely lack of trusted intermediaries in finance and accounting."

Had to stop here.. The reason of blockchain is to remove intermediaries AND still have trusted transactions.


The author asserts that removing intermediaries (with blockchain) is a solution to a non-existent problem, as there are a lot of trusted intermediaries.


We've been automating middlemen away for years, don't see whats different here?

Blockchain lets us do some stuff now that was impossible before (single ownership of digital assets jumps out), but a big chunk of the economic benefit is going to come from reduced transaction costs.


Bitcoin, the only "proven" crypto coin thus far, totally failed as a usable currency because of the high transaction costs.

Other cryptocoins including BTC, Ethereum, Litecoin or whatever do not have lower transaction cost than traditional currency. In fact I would argue that since public blockchain require mining transaction costs can never be that much lower than traditional currency.


And blockchains achieve that at an immense cost, which is the point of the discussion. Decentralised systems are less efficient (orders of magnitude less for proof of work) and it's debatable whether that is necessary in the real world, where trust exists for the majority of applications.


We've been reducing middlemen to few, not to zero. e.g. Amazon, Whatsapp, Facebook, Airbnb etc. Hell, even peer-to-peer systems have some kind of middlemen.

If that middleman is in a big enough market with low barriers to entry and lots of competition, and is able to drive cost down with smart tech, it doesn't really matter to most users whether he exists or not.

Decentralised systems never promised low transaction costs. A private party running a database can do it cheaper and faster than a set of decentralised actors working for some incentive to establish the same database. That seems pretty much inevitable.

They did promise something else. Trustless-systems. But it hasn't been shown yet that consumers value this. (e.g. see our most valued companies like Facebook to which we routinely trust data (from secrets to nudes) we'd never, ever share with anyone else)

Blockchain's value proposition, as I've always interpreted it, isn't 'material' in the sense that transaction costs or speed are, but more based on the culture and the relationships of the 'value network'. i.e., the relationships aren't based on trust+laws, but on code+math. And it doesn't appear to me that the market values these relationships/culture, but it seems that the market does value the material aspects. hence there being no real blockchain users of blockchain applications. (except for the whole store of value thing, which drives basically all the price changes, but nobody envisioned the blockchain to solely be digital gold and nothing else).


The author makes the point that the proof-of-work is expensive enough to have the transaction costs still too high to compete with the current financial environment.

I do not send money to my wife on bitcoin, I use venmo or bank accounts and it is free and immediate.


Bitcoin has simply anonymized the middle man. You're still expected to pay a transaction fee to miners. It'll never be cheaper than a centralized solution so there will never be a cost reduction.


I'm not knowledgeable in this area but isn't the problem "trust"? Trust is a risk. Probably a safe one but a risk nonetheless. If you have the ability to remove trust from the equation, why not pursue it?


I think the point is that its a cost/benefit analysis. The cost of removing trust from the equation is much higher than the cost of just trusting a intermediary.

In simple terms even if my bank was evil and occasionally abused my trust to steal my money it would still be cheaper to me than trying to use Bitcoin as money and paying the high transaction fees and suffering the long transaction wait times.

Sure perhaps if there was no one I could trust as an intermediary and everyone was evil and would steal large amounts of money from me then a decentralized blockchain based monetary system would be worth using. But as it is the potential risk of an intermediary abusing my trust is minimal to nonexistent compared to the very real expense and wastefulness of the blockchain based systems.

The same thing applies to almost all usage of blockchain. Sure it works, but trusting an intermediary just works better, and cheaper.


We have the ability to remove it, yes, but not for free. Decentralized systems based on proof-of-work are inherently less efficient than centralized, trust-based systems.

The question is, do the costs and downsides of cryptocurrencies outweigh the benefits of not having to trust a third-party intermediary? The author is arguing no, and for the overwhelming majority of real-world cases, I would tend to agree.


I understand the trade off a little better now. Thanks. It leads me to a follow up question - is this universally true of all blockchain implementations or is it due to the structure of cryptocurrency (mining, etc.)?


Mining is part of how the Blockchain remains decentralized; you can't remove it.

In the original paper, the way mining worked was by Proof-of-Work (PoW), which wastes a bunch of energy to make sure it's unprofitable to attack it.

There is research into mining without wasting energy by using alternatives to PoW, like Proof-of-Stake (PoS). I don't think there's consensus about whether any of them actually work.


If you do, sure. But nobody has that ability.

I just mentioned, elsewhere in this thread, a couple major players in the cryptocurrency space who have proved to be untrustworthy. And a lot of people got burned in part because they believed the hype that removing the need for trust from the management of the "physical" currency is equivalent to removing the need for trust from the financial system itself.

That might have been true thousands of years ago, before the birth of finance, when everything really did run on just cash. Things are more complicated than that nowadays, though. Cash is such a small corner of the money supply in a modern economy. A few percent of the bits that people bother to try and count, and there's a lot more that goes uncounted. A distributed trustless public ledger for the cash doesn't really help with the trust issues for that stuff. Frankly, it only helps with the small subset of money for which I'm least worried about trust.


Suggestion: (needs trust + fallback to a court of law) is less risky than (trust free + no fallback).

It's a moot point anyway - as has been said, bitcoin's a commodity not a currency.


If one could remove the need for trust with no other costs, sure, why not? But in practice, using something shaped like bitcoin asks for very hard things: The financial system started with very little trust, but it expanded because trust solved problems, like money being stolen on route, an associate running away and leaving and bank runs. Trust makes those problems mostly go away. Bitcoin has digital equivalents: 51% attacks, someone duplicating a private key, someone losing their private key and the money disappearing, exchanges becoming insolvent, getting hacked, or downright stealing, low transaction throughput, high costs per transaction, and high volatility. If you study the history of banking and finance, the blockchain is in 1700-1800 or so, and we solved those problems through more trust and faster communication. Our best solutions to both the blockchain and old finance problems? More trust, as it lowered overall risk. We can't just improve the fact that the current system requires a lot of trust with a new system that just happens to still need trust to work efficiently.

Now, maybe we'll solve those problems in ways that don't requite more trust, but until then, cryptocurrencies will we far riskier than the existing financial system.


> If you have the ability to remove trust from the equation, why not pursue it?

Effort vs reward. Maybe the reward is low, and the cost (e.g. in electricity to do the proof of work) is getting out of hand.


Yes but blockchain also introduced a new risk, or magnified it. Your funds can get stolen without you knowing about it and there's nothing you can do.

That cannot happen with a bank account.


Trust acts as capital in today's market. You can often get some sort of payback if you trust somebody else with your money.


If I told you that Equifax is one of those "trusted intermediaries"...


Yes, there are a lot of trusted intermediaries if you live in the US, Europe, or otherwise sufficiently developed countries. However, there are few if any truly trusted intermediaries in the developing world (and countries that have regressed significantly), including India, Venezuela, Zimbabwe.

Perhaps blockchain is superior to a trusted intermediary, perhaps not. But it isn't gonna take off in the developed world until it proves its utility in the undeveloped world.


A reason in search of a problem. Intermediaries in finance exist the same way that lawyers exist - to translate technical gibberish for you, and to bear some burden of the risk if they do so negligently.

As pointed out in the main text, the blockchain doesn't truly remove the intermediary, it just switches it from the previous intermediary to the underlying blockchain code + governance structure, which is subjectively a higher risk intermediary, at least right now.


Not to mention that since people aren't actually conducting business exclusively in bitcoin they are forced to transfer back to fiat currency constantly which is a transaction that has all the same risks.


It's possible to exchange between cryptocurrencies without trust by utilizing time-bound multi-signature transactions. You can't do that when there's a non-cryptocurrency involved.

The fact that the latter is riskier says a lot more about non-cryptocurrencies than it does about cryptocurrencies.


> to remove intermediaries

And the miners who do the proof of work are not intermediaries in any sense? Do you trust them?

At least in the traditional banking system you know who the middlemen are.

For reference: https://www.extremetech.com/extreme/184427-one-bitcoin-group...


It is a problem, I share Andreas Antonopoulos view on this: https://www.youtube.com/watch?v=ncPyMUfNyVM

Edit: read the response wrong


I wonder what percentage of people only hold Bitcoin through an exchange. Bitcoin seems to have proven that people want intermediaries.


Another way to thinking about this is that the intermediaries exist for an economically efficient reason and aren't just a "tax" on transactions to be routed around.

In traditional institutions these are things like fraud prevention / detection, convenience in matching both sides of a transaction, etc.


You're right, but the statement you quoted does not contradict your assertion either.


You're maybe taking an overly simplistic view of the needs of financial institutions.

In finance, the trustworthiness of the transactions themselves is pretty much a non-issue. The real issues are much more subtle. What's the likelihood that a counterparty actually has or can acquire the goods they're selling me? If I'm selling them a futures contract, what's the likelihood that they will have enough cash to make good on that deal at a future date? Does my bank have a healthy enough balance sheet that I will be able to get at my money when I need it?

These are all problems that the financial industry has solutions for. They are admittedly imperfect and of varying quality. But what's there is a far sight better than what blockchain has been able to offer, which is approximately nothing. Hopefully I shouldn't have to do more than mention the names MtGox and Tether to drive this point home.


> The reason of blockchain is to remove intermediaries

Not correct. Blockchain has intermediaries. They are just semi-anonymous and unaccountable.

The paradox of this is that if you don't trust any particular intermediary (evil corp, gov, boogeyman, etc) then how do you know they are not the anonymous party running your anonymous unaccountable blockchain? You can't and so the whole thing is foolish to the core.


Reliable is probably a better word for the goal than trusted transactions.

You aren't supposed to have to trust blockchain, it's verifiable all the way down.


Agreed, I just took the word from the quote.


If you'd kept reading, he'd have addressed your point.


Seems like everyone is looking at this from a 1st world perspective where our trust in money and the financial system has worked in our favor (generally). In places like Vietnam where their currency has crashed to 0 in memoriable history a decentralized currency seems like a great idea.

Furthermore there is over 500B USD (more than global foriegn investment) sent from migrant workers back to the thrid world every year. Each transaction can cost anywhere from 5 - 15% depending on the country. Than the reciepient incurs more fees for exchanging to their local currency. This results in an enormous amount of economic waste and can be completely avoided with a decentralized and trusted block chain currency.

All of this causes incentive for the technology to persist and keep expanding. In this sense I feel the author and many commentors have missed the point. A decentralized currency is not for places where trust already exists (yet) but it already has applications where it does not.

IMO this is what has "futurists" up in arms. Just like how the internet had the potential to allow the flow of information to pass between boarders freely from the beginning but was seen as a novelty. This is becuase it was looked at under a 1st world lens where public libraries and free education were already norms. It was only when information got into the hands of those who previously could not get it did we see an explosion of ideas and progress. What if the same thing happens with money?


Then I assume there must be evidence that the Vietnamese and migrant workers in the US are rushing to adopt decentralized currencies. Is there?


There is a lot of evidence of the potential bitcoin has for remittance. This doesn't mean that it has been adopted by ALL the migrant workers in the US but if the transaction cost is 0 and the competitor charges 15% its only a matter of time before it is adopted by everyone. The links below only scratch the surface. Aside from the references below most of my previous post comes from on the ground experience in developing nations.

I sincerely doubt there is a formal study showing the exact numbers since there is no incentive for migrant workers (who may be undocumented) to expose themselves for capital flight.

My overall point though is that while you, as an American, may have complete faith in the current financial system there are certainly places in the world where this is not the case. The financial system is global and the US is no longer the biggest player.

[1] Krygyzstan https://www.theguardian.com/world/2014/jul/08/kyrgyzstan-bit...

[2] Africa http://www.independent.co.uk/news/business/news/bitcoin-is-b...

[3] Tajikistan https://eurasianet.org/node/68272

[4] General https://riskmagazine.nl/article/2017-09-15-bitcoin-the-perfe...

[5] South east asia http://inc-asean.com/editor-picks/bitcoin-disrupting-southea... https://imgur.com/a/RySeB


> there is no lack of trusted enough intermediaries in the financial/accounting sector.

Define "trusted enough". Now imagine you are a Chinese millionaire willing to take your money to a safe port, a Venezuelan/Somali that doesn't trust anything government, a Russian/Brazilian/Italian middle class practicing the so much loved national game of tax evasion...

"Trusted" can mean a lot of different things all around the world.


I find the article a bit too focused on the financial aspect of blockchain technologies. Yes, Bitcoin is a payment system but the underlying technology goes way beyond the financial sector.

I would not say that having a safe ledger that we all can trust without question for our democracies around the world a solution to a "non existant problem", just look at recent elections.

Scalability/Performance issues should not be taken too much into account today, as we're still in the infancy of these technologies and can be pretty sure that they will radically improve over time.


I see a point in trustless records of ownership. There is already a market for it in things like shipping, where transporting container ownership claims (a few pieces of paper) is more expensive than transporting the containers themselves.

There is also a huge potential in corruption rich governments, where proof of ownership can suddenly disappear. Though implementation may be hard. :)

Even in non (or ver little) corrupt countries like my own I see a point. Not so much because we need it right now, but because we might need it in the future.

Why wouldn’t you build your anti-corruption government tech while you have the chance because your political leadership and the bureaucrats aren’t yet going to have a vested interest in stopping it?

Maybe that’s a little pessimistic, and it’s certainly not how you should sell it, but it’s not like our current record keeping tech couldn’t need an overhaul anyway because it’s really, really, awful. Adding Blockchain tech to make it trustless wouldn’t be cost-inefficient if you’re down under the hood anyway.


> To me, it all seems another gold craze, stoked not only by the usual crowd of techno-babblers keen on latching on the latest buzzword, but also by certified wingnuts from the long-discredited hyper-libertarian Austrian school of economics

That's a bit question-begging, there. Austrian economics seems quite reputable to me, anyway.

> the inconvenient fact that if societal trust erodes sufficiently for paper money to lose its value, it’s highly unlikely an arbitrary string of ones and zeros in an arbitrary hard disk somewhere would fare much better

In a world of rubles, rands & lira (all highly volatile, although probably not as much as Bitcoin currently), a world in which governments (not all democratic!) attempt to control the movement of capital, I think that ones & zeros might not be a terrible addition.

Upvoted anyway, because his fundamental point is probably correct: cryptocurrency is in its infancy.


> Unfortunately for this central value proposition of blockchain, there is no lack of trusted enough intermediaries in the financial/accounting sector.

I am not sure if _lack_ of trusted intermediaries is the issue here. The problem is with their current form and shape, not with the lack of trust.

Blockchain is trying to reshape how the trust _works_ not its lack or abundance.


I totally, 100% agree with his central point: I don't see the need for untrusted intermediaries, with the essential caveat of "yet."

One place where blockchain clearly makes sense is Bitcoin. Or Bitcoin did make sense to me until the developers kneecapped future development and transactions fees soared and there are too few transactions allowed for it to become a useful ledger for everyday use of a large number of people.

Other cryptocurrencies solve that weakness.

But the spate of blockchain startups don't make much sense to me. In particular, in energy, I see it as a bunch of clear snakeoil. The startups that are most honest about this use less-competent executives' FOMO on blockchain to get their foot in the door, then say more honest things like "Ethereum doesn't make much sense for energy trading with your neighbor."

Because with energy, like with most things, there is already a trusted intermediary, and trying to cut them out of the deal doesn't actually mean you trust them any less. They still have control, and power, and you still are giving them your trust.

Blockchain may be useful in other situations, but it really remains to be seen. It's very interesting tech that seems like it could have applications all over the economy beyond currencies, but I think we may just be at the peak of the hype cycle and all these will come crashing down in a big dose of reality soon.


Let's work backwards: what problem does Bitcoin actually solve? It successfully incentivizes continued upkeep of its blockchain, making it a useful, global, trustless, pseudonymous, immutable, long-lived database.

You don't need a tinfoil hat to appreciate the utility of a datastore whose continued operation and upkeep is ensured by the promise of vesting, and successfully leverages market forces and emergent market behavior to ensure its own longevity. And, it provides a market-based incentive for the community to be on the lookout for sybil attacks.

Later chains have been targeted for more specific applications more explicitly. Some focus on exchange of value, some focus on store of value, some focus on the continuity of records. These are useful properties, and those who dismiss blockchains clearly do so within the context of extreme hype about their potential applicability to other aspects of life. That's what this article is -- like hundreds of others: an attempt to bring the hype back down to earth and promote a more measured conversation.


Thanks everyone for your comments - I had no idea this had generated such interest. I've forgotten to update my bio, but these days I'm in fact a PhD.

Studying the impacts of blockchain and other distributed trust technologies has been my day job since September 2016. I freely admit that these are just my interpretations and I may be wrong; that's the point of writing articles like this.

That said, I do stand by my analysis and believe blockchain technologies are greatly overhyped relative to what actual value they do add to existing systems. The great majority of users are fairly happy or at least indifferent with the #1 bugbear of most crypto enthusiasts - trusted third parties - and it is far from clear that simply getting rid of them (and substituting hazy, informal, unaccountable governance structures instead) is ever going to be the killer app some people seem to think.

However, there will also be many use cases where blockchains and e.g. DAGs can and will be used to create real value very effectively. Just today talked to a company that's doing interesting things to help car rental companies streamline their processes - that's one example of what shared ledgers and smart contracts can do to really decrease transaction costs. However, I do predict that the majority of sustainable use cases will gravitate to more or less private blockchains, sooner or later. This company had chosen that route from the beginning.

One thing I would add today to the text is a caution against thinking that existing incumbents can be toppled simply by duplicating the functions of their databases. Databases are ultimately the most valuable asset of many trusted third parties, but their value proposition includes MUCH more than just having a reliable database. One thing coders generally are poor at grokking is that things like user experience do matter, and generally blockchain systems are far from being designed from user experience in mind.

Another, probably even more thing entirely, is customer service and error handling when things will inevitably go wrong. Immutable ledgers are by definition poor at handling such things, yet there is considerable evidence that people tend to be very wary of adopting a system if they fear that they can make a mistake that has serious results. Existing third parties have understood this, and offer a lot of services and design features aimed at assuring customers that if something goes wrong, they will not suffer.

These are interesting technologies and a lot of people are partying like it's 1999 again. But I do suspect there is going to be a through of disillusionment in our future as well.


The article immediately has to caveat the difference between "public" and "private" blockchain. This seems to be the #1 question in any blockchain discussion. What exactly is "blockchain"?

Merkle trees, super useful (e.g. git). Distributed ledger, super useful (e.g. developers' local copies of kernel source). Proof of work using GTX 1080s plugged into hydroelectric power-plants, waste of resources.

If "blockchain" means only "public, distributed ledger powered by proof-of-work" then I don't think "blockchain" has a future. But if "blockchain" means any of the above without proof-of-work, then blockchain is already the #1 mechanism for software development, has a myriad of uses and is a total no-brainer.


"Private blockchains are a different matter, and they will have applications in e.g. automating many transactions."

A private blockchain is just an inefficient databse.

"which is nevertheless very effectively backed by the government’s universal tendency to require said paper money for taxes, not to mention the inconvenient fact that if societal trust erodes sufficiently for paper money to lose its value, it’s highly unlikely an arbitrary string of ones and zeros in an arbitrary hard disk somewhere would fare much better"

I've never seen the argument made that paper money is going to lose it's value because societal trust erodes, it is losing it's value because people keep printing more of it. So yeah, I think Bitcoin already does fare better.


The fundamental problem with blockchains is that they are expensive by design. They have to be. The cost of mining is fundamental to the security model. The more traction a blockchain gets, the more it is likely to be subject to attack, and the more expensive mining needs to get in order to thwart such attacks.

The solution IMHO is to go back to using TTPs (Trusted Third Parties) but using a protocol that makes them auditable so that if a TTP cheats it will be immediately evident. Then let the free market set the price of clearing. Competition should drive the price down to the marginal cost of basic record-keeping, which is very low.


> So we will inevitably end up with some variation of Proof of Stake protocol – where we will simply have to trust some users more than others

Doesn't this defeat the point? I can't imagine a scenario in which a proof of stake system does not become centralized. The average person will want to stake the extra money they have but won't want to maintain a dedicated machine with adequate storage and zero downtime. They will entrust a third party to earn money by staking on their behalf. Thus, you have created a centralized system with a whole bunch of extra complication.


So many people think they are experts on blockchain tech nowadays after reading a few ICO whitepapers. The point of public chains is to automate tasks, whatever that task may be. Stop thinking of blockchains as this limited thing we see in the ICOs today and learn to see it as decentralized autonomous organisations. These organisations are focused on transactions and can be implemented as any market.


I'll give a very simple example that shows the power of blockchains. I needed to receive a very large sum of money from a foreign country.

Half was paid in cryptocurrency, and half was paid in cash via the traditional banking system.

It took 3+ weeks for the money to make it through the banking system.

It took 15 minutes for the cryptocurrency to arrive. I don't get how anyone can not see the obvious merit to this system


> To me, it all seems another gold craze, stoked not only by the usual crowd of techno-babblers keen on latching on the latest buzzword, but also by certified wingnuts from the long-discredited hyper-libertarian Austrian school of economics, kept buoyant by half-baked comparisons to "unreliable" "paper money" (which is nevertheless very effectively backed by the government's universal tendency to require said paper money for taxes, not to mention the inconvenient fact that if societal trust erodes sufficiently for paper money to lose its value, it’s highly unlikely an arbitrary string of ones and zeros in an arbitrary hard disk somewhere would fare much better), spotty comparisons of current economic system to few exceptions where hyperinflation was allowed to run rampant, and perhaps most of all, by simple wishes that the persons currently propping up the belief in blockchains will not be the last ones who are blinded by the latest buzzword and get-rich-quick scheme.

There are also people like me:

* I agree with the OP that there are a lot of techno-babblers keen on latching on the latest buzzword.

* I agree with the OP that there are many certified wingnuts who belong to the discredited Austrian school of economics.

* I agree with the OP that comparisons to "unreliable paper money" are half-baked at best.

Yet, I also see the point of Bitcoin.

I view Bitcoin partly as a supranational store-of-value, transaction platform, and distributed social network: its survival and usage do not depend on any particular country.

The only other "money-like" asset I know which is commonly viewed as supranational is gold, which has been used to store value and conduct transactions for at least 6,000 years.[a] These uses of Gold have lasted 25x longer than the age of the US, 12x longer than the life of the Roman empire, and 2x longer than the combined age of China and all its predecessors. Gold has outlasted all monetary systems devised by humankind so far. It's a barbarous relic, yes, but one that has survived "everything humankind has thrown at it" so far.

The Bitcoin network seems to have that same "survives everything humankind can throw at it" quality.

[a] https://www.ft.com/content/5604c5cc-d1b3-11e1-badb-00144feab...


Yes, except that gold will still be around with or without the state of computing radically changing.

So I wonder if the incentive structure will continue to uphold the validity of the ledger for such a timescale. Or if we’re going to discover things about computing, cryptography, and data representation that will leave bitcoin and others vulnerable to unforeseen attacks or degradations.

A physical good can continue in the absence of a civilization to support it—virtual goods are tethered to the long-term viability of their protocols and the computing infrastructure which represents them.

My suspcicion is that the long-term security of any cryptographic protocol is always approaching zero and that the field is still new enough that we have not yet developed 1000-year, let alone 100-year, protocols.


Yes, that makes sense.

My expectation is that the Bitcoin protocol will be forced to evolve over time, in fits and starts -- like all open-source projects.


So it solves a use-case that's already solved by gold?


Can you ensure the safety and security of all of your gold at all times? Can you send that gold to someone else across the world quickly and securely?


I think a large part of nowadays' use case of blockchain-based technology is to skirt regulations and conduct transactions that would have been illegal/attracted scrutiny if done with the traditional, "trusted" channel. Those people have to go with a non-legal channel, where trust becomes a very tricky and important thing. In that context, blockchain becomes a really good solution.

i.e. it's not that traditional banking is not trustworthy. It's just that many people want to avoid legal channels. That's when blockchain comes into play.

The increased regulation efforts by multiple governments might change the landscape, or not. We'll have to see.


Isn't public blockchain good for money laundering and ransomware? I don't know of any better methods to collect illicit funds that aren't more problematic than current methods to identify the parties in bitcoin transactions

Also, cryptocurrency has seen a surge of use in Venezuela, where the currency is thousands of times less valuable than the paper it's printed on. Credit cards and cryptocurrencies are used wherever people have access to them (which is a very small subset, admittedly).

Basically, cryptocurrencies are useful wherever normal currencies are unavailable, unlawful, or in order to subvert their regulatory practices.


That's a good point. Crypto could definitely serve a purpose in areas where there is runaway inflation or instability, if they are easier to get ahold of than another currency.


> Private blockchains are a different matter, and they will have applications in e.g. automating many transactions.

Where could I read more about this? I assumed most of the benefits of blockchain came from the distributed aspect.


> Where could I read more about this?

"If no data needs to be stored, no database is required at all, i.e. a blockchain, as a form of database, is of no use. Similarly, if only one writer exists, a blockchain does not provide additional guarantees and a regular database is better suited, because it provides better performance in terms of throughput and latency. If a trusted third party (TTP) is available, there are two options. First, if the TTP is always online, write operations can be delegated to it and it can function as verifier for state transitions. Second, if the TTP is usually offline, it can function as a certificate authority in the setting of a permissioned blockchain, i.e. where all writers of the system are known. If the writers all mutually trust each other, i.e. they assume that no participant is malicious, a database with shared write access is likely the best solution. If they do not trust each other, using a permissioned blockchain makes sense. Depending on whether public verifiability is required, anyone can be allowed to read the state (public permissioned blockchain) or the set of readers may also be restricted (private permissioned blockchain). If the set of writers is not fixed and known to the participants, as is the case for many cryptocurrencies such as Bitcoin, an [sic] permissionless blockchain is a suitable solution."

https://eprint.iacr.org/2017/375.pdf


If you look at what public blockchains have been used for since the bitcoin 2008 paper, it's been mostly for making financial transactions outside of government control. This has of course been used for somewhat questionable activities such as drug dealing, extortion, speculation and tax avoidance but there may be an opportunity to do reputable things like worthwhile investment and money transfers with less red tape and national barriers than are involved with government regulation.


The finite property of Bitcoin and the fact that you can trust said property and the fact that control of that property is decentralized is reason enough for blockchain my friend.

Gold will never be as measurably scarce.


But is this really true? Honest question: the recent BTC/BCH split effectively doubled the supply in one single instant. Can't this happen again and again whenever the pressure of demand grows too high?

Can't do that with gold.


But that’s the equivalent of then going to silver or using an entirely different element isn’t it?


How many such "entirely different elements" are there?


> Gold will never be as measurably scarce.

Even with Bitcoin we don't know the exact scarcity because private keys get lost.

A wallet to which the private key has been lost is indistinguishable from the wallet of someone who is holding their funds because they want to save them for the future.


Excellent point. Still, we know that there is not more than a certain number; versus with gold there could be more or less than any estimate.


There's now 2000 cryptocurrencies. Where's the finite property?


It's called PoW. Go for the highest total work in the chain. If you go for anything else you are either allowing your self to be attacked by a malicious branch, or you are yourself attacking the network. There's at any given moment exactly one chain that has the most PoW (by definition). That's the reason why Ethereum is switching to PoS, because they know they can't just take over Bitcoin on total PoW. Be advised that PoS means it's not really a public ledger, but a private chain set up by a very large private club.


My understanding was that Satoshi Nakamoto is an alias / the true author(s) of that paper remains anonymous. For me that's where the scary bit of blockchain lies. i.e. It's very tempting to go the government conspiracy theory route of who's benefiting from making this public / is it possible that it's been crafted to look secure whilst having some fatal flaw which is not immediately obvious. I don't really believe that; but equally can't discount the possibility.


Any type of payment/reward system will use the blockchain, ICO's are right now the killer ethereum app, a good way to raise funds and do crowdsales.


... and a good way to scam people.

Do we have a list of successful, not-scam-y ICOs, where the investors/crowd funders actually got what they wanted in the end? (And I don't mean the tokens, but rather the thing that was crowdfunded).


I invite you to try to raise money for your company with VCs and then try with an ICO. Then choose which one was better for both your company and the society as a whole. Just as the NYSE exists along with penny stocks, so will the blockchain-based assets. With the time, there will be less scams, but never zero, just like non-blockchain-based assets.


In my opinion, there's no justification to describe his opinion as a "professional opinion" and himself as something as official as a "blockchain researcher". It's just an appeal to authority when there are no clear standards for what an authority is in this field.

>>Unfortunately for this central value proposition of blockchain, there is no lack of trusted enough intermediaries in the financial/accounting sector.

Has this individual ever tried integrating a payment system into an online business? Payments on the internet are rife with inefficiencies and problems. The lack of electronic cash is a serious impediment to frictionless commerce.

Without cryptocurrency, the road ahead seems to fork between a future with a hodge podge of non-compatible processors, or one with a single payment processor holding a virtual monopoly over the market.

>>Very few people outside so-called crypto-anarchist community are opposed to trusted intermediaries as a matter of principle, and outside this (admittedly vocal) minority and those who for their own personal reasons want to believe in this scheme

It's not just "crypto-anarchists" who care about removing trusted intermediaries. Anyone who doesn't want to be a captive consumer of a trusted third party that runs a platform they are locked into by virtue of its network effect, will be interested in immutable protocols replacing platforms run by trusted intermediaries.

>>also by certified wingnuts from the long-discredited hyper-libertarian Austrian school of economics,

Ad hominem nonsense like this really discredits the article.

>>the bog standard public blockchain with its Proof of Work scheme (e.g. how Bitcoin burns electricity) is certainly not going to cut transaction costs enough, as throughput rates are simply not even within two orders of magnitude from what is needed. Case in point: a Bitcoin developer conference just announced it won’t be accepting Bitcoin as a means of payment, because it’s too slow and the transaction fees are too high.

As a self-avowed blockchain researcher, it's odd that he's not aware of Bitcoin Cash, and is using Bitcoin Core's self-imposed 1 MB per 10 minute throughput cap as the technical limits of what Proof of Work could scale to.

The article is a disingenuous hit piece.


Is this personal really a blockchain professional.

That is, does the person get paid by someone to be a blockchain researcher? I am curious who that someone might be.


That really depends on how you define "blockchain researcher" and, in particular, how close the research must be to hard science (as opposed to engineering implementation) to satisfy your definition. The researchers I personally know working on blockchain technology are all scientists in either cryptography or distributed systems. The author's background is economics, which provides a plausible reason for interest in blockchain technology, but not nearly enough of an academic grounding in the subject on its own for research purposes. I also don't see any actual publications or experience on his public CV that indicates particular expertise in the subject.

That said, he certainly could have an out of date CV and brought himself up to speed in the subject on his own, which wouldn't surprise me since he's a PhD student. More to the point, what he wrote in the article should probably be considered on its own weight since its content isn't so specialized and complex that we have to defer to academic expertise for confirmation. He probably shouldn't have made such an easy target of his title, but the salient points of his post can be reviewed independent of the title's merit.


There's an "About" page on his blog.


"Unfortunately for this central value proposition of blockchain, there is no lack of trusted enough intermediaries in the financial/accounting sector."

I've read that over 3 billion people don't currently have access to banks. Is that not true?


> I've read that over 3 billion people don't currently have access to banks. Is that not true?

I suspect that 3 billion overlaps significantly with the 4.4 billion that lack internet access.

I'm not convinced that blockchain is a particularly helpful solution for them.


M-Pesa has demonstrated that payments via SMS are a viable solution for those that lack internet access.

GeoPay and others are attempting the same but utilising blockchain.

http://bitcoinafrica.io/2017/08/02/africas-blockchain-startu...

https://btcmanager.com/samourais-new-feature-send-bitcoin-vi...


The problem is not just not having access to banks. Try to send money across the world living in the third-world. There's stuff like Western Union in may places, but depending on where you are there are extreme levels of red tape and very low limits on how much and how often you can do it. Also whenever there is unusual volatility in the market, that kind of service will stop servicing. And good luck setting up a US (or EU) bank account remotely from 80% of the world that's not developed.


How difficult would it be to get cell phones to the people who currently don't have them?

Cell phones are exploding in the developing world.

Probably quicker than setting up banks?


Isn't blockchain useful for tokenizing VC investments that would normally be illiquid? I've read that there are a few companies that are doing this with "security tokens."


This. Replacing the term "intermediary" with the term "institution" is an exercise worthwhile. For one will realize that institutions serve various important social functions that go far beyond middleman style profit and rent skimming.

Proponents of blockchain revolutions need to come to terms with existing institutions, working with them rather than against.


>>For one will realize that institutions serve various important social functions that go far beyond middleman style profit and rent skimming.

Monitoring transactions? Preventing people from transacting?

I think people should be able to do peer-to-peer electronic transactions the same way they can do peer-to-peer physical transactions with cash.

It would empower individuals and serve as a guard against encroachments of their liberty.

If cryptocurrency were never invented, people would have had no way to donate to Wikileaks when the financial blockade was imposed on it by major payment intermediaries. And that's in the West. Imagine what the situation is like in countries like China.

Organisations on the fringes like Wikileaks are important guarantors against centralized tyranny. Without a payment system outside the control of centralized authorities they can be more easily snuffed out.

In other words, cash is an institution as well, and is important.


Has anyone made a blockchain for sharing text, like a decentralized WikiLeaks, BitBin anybody?


You are looking for IPFS, or possibly Dat.


you are not expressing a "professional opinion" if you did research for yourself without anyone paying you. The pompus title is biased towards what you wanted your result to be.


The point about the blockchain is to create physical properties (scarcity) in an otherwise abundant digital space.

Think TCP/IP + History (blockchain) that's the value.


This does not seem like an unbiased take and i may be biased


It also does not seem to have any unique insight. I feel like I've read this set of opinions every time bitcoin values changes rapidly.


Very short sighted researcher. I must question his intelligence if the point of money with no central control doesn't make sense to him.


Sadly, the author cannot see beyond his zone of comfort which most people in the world din't share. Also, there are simple political problems with the status-quo that are good to point at: governments love a cashless society to be taxed (and controlled through use of private information) while they defend oligopolies like Visa and Mastercard.


Empirically speaking there's already four verticals where blockchain is dominating (in terms of market share growth YoY):

1- Illegal goods [The deep web] 2- Fundraising (both good for individuals who previously could not act as angel investors and rip the xx,xxx% returns because of wealthy discrepancies and good for companies who do not need to drink 75 coffees with VCs) [Companies: Ethereum] 3- From fundraising thru blockchain-based assets came out a new speculative open 24/7 international market [Companies: Exchanges] 4- As an additional form to store of value (Like 1-digit % of your belongings). A blockchain-based asset it's divisible, easily transportable, encrypted and finite. Possibly it also serves an use like gold in the aerospace and electronic industry.

There's also one more vertical that will eventually be dominated by the blockchain: Micro Transactions. If a transaction costs 0.00001 cent, then you can easily buy data for 1 cent a piece. Something akin to IOTA (or a working version of IOTA itself) will inevitably be built with a trillion devices connected to the internet. Banks wont ever be able to process 0.00001 transactions.


> Banks wont ever be able to process 0.00001 transactions

Why not? Nobody processes at that quantum because no demand has been shown for the service. Blockchains are inherently less efficient than the databases modern financial systems run on. That tradeoff is core to the technology.


There's yet not enough devices connected to the internet wiling to share their data. There's a whole lot of companies that need to be created and things to happen (which might never do) for something like a data marketplace to exist. If that ever happens, any company that has the resources to make sense of additional -targeted- streams of data (as they already effectively do) should be able to turn a significant profit from the acquisition of said data. Either for product customization or advertising - or both.

For every transaction a bank processes there's obviously a fixed cost. Once you account for all the costs relative to them in a given year and divide that number with the number of transactions in that same year, I doubt, given the margins of a given transaction, that a bank can break even on 1 cents transactions. That's assuming that the tech the banks use as of now does not improve by magnitudes in a couple years.


> Once you account for all the costs relative to them in a given year and divide that number with the number of transactions in that same year, I doubt, given the margins of a given transaction, that a bank can break even on 1 cents transactions

This is a strange argument. Visa's costs, per transaction, are demonstrably lower than Bitcoin's. Specific banks and systems may be more or less efficient. But fundamentally, the trustlessness that is a blockchain's selling point comes at the cost--by definition in proof of work systems--of efficiency.


intermediaries fees are often more than operational expenses. In some industries, the fees might be significantly high especially when competition is low.

With blockchains it's mostly about operational expenses. Now, bitcoin transaction fee might be currently high but it is a problem of this blockchain implementation and not with blockchain per se.


>Banks wont ever be able to process 0.00001 transactions.

My bank is processing 0 cent transactions and IIRC in Q3 they're going to support SCT Instant, meaning the bank transfers will take under a minute within the SEPA area while still being 0 cent cost.


Well, that's interesting. I wasn't aware of that. I'll look into it. With that said, my theory is that unless most banks of the world adopt a similar technology within a reasonable timeframe (which is unlikely), a blockchain-solution will likely dominate.


If banks can't process 0.00001 transactions, then how in the world would cryptocurrencies be able to as cryptocurrencies are easily thousands of times less efficient than centralized servers?



That depends on the cryptocurrency. Stellar already processes 1 cent transactions.




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