Why 2017 Will Prove – Blockchain – Wasgoed a Bad Idea

Why 2017 Will Prove - Blockchain - Was a Bad Idea

Ferdinando Ametrano trains Bitcoin and Blockchain Technologies at Politecnico di Milano and Milano Bicocca University. He wasgoed chairman of Scaling Bitcoin 2016 and is also former Head of Blockchain and Virtual Currencies at Intesa Sanpaolo handelsbank.

Ter this CoinDesk 2016 ter Review special feature, Ametrano argues that, despite the hype around enterprise blockchain technologies, achievements ter the bitcoin community have bot greater.

“When the wise man points at the bitcoin, the idiot looks at the blockchain” – (Quasi-)Confucius.

Another year goes by, another intense chapter ter the history of the bitcoin and blockchain ecosystem.

There has bot no shortage of folklore and toneelstuk: 2016 commenced with the “whiny ragequit” of Bitcoin Core developer Mike Hearn, who shortly after joining banking consortium R3CEV proclaimed bitcoin a failure and sold all his coins.

It’s worth noting the price of bitcoin has now ended 2016 near a three-year high.

Elsewhere, the con artist Craig Wright claimed to be Satoshi Nakamoto, providing laughable cryptographic proofs to bamboozle and discredit reputable people. The unmissable yearly exchange heist this time klapper Bitfinex, its $66m theft becoming notable also for the lengths it went to to avoid bankruptcy.

Major consortia competed for the membership of financial institutions and technological players, with Hyperledger hitting R3 100 to 70 – numbers implausible for any zuigeling of sensible act project but representative of the overblown blockchain hype and the widespread fear of missing out.

People have bot advocating blockchain spil a magic wand to solve many global problems (like securing nuclear weapons and managing the power grid), I have bot compelled to humbly add that its potential at scrambling eggs should not be underestimated.

Te with DLT

Actually, spil knowledgeable people are fully aware, blockchain has not bot truly cool te 2016. The 2014 champ, bitcoin wasgoed dethroned by blockchain te 2015, but this year the debate has crowned distributed ledger technology (DLT) spil the relevant topic.

Instead of pondering why blockchain without bitcoin (or another native token) made no sense (and admitting that blockchain wasgoed just manhandled spil a snake-oil marketing buzzword), many of the projects originally touted to “bring blockchain to finance” flippantly shifted to DLT.

Nobody has indeed figured out what this DLT chimera is about or which problem it should solve. (Yet, wij have bot told it could reduce banks’ infrastructural costs by $20bn). Even the European Securities Market Authorities (ESMA) wonders about its applicability.

The ESMA consultation paper issued ter June posed many sensible specific questions: unluckily most of the answers received were generic rhetoric exercises. Adding insult to injury, even when it comes to derivatives trading and clearing (where ESMA is certain DLT cannot be applied), unfunded claims about rente rate exchanges spil clever contracts on DLT obfuscate the debate.

Last but not least, no DLT proposal has indeed delved into how to implement cash-on-the-ledger for effective delivery vs payment or, even more crucially, how to reach decentralized overeenstemming.

Bitcoin and blockchain is more a cultural paradigm shift than just a technology. It is all about decentralization, so the attempt of intermediaries to repurpose it emerges fairly ludicrous.

“Current rente te mutual distributed ledgers has established significant momentum, but there is a danger of building unrealistic expectations [. ] Understanding of the technology lags well behind the hype [. ] ‘Blockchain’ technology seems to promise major switch for capital markets and other financial services, but few can say exactly how or why.”

Given that bitcoin and blockchain is at the crossroads of spel theory, cryptography, gegevens networking, and monetary theory, a decent understanding of the subject is ter fact fairly uncommon.

One can consider the blockchain spil the auditable immutable loom of database updates: it can be used to reach the current database overeenstemming state embarking from an empty state (the UTXO database te the bitcoin case).

But how to make this loom at least tamper-evident ter a distributed network has often bot neglected, and sometimes stultified, spil with the proposal to make the blockchain rewritable. Decentralized overeenstemming seems so far very hard to reach without the economic incentives provided by a blockchain native digital asset like bitcoin.

Partial solutions have bot proposed te some special configurations of DLT – eg: by Digital Asset for the Australian Stock Exchange post-trade system.

Here a collective ledger registering the loom of (the hash values of) all trades is generated, updated and cryptographically signed by a central counterparty te a distributed, but by no means decentralized, environment. The notary service of the central counterparty can hardly be generalized to a decentralized framework, unless ironically resorting to the bitcoin blockchain (the most secure one, since the effort and cost for its manipulation is prohibitive) spil notary.

All hail notarization

Wij are back now to the most notable application of blockchain beyond bitcoin: timestamping, anchoring and notarization.

A generic gegevens set (a opstopping, a database, the status of a transaction network) can be hashed to produce a brief unique identifier. Such a digital fingerprint can be associated to a bitcoin transaction and hence registered on the blockchain. The blockchain immutability then provides sturdy non-repudiable timestamping that can always prove, without doubt, the existence of that gegevens set te that specific status at that precise uur te time.

This generic process is even undergoing some standardization to achieve third-party auditable verification. This is what could be called databases on crypto-steroids: ter the disruptive bitcoin nuclear explosion, applied cryptography will be the radioactive fallout driving database evolution. Or even better “what jewelry is for gold, timestamping and notarization could be for bitcoin: not essential, but effective at leveraging its beauty”.

Wij are touching the crucial point here: How can so many miss the point about the importance of bitcoin spil digital gold?

For the very first time, wij have a scarce digital asset which can be transmitted, but not duplicated (ie: spent, not double-spent): this is the groundbreaking achievement by Satoshi Nakamoto. Bitcoin could prove to be digital gold: spil relevant spil physical gold has bot ter human history and ter the development of trade, money and finance.

It has already realized a resilient permissionless transaction network and has appreciated more than 900x ter less than six years.

How can people possibly care more for the sub-par append-only sequential gegevens structure known spil blockchain instead?

To the rescue

This year, central bankers at least have bot better at recognizing bitcoin’s relevance.

Mario Draghi, voorzitter of the European Central Handelsbank (ECB), wrote to the EU Parliament:

“The reliance of economic actors on virtual currency units could te principle affect the central banks’ control the supply of money with potential risks to price stability [. ] Thus [. EU legislative bods. ] should not seek to promote a broader use of virtual currencies.”

Sheng Songcheng, member of the National People’s Congress and Director of the Investigation and Statistics Department of the People’s Bankgebouw of China, recently issued similar remarks.

“With the expansion of the use of private digital money, sovereign money use will little by little decline, which will reduce the monetary authority of the sovereign currency control. At the same time, the influence of monetary policy control on the supply and circulation of fiat money will also decline and become unstable, which will weaken the effectiveness of monetary policy and contort the transmission mechanism.”

It seems like they are startled by the likelihood of the screenplay where private money competes with fiat money, the desire illustrated by Nobel laureate Friedrich von Hayek ter “Denationalisation of Money” eventually becomes true, violating the millenary government monopoly of money.

Through market competition, better money will eventually prevail, but the Emperor is mad at the idea of money without his stamp of approval.

Bitcoin’s brilliance

Te 2016, private cryptocurrencies have bot vying for the top spot, with ethereum establishing itself spil the most plausible bitcoin alternative.

This Hayekian script is to be loved, and indeed a loterijlot has bot learned by this fierce competition. Yet, I believe the only conclusion is that bitcoin has come out on top.

The frequent ethereum network outages (provoked by DDoS attacks) have proved how brilliant the bitcoin development team has bot ter managing its network for eight years without similar problems.

Further, the disagreement inbetween alternative ethereum implementations has forked the ethereum blockchain, proving how essential it is for a cryptocurrency to have just one reference implementation. The DAO hack proved how Turing completeness is excessive hubris and how wise it wasgoed for bitcoin to be conservative when it comes to its scripting language.

Te my view, the subsequent split inbetween ethereum (ETH) and ethereum classic (ETC) weakened ETH and proved how dangerous it is to have a contentious hard fork, and how healthy it is for bitcoin development not to be driven by any “benevolent dictator”.

The ethereum failures have contributed te some style to lessen the bitcoin debate about a hard fork for fatter block size.

While still supported by a significant vocal minority, the punt is not spil rampant spil it wasgoed at the end of 2015. Especially now that Segregated Witness (SegWit, the soft-fork aimed at fixing the malleability problem and providing many other improvements) could be activated, permitting also for an effective block size increase.

SegWit is crucial for many possible future developments and its adoption would mark a turning point te the bitcoin history.

Nonetheless, even if the bigger-block minority will zekering it, some celebration should be ter order because bitcoin is proving once again how resilient it is to manipulation attempts, even one advocated by a core development team with a brilliant track record.

But. fungibility

That’s not to say bitcoin doesn’t have big issues ahead.

Spil noted during the 2016 developer conference te Milan, this year has bot mostly about two issues: the off-chain scaling treatment proposed by Lightning Network and the fungibility and privacy kwestie.

Lightning Network avoids the extreme security of having all knots validating all transactions: it secures off-chain transactions with a cryptographic clever contract that relies on the main blockchain for dispute resolution.

Fungibility is the requirement for all bitcoin to be equal: an atom of physical gold is indistinguishable from any other gold atom, whatever its history. Unluckily this is not indeed true for bitcoin, permitting for bitcoin of different value and legitimacy depending on their pedigree.

While often underappreciated, this is most likely the most relevant limit te the current bitcoin implementation, but it can be mitigated through mixing technologies (te my view Joinmarket and TumbleBit are promising approaches that might lead to effective improvement).

It is overduidelijk here that the obfuscation needed for transaction privacy would ensure fungibility and vice versa.

It is again the Hayekian script of rivaling currencies, this time the rise of Monero and ZCash (and of the MimbleWimble idea), that has proven how relevant the request for fungibility and privacy is. Indeed, how crucial the privacy debate has bot represented by the FBI and Apple’s encryption dispute, the Yahoo mass surveillance incident, the UK Investigatory Powers Act, the IRS’s Coinbase gegevens request, etc.

This mass surveillance treatment is truly despicable: on one mitt, it is ineffective because criminals will be able to patch cryptographic backdoors adopting a second-layer sturdy encryption, on the other palm, it will waterput at risks everybody’s privacy, permitting criminals to use the backdoor to spy on the fair people.

Bitcoin will now have to prove its capability to grant financial privacy.

Last straw

Yet, all te all, 2017 might be the final year te the pump-and-dump scheme of blockchain-without-bitcoin , the last-ditch effort to prove the marginal utility of databases on crypto-steroids.

Most likely some clever contract hype will clutter the debate, thanks to the smartest ones among the fools attempting to outsmart even the brainy contract inventor.

But most of this fuss will eventually leave center stage, permitting for the 2018 terugwedstrijd of (a hopefully more fungible) bitcoin.

Digital gold effective ter the defence of privacy and at freeing money from state and central banks monopoly, bitcoin might bootstrap fresh monetary systems: it might be surpassed by more advanced forms of money, spil happened to physical gold, without becoming obsolete. And it will inflame fresh economic and trade systems: for the very first time indeed global, borderless, and inclusive.

Ter the meantime, please fasten your seatbelt for another rollercoaster of a year. To the moon!

The leader te blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a stringent set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests te cryptocurrencies and blockchain startups.

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