Learn the basics of a steering differential

If you have ever owned a matchbook car, you know that each pair of wheels are connected by an axle. In small toys, the axle is often a steel wire about the diameter of a paper clip.

But in a road car, connecting the wheels with a straight, rigid axle yields a terrible driving experience. Here is a fascinating video on the design and evolution of a steering differential. That’s the gear system that connects a drive shaft from the transmission to a split axle—allowing powered wheels to rotate at different speeds. This is necessary to accommodate turns and uneven terrain.

Without a differential, your tires won’t last long on dry pavement and they will wobble and feather during sharp turns. After all, the outside wheel is cornering a larger radius and so, it wants to turn at a higher speed.

Today, differential gears are basic to every automobile (except for 3-wheelers, like the Campagna T-Rex or Polaris Slingshot). Yet, even though the differential was invented before internal combustion (invented in 1827 and it used on early steam-driven cars), it was complicated and expensive. It was not common in production automobiles until after the First World War.

One Wheel and Rear-Wheel Drive

So, how did early models deal with the need for opposing wheels to spin at different speeds? Answer: In early autos and motorized toys, the engine was connected to just one rear wheel. This left the other wheel free to spin at whatever speed is necessary. It also left the front wheels free to navigate turns without the complicated task of sending power through the steering linkage. Because the front wheels were not powered, they simply rotated freely on independent roller bearings at the end of a straight axle.

But one-wheel power lacks traction and skid control. And it becomes dangerous whenever one wheel has less grip on the terrain. That’s where a differential comes into play. Furthermore, rear-wheel drive tends to shove a vehicle into each bump and hill rather than pulling it up and over obstacles. In the past 40 years, most cars have been redesigned to power the front wheels rather than the rear wheels. This not only improves handling, it helps in snow and on uneven terrain.

Differential Design: Simple, elegant, Efficient

This video was filmed in the 1937, as evidenced by a vintage, pre-war Chevy sedan. Although this educational film it was made more than 100 years after the differential was invented, I wonder how many additional innovations have been added since?

This video explains a differential. Set time to far left to add
3 minute preface explaining the problem with straight axles.

I’m not in the business of teaching auto mechanics. But if you have caught the bug, consider moving on to these additional drive train principles —

Will we all be using a Blockchain currency some day?

At Quora.com, I respond to quetions on Bitcoin and Cryptocurrency. Today, a reader asked “Will we all be using a blockchain-based currency some day?”.

This is an easy question to answer, but not for usual Geeky reasons: A capped supply, redundant bookkeeping, privacy & liberty or blind passion. No, these are all tangential reasons. But first, let’s be clear about the answer:

Yes, Virginia. We are all destined  to move,
eventually, to a blockchain based currency.

I am confident of this because of one enormous benefit that trumps all other considerations. Also, because of flawed arguments behind perceived negatives.

Let’s start by considering the list of reasons why many analysists and individuals expect cryptocurrencies to fail widespread adoption—especially as a currency:

  • It lacks ‘intrinsic value’, government backing or a promise of redemption
  • It facilitates crime
  • Privacy options interfere with legitimate tax enforcement
  • It is susceptible to hacks, scams, forgery, etc
  • It is inherently deflationary, and thus retards economic growth
  • It subverts a government’s right to control its own monetary policy

All statements are untrue, except the last two. My thoughts on each point are explained and justified in other articles—but let’s look at the two points that are partially true:

  1. Indeed, a capped blockchain-based cryptocurrency is deflationary, but this will not necessarily inhibit economic growth. In fact, it will greatly spur commerce, jobs and international trade.
  2. Yes, widespread adoption of a permissionless, open source, p2p cryptocurrency (not just as a payment instrument, but as the money itself), will decouple a government from its money supply, interest rates, and more. This independence combined with immutable trust is a very good thing for everyone, especially for government.

How so?

Legislators, treasuries and reserve boards will lose their ability to manipulate the supply and demand of money. That’s because the biggest spender of all no longer gets to define “What is money?” Each dollar spent must be collected from taxpayers or borrowed from creditors who honestly believe in a nation’s ability to repay. Ultimately, Money out = Money in. This is what balancing the books requires in every organization.

This last point leads to certainty that we will all be using a blockchain based cryptocurrency—and not one that is issued by a government, nor one that is backed by gold, the dollar, a redemption promise—or some other thing of value.

Just like the dollar today, the value arises from trust and a robust two sided network. So, which of these things would you rather trust?

a) The honesty, fiscal restraint and transparency of transient politicians beholden to their political base?

b) The honesty, fiscal restraint and transparency of an asset which is capped, immutable, auditable? —One that has a robust two sided network and is not gated by any authority or sanctioned banking infrastructure

Today, with the exception of the United States Congress, everyone must ultimately balance their books: Individuals, households, corporations, NGOs, churches, charities, clubs, cities, states and even other national governments. Put another way: Only the United States can create money without a requirement to honor, repay or demonstrate equivalency. This remarkable exclusion was made possible by the post World War II evolution of the dollar as a “reserve currency” and the fractional reserve method by which US banks create money out of thin air and then lend it with the illusion of government insurance as backing. (A risky pyramid scheme that is gradually unravelling).

But, imagine a nation that agrees upon a form of cash that arises from a “perfect” and fair natural resource. Imagine a future where no one—not even governments—can game the system. Imagine a future where creditors know that a debtor cannot print paper currency to settle debts. Imagine what can be accomplished if citizens truly respect their government because the government lives by the same accounting rules as everyone else.

A fair cryptocurrency (based on Satoshi’s open-source code and free for anyone to use, mine, or trade) is gold for the modern age. But unlike gold, the total quantity is clearly understood. It is portable, electronically transmittable (instant settlement without a clearing house), immutable—and a precious substance needn’t be assayed in the field.

And the biggest benefit arises as a byproduct directly of these properties: Cryptocurrency (and Bitcoin in particular) is remarkably good for government. All it takes for eventual success is an understanding of the mechanism, incremental improvement to safety and security practices and widespread trust that others will continue to value/covet your coins in the future. These are all achievable waypoints along the way to universal adoption.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He is Top Writer at Quora and sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting.

You don’t understand Bitcoin because you think money is real

Maria Bustillos is founder of the blockchain supported publication, Popula. I stole the title of this post from her essay at Medium.com (linked below).* I hope that Maria considers it a tribute rather than title-plagiarism. Her article is blocked by a pay wall, so allow me to explain a concept that confounds even a Nobel Prize winning economist. My take on the issue is somewhat different than Ms. Bustillos.

The difficulty understanding or appreciating Bitcoin boils down to a misconception that the dollar is backed by something more tangible, such as gold, guns or the promise of redemption. Not only is this an illusion, but Bitcoin is backed by something far more tangible, intrinsic and durable.

The illusion that “real” value emanates from government coupled with a robust consumer economy has been woven into our DNA for millennia. But, the value we attribute to a Dollar, Euro, or Yuan is a result of conditioning rather than any intrinsic value. That same conditioning has led us to believe that there is something sane and inherent in a nation that controls its money supply and its monetary policy.

Most public works projects—power generation, space ships, or the telephone network—were controlled by government in the past. If not, they were regulated as a licensed monopoly. This creates a choke point, a lack of competition, and a gaping opportunity for inefficiency, mismanagement or graft. It defies a free market economy and it concentrates power in the hands of politicians. But, at one time, it seemed necessary.

You might assume that government controlled these industries because they relate to areas of critical infrastructure and public welfare. That’s part of it, but it’s not the real reason. In each sector, a distributed or free market solution was prevented due to technology limitations or issues of scaling and geography.

Government issued money exists because in the past, we had no mechanism to arrive at a consensus on the value of something that is portable, fungible, secure, anti-forgeable and easily transmitted. Not even Gold fits the bill (pun intended). Prior to 2009, the only thing that met the criteria for money in a modern society was government issued fiat. At least someone, somewhere said that this is money and that this is what we must use to pay our taxes.

Today, there is no more reason for a government to control its money supply than there is for it to control communication networks, space travel or package delivery services. Today, a free and competitive marketplace benefits all of these industries and even government itself. And here’s the kicker: No harm will come to a government that uses a completely trusted, transparent and decentralized currency, rather than firing up a printing press whenever a group of transient politicians spends beyond their means.

The economic order facilitated by the blockchain is not as radical as it seems. Aristotle lamented the lack of an accounting tool that we can now address via the clever combination of encryption and a communications network that is both instant and ubiquitous.

I am not smarter than the average bear, nor am I clairvoyant. Once in a while, I recognize a truth before the masses—and before its time. It’s time to clearly and succinctly illuminate business, banks, consumers, creditors and government:

  1. The value we attribute to the dollar is an illusion
  2. Bitcoin is not just fair and cost effective. It is tangible and durable. It is good for consumers and good for governments.

Bitcoin ushers in an era of accountability and more fairness. It does not facilitate crime, nor interfere with a government’s ability to tax, spend or enforce tax collection.

Bitcoin is a cryptocurrency with a firmly capped supply. Will it lead to deflation? Could governments lose control over their own monetary policy? Yes to both questions…

But, these are each good things. Capping the money supply and decoupling a nation from monetary policy not only eliminates inflation—it increases access to capital, retires debt more quickly, reassures creditors, imposes transparency and honesty—And it accelerates economic growth, rather than retarding commerce.

Dispelling three millennia of conditioning can be confusing and unsettling. I hate understanding something before my peers. Let’s please get ahead of the curve on this one. I want to enjoy the benefits of using real money in my lifetime.

Related Reading:

* I wrote the first article more than 7 years ago. It is a simple explanation of a geeky, new economic mechanism. Bitcoin had not yet entered mainstream media nor gained attention of Wall Street investors. But consider the similarity to Maria’s tutorial in the 2nd article. Perhaps Maria and I think alike!

Ric Edelman: Bitcoin will become asset class

Kudos to WallStreet analyst and advisor, Ric Edelman. He drank the Kool-Aid, he understands a profound sea change, and he sees the ducks starting to line up.

Check out the clearly articulated interview, below, with Bob Pisani at the New York Stock Exchange and legendary Wall Street advisor, Ric Edelman, (Not my term…That’s what CNBC anchor, Melissa Lee, calls him). Read between the lines, especially the last words in the video, below.

Ric Edleman has just joined Bitwise as both investor and advisor. This lends credibility and gravitas to the organization that created the world’s first cryptocurrency index fund. Bitwise benefits from Edelman’s affiliation, because the US has been slow (some would say “cautious”) in recognizing the facts on the ground: Cryptocurrency is already an asset class.

Edelman fully embraces a strong future for Bitcoin—not just as a currency or payment instrument, but as a legal and recognized asset class; one that is at the starting line of a wide open racetrack. He explains that the SEC sets a high bar for offering a Bitcoin ETF, but that this will be  achieved. It will pave the way for large institutions, pension funds, etc to allocate a portion of money under management for blockchain products.

At timestamp 3:39, Melissa asks Edelman “Why wait for an ETF?” and “If you believe this strongly, why not advise clients to invest a portion of assets into Bitcoin right now?

Edelman’s response is stunning. He explains that he is frustrated, because this is what he wants to advise. But, his firm is bound by the Investment Act of 1940—and so, they cannot tell a client “Go to Coinbase” or “Invest in a private fund such as Bitwise—that I am such a big fan of. We don’t have that ability in our practice.” [i.e. until the SEC recognizes Bitcoin as an asset].

In my opinion (and in the opinion of Edleman), SEC recognition of Bitcoin as an asset can’t be far off…

  • It’s already happening in other countries. Reputable exchanges and index funds exist today.
  • Unlike a traveler’s check or Amazon gift card, it is inherently a store of value, whether or not you believe that its value is intrinsic;
  • The IRS already considers it an asset for tax purposes (What an odd schism in definition & treatment!)
  • It is legal to pay staff in Bitcoin and use it to settle debts, for any recipient that accepts it. For employees and consultants, it is a wage or stipend, just like FIAT. They can convert into cash immediately—or retain crypto it to pay their own bills)

It’s not difficult to read between the lines. Edleman makes a clear recommendation, although he can not yet advise this—certainly not on the record. His personal forecast for long term adoption and appreciation, especially of Bitcoin, matches my own analysis. His new affiliation with Bitwise (a pretty bold move) demonstrates certain commitment.

This ends my analysis of Edelman’s strong endorsement. But it raises another important question:

If large financial institutions are likely to offer Bitcoin products and services—and if credible analysts & advisors are chomping at the bit to recommend this new asset class—shouldn’t we invest in Bitcoin now?!

Ironically, I do not recommend hording or investing in cryptocurrency, even as a collectable. Why?! Because of the big “Investment Catch-22”. I don’t discourage investing in Bitcoin because I fear that its value will lessen. It is for a completely different reason. And so, my advice against investing is half-hearted.

Currently, Bitcoin and altcoins are widely misunderstood. Many people have these false impressions…

  • It is not backed by anything
  • It interferes with tax collection
  • Cryptocurrency facilitates crime
  • Governments will never allow it
  • They do not convey compelling benefits over government-issued currency
  • They water down the overall money supply
  • Their deflationary nature threatens economic growth
  • They are easier to lose and subject to scams & hacking
  • They do not facilitate refunds, rescission, recourse and customer claims
  • They interfere with a government’s ability to control its monetary supply

All of this is untrue, except the last item—and that one is a tremendous benefit.

Additionally, blockchain currencies fluctuate widely in real market purchasing power, many altcoins and all ICOs are scams, and acceptance is far from being ubiquitous. Clearly, widespread adoption requires stability, infrastructure, trust and ubiquity.

This cannot happen until two things occur:

  1. The fraction of transactions in normal business and retail commerce (purchases, salaries, debt payment and settlement) must significantly dwarf the fraction that is driven by investors, hoarders and speculators.
  2. A significant number of established brands, services or retailers must begin publishing prices in Bitcoin and honoring those prices throughout a defined sale period (e.g. until the next catalog is published or until the next production run).

Things are beginning to change, but for such a positive and transormative mechanism, that change is frustratingly gradual.

A series of falling dominos is already in process. But, the end game is retarded by those of us who invest in Bitcoin, because we are removing a limited resource from circulation and contributing to volatility. We do this, because we realize that—in the long run—Bitcoin can only go up in value. Yet, our investment at such an early stage (before consumer adoption) makes the infant sick.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He advises The Disruption Experience in Singapore, sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement/.

Disruption Experience Nails It

The Disruption Experience this Friday in Singapore is a blockchain event with a difference. With apologies to the Buick commercial, this is not your grandfather’s conference

I know a few things about blockchain conferences. I produced and hosted the first Bitcoin Event in New York. My organization develops cryptocurrency standards and practices. We help banks and governments create policy and services. And as public speaker for a standards organization, I have delivered keynote presentations at conferences and Expos in Dubai, Gujarat India, Montreal and Tampa, New York and Boston.

Many individuals don’t yet realize that both Bitcoin and the blockchain are as significant as the automobile, the transistor and the Internet. I was fortunate to grasp Bitcoin and the blockchain early in its history. It is never boring to help others understand the blockchain.

And so, I am an evangelist for both a radically improved monetary system and a transformative tool. During the past eight years, I have honed the skill of converting even the most profound skeptic. Give me 45 minutes in front of any audience—technical, skeptical or even without any prior knowledge—and I will win them over. It’s what I do.

An Atypical Conference Venue

As Bitcoin and altcoins begin the process of education, adoption and normalization, the big expos and conference events have begun to splinter and specialize. Today, most blockchain events market their venue to specific market sectors or interests:

For me, Smart Contracts are one of the most exciting and potentially explosive opportunities. As a groupie and cheerleader, I am not alone. Catering to the Smart Contract community is rapidly becoming a big business. Until this week, I thought it was the conference venue that yielded the biggest thrills. That is, until I learned about the Disruption Experience…

Few widely promoted, well-funded events address the 600 pound elephant in the room: What’s the real potential of blockchain trust, blockchain economy or blockchain AI? Take me beyond tokens and currency (please!). How can an international event help us to realize the potential of a radical new approach to accounting, trust and arbitration? Let’s stop arguing about Bitcoin, Ethereum or ICOs…

How can we unleash the gorilla—and grease—
a fundamental change that benefits mankind,
while providing leapfrog technologies for us?

—At least, that’s my spin on the potential of an unusually practical venue.

That question is slated to be answered on Friday at a big event in Singapore. And get this—It is modestly called a “Sneak Peak”. This is what I have been waiting for. The Disruption Experience premiers on September 28 at the V Hotel Lavender in Singapore. But don’t show up at the door. This event requires advance registration. (I do not offer a web link, because I hate being a conference huckster. If you plan to be in the area at the end of this week, then Google the event yourself).

What’s the big deal?

The Disruption Experience team is populated by blockchain developers, educators and trainers who take issue with existing events that focus on monetization. The purity of intention was overrun by greed. And so, they set out to form an event with a more altruistic purpose: Build technology, relationships, mechanisms and educational tools that better mankind. The focus at this event and the conferences that follow is to educate, expose and innovate. The focus is squarely on disruptive technology.

With their team of blockchain innovators focused on benefits and progress, I suspect that attendees will get what we have been searching for: Education, investment opportunities, an edge on new technologies and job opportunities.

Cusp of a Breakout Year

As an analogy, consider the race to understand Bitcoin and consider the engines & motors.

Bitcoin and the blockchain were introduced simultaneously in a 2009 whitepaper. It’s a bit like explaining the engine and the automobile together—for the very first time. One is a technology with a myriad of applications and the potential to drive innovation. The other is an app. Sure, it’s useful and important, but it’s just an app.

For 8 years, Bitcoin was a radical and contentious concept. Of course, there was the mystery of Satoshi and an effort to pinpoint his or her identity. And, a great debate raged about the legitimacy and value of decentralized, ethereal money. But, the interest was reflected primarily on the pages of Wired Magazine or at Geek-fests. Bitcoin was complex and costly to incorporate into everyday purchases and there were questions and gross misconceptions about hacking, regulation, taxes, criminal activity. The combined audience of adopters, academics, miners and geeks was limited.

That changed last year. With serious talk of exchange traded funds, a futures and derivatives market began to take shape. A critical operational bottleneck was addressed. Ultimately, 2017 was a breakout year for Bitcoin. You may not be using it today, but the smart money is betting that it will enhance your life tomorrow—at least behind the scenes.

Likewise, 2019 is likely to be the breakout year for blockchain applications, careers, products and—perhaps most importantly—public awareness, understanding and appreciation. Just as motors and engines are not limited to automobiles, the blockchain has far more potential than serving as an engine for decentralized cash. It is too important to be just a footnote to disruptive economics. It will disrupt everything. And we are the beneficiaries.

What is Interesting at The Disruption Experience?

The Friday event in Singapore covers many things. The presentations and tutorials that quicken my pulse relate to:

  • AI
  • Smart Contracts
  • Serious insight into blockchain mechanics, applications, adoption, scalability and politics
  • There’s even an exciting development in ICOs…

If you read my columns or follow my blog, then you know I am not keen on initial coin offerings (ICOs). That’s putting it mildly. They are almost all scams. But a rare exception is the Tempow ecosystem which encompasses three functional tokens. Stop by their exhibit and meet the officers of a sound economic mechanism that facilitates decentralized trading while overcoming the efficiency paradox.

What can I do at Disruption Experience?

The September 28 event is a preview for January’s Inaugural Event.

  • Listen and learn what Disruption is all about
  • Experience the first Virtual Reality Expo
  • Get to know the speakers and founders of Disruption
  • Hear about the Disruption Utility Token (DSRPT Token)
  • Meet the Disruption Team
  • See Disruption Expos

… and much, much more.

If you get to the big event, be sure to find the organizer and host, Coach Mark Davis. Tell him that I sent you. His passion and boundless enthusiasm for the blockchain and especially for transformative disruption is quite infectious.

Related reading:

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement. He is also an unpaid advisor to The Disruption Experience.

ISS hole: We will look back on Sept 2018

Someday, people across the world will look back on September 2018, much like we look back on the terror attacks of 9/11 or the safe return of Apollo 13 in 1970. They are touchstone moments in world history. For Americans, they are as indelible as Pearl Harbor, the assassination of John F. Kennedy or the first moon landing.

So, what happened just now? The month isn’t even half over, and the only events we hear about on the news atre related to Hurricane Florence and Paul Manafort. (In case you live under a rock or are reading this many years hence, the hurricane made landfall on the coast of the Carolinas, and the lobbyist / political consultant / lawyer / Trump campaign chairman pled guilty to charges and has agreed to cooperate in the continuing Mueller investigation).

No—I am not referring to either event on the USA east coast. I am referring to a saga unfolding 254 miles above the Earth—specifically a Whodunit mystery aboard the International Space Station (ISS). NASA hasn’t seen this level of tawdry intrigue since astronaut Lisa Marie Nowak attacked a rival for another astronaut’s affection—driving across the country in a diaper to confront her love interest.

So What is the Big Deal This Week?!

It didn’t begin as a big deal—and perhaps this is why mainstream news services are slow to pick up on the latest information. But now, in my opinion, it is a very big deal.

A small hole was discovered on a Russian Soyuz spacecraft (a lifeboat) attached to the International Space Station. That hole, about the size of a pea, resulted in the slow decompression of atmosphere. The air that our astronauts breathe was leaking out of ISS and into the void of space.

So far, the story is unremarkable. Ground scientists issued two comfort statements about the apparent accident. They addressed the possible cause and the potential risk:

  1. This small hole could have occurred on the ground (during construction). Alternatively, it could be the result of a micro-meteorite or even man-made space debris. Perhaps a fleck of varnish peeled off of a satellite and collided at high speed with the massive, orbiting space station. No problem. The ISS and each commuter spacecraft that dock with it are designed to sustain collisions with small particles—even ones that punch a pea-sized hole through the hull.
  2. Air pressure in the ISS and in each spacecraft is only 1 atmosphere. This type of small leak could effectively be stemmed by simply applying duct tape.

The initial news event was interesting to space buffs, but it didn’t seem to present a significant threat to our astronauts, nor require a massive technical response. You may recall that duct tape played a critical role in getting the Apollo 13 astronauts safely back to Earth almost 50 years ago. The crisis that they faced was far worse. The solution required extensive impromptu engineering both in Houston and up in the spacecraft. What an awesome historical echo and footnote to an event that captured the hearts and minds of so many people back in 1970.

But the story does not end with a piece of duct tape. In fact, it just got much more interesting…

After a few days, NASA revealed that the hole was intentionally drilled, and the deed probably occurred while the ship was docked at the space station. Since there is no log of activity with tools in this section of the laboratory, it strongly suggests an act of sabotage by one of the astronauts on board.

And now, we have some new information: Guided by ground engineers, astronauts fished an endoscope through the hole to inspect the outside of the spacecraft. Guess what?! That same drill bit damaged the meteorite shield which stands 15 mm beyond the pressurized hull of the spacecraft. This will add significant risk to anyone traveling back to earth in the damaged ship.

One theory is that a member of the crew wanted to create the conditions to more quickly return to Earth. Now, that return trip may present and elevated risk to occupants.
This story has not yet concluded, of course. It will likely conclude with tragedy or triumph. In the better scenario, no one will die—but successful return and reentry will be followed by a criminal conviction or court martial. I am having difficulty envisioning an alternate outcome.
Read about it here. The story is unfolding, but the details are utterly fascinating.

Drone Assassination Attempt Foreshadows Future Events

Until this past year, consumer drones carried tiny ultralight cameras, but they just didn’t have the energy or the reserve to carry much else. They certainly could not deliver much of a product or payload. They flew for  15 minutes, lacked the capacity to carry excess weight, and had short range.

But market demand sparks innovation. Amazon and Domino’s Pizza are experimenting with drone delivery. The improvements needed to serve these needs are quickly bubbling down to unlicensed weekend pilots. Hexacopters with 4K cameras, gimbals and retracting landing gear are available for under $400. Tiny foldable drones with 720p cameras are available for $35. Some models don’t even need a pilot on a joystick. You can preprogram the flight path to reach any target using GPS, or you can guide them by making gestures with your hand. The drone actually looks back over its shoulder and responds to your hand-waving commands.

Lance Ulanoff is a cartoonist and robotics fantech expert. But he shares a lot in common with Wild Ducks. He is an eclectic journalist and social media commentator.

This month he began publishing at Medium.com, and I’m glad he did! Lance has a knack for going beyond the Who, What, Why. Even in a short article, he explains the social implications. He provokes us to recognize why it matters.

Lance breaks down the recent attempt to assassinate Venezuela’s president with a drone delivered explosive and raises our social antennae. This news event ushers in a grim technology era. Ulanoff points out that in a short time, it has become inexpensive and fairly easy to send an explosive directly into a national monument like the Statue of Liberty.

Photos: Venezuela President, Nicolás Maduro, reacts to incoming drone. Although the assassination attempt failed, others on the ground were injured.

How Will Bitcoin Work When Mining Rewards Run Out?

Let us frame the question, by reviewing what miners really do…

Miners play a critical role in the Bitcoin network. Their activity (searching for a nonce) results in assembling an immutable string of blocks that corroborate and log the universal transaction record. They are the distributed bookkeepers that replace old-school banks in recording and vouching for everyone’s purchase or savings.

From the perspective of a miner, there is no obvious connection between their activity and the worldwide network of bitcoin transactions and record keeping. They are simply playing an online game and competing against thousands of other miners in an effort to solve a complex and ongoing math problem. As they arrive at answers to small pieces of the problem, they are rewarded with bitcoin, which can be easily translated into any currency.

What is the Problem?

One day, mining for rewards will no longer be possible. The fundamental architecture of Bitcoin guarantees that mining will end. The pool of rewards that were held in abeyance as incentives is small and will run out in 2140—about 120 years from now. So, this raises the question: How will we incentivize miners when there is no more reward? (Actually, they won’t really be miners anymore…They will more accurately be bookkeepers or ‘validators’)

Is there a Solution?

Fortunately, there are many ways to offer incentives to those who validate transactions and maintain the books. Here are just a few:

  1. There is a current mechanism in which transactions bid for priority (speed of validation). Today, this mechanism augments the mining reward—particularly during periods of network performance. For example, the extra payments rose to $30 and more for individual transactions just before lightning network was adopted. In the future, it could replace the reward as the basis of a reward system.
  2. At the 2015 MIT Bitcoin Expo, Andreas Antonopoulos proposed a reputation ranking & reward system based on gaming theory. The ideal is that would result in a sufficient reward to maintain continuous network operation. Reputation points are not just a bragging point, but is likely to translate into real-world gravitas and financial opportunities.
  3. I believe that, one day, every user will be a micro-miner, and this will address the issue of incentives. For example, if users can avoid all mining fees by validating one transaction for every 10 of their own, we might see the widespread adoption of wallets that are full or partial nodes, rather than limited to the function of key storage.In this vision, micro mining will be achieved on a phone, a wristwatch, or a linked device at home. It will not result in an escalating race for increased power consumption…

I believe in this last solution and I have proposed it as the path forward at crypto/blockchain conferences.

Today, this idea seems implausible, because of the memory and computational requirements for running a full node. But, there have been big advancements in the effort to support micro-mining—which does not require such resources. Additionally, it is likely that the current proof-of-work mechanism used to arrive at a distributed consensus will be replaced by another mechanism that does not result in a competition to see who can consume the most electricity.

More about the sunset of mining incentives:

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting engagement.

Is Bitcoin Erasing 300 years of Monetary Evolution?

Today, economist and Nobel laureate, Paul Krugman, wrote in the New York Times, that Bitcoin is taking us back 300 years in monetary evolution. As a result, he predicts all sorts of bad things.

A significant basis for Mr. Krugman’s argument is that the US dollar has value because men with guns say it does.

Is Bitcoin erasing 300 years of monetary evolution?

Running with the metaphor that fundamental change to an economic mechanism represents ‘evolution’, I think a more accurate statement is that Bitcoin is not erasing the lessons of history. Rather, it is the current step in the evolution of money. Of course, with living species, evolution is a gradual process based on natural selection and adaptation. With Bitcoin, change is coming  up in the rear view mirror at lightning speed.

The Evolution of Money

When a medium of exchange is portable, fungible, divisible, unforgeable and widely accepted, it becomes money. For at least six millennia, barter was gradually replaced by various mediums of exchange.

  • Obsidian —» Cowry shells —» Gold —» Promissory notes (backed by a Bank, employer or wealthy industry) —» Fiat (national currency)

But what backs these forms of money? What gives them value?

The first 3 currencies above were accepted as money on 5 continents. They were backed by their scarcity and unique characteristic properties (Aristotle called this intrinsic value). But even gold cannot serve as a widely used currency today. Although it is portable and scarce, it is not easily tested or subdivided in the field; it is risky to transport and difficult to track; and it is not suited to instant electronic settlement. But what about Fiat money. What backs it?

What Backs National Currencies?

Fiat has been backed by various different things throughout history. They are all compromised attempts to establish confidence and trust. They are compromised, because the fall short of one or more facets of trust.

In the list below, monetary backings in Red are what Mr. Krugman calls “men with guns”. That is, he claims that government demands give value to the dollar:

  • Value tied to gold —» Promise of redemption —» Legal tender (public must accept it for all debts) —» settlement of taxes —» The “good faith and credit” of workers

Unfortunately, the transition away from a trustworthy basis and the constant temptation of kings, dictators and politicians to print money based on credit (or nothing at all—as in the case of our fractional reserve system), has created a house of cards that few people believe is sustainable.

Bitcoin changes all this.

Finally, a crowd-sourced trust basis was invented (or discovered). It is unhackable, un-inflatable, unforgeable and immutable. Most important, it allows a government to be decoupled from its own monetary policy and supply. This is a remarkably good thing for businesses, consumers, creditors, trading partners—and especially for governments.

And Bitcoin is backed by something better than guns, gold or promises. It is provably scarce, capped in supply, completely fair, and built on a massive, crowd-sourced network of bookkeepers and auditors. It is the first currency—and quite probably the last—built on genius math and indisputable trust.

Despite the gross misunderstandings and misconceptions of early pundits, it does not interfere with a government’s ability to tax, to spend or to enforce tax collection—and it does not facilitate crime.

Bitcoin is new, but the goal of distributing trust is not as radical as you might think. It addresses a problem that economists and mathematicians have pondered since Aristotle and the ancient Greeks…


Ever since the transition from real gold to government notes, bank notes and bank ledgers—economists have wondered if value can arise from a public trust that is durable, distributed and stateless. Until 2009, the answer seemed to be that this was impossible because of the double-spend problem.

But 9 years ago, something changed; and the change is dramatic. It will take an additional decade for most people to understand and appreciate this change…

In the first paragraph, I cited Mr. Krugman’s statement that the US Dollar has value because of “men with guns” (a reference to the fact that its use is legally compelled for payment of any debt and for government taxes). But this is not what gives it value. The dollar, the Euro, a Picasso painting and a fresh serving of hot french fries all derive their value from supply and demand. Bitcoin is no different. The trick is to generate viral demand and a ubiquitous infrastructure needed to achieve a robust two-sided network.

In the white paper that introduced both blockchain and Bitcoin (the first blockchain application), Satoshi taught us that a widespread and easy to access communications network (the internet and universal access to smartphones) can give rise to value that is based on a different type of trust. Instead of trust in a government, a bank, or testing the chemistry of a precious metal, value can arise from trust in a formula that is ubiquitous, redundant and constantly monitored and vetted.

All of these things have a value based on demand and the available supply. But with Bitcoin, the medium of exchange (and additionally the store and transfer of value), can be achieved by math, distributed trust and a pure, two-sided network.

So, is Bitcoin taking us backward in time, utility, safety and governance? I have never been awarded a Nobel Prize—but it seems pretty clear to me that Bitcoin is taking us forward and not backward.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting engagement.

Online Privacy: Learn Tor, VPN, VeraCrypt, LasPass

I have a special request. Actually, this is a personal plea to my readers…

Next month, I host two evening privacy workshops near Boston. I could use a teaching assistant to run around and help newbies install software as I present to the class. But what I really need help with—is getting the word out. Please help…

This time, it’s not about Bitcoin or the blockchain. It’s about taking control of your online identity and browsing activities. It’s about privacy and anonymity. It’s about your communications, your personal data and your disk or cloud storage.

All that data belongs to you and not to your ISP, employer, a hacker, the government, or marketers. And it is surprisingly easy to cover your tracks. In fact, with the proper tools, taking control of your identity and privacy is safe, simple and transparent.

In just 3 hours, attendees will learn install and use TOR, VPN, VeraCrypt and LastPass. They will also get an excellent feel for the function and benefits of a virtual machine.

Anyone attending can choose either Aug 8 (Marlboro) or Aug 22 (Natick). Renting a presentation room in the Natick Library is expensive.

Please help me promote an effective and exciting evening of learning. Get the word out. Check out these announcements: [Sign-up page]   [Meetup page]

Bonus Points: Do you recognize the photo on the left? Be the first to leave a comment with the name of the plastic privacy bubble and the 1960s TV series that featured it. The winner gets two free passes to our privacy workshop that can be transferred to anyone.

Extra PCs laying around? Why not mine Bitcoin?

I get this question a lot. Today, I was asked to write an answer at Quora.com, a Q&A web site at which I am the local cryptocurrency expert. It’s time to address this issue in my own Blog.


I have quite a few PCs lying around my home and office. Some are current models with fast Intel CPUs. Can I mine Bitcoin to make a little money on the side?


Other answers focus on the cost of electricity, the number of hashes or teraflops achieved by a computer CPU or the size of the current Bitcoin reward. But, you needn’t dig into any of these details to understand this answer.

You can find the mining software to mine Bitcoin or any other coin on any equipment. Even a phone or wristwatch. But, don’t expect to make money. Mining Bitcoin with an x86 CPU (Core or Pentium equivalent) is never cost effective—not even when Bitcoin was trading at nearly $20,000.  A computer with a fast $1500 graphics card will bring you closer to profitability, but not by much.

The problem isn’t that an Intel or AMD processor is too weak to mine for Bitcoin. It’s just as powerful as it was in the early days of Bitcoin. Rather, the problem is that the mining game is a constantly evolving competition. Miners with the fastest hardware and the cheapest power are chasing a shrinking pool of rewards.

The problem arises from a combination of things:

  1. There is a fixed rate of rewards available to all miners—and yet, over the past 2 years, hundreds of thousands of new CPUs have been added to the task. You are competing with all of them.
  2. Despite a large drop in the Bitcoin exchange rate (from $19,783.21 on Dec. 17, 2017), we know that it is generally a rising commodity, because both speculation and gradual grassroots adoption outpaces the very gradual increase in supply. The rising value of Bitcoin attracts even more individuals and organizations into the game of mining. They are all fighting for a pie that is shrinking in overall size. Here’s why…
  3. The math (a built-in mechanism) halves the size of rewards every 4 years. We are currently between two halving events, the next one will occur in May 2020. This halving forces miners to be even more efficient to eke out any reward.
  4. In the past few years, we have seen a race among miners and mining pools to acquire the best hardware for the task. At first, it was any CPU that could crunch away at the math. Then, miners quickly discovered that an nVidia graphics processor was better suited to the task. Then ASICS became popular, and now; specialized, large-scale integrated circuits that were designed specifically for mining.
  5. Advanced mining pools have the capacity to instantly switch between mining for Bitcoin, Ethereum classic, Litecoin, Bitcoin Cash and dozens of other coins depending upon conditions that change minute-by-minute. Although you can find software that does the same thing, it is unlikely that you can outsmart the big boys at this game, because they have super-fast internet connections and constant software maintenance.
  6. Some areas of the world have a surplus of wind, water or solar energy. In fact, there are regions where electricity is free.* Although regional governments would rather that this surplus be used to power homes and businesses (benefiting the local economy), electricity is fungible! And so, local entrepreneurs often “rent” out their cheap electricity by offering shelf space to miners from around the world. Individuals with free or cheap electricity (and some, with a cold climate to keep equipment cool) split this energy savings with the miner. This further stacks the deck against the guy with a fast PC in New York or Houston.

Of course, with Bitcoin generally rising in value (over the long term), this provides continued incentive to mine. It is the only thing that makes this game worthwhile to the individuals who participate.

So, while it is not impossible to profit by mining on a personal computer, if you don’t have very cheap power, the very latest specialized mining rigs, and the skills to constantly tweak your configuration—then your best bet is to join a reputable mining pool. Take your fraction of the mining rewards and let them take a small cut. Cash out frequently, so that you are not locked into their ability to resist hacking or remain solvent.

Related: Largest US operation mines 0.4% of daily Bitcoin rewards. Listen to the owner describe the effiiency of his ASIC processors and the enormous capacity he is adding. This will not produce more Bitcoin. The total reward rate is fixed and falling every 4 years. His build out will consume a massive amount of electricity, but it will only grab share from other miners—and encourage them to increase consuption just to keep up.

* Several readers have pointed out that they have access to “free power” in their office — or more typically, in a college dormitory. While this may be ‘free’ to the student or employee, it is most certainly not free. In the United States, even the most efficient mining, results in a 20 or 30% return on electric cost—and with the added cost of constant equipment updates. This is not the case for personal computers. They are sorely unprofitable…

So, for example, if you have 20 Intel computers cooking for 24 hours each day, you might receive $115 rewards at the end of a year, along with an electric bill for $3500. Long before this happens, you will have tripped the circuit breaker in your dorm room or received an unpleasant memo from your boss’s boss.

Bitcoin mining farms —

  • Professional mining pool (above photo and top row below)
  • Amateur mining rigs (bottom row below)

This is what you are up against. Even the amateur mining operations depicted in the bottom row require access to very cheap electricity, the latest processors and the skill to expertly maintain hardware, software and the real-time, mining decision-process.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting engagement.

What will it take for Bitcoin to be widely adopted?

Selfish Ledger: Google’s mass sociology experiment

Check out the internal Google film, “The Selfish Ledger”. This probably wasn’t meant to slip onto a public web server, and so I have embedded a backup copy below. Ping me if it disappears. I will locate a permanent URL.

This 8½ minute video is a lot deeper—and possibly more insipid—than it appears. Nick Foster may be the Anti-Christ, or perhaps the most brilliant sociologist of modern times. It depends on your vantage point, and your belief in the potential of user controls and cat-in-bag containment.

He talks of a species propelling itself toward “desirable goals” by cataloging, data mining, and analyzing the past behavior of peers and ancestors—and then using that data to improve the experience of each user’s future and perhaps even their future generations. But, is he referring to shared goals across cultures, sexes and incomes? Who controls the algorithms and the goal filters?! Is Google the judge, arbiter and God?

Consider these quotes from the video. Do they disturb you? The last one sends a chill down my spine. But, I may be overreacting to what is simply an unexplored frontier. The next generation in AI. I cannot readily determine if it ushers in an era of good or bad:

  • Behavioral sequencing « a phrase used throughout the video
  • Viewing human behavior through a Lemarkian lens
  • An individual is just a carrier for the gene. The gene seeks to improve itself and not its host
  • And [at 7:25]: “The mass multigenerational examination of actions and results could introduce a model of behavioral sequencing.”

There’s that odd term again: behavioral sequencing. It suggests that we are mice and that Google can help us to act in unison toward society’s ideal goals.

Today, Fortune Magazine described it this way: “Total and absolute data collection could be used to shape the decisions you make … The ledger would essentially collect everything there is to know about you, your friends, your family, and everything else. It would then try to move you in one direction or another for your or society’s apparent benefit.”

The statements could apply just as easily to the NSA as it does to Google. At least we are entering into a bargain with Google. We hand them data and they had us numerous benefits (the same benefits that many users often overlook). Yet, clearly, this is heavy duty stuff—especially for the company that knows everything about everyone. Watch it a second time. Think carefully about the power that Google wields.

Don’t get me wrong. I may be in the minority, but I generally trust Google. I recognize that I am raw material and not a client. I accept the tradeoff that I make when I use Gmail, web search, navigate to a destination or share documents. I benefit from this bargain as Google matches my behavior with improved filtering of marketing directed at me.

But, in the back of my mind, I hope for the day that Google implements Blind Signaling and Response, so that my data can only be used in ways that were disclosed to me—and that strengthen and defend that bargain, without subjecting my behavior, relationships and predilections to hacking, misuse, or accidental disclosure.

Credit for snagging this video: Vlad Savov @ TheVerge

Where are the aliens? Solutions to Fermi Paradox

The Fermi Paradox poses an age-old question: With light and radio waves skipping across the galaxy, why has there never been any convincing evidence of other life in the universe—or at least another sufficiently advanced civilization that uses radio? After all, evidence of intelligent life requires only that some species modulates a beacon (intentionally or unintentionally) in a fashion that is unlikely to be caused by natural phenomena.

The Fermi Paradox has always fascinated me, perhaps because SETI spokesperson, Carl Sagan was my astronomy professor at Cornell and—coincidentally—Sagan and Stephen Spielberg dedicated a SETI radio telescope at Oak Ridge Observatory around the time that I moved from Ithaca to New England. It’s a 5 minute drive from my new home. In effect, two public personalities followed me to Massachusetts.

What is SETI?

In November of 1984, SETI was chartered as a non-profit corporation with a single goal. In seeking to answer to the question “Are we alone?” it fuels the Drake equation by persuading radio telescopes to devote time to the search for extraterrestrial life and establishing an organized and systematic approach to partitioning, prioritizing, gathering and mining signal data.

Sagan explains the Drake Equation

Many of us associate astronomer Carl Sagan and Hollywood director, Stephen Spielberg, with SETI. They greased the path with high-profile PR that attracted interest, funding and radio-telescope partnerships. But, they were neither founders nor among the early staff. The founders, John Billingham and Barney Oliver assembled a powerhouse board of trustees, which included Frank Drake (Sagan’s boss at Cornell), Andrew Fraknol, Roger Heyns and William Welch. Among first hires were Jill Tarter, Charles Seeger, Ivan Linscott, Tom Pierson and Elyse Murray (now Elyse Pierson). Of course, Carl Sagan was advocated for the search for extraterrestrial intelligence, and he joined SETI as Trustee near the end of his life.

In The Birth of SETI, Tom Pierson reminisces about the early days of SETI. Also check out SETI pioneer, Jill Tarter, explaining how to write a message that will be understood by an alien civilization.

There is a lot of lore and love surrounding SETI, because its goal pulls directly on our need to understand our place in the cosmos. This week, SETI is going through a bit of transformation as it prepares for the next chapter in the search. So, where are the aliens? Are the funds and brainpower spent on peeping for aliens an investment in our own civilization, a form of entertainment, or a colossal waste?

This fascinating video offers 10 plausible solutions to Fermi Paradox. Fascinating, that is, if you can get past John Michael Godier’s dry, monotone narration. But. take my word for it. The concept and the content is exciting.

Is every Initial Coin Offering a Scam?

OK. Stop! Please, just stop! I get this question every day. More and more people asking about ICOs. I get it… I am an early Bitcoin user, I give blockchain presentations, I write a blog, and I work for a standards association. And so, this is my definitive response to a very pesky question.

Ron, in New York City reads this Blog. He asks this:

I work for an investment bank. Some banks, like Merrill Lynch, are hostile toward Bitcoin and other cryptocurrencies. Others, like Fidelity are dipping their toes in the water. And some, like Morgan Stanley speak with forked tongue—condemning and hedging at the same time…

My employer is preparing to embrace Bitcoin with gusto. Once regulatory guidelines become clear and unified, we will offer crypto trading, options, futures and margin accounts. I am already working on customer literature and compliance training. We will also use crypto as money in all operations—to pay staff & consultants or purchase supplies & utilities We will even accept Bitcoin and Bitcoin Cash as payment from clients.

So, please tell me: Why does our in-house crypto expert constantly warn our managers and clients that ICOs are scams? How can she condemn an emergent commodity? ICOs have sparked a massive new investment class. Are they really scams?

Listen up, Ron! Heed your crypto expert. Follow her advice. With very few exceptions, ICOs are all scams, plain and simple. They are not like Bitcoin or Ethereum.

Why are almost all ICOs scams?

Initial Coin Offerings are scams because of:

  • The way that they are promoted
  • What investors must do to profit
  • Their fundamental purpose: Dodge securities regulations, create MLM pyramids, or facilitate pump & dump. None are sustainable, ethical or legitimate goals!

For those intent on using, investing in, or advising others on ICOs, this article explains how to discriminate a scam from a credible and functional instrument. Note the list of traits just below the red “Scam” button. If the ICO that you are evaluating exhibits even one of these characteristics, treat it like The Plague or the Mark of the Beast. It is most certainly a scam.

Note that ICOs are not Altcoins. There is a big difference. Altcoins are forked from Satoshi’s blockchain code. They are open source, license free, permissionless, with a transparent mining history going all the way back to the genesis block. The ownership of all pre-mined coins is known and auditable. There is absolutely no MLM aspect to an altcoin. If there is any central or authoritative component, it serves only to aid in quicker governance decisions or to overcome the energy overhead associated with Proof-of-Work. There is never another valid excuse for an authority, because authorities are choke points.

Many altcoins are legitimate projects designed to trade value, or serve as a functional component of an IOT (Internet-of-Things) process. This is also explained in the definitive guide to Why ICOs are almost all scams. Some of the IOT altcoins attract speculators and hoarders seeking to profit from trades. This is unfortunate, and it interferes with the utility of the token (IOTA is a clear example). But, just as with Bitcoin, speculator interest doesn’t define a scam.

What about altcoins. Are they as toxic as ICOs?

Referring to my own definition, above, many altcoins—perhaps even most—are not scams. But, I am pretty picky on the altcoins that I recommend, because most of the clever features and functional improvements introduced by altcoins will be ripped and folded into Bitcoin. It is inevitable.

Apt metaphor for ICOs

After all, Bitcoin has an enormous lead, it has already achieved a two-sided network, and none of the altcoins are protected by patent, trade secrecy or opacity. By definition, they are free, transparent and without any licensing or proprietary features.

I was never burned by an ICO, but I have certainly consoled friends and colleagues who have been sucked into them. Unlike many columnists and consultants, I am not beholden to issuers. So, if your wondering what is an ICO? It is a puss-filled boil on your privates. You may quote me on that. The article linked above is honest, unbiased and definitive.


John Oliver explains Bitcoin, Blockchain & Crypto (with precision & clarity)!

John Oliver is a crossover who bridges the art of a comedian with the reporting and perspective of a liberal political pundit. Even detractors acknowledge that Oliver addresses serious issues with unusual wit and humor.

I never thought Oliver could (or would) tackle the topic of cryptocurrency—at least not with value to the viewer. It is too geeky, and too esoteric. (It also cuts into my mission of evangelism and education). 🙂

He did, and he sparkles! Feel free to jump past the fluff. The Bitcoin tutorial starts at 3:40. Of course, my friend, Shechter, in Long Island New York will bust a gut over what Oliver says at 9:40. It is not only clear and concise, it is accurate and terribly funny!

Whether you are a Bitcoin newbie or a seasoned blockchain coder, this is the video you have been looking for. This one is durable.

Related Videos:

What sets cryptocurrencies apart from each other?

Today, I was asked to answer this question at Quora:

“What sets each cryptocurrency apart from the others?”

“Cryptocurrency” is a broad term. It refers to payment coins, of course—such as Bitcoin and Litecoin. But, because most tradeable tokens attain an asset value, the word is often used to refer to smart contract devices, such as Ethereum, a host of other blockchain based tokens, functional Internet-of-Things tokens, and even ICOs (Initial Coin Offerings). Since people treat ICOs and IOT tokens as investment instruments even if they are useless as a payment mechanism, they all fall within the realm of a cryptocurrency.

So, before addressing the question, let’s distinguish between Altcoins and ICOs. I assume the question refers to Altcoins, and not ICOs…

ICOs are almost all scams. A very few of these are designed to function in a well-defined IOT role (Internet-of-Things). But, any ICO that you are likely to hear about share one or more traits described here.

But Altcoins are different. These are typically forked from Bitcoin or another established blockchain-backed coin. They are created because developers feel that they have solved one or more of the problems that limit the growth or appeal of Bitcoin. For example, Bitcoin has (or recently had) all these problems or perceived limitations:

  • Transaction Malleability (Recently solved with activation of SegWit)
  • Speed of transaction (Now being addressed by Lightning Network)
  • Cost of transaction (Also addressed by Lightning Network early 2018)
  • Very high electrical demand by miners (Still a major problem)
  • Fairness of and speed of distributed governance process (a big problem)
  • Finding a validation incentive after mining runs out (a long term issue)
  • Deep privacy features. These are inherent to Monero and Zcash. (Bitcoin will soon support onion routing transactions to enhance privacy)
  • Disparate goals of miners, developers, vendors and users (still a problem)
  • Limited Smart Contract mechanism (Ethereum is the current king in this realm, with slick methods of administering and executing contracts. Bitcoin will eventually acquire these features & benefits.
  • Like ICOs (these are almost all scams), some Altcoins (not scams) address specific IOT applications. This is a legitimate and non-payment use of blockchain technology. It represents a promising evolution. It is not yet clear if Bitcoin can eventually adopt these features and function in a non-payment, IOT capacity. The intrinsic, stored value aspect of Bitcoin would make it difficult to use in such applications.

One big problem facing Bitcoin is that the distributed consensus mechanism that makes it a trusted, peer-to-peer mechanism is based on Proof-of-Work (POW). Coupled with a mining incentive that increases dramatically with exchange rate, Bitcoin is—quite simply—untenable. With consumption topping 33 terawatt hours in December 2017, it already consumes more power than some countries. If even 2% of the world’s payment transactions were settled in Bitcoin, the mining would consume more power than is generated throughout the world. This just cannot continue!

Fortunately, developers and armchair inventors have proposed or demonstrated clever POW alternatives to achieve a fair distributed consensus. Some of these use a Proof-of-Stake mechanism, while others add a limited central-authority nexus to facilitate governance and scaling. Some are built on a modified blockchain that weaken several pillars of a true decentralized, p2p network. Of course, researchers are concerned that these systems deteriorate the decentralized nature of Satoshi’s original blockchain.

But, other systems may allow for a fully distributed and democratic trust platform, such as BFT Replication (IBM) or Distributed Objective Consensus, which was proposed by an amateur mathematician.

In reply to the title question, Altcoins are set apart by their claim to address the above problems & limitations, or to add features.

Will an Altcoin Triumph over Bitcoin?

Perhaps, a few altcoins will thrive, due to specific niche advantages; features that Bitcoin chooses not to address, such as deep anonymity or with a novel utilitarian feature that facilitates a specific Internet-of-Things process.

Unfortunately for altcoins, all coins require public trust and transparency. For this reason, they are open source, permissionless, without licensing, without patent protection and with a fully disclosed pre-mining history. And for that reason, Bitcoin is free to steal any clever advantage that works. It’s all up for grabs and no one can be sued.

In effect, each altcoin as a beta test platform for Bitcoin. Now that Bitcoin is finally addressing the problems of scalability and fair/speedy governance, there is little doubt that it will continue to dwarf other coins.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences around the world. Book a presentation or consulting engagement.

Building a Bitcoin ATM is easy, but…

…But offering or operating them engulfs the assembler in a regulatory minefield!

A photo of various Bitcoin ATMs appears at the bottom of this article. My employer, Cryptocurrency Standards Association, shared start-up space at a New York incubator with the maker of a small, wall mounted ATM, like the models shown at top left.

What is Inside a Cryptocurrency ATM?

You could cobble together a Bitcoin ATM with just a cheap Android tablet, a camera, an internet connection, and [optional]: a secure cash drawer with a mechanism to count and dispense currency).* A receipt printer that can also generate a QR code is a nice touch, but you don’t really need one. You can use your screen for the coin transfer and email for a receipt.

Of course your programming and user interface will make all the difference in the world. Your ATM must interface with an exchange—your own or a 3rd party.

If your plan is to sell Bitcoin and not exchange it for cash, then you don’t need a currency dispensing component at all. You only need a credit card swipe-reader and an RFI tap reader. Some models are smaller than a cookie and sell for under $30. They can be attractively embedded into your machine. In fact, some bank card processors offer them without cost.

I Have Built a Prototype. Now What?

Desktop ATM. No cash dispensed

Once you have a working prototype, you will need to test it with focus groups (alpha test) and at prospective public sites (beta test). You must also harden the production model against tamper and theft and find paying businesses or property owners, so that you can achieve economies of scale. (A reasonable business model requires that you produce dozens of devices each month).

Parts Cost: Bill of Materials

At scale, you can achieve a unit production cost of less than $200. But that’s for a desktop unit that does not accept or dispense cash. A high-quality and attractive machine that accepts cash and is free standing or ready for outdoor installation into a building exterior might cost you $650. You could sell these for $2,500 plus recurring fees to the property owner, depending on venue, or you might simply lease them, just as Xerox did in the early days of office copiers. (In a hotly competitive market, such as Las Vegas, you may need to pay a portion of your profits to the site, rather than profiting from ‘renting’ the ATM).

A Threat to Your Business

But wait! Before you run off and create an ATM venture of your own, with visions of a 350% profit margin, all is not as easy as it seems!…

Cryptocurrency ATMs intersect with a minefield of regulatory licensing and compliance standards. In many regions, they are not even legal for placement in a public area.

In most countries (including all of USA), you must be a registered Money Transmitter. You will need separate state licensing and—since you are moving cash in or out of the banking system—you must be partnered with a federally chartered bank. You will also need to post a hefty insurance bond—perhaps even for each machine and each municipality in which it is placed! These laws convey liability to both your clinet (the property owner) and to you. Many courts will hold the manufacturer of financial or medical products accountable for ensuring that their customers are licensed and compliant with regulations. That is, you may not be able to legally sell your ATM to organizations that have not demonstrated that they qualify to operate one.

Why is There a Camera in my ATM?

In all cases, you must capture photographs of your user and their state-issued ID, because you are required to know your customer and adhere to a slew of anti-money laundering practices. For example, with transactions larger than $2,000 (from anyone who is not known to you and a regular client), you must generate a Suspicious Activity Report. For transactions larger than $10,000, you must comply with RICO (Racketeer Influenced and Corrupt Organizations Act). This requires a camera, interview, and reporting process. You will be generating forms with data supplied by your user and possibly even a real-time verification of the facts they provide.

If you wonder why you needn’t do these things this when buying or selling your own cryptocurrency, it is because: (a) You are trading your own assets and are not the custodian of customer accounts; and (b) You are a consumer. It is likely that the exchange is required to do all of these things.

With Regulations, Can Bitcoin ATMs Generate Profit?

For the reasons described above, the operational cost of deploying and operating an ATM network (or your equipment for sale or rent) is significantly higher than the up front hardware cost. When you add the need to protect your venture from legal claims arising from process glitches or users that claim they lost cash or Bitcoin, you may arrive at an operational cost that makes your business model unworkable.

Of course, Bitcoin ATMs are profitable in some cases. I have consulted with a few start ups that operate them successfully in Las Vegas casinos, a few airports and race tracks, and at large outdoor fairs. But, for everyday use, the heyday of ATMs is most likely 5 or 10 years off. Before this happens, we need a more uniform and functional regulatory & insurance framework, and a higher volume of users per ATM.

Check out various Bitcoin ATM models below. Few manufacturers turn a profit. In the end, it boils down to location (high volume sites with the right people) and location (legal jurisdiction).

* One ATM startup found inexpensive hardware for dispensing currency by recycling mechanisms from bill-change machines used in game arcades or in hotels next to vending machines. These machines are being discarded, because newer vending machines accept credit cards and smart phone payment. But again, if you only plan to accept a credit or debit instrument for Bitcoin, then you don’t need a cash counter or dispenser.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences around the world. Book a presentation or consulting engagement.

Multisig Wallet: Protect Bitcoin in case of death or forgetfulness

UPDATE (April 2018): See footnote regarding Coinbase multisig vaults.* The feature will be retired this month, because it interferes with plans to improve support of Bitcoin forks.

Legacy Method of Inheriting Assets

Many Bitcoin owners choose to use a custodial account, in which the private keys to a wallet are generated and controlled by their exchange—or even a bank or stock broker. In this case, funds are passed to heirs in the usual way. It works like this…

An executor, probate attorney, or someone with a legal claim contacts the organization that controls the assets. They present a death certificate, medical proxy or power-of-attorney. Just as with your bank account or stocks and bonds, you have the option of listing next of kin and the proportion of your assets that should be distributed to each. These custodial services routinely ask you to list individuals younger than you and alternate heirs, along with their street addresses, in the event that someone you list has died before you.

Of course, Bitcoin purists and Libertarians point out that the legacy method contradicts the whole point of owning a cryptocurrency. Fair enough.

Multisig to the Rescue

Using multisig would be far easier, if wallet vendors would conform to standards for compatibility and embed technology into hardware and software products. Unfortunately, they have been slow to do so, and there are not yet widely recognized standards to assure users that an implementation is both effective and secure. But, there is some good news: It’s fairly easy to process your ordinary account passwords and even the security questions with a roll-your-own multisig process. I’ve done it using PGP and also using Veracrypt—two widely recognized, open source encryption platforms.

This short article is not intended as an implementation tutorial, but if the wallet vendors don’t jump up to home plate, I may release a commercial tool for users to more easily add multisig to their wallets. It really is safe, simple and effective. (If readers wish to partner with me on this? I estimate that it will take $260,000 and about six months).

What is Multisig and How Does it Protect your Wealth?

Multisig allows anyone with credentials to an account, wallet or even a locked safe to create their own set of rules concerning which combinations of friends and relatives can access their assets without the original owner. The owner sets conditions concerning who, when, how much and which accounts can be accessed — and the heirs simply offer passwords or proof of identity. If implemented properly, it doesn’t matter if some of the heirs have forgotten passwords or died before the original owner.

This can be illustrated in an example. I am intentionally describing a complex scenario, so that you consider a full-blown implementation. Although the ‘rules’ listed below appear to be complex, the process for creating the associated passwords is trivial.

The last 2 rules listed below do not use Multisig technology, but rather Smart Contracts. It enhances an owner’s ability to dictate terms. Here, then, is the scenario…

I want heirs to have access to my assets
at banks, brokers, exchanges or other ac-
counts–but only under certain conditions:

  • If any 4 of 11 trusted family and friends come together and combine their passwords (or an alternate proof-of-identity), they may access my wealth and transfer it to other accounts
    • But, if one is my husband, Fred, or my daughter, Sue, then only two trusted individuals are needed
    • —But not Fred and Sue together (At least one must be an outsider)
  • If any account has less than $2500, then it goes to my favorite charity, rather than the individuals I have listed
  • None of my accounts can be unlocked by my heirs, until I have not accessed them with my own password for 3 months. Prior to that, the Multisig will fail to gain access.

Again, the decedent’s wishes are complex, but executing and enforcing these rules is trivial. In my presentations, I describe the method on two simple PowerPoint slides. Even that short description is sufficient to show anyone who has used common cryptography apps to weave their own multisig add-on.

Of course, each individual will need to locate their own secret password, but a biometric or other conforming proof-of-identity can be substituted. Even if several survivors cannot recall their credentials, the multisig method allows other combinations of individuals to access the assets across all accounts.

This article may leave you wondering about the legal process—and this is where I agree with the Libertarian viewpoint: Sure! The courts have a process and heirs should document their access and decisions for tax purposes and to assure each other of fair play. But a key benefit of cryptocurrency and the disintermediation offered by the blockchain is the personal empowerment of access with impunity and without waiting for any legal process.

Let the courts to what they do, while you honor the wishes of your dearly departed.

If this article generates sufficient interest, I may prepare a short tutorial on how to split off your own Multisig passwords, regardless of which wallet or hosted services you use. It will work with any vendor, app or gadget —or— Perhaps, I will refine my homespun solution and offer it as an add-on app that can be used with any wallet, bank account or exchange. Simple, ubiquitous and effective multisig should have been available to even traditional banking customers years ago!

* History of Coinbase support for a multisig vault

Oct 29, 2014 — Coinbase adds Multisig Vault
                           Multisig rule: (3) private keys created. 2 are required to access coins:

  1. User Key
  2. Coinbase Key
  3. 2nd Coinbase Key but only user has passsword

Aug 31 2017 — No more NEW Multisig vaults

April 19 2018 — Sunset of Multisig vaults (and announced earlier, on Mar 20)

Sunset on Multisig vaults: They make it difficult to support forks. A new tool will still support withdrawls after multisig vaults are retired.

Ellery Davies co-chairs CRYPSAhosts the Bitcoin Event and presents at Crypto Conferences around the world. Book a presentation or consulting engagement.

Have there been successful Transaction Malleability attacks?

First, let’s get some basics out of the way…

What is Transaction Malleability?

Here are 2 explanations of transaction malleability: [Coindesk] [TechTalk]

In a nutshell, Transaction Malleability is a weakness in the original Bitcoin implementation that enables a bad actor to change the unique ID of a bitcoin transaction before it is confirmed on the Blockchain. Such a change makes it possible for someone to pretend that a transaction didn’t happen, if all necessary conditions are in place.

As the Coindesk article points out, a successful attack requires certain conditions that make a successful attack difficult or even unlikely. Many analysts referred to it as a bug that should eventually be fixed, rather than an urgent issue.

Was This Flaw Addressed

Transaction malleability was addressed (for Bitcoin) with the introduction of Segregated Witness (SegWit) in August 2017. 1, 2

But Was There a Successful Attack?
Attack? Yes. Successful? It’s doubtful…

In March 2017, five months before SegWit was implemented, a mining pool that administers 2% of worldwide activity launched a malleability attack. No one lost money – and some individuals believe that they did this to emphasize urgency and hasten the adoption of SegWit.

What About Lightning Network?

The Lightning Network is a ‘Level 2’ network overlay, currently being adopted by miners (depending on the service or exchange, it is being incrementally activated in the first months of 2018). To function properly, it requires that transaction malleability be solved. But, in the event that a miner is not SegWit compliant, it can resolve the malleability problem in other ways.

1 SegWit should not be confused with SegWit2x, an upgrade process that was cancelled a few months later in November. 2017

2 In the TechTalk article linked above, the author concludes:

“Transaction Malleability is fixed with Segregated Witness by no longer taking into account signatures when calculating the transaction’s fingerprint. Fixing Transaction Malleability means that the Lightning Network can work smoothly.”

Ellery Davies co-chairs CRYPSA, hosts the Bitcoin Event and presents at Crypto Conferences around the world. Book a presentation or consulting engagement.