Is it Too Late to Get into Bitcoin and Blockchain?

At Quora, I occasionally play, “Ask the expert”. Several hundred of my Quora answers are linked at the top right. Today, I was asked “Is it too late to get into Bitcoin and the Blockchain”.

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


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

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

The Baird Televisor, c.1936

But the Televisor was not quite a TV. Like the oscilloscope and the zoetrope, it was a technology precursor. Philo T. Farnsworth is the Satoshi Nakamoto of television. He is credited with inventing TV [photo below]. Yet, he did not demonstrate the modern ‘cathode ray’ television until 1934.

Farnsworth demonstrates TV

The first broadcast by NBC was in July 1936, ten years years after the original Baird invention. (Compare this to Bitcoin and the blockchain, which are only 7 years old).

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

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

The short answer to your question: No! It’s not too late to get into Bitcoin and the blockchain. IIn fact, we’re still in the very early era. The ship is just pulling into the dock and seats are mostly empty. The big beneficiaries of blockchain technology (application, consulting, investing or savings) have not yet formed their first ventures. Many of the big players of tomorrow have not yet been born.

Ellery Davies is co-chair of Cryptocurrency Standards Association. He is also a frequent contributor to Quora and editor at A Wild Duck.

Diminishing Bitcoin Mining Rewards

By now, most Bitcoin and Blockchain enthusiasts are aware of four looming issues that threaten the conversion of Bitcoin from an instrument of academics, criminal activity, and closed circle communities into a broader instrument that is fungible, private, stable, ubiquitous and recognized as a currency—and not just an investment unit or a transaction instrument.

These are the elephants in the room:

  • Unleashing high-volume and speedy transactions
  • Governance and the concentration of mining influence among pools, geography or special interests
  • Privacy & Anonymity
  • Dwindling mining incentives (and the eventual end of mining). Bitcoin’s design eventually drops financial incentives for transaction validation. What then?

As an Op-Ed pundit, I value original content. But the article, below, on Bitcoin fungibility, and this one on the post-incentive era, are a well-deserved nod to inspired thinking by other writers on issues that loom over the cryptocurrency community.

This article at Coinidol comes from an unlikely source: Jacob Okonya is a graduate student in Uganda. He is highly articulate, has a  keen sense of market economics and the evolution of technology adoption. He is also a quick study and a budding columnist.

What Happens When Bitcoin Mining Rewards Diminish To Zero?

Jacob addresses this last issue with clarity and focus. I urge Wild Ducks to read it. My response, below touches on both issues 3 and 4 in the impromptu list, above.


Sunset mining incentives—and also the absence of supporting fully anonymous transactions—are two serious deficiencies in Bitcoin today.
I am confident that both shortcomings will be successfully addressed and resolved.

Thoughts about Issues #3 and #4: [Disclosure] I sit on the board at CRYPSA and draft whitepapers and position statements.*

Blockchain Building: Dwindling Incentives

mining-incentive-02Financial incentives for miners can be replaced by non-financial awards, such as recognition, governance, gaming, stakeholder lotteries, and exchange reputation points. I am barely scratching the surface. Others will come up with more creative ideas.

Last year, at the 2015 MIT Bitcoin Expo, Keynote speaker Andreas Antonopoulos expressed confidence that Bitcoin will survive the sunset of miner incentives. He proposed some novel methods of ongoing validation incentives—most notably, a game theory replacement. Of course, another possibility is the use of very small transaction fees to continue financial incentives.

Personally, I doubt that direct financial incentives—in the form of microcash payments— will be needed. Ultimately, I envision an ecosystem in which everyone who uses Bitcoin to buy, sell, gift, trade, or invest will avoid fees while creating fluidity—by sharing the CPU burden. All users will validate at least one Blockchain transaction for every 5 transactions of their own.

Today, that burden is complex by design, because it reflects increasing competition to find a diminishing cache of unmined coins. But without that competition, the CPU overhead will be trivial. In fact, it seems likely that a validation mechanism could be built into every personal wallet and every mobile device app. The potential for massive crowd-sourced scrutiny has the added benefit of making the blockchain more robust: Trusted, speedy, and resistant to attack.

Transaction Privacy & Anonymity

Bitcoin’s lack of rock-solid, forensic-thwarting anonymity is a weak point that must ultimately be addressed. It’s not about helping criminals, it’s about liberty and freedoms. Detectives & forensic labs have classic methods of pursuing criminals. It is not our job to offer interlopers an identity, serial number and traceable event for every transaction.

Anonymity can come in one of three ways. Method #3 is least desirable:

  1. Add complex, multi-stage, multi-party mixing to every transaction—including random time delays, and parsing out fragments for real purchases and payments. To be successful, mixing must be ubiquitous. That is, it must be active with every wallet and every transaction by default. Ideally, it should even be applied to idle funds. This thwarts both forensic analysis mining-incentive-03and earnest but misguided attempts to create a registry of ‘tainted’ coins.
  2. Fork by consensus: Add anonymizing technology by copying a vetted, open source alt-coin
  3. Migrate to a new coin with robust, anonymizing tech at its core. To be effective, it must respect all BTC stakeholders with no other ownership, pre-mined or withheld distribution. Of course, it must be open, transparent and permissionless—with an opportunity and incentive for all users to be miners, or more specifically, to be bookkeepers.

That’s my opinion on the sunset of mining incentives and on transaction anonymity.
—What’s yours?


* Ellery Davies is co-chair of the Cryptocurrency Standards Asso-
  ciation. He was host and MC for the Bitcoin Event in New York.

Bitcoin Fungibility: A Benefit of privacy & anonymity

I was pointed to this article by Jon Matonis, Founding Director, Bitcoin Foundation. I was sufficiently moved to highlight it here at AWildDuck.

On Fungibility, Bitcoin, Monero and ZCash … [backup]

This is among the best general introductions I have come across on traceability and the false illusion of privacy. The explanation of coin mixing provides and coin_mixing-03excellent, quick & brief overview.

Regarding transaction privacy, a few alt-coins provide enhanced immunity or deniability from forensic analysis. But if your bet is on Bitcoin (as it must be), the future is headed toward super-mixing and wallet trading by desgin and by default. Just as the big email providers haved added secure transit,
Bitcoin will eventually be fully randomized and anonymized per trade and even when assets are idle. It’s not about criminals; it’s about protecting business, government and individuals. It’s about liberty and our freedoms. [Continue below image]

coin_mixing-04

How to thwart forensic investigation: Fogify explains an advanced mixing process

The next section of the article explains the danger of losing fungibility due to transaction tracing and blacklisting. I can see only ONE case for this, and it requires a consensus and a hard fork (preferably a consensus of ALL stakeholders and not just miners). For example, when a great number of Etherium was stolen during the DAO meltdown.

My partner, Manny Perez, and I take opposing views of blacklisting coins based on their ‘tainted’ history (according to “The Man”, of course!). I believe that blacklists must ultimately be rendered moot by ubiquitous mixing, random transaction-circuit delays, dilbert-060219and multiple-transaction ‘washing’ (intentionally invoking a term that legislators and forensic investigators hate)—Manny feels that there should be a “Law and Order” list of tainted coins. Last year, our Pro-&-Con views were published side-by-side in this whitepaper.

Finally, for Dogbert’s take on fungible, click here. I bought the domain fungible.net many years ago, and I still haven’t figured out what to do with it. Hence this Dilbert cartoon. 🙂
____________
The author is co-chair of The Cryptocurrency Standards Association.
He also presents on privacy, anonymity, blind signaling & antiforensics.

Bitcoin can arbitrage Netflix VPN workaround

I almost overlooked This Forbes article. It was published in June 2016. It is not about Bitcoin. Rather, it discusses the Netflix effort to thwart forbes-logoVirtual Private Networks (VPNs), which had been used to circumvent geographic content restrictions.

The  author describes a fascinating work-around. It probably doesn’t break any government law—although it most certainly violates the Terms of Service which users acknowledge when they sign up or log into their Netflix account.

The workaround begins in paragraph 4, with the title: “The Solution”. It describes a self-balancing market for p2p use of desirable residential IP addresses. For example: USA has the largest number of movie and TV titles. The author proposes an automated process of bidding for temporary remote control of USA Netflix subscriptions, using the subscriber’s internet connection as a gateway, while content is delivered to Beijing, Dubai or Fiji.

Effectively, Bitcoin is used as the backbone of a clever negotiating, bidding and settling mechanism. Since USA IP addresses have a premium value to foreign netflix-logo-01Netflix subscribers, it enales USA members to auction the temporary use of their Internet connections.

Of course, using Bitcoin to arbitrage the disparate value of residential Internet connections doesn’t explain the technical process of relaying movies through remote user gateways. That part is achieved by adding an arbitrage-activated VPN proxy into members who choose to bid or auction regional access. Netflix is looking for the IP addresses of commercial VPN gateways and not the IP addresses of its own individual members. Although, I have not yet tested the work-around described, it should be transparent to both users.

For me, this is a particularly elegant application of capitalist economics. In fact, I recently sold my patent on a similar bid-for-attention mechanism that stops Spam without blocking anything that each individual user would find desirable, even if it is unsolicited, commercial or sent in bulk.

The key information [excerpt from linked article]:

“Basically, the number of users trying to watch U.S. Netflix would vastly outnumber the users trying to watch Australia Netflix so U.S. connections would be oversubscribed. This can be resolved with a balancing mechanism with financial incentives, such as Uber surge pricing,” Yen told Forbes.

Bitcoin pile-s“When U.S. connections become oversubscribed, U.S. users would be able to make money by making their connections available while foreign users would have to pay more to access U.S. connections. Bitcoin could be used to facilitate these payments since it is anonymous, decentralized and has a low transaction cost.”

What makes this proposal so attractive, is that it thumbs a nose at any vendor that thinks that it can control the individual use or application of its product in the field for no good reason. (I consider geographic content restrictions to be  “No good reason”!). Regardless of EULAs and even national laws, in the end, it’s very hard to argue with grassroots phenomena and facts on the ground.

Hey! You’ll get no dog whistles here.

Ellery Davies is a frequent contributor to Quora. He is also co-chair of
Cryptocurrency Standards Association and chief editor at A Wild Duck

Will The Blockchain Outlive Bitcoin?

I was asked to answer this question by an editor who—like Mike Hearn—presumes that Bitcoin will die because of the current forking crisis. I believe that the future for both Bitcoin and the Blockchain is bright, despite current issues related to mining, block size, a transaction bottleneck and code evolution. My thoughts on Bitcoin are sprinkled all throughout this Blog, and especially at Quora. And so, I shall direct an answer at the other half of the question. Let’s rephrase it:

“The Blockchain is gaining popular recognition and related investment is booming. Why is this happening now—eight years after it hit the scene inside Bitcoin?”

First, a brief refresher in the Blockchain-Bitcoin parentage…

Bitcoin is the original Blockchain implementation. But, significant controversy has arisen around Bitcoin.

  • Some proponents believe that it is money—and that it may even have the potential to replace national currencies and disrupt state controlled monetary institutions
  • Others feel that it is simply a mechanism to transmit money (like a debit card or a Western Union cash transfer)
  • Some armchair pundits see Bitcoin as brief economic fad, like the tulip bulb mania that swept over Holland in the 17th century
  • Still others see it as a criminal tool, with little potential to transform businesses or consumer habits

But there is far less controversy about the underlying technology. The Blockchain is a method of distributing a ledger across all users (or as many who care to participate) in a manner that validates historical transactions,blockchain-01 but requires no central nexus and is permissionless.

With sufficient user participation, the blockchain offers advantages to complex transaction systems:

  • high user confidence (i.e. among customers, voters, taxpayers,
    land owners, patients, scientists, etc)
  • low cost
  • increased trust
  • robust data retention (i.e. distributed, fault tolerant storage)
  • security from hacking
  • resistance against human error or natural disaster
  • quick data extraction and ongoing auditing

These are compelling advantages for almost any transaction system designer. And so, all manner of financial institutions, genetic researchers, voting system designers, and, of course, bookkeepers, blockchain_logoaccountants or data aggregators, are rushing to exploit the potential for improving their business model by incorporating a blockchain into their design methodology.

This answers the question—But, allow me to add a caveat, because there is a catch—at least until a more universal understanding spreads across the community…

The Catch

The blockchain is still a new concept. It was introduced along with Bitcoin in a 2008 Whitepaper by an anonymous cryptographer. Because it is so new, pundits, process designers and investors must be very astute in implementing or justifying the use of blockchain based architecture. If they don’t, early investors or system users will likely feel that they sucked into another tulip bulb mania.

In a recent article, I explain that to qualify as a Blockchain (and, thereby, to convey the benefits listed above), a database design must embody 5 key concepts. It must be:

  • Open-source
  • Fully distributed among all users.
  • Any user can also be a node to the ledger
  • Permissionless to all users and data originators
  • Access from anywhere data is generated or analyzed

The article is brief, but the punchline should be gospel for anyone thinking of implementing a blockchain-based system. Here is the spoiler:

A blockchain is practically worthless if it is not both open source and permissionless.

Yet, it is these two design elements that many rushing to stake a claim are refusing to embrace. That’s because the desire to retain a proprietary interest or to ‘own the books’ is very alluring. It is built into our business DNA. For the past 40 years, business schools teach that controlling data is the key to profits. We have been taught that blockchain-02losing control over data leads to lapses in security or losing the edge over competitors.

For commercial ventures, it seems reasonable that releasing control or outright ownership of critical business data would undermine the value of a service or system. For complex government systems, transparency and loss of control would seem to weaken public security.

On the contrary! Although the Blockchain is not appropriate for every data storage system or transaction processing mechanism, partial blockchains are charlatans (i.e. systems that embody distributed storage, but are not both open source and permissionless). They do not achieve the benefits that designers are chasing.

Without a network that is fully distributed among its users as well as permissionless, open-source and readily accessible, a blockchain becomes a blockchain in name only. It bestows few benefits to its creator, none to its users—certainly none of the dramatic perks that have generated media buzz from the day Satoshi hit the headlines.

Related:

Why properly oriented photos jump back to rotated

A year ago, I watched my good friend, George, create a new account at a popular dating service. It wasn’t a hook-up site, but rather a serious forum for like minded, intellectual, Italian Americans.

George Clooney-sSure, Ellery!…I bet that it was you surfing the
dating service—and not your imaginary friend.

No, seriously. That’s him on the right.               »
Anyway, the first photo that George uploaded is the handsome close-up shown here. But to his surprise, the dating service displayed the sideways photo shown below.

George was surprised, because he recalled that the camera displayed it this way when his mom took the photo. He rotated it clockwise even before uploading to a PC. Now, it displays correctly on both his camera and on his computer screen. He thought that the sideways photo problem had been resolved. He even emailed the photo to me, and it looked fine on both my phone and desktop PC.

George Clooney-Couterclockwise« But there it is at ItalianStallions.com. Somehow, the photo had jumped back to sideways orientation. What gives?!

I started to give George a tip about permanently correcting the problem, but he cut me off…“Ellery”, he said—“I just want to meet Sheryl411. She has incredible eyes. I haven’t been so smitten since I met Amal!

With a remarkably low threshold for technology glitches, he decided to leave the sideways photo at ItallianStallions.com. “I can’t imagine that a reasonable girl would care” He said. “After all, women love my mug. They can rotate it after saving it to their drive—Or, they can simply ask my agent to send a signed, 8-by-10 glossy photo”.

I grimaced. In my opinion, the sideways photo broadcasts a not-too-subtle message—It says that the person seeking companionship is a Luddite, rather than America’s premier hunk. George’s character in the film Up in the Air was ruthless, but had so much more common sense.

George and I were still sitting on the back deck sipping Shirley Temples, when the alert appeared on his screen. Even before he reached out to any of the beautiful, eligible women at ItallianStallions.com, he had caught the eye of Sheryl411. What an incredible coincidence! But, sadly, her note to George was an unsolicited rejection letter:

Dear ‘Clooney-Actor-Hunk’,

I am fascinated by your wit and words—and I love your movies. I read about your break-up with Amal, and I just want to hold you to my breast and comfort you.

I wish that I could jet-set to your latest movie set in Casablanca or sail on your 164 foot yacht. But, I’m afraid that it is not meant to be. I could never date you…

If you can’t figure out how to make a sideways pic of yourself upright, then we are not a good match. I’m sorry… Darwin is making me do it.

I tried to sympathize with George. Sheryl411 represented his fantasy and passionate hopes. But Sheryl has a shorter tolerance for techno-averse actors than they do for figuring out how to rotate a photo.

So what is the problem—and how can it be solved?

In response, I am sharing with readers my reply to Sheryl. (I grabbed George’s laptop PC, and wrote this note back to the object of his lust)…

Dear Sheryl411,

I *love* your final comment to my friend George: “If you can’t figure out how to right a sideways pic…Darwin is making me do it”. Hawhh! And to think that I thought this was a problem related to a double-X chromosome!

It is, in fact, a tricky problem, because with some phones & cameras, the rotate-feature does not really rotate the image data. It only adds a tag that tells the display device that it should be rotated (90, 180 or 270 degrees). So, the user may see a properly oriented photo—even after they upload it to a PC. Yet, when they upload to the dating service, it jumps back to sideways. That’s because the dating site uses older rendering software that does not recognize the rotate instruction.

Sheryl411: George’s latest obsession

For this reason, I would give George a break (even though a sideways photo is one my pet peeves too!). Since cameras and PCs are not his thing, it can be tricky to realize that he needed to use the older method of rotating, which actually rotates and re-writes the image, rather than adding a rotate tag.

But wait! Things don’t really get better, because if you use an older process to truly rotate the image, it is likely to leave the embedded tag which tells newer devices to apply an additional rotation. Oy Gevalt! What to do?!

The best solution is to run a free utility, Autororate. It adds a right-click feature to your Explorer/browser. It rotates and re-saves an image file in place. If the file has a rotate tag, it syncs the underlying orientation and then strips the tag, with no loss of image quality.

And so, Sheryl—We have solved the problem. Now, that I have shown you that I know how to avoid sideways head shots, please consider dating  me  instead of George. He may be a hunk, but I have much more going on upstairs, if you know what I mean! 😉 Check out my dating site profile and my upright photos. If Darwin is your thing, visit my Blog, AWildDuck.com. You are sure to be impressed by my intellect, eclectic wit, charm, wry sarcasm and incredible modesty.

Your future date (or mate-?),
~Ellery


Epilogue:

I forgot to create my own dating page and give Sheryl my user name. So, she had no way to answer me. Later that night, she wrote to George asking for my contact information. (she could have used the Contact form here at Wild Duck).

When George saw her request, he went ballistic! He realized that I had put the moves on his girl. I have always thought of this Blog as a family-friendly site, and so I cannot relate the angry note that George sent to me. It drips with venom and profanity.

Today, Sheryl and I are married. George is still with Amal, and he is still angry with me. He refuses to rekindle our friendship, and so we don’t spend time on his Yacht or on set of his Casablanca movie (It is still being filmed). But we always see his films at the local theater and we raise a glass or two in his honor. After all, he introduced us!

No. I don’t really know George Clooney and I am not married to Sheryl411. I wrote this article to
explain JPEG image rotation. Yes, Sheryl411 is real, and she really can’t stand techno-Luddites.

Got Pokémon Go? Not Wesley Crusher!

If your a Trekkie, you remember Wesley Crusher, the young ensign, and son of the ship’s doctor on Star Trek, Next Generation. The character, played by Will Wheaton, appeared regularly for the first four seasons. But beginning with Season five, he made sporadic appearances as a guest star.

tumblr_inline_mqzrxpodNn1qz4rgpIn “The Game” (season 5, episode 6), Wesley locks lips with Ashley Judd, in her first on-screen kiss. It certainly wasn’t Will Wheaton’s first kiss. In “The Dauphin” (season 2, episode 10), he smooches with Salia, a shape-shifting alien with a penchant for morphing between a glowing pile of Jello into the more pleasing form thedauphin1-300x229of teen actress, Jamie Hubbard.

But I digress…

Wesley and his romantic interest hitch a ride on his former ship and discover that a virtual reality game is spreading across the crew like Ecstasy, or more specifically, like Pokémon Go, a Nintendo app that—just 5 tumblr_inline_mqznzssqzs1qz4rgpdays ago—no one had heard of. Now, it runs on one in five smart phones and is spreading like wildfire.

No phenomenon has ever spread across 20% of the population in 5 days. Not in the physical world—and not even in the digital realm. Edison’s gramophone and Alexander Graham Bell’s telephone are indisputably more crave worthy inventions than catching cartoon characters in imaginary balls. Yet, it took these earth shattering inventions twelve years to achieve market penetration.

Kitarian Game on Star Trek Next Generation

A quick pleasure? Use your thoughts to slide the red disks into the funnels.

The Tienanmen Square tank boy and the blue dress (I still claim that it is gold and white) are just bits and pixels. Yet, even these touchstone photographs spread across the country slower than the current Pokémon Go craze.

And just like the eyeglass-mounted game on the Enterprise, Pokémon Go taps directly into the pleasure center causing players to lose sense of where they are and what they had set out to accomplish. How can I be so sure of it’s nefarious capacity for mind control? After just five days, it is implicated in malware scams and armed robberies. It is every bit as addictive as crack cocaine, and possibly as destructive.

Forcibly tapping Wesley’s pleasure center via a game

Forcibly tapping Wesley’s pleasure center via a game

Do you think I’m kidding? When people are addicted to a VR app, bending their will is not difficult. Just ask 1,014 Star Trek crew members who were hypnotized and repuposed by a Ktarian mind control game. If it hadn’t been for the quick thinking of Wesley Crursher and his girlfriend, Ensign Robin Lefler (played by Ashley Judd), we’d all be speaking Ktarian today!


Postscript: This article is more about a Star Trek episode than it is about a new game app. I have always wanted to write a short post about a terrific television franchise that has touched so many people across three generations and all continents. The sudden spread of a new Internet sensation has simply given me the excuse to do so. Just like “Blink of an Eye”, The Game is indelibly written into my psyche. The parallels with an addictive new game that even captivates my AirBnB guest, Javier, and my neighbor, Lois, is eerie and raises questions about the causes, mechanisms and effects of mind control.