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At the heart of Bitcoin or any Blockchain ledger is a distributed consensus mechanism. It’s a lot like voting. A large and diverse deliberative community validates each, individual user transaction, ownership stake or vote.

But a distributed consensus mechanism is only effective and faithful if the community is impartial. To be impartial, voters must be fairly separated. That is, there must be no collusion enabled by concentration or hidden collaboration. They must be separated from the buyer and seller; they must be separated from the big stakeholders; and they must be separated from each other. Without believable and measurable separation, all sorts of problems ensue. One problem that has made news in the Bitcoin word is the geographical concentration of miners and mining pools.

A distributed or decentralized transaction validation is typically achieved based on Proof-of-Work (POW) or Proof-of-Stake (POS). [explain]. But in practice, these methodologies exhibit subtle problems…

The problem is that Proof-of-Work can waste an enormous amount of energy and both techniques result in a concentration of power (either by geography or by special interest) — rather than a fair, distributed consensus.

In a quasi-formal paper, C.V. Alkan describes a fresh approach to Blockchain consensus. that he calls Distributed Objective Consensus. As you try to absorb his mechanism, you encounter concepts of Sybil attacks, minting inequality, the “nothing-at-stake” problem, punishment schemes and heartbeat transactions. Could Alkan’s distributed consensus mechanism be too complex for the public to understand or use?…

While I have a concern that time stamps and parent-child schemes may degrade user anonymity, the complexity doesn’t concern me. Alkan’s paper is a technical proposal for magic under the covers. Properly implemented, a buyer and seller (and even a miner) needn’t fully understand the science. The user interface to their wallet or financial statement would certainly be shielded from the underlying mechanics.

Put another way: You would not expect a user to understand the mechanism any more than an airline passenger understands the combustion process inside a jet engine. They only want to know:

• Does it work? • Is it safe? • Is it cost effective? • Will I get there on time?

So will Alkan’s Decentralized Objective Consensus solve the resource and concentration problems that creep into POW and POS? Perhaps. At first glance, his technical presentation appears promising. I will return to explore the impact on privacy and anonymity, which is my personal hot button. It is a critical component for long term success of any coin transaction system built on distributed consensus. That is, forensic access and analysis of a wallet or transaction audit trail must be impossible without the consent and participation of at least one party to a transaction.

Philip Raymond co-chairs CRYPSA and The Bitcoin Event. He is a Lifeboat board member, editor
at AWildDuck and will deliver the keynote address at Digital Currency Summit in Johannesburg.

Research can seem bland to us laypersons. But, Marko Vukolić shares many of my research interests and he exceeds my academic credentials (with just enough overlap for me to understand his work). So, in my opinion, his writing is anything but bland…

Vukolić started his career as a post-doc intern at IBM in Zurich Switzerland. After a teaching stint as assistant professor at Eurecom and visiting professor at ETH Zurich, he rejoined the IBM research staff in both cloud computing infrastructure and the Blockchain Group.*

As a researcher and academic, Vukolić is a rising star in consensus-based mechanisms and low latency replicated state machines. At Institut Mines-Télécom in Paris, he wrote papers and participated in research projects on fault tolerance, scalability, cloud computing and distributed trust mechanisms.

Now, at IBM Zurich, Vukolić has published a superior analysis addressing the first and biggest elephant in the Bitcoin ballroom, Each elephant addresses an urgent need:

  • Scalability & throughput
  • Incentivize (as mining reward withers)
  • Grow & diversify governance & geographic influence
  • Anonymize transactions to protect privacy
  • Recognize & preserve ownership

Regarding the first elephant, scalability, Bitcoin urgently needs to grow its Blockchain dynamics into something that is living and manageable. To that end, Vukolić refers to a transaction bookkeeping mechanism that works as a “fabric”. That is, it does not require every miner to access the history-of-the-world and append each transaction onto the same chain in serial fashion. Rather than growing an ever bigger blockchain—with ever bigger computers—we need a more 3D approach that uses relational databases in a multi-threaded, transactional environment, while still preserving the distributed, p2p trust mechanisms of the original blockchain.

While clearly technical, it is a good read, even for lay enthusiasts. It directly relates to one of the elephants in the room.

I have pasted Marko’s Abstract below. The full paper is 10½ pages (14 with references).

Bitcoin cryptocurrency demonstrated the utility of global consensus across thousands of nodes, changing the world of digital transactions forever. In the early days of Bitcoin, the performance of its probabilistic proof-of-work (PoW) based consensus fabric, also known as blockchain, was not a major issue. Bitcoin became a success story, despite its consensus latencies on the order of an hour and the theoretical peak throughput of only up to 7 transactions per second.

The situation today is radically different and the poor performance scalability of early PoW blockchains no longer makes sense. Specifically, the trend of modern cryptocurrency platforms, such as Ethereum, is to support execution of arbitrary distributed applications on blockchain fabric, needing much better performance. This approach, however, makes cryptocurrency platforms step away from their original purpose and enter the domain of database-replication protocols, notably, the classical state-machine replication, and in particular its Byzantine fault-tolerant (BFT) variants.

In this paper, we contrast PoW-based blockchains to those based on BFT state machine replication, focusing on their scalability limits. We also discuss recent proposals to overcoming these scalability limits and outline key outstanding open problems in the quest for the “ultimate” blockchain fabric(s). Keywords: Bitcoin, blockchain, Byzantine fault tolerance, consensus, proof-of-work, scalability, state machine replication

* Like Marko, Blockchains, Cloud computing, and Privacy are, also my primary reserach interests, (GMTA!). But, I cede the rigorous, academic credentials to Marko.

† BFT = Byzantine Fault Tolerant consensus protocols

Related—and recently in the news:

Raymond co-chairs CRYPSA and The Bitcoin Event. A columnist & board member at Lifeboat Foundation
he edits AWildDuck. He will deliver the keynote address at Digital Currency Summit in Johannesburg.

There are at least four ways to acquire Bitcoin and three ways to store it…

Acquire Bitcoin: You can trade Bitcoin in person, accept it as a vendor, mine it, or buy on an exchange.

Store Bitcoin: You can keep your Bitcoin in an online/cloud service (typically, one that is connected to your exchange account), keep it on your own PC or phone, or even print it out and store it on a piece of paper. Like a physical coin, the piece of paper has value. It can be placed in your lock box or under your mattress.

Let’s look at the market for Bitcoin Wallets (all of these are free), and then we shall talk about Bitcoin exchange services. This includes my personal recommendation for the typical consumer or coin enthusiast…

1. Choosing a Wallet

You can start your search for a wallet on this page at Bitcoin.org. Use the drop down tabs to refine your search by platform: Mobile, Desktop, Hardware gadget or Web. Don’t overlook the web option. For many users, the wallet (and VAULT) included with an online exchange account is all you need.

Each wallet platform is further distinguished by operating system. For example, you can find a smartphone wallet for Android, Apple, Windows Mobile or Blackberry. Some popular apps are listed under more than one OS or platform.

When you click on any of the app logos, you will see a checklist of five key traits, according to reviewers at the Bitcoin Foundation:

  • Control over your money
  • Simplified validation
  • Basic transparency
  • Secure environment
  • Weak privacy

These are not necessarily critical traits/features. It depends on your needs and preferences. For example, everyone wants good privacy and security. But not everyone wants to control their private keys. That places the risk of loss, backup and/or the burden of inheritance issues on you, rather than a standardized recovery process. The feature comparison simply helps you to begin your own comparison and evaluation.

For Android users, my personal recommendation is Bitcoin Wallet by Andreas Schildbach (the logo is a tilted orange ‘B’). It is simple, secure, well maintained and very popular. (iPhone users: See my my suggestion in the recommendations, below).

2. Portable –vs– Online

Despite the simplicity and low cost of spending or sending Bitcoin between individuals and vendors, getting your first Bitcoin can be confusing, complex and even risky. For this reason, I suggest that Newbies open an account at a very established and trustworthy exchange.

In the near future, this will include most big banks. But for now, the safest and most reputable exchange is Coinbase in San Francisco. They are also the one with the highest level of regulatory compliance. Bitstamp of Slovenia and Great Britain is a close second. In my opinion, using either of these organizations as a currency exchange or a secure place to park your digital currency is a safe bet.

Both of these exchanges include a cloud wallet service that—when used properly—is safe and secure. But, because Bitcoin is still in its infancy, you will need to learn about sweeping funds into a ‘vault’ (to better protect against hacking) and you should also learn about portable backups and multi-sig (to protect your assets, in the event of forgetfulness, death or incapacitation).

With either type of wallet—device storage or online with an exchange—I recommend that you install and play with a portable wallet on your phone, just to get the hang of a few basic functions: Display wallet address for incoming money, Send money, Request money (i.e. send an invoice), and Pay with the QR-camera feature. All wallets serve these basic and critical needs.

Recommendations:

  • Coinbase is a most reputable exchange for buying/selling & storing Bitcoin
  • Bitcoin Wallet by Andreas Schildbach is an excellent choice for portable, secure storage. This app is available for Android phones only. Apple iPhone users may wish to try Bitcoin Wallet by Blockchain. I have not reviewed it. It has a slightly less friendly user interface but it is stable and very popular.

Related Reading:


Philip Raymond co-chairs CRYPSA, produces The Bitcoin Event and is a board member at
Lifeboat. He will deliver the Keynote Address at Digital Currency Summit in Johannesburg.

Nice try; no faith it will succeed long term with QC.

Singapore-based Quantum Foundation announced that it is working on a new project called Qtum, which combines the technology of both bitcoin and ethereum to facilitate blockchain technology adoption for corporations. Qtum is an open-source blockchain project that aims to build smart contract functionalities that can be implemented at an enterprise level.

The initial financial backing of $1 million by several industry leaders is a testament to the validity of the technology that the Qtum project is creating but also demonstrates full faith in its team of developers. Early-stage angel investors in the project include ethereum co-founder Anthony Di Iorio, Fenbushi partner Bo Shen, and OKCoin CEO Star Xu, among others. The Qtum project also intends to launch its native cryptocurrency to support the project through a crowd sale to raise further funds.

Read more

The answer may be counter-intuitive: Not only can Bitcoin be widely adopted under a supply cap, its trust and integrity are a direct result of a provably limited supply. As a result, it will flourish because it is capped.

Everyone Can Own and Trade a Limited Commodity, IF…

…if it is both measurable and divisible. Bitcoin has a capped supply just as gold has a capped supply. Although both assets will be mined for some time into the future, there is only so much that will ever be uncovered. Thereafter, the total pie cannot grow.

But the transaction units will continue to grow as needed, because the pie is divisible into very, very tiny units:

There will eventually be 21 million BTC and each coin is divisible into 108 units. This yields (21 million * 100 million), or 21 trillion exchangeable units. And, it can be divided further by consensus.

As Bitcoin is adopted—whether as a simple payment instrument, an investment asset or even as national currencies around the world—each unit of the limited supply simply rises in value. If thought of as a currency, with a value established by supply & demand, it leads to a deflationary economy.

But, Isn’t Deflation Bad for the Economy?

It’s common to associate deflation with economic ills. One need only glance back at the the last century to conclude that deflation coincides with wars, joblessness, recession and a crippling concentration of wealth. Perhaps, just as bad, the tools used to pull a nation out of deflation often force governments to cherry pick beneficiaries of stimulus spending.

But it is important to note that deflation plays no role in causing these things. On the contrary, it is an effect rather than a cause… In fact, when a supply cap is introduced as a designed control input for monetary policy, all sorts of good things follow. I address these in various answers at Quora. Dig in:

Philip Raymond co-chairs Cryptocurrency Standards Association. He was host and producer of The Bitcoin Event in New York. In his spare time, he edits A Wild Duck

At Quora, I occasionally play, “Ask the expert”. Today, I was asked if the difference between quotes at various Bitcoin exchanges presents a profit opportunity.

In addition to my answer, one other cryptocurrency enthusiast offered pithy, one-line response: He said “Buy local, sell internationally and pocket the difference!” I tend to believe the opposite is more likely to generate profit: Buy internationally and sell locally. But, I am getting ahead of myself. Here is my answer [co-published at Quora]…

Question:
A Bitcoin exchange in my country quotes a different rate than
international markets. Can I profit from the price difference?

Answer:
Buying and selling a commodity with the intention of profiting from the difference in price in various markets, regions or exchanges is called arbitrage. Typically, the item must be widely traded and fungible. Although it can be a tangible item (one that must be delivered or stored, like gold, oil, frozen orange juice or soy beans), arbitrage is more practical when applied to an ‘item of account’, such as foreign currency, equity shares, stock futures, or Bitcoin.

arbitrage-01tWith this in mind, Bitcoin qualifies as a fungible item of account. If you see a different price at vaious exchanges (or if you believe that you can source personal sales at a higher price than the market spot price), then you have found an opportunity for arbitrage. But hold on! It is not so easy…

  1. The arbitrage opportunity is often illusory. For example, the cost difference that you observe in market quotes may be overshadowed by the bid/ask spread or by fees, which can be both fixed and a percentage.
  2. The arbitrage opportunity is transient. It is there for a few seconds and then it vanishes in the next quote. For this reason, successful arbitrage players must be very adept at day-trade techniques. To avoid massive risks, you need up-to-the-second quotes, fast trading tools, and the ability to simultaneously freeze your purchase and sale price.
  3. Trust is never golden! Even with these tools and promises, when a commodity begins to move in either direction, you will find that a buyer or seller often finds a way to renege on the agreed price. These are not random events…When a trading partner abandons a transaction, it always work against you.
  4. Some exchanges (and even some national regulatory agencies) prohibit rapid and repeated trading. This may be to discourage speculation or it may be designed as a circuit-breaker (a mechanism to avert the cascade effect that sometimes results from pre-programmed trades). These halts on quick trades can wipe out your gains, or worse. They can turn your investment into a horrible mess.
  5. Some big exchanges have built-in arbitrage mechanisms that quickly adjust prices and even buy and sell on their own account to keep their limit order books in sync. They are on the front lines and you aren’t! This fact, alone, should suggest give you pause. The opportunities for an outsider are severely limited by these ‘inside’, self-adjusting trades.
  6. Other legal risks: If the transaction is later deemed to be illegal in the jurisdiction of any party, your exchange accounts may be frozen or your privileges revoked. Unlike p2p Bitcoin transactions, exchange transactions can be reversed. Again, these legal snafus will always work against you. In fact, sometimes, they were pre-planned scams from the start!
  7. Finally , there are sometimes good reasons for different prices in different markets. For example, national and local regulations may burden to the consumer cost for an item, or the seller may be required to pay a fee or tax to some authority or regulatory agency. If you dodge these costs, you may be violating laws and subject to penalties or punishment. You may even put your customer at risk.

I am neither an arbitrage player nor a day trader. These are just a few warning bells that come to mind when I think about such activity. You can be sure that this list of risks only scratches the surface. Bitcoin is remarkably fluid and many people flaunt regulations. For this reason, I am confident that opportunities for profitable arbitrage are rare and very tiny (small gain for a big risk).

Have I scared you away from Bitcoin arbitrage? If not, proceed with extreme caution and don’t bet the family ranch! Once you have some experience, come back and post feedback below. I have dabbled in options arbitrage, but never with Bitcoin or any currency. Since I don’t have first-hand experience, your feedback will be appreciated.

Philip Raymond is co-chair of Cryptocurrency Standards Association,
host of The Bitcoin Event (New York), and editor at A Wild Duck.

At Quora, I occasionally role play, “Ask the expert” under the pen name, Ellery. Today, I was asked “Is it too late to get into Bitcoin and the Blockchain”.

A few other Bitcoin enthusiasts interpreted the question to mean “Is it too late to invest in Bitcoin”. But, I took to to mean “Is it too late to develop the next big application—or create a successful startup?”. This is my answer. [co-published at Quora]…

The question is a lot like asking if it is too late to get into the television craze—back in the early 1930s. My dad played a small role in this saga. He was an apprentice to Vladamir Zworykin, inventor of the cathode ray tube oscilloscope. (From 1940 until the early 2000s, televisions and computer monitors were based on the oscilloscope). So—for me—there is fun in this very accurate analogy…

John Logie Baird demonstrated his crude mechanical Televisor in 1926. For the next 8 years, hobbyist TV sets were mechanical. Viewers peeked through slots on a spinning cylinder or at an image created from edge-lit spinning platters. The legendary Howdy Doody, Lucille Ball and Ed Sullivan were still decades away.

But the Televisor was not quite a TV. Like the oscilloscope and the zoetrope, it was a technology precursor. Filo T. Farnsworth is the Satoshi Nakamoto of television. He is credited with inventing TV [photo below]. Yet, he did not demonstrate the modern ‘cathode ray’ television until 1934. The first broadcast by NBC was in July 1936, ten years years after the original Baird invention. (Compare this to Bitcoin and the blockchain, which are only 7 years old).

Most early TV set brands died during the first 10 years of production: Who remembers Dumont, Andrea and Cossor? No one! These brands are just a footnote to history! Bear in mind that this was all before anyone had heard of Lucille Ball, The Tonight Show or the Honeymooners. In the late 1950s, Rod Serling formed Cayuga Productions to film the Twilight Zone in New York. Hollywood had few studios for dramatic television production, and the west coast lacked an infrastructure for weekly episode distribution.

Filo T. Farnsworth demonstrates an advanced television receiver

Through the 1950s (25 years after TV was demonstrated), there was no DVR, DVD or even video tape. Viewers at home watched live broadcasts at the same time as the studio audience.

The short answer to your question: No. Absolutely not! It’s not too late to get into Bitcoin and the blockchain. Not too late, at all. That ship is just pulling into the dock and seats are mostly empty. The big beneficiaries of blockchain technology (it’s application, consulting, investing or savings) have not yet formed their first ventures. In fact, many of the big players of tomorrow have not yet been born.

Philip Raymond is a Lifeboat columnist and contributor to Quora. He is also co-chair of Cryptocurrency Standards Association and editor at A Wild Duck.

Worried about security for your bitcoin in the face of quantum computing? According to computer researchers, there’s no reason to be.

Source: https://hacked.com/breathe-easy-bitcoiners-quantum-computing-no-match-for-sha-2-encryption

Quantum mech

Some people assume that once quantum computing comes along modern encryption technologies will be outpowered. But experts are starting to posit that hash functions and asymmetric encryption could defend not only against modern computers, but also against quantum attackers from the future.

Matthew Amy from Canada’s University of Waterloo proposes just this in a paper by the International Association of Cryptologic Research.

Amy, and researchers from Perimeter Institute for Theoretical Physics and the Canadian Institute for Advanced Research, examined attacks against SHA-2 and SHA-3 with Grover’s algorithm.

Grover’s algorithm is a quantum algorithm that finds with high probability the input to black box functions that produce particular, and predictable, output values.

Grover’s algorithm could brute-force a 128-bit symmetric cryptographic key in roughly 264iterations,” Wikipedia states, “or a 256-bit key in roughly 2128 iterations. As a result, it is sometimes suggested that symmetric key lengths be doubled to protect against future quantum attacks.”

Researchers surmise SHA-256 and SHA3-256 need 2166 “logical qubit cycles” to break, and the paper suggests quantum papers pose little threat, though classical processors will need to manage them.

The paper notes: “The main difficulty is that the coherence time of physical qubits is finite. Noise in the physical system will eventually corrupt the state of any long computation,” the paper states. “Preserving the state of a logical qubit is an active process that requires periodic evaluation of an error detection and correction routine.”

With ASICs running at a few million hashes per second, it would take Grover’s algorithm 1032 years to crack SHA-256 or SHA3-256. That is longer than the universe has existed.

As The Register adds: “Even if you didn’t care about the circuit footprint and used a billion-hash-per-second Bitcoin-mining ASIC, the calculation still seems to be in the order of 1029 years.”

SHA-2 is the set of cryptographic hash functions designed by the National Security Agency (NSA), an intelligence branch of the US government under scrutiny for ubiquitous surveillance due to revelations released by Edward Snowden. SHA stands for “Secure Hash Algorithm.”

These hash functions represent mathematical operations run by digital means Cryptographic hash functions boast collision resistance, which means attackers cannot find two different input values that result in the same hash output. The SHA-2 family is comprised of altogether six hash functions with hash values that are 224, 256, 384 or 512 bits: SHA-224, SHA-256, SHA-384, SHA-512, SHA-512/224, SHA-512/256.

SHA-256 and SHA-512 are novel hash functions computed with 32-bit and 64-bit words, respectively.