Polish Parliament Holds Public Consultation on Cryptocurrency
The #Polish #Parliament has held the country’s first #public #consultation meeting devoted solely to digital currency and #blockchain #technology issues.
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A Beginners Guide to Blockchain Essentials (for Dummies)
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.
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LASIC InsurTech: The Beginning of Alternative Insurance!
Many of the successful #Fintech companies started as social enterprises in emerging markets and scaled successfully to be a unicorn. Notable examples are Ant Financial in #China and M-PESA in Keyna. Alipay of Ant Financial and M-PESA both exhibit the LASIC (Lee and Teo, 2015) characteristics. Alipay has more than 800m users globally with more than 300m Chinese mobile users and M-PESA accounts is 4 times more than all the traditional bank accounts in aggregate in Kenya. LASIC startups are those with low profit margin business, asset light balance sheet, scalable business, innovative #technology and operate in a compliance light regime. Ant Financial and M-PESA have all the LASIC characteristics.
When it comes to #insurance in China, Zhong An will rank the highest in terms of innovation and valuation given its association with Alipay as a digital (online and mobile) micro insurance provider (Fintech News, 2016). It is not surprising that Zhong An exhibits the LASIC characteristics too. But a new class of LASIC #insurtech model may be emerging in China. These new insurtech business models originated from the concept of Mutual Aid and started operation in the last two years. In organization theory, the term mutual aid is used to describe a voluntary reciprocal exchange of services and resources for mutual benefits. In America, the fraternity societies existed during the Great Depression providing their members with insurance and benefits for health, life and funeral. In the 1930’s, the English “workers clubs” also provided health insurance. But as early as 18th and 19th centuries, forms of mutual aid oragnisations such as the Friendly Societies and medieval craft guilds provided their members with insurance, funeral expenses, pensions, care for sickness, and even dowries for poor girls. The intellectual abstraction has its roots in mutualism, labour insurance system, trade unions, cooperatives and other civil society movements.
Typically, mutual aid is a term used to describe a structure or organisation that everyone is free to join and free to participate. The participants in mutual aids groups and all their activities are voluntary. It emphasizes the open and voluntary cooperation as opposed to induced cooperation (Kropotkin, 2008). The idea of mutual aid flourishes in entities that support participatory, democracy, equality of member status and decentralization of decision making at the structure level. Status of the group is determined or conferred mainly by participation. External societal status is irrelevant within the group.
On the internet, Mutual Aid Platform is seen as a mutual financial assistance and risk sharing platform. It is a class of platforms that members can lower their aid threshold and raise their aid limitation through mutual financial assistance and risk sharing. Members can join a mutual assistance plan with an advance deposit of only RMB10. As a member, one may apply for an aid of up to a maximum of RMB300,000. The maximum deduction from the member’s account for each application is RMB3. The more members there are, the lower the contribution. When there is zero balance in the member’s account, there will be a call for payments. If the member’s account keeps zero balance more than 30 days, he/she will quit the plan automatically. It is estimated that the yearly contribution is between RMB60-90. When there is an application for RMB300,000 as mutual aid amount and if there are 1m participants, each user contributes only RMB0.30 （PR Newswire, 2016）.
The largest mutual aid platforms are listed below.
- Zhongtuobang,众托帮
- Shuidihuzhu,水滴互助
- Quarker,夸克联盟
- eHuzhu,e互助
- Kangaikongshe,抗癌公社
- 17Huzhu,17互助
- Bihuhuzhu,壁虎互助
- Tongxinhuzhu,同心互助
- Mayihubao,蚂蚁互保
10. Banmashe,斑马社
Started in July 2016 with a #Blockchain platform, Shanghai based with RMB100m registered capital Zhongtuobang (ZTB) has reached two million users as at 1 Oct 2016 and it is the first mutual aid company to have a double A rating from the Chinese Internet Association iTrust. On August 19, Shuidihuzhu was the largest with over a million users before being taken over by Zhongtuobang in the second half of 2016. The growth in this sector is exponential. The founders of these platforms have insurance experience and bridge the gap in serving the underserved.
ZTB main business is in medical mutual aid and lower the barrier entry for micro enterprises and farmers that are deterred from buying insurance of high entry premiums. It is a form of insurance inclusion scheme where the risk is pooled with low contribution. Zhongtuobang has launched multiple mutual aid products including Anti-Cancer & Disease, Travel Accident, Dad & Mom Mutual Aid, Women’s Health and a Students Comprehensive Plan. According to ZTB, the average age of members is 31 and 27 for male and female respectively. To cater to those who are above 55 and not eligible for traditional insurance, ZTB rolled out mutual aid product for those between 51-65 years old. They have launched products specifically designed for medical care personnel and diabetes sufferers. There are plans to launch smart contract insurance products using the Blockchain technology. Blockchain with analytics also has certain features that will minimize false claims and frauds because the data are transparent and permanent. The total investment by Venture Capital into Beijing based Shuidihuzhu is RMB55m by IDG, Tencent, and others. They have launched four programs so far.
There are two Blockchain use cases that we know of in the mutual aid industry in China, ZTB and Tongxinhuzhu. Tonxinhuzhu blockchain (https://www.tongxinclub.com/pc/blockchain/index) has 124,858 members, 90 nodes and around 971,533H/s, equivalent to computing power of 4 MacBook Pro and 2.7GHz Intel Core i5 8G storage. There are 537345 blocks as at 4 Oct 2016. Both cases are using Blockchain for identification and verification purposes for the members.
The advantage of this Blockchain application is that historical information can be obtained for every account at low cost. Given that the information is permanent and public (it prevents the service provider from changing the records), it solves the issues of trust in a mutual aid platform. It is easy to match, execute, monitor with the potential use of smart contracts at low cost as compared to a centralized system. At present, claims are not verified or executed by smart contracts and Blockchain is only utilised to address the issue of trust in the mutual aid industry.
This ZTB use case has demonstrated that mutual aid is scalable by solving the issue of trust among potential subscribers who are strangers to each other. This is scalable to 1.3b population from all over China with potential use of smart contracts. Insurance inclusion is achievable for specialised risk pooling in areas of insatiated demand, especially in rural areas and critical illnesses. With big data, such risk will be better understood and allowing for mass adoption and efficient pricing of insurance services. Network effect of risk sharing will enable mutual aid platforms to scale across a large number of members.
Are these new Mutual Aid business models a form of LASIC InsurTech? This class of business model has low profits margin with no requirement of heavy investment in assets. It has been scaling as seen in the last few months with the help of low premium. Some of them are using Internet with Blockchain as an innovative technology to lower cost and increase trust. There are hardly any compliance rules at this moment for the industry. It remains to see if the use of new technology can detect and reduce fraudulent claims and whether the industry can increase its scope of services to a larger base of sticky customers. Ant Financial has only 1 fraud in 100,000 transactions and like M-PESA, offers services beyond payments of daily purchases and utilities. Users can buy insurance, funds, tickets, movie bonds, obtain loans, and even get a credit rating. The latest innovation Alipay Everywhere is to purchase household services such as cooking and caregiving from neighbours for a fee (Horwitz, 2006 and Jain, 2006). These are all made possible because of data analytic, location services and mobile technology. Big data, smart contract and artificial intelligence risk analytic remains an area that the mutual aid InsurTech industry need to take advantage of. There are LASIC unicorns such as Ant Financial to emulate and if the industry can harness the right technology to serve the masses, mutual aid startups such as Zhongtuobang will become the new unicorns.
References
Biznews, “Mutual Aid Rising in China”, Sep 2016,http://www.biznews.in/article/mutual-aid-rising-in-china
Fintech News, “Top50 Fintechs in China”, Sep 2016,http://fintechnews.sg/5639/fintech/top-50-fintechs-china-kpmg/
Horowitz, Josh, “With Alipay, China’s Most Popular Payments App, You Can Now Ask Total Strangers To Do Anything For A Fee”, Sep 2016, http://qz.com/795732/alipay-everywhere-from-alibaba-and-ant-financial-lets-you-ask-total-strangers-to-do-anything-for-a-fee/
Huzhuzhijia, “互助之家”，http://www.huzhuzj.com/
Jain, Aman, “New Alibaba App Allows You To Ask Strangers Do Anything For A Fee”, Sep 2006, Valuewalk, http://www.valuewalk.com/2016/09/alibaba-app-strangers-anything-fee/
Kropotkin, Peter, “Mutual aid: A Factor of Evolution”, 2008, Forgotten Books, Charleston, SC.
Lee, David Kuo Chuen and Ernie Teo, “Emergence of Fintech and the LASIC Principles”, Journal of Financial Perspective, 2015, Vol 3, 3.
PR Newswire, “Mutual Aid Rising in China: Inclusive Aid Catches Up With New Opportunities After the G20 Summit”, Sep 2016, http://en.prnasia.com/story/159264-0.shtml
Acknowledgement
Appreciation to Ge Long, Co-founder, Eric Yu, CTO of Zhongtuobang and James Gong of Chainb.com.
About David LEE Kuo Chuen
David LEE Kuo Chuen, PhD(LSE), Professor (UniSIM), 2015 Fulbright Scholar (Stanford University), is an investor in Blockchain companies and #cryptocurrency. He is also the founder of Dlee Capital Management and various other companies. His award winning book “Digital Currency” was voted as outstanding by the American Library Association. His business and operating experience includes manufacturing, finance, hospitality, real estate, consultancy with 20 years in alternative finance. He is nominated by Internal Consulting Group as the Global Thought Leader for Fintech and Blockchain.by Internal Consulting Group as the Global Thought Leader for Fintech and Blockchain. He is contactable at [email protected].
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Why Banks Want Own Cryptocurrencies
Amidst news of major #banks, both government and private, considering developing their own Blockchains for internal use, a question has to be asked: is there even a point? Given the seemingly self-defeating nature of using decentralized currencies in highly centralized operations, Cointelegraph asked top industry experts from Agentic UK, Lisk and Steemit about their opinion on the matter.
Lucas Cervigni, Managing Director of Agentic UK, explains:
“Recently, central banks have taken the #Cryptocurrency asset to the next level by starting to research Cryptocurrencies of their own. As modern banking works under the fractional reserve system, this research makes sense. Through this system, banks are able to issue loans as long as they keep 10% in reserve. In turn, this creates money with each loan. That is not possible with #Bitcoin and therefore the banks have begun considering centralized and government controlled cryptocurrencies. However this is a serious matter for the banks to consider, as should the central system issue all of the money, there is no doubt the dynamics of the fractional reserve system could change. Ultimately, the smaller banks could be left out of business.”
State banks eyeing Blockchain
People’s Bank of China (PBoC) announced on their website about their own digital currency conference, urging their team to speed up efforts to release its digital currency. Bank of Englandand Bank of Canada have also considered developing digital currencies.
These types of currencies are called Central Bank-issued Digital Currency (CBDC). What are the implications of CBDC? To create a cashless society, steal the spotlight from Bitcoin and other privately-issued currencies, or to achieve a more accurate monetary policy?
Banks want control
Ned Scott, Founder of Steemit, thinks the bank-issued cryptocurrencies will differ from the protocols we got accustomed to:
“It would be interesting to see what design choices the banks make for their Cryptocurrencies’ protocols and how they integrate the currency with their business. With every cryptocurrency there are variables that developers massage in terms of emission and the way they release the protocol into the wild. My feeling is that the profile of these Bank-issued coins would be very different from many of the decentralized protocols we see today. Banks are likely entertaining the idea more seriously if they feel they can control the currency, as well as gain from its use and possibly their manipulation over it.”
A necessary evil
Max Kordek, Founder of Lisk, eхplains why banks may see in Cryptocurrencies a necessary evil:
“This topic requires the consideration of multiple perspectives. If I was a cryptocurrency user with little involvement in this space or knowledge of the current regulations, creating additional currencies could be difficult to comprehend. However, in reality certain laws and obligations could make a customized, maybe even private, Cryptocurrency a necessary evil.
On the other hand, maybe current Cryptocurrencies do not meet the technological requirements a bank deems necessary for a digital currency. For example, perhaps they require a specific peg, specific Block-time, or in fact multiple currencies on one single #Blockchain.
It is impossible to be certain of whether a bank-owned, government-owned or public Cryptocurrency will dominate in the future, but I do hope the latter is the case.”
Buterin: Private Blockchains have Advantages
When asked as to what the reason for the banks’ sudden interest in Cryptocurrency, the majority of our audience seem to agree that it is some combination of wanting to stay relevant and trying to control the future development of the Blockchain.
A reasonable stance, considering how Bitcoin, and other Cryptocurrencies have already proven their worth by enabling the users to send transactions faster, cheaper, and with less restrictions, compared to bank transfers.
However, Vitalik Buterin, the co-founder of Ethereum, argues that this trend is not entirely political. According to him, private Blockchains can, in certain contexts, offer several technological and financial advantages, compared to the public ones.
Those advantages stem from the greater control that a bank is able to exert over a private Blockchain, and include less to no risk of a 51% attack, greater level of privacy for the Blockchain’s owner (duh) and even cheaper transactions.
All in all, currently there is no clear consensus regarding the value of privately-owned Blockchains, and their impact on the overall ecosystem, if any, it remains yet to be seen.
[linkedinbadge URL=”https://www.linkedin.com/in/lucascervigni” connections=”off” mode=”icon” liname=”Lucas Cervigni (Lucce)”] is Managing Director – AGENTIC GROUP UK
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Demand for Zcash Mining Grows as Blockchain Launch Approaches
With less than a month to go before its #launch, momentum is continuing to build around the anonymous #cryptocurrency #Zcash.
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Demystifying Bitcoin – The Magic Internet Money
What Makes Money Worth Anything?
I am completely fascinated by the concept of money. What makes a picture of our first president on a piece of paper worth a dollar? I used to believe that our money was backed by gold. Turned out this hasn’t been the case for almost a half century. The only thing that makes a dollar worth a dollar is because of faith. People have faith that a dollar today is worth a dollar tomorrow. If I exchange that piece of paper with a picture on it for goods, the person that received it believes they can exchange it for the same amount of goods tomorrow. Faith.
What Makes Currency Work?
Currency is nothing more than a token of value and that value is based purely on supply and demand. As the supply of currency increases, the value decreases. If demand should decrease, so will the value. However, if supply decreases or demand increases, the value increases. Sheep were used as currency. As sheep became more plentiful, you needed more sheep to purchase land. If there was famine and you had sheep, your wealth, the value of your holdings, skyrocketed. Moving sheep around was very difficult and sometimes messy. So, tokens of value were used instead. If I have 8 sheep, and exchange them for a token that says I own 8 sheep and everyone is on board with that token being worth 8 sheep, then I could use that token for exchange of goods. For currency to work, it doesn’t need to be backed by anything but the faith of those who use it as an exchange medium.
Increasing the supply – Inflation
The problems with currency are well known. Counterfeiting currency occurs. This causes the value of the currency to go down as it actually increases supply. A decision to just print more money by the issuing agency will decrease value. If we decide to print twice as many bills as we have in circulation currently, the value is cut in half. What would happen if the decision was made to never print another bill?
What is this Magic Internet Money?
8 years ago next month, a computer programmer or group of them using the alias Satoshi Nakamoto released #Bitcoin. They released a very technical white paper that can be found at https://bitcoin.org/bitcoin.pdf
The gist is Satoshi set up tokens of value on the internet. To address the problems of inflation, he first set a limit of 21,000,000. There will never be more than 21,000,000 created or in circulation. Denominations of Bitcoin can be divided down to a millionth of a bitcoin, known as a Satoshi. If the wealth of the whole world is stored in Bitcoin, a satoshi would be worth about $0.04. With a finite supply, the only way value is decided is by demand.
To get these in circulation, computers must have special software to confirm transactions. Anyone can own these computers and software. The transactions are broken up in blocks that go to different computers to be confirmed. This allows no one full access to a bitcoin and the network of many confirms the transaction. The incentive of confirming these transactions is gaining bitcoin through fees or through confirming enough transactions to release a bitcoin which is then in this “miner’s” wallet. Almost 16,000,000 are currently in circulation using this method. Once all 21,000,000 are in circulation, the miners will be paid by fees alone.
By not having the flow controlled by an issuing agency and the ledgers and balances not being kept by a bank means there is no risk of inflation, no mistakes by one central authority, and a conglomerate of network miners verifying transactions based on simple supply and demand. A miner in New Zealand may confirm the first part of a transaction while a second part may be confirmed in Argentina and a third in Kenya.
To prevent counterfeiting, the code of bitcoin is based on all the transactions being recorded along with when it was transacted. The code is considered unhackable because it is constantly changing, complex, and decentralized. You would need to get the right codes off of many different miners to recreate the chain of transactions, then put them in the right order, and then get it confirmed before another transaction occurs. A virtual impossibility.
If value is increasing, then demand is increasing, right?
So, the question becomes demand. Why would anyone want Bitcoin? The average amount of currency is “taxed” by #banks at 3% through fees. If you take $50 out of an ATM, you could pay anywhere between 6-10% in fees. When you use a debit card at a store, that store is paying 1.5% in fees. A credit card average fee is 3% for the store plus any interest accrued by the consumer. If a store is netting 8% of its revenue, then these fees are taking 20% of its profit. Those costs are passed onto the consumer in 2-3% price increases.
With Bitcoin, the fees can vary between 0-0.2%. I sent $18.00 worth of Bitcoin to a bookseller in Austria for $18.01. This transaction was confirmed in 8 seconds. International transfer fees from banks can be as high as 21%. If I travel from the US to Jamaica, I will now have more to spend through Bitcoin as I will not have exchange rates and bank fees to pay for. Wiring money can have fees of over 10%. With bitcoin, it is a transfer of data from one virtual wallet to another with fees less than .2%. $582 billion dollars were sent in remittances to home countries last year. This means the fees for that were at least $58 billion. With bitcoin, $1 billion in fees MIGHT be paid. If your family will receive 10% more value, you are more likely to use bitcoin.
So, yes, demand is rising. As is speculation. People are buying bitcoin to sell later at a profit. Unfortunately, this also is causing fluctuations in value. In 2010, a Bitcoin was worth $0.08. In 2011, it went from $1 to $31 and then back to $2. It has gone as high as $1000 and has hit a low of $200 since then. As I write this, the value has varied between $570 and $630 just in the last month. How much faith would you have in a dollar if it could be worth $0.95 or $1.05 in a month? With wild fluctuations like that, merchants will fear accepting bitcoin. It does not have the faith needed yet to make it a viable currency, but its demand and acceptance is growing.
Well, Where Do We Go From Here?
The Yap in the Eastern Pacific used large limestone as currency. Instead of moving handheld currency, the stone was a public ledger that was used to show who owned what value. A riveting story to read up on if you ever get the chance. It had me doing a ton of research as to what makes money have any value. We use the dollar today instead of gold because of fluidity and a common value. We can go almost anywhere and get something in exchange for a dollar. The value of that dollar is generally accepted as fact only because IT IS GENERALLY ACCEPTED. If we were dealing with a culture that does not know of a dollar, they would laugh at you for attempting to exchange those pieces of paper for work or goods. Just as you would laugh at the Yap for offering a piece of their stone for your computer.
Bitcoin’s value is solely based on demand as supply is finite. Miners are inflating the amount of bitcoin in circulation by 4% per year currently. This will be cut to 2% in 2020 as the amount of bitcoin released is cut in half every 4 years. This is programmed in and cannot be changed. Once that 21,000,000th bitcoin is released, then no more bitcoin can be mined.
Demand far outweighs supply currently and continues to grow. The factors that can stop this are still plenty. Banks and financial institutions drastically dropping fees. Another #cryptocurrency being created that makes Bitcoin look like Atari or MySpace. A buyer hoarding bitcoins suddenly sells all theirs (It is estimated that Satoshi holds 1,000,000 bitcoins).
Use and acceptance has been doubling almost every year since bitcoin crossed parity with the dollar. If I believe bitcoin will double in value every year, that makes a bitcoin worth 5 figures in 5 years. I believe this will occur and invested in bitcoin. However, I also know that something better may come along and make bitcoin valueless. I can’t put all my eggs in one basket.
The Bottom Line
Cryptocurrency is the future of money. The evolution is upon us and occurring as we speak. The internet of the early 90s is the cryptocurrency of today. Whether we like it or not, this is happening. I believe the market share bitcoin owns ($9.6 billion of $12.1 billion) and 8.5x larger than the next cryptocurrency forces bitcoin to be more readily accepted than the others. Putting speculating on the future aside, I see cryptocurrency becoming the world standard of value and that will occur sooner than we ever expected. Le Roi Est Morte, Vive Le Roi.
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Blockchain and the real sharing economy: ‘Uberisation’ demystified
Uber/AirBnB are often referred to as the poster kids of the ‘sharing economy’ which consequently, yet deceivingly, became synonymous with ‘Uberisation’. Harvard Professor and #sharing economy Guru, Yochai Benkler sheds light on the misconception in an interview with the authors of Blockchain Revolution (p. 134): “It is indeed ‘nonsense’ to call Uber or AirBnB ‘sharing economy’ companies. Uber has used the availabilityof mobile #technology to create a business that lowers the cost of transportation for consumers. That’s all it has done.” These centralized platforms are but service aggregators which use mobile technologies to tap into unused value (be it vacant rooms or be it seats in a car) while creating value for the platform owners, rather than for the participants in the exchange. While some Internet companies, such as Wikipedia, have facilitated genuine sharing, others have appropriated and commoditized the social relationships and vocabulary of sharing. Uber and Air BnB have cracked the code for large scale service aggregation and distribution at global scale, but all this at a cost to the users. Both Uber and Air BnB leverage the value found in excess capacity via participatory platforms which are designed to reward the platform owners. Uber drivers create considerable value but get to keep only part of it. The company retains a significant share of the price paid for every ride, not to mention the retention of user information involved in transactions as well as their moving patterns to be lateron commercialized with no returns to the users – or the risks that that personal information be hacked, which already happened to Uber drivers.
Uber, Air BnB and the likes are smart intermediary platforms that create value for their owners. Namely the value collected from those who use its intermediation capacity to find a ride / a place to stay (or any other service mediated by similar platforms). Users help build such a private network by simply creating a profile with personal information as requested, and the network consists of all the people who exposed their profile to that private network. However, when they try to do business with other people in the network they have to pay network operators in order to do that (ask any Uber driver how frustrating and demoralizing that is!). This begs the question: what would aplatform enabling true sharing economy, with the value created being returned back to reward the value creators, look like? Are there principles which can guide the design of such platforms? To understand the paradigm shift that demystifies the sharing economy lets go back to the basics of communication networks. In such networks decentralization leads to faster innovation, greater openness, and lower cost while it also creates the conditions for competition and diversity in the services the network provides.
This is not the case with the good old landline telephone network. The telephone itself was a very primitive, or as Andreas Antonopoulos calls it – a ‘dumb’ device. The telephone network was a ‘smart network’ offering services dependent entirely on the central switches owned by the phone company, and consumed via ‘dumb’ devices that gave users no opportunity to improve nor change their network providers.
A glimpse into the highly specialized and service-specific networks on which the financial services industry is built, reveals the same pattern. Most of these are layered atop the Internet, but they are architected as closed, centralized, and “smart” networks with limited intelligence on the edge. All these networks mediate the services by interposing the service provider between the “users,” and they allow minimal innovation or differentiation at the edge. The #banks have built closed network systems on top of the decentralized Internet. Only banks can be members, and the network services are highly centralized. Centralized innovation means slow innovation. It also means innovation directed by the goals of a single company.
Enter the #Blockchain to change all this through an open network platform for financial services on top of the open and decentralized Internet. The financial services built on top of blockchain are themselves open because they are not “services” delivered by the network; they are “apps” running on top of the network.
But how can you tell if a network is decentralized, and what makes it more likely to be decentralized? To the novice, Uber-like networks seem to be decentralized… After all, aren’t they running on “smart” devices? Here comes the deception. While Uber indeed runs on a ‘smart’ phone, it does so via a … quite dumb app which is completely controlled by and supports the goals of the company.
Decentralizing that network means to detach people’s profiles from the apps themselves, and expose those profiles to a public shared network. The blockchain offers a secure infrastructure on which this can be done, so the costs of establishing trust become NIL. On blockchain trust does not rest with the organization owning the platform (such as in the case of Uber and AirBnB) but rather it comes with the functionality, security and auditability of the underlying code and the mass collaboration of the countless people securing the blockchain. In fact, the blockchain offers a basic dumb network that connects peers from anywhere in the world. It doesn’t require membership registration or identification. It doesn’t control the types of devices or applications that can live on its edge. It offers one service: securely time-stamped scripted transactions. Everything else is built on the edge-devices as an application. It allows any application to be developed independently, without permission, on the edge of the network. A developer can create a new application using the transactional service as a platform and deploy it on any device. This arrangement opens a market for applications, putting the end user in a position of power to choose the right application without restrictions.
By eliminating intermediaries, the cost for every participant in the network lowers dramatically. Users are no longer needed to pay to private network operators with money, their digital footprint, or by consuming advertisements extensively.
What happens when an industry transitions from using one or more “smart” and centralized networks to using a common, decentralized, open, and dumb network? First of all, the internal costs shrink considerably. The costs of contracting are reduced via software contracts which take care of policing, timely payments, transaction execution, bargain, etc. On this foundation a tsunami of innovation that was pent up for decades is suddenly released. All the applications that could never get permission in the closed network can now be developed and deployed without permission. At first, this change involves reinventing the previously centralized services with new and open decentralized alternatives, which involves the removal of entire layers of intermediaries which are no longer necessary.
The Internet effected such disintermediation by replacing brokers, classified ads publishers, real estate agents, car salespeople, and many others with search engines and online direct markets. In the financial industry, the blockchain creates a similar wave of disintermediation by making clearinghouses, exchanges, and wire transfer services obsolete.
The time has come for the ‘smart’ platform intermediaries, such as Uber and Air BnB to be disrupted.
Where the Internet reduced the cost of search and coordination, the blockchain cuts the costs of bargaining, contracting, policing, and enforcing these contracts. Platform users are peers able to negotiate the best deals and get the service from any entity that is registered on the blockchain platform. Where in contributing to Wikipedia peers do so altruistically, for the fun of it, as a hobby – the blockchain enables reputation systems and other incentives which can reward the peers per the value of their contribution.
For Uber and AirBnB, blockchain technology provides the platform users (aka the suppliers and consumers of these services, namely drivers and their cars, and passengers) a means to collaborate that delivers a greater share of the value back to them. The blockchain can make platform building cheaper through its open APIs (standard common data base) and more manageable through standard common contracts. The common database offer transparency which consumer and suppliers can use to obtain the best terms and also to cooperate as peers to create their own platform rules. If drivers want to set up their own network on blockchain – they do not need the intermediary services of Uber any longer, they can share for good the value they create together.
With this clarified lets return to our initial question and quest for demystification of the sharing economy. The new models would look more like a member owned cooperative. In a car-sharing cooperative most people don’t own cars but rather share vehicles in a commons. All revenue, except for the overhead would go to its members, who would also control the sharing software platform and make decisions. If this were a blockchain-enabled car-sharing platform, it would consists of a set of smart contracts that store data on the cars in the fleet. The initial entry and registration of each driver would contain criminal record, record of previous driving, vehicle ownership, safety inspections and insurance, etc. Smart contracts would continuously watch for timely reinspection/insurance and permit renewals. The drivers have thus created a blockchain cooperative and they receive all the wealth they create. A room sharing coop would consist of a home listings blockchain which also maintains reputations scores and has a similar interface with AirBnB where pictures and info about the rental places can be uploaded. So, the user experience is identical to AirBnB – the difference is that the communication is done peer to peer on the network via cryptographically signed messages that only you and the room renters can see, not stored on AirBnB data base any longer.
In regard to privacy protection, the blockchain enabled sharing platforms do not track nor store all the transactions in a database (as in the case of Uber / AirBnB). They simply return a True or False when an identity request needs to be confirmed, which is validated via a separate service. This separation of identity from the transactions carried between the identities implicitly resolves the privacy issues while reducing risks associated with hacking private information. Smart contracts working in the background also enable personalization of service, such as insurance for the renters based on ther reputation of both owner and renter, house / car value, etc.
These cooperative blockchain empowered platforms enable the rental of excess capacity beyond rooms or car seats. In a true sharing economy, on such platforms people can share anything, such as the examples listed in the book Blockchain Revolution:“expensive power tool or farming equipment used seasonally, as well as garage / parking space, woodwork shop space, a plane / boat or even fishing gear. Further one can rent their commodities such as Wi-Fi hot spots, computing power or storage capacity, the heat generated by our computers, excess energy from our solar panels, extra mobile minutes, and even our expertise. When you travel your WiFi can rent itself out in your absence, charging for every second of usage; further, your subscriptions, physical space and energy sources can become sources of income metering their use directly to a counterparty and charging them for it through micropayments. The blockchain’s decentralized value transfer protocol allows them to securely transact with one another. In the case of a car cooperative people can reserve, unlock and use a car for a certain amount of time metered on the blockchain which will take care of the charges seamlessly per smart contract specifications.”
The blockchain offers a foundation for peer to peer organizations that enable economic models for shared value creation – and open possibilities of ‘prosperity for the many’ through distribution of value creation and value participation, solving the ‘wealth for the few’ prosperity paradox plaguing our society today in spite of increased wealth creation by corporations. To achieve this, Luis Fernando Molina and colleagues propose the following pillars to sustain a sharing economy enabling platform:
● Decentralized: Like the internet, a sharing economy enabling platform is not owned by anyone in particular. Any individual can own some nodes, but not the network itself.
● Open Standard: It is possible for anyone to implement the network protocol. This protocol must be defined by a standards organization where anyone can participate in.
● Open System: Different apps of the same type using the platform can interoperate between each other.
● Permissionless: Anyone can run a network node. Anyone can use the network. Anyone can write apps that consume the network services.
● Dumb (Antonopoulos article from above): It is a dumb network that pushes innovation to the edge, giving end-users control over the pace and direction of innovation.
● Shared Asset: The resulting network of people is a shared commons asset anyone can use. The cost of contacting these people is transferred directly to the people without intermediaries.
● Inclusive: The technology enables maximum connectivity independent of node location.
● Incentivized: There is an economic incentive to run a network nodes.
Molina is working with peers to deploy such platforms which are user controlled, censorship resistant, flexible and scalable – enabling person to person exchange of goods, services, assets and data, and free from the whims, risks, costs and interference of unwanted, self-interested third parties who are no longer needed to facilitate the exchange. Sharing economy blockchain-enabled platforms reward through an open ended stream of micropayments to authors of reusable software components that can be perpetually combined and recombined to create an ever-expanding library of useful, highly customizable, peer to peer commercial applications (‘apps’).
Mike Hearn envisioned such a sharing economy and used the example of an autonomous car to illustrate it. Residents of a particular neighborhood could invest in such an autonomous car and be rewarded with free or discounted rides for a prescribed period. The car owns itself — or, more precisely, the operating computer program owns it. This program would pay the car’s running costs and take in its own revenue on blockchain (from users, investors, etc). The funding itself resonates with the sharing economy – since everyone would share the risk via ‘cryptocurrency assurance contracts’, a blockchain- based version of the popular crowdfunding model in which organizers pledge a certain amount when others’ donations reach target levels. Further, any programmer or niche business can customize ‘apps’ for the car. Such ‘apps’ could post offers on rates, or rank those offers to help the passenger make choices depending various factors (such as if they are willing to pay for faster routes e.g. toll roads etc.) Apps can identify parking options and prices and even book parking spaces in advance. The blockchain-enabled sharing platform could also support safety controls, such as prevention of unqualified or inebriated drivers from taking control of the wheel.
Models for using the blockchain as foundation for the sharing economy are being currently arduously explored, mainly from the perspective of the commons, where thework of Bollier brings forth novel perspectives regarding the deployment of collaborative entities that issue blockchain-based shares—or crypto-equity tokens—that give the holders ownership or membership rights in a type of decentralized cooperative.
I’m still at a loss when it comes to coining a nickname for the “Blockchain-enabled sharing economy” – but I can state for sure that to equate Uber and AirBnB with the ‘sharing economy’ and consequently name it ‘Uberisation’ is a regrettablemisconception!…
[linkedinbadge URL=”https://www.linkedin.com/in/mihaelaulieru” connections=”off” mode=”icon” liname=”Dr. Mihaela Ulieru”] is Global Technology Policy Innovator
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How to start with blockchain – helpful resources you should know
More and more regularly I am asked about good ways to #start looking at #blockchain in more detail. Inspired by Arno’s reading list I decided to share my own version.
While there is obviously a gargantuan amount of information available, not everything is equally suited to do the job. Especially if you are new to the topic or don’t sport a technical background. Additionally blockchain meanwhile features a certain span and so does the interest and perspective of people looking at it.
The following should help to point in a good direction and give you the necessary foundation to understand better what you don’t know. So you can ask the right questions afterwards.
The Basics:
Here is a list of the fundamental resources to warm-up.
- To get going have a look at the Economist cover story from last year: The Trust Machine.
- A more entertaining way than just reading is this video.
- Nobody can seriously work in the space without having looked at the Satoshi Whitepaper (yes, even the business people among you should start reading it).
- In case you ended up here because of my affiliation with my employer you can dig into the SAP perspectiveas well.
The Industry and Line of Business Perspective:
Now if you are more interested in use cases and scenarios where blockchain could be applied this information will help. There are far more reports and analysis out than anybody can read in a reasonable time frame though.
- The best report to cover Financial Services – if you are not from the industry – is by far and large the UBS whitepaper “Building the trust engine”. It is even an entertaining read by report standards.
- The World Economic Forum published the most comprehensive research so far. While it is with a Financial Services focus I highly recommend at least skimming through it until something catches your eye. This is at least a year worth of work by six people and the report shows it.
- Goldman Sachs spreads the topic across industries and gives detailed insights that also covers case studies from utilities, real estate and reputation management.
The #Technology Perspective:
Here is the section for the techies amongst you that would like to understand the mechanics and information technology at work.
- The most comprehensive ‘training’ available is the Princeton #Bitcoin and #Cryptocurrency Technologies class that is published here, here and has some videosas well.
- Thorough thoughts are always articulated by Gideon Greenspan – on blockchain use cases (with a technical perspective) or the differentiation between blockchain and classical databases.
- Some Ethereumtutorials as well as the 101 Noob Intro will help you with doing first hands-on.
- When you have come to look into smart contracts it is recommended to also familiarize yourself with the best practices, security and lessonslearned.
- In general Bits on blocks does a great job with their “gentle introduction series”.
Self-Assessment:
Here is a basic list of topics for you to assess your level of understanding after you covered some or all of the above.
- Where does blockchain originate from and what is the relationship to Bitcoin?
- How did blockchain evolve over the last years?
- What are the differences between public, private and consortium blockchain?
- What are criteria for scenarios where each of the above would be the ‘best’ technical solution?
- Why blockchain was picked-up by Financial Services first and is most prominent in that industry?
- What are smart contracts and how could they be used?
- What happened during THE DAO incident and what implications did it have to the concept of smart contracts? Here is a hint.
Do you have any more resources that you think are helpful to get started with blockchain? Post them in the comments along with a brief statement why you believe they help.
[linkedinbadge URL=”https://www.linkedin.com/in/raimundgross” connections=”off” mode=”icon” liname=”Raimund Gross”] is Innovation Manager | Digital Change Agent | Futurist at SAP
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Blockchain Marketplace Lykke Begins Crowd Sale; Looks to Raise 1.5M CHF
#Lykke, a Swiss startup seeking to build a global marketplace powered by #blockchain #technology, has begun its Initial Coin Offering (ICO) campaign as the company #looks to #raise CHF 1.5 million.
Lykke seeks to sell 30 million Lykke coins at the price of 0.05 CHF each. Lykke coins represent ownership of Lykke, an exchange for trading financial instruments built on top of blockchain technology.“Lykke is looking for investors who want to change the face of the global market,” Richard Olsen, co-founder and CEO of Lykke, said.
&8220;Our goal is to upset the inefficiency and unfairness of the existing financial system, giving people a better way to manage their money and their assets.&8221;
The #crowd #sale is available to anyone over 18 years old (except for US citizens) and will run until October 10, 2016. Individuals can purchase these tokens using the Lykke Wallet application for iOS or Android devices using Swiss francs, US dollars, bitcoins and ether, the native #cryptocurrency of Ethereum. (more information here)
The Lykke Wallet lets users purchase &8220;any kind of financial instrument,&8221; trade them in a peer-to-peer manner, with &8220;second-by-second interest payments.&8221;
&8220;We want to give our customers and those who believe in our vision a chance to participate in owning part of the company,&8221; Olsen said.
Lykke&8217;s technology
Launched in 2015 and headquartered in Zurich, Lykke is building a single #marketplace where any sort of financial instrument can be traded and settled. Unlike the structure of traditional markets, Lykke aims at being a &8220;level playing field to which anyone with an Internet connection can have access.&8221;
By using blockchain technology, Lykke offers immediate settlement and direct ownership for zero commission. According to the company, revenues will come from providing liquidity, offering issuance services, and supporting institutional clients.
Lykke uses the Colored Coin protocol to list financial instrument on the blockchain in the form of a digital tokens. Colored coins follow the idea of &8220;coloring&8221; a specific #bitcoin – the issuer guarantees to hand out the underlying assets to the person, who returns the colored coin.
According to its whitepaper, all of the software underpinning the Lykke Exchange are being developed in open source.
The Lykke ecosystem will be composed of several elements: the Lykke Wallet for core currency trading with 0% commission; the Lykke Exchange, a semi-centralized online exchange for trading financial instruments issued in the form of colored coins and a marketplace for retail and institutional clients; as well as the yet-to-be launched Competition Platform, which will allow users to crowdsource the most innovative ideas.Lykke also plans to partner with #banks, corporations, and municipal entities to speed up adoption of its software wallet though white-labeling.
Lykke Exchange was developed since December 2015 and went live in beta on March 2016 with wider industry testing starting in May 2016. The exchange was initially launched with the Lykke coin, shares of Lykke, and started two innovative projects: colored coins for music rights and colored coins for CO2 certificates.
The company is looking to include several asset classes such as future and options on digital assets, crowdfunded loans for retail and private equity financing for Small and Medium-Sized Enterprises (SME), contracts for difference, zero coupon bonds and other fixed income, and natural capital bonds, among others.
Lykke received initial seed funding in 2015. Philipp Netzer, an investor in the country says that &8220;Lykke is the begging of a giant movement that will trigger a lot of very important changes in the financial industry.&8221;
Prior to founding Lykke, Olsen was the chairman and co-founder of OANDA, a Canadian-based foreign exchange company.
You can be part of Lykkes Initioan Coin Offering here,.
The post Blockchain Marketplace Lykke Begins Crowd Sale; Looks to Raise 1.5M CHF appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
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Inside the Zcash Audit: Why the Anonymous Blockchain Project Spent $250k on a Trial By Fire
A venture-backed #cryptocurrency with the promise to provide truly #anonymous transactions is scheduled to launch into beta today.
CoinDesk
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