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Is Blockchain Really the Killer App? (joecoin.com)
139 points by dlrush on Feb 24, 2015 | hide | past | web | favorite | 97 comments

> I am presently incapable of seeing how any token other than Bitcoin will be the one that wins.

In some sense, Bitcoin has already "won" in that it currently has a non-zero value. Anyone who says "Bitcoin can't possibly exist or hold value" already is known to be wrong, simply by Bitcoin's existence.

In the same way, I don't understand people like OP who say "No other cryptocurrency but Bitcoin can have value" because many of them already have a value and have "won" by some measures- Why do people keep trying to argue that dogecoin/litecoin/etc/etc don't have value, when people trade them for other currencies every day on open markets?

Near as I can tell, there will be (and already are) multiple "winners" in the cryptocurrency competition, filling different niches, just like there are multiple species on planet earth filling different niches.

> Why do people keep trying to argue that dogecoin/litecoin/etc/etc don't have value, when people trade them for other currencies every day on open markets?

B/c the majority of them care more about their investment than they do about cryptocurrencies as a technology and fear that competition of coins will hinder a successful (aka profitable) exit strategy.

Yeah I thought r/bitcoin was a good place to argue against the idea that any altcoin is automatically subsumable by bitcoin. Needless say the downvotes came pretty quick. I think the chance that Bitcoin simply changes to match any competitors is ludicrous. Only consensus changes are possible whilst preserving the Blockchain. Any controversial change that has enough merit will split the market between Bitcoin and an altcoin and divide supporters along those lines. Meaning the holders of Bitcoin become more resistant to change as the altcoin becomes more successful. Its definitely not clear that scenario ends in a change to Bitcoin early enough to defeat the altcoin.

I also think the OPs point about the highlander effect isn't well made - a coins mining pool only needs to be strong enough to protect itself from attacks that it's value incentivises.

Just because something is bought for money doesn't mean it actually has value.

Ask anyone that has been in a ponzi scheme or stocks that went to 0.

I think (think!) that in view of "people trade them for other currencies every day on open markets?" it's pretty clear what's meant is "exchange value"[1], though since "value" can be taken a few different ways and it would probably be better to be explicit about which one is intended.

In particular, exchange value or market value can diverge considerably from utility[2], or "use value"[3] - pathologically so in cases like that of the tulip bubble and so on.

[1] http://en.wikipedia.org/wiki/Exchange_value [2] http://en.wikipedia.org/wiki/Utility [3] http://en.wikipedia.org/wiki/Use-value

You gave examples of assets that did not turn out to have positive value in the future. They absolutely had value at the time they were purchased.

I disagree- The value of something is "what you can get someone to pay for it." That is the only concrete, objective, and rational way to determine value.

> Ask anyone that has been in a ponzi scheme/stock that went to 0

Well, given that you're stipulating a value of zero then clearly you are unable to get someone to pay for it and it's value is zero, by definition.

To unpack this claim:

> The value of something is "what you can get someone to pay for it." That is the only concrete, objective, and rational way to determine value.

Most if not all traded financial assets have conditional values, values that are fixed only at discrete points in time by actual transactions, and only in retrospect. Outside of that there's no guarantee that a stated value is concrete, objective, or rational at all.

The value of a given share of Bill Gates's MS stock for example is X if he attempts to sell a token amount today, and it's Y if he attempts to sell a large amount today. And X < Y all else being equal, a LOT less.

So tell me then, what is the concrete, rational, and objective value of Bill Gate's MS stock? The "correct" answer has to include a version of "well, it depends".

You claim that the value of something is "what you can get someone to pay for it" without realizing that by definition your measure of value is vague, indistinct, and subjective.

You could make an argument that the value of something is "what you actually got someone to pay for it at a specific date and time" but you didn't say that.

> I disagree- The value of something is "what you can get someone to pay for it." That is the only concrete, objective, and rational way to determine value.

That's perfectly fine, after all value, whatever definition we use, is just a model, nothing that exists outside of humankind. The problem with the definition you prefer, though, is the substantial subset of the economy that will not be available on a market. An economy consists of significantly more production and consumption than what gets sold on a market and therefore gets a price. Examples: Producing free software in your free time, creating music, training kids in a sports club, raising your own kids, teaching for free via youtube channels or moogs or locally etc. All these thing create, well, value, I'd say. They boost both wealth and efficiency of the economy.

That's not the only way, though it is not bad (as proven by the prosperity big parts of the world now enjoy). Mostly, it's easy and self-balancing. But as a way for solving the problem of resource allocation, it has some really bad failure modes - like creating tons of useless, wasteful work (zero-sum games like advertising) and steering us towards making our planet uninhabitable for humans.

A ponzi scheme has a net value of 0 or less at any point in time.

Just because some people can get out more than they put in doesn't mean a ponzi scheme has created any value for the economy as a whole.

"value for the economy as a whole"

You've shifted the goalposts there from "has value" to "value for the economy as a whole".

If I have money in a ponzi and can exit at that point in time, my stake has value. Later it might not, but at that point it does.

So you are saying that drcode means cryptocurrency has value as a ponzi scheme?

?!? No.

Then how could you possibly think I have "shifted the goalposts there from "has value" to "value for the economy as a whole""?

Actually if a wide market will pay for a good at a certain moment, it certainly has momentary value. The future of the good doesn't preclude that.

The way you're defining "value" makes for a pretty meaningless "victory", unless you believe Dutch Tulips were a true benefit to mankind.


The way you're defining value is meaningless if you think the tulip bulbs didn't have value during that time. You could trade one for a house during their peak, sounds pretty valuable to me.

Thus highlighting the difference between monetary value and what is actually useful. It's a difference people get confused about too often - thinking that the most important thing on the planet is the economy; thinking that everything is fungible because it has dollar value. It's all fun and games until we hit resource limits of the planet. Or kill someone. Our economy sucks at pricing in the fact that while we can safely run out of tullips, we can't safely run out of clean air.

Your definition of 'actually useful' is going to be different than everyone else's. Economic value is the only objective value we have.

Assuming that humans make rational economic decisions. Which is false.

The only way to define an economic decision as rational is if it optimizes for the market value. The rational thing to do in the bulb mania was to produce tulip bulbs.

Hmm, that got me thinking, I think I get your point generally that bitcoin is more an investment than a value storage and that you would be a fool ( at this stage anyway ) to talk about it as if it was.

However, in general what currency has a value proportional to its benefit to mankind ? Any fiat currency are going to be out for the same reason than bitcoin is out, any traditional currency based on gold/silver/shells is out too for the same reason as Dutch Tulips: eg. value of gold is recursively determined by its own use as a currency, not by any actual industrial use for example - so its value is as much virtual as a fiat currency, with just a different behavior and control lever.

Other financial asset are more directly related to useful human activities, especially commodities, but at the end of the day they get traded and valued based on their capacity to generate one of the currency above rather than objective benefit to mankind. (eg. Amnesty International "shares" would not be based on its efficiency at improving human rights, but by its capacity to convert it into currency )

The only thing that I can think of, would the slaves as additional useful human being are objectively beneficial to mankind. I guess body part, blood, ... is a less gloomy alternative ?

I'm overthinking this :-)

Money is always overvalued, because money is the technology we use to delay the completion of an economic trade. Money is where we "store" our pending transfers of value. Money is the bubble that does not burst.

Fiat is just an IOU, it's worth exactly what it's worth. There's a small admin cost to e.g. printing notes, but it's tiny in proportion to the overall currency value. Bitcoin is unique because it has a big negative externality - a huge amount of energy is simply thrown away, powering computers to do something non-worthwhile. A bitcoin is an IOU for something that's already been spent.

I would point out that you're not making a fair comparison to the cost of administering a fiat system. In the US, it includes the cost of the entire Federal Reserve apparatus dedicated to managing the supply of FRNs. Treasury's printing of them is only one small part. The Fed has buildings to maintain, support employees to pay, behind-the-scenes political processes that play out and who knows what changes hands there in exchange for appointments and other policy stances.

You're right that Bitcoin by nature includes a huge energy cost, but when you take the narrow view that it's simply being thrown away, it's both short-sighted that it ignores the theoretical possibility that its heat "waste" could be channeled into something economically desirable (e.g. steam to drive turbines), as well as not an even-handed to comparison to the true costs of its alternatives.

> In the US, it includes the cost of the entire Federal Reserve apparatus dedicated to managing the supply of FRNs. Treasury's printing of them is only one small part. The Fed has buildings to maintain, support employees to pay, behind-the-scenes political processes that play out and who knows what changes hands there in exchange for appointments and other policy stances.

Sure - the physical printing is just one of the many overheads of the monetary system. But the point is that these costs are small and, importantly, more-or-less constant. Whereas with Bitcoin the costs scale up (and inherently have to scale up) with the Bitcoin economy. Indeed, if we assume rational miners with accurate price predictions, then the amount wasted on mining Bitcoin always exactly equals the total value of bitcoins in circulation.

(So far we don't see this because the price is much higher now than it was when most of the coins in circulation were mined. On the other hand, if the Bitcoin price drops to e.g. $10, then the current expenditure on ASICs is going to look even more extravagantly wasteful).

> You're right that Bitcoin by nature includes a huge energy cost, but when you take the narrow view that it's simply being thrown away, it's both short-sighted that it ignores the theoretical possibility that its heat "waste" could be channeled into something economically desirable (e.g. steam to drive turbines)

Even if you find a way to use the heat, you're wasting the computational power that could be allocated to something more productive e.g. protein folding.

But even more importantly, and what I expected to be half the point of the article, the work put into validating the blockchain inherently has to be wasteful. If it isn't, the economic incentives against cheating no longer apply - you can just do a leveraged buyout of a huge turbine company, put their heat generators to work doing a 51% attack, and double-spend all your bitcoins.

Whenever someone comes up with a way to do hashing for half the energy, the Bitcoin network doesn't start using half as much energy - it starts doing twice as much hashing. The wastefulness is built-in and unavoidable.

To play with that idea and rephrase it: Fiat-currency is backed by a potentially-repayable debt held by a government, the original credit having been spent on infrastructure, social services, weapons, etc.

Bitcoin is backed by an irrecoverable debt held by... an abstract math problem, because the original credit spent on computing answers (of no external use) to that arbitrary problem.

Except the tulip bubble wasn't caused by speculation. It was caused by a change in contract law.

To be clear, I don't claim that non-Bitcoin cryptocurrencies do not have value. You're right that their de facto value is revealed through trading activity on exchanges. I view value as subjectively revealed by market prices, not through any sort of labor theory of value or other nonsense.

I'm arguing that non-Bitcoin CCs don't really add any marginal value to the CC ecosystem, and that it's inherently unstable for multiple CCs to coexist. Whatever rationalizations people are making to justify mining Litecoin and holding onto it (ignoring sunk costs of Scrypt ASICs) are inconsistent with reality.

Hey, can we get you on our TechCrunch bitcoin podcast this or next week? email me at john @ techcrunch dotter com

Value and price are different things in lots of economic theories, e.g. Maxisim

> Why do people keep trying to argue that dogecoin/litecoin/etc/etc don't have value, when people trade them for other currencies every day on open markets?

They have value but it's much more based on speculation. If you look at Bitcoin, there's an ecosystem of millions of users, over 100 thousand merchants including some of the world's biggest companies like Microsoft, hundreds of bitcoin-focused VC-backed startups of which one had a valuation nearing half a billion dollars etc etc.

While it's obvious that bitcoins are overvalued in relation to this ecosystem (i.e. a substantial part of its price is based on speculation that the ecosystem will become massively important in the future), there already is a genuine ecosystem out there with decent growth rates.

Dogecoin or litecoin don't have that. They have communities that keep them alive but there doesn't seem to be a long term viability. This is different from bitcoin's early days (which didn't have any real ecosystem either at one point) in that bitcoin actually offered something radically new, while litecoin for example isn't innovative, it was the first me-too that didn't totally screw over its early investors in a pump & dump scheme so it's stayed around but it doesn't offer anything special. Does that mean they have no value? Absolutely not. They do. But 'me-too' companies also have value in the short-term. In the long term they usually don't survive. We're already seeing that, litecoin for example dropped insanely in price (like 90%) in the past year and that's not just because bitcoin readjusted after late 2013's hype cycle, it crashed against bitcoin itself, too, i.e. the market is already identifying that litecoin versus just bitcoin doesn't have a future in the long-run. And if there's ANYTHING you have to know about bitcoin is that it's almost always spoken about in a long-term frame of reference. If we purely look at the short term then yes, we can say dogecoin & litecoin have value and so does bitcoin, but we would also have to say that all three combined are absolutely insignificant, a drop in the ocean, the size of a mid-cap fund of which there are thousands. The short-term isn't interesting, in the short-term me-toos exist, in the long-run they don't.

In short, the reason people say litecoin has no value is not because it's not being traded: that's speculation. It's that it is said to have no utility value over bitcoin. Bitcoin can power any utility litecoin can, with more liquidity, more market participants, more open-source libraries & development, more funding, more security etc.

I don't think we'll all be using bitcoins necessarily, but I do believe we'll all be using bitcoin (or no cryptocurrency at all, of course, that's very possible, too). i.e. yes there are niches in digital currency, but the cryptocurrency niches will, I think, if they exist in the long-term, be served by products running on top of the bitcoin network. Anything litecoin or dogecoin can do, a bitcoin treechain or sidechain or payment channel can do but with the above mentioned benefits. It's like saying there are different niches in internet protocols, as if to say the internet may run on many different protocols that serve different niches in the long-term, instead of saying TCP/IP powers the internet and it has higher-level protocols that serve niches like http or smtp. Within that line of thinking, anything but TCP/IP has no long-term value and any niche in internet technology will be built on top of that one protocol. Similarly many who say 'litecoin has no value' think of bitcoin as being the protocol for value transfer, and anything having to do with transferring value (or titles, contracts etc) will be built on top of it, rather than along side it.

In short, the claim that litecoin has no value (despite having a market value) makes a lot of sense depending on what you believe about the future of cryptocurrency.

Dogecoin offers innovation in the form of a more equitable long-term mining curve and lower transaction fees.

Transaction fees: no, again anything dogecoin can do can be built on top of bitcoin. You can build sidechains, treechains or indeed off-chain payment systems on top of bitcoin that are cheaper than Dogecoin or even free.

Dogecoin is not cheaper because of some innovation, it's cheaper because there are fewer mining revenues and thus it's less secure. That's not a pure benefit, it's a cost-benefit, bitcoin could be set to have 0 transaction fees tomorrow if it was wanted. Instead a dynamic pricing system is in development, a free market for transaction fees, which is the best and most elegant system of pricing conceived. Dogecoin doesn't have that innovation.

As for long-term equitable mining, that's not really an innovation, is it? It's just another choice. Today Dogecoin's inflation is 5% or so, for bitcoin it's 10% or so. A larger percentage of bitcoins are newly distributed than dogecoin, which I assume is what you consider more equitable. And this will remain true for years.

And in the long-term? In the long term they want to have a fixed supply forever, but if you have 100 coins and you add 5 per year, in 50 years that's less than 0.4% yearly inflation, i.e. next to nothing. A few decades later it's puny, it might as well not be there. In the long term their inflation is approaching that of bitcoin's long-term inflation: 0%. It's not all that much different.

To say it's more equitable because long-term dogecoin has slightly higher inflation than bitcoin is like saying Kenyan shilling are more equitable than dollars, and dollars more equitable than dogecoins.

If those are the two best examples of innovation of the 1st or 2nd most popular cryptocurrency after bitcoin, I think that's very telling on the lack of long-term value for anything but bitcoin.

> Transaction fees: no, again anything dogecoin can do can be built on top of bitcoin. You can build sidechains, treechains or indeed off-chain payment systems on top of bitcoin that are cheaper than Dogecoin or even free.

In theory, sure. But defaults are important, simplicity is important.

> To say it's more equitable because long-term dogecoin has slightly higher inflation than bitcoin is like saying Kenyan shilling are more equitable than dollars, and dollars more equitable than dogecoins.

Both those things are true. Look at the Gini coefficient for wealth held in each currency. (There are downsides to high inflation, but not at the USD level).

The common adage seems to be "storage is cheap", meaning "multi-TB blockchains won't be a problem because you can buy that much storage for a few hundred dollars".

But I think the stupidly-large size of the blockchain is a major hurdle, given the concurrent trend of miniaturization. Embedded devices like one might find in the much-vaunted "internet of things" (eyeball roll) can't really afford to be toting six SSDs just for storing 3 or 4 different blockchains, or even one big one.

There comes a point when it's just no longer practical to store the entire blockchain, but truncating the chain (or only storing some kind of "working set") isn't feasible either.

Not to mention the gargantuan download that's required for that initial setup to get up to date with the latest network transactions.

I think it's a great idea in theory but ultimately pretty annoying in practice.

I recently replaced an old HDD with a new SSD for my win7 install. I had over 100g of blockchains for various coins in my user app data folder. To rebuild from scratch would have taken days and a big chunk of my broadband data allowance.

I know it's centralisation and goes against one of the features of the blockchain, but having trusted hubs through which to interact would save a lot of wasted space, time and data.

I'm not sure why inserting a check-point and resetting the blockchain size to zero would not be possible - can someone please explain this? If the status at the checkpoint were agreed upon by 51% of all nodes then why not?

You know what would save a lot more space, time, data, cpu power, hardware, and energy?

Not using cryptocurrency.

Perhaps. And perhaps not using a computer or any electronic devices at all would further "save" those things. I don't see your point.

Cryptocurrency is astoundingly bad at converting non-renewable natural resources into nothing of absolute value at all.

Even (real) strip mining at least produces industrially useful ore.

Blockchain technology as implemented in bitcoin is incredibly wasteful. The power used alone is in the tera-watt hours per year.

All of those massive farms of custom miners...all to process an astounding ~90k transactions a day.

The relative energy cost is astounding, considering that volume could easily be handled by a single server in a traditional architecture.

A Raspberry Pi running a Postgres database can handle about 10 times the transaction rate of the Bitcoin network. (Obviously this isn't exactly apples-to-apples, but it gives a rough idea of how totally out of balance the resources consumed vs the transaction rate is.)

(10 TPS for TPC-B: http://raspberrypg.org/2013/11/raspberry-pg-server-some-benc...)

https://www.academia.edu/7666373/An_Order-of-Magnitude_Estim... claims that the environmental cost of paper currency & minting alone is 10x greater than that of bitcoin mining and concludes that given the trend of Moore's law, bitcoin's relative environmental impact will continue to stay negligible.

The reason for the 10x difference is that paper currency is used at least thousands of times more than bitcoin. Thus it's several orders of magnitude more efficient. Heck quite likely it's something like million times more efficient.

Moore's law doesn't help bitcoin. Because if we produce a miner that has 10x the power efficiency of a current mining hardware it just results into everyone using that miner. Total hashrate would be 10x but the electricity consumption would remain the same. The difficulty adjustment in bitcoin guarantees that regardless of the HW the profit from mining goes close to the electricity cost of it. Thus we can simply ignore Moore's law and focus on the fundamental point of bitcoin mining: Producing waste heat.

Having to continuously produce waste heat to secure the network is a fundamental flaw in bitcoin. An attack against the network (51% attack, using waste heat) must be sufficiently expensive compared to the gains of such an attack. The benefits of an attack scale with the amount of value transferred in bitcoin network. Thus the amount of waste heat constantly produced by honest people also must scale in order to keep it secure.

All of this because one person got the bright idea to solve Byzantine generals problem via unforgeable votes. What kind of vote is that? Waste heat. The guy just figured out how to verify that some other person has produced waste heat. And the whole network rests on the assumption that honest people buy more votes than the dishonest ones.

The trouble I have is with your claim that cryptocurrency produces "nothing of absolute value at all." I don't know your definition of "value," but it's clearly not one I share.

I prefer to use the word "upkeep". Money is not something that has intrinsic value in itself. It's what we need because as a species we're too dumb to handle planetary-scale resource allocation. It's a waste we need to get what we want. But since it's a waste, it would be good to reduce it as much as possible.

On the other hand... the existing financial industry - even just the bits around creating and storing currency, and handling transactions - is rather a massive waste too. If it's possible to replace that with something that (a) gives more power to the people and (b) requires fewer people to run, that's probably a good thing - no comment on whether Bitcoin is that something.

I totally agree. Existing financial industry is a huge waste too (sadly, not many seem to see it that way). But Bitcoin, from what I read about it, seems to have an exponential hunger for power which doesn't lead me to believe that if it replaces current system, we'll be better off.

I think the problem is that you are predicting the viability not of Bitcoin itself, but of your specific assumption about how Bitcoin might be used. I presume you are implying that Bitcoin could not possibly replace the current system, in the sense that it could not efficiently handle all global monetary transactions. Of course this is true by design, and will always be true barring some significant changes to the software. But that is not the only conceivable sense in which Bitcoin could be considered successful and widely used.

> Bitcoin, from what I read about it, seems to have an exponential hunger for power which doesn't lead me to believe that if it replaces current system, we'll be better off.

Actually, it's capitalism in general that has an exponential hunger for resource consumption, Bitcoin is simply the first decentralised capitalist system, and it's so simple it's clear.

Again, I agree.

But well, in the end capitalism will have to go too - lest we want eventually to be strip-mining the whole universe at close to light speed.

I have no problem with saying that traditional money and cryptocurrency has no intrinsic value, but mostly because I think the concept of "intrinsic value" is rather useless.

Some embedded "internet of things" like device wouldn't be a full-node. Rather it would be a lite-node relying on the SPV[1] model of security.

Storing some type of "working set" is totally feasible. Technically you don't even need to keep around all blocks, simply the resultant state that you arrive at after processing all blocks in order. This is called the Unspent Transaction Output set or UTXO set.

It's also possible to only keep around XGB of blocks, or the last 500 blocks, etc (a pruned log)[3]. The purpose of keeping around all blocks is to bootstrap the syncing of new nodes to the network, or optionally to full-chain wallets for re-scanning. Before pruned nodes are widely deployed, a system needs to be developed to allow a syncing node to efficiently identify and retrieve the relevant blockchain shards it needs so it can validate everything and arrive at the current state.

Also, with BitcoinCore 0.10, syncing takes about 4 hours if you don't have shitty a hardware or internet connection [2].

[1]: https://en.bitcoin.it/wiki/Thin_Client_Security [2]: https://github.com/bitcoin/bitcoin/pull/4468 [3]: https://github.com/bitcoin/bitcoin/pull/4701

> Some embedded "internet of things" like device wouldn't be a full-node. Rather it would be a lite-node relying on the SPV[1] model of security.

Well, it's a lot more likely in my eyes that it'd be a thin client operating against a server owned by its owner. Just as safe, and doesn't involve trying to figure out how to allocate enough money on a micro scale to all your individual devices so they don't run out.

You're dead right. A serious problem with the Bitcoin and Dogecoin clients (which I last used some time ago, but which changed relatively little over time) is taht they just installed themselves on the boot drive (if you're running windows) and had little in the way of configuration options. Cut to a few months later when I'm wondering why I'm running out of space on my SSD, only to realize that it's full of gigabytes of blockchain data that is a complete waste of space, with no convient way to put it somewhere else.

Could I manually get it installed and running on another large-volume and slower speed drive where this wouldn't be an issue, of course. But why do I want to bother even dealing with something so user-hostile? The average Joe or Jill who isn't a computer nerd is just going to see this thing eating his/her hard drive and get rid of it.

A friend of mine joined chain.com and, as I understand it, their value proposition is to handle the load of blockchain while providing trusted access to whatever needs to be known. I'm no expert, but this seems like the right sort of solution for the problem you pose. Blockchain management is handled in the cloud, and clients (including embedded devices) talk securely to a trusted cloud service to get the relevant details.

That seems self defeating. None of the advantages of a decentralized system are realized by centralizing the blockchain

That's perhaps my favorite part of Bitcoin. For good or bad, it was started by people rallying against the big centralized banks, and now at every turn we are hitting reasons why centralization makes a lot of sense. I half suspect that eventually it will come to resemble the current centralized systems, whether people want it or not. For example, the number of complete blockchains is dwindling as more people individually elect to start using partial-blockchain clients because of space & traffic.

It's especially endearing to me because it's my primary objection to anarchists (of whom I have several as friends)- that the system they envision just isn't stable, and we arrived at the system we have now for that reason.

Chesterton's fence comes to mind.

Also, as Yvain pointed out in his excellent article[0], we might be fucking ourselves over big time with this drive towards decentralization and trustless systems. As we fight against corruption and abuse, we're building systems that don't allow us to coordinate even in principle. Today it's tax avoidance and buying pot on-line, tomorrow it will be untraceable trade of fissionable material and weaponized biotech.

Building trustless systems seems like a cool hack, but I think we'd be better off working on a way to improve coordination.

[0] - http://slatestarcodex.com/2014/07/30/meditations-on-moloch/

I find this line of thinking unconvincing. There is a vast difference between voluntary centralisation from which you can withdraw at any time, and forced centralisation from which there is no practical way to withdraw without huge sacrifices.

Many socialist and anarchist ideologists are/were perfectly fine with centralisation of production, as long as decision making is decentralised, and participation is a result of free choice and can be withdrawn.

The capability of decentralisation in Bitcoin is important because it acts as a safeguard against forced centralisation and coercion. As long as the capability remains, whether or not people for practical/efficiency reasons opts for centralisation ought not cause most anarchists any major concern.

> The capability of decentralisation in Bitcoin is important because it acts as a safeguard against forced centralisation and coercion. As long as the capability remains, whether or not people for practical/efficiency reasons opts for centralisation ought not cause most anarchists any major concern.

I'm probably misunderstanding something, but isn't it more that blockchain technology allows decentralisation, while dominance of any particular deployment supports centralisation? As I understand it, once Bitcoin is centralised, the 51% can control it as they wish, and the only alternative is to set up a wholly separate Bitcoin2 chain, or another altcoin.

(Again resulting in cryptocurrency being a bad store of value.)

There are two "levels" here: Centralisation to more than 51% means you have to trust the central "authority". The safeguard there is that if the central authority starts misbehaving, the technology is out there, and everyone can start using it one a new blockchain as you suggest, while agreeing on a blacklist.

The lower level is centralisation into a small-ish pool of large services where no service exceeds 51%. That's what I was mainly thinking about.

We've seen in the past how Bitcoin has adjusted to the threat of 51% with people withdrawing capacity from large pools etc. in response.

In either case the point is that the existence and open availability of the technology acts as a deterrence to coercion because the act of trying to take advantage of a 51% attack will send people running for the hills (and the existence of altcoins makes that even easier).

We've seen people willingly pull back from potentially even "accidentally" exceeding 51% of the Bitcoin network in the past for that very reason.

The point is not absolute decentralisation at all cost (though some anarchist tendencies do want to maximise decentralisation), but the ability to withdraw consent and unilaterally decentralise.

I agree with you 100% silverstrom and have another post to that effect brewing.

As long as the hashing power is distributed so that no single group has more than 50%, then it doesn't matter if some people trust someone else to manage the blockchain for them. Bitcoin's benefits still exist. If everyone trusted one entity to manage the blockchain, then you'd be right, but that's not what is being suggested here.

What defines "trusted access?" One of the points of bitcoin / blockchain is not having to trust anyone involved.

> There comes a point when it's just no longer practical to store the entire blockchain

Why would you have to? The point of decentralisation is not that everyone has a copy of the truth. It's that a sufficient number of nodes have a copy of the truth, such that you can check a number of them and easily verify the veracity of the data. Many blockchain applications run not by querying their own blockchain but rather querying a number of trusted sources via their API. Coinbase, Bitpay, Chain.com, Blockcypher etc all offer APIs to interface with their blockchain nodes and others.

It's like saying Facebook will never work because you can't possible store the worlds' photos on everyone's smartphones. You don't have to, Facebook stores it on their server. Similarly we will see, and already see, dedicated servers that store the blockchain, and as long as you have enough independent ones you can maintain decentralisation just as if you were hosting your own node.

There's absolutely no need to host the blockchain on small embedded devices any more than any other data, like music or photos we normally host on dedicated servers instead.

> but truncating the chain (or only storing some kind of "working set") isn't feasible either.

Yes it is. What makes you say it isn't? Pruning the blockchain is something that's currently being worked on.

The idea is that if I send you $1 a million times and you send it back $1m times, every day, for the next 1 billion years, we could either store terabytes and terabytes of data of all these transactions, or we could store the end result (= no change occurred) and the last couple weeks of transaction data. The rest can be pruned. Because each block has a hash of all its transactions, and this hash is used to mine the next block (hence a chain of blocks, blockchain), we needn't store each individual transaction, we have the hash to verify the truth of transactions.

We might have some universities saving all transactions for posterity & research, and some businesses for data mining, but the vast majorities of nodes that just need to secure the network can indeed, without security issues, not store long-spent outputs. (i.e. bitcoins that have already been spent many times over. e.g. if I give a dollar to you and you give it to the next guy, and he to the next girl, and so on 100 times, at that point there's absolutely no reason to store on every node the fact I gave a dollar to you for the security of the network.)

> Not to mention the gargantuan download that's required for that initial setup to get up to date with the latest network transactions.

Again, no need to have all redundant transactions. The pruned blockchain would currently be under a gigabyte large. Second, headers-first has already been implemented which made the initial setup much, much faster.

Beyond that, we mustn't forget that the average American makes 2 transactions a day. And one such transaction is about 400 bytes or so, in bitcoin. If you compare this to tweets, or an hour of netflix, it's puny. If you count up all the data, it's about $8 to store one day of all of US consumer transactions on a retail harddrive. Imagine the cost of storage for Mastercard for one of their nodes was $8, and instead of just powering a fraction of US retail, they'd literally handle every single transaction by themselves and store them all for $8. Even if you wanted to have thousands of nodes and store the last year of data (and given the velocity of money, you wouldn't have to as again, you can prune data after money has been spent a couple times), that's a puny amount of money to power an entire consumer financial system of the world's biggest economy. And given storage, like CPU and bandwidth, on a 50-60% yoy growth rate (Kryders, Moore's and Nielsen's laws), I think by the time bitcoin becomes important enough to run 100% of US retail (which is likely never, but hypothetically speaking), that $8 will have dropped to below $0.10 easily.

I know I'm taking big shortcuts here but this is just to illustrate the economics are extremely favorable today and in the future. I don't know if bitcoin will succeed or fail, but I'm pretty near certain it won't fail because storage/cpu/bandwidth isn't affordable enough for nodes to make it viable to run the network. I and many others have looked into this quite a bit and these aren't big problems. Bitcoin has big obstacles (no gigantic consumer benefits in a world of decent fintech like every OECD country to use bitcoin directly, is one), but storage probably isn't one of em.

I kinda get the author's point here - to run a proof of work based system you need an incentive to actually do the work. Bitcoin has such incentives, and so it will succeed for any tool that people try to run on it. If you try to create a new system, you have to convince people to do the work in the first place.

So it makes much more sense to use bitcoin as your distributed consensus system, for whatever application you choose to place on top of it.

I'm not sure I agree with the premise, though - which is that people actually think that - I reckon that Sam Altman's comments might just be a way of saying 'Bitcoin is in the news a lot, I think it's a waste of my time, but I don't want to write it off just yet.' It's good, it makes him sound profound, everyone's kinda happy.

The question is: What non-currency applications would actually benefit hugely from being decentralised in such a way?

an attempt at answering this:

fact: people working on useful tools benefit us all problem: incentive is only big-picture, feel good. money is, by design, ridiculously hard to come by for helpful projects. teachers, farmers, babysitters, soldiers and many other professions provide valuable service to society yet make only a fraction of what money-manipulators (bankers who specialize in generating $$ from $) or cross-cultural entertainment like motion pictures.

Patents, trade secrets, close source & government regulations all contribute to incidentally de-incentivize many projects built around benefitting a large chunk of humanity as opposed to localized (individual, corporate or nation-state) profiteering. << REWRITE

I ran into this recently designing <link CodeSwarm> - a distributed protocol where programmers receive escrowed bitcoins for an open-source project accepting their work, merging it into the master branch of the project. The payout system sounded promising, but the money had to come from somewhere and be managed to fund these projects!

So how can we, the people, reward people for doing good things, things we like?

"FarmerCoin", described below, is a thought experiment where local Farmers can receive fiat-by-consensus cryptocurrency in exchange for an independent third-party recording (both videographically and on a chain of signatures) the farmer's produce.

I propose the formation of semi-independent regulators for specific industries who accept payment of their choice to regulate a deed done. Regulators film their investigation and verification of the deed, publish to the protocol along with a signed message containing a hash of the video and a magnet link for nodes to torrent.

Once regulators have published a video, end-users known as "verifiers" or "voters" who have clients monitoring the network receive a notification that there is a verification to vote on. This would involve torrenting or finding the video online, verifying its hash, playing the video, then presenting a vote to the user. This vote would say "This is acceptable" or "This is not acceptable".

In "FarmerCoin", this plays out by the farmer showing regulators a bin of vegetables. 10kg of tomatoes, for example. Regulators film the weighing of the tomatoes then use a software to upload that video, a signature of its hash and farmer identity information to the network. If the tomatoes were rotten, the regulators are incentivized not to upload a video because their reputation may become damaged and farmers will not hire them (see next paragraph for why).

Farmer receives "FarmerCoin" for 10kg of tomatoes as the network approves it. If the network disapproves the quality of the tomatoes, the farmer receives nothing.

I admit - there is a flaw in this design. How much "FarmerCoin" is 10kg of tomatoes "worth"? I'm not sure. I don't know how to answer that. Maybe "FarmerCoin" should be generated per calendar year. Please discuss because I think this, at the time of writing, is the only missing link I see in the system.

Regarding the voters - trusting the internet as a whole to vote on if a farmer gets paid is ripe for exploitations. Instead, "FarmerCoin" could use votes only from public-keys the farmer has explicitly accepted to vote for them! Namely these are the farmer's regular customers at the market. This solves the trust problem on a human level. Trying to make this system "completely automated" ignores the fact that real-world actions are happening, which require intelligence. We don't have software to do this process so I think the best bet is to incentivize voters by also generating "FarmerCoin" for each vote they cast.

To be clear, YES "FarmerCoin" is generated by fiat. It is a more decentralized kind of fiat. For that reason and the reason that it is in the voters' -- who are customers of the farmer -- best interest to see the farmer receive accurate feedback on their produce so they grow better yields. ((FIRST REASON???))

YAKSEE As far as how does "FarmerCoin" have value or "Yet Anthoer Crypto Currency" - consider this. When people speak of "Bitcoin" as being "decentralized", they really are only referring to network logs and the theoretical potential to generate currency. In actuality, those who held existing fiat resources and hardware manufacturing quickly became juggernauts in the cryptocurrency world. I mention this because when I talk about the "fiat" of the above localized consensus I imagine many crypto-currency fans revolt and insist that no, only computationally generated cryptocurrencies are valuable because commerce should be "trustless". I feel that on an intuitive level striving for a trustless society is mal-incentivized. "FarmerCoin"(s) gives us another kind of cryptocurrency just like LiteCoin's alternative hashing algorithim co-exists with Bitcoin.

Besides the intrinsic value of whatever a cryptocurrency with a novel generation mechanism, "FarmerCoin" could be accepted by farmers for discounts on food that those same voters gave feedback on. I think this completes the incentive circuit quite nicely.

MANY FARMERCOIN "FarmerCoin" could be Tomato Coin, Apple Coin. It could also exist for each specific farm, or region. This would be up to the farmers, regulators and community of voters to work together and decide. Having an exchange (centralized or not) for these currencies to trade could provide additional economic incentives to the voters and farmers. Even if "regular" cryptocurrency is not traded for FarmerCoin, community specific networks could trade eg plows, immunizations etc.

EXPANSE This concept can be applied to many real world actions. Making a work of art, patching a pothole, giving someone the finger, giving your cat a ball of yarn. Only if the community finds vaue in the "FarmerCoin" they are receiving and the farmer finds it beneficial to receive this subsidized fiat-by-consensus currency will the currency survive.

'FarmerCoin', as you describe it, sounds utterly pointless.

What farmercoin measures:

1) A farmer takes a picture of good produce (whether or not they sell said produce)

2) Verifiers / customers claim the produce looks good from only video evidence (did you know that you pinch the ends of cucumbers to check it? You knock on watermelons to judge their quality?).

3) The farmer gets a coin that is somehow more useful for trading than USD and the verifier gets discounts

What you want to measure: "Does the Farmer sell good produce"?

The market forces already gravitate towards the solving this problem. If I go to a farmer's market and one seller consistently gives me amazing tomatos and a second consistently gives me one rotten one per bunch, you can bet I'll "vote with my wallet" so to speak. Similarly, the farmer who sells better produce will be rewarded by people choosing his produce.

There's no need to try and force "Yet Another Crypto Crap" into something where it's not solving any problem.

As an added bonus, farmers are possibly one of the worst markets I could imagine to try and impose some meaningless techno mumbo-jumbo on. Many a farmer still refuses to use credit cards, preferring only cash, because cards are too complicated.

Today, we already have online reviews which people give out and consume for free on many sites, and that MUCH better fits this problem then some crazy akt-coin meant to proxy reviews.

Perhaps I don't really understand the idea here. What prevents a farmer from only accepting votes from their friends (or themselves) and generating as much FarmerCoin as they please?

TL/DR: the Blockchain only wins if Bitcoin wins, because miners need an incentive to mine.

"...the Bitcoin Blockchain cannot win without Bitcoin as a currency winning too, but if the Bitcoin price languishes, the incentive mechanism backstopping the Blockchain will be weak and therefore unreliable, ..."

Why wouldn't companies who rely on the blockchain step in and incentivize the miners to ensure the health of the network?

But if they did that, what would the mechanism be? The simplest way to incentivize the miners is to... buy bitcoins.

This argument hinges on the assumption that miners need the incentive of new coins mined from the blockchain for them to continue mining. However, there are several other incentives that people can have. There are several actors inside and outside the US who like to have a currency without government control for various ideological reasons and do not need an economic incentive to continue validating the blockchain.

> "The moment one becomes centralized, whether due to a flaw in the protocol or the concentration of mining power, it is no better (and probably worse in fact) than fiat money, e-gold, or any other monetary scheme which is vulnerable to capture by a minority, and therefore vulnerable to abusive seigniorage and capital controls."

Hasn't this already happened? I believe I heard something about a '51%' attack some time ago, which (I think) would mean that attacker could re-write history (I'd appreciate any corrections or clarifications).

Edit: Here's one story http://arstechnica.com/security/2014/06/bitcoin-security-gua... (not quite about rewriting history but double-spending becomes possible).

The Bitcoin wiki gives full details[1], but tldr, 51% attack breaks most elements of the blockchain (reverse attacker's transactions => double spending, prevent transactions from getting confirmation, prevent valid blocks originating elsewhere) but doesn't allow the attacker to arbitrarily rewrite history.

As far as "hasn't this already happened", some of the mining pools in aggregate have had or presently could combine to get 50+% of the Bitcoin mining power[2], but to perform the attack requires active coordination from all pool participants. If an attack like this were launched, it would be obvious to anyone viewing the blockchain, likely destroy the value of Bitcoin, and hence their investment, so is economically not a good idea for them.

[1]: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_... [2]: https://blockchain.info/pools

Thanks for the clarification.

> "...so is economically not a good idea for them."

This would imply that the trust model itself would have to undergo a fundamental shift (and likely has done). There are now entities you have to trust, rather than the system itself -- at which point the decentralised aspect is less of a defining feature.

Having to trust knowledgeable people to act in their own interest is hardly a violation of trustlessness.

In order for bitcoin to "win" it needs to get massively more valuable. Valuable enough to move the equivalent of trillions of dollars per year and users need to be able to make million dollar purchases without drastically changing it's price. Otherwise it will never be truly useful as a currency and as interest is lost and prices go down parties concerned with verifying the blockchain will become sparse and the whole system collapses, magical blockchain and all.

Bitcoin has far from "won" in the sense of a currency and if another crypto-currency surpasses it's current popularity the faith in any crypto-currency being stable enough to move trillions of dollars each year is irreparably harmed.

People raising a few thousand dollars here and there in other crypto currencies is fun but it's not only paltry and not generally useful but can easily be attributed to entertainment more than economics. Once the novelty wears off, where will crypto currency stand. That's the most important question we need to ask ourselves. All these alt-coins aren't evidence of a thriving eco-system, they're evidence of the very reason why a cryptography based currency is inherently valueless.

The blockchain cannot last without bitcoin becoming massively more valuable. Many people already see bitcoin as being too valuable and alternatives too easy to create. What needs to be done to scale crypto-currency to the level of an actual currency? Government backing?

While in theory Bitcoin can be adapted to "2.0 features" and beyond, in practice it's impossible.

Bitcoin code, protocol and marshaling formats are a mess. Bitcoin blockchain and transaction data structures make too many hardcoded assumptions about underlying application - payments with a single token.

Bitcoin scripting language was designed for transaction validation only, which makes implementing a smart contracts with it a hack and requires external Oracles.

TL;DR: Bitcoin is a good PoC which gained a network effect.

> Bitcoin code, protocol and marshaling formats are a mess.

Which is why people are working on e.g. Libconsensus.

There are dozens of functional Bitcoin clients based on entirely different codebases, which indicates that it's entirely possible to start from scratch.

>payments with a single token.

While the Bitcoin transaction format is a bit inflexible, you're wrong about the assumptions it makes. Even from the beginning, there has been in-protocol support for more advanced transaction types, like escrow transactions. You can even use a lot of these transaction types right now! There are still some transaction script opcodes that haven't been fully enabled yet, but that's just a matter of tweaking the consensus rules once we're sure that the opcode was implemented correctly and won't have any bad side effects. This has happened several times already with no major problems.

You can find a list of Bitcoin script shortcomings in the Ethereum whitepaper and Ethereum Design Rationale document.

Writing a BIP to add a new opcode for every possible transaction type is not the answer. And still I don't see how multisig or P2SH can use something else than BTC tokens (colored coins require external asset registries).

>You can find a list of Bitcoin script shortcomings in the Ethereum whitepaper and Ethereum Design Rationale document.

Ah, Ethereum, the ultimate crypto-currency vaporware. When did vbuterin announce it, over a year ago now?

There's a reason the Bitcoin script is simple; because it does everything we want Bitcoin to do (facilitate economic transactions) and it's simple enough that we can be sure it works properly.

If Ethereum actually releases, I'll take that into consideration for my judgement of more complex script schemes.

Yes, Bitcoin is "single-token". What's the downside of this? Why do I care if I need an external registry for non-standard tokens? For tokens to have any effect in the real world (e.g. economic value), you need some form of "external asset registry" no matter what. In most cases, this comes in the form of the seller passing judgement on the value of the token.

I don't necessarily agree with the conclusion at the end. Supposing that sidechains can be mined simultaneously with the bitcoin at no additional cost, and that there is a fixed bitcoin <-> sidecoin conversion (not market based) built in to the protocol, bitcoin would never completely lose its value, because it could be converted to sidecoin at the same rate it would be before. The market price would be fixed to some small price differential below the price of the amount of sidecoin it could be converted to.

The thing about bitcoin is there are a lot of things done "wrong" with it, that are impossible to retrofit into it. However, the network effect means that it's also impossible to switch to another altcoin without completely devaluing bitcoin, which would mean that the altcoin would be devalued because it could happen to the altcoin as well. I agree with that part. However, something that's pinned to the value of bitcoin like what I've read of the sidechain proposal would be a way to do that.

> Supposing that sidechains can be mined simultaneously with the bitcoin at no additional cost

Which is obviously not true. Extra storage and bandwidth at the very least.

Hash rate is independent from bandwidth/storage. Assuming you can do N hashes/s, you can still do N hashes/s with merged mining of multiple sidecoins.

Also, presumably any bandwidth incurred by a sidecoin would have been incurred by bitcoin if the sidecoin didn't exist, so total bandwidth/storage would be similar.

Is that really what Sidechains are aiming for? If so I need to go back and reread their paper more carefully.

What I'm hearing you describe is that the token used by a Sidechain is not one iota different from any other Bitcoin, except perhaps that its latest output script includes some new weird feature we haven't seen yet. It's like my sending you 1.0 Bitcoin through a vanilla BTC transaction and you telling me that I now possess 10e8 Satoshis, which are different that Bitcoin but always redeemable for Bitcoin pegged at that rate.

If tokens being used by Sidechains are permanently pegged to Bitcoin, and we assume merged mining, I withdraw my objection to the concept, and would instead direct my criticism toward how the concept was presented and its seeming suggestion that Sidechain tokens might one day detach and rise in value while Bitcoins potentially fall to zero.

The main purpose of adding sidechain support to bitcoin is to allow coins to be "burned" on sidechains in order to get them back on the bitcoin blockchain. It's already possible to have unidirectional burning from bitcoin to other chains, but not bi-directional. There are lots of things to get right though which is why it's taking a long time to do.

It's not necessarily the case that it's permanently pegged to an exact bitcoin amount. Perhaps they way that miners of the sidechain are rewarded is by inflation/devaluing how much bitcoin the sidecoin can be burned for. The point is though, it's not market effects that are causing it.

Interesting post in that this is the first time I've seen someone from the bitcoin speculator group challenge the thesis of those in the VC/startup group.

Both groups are clearly 'talking their book', but this reads like little more than cheerleading/threatening aimed at himself and fellow speculators. For example:

    If Cryptocurrency 2.0 ever replaces Bitcoin and all Bitcoins
    become worthless, confidence in the category of
    cryptocurrencies in general will be, I believe,
    irreparably damaged. If Cryptocurrency 2.0 just replaced
    Bitcoin, there's nothing stopping Cryptocurrency 3.0 from
    replacing Cryptocurrency 2.0 and sending the value of its
    tokens to zero. Ad infinitum.

I'm pretty sure what people mean by "Blockchain not Bitcoin" is "Bitcoin 2.0" and not "Bitcoin 1.0" i.e. people think that the killer apps will be complex programs running on the blockchain that enable things like smart contracts etc much like search & social apps were more of killer apps than email which is the analog of bitcoin the currency. The point this article goes into detail to explain is likely not lost on people as smart as Sam Altman or Fred Wilson who say this.

One of the central assumptions in the argument is that the miners need an economic incentive, a (spendable) reward for mining.

How then to explain why people contribute to Wikipedia? Or volunteer at the local seniors centre? Or donate compute time to SETI@home (and other BOINC projects)? Or add map data to OpenStreetMap? Or test open source software? Yes, some of those people get paid, but many do not.

The incentive need not be economic.

Say what you like, there is an incentive in the opposite direction in the case of a blockchain used as a trust-store, which does not exist in the other cases you described. One could make a lot of money subverting a trusted blockchain, whereas Wikipedia vandals don't profit a cent.

This means that you will inevitably have massively funded efforts to subvert such a blockchain. One thing I know for sure is that simple financial self-interest is one of the most powerful things in the world. Every blockchain has that fact working against it. The reason they don't collapse is that on the other hand, they have that same force working for them as well. A volunteer blockchain like you propose wouldn't stand a whelk's chance in a supernova. Sorry.

None of your examples are in regards to for-profit endeavors. Thus while you are correct that some foundations that are good causes can get people to contribute out of their own good will, this doesn't suggest that novel blockchains by for-profit companies will attract good will contributors.

I think its the decentralized nature that is the big win. However for bitcoin to really "win" is when people would actually prefer payments in bitcoin than any other medium. Which is not the case so far, except for illegal market places.

You mean, Blockchain is the platform and 'currency' is the first killer app?

Yeah, "killer app" means a powerful application of technology, not the technology itself. The emphasis is that cool-technology is not enough, you need to get work (or play) out of it.

A warp-drive is just a technology, but "colonizing the galaxy" is the application which will make people really use it.

The thing is, the regular payments system (plastic cards, Dollars, Euros, and other national currencies) already works very well for the vast majority of people. If you're a merchant, then you should certainly think about being able to accept payments in Bitcoin, but as a consumer I'm having difficulty thinking of an instance where I've ever said to myself 'I need some Bitcoin...'. If I was into drugs it would be convenient, I guess, but hte size of the illegal drug market :: regular commerce is pretty small, and I'd imagine drugs about the largest illegal consumer market by a long way. Other contraband markets involve much higher risk factors and are correspondingly smaller.

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