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  • user 3:08 pm on November 4, 2016 Permalink | Reply
    Tags: , bitcoin, , , , , ,   

    SBB and Bitcoin: Did You Just Notice The Gorilla On Stage? 

    You may all know the now-famous experiment conducted in the late 1990s by Daniel J. Simons and Christopher Chabris where two groups of people – some dressed in white, some in black – are passing basketballs back and forth. The study subjects were asked to count the passes among those dressed in white while ignoring the passes of those in black.

    Gorilla

    They found that many of those who viewed the video failed to #notice when a person in a #gorilla suit suddenly walked into the game, faced the camera, pounded on its chest and then left the #stage. The gorilla was on screen for over eight seconds, yet half of those who watched the video didn’t see it.

    Did you notice the Gorilla this time?

    Well, the so called Monkey Business Illusion #just happened again when SBB, the Swiss Federal Railway operator, decided to extend its “Service Publique” in Switzerland on 11 November 2016. Where the #banks seemingly &8220;omitted&8221; to serve the public on their ATMs, SBB ventures to close the gap. A new era of state-driven #FinTech revolution has begun: Our government owned SBB is entering the #Bitcoin brokerage business!

     

    SBB is pushing Bitcoins mainstream

    &8220;Make quick and easy purchases with Bitcoin&8221; is the bold statement on the SBB website. The business model of SBB CEO Andreas Meyer seems quite smart. A simple software update on the ticket machines and SBB is ready to earn its share on the 6% commission of each bitcoin sale. It would in fact be very interesting to know from SBB what type of goods are indeed so easy to buy with Bitcoin that someone is willing to pay a 6% commission for. Anyway, this is a different story.

    Bitcoins might actually go mainstream!

    Is it really the time to cheer for another FinTech innovation? Maybe we should pause for just a second. Let’s think of it again: A state-owned company is selling an alternative, virtual currency to the Swiss public that promises to replace our financial system with all its established control mechanisms to ensure price stability, prevent money laundering, terrorist financing and tax evasion and completely undermines upcoming new measures like AEI etc. Of course, the current system is not perfect. But who can guarantee when and whether a financial system based on Bitcoin will ever be stable and secure enough?

    What will happen when suddenly people of all age classes get access to Bitcoins on hundreds of SBB ticket machines? Nobody really knows yet. But one thing should be clear, this is not just the reinvention of the old Swiss WIR currency, a form of digital money backed by Swiss francs. Bitcoin is playing in a wholly different league.

     It&8217;s not about Swiss law, it&8217;s about our economy & reputation

    In Switzerland, contracts with cryptocurrencies are enforceable and penalties can be imposed for criminal offences. The Zug based company Sweepay is acting in the background as financial intermediary and the setup fulfils the requirements emposed by FINMA and the Swiss Anti-Money Laundering Act. So, where is the problem?

    Sweepay

    It&8217;s not about the law, it&8217;s about the fact that this is the first time in the history of mankind where a #cryptocurrency might actually go mainstream in a country and test out its romantic promise of a better world on an unprepared population. There haven&8217;t really been public debates in Switzerland outside of FinTech expert circles. The Swiss economy and its people shouldn&8217;t be lightheadedly used as guinea pigs for a virtual currency rollout fuelled by a state-owned company.

    Switzerland&8217;s reputation and its sound financial center with an ever more flourishing FinTech industry are carelessly put at risk. Maybe some Bitcoin firms will benefit but maybe many other FinTech players will soon loose their businesses or turn their back to a country that just lost control on its price stability. Who really knows about the side effects of Bitcoin in a complex real-life economic system?

    bitcoin

    And what about consumer protection?

    The financial industry has undertaken huge efforts in recent years to better protect the customers against risks and provide them with appropriate information. However, it&8217;s not clear whether there will be any risk disclaimers at all on SBB ticket machines. But imagine if all potential consumer risks would have to be disclosed before buying any Bitcoins. How would you explain to a 14-year old teenager that he better shouldn&8217;t spend all his pocket money on these interesting darknet products like anabolics and narcotics while on the other hand not spending the Bitcoins might suddenly result in a total loss of value?

    Let&8217;s build a safe financial system based on a solid cryptocurrency

    Cryptocurrencies have many advantages over fiat currencies. But I still prefer to entrust our economy to some type of a &8220;Utility Coin&8221; that ensures to actually deliver all of the advantages of a promising new technological concept without all of the obvious and potential side-effects of Bitcoin.

    Let&8217;s properly prepare for such a transition process before we carelessly risk to &8220;Trump&8221; into an economic disaster. And please &8220;like&8221; this post if you even slightly doubt that SBB brokered Bitcoins are completely risk-free.

    This article first appeared on LinkedIn Pulse

    The post SBB and Bitcoin: Did You Just Notice The Gorilla On Stage? appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

     

  • user 10:00 am on October 28, 2016 Permalink | Reply
    Tags: , bitcoin, , ,   

    Blockchain and major questions we need to understand. 

    After reading hundreds of papers on #Blockchain the question and choices are becoming clear. Companies are starting to get an insight of what Blockchain can do for them. I have discussed the possibility for not only as a financial system but also supply chains, government voting, medical record keeping, Identity, transport systems, security systems and the list goes on and on. The possibilities seem to be a bit endless at this point and therefore my mind started to think about what is the next step. What are the #questions we need to answer to get going on a project? I decided to write this whitepaper dissecting the hype word Blockchain and clearing up two major questions that lets us look at the different #technology’s and some of the technical choices we need to understand to get started. This paper is intended for business strategist but techies might find it interesting too.

    What is a Blockchain?

    First, a Blockchain in its simplest form is sets of data, called blocks, connected in some manner to form a chain. The data is usually transaction data but does not have to be. Transaction data gives information about “A” sending or moving something to “B” at what time and how much. The users keep track of their transaction’s by saving links to their transaction’s and storing them in there “wallet”, a small piece of software. The Blockchain organizes blocks with some predefined capacity e.g. 1000 transactions, 1 megabite, all the transactions this hour or some other defined perimeter. The Blockchain mechanism’s, that will be outlined in this paper connect the block of data it to previous blocks and store them.

    First question:

    How are you connecting the blocks to each other? Or even more technical, if you want to give the impression you know something about Blockchains: What is the consensus algorithm?

    Consensus algorithms vary a lot. There are thousands of methods for connecting blocks. I will explain the three most commend ones:

    PoW – Proof of Work, this means that you have some work to do, usually mathematical. To give a real-world example of this, imagine walking in a dessert and suddenly, as you come over a sand dune, you see a pyramid. Before you know who has built it or even what it is, you automatically understand that it took a lot of work to set it up. That is proof of work. Looking at the Eifel tower it dawns on you that someone had to put all those nuts and bolts in place. That is proof of work. If proof of work is implemented correctly in a Blockchain this can be an extremely secure solution. #Bitcoin uses PoW by using application specific circuits (super computers) to solve a hashing challenge, basically brut forcing an incomplete alphanumeric solution. This is kind of like solving a Sudoku puzzle. Because looking at a solved Sudoku it is easy to see if it is solved correctly and at the same time someone has obviously solved it and so its proof of work. To complete some work it requires energy, no matter if it’s the pyramids or the nuts and bolts in the Eifel tower or the hashing challenge on the bitcoin Blockchain, the all require energy. Bitcoin Blockchain PoW translates into using extreme amounts of electric energy. There-fore, since there is no guarantee that you’re the one that will win the challenge, you’re basically staking (gambling) your power consumption as an external factor from the Blockchain itself. With PoW the history, of all the transactions, is secured by the latest block, so any changes in technology will swiftly be compensated as newer technology, e.g. quantum computing, will help securing blocks. This type for Blockchain has one big draw back. You need a large amount of computing power before the Blockchain can be considered secure. I believe decentralization is the only option that has a chance but more on that later.

    PoS – Proof of Stake, this means that you have lottery tickets based on the amount of Power you hold on that Blockchain. Ethereum, Litecoin and Steemit are examples of PoS Blockchains. Compered to PoW, you are now on an internal stake in the Blockchain. So, say you have a vast amount of ether on the Ethereum Blockchain you win the lottery because the odds are in your favor. You then accept the block with your digital signature so that it is approved to connects to the Blockchain. There are to major challenges that arises with PoS. One, it is all done internally so the system is only of value to itself. Two, everyone in the system must watch and make sure that you are not cheating by corrupting the latest block, especially if your odds are so high that you’re signing several blocks in a row. However, if you’re corrupting blocks who are you hurting, if you have vast amounts?

    PoA – Proof of Authority, this means that VISA, MasterCard, a Nations central bank or someone of authority puts their stamp of approval on the block. In this scenario, you could have a 1024-bit encryption code. This code is virtually unbreakable now in this day and age. However where will we be in 20 years. With quantum computers, right around the corner, someone could change a transaction 20 years back that could render the Blockchain corrupted.

    Second question:

    How are you storing the information in the Blockchain? Or even more technical: The Blockchain is distributing the ledger, who is it distributing it to?

    DLT – Distributed Ledger Technology, this means that someone is storing the copy of the ledger usually in real time. Everyone that has a copy of the ledger can see the information in it. Practically you would run a query or search as they tend to get very long. The examples that I have encountered are consortium (a group of partners) of #banks and financial institutions. The R3 Blockchain is one example. These are known as permission Blockchains, as they are closed to the public you require permission to get access. Bitcoin, Ethereum and most crypto-currencies are referred to as decentralized Blockchains, as a play on the opposite of a central bank. As the term suggest it is permission-less and therefore open for everyone to get their own copy of the ledger.

    [linkedinbadge URL=”https://www.linkedin.com/in/bbjercke” connections=”off” mode=”icon” liname=”Bjorn Bjercke”] is Blockchain Specialist

     

  • user 7:40 am on October 20, 2016 Permalink | Reply
    Tags: bitcoin, , , , , ,   

    How to know which Blockchain you should use. 

    Why Consensus Mechanisms Matter

    The world of #Bitcoin and underlying technologies of distributed ledger, and the #blockchain are experiencing rapid change and growth.

    As low-trust digital-based systems gain adherents and differing use cases, developers are creating new variant blockchains to deal with the inevitable fragmentation between public, consortium, and private blockchain technologies.

    First, let’s note the differences between public, consortium, and private blockchains.

    Public — Fully decentralized and uncontrolled networks with no access permission required — anyone can participate in the #consensus process to determine which transaction blocks are added. There is usually little or no pre-existing trust between participants in a Public blockchain.

    Consortium — The consensus process for new transaction blocks is controlled by a fixed set of nodes, such as a group of financial institutions where pre-existing trust is high.

    Private — Access permissions are tightly controlled, with rights to read or modify the blockchain restricted to certain users. Permissions to read the blockchain may be restricted or public. [1]

    There is usually some degree of pre-existing trust between at least some of Private blockchain participants.

    The degree of pre-existing trust that an organization requires, as well as necessary control over participant permissions, will determine what type of blockchain to use.

    Different blockchain solutions have advantages and disadvantages. Take for example, the difference between how transactions are validated within each type of blockchain:

    #Proof of Work (PoW): About “mining” transactions utilizing a resource-intensive hashing process, which (a) confirms transactions between network participants and (b) writes the confirmed transactions into the blockchain ledger as a new block.

    The accepted new block is proof that the work was done, so the miner may receive a 25 BTC (Bitcoins) payment for successfully completing the work. The problem with PoW is that it is resource-intensive and creates a centralizing tendency among miners based on computer resource capability.

    Proof of Stake (PoS): About “validating” blocks created by miners and requires users to prove ownership of their “stake”[2]. Validation introduces a randomness into the process, making the establishment of a validation monopoly more difficult, thereby enhancing network security.

    One problem with PoS is the “nothing at stake” issue, where miners have nothing to lose in voting for different blockchain histories, preventing a consensus from being created. There are several attempts to solve this problem underway.

    Additional developments in this area hope to combine PoW with PoS to create hybrid blockchains with the highest security and lowest resource requirements.

    To that end, some developers are focused on enhancing network security through ‘consensus without mining.’ [3]

    Tendermint co-founder Jae Kwon has published a paper describing his firm’s concept and approach in this regard.

    Existing Proof of Work and Proof of Stake protocols have various problems, such as requiring huge outlays of energy usage and increasing centralization (PoW) or participants having nothing at stake (PoS) possibly contributing to consensus disruption on mined blocks.

    Kwon’s solution is twofold and does not require Proof of Work mining:

    (a) A ⅔ majority of validators is required to sign off on block submission, with no more than ⅓ able to sign duplicate blocks without penalty

    (b) The protocol raises the penalty of double-spend attacks to unacceptably high levels by destroying the malicious actor’s Bitcoin account values.

    The algorithm is “based on a modified version of the DLS protocol and is resilient up to ⅓ of Byzantine participants.”

    Kwon and his team at Tendermint hope to bring speed, simplicity and security to blockchain app development.

    So, how does one decide on what type of blockchain to use and their relevancy for your company use case? [4]

    Below are a few examples of different types of blockchains, depending on the organization’s greatest prioritized need:

    One consideration is confidentiality. For example, in the case of a public financial blockchain, all the transactions appear on the ledgers of each participant. So while the identities of the transacting parties are not known, the transactions themselves are public.

    Some companies are developing ‘supporting’ blockchains to avoid this problem, by “storing or notarizing the contracts in encrypted form, and performing some basic duplicate detection.” Each company would store the transaction data in their own database, but use the blockchain for limited memorialization purposes.

    A second consideration is whether you need provenance tracking. Existing supply chains are rife with counterfeit and theft problems. A blockchain that collectively belongs to the supply chain participants can reduce or eliminate breaks in the chain as well as secure the integrity of the database tracking the supply chain.

    A third example is the need for recordkeeping between organizations, such as legal or accounting communications. A blockchain that timestamps and provides proof of origin for information submitted to a case archive would provide a way for multiple organizations to jointly manage the archive while keeping it secure from individual attempts to corrupt it.

    Blockchains fundamentally operate on the basis of how consensus is agreed upon for each transaction added to the ledger.

    What are the benefits of each type of consensus mechanism and in which situation are they best utilized?

    Proof of Work — Miners have a financial incentive to process as many transactions as quickly as possible. PoW is best utilized by high-throughput requirement systems.

    Proof of Stake — Transaction Validators receive rewards in proportion to the amount of their “stake” in the network. This arguably improves network security by discouraging duplicitous attacks. PoS is best used by computing power constrained organizations.

    Delegated Proof of Stake [5] — Network parameters are decided upon by elected delegates or representatives. If you value a “democratized” blockchain with reduced regulatory interference, this version is for you.

    PAXOS — An academic and complicated protocol centered around multiple distributed machines reaching agreement on a single value. This protocol has been difficult to implement in real-world conditions.

    RAFT — Similar to PAXOS in performance and fault tolerance except that it is “decomposed into relatively independent subproblems”, making it easier to understand and utilize.

    Round Robin — Utilizing a randomized approach, the round robin protocol requires each block to be digitally signed by the block-adder, which may be a defined set of participants. This is more suited to a private blockchain network where participants are known to each other.

    Federated Consensus — Federated consensus is where each participant knows all of the other participants, and where small sets of parties who trust each other agree on each transaction and over time the transaction is deemed valid. Suitable for systems where decentralized control is not an imperative.

    Proprietary Distributed Ledger — A PDL is one where the ledger is controlled, or proprietary, to one central entity or consortium. The benefits of this protocol is that there is already a high degree of pre-existing trust between the network participants and agreed-upon security measures. Suitable for a consortium or group of trading partners, such as supply chains.

    PBFT — In a PBFT system, each node publishes a public key and messages are signed by each node, and after enough identical responses the transaction is deemed valid. PBFT is better suited for digital assets which require low latency due to high transaction volume but do not need large throughput.

    N2N — Node to node (N2N) systems are characterized by encrypted transactions where only the parties involved in a transaction have access to the data. Third parties such as regulators may have opt-in privileges. Suitable for use cases where a high degree of transaction confidentiality is required.

    The above list represents the current major consensus mechanisms in operation or from research.

    Due to the initial visibility of Bitcoin, the financial services industry has been early in researching the possible uses of consensus mechanisms to streamline operations, reduce costs and eliminate fraudulent activity.

    The multi-trillion dollar global financial services industry is really composed of many different sectors, from lending to smart contracts, trading execution, letters of credit, insurance, payments, asset registration, regulatory reporting and more.

    For example, the process of securing a letter of credit, which is an important import/export trading service, would likely utilize a ‘consortium’ approach to achieving transaction consensus.

    In August, 2016 a banking consortium, R3CEV, successfully designed and executed trading smart contracts. These types of contracts could then be applicable to accounts receivable invoice factoring and letter of credit transactions.

    For the use case example of cross-border remittances, which would involve many individuals on both sides of the transaction, a ‘public’ consensus mechanism would likely be a relevant #choice.

    Since remittances would need to have a relatively short time latency for transaction completion, a solution involving a Proof of Stake approach with its low resource requirement to validate transactions along with potentially higher security, would be compelling.

    In sum, the state of blockchain development is rapidly gaining speed worldwide, yet there is much work to be done.

    Numerous Global 2000 companies led by their #technology executives and consultants are beginning to participate in development and testing of this revolutionary technology sector.

    Organizations that begin first-hand learning about the power of blockchain technologies will have increased opportunity to lead their industry.

    Originally published at intrepidreview.com on October 5, 2016.

    I’m always interested in meeting blockchain startups, and Chief innovation officers who are creating transformational products, so please feel free to contact me by email at [email protected]

    Collin Thompson is the Co-founder, and Managing Director of Intrepid Ventures, a blockchain startup and innovation studio that invests, builds, and accelerates Blockchain and #FinTech companies solving the world’s most difficult problems. Collin focuses on early stage investments, innovation and business design for corporations, governments and entrepreneurs working with blockchain technology.

     

  • user 3:36 pm on October 19, 2016 Permalink | Reply
    Tags: , bitcoin, , , , , ,   

    Report: Challenger Banks Landscape 

    External forces from demographic, social, economic and regulatory phenomena have contributed to one of biggest revolution in the banking world: the emergence of #challenger #banks.

    Challenger Banks Report Oct 2016Digitally-focused challengers such as Atom, Fidor Bank, Mondo and Starling, have grown significantly in 2015 and 2016, fueled by changing customer expectations, the new Generation Z, the heavy smartphone use in accessing finance and emerging technologies.

    Most of the innovation around #fintech and challenger banks have occurred in regional hubs and heavily supportive countries and environments, according to a new #report by Burnmark, including the UK and the US.

    “The UK holds the first mover advantage as a home for challenger banks, but new geographies are gaining ground with support from government, regulators, investors and entrepreneurs,” the report says.

    &8220;The US, Singapore and Australia, in particular, are actively competing to create best-in-class financial innovation ecosystems and are increasingly progressive in their use of government and regulatory policy to support challenger banks.&8221;

    In early 2014, the UK Financial Conduct Authority launched the Project Innovate to support regulation for innovative businesses. Singapore has a £100m financial sector #technology and innovation scheme and Australia has announced a £500m national innovation and science agenda.

    The UK also leads in terms of fintech investment, having generated £524 million in 2015 compared with £3.6 billion in California and £1.4b in New York in 2015. The country has an unrivalled lead in terms of financial expertise, employing 1.2 million people in the financial services industry.

    Following the UK, Singapore has been increasingly active in policy and benefits to make it an attractive fintech hub. In November, the Monetary Authority of Singapore, the country’s central bank and financial regulator, will organize the week long Fintech Festival which will bring together policymakers, fintech experts, entrepreneurs and VC to discuss the future of finance.

    MAS has also opened its fintech innovation lab called Looking Glass @ MAS to experiment fintech solutions with financial institutions, startups and tech vendors.

    Regional advantages challenger banks

    According to the report, the emergence of challenger banks are &8220;multi-fold&8221; and dependent on the regions they belong to. For instance, in developed markets, challenger banks are gaining prominence due to the underlying inefficiencies of the incumbents in service the customer in the best possible and transparent manner.

    Emerging markets on the other hand are looking at challengers as a medium to accelerate banking innovation as well as financial inclusion. With mobile penetration increasing significantly in these locations, banks utilizing digital channels to onboard, engage or serve customers are evolving to become an important medium for financial inclusion initiatives.

    Notable ventures include Abacus, a digital bank backed by a UK-based private equity firm AnaCap; Metro Bank, which implemented Backbase’s Omnichannel Banking Platform for its digital banking front-end, FIS/SunGard’s Ambit Asset Liability Management solution and outsources mortgage processing to BancTec; Monzo Bank, which has been built on open source stack including Linux, Apache Cassandra, and Google&8217;s Go programming language; Secco Aura, which uses a distributed database similar to the #Bitcoin #blockchain which allows data to be stored on customer&8217;s devices as well as the bank; and Tandem Bank, which uses FiServ&8217;s core banking and its Agility platform on SaaS.

     

    Featured image: Bank via Shutterstock.

    The post Report: Challenger Banks Landscape appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

     

  • user 3:35 am on October 19, 2016 Permalink | Reply
    Tags: bitcoin, , , Captures, , Fans, , , ,   

    Swiss Blockchain-powered Exchange Captures $1 Million from Fans 

    Lykke, a #Swiss #Fintech company building a global #blockchain-powered marketplace, concluded its initial coin offering (ICO) at midnight, October 11th, with the sale of 23,226,753 coins, raising 1,161,338 CHF. The sale lasted a month, during which over 1,200 new people downloaded Lykke wallets and registered with the service. The number of Lykke coin holders jumped #from 147 to 717.

    “We are thrilled to welcome almost 500 new shareholders from 90 countries, who have invested a total of 1,161,338 CHF during our online sale,” said Lykke founder Richard Olsen. “Thank you to the many new stakeholders, who are helping us build our global marketplace.

    ” With this money, the company will continue to apply for broker and trading facility licenses in Europe, Asia and North America, and continue to build out its open-source trading platform for all to use.

    The platform now offers trading of #Bitcoin, Swiss francs, dollars, euros, pounds, yen, and Lykke coins. Many other digital currencies, indices, community coins and crypto-equities are planned for the future. Lykke’s goal is to be the lowest-cost marketplace for trading all digital assets, using blockchain settlement for speed and security.

    lykke

    Lykke coins were priced at 0.05 CHF. As the company’s coins are now publicly traded, the market will set the price for the coins. Lykke has reserved ten percent of the money raised to provide liquidity. The company implements a first-of-its-kind agent-based algorithm for setting prices, offering liquidity to sellers, and reducing volatility.

    You can still buy Lykke Coins here.

    The post Swiss Blockchain-powered Exchange Captures $ 1 Million from Fans appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

     

  • user 3:40 pm on October 17, 2016 Permalink | Reply
    Tags: bitcoin, , , , , , , Korean,   

    Korean Credit Card Giant to Integrate Blockchain Identity Service 

    South Korea’s largest #credit #card company is set to use a #blockchain #identity solution developed by local #bitcoin startup Coinplug.

    Source


    CoinDesk

     

  • user 12:40 am on October 14, 2016 Permalink | Reply
    Tags: bitcoin, , , , , ,   

    Could Bitcoin Be the Future of Blockchain Post Trade? 

    Conventional thinking about #blockchain #technology‘s use in stock markets may be wrong, according to one academic.

    Source


    CoinDesk

     

  • user 12:18 am on October 14, 2016 Permalink | Reply
    Tags: , bitcoin, , , , Skry, , , Terbium   

    Skry, Terbium Labs Team Up to Fight Blockchain Fraud 

    As we know, two of the most prized traits of #blockchain #technology, specifically when one is talking about the #bitcoin blockchain, are its anonymity and its immutability. Unfortunately, those traits also lead to a fair amount of #fraud; which is why #Terbium #Labs, a “dark web intelligence provider,” has teamedRead More
    Bank Innovation

     

  • user 11:36 am on October 13, 2016 Permalink | Reply
    Tags: , beginner, bitcoin, , , , for dummies,   

    A Beginners Guide to Blockchain Essentials (for Dummies) 

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    The top 5 things about the blockchain that you should really know.

    The talk about #Blockchain #technology seems ubiquitous. But what exactly is a Blockchain? More specifically, what are the Blockchain essentials that you should really know?

    Let’s dive in to find out more about and separate the hype from the reality

    What is a Blockchain?

    A Blockchain is a tamper-proof distributed public ledger that manages transactions.

    Think of it like a magical Google spreadsheet in the cloud, or more specifically on a network.

    Put simply, a Blockchain is basically an incorruptible distributed ledger of data, which can be used to store informational assets ranging from managing cryptographic contracts to transferring value.

    The most recognized application on a blockchain is #bitcoin transactions. The transferring of value from one person to another with no central intermediary, and without allowing a person or party to spend their bitcoin twice “the double spend rule”.

    What does this mean?

    It means that “value” can have a change of title and ownership from one person/party to another, without the need of a trusted third party to validate/govern the trade.

    How is that you might ask?

    Well, the governance is in the protocol, you will find more information on this below so keep reading.

    Beside being a ledger for “data of value”, or cryptocurrencies, Blockchain technology is finding broader usage in peer to peer lending, (smart) contracts managements, healthcare data, stock transfers, and even elections.

    Like any emerging and disruptive technology, no one can predict the future of Blockchain technology. But one thing’s for sure — it isn’t (just) for purchasing black-market goods and services!

    As a matter of fact, Blockchain technology is finding its way into big firms such as IBM, Microsoft, and major #banks.

    Interest in the technology is driven by (fear of disruption) the fact that it excludes trusted third parties (banks and clearinghouses) during transfer of values, which in turn results in fast, private and less expensive financial transactions.

    Blockchain can facilitate the peer-to-peer transfer of anything that’s of value. This may range from assets, properties, and contracts. The most crucial and far-reaching Blockchain applications is applied in Bitcoin, with transfer of value, and Ethereum with its enhancement of smart contracts.

    Let’s jump in and learn the historical background of these Blockchain essentials.

    2. Bitcoin

    The Bitcoin currency, as many have come to know it, has been with us since 2008 when Satoshi Nakamoto — A person, or group of people, published a whitepaper about peer-to-peer electronic currency.

    The major innovation that bitcoin unveiled was direct and secure transfer of money or “value” directly to any party on the network. The Bitcoin currency network is decentralized — there’s no central authority — the underlying Blockchain technology is used to store information which is verified by a network of “miners” who validate all transactions on the network.

    How should I think of this?

    Bitcoin is simply a virtual currency system which resembles the real world cash system.

    Since it’s un-eponymous launch in 2008, through the boom and bust of the hype cycle, Bitcoin has continued to grow at an exponential rate and the fringe curiosity that consumed a group of highly capable (Tech Nerds) has ushered in some new upgrades that has brought the blockchain closer to the mainstream.

    3. Ethereum — Blockchain 2.0

    Ethereum is a blockchain system based on the concepts of bitcoin. It is considered a second generation blockchain technology that was designed to let any person, with a basic level of computer skills, to develop and deploy their own decentralized applications on the Blockchain.

    Just like the Bitcoin, Ethereum is decentralized — no one regulates or owns it — it has it’s own #cryptocurrency or “fuel” called “Ether” which acts in the same way bitcoin does. However, Ethereum has a few innovations worth noting. Primarily, a second application on its blockchain infrastructure called a “smart contract”, it’s own virtual machine which powers the memory and applications on the network called the “ethereum virtual Machine”, and its own programmable language called “Solidity”.

    Ethereum is kinda like Bitcoin on steroids but made to be more accessible.

    It was developed by Vitalik Buterin, a 19-year-old Russian-Canadian in 2013 as a Blockchain 2.0 — next generation Blockchain technology — with capabilities to be able to program and perform arbitrary and complex computations.

    Rather than just providing users with a set of predefined operations — like Bitcoin transactions — Ethereum lets users develop their own operations with the complexity they wish.

    4. Smart Contracts

    What is a “smart” contract?

    Well they actually aren’t that “smart”

    Think of them like self-executing dumb software robots that live and do business on a decentralized network.

    Smart contracts are autonomous computer systems, written in code, that manage executions between individuals on the Blockchain.

    The code resides at specified addresses on the Ethereum Blockchain. These contracts are powered by our friend the Ethereum Virtual Machine (EVM) and by Ether. It’s the little engine that could, that keeps all the smart contracts running on time and coordinates them with the rest of the network.

    In order to create an added layer of customization and security Ethereum created some high-level languages that are used to create smart contracts for the EVM. Solidity, Serpent, and LLL.

    These are the major innovation that Ethereum has brought to blockchains and it allows for many amazing types of autonomous programs.

    Next, let’s explore the consensus mechanisms in Blockchain.

    5. Consensus Mechanisms

    “When you interact with multiple parties, you need some sort of consensus mechanism to ensure everyone has got the right records”–Dan O’Prey, Co-founder of Hyperledger.

    Both Bitcoin and Ethereum use a decentralized system to confirm the transactions without relying on a trusted third party.

    Therefore, consensus, or coming to a uniform agreement, helps a network of autonomous programs and computers come to an agreed state of the blockchain without conflict.

    As a matter of fact, the consensus is the backbone of the Blockchain and any other decentralized and distributed technology

    The proof of work, proof of stake and closed consensus are the most common mechanisms used in Blockchain technologies.

    A: Proof of work

    The most common consensus mechanism that’s used for Blockchain technology is what’s called “proof of work”. It is the system used in Bitcoin.

    When a transaction is initiated, the information is stored in a candidate block which is filled with the transaction’s information. A cryptographic beacon is sent out to the mining network that the candidate block has been created, and the miners get to work on solving a cryptographic puzzle that has a prize for whomever solves it, in the form of newly minted coins/currency.

    Miners have what some would think of as supercomputers that are much more powerful than the average Person’s Macbook pro. These machines have a “hashrate” or computing power that gives them an advantage when competing to solve consensus problems for reward.

    I know what all you climate control advocates are saying:

    Doesn’t that demand a lot of electricity and processing power?

    The short answer is yes, the cost of mining is based primarily, on hardware, electricity costs, and to some degree temperature.

    The problem with the Proof of work consensus is that it requires the miner to use their supercomputer to try out millions computations per second, in competition with other supercomputers around the world, to determine if the Blockchain can be updated or not.

    B: Proof of Stake

    The main objective of this mechanism is to allow stakeholders, the people with the most invested, or owned in the Blockchain ecosystem to have the strongest incentives to lead in the provision of consensus solutions for a Blockchain transaction.

    In simple terms

    Proof of stake consensus allows miners that have more “money”, cryptocurrency, or “skin in the game” to have a greater opportunity to mine blocks and make decisions for the network.

    The process starts by the miner consuming his/her cryptocurrency — commonly referred to as the kernel — which provides privileges for updating the Blockchain which is similar to Proof of work.

    However, the hashing computation in Proof of stakes is done using a limited search space where stakeholders with the greatest stakes have the ability to mine a commensurate allocation of the network, and are effectively stewards of the Blockchain system.

    Think of it like: the more a miner has, the more they can get, and the more they can decide.

    The one benefit of this controversial crypto-economic system is that by allowing stakeholders with incentives take charge of consensus the mechanism reduces the computing power required for consensus.

    This should make the climate control kids happy, but

    The main problem of this mechanism is that disadvantages other miners in the network since only the “richest” stakeholders are permitted to have control of consensus in the Blockchain.

    C: Closed Consensus

    In a Closed consensus mechanism certain nodes are required to put up a security deposit in order to participate in updating the Blockchain.

    This consensus mechanism doesn’t require mining, and is growing in popularity in some banking and insurance segments.

    The management of the consensus is done using security deposits which incentivize the validators. The “arbitrators” — conflict management nodes are the enforcers on the blockchain and the adjudicate when something is not write or if a miner is not acting fairly.

    The main objective of using an arbitrator’s protocol is to enforce consensus among the autonomous nodes in the Blockchain.

    If a validator authenticates a transaction which the arbitrators have considered illegitimate, then the validator losses their security deposit and they also forfeit their privileges of providing consensus in the Blockchain network in the future.

    Conclusion

    Now that you understand the basic essentials of Blockchain technology you should be able to distinguish very easily:

    What is a blockchain?

    How does bitcoin work?

    What are the major innovations that The Ethereum blockchain brought to the technology?

    What is a smart contract?

    What are the different types of consensus mechanisms that power a blockchain?

    Hopefully, this inspires further exploration and your own personal discovery, in what everyone is talking about, and how perhaps you might be able to join in the conversation and or project/experiment. if you want more information that is friendly and easily accessible please see our other post here: How does the Blockchain Work?

    The main take away that you should get from this article is that understanding the blockchain is not that hard, and when you do, you have the ability to affect your team and industry in ways that you might not thought possible in the past.

    I’m always interested in meeting blockchain startups, and technologists who are creating innovative products, so please feel free to contact me or by email at [email protected]

    Collin Thompson is the Co-founder, and Managing Director of Intrepid Ventures, a blockchain startup and innovation studio that invests, builds, and accelerates Blockchain and #FinTech companies solving the world’s most difficult problems. Collin focuses on early stage investments, innovation and business design for corporations, governments and entrepreneurs working with blockchain technology.

    Originally published at intrepidreview.com on October 3, 2016.

     

  • user 7:36 am on October 13, 2016 Permalink | Reply
    Tags: , bitcoin, , , , private blockchain,   

    Private Blockchain or Database? 

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    How to Determine the Difference

    Introduction to a Private Blockchain

    A #private blockchain is a system, commonly known as a “Distributed ledger” that has an access control layer built into the protocol [1]. This means the network participants have control over who can join the network, and who can participate in the consensus process of the #blockchain.

    This is in contrast to a public blockchain, which is open for all to participate in — as a user, as an entity that determines the validity of transactions, and the consensus process. Private blockchains, therefore have a very different level of security than public blockchains like #Bitcoin [2].

    Private blockchains are a class of distributed ledgers that use transactions and blocks, first described in Bitcoin. Distributed ledgers are shared databases with access protection rights, with defined rules on what types of changes can be performed by what entities.

    The value of distributed ledgers at the enterprise level arises from the ability to do away with the reconciliation of data among participating entities [3]. This is especially the case with financial institutions that trade with one another.

    A lot of effort on the back-office today is spent in the reconciliation of records among different institutions [4]. Instead, distributed ledgers allow financial institutions to maintain a structurally consistent shared #database of transactions. This allows each participating institution to read data from the distributed ledger and be guaranteed that it is valid and reconciled against the data held by the other participating institutes.

    Difference between a Public and Private Blockchain

    Distributed ledgers are inspired from Bitcoin and other public blockchains. However, they differ in their fundamental characteristics of access and security promises.

    The security of a public blockchain like Bitcoin comes from its proof of work, which makes it mathematically impossible to fake or reverse transactions without miners colluding, using the current state of #technology [2].

    On the other hand, the security promises of distributed ledgers and private blockchains are only as good as the honesty of the entities validating the transactions. There are no mathematical guarantees behind the irreversibility of transactions in a private blockchain.

    Blockchain vs. Shared Database

    There is considerable debate in the community in the value of a private blockchain over a shared database. Some, like Prof. Arvind Narayanan of Stanford, contend that private blockchains are just another name for a shared database [2]. Others, like Gideon Greenspan of Multichain see several differences between private blockchain and SQL like databases, from disintermediation to robustness [5].

    Traditional databases are completely contained within one entity, irrespective of their structure (SQL or no-SQL type databases). This includes read and write access, which is only possible via applications controlled by the entity to which the database belongs [9]. Shared databases, on the other hand, involve read and write access involving multiple entities.

    Private blockchains mimic the security process utilized by public blockchains like Bitcoin, but do not involve mathematical guarantees at the validation level or with respect to irreversibility.

    However, they still make use of cryptography and data structures like Merkle trees to ensure non-valid transactions aren’t added to the blockchain [6].

    At the end of the day, private blockchains provide higher levels of error checking and transaction validity than regular shared databases.

    Even though they don’t use proof of work, blocks of transactions are validated using some other forms of consensus mechanism. This can still be chosen to be Byzantine Fault Tolerant (BFT).

    The most popular such algorithms include Raft [7] and Juno [8]. These consensus protocols work based on a leader-follower model, wherein for each block a leader is selected who creates the block and adds to the blockchain. There are various ways in which errors and anomalies are then corrected by the system.

    The Security Paradigm

    Shared databases in the past have suffered from the inability to prevent malicious activity. This would be the case, for example, when one of the participating entities is hacked, and that entity writes ‘corrupted’ data into the shared database, thus making it invalid for everyone involved.

    This specific problem also exists in centralized databases.

    Private blockchains solve this problem using cryptography and technologies similar to what Bitcoin and public blockchains use.

    In addition, the consensus protocols used by private blockchains today are “BFT Hardened”, such as Juno [8]. This improves the security features of the blockchain by protecting against insular hacking cases, thus preventing individual participants from acting in a malicious manner.

    Why Banks and Financial Institutions Choose a Private Blockchain

    #Banks and financial institutions have been increasingly investing in blockchain technology.

    However, most of this effort has gone towards the private blockchain space.

    There are many reasons for this. Private blockchains scale significantly better than public blockchains [6] and the network parameters, such as network congestion and transaction fees are known in advance.

    The underlying protocol development is also more predictable in the case of a private blockchain, and gives more control to the banks that control it.

    Also, banks and financial institutions are regulated entities that cannot operate over open protocols without performing due diligence of the parties involved in the transaction [10]. It is unclear whether regulations require miners to be identified for certain classes of transactions to provide settlement finality.

    There is also a reputational risk involved in using Bitcoin, which has been much maligned in the media with the associations to drug trade and exchange hacking.

    However, even today, many private blockchains ‘anchor’ to a chain like Bitcoin periodically to ensure the integrity of its data.

    Challenges in Launching Private Blockchain Consortiums

    By their very nature, private blockchains require different entities to come together and agree to a common set of standards by which it will operate. This is challenging due to legacy inertia and due to the differing requirements of different participants in the system.

    There are also unanswered questions around who should have the power to add or remove members, and which jurisdictions should be allowed to intervene (for example to reverse transactions due to legal or regulatory reasons).

    The first problem is partly being solved by Hyperledger, a Linux foundation initiative that aims to provide common blockchains standards [11].

    The future of these competing ideologies will be incumbent on issues of governance, scalability and reputation. These mandates will be required by incumbent institutions but conceived by innovative blockchain startups that see opportunity in mainstreaming the concepts of a blockchain, distributed ledger, and consortium chains.

    Originally published at intrepidreview.com on October 4, 2016.

    I’m always interested in meeting blockchain startups, and Chief innovation officers who are creating transformational products, so please feel free to contact by email at [email protected]

    Collin Thompson is the Co-founder, and Managing Director of Intrepid Ventures, a blockchain startup and innovation studio that invests, builds, and accelerates Blockchain and #FinTech companies solving the world’s most difficult problems. Collin focuses on early stage investments, innovation and business design for corporations, governments and entrepreneurs working with blockchain technology.

     

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