Category Archives: “About Cryptocurrency Narratives”

Does Quantum Computing Kill Bitcoin?

Quantum Crypto Is Upon Us

We know it is coming. Probably.

For the last 25 years and more, we’ve known that quantum computing is coming, and that one of its first uses will be code breaking.

Much of the cryptographic infrastructure of the Internet is based on methods that are proven to be so hard to compute that a brute force or guessing attack is “infeasible”. Generally, this means that with current and projected technology, it would take a long time, years or centuries, to work it out.

But quantum computers should be zillions of times faster at certain kinds of computations, including the beating heart of key crypto algorithms. Uh, oh!

This cuts both ways. Quantum encryption might well be unbreakable by conventional computers (good for the defense, bad for the offense). But much of conventional computing and networks will be effectively clear text (bad for defense, good for offense).

I assume the NSA and all the other technically advanced powers are on the case, though I certainly don’t know exactly what is going on. We do know, for example, that there is a public effort in China to deploy quantum cryptography on a backbone network. Google has announced it has the technology. It is likely that high security nets have already got such technology, long before any public announcements. The future is already here.

Mark Kim writes this month in Quanta Magazine about these developments [3]. In particular, he discusses a paper by Bernstein, Daniel J. and colleagues, which looks at “Post Quantum RSA”, i.e., what happens to RSA encryption in a quantum computing world [1].

The thrust of this paper is proposals for “RSA parameters can be adjusted so that all known quantum attack algorithms are infeasible while encryption and decryption remain feasible.” ([1], p. 1)  As they say, their ideas are “not what one would call lightweight cryptography”. The case they analyze involves a 1 Terabyte key! This is expensive and awkward, but the point is that for cases that demand extreme measures (e.g., guarding root keys, critical backbones, and other vital secrets) there may be ways to protect against quantum decryption attacks, even with conventional computing.

This is a cool idea, assuming it bears out. If nothing else, it dilutes the aura of magical invincibility that surrounds quantum cryptography.

But these measures and other possible approaches, don’t really solve the problem for the bulk of the Internet. It may soon be true that well endowed actors, nation states and googles, can crack any crypto they need to.

What Happens to Bitcoin, blockchains, and other Cryptocurrency?

These developments potentially have serious implications for cryptocurrencies and blockchains, all of which depend on cryptography and, equally important, cryptographically-secured systems.

I’m not sure exactly what parts of the Nakamotoan mechanisms might be affected by quantum computing, some might even be improved. But the big two to worry about are the hashing scheme (the basis of ‘mining’) and the ‘addresses’ which are cryptographic public keys. These mechanisms are secured by algorithms that depend on the speed and cost of computing, so a major disruption of speed could breach the entire basis for Bitcoin.

I don’t know if there are ways to subvert the hashing scheme with quantum computing, and I certainly don’t know what the cost/benefit analysis might be for any such scheme. Quantum computing is likely to be more expensive, so who knows when it is cost effective? (Note that the argument that “it’s too expensive to be reasonable” simply does not apply to state actors.)

One potential problem is if it becomes reasonable for some wealthy miners to have systems that are much, much faster, and thereby to accumulate a large fraction of the total hashing power, then that would be a very serious problem.

An even bigger problem is that governments and large companies will soon be able to crack public keys, and therefore probably will be able to mess with Bitcoin addresses. Yoiks! Unfriendlies not only reading your mail, but manipulating your Bitcoins and your “smart contracts”, too. Again, arguments about supposed economic and cost barriers don’t apply to state actors.

Worst of all, anyone actually using Bitcoin or a blockchain for any normal purpose (i.e., other than mining or currency exchange), relies on the general security of the network and nodes. Even if the blockchain, servers, and wallets aren’t cracked (which they will be), the network itself is likely to be unsecure.

It’s hard to know what might happen, but if unfriendlies can insert man-in-the-middle attacks between nodes, then all bets are off. Anyone trying to actually use Bitcoin with a wallet and local connection would be vulnerable in any number of possible ways.

Game over.

Time’s Up For Cryptocurrencies?

The official Bitcoin wiki pages have a short note on “Quantum computing and Bitcoin”, which whistles past the graveyard. They suggest that there is a decade or more to do something, which is probably optimistic. But even this Pollyanna-ish page notes that there aren’t any solid solutions known at this time.

This isn’t great news, especially given Bitcoin’s disfunctional governance system, which has been spinning its wheels for two years over much simpler technical issues. How in the world will the crypto community cope with the existential threat of QC?

Obviously, I’m far more concerned about the collapse of the whole Internet.

Perhaps Bitcoin and other cryptocurrencies might turn out to be canaries in the coal mine, keeling over just before the the big explosion.


  1. Daniel J. Bernstein, Nadia Heninger, Paul Lou, and Luke Valenta, Post-quantum RSA. Cryptology ePrint Archive: Report 2017/351, 2017. https://eprint.iacr.org/2017/351
  2. Bitcoin Foundation. Quantum computing and Bitcoin. 2016, https://en.bitcoin.it/wiki/Quantum_computing_and_Bitcoin.
  3. Mark H. Kim, Why Quantum Computers Might Not Break Cryptography. Quanta magazine.May 15 2017, https://www.quantamagazine.org/why-quantum-computers-might-not-break-cryptography-20170515

 

Cryptocurrency Thursday

Blockchain Use Cases: Theme Parks?

Jegar Pitchforth writes in Coindesk about “5 Ways Theme Parks Could Embrace Blockchain” [1]. His basic idea is that theme parks are historically “early adopters” and pioneers of technology, and should pioneer the use of blockchain technology.

He specifically identifies five use cases:

  1. Ticketing
  2. “Fastpass tickets” (i.e., specific deals)
  3. Theme Park Currency (Branded)
  4. Audience Surveys
  5. Pay audience to advertise

Hmm.

These are scarcely new ideas. Indeed, the entire article refers to existing programs. The point must be, and the question is, what does blockchain technology bring to the table? How would a blockchain be better than current technology?

Let’s look at his use cases to see what value blockchain brings, if any.

In the case of ticketing, it seems that the main advantage is that a blockchain system can be securely accessed by any smartphone.   Current systems work fine, as far as I know, and wearable technology makes it even more convenient than a smartphone.

The “Fastpass” use case has the potentially interesting wrinkle of using “smart contracts” to implement markets for these ‘rights’. Guests could trade and bargain for seats on rides, and so on.  Or there could be various conditions attached (“You can ride if you and 3 of your friends show up in 15 minutes….”)

Assuming that this kind of activity is a desirable feature (and for some fantasy worlds, I’m not sure that you want people diverting attention to such matters), it isn’t clear that blockchain is any better or worse than any other technology. After all, so called “smart contracts” are really, really simple logic, which can easily be built into a conventional database.

The idea of Theme Park Currency is nothing more or less than digital tokens or coupons, with a ton of general purpose overhead. Since these ‘coins’ are essentially private tokens issued by the park, they aren’t “decentralized” at all. In that sense, blockchain is a terrible choice, completely incongruent with the use case.

The last two hinge on using the cryptocurrency as loyalty points to incentivize the victims guests. This may or may not be desirable thematically (and is certainly ethically problematic when children are involved), but you don’t need a blockchain or private cryptocurrency to make it work.

Overall, there is little technical or logical reason why blockchain technology is especially well suited for any of these use cases. Indeed, to the degree that blockchain is generic and invites attention to commerce it is interfering with the effort to create a magic world and to command total attention and immersion.

It is true that a blockchain-based solution might be cheap and easy compared to creating a secure private network. However, much of the cost and effort must go into the user experience not the back end details, so I’m not sure if there would be much cost savings.

Most of the features of the blockchain are actually irrelevant to these use cases. The data systems of a theme park are extremely private and highly localized. What is the advantage of using an open, internet-wide data system?

Above all, the entire theme of a “theme park” is trust. We hand over part of our life to the designers, trusting them to give us a safe and enchanting experience. Ticketing, tokens, and whatever else must all be integrated to be part of this trusted experience. What is the advantage of using a “trustless” technology to implement this deeply trustful system?

Overall, it looks to me like you could use blockchain technology, but there is hardly a compelling case to do so. And if you do, it will be necessary to integrate it into the overall magic, which likely will mean that the blockchain should be invisible. If it is done right, you’ll never know it is there.

Actually, a successful deployment would be very good for blockcahin technology in general, because it would have to create a safe and wonderful user experience.  To data, the “user experience” with blockchains is very, very weak. A Disney quality interface would lift all boats.

For example, a blockchain system requires guests (including children?) to manage cryptokeys  In the theme park this must be safe, intuitive, and generally invisible.  Developing cool metaphors and UI to do this would be a great thing to see, and would advance the whole field.


  1. Jegar Pitchforth, 5 Ways Theme Parks Could Embrace Blockchain (And Why They Should) May 16 2017, http://www.coindesk.com/5-ways-theme-parks-embrace-blockchain/

 

Cryptocurrency Thursday

Mauritius Invites Blockchain Ideas for Offshore Finance

From the very first, cryptocurrency and the underlying blockchain technology was designed to offer the benefits of offshore finance via the Internet. Nakamoto’s “decentralized” design is effectively “offshore from everywhere”—accessible anywhere, but resident nowhere. This central purpose has been dressed up ad spun in many ways, but in the end, “trustless” really means “out of the reach of governments”.

It is no surprise, then, that among the usual crypto stories about exchange rates and frauds there is news about physically offshore, hot-money centers that are very interested in cryptocurrency and blockchains. It is a perfect fit.

This spring, the infamous Indian Ocean pirate lair business friendly island paradise has been encouraging blockchain projects to set up in Mauritius, using their laissezfaire Regulatory Sandbox License process. Officials and promoters have been touting Mauritius as a great place to do this kind of business in Coindesk and many other outlets.

I have never been to Mauritius, so I mainly know about it from news headlines about mercenaries, Russian arms dealers, and baffling big power jostling to secure a navy base there. For a tiny little island, far from anywhere, Mauritius seems to enjoy a robust financial system, as well as a reputation as the suspected destination of cash.

The financial industry is very interested in blockchain for many reasons, so there is every reason for Mauritius to get in the game. But I’m sure that they will be very eager to develop easy to use financial instruments and distributed autonomous organizations. This will automate (and harden) the swift movement of money “off shore” and DAOs are ideal for the formation of opaque shell companies.

Naturally, this isn’t what their public relations offensive talks about. The promoters tout Mauritius as being close to India and Africa, which is true but irrelevant for blockchain technology. They recount how Mauritius has a great reputation for clean government, though they are playing in the Africa league, and globally, 49th in the world ain’t that great (that’s just behind Mexico in the league tables).

There is also some smoke about how Mauritius is ideally situate to “jump into new markets on the African continent – where many of the world’s largest unbanked populations exist.” Mauritius may be politically focused on African markets, but there is no reason to locate a blockchain business there rather than anywhere else in the world.

Well, there is a reason: it is a “business friendly” government out of the reach of local regulators in notoriously the difficult African nations. I completely understand why a company would prefer to be in Mauritius that, say, Kenya.

On the other hand, I’m not sure that having the financial system controlled by an unaccountable off shore company, with its own very cozy government, is going to be good for the “unbanked” or anybody else on the continent, except for tax avoiders and fraudsters.

And, of course, this won’t be Mauritians running things, but Americans, Europeans, Chinese, and who knows, exploiting Africans through opaque cut out companies hosted by Mauritius.

Blockchain: the next phase of colonialism in Africa?


  1. Aaron Stanley, Mauritius: The Tropical Paradise Looking to Become a Blockchain Hub. Coindesk.May 7 2017, http://www.coindesk.com/mauritius-the-tropical-paradise-looking-to-become-a-blockchain-hub/

 

Cryptocurrency Thursday

A Bad Idea Implemented with A Bad Idea

Let’s be clear. I find gambling to be boring and stupid myself, and I don’t admire gambling businesses that are built the weaknesses of people. Casino and other on-site gambling is a bad idea, but at least it gets people out in the world a little bit. Online gambling is a really, really bad idea, enabling people to feed their worst inclinations in the privacy of their own home.

You won’t b surprised that I’m not a big fan of the new initiative by an opaque company called Better Gaming, who are building an Ethereum Slot Machine: a slot machine that uses Ethereum smart contracts.

The innovation here is that this game is running entirely in a smart contract. No servers are required to operate the game, unlike existing online casinos.

Running “entirely in a smart contract” isn’t quite accurate: there is no server, but much of the logic runs on your local device.  However the logic of the gambling machine is implemented with smart contracts, which is the main point.

Readers of this blog know that I have a low opinion of “smart” contracts, Ethereum or otherwise. So, I’m especially excited to see this poorly designed technology used to implement the inherently bad idea of a slot machine. Not.

Obviously, the game itself isn’t innovative. They have gone to great trouble to replicated the behavior of these ubiquitous one-armed bandits. The “innovation” is to eliminate the server, in a fully decentralised and provably fair.” system.

For once, this Distributed App (Dapp) is actually solving a real problem: trusting your online gambling provider not to cheat is, well, a gamble. Gamblers can’t win, but they want to lose honestly.

The game’s logic has to be wholly processed within the smart contracts so that anyone who wants to can see that the game is playing by the rules and can’t cheat

Of course, they are also “solving” another problem, how to run an unregulated gaming operation, “off shore” from everywhere. Cryptocurrency is, if nothing else, a perfect digital “poker chip”, easy to move around, and not tracked by annoying tax agencies or vice squads. This slot machine isn’t taxed or regulated, and all the money goes…who know where it goes?

To give them their due, there are a couple of legitimate technical innovations in this product (at least according to their write up).

First of all, they made the user app asynchronous from the blockthain. It’s extremely important to give instant gratification to the lab rat gamer, and the blockchain has too much latency to always respond instantly. So they worked out protocols to mask the delay, presumably with caching on your local device. This is a significant achievement, and certainly caught Corin Faife’s attention in Coindesk. If this is successful, it may be a model to emulated by every Dapp.

A second technical feature is the random number generation (RNG). As Donald Knuth pointed out all those years ago, “Random numbers should not be generated with a method chosen at random.” [2] This group uses the blockchain with its pseudorandom hash in its random umber generation. I’m not sure what their method is, exactly, but this is a rather clever idea because the hashes are already very solid pseudorandom numbers.

 

Overall, this is yet another example of how bad ideas sometimes inspire brilliant software. This sounds like it will be a very solid implementation of a bad idea (a digital slot machines), and it will make excellent use of a bad idea (Distributed apps using Ethereum contracts), with some creative technical wrinkles. Sigh.

One sign that this is technology whose time has come: the Better Gaming  folks are already making legally licensed online games, and presumably making money.  Yet they believe it is worth building with this new tech, even though they are well aware that the powers-that-be will not easily approve it.  They should get credit for a gutsy technical gamble, and it shows just how promising this technology is.

it’s so new that we don’t expect regulators to fully grasp nor appreciate the implications overnight and there will need to be lots of discussion and negotiation before existing gaming jurisdictions license such activity.”


  1. Corin Faife, Watch This Ethereum Slot Machine Make Payouts in Real Time. Coindesk.April 21 2017, http://www.coindesk.com/watch-ethereum-slot-machine-video/
  2. Donald Knuth, The Art of Computer Programming: Vol. 2: Seminumerical algorithms (3 ed.). Boston, Addison-Wesley, 1997.
  3. Jez San, 1st Demonstration of real-time casino games built with Ethereum Smart Contracts, in Medium. 2017. https://medium.com/@aerobatic/1st-demonstration-of-real-time-casino-games-built-with-ethereum-smart-contracts-165ba72be02e

 

Cryptcurrency Thursday

Brooklyn Microgrid Using Blockchain

One of the strongest use cases for smart devices and microtransactions is local sharing of utilities, especially electricity generation. For example, a roof top solar panel on a home generates more and less usable electricity as conditions change, and might well produce more than you need at various times. That excess could be stored for later, or it could be sold to others. Over a city, the total could be huge, but it happens in many small transactions, a bit of electricity and a few dollars now and again. Hence the need for efficient microtransactions.

One approach is to sell the excess to the utility, offsetting other consumption, or even making a profit. This concept has been around for quite a while, though it is under sustained legal attack from utility companies. Theoretically, this is a win-win, but large utilities generally don’t want to compete with or provide expensive infrastructure to a zillion rooftops, so they make it less than a great deal for the little guy.

Another alternative is a plethora of local grids, transferring power and payments within a small system. The technology is not necessarily difficult, and it might be organized in different ways, and that is the hard part. For instance, many large campuses have their own generators and distribution grid across the site.

This year The Brooklyn Microgrid is demonstrating a peer to peer version of this concept. Local residents with solar panels connect to a local grid and associated software platform that allows trading of generated electricity among the nodes. This is “peer-to-peer” in that the utility is not involved in the transmission or payments, though the network is operated by a company.

The project  is based on LO3 Energy’s TransActive Grid, which connects the nodes via their proprietary system

“A TransActive Grid element is a hybrid device that contains both an electric meter and a computer. It is capable of (1) measuring energy production and consumption and (2) sharing and acting upon this information with other TAG-e in the network.

Essentially, there is a gizmo that tracks electricity, and also talks to the other gizmo in the network (via your home wifi, which thye assume you already have).

It is not surprising that the sharing and transfers are done using a blockchain. This is a perfect example of this use case for blockchain.

We don’t know very much about the exact solution because the “platform” is proprietary. They say that it is “based on an open source” platform, but the source is not actually available or even explained in public documentation. (I’m guessing that the “open source” part is Bitcoin or whatever blockchain they are using.) They also say that the company is “a benefit corporation”, which is a company that is supposed to benefit the public, and that someday soon, they will transfer ownership “to local organizations and individuals living in the Brooklyn community”. I feel better already.

From the limited information we have, it looks like the blockchain is playing an important role, but scarcely an irreplacible one. For one thing, the “trustless” blockchain is rather offset by the fact that the system built on top of it is anything but “trustless” or open. You have to trust the company, its magic meters, and its software. In turn, they stand behind the hardware and software, which is a good thing.

Technologically, the blockchain stuff could easily be replaced by cloud servers operated by the company. The users would never know the difference, and the level of trust would be pretty much the same. It might even work better than the blockchain.

On the other hand, the cryptographic signatures and public key cryptography is essential to this network. But this is implemented on the nodes (i.e., your own trusted devices) and has nothing to do with blockchain, per se. Everything hinges on managing the cryptographic keys used to sign and route the transactions via the blockchain, and that would work the same with any other distributed storage technology.

Even more important, the technology is not the primary problem to solve here. In general, ”It is illegal for individuals to sell or buy electricity from each other without a utility’s involvement.”  [3]

LO3 is working on solutions though they have not indicated exactly how they mean to work around this tiny little difficulty. Lawrence Orsini of LO3 Energy says they are “looking at three possible options.”

“”What I will tell you is that when we’re ready to actually do the transactions, they will be real transactions. They will be real dollars being traded for real energy, legally,” Orsini said“. (quoted in [3])

Well, good. It will be instructive to see what they work out.

Returning to my earlier point, I note that the blockchain technology is not necessarily relevant to this legal and political challenge. In fact, the use of “trustless” software is probably a red flag for regulators, who generally want someone to be responsible for the system.

Bottom line: microgrids are cool, and these developments are interesting. Using blockchain is probably convenient and cheap, but not really technologically necessary.


  1. LO3 Energy. Brooklyn MicroGrid. 2017, http://brooklynmicrogrid.com/.
  2. LO3 Energy. Transactive Grid. 2017, http://lo3energy.com/transactive-grid/.
  3. Sebastien Malo,  In New York, neighbors trading solar energy electrify community. Reuters.March 30 2017, http://www.reuters.com/article/us-energy-usa-blockchain-idUSKBN171003

 

Cryptocurrency Thursday