Tag Archives: Emily Spaven

Bitcoin Network: Decentralized == Defenseless?

Part of the Bitcoin “community” is very interested in scaling problems, and has decided to conduct some “tests”/”experiments”/”demonstrations” to see how the Bitcoin network weathers heavy stress. This test may be happening right now or soon (or never)—who knows?

This event is part of a fascinating bit of sociotechnical theater, acting out an dramatic, operaetic scene, as the various segments of “the” community roar and gesticulate their own lines. Last month saw a catastrophic schism, when key “developers” forked the code to create a second, competing implementation of Bitcoin, while other factions offer competing plans, and everyone is arguing about what should be the One True Way.  (In many cases, the arguments include references to “scripture”, quoting from the Nakamoto Document for support.)

The Coinwallet “demonstration” has, of course, an underlying point: the current design of the Bitcoin software has a limited capacity, so limited that it is easy to forsee disastrous overloads in the near future.

The demonstration is a classic “white box” software test, which uses intimate knowledge of the system to carefully design cases to force the system into overloads, which will then ripple throughout all related software and users. One estimate suggested that such an event could create backlogs for 30 days (!). That is, if Coinwallet’s test works out as predicted, you will have to wait until October to receive your payment from today.

While this is a pretty standard bit of test engineering, we normally don’t conduct destructive stress tests on live, production systems. In this case there is little alternative because there is only one Bitcoin network, there is no backup, no large testnet, and it isn’t segregated into subnets. All or nothing are your choices for testing.

Amazingly enough, people using this network are less than completely pleased with this “attack”, however it may be dressed up as “testing”.  This is certainly not a very neighborly way to make your point about scalability. And there is a real danger of copycat “attacks”, which could completely flood the network.  Is this any way to run a “community”?

What is nominally a software “stress test” is also a stress test for the Bitcoin community itself, for many reasons.

To start with, the test itself is nothing more than a carefully designed set of transactions, which are entered into the network through the universal, public protocols. Furthermore, they are designed to operate within the spirit of Bitcoin, using transaction fees to “incentivize” miners to process the test transaction. This is all well within the rules, so who can object?

On the other hand, this flood of traffic has, quite reasonably, been characterized as “spam”: they are blasting immense amounts of meaningless autogenerated junk into the system, crowding out “real” transactions.

Describing this as “spam” is quite apt for another reason: the only countermeasure seems to be filtering out the troubling transactions. But choosing to ignore some transactions is something that the Bitcoin community considers “censorship”, an anathema, and one of the things the decentralized network was created to defeat.

If the miners can decide on their own that they just won’t do these transactions, then why can’t they select to block others? For example, there is a perennial desire to ignore the zillions of transactions from gambling payments which clog up the network and represent no “real” business activity.

But, if such “censorship” is OK, then is the Bitcoin network is morally any better than the despised “centralized” systems it is supposed to replace?

Ouch! Damned if you do, damned if you don’t!

Surely the thousands of innocent users shouldn’t suffer at the hands of a few misguided people. What is to stop others from running similar “attacks” for their own reasons? If a few people can blockade the whole network any time they want to, it would be pretty fatal to any hope for widespread use of Bitcoin.  This could be an existential threat to the entire network.

But what can be done?

It is certainly the case that any decentralized system and organization such a Bitcoin will be vulnerable to various kinds of abuse and attacks, albeit they will be different than the attacks that succeed against other architectures.  All systems are vulnerable to some threats.

Unfortunately, the nature of decentralization eliminates many of the commonly used defenses that are used to defend network systems. These might include things like  access control, contractual terms of use, and imposing personal liability for abuses. All of these mechanisms are eschewed by the Bitcoin network, as part of its philosophy and design.  The very design of this supposedly indestructible network makes it vulnerable.

In a deeply ironic development, some have argued for employing  the ultimately “centralized” defense. Perhaps the Coinwallet “test” should be considered a violation of national laws against computer abuse (i.e., anti spam and DDOS laws), and should be prosecuted by the hated state.

Would the Bitcoin community really resort applying to the very laws that Bitcoin is designed to subvert, collaborating with the very authorities they boast are powerless to control them? And if this application of the law is pursued, where will it stop?

Phew!

It looks to me like the wheels are coming off of Bitcoin. Everything is falling apart, especially “the community”. Can Bitcoin even survive the year?

 

 

Cryptocurrency Thursday

Unbundling and Remixing the Cryptocurrency Narrative

From the origin story in the canonical Nakamoto Document (2009) [3], cryptocurrencies have enacted a story about the virtue and logical inevitability of non- (indeed, anti-) statism. Bitcoin is better than that cruddy old “state run” money, and will inevitably displace the dinosaurs, goes this narrative.

The byproducts of this approach, which are either a feature or a bug depending on your views, are criminality and fiscal freebooting, including crazy market swings, ponzi schemes, and plenty of shady commerce. If states and conventional financial controls are doomed to disappear, are we destined to a financial wild west, with every person for himself?

This summer has seen push backs against this particular narrative about cryptocurrency. In particular, it is becoming clear that many of the benefits of using cryptocurrency can, in principle, be enjoyed without necessarily accepting the anything goes, anonymous, peer-to-peer architecture.

In June, the UK Home Office offered a cautious evaluation of risks and possible actions relating to cryptocurrency [1]. With responsibility for law enforcement and home defense, it is not surprising that this report suggests that it would be advantageous to have a cryptocurrency “created and owned by central Government”. This system would be designed to limit criminality, and to offer similar benefits now accrued from using the Pound Sterling.

Generally speaking, “limiting the use for crime or terrorism” would mean “enhanced traceability”. In other words, much of the Bitcoin idea would work fine without the cloak on everyone’s identity—unless you are trying to hide from the government.

In addition, a cryptocurrency issued by the government would be coordinated with, if not integrated with, the fiat currency. This would be extremely advantageous for most legitimate commerce, who benefit from stable, regulated currency, and insured banks.

This month, Deloitte issued a very similar proposal, with some more detailed arguments. [4]. They call for a cryptocurrency issued by the central bank, e.g., the US Federal Reserve. The ad hoc, volunteer Bitcoin network would be replaced by a network of licensed banks, which would gain a flow of revenue from participation. (With unconscious humor, Stan Higgins describes this as “uncompensated mining”. Banks are never, ever, uncompensated for anything.)

They note that this setup eliminates some of the hard to quantify risks surrounding the Bitcoin protocol, such as the effects of mining pools, technological changes, and possible 51% attacks. It also would bring fees and other policies under control of a central agency, rather than a hard to predict “consensus”.

The Deloitte paper also calls for the cryptocurrency to be integrated with fiat currency, such as the US Dollar, rather than floating independently a la Bitcoin. This would mean that individuals and businesses could accrue the advantages of cryptocurrencies (low transaction costs, easy transmission, etc.) without the exchange rate and legal risks endemic to Bitcoin.

Based in regulated financial institutions, this cryptocurrency would be much more resistant to abuse, and in fact would play by exactly the same rules as conventional currency. This is a path that would allow paper currency to be replaced by secure and convenient cryptocurrency, with concomitant benefits to the financial system and economy.

Finally, a cryptocurrency integrated with central bank fiat currency would be amenable to sound macroeconomics, including manipulation of the money supply required for a healthy economy. Nakamoto’s atavistic “hard money” doctrine is one of the major barriers to Bitcoin’s use in large scale economies.

Underlying both these proposals is the realization that many of the key benefits (better transaction processing, secure electronic transactions, and so on) are technically separable from the peer-to-peer mining paradigm, and the hard money macroeconomic policy advocated by Nakamoto and his disciples.  They are unbundling the Bitcoin package.

These proposals are also asserting an alternative to the notion that the “trustless” design of Bitcoin makes it “trustworthy”. These proposals base trust on publicly accountable institutions rather than “the Internet”. While this is pure heresy for orthodox Nakamotans, it is precisely the model that we have rather carefully constructed over the past century, which may not be so easy to overthrow as enthusiastic believers hope.

I have often commented that “anyone can have their own cryptocurrency” [2]. So: who better to create a cryptocurrency than those who already operate currencies on a far larger scale than Bitcoin? Central banks already issue digital currency and manage the frighteningly heavy weight banking system. They will have little choice but to upgrade to these crypto based systems, pretty soon now.

When this occurs, it will be a formidable competitor to Bitcoin, quite possibly putting it out of business. After all, how well do gold coins compete against conventional money in all its forms? Not so well, for good reasons. Bitcoin could become a quaint historical artifact, with the romantic appeal of the Krugerrand, and just about as useful.


 

  1. Home Office, Digital Currencies: Call for Information, H. Office, Editor. 2015. http://www.scribd.com/doc/269477425/Home-Office-Digital-Currency-Response-CoinDesk
  2. McGrath, Robert, You Shall Not Crucify The Internet On This Cross of Bitcoin, in Very Much Wow. 2014: Albuquerque. p. 34-37. http://issuu.com/verymuchwow/docs/vmw3/35?e=11558635/8421855
  3. Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf
  4. Piscini, Eric, State-sponsored cryptocurrency: Adapting the best of bitcoin’s innovation to the payments ecosystem. Deloit Development LLC Anaysis, 2015. http://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-cons-state-sponsored-cryptocurrency.pdf

 

Cryptocurrency Thursday

Cryptocurrency Community Soap Operas

I have frequently discussed the “cultural narratives” enacted by various cryptocurrency communities, an referred to them as an “unhappy family”, related by technical and social inheritances. These characteristics are on view nearly every day in the form of controversy, competition, and emotional outbursts.

Besides the usual arrests, inscrutable announcements about funding,  and secret meetings on private islands,  this week we witnessed a sad episode in the Dogecoin community, as founder Jackson Palmer washed his hands not only of Dogecoin (which he walked away from last year), but from cryptocurrency altogether.

Basically, he is sick and tired of the “toxic” culture of cryptocurrency communities, to the point where he’s not interested any more. (I have called this malady “chronically inflamed reddits”, an endemic and debilitating internet disease.)

He is not the only one who has this gripe, and I certainly sympathize. I know of other people who have been driven away from cryptocurrency by the unpleasant “community”. I follow cryptocurrency developments, but I can’t abide reddit for more than a few seconds myself.

In other words, I certainly “get it”.

However, this “you won’t have Palmer to kick around any more” vibe struck me as childish and unhelpful. When we desparately need good examples, this wasn’t one.

Dogeoin was already comatose, this did nothing to make things better.


Meanwhile, the patriarch of the cryptocurrency family, Bitcoin, is having its own crazy year. Once upon a time there was the Bitcoin Foundation, which hosted the source code and presented a public face of the community. This setup was patterned after open source software projects, such as Linux and the World Wide Web (and Kerberos and so on).

The Bitcoin community has now segmented into a half dozen or more fragments, with divergent and sometimes conflicting goals. The BF was unable to hold everyone together, and the combination of exchange rates (strong USD against BTC) and dissention on the (mysterious and opaque) board has resulted in roiling leadership and two dramatic changes in direction in six months.

While the (known) founder of Doegecoin walked away from the Dogecoin Foundation, the Bitcoin Foundation faces a purge of the (pseudonymous) Satoshi Nakamoto as well as other (known) founders. Perhaps this is a move toward “transparency” (or at least basic honesty), but it also reflects a distinct regime change.

The more important development is that a new player entered the game: MIT Media announced a new cryptocurrency initiative, followed shortly by the announcement that the Bitcoin source code development will be hosted at MIT.

The Bitcoin Foundation itself is now reduced to a lobbying group (one of several), though it is not clear exactly who is calling the tune. It wouldn’t be surprising to see the BF fade away pretty rapidly.

With Bitcoin now supported by MIT, BTC enters a new phase.

This is not a terrible development at all. MIT is good at open software and standards, and isn’t likely to do anything radically stupid. I’m happy to have BTC not run out of Silicon Valley (see previous comment about “radically stupid things”). And frankly, the mere shadow of MIT Media Lab lends more public credibility to BTC than the BF or Marc Andreesson or Richard Branson ever did or could.

MIT’s role does pose some challenges for the Bitcoin communities and cultural narratives. Whatever it may or may not be, MIT is scarcely a “decentralized” organization. MIT is not in any way an upstart, it is deeply connected with all the powers that be.  Will it be able to hold together enough of the community to actually lead developments?

MIT is extremely well equipped with talent of all types, including real economists. There is a reasonable possibility that some grown ups may now get involved with Bitcoin. Good!

My biggest “wish” at this point is for the MIT initiative to take a broader view than just Bitcoin. Cryptocurrency is so much more interesting than Bitcoin.

 

 

Cryptocurrency Thursday

Not Much Innovation In Bitcoin Accelerators

There seems to be a never ending stream of cryptocurrency and blockchain startups, offering one “innovation” after another. Borrowing the trappings of the Internet world, these initiatives are being nurtured in specialized incubators and hackathons, and funded by (objectively tiny) capital infusions.

Anthropological query: are these trappings (incubators, hackathons, venture capital infusions) some kind of cargo cult?  There is clearly a cultural and ideological aspect to this worship of “innovation”, not to mention “incubation”. I also observe that these processes appear to be unquestioned and generally accepted as “good” and “fun”.

But are we seeing a burst of innovative ideas and new businesses based on Bitcoin or blockchain technology? Not really.

For instance, Emily Spaven is excited to report at CoinDeck about “Three Blockchain Startups Selected for Barclays Accelerator”.  The selected winners receive $20,000 and residency at Barclay’s Accelerator in London.  Pretty small potatoes in the wider world, but apparently big news in Bitcoinland.

The three winners are proposing to create the non-Earth-shaking enterprises:

The first two are not in any way innovative, and the third is, well, a niche at best. (99% of us do not own diamonds.)

This is the revolutionary world of cryptocurrency? These are worthy of special incubation?

But at least these ideas are somewhat well developed, and probably took months to get to this stage.

In Tel Aviv, the Decentralize This! Hackathon gave teams 24 hours to cook up new, innovative Bitcoin products. “building original bitcoin applications in less than a day’s time”. Winners get a small cash prize and possible opportunities to develop their concepts into a real business.

Hackathons are certainly the flavor of the year, even though there is no reason to think that poorly thought out and hastily tossed together ideas are better or even just as good as more carefully worked out concepts.

Perhaps Hackathons work well in some domains, but Bitcoin hackathons are generally disappointing.  The Tel Aviv event attracted over a dozen teams, and produced nothing much. Most of the entries are simply copies of other ideas. Maybe this is a useful programming exercise (but I doubt that), it certainly isn’t a good way to come up with something truly new.

The winner was “The Blockchain Billboard”, which is “A web billboard where every pixel can be purchased through a unique bitcoin address.” This turns out to be a rehash of “Millions Dollar Homepage” except with Bitcoin.

The innovation appears to be that “the pixels can be resold again and again without any involvement by the website.” Of course, this idea is just a copy of, say Bitchcoin.

As Aaron van Wirdum comments in coindesk,

The webpage, for instance, can never be sold out completely, like the Million Dollar Homepage has been for almost 10 years now. Instead, buyers of pixels won’t merely buy and colour their pixels for one time only, but will instead be able to set a new price for the pixel, hence automatically reselling it to whomever sends bitcoin to the corresponding bitcoin address.
As such, after the initial one million pixels are sold, the website might keep changing forever, since a marketplace for the limited amount of pixels on the webpage will continue to exits.

Where the MDH (and Bitchcoin) create excitement and “value” by the scarcity of the product, TBB proposes to infinitely expand and resell the real estate. How is this supposed to make sense? What is being sold here, if it is not a unique or even rare object? I don’t get it.

In other words, the big “innovation” from this Hackathon is a trivial variation on two stupid ideas that have already be implemented (and who cares about them anyway). Sigh. Furthermore, the whole idea seems to have huge logical holes in the supposed business model.

Honestly, what can you expect from a hackathon?

I understand why people want to get excited and move fast, but really, this isn’t the best way to work out new, revolutionary technology.  I think Bitcoin and blockchain technology needs a lot of thought to figure out how to use it well.   Slow down, and don’t just flail away.

Aside:  Compare the results of these shallow, trivial approaches with the real innovations from the solid, sustained, multiyear efforts in real science.

 

Cryptocurrency Thursday

 

 

Notes On The Splitting Of The Bitcoin Community

Just a quick note on the ongoing fragmentation of “the Bitcoin narrative”, which honestly isn’t a single story anymore.

Perusing Coindesk this week we see the same technology presented in very, very different cultural sagas.

Greenpeace (at least in the US) is going to accept donations in Bitcoin.  In a report in Coindesk, the emphasis is on “independence”, and actually talks as much about their non-corporate payment system as about cryptocurrency per se.

All is light and good, right.

Well we also see the run up to the trial of Ross Ulbricht, accused of operating the infamous Silk Road online market. The charges include various serious crimes involving money laundering, drugs, and arms dealing.  He denies all charges.

Coindesk documents a very strong segment of the Bitcoin community in a “survey”, asking the completely unbiased question, “a number of prominent names in the bitcoin space about whether they think Ulbricht would be widely viewed as a bitcoin martyr or the ultimate cryptocurrency villain if found guilty“.

The answers from this carefully selected group are uniformly fire-breathing, and all think he is a hero and martyr.  Whether you agree with the extremist ideology passed off as fact (and obviously I don’t), the point is that I’m pretty sure that people like Greenpeace and United Way have no interest at all in being part of any community that considers drug trafficing to be ‘peaceful’ commerce.

For that matter, honest companies and banks don’t want to be associated with such a “community”.  (Coindesk has a report about a big VC who claims banks are “worried” about Bitcoin–he’s right, but its not necessarily because they are afraid of virtual money, its as much because they don’t want to have to operate like the mafia.)

Clearly, anyone who is talking about “the Bitcoin community” as if it is a single, monolithic group or culture is just not correct.

This isn’t terribly surprising:  the technology is flexible and designed to be decentralized, so lots of people can use it however they want.  And they can incorporate it in their own stories, for better or worse.

Cryptocurrency Coworking Space

 At the nexus of two flavors of the month, I read of a new coworking space in London, T15B, which appears to be an otherwise ordinary space claiming to be London’s first Bitcoin Co-Working Space. Apparently, this means they specialize in “serious about building great companies in the Bitcoin and cryptocurrency ecosystem.”

It’s not obvious to me that a cryptocurrency startup needs any special facilities, or at least anything different than any other software heavy activity. So the attraction must be the affinity of the like-minded enthusiasts. “Being surrounded by people working to disrupt the world of finance, through bitcoin, is incredibly motivating,” (Joe Lee of BTC.sx quoted in Coindesk).

I note that one of the companies is a data provider and two are event organizers—scarcely “disruptive” business models!  🙂

I’m still trying to figure out both cryptocurrency and coworking, so I’ll watch this development with interest.

By the way, The online information doesn’t say: does this space operate on Bitcoin? Rents, salaries, etc., paid in cryptocurrency? I doubt it, but it could be so.

 

 

Pushback On Bitcoin, Manx Edition

An interesting report from the Isle of Man, where despite the “government” of this pseudo country, the financial powers (who really run the place) are not going to support Bitcoin companies.

I don’t really know what is going on there, but I suspect that the powerful interests who basically own the Isle of Man are not interested in being “disrupted”, “transformed”, or “innovated” by Bitcoin upstarts.  Who’d have thunk it?

Actually, I’m pretty sure this is not the end of this story. We see an announcement from a blood sucking usurer bold Internet risk taker willing to step into the gap.

I’m pretty sure this is a harbinger of things to come:  Bitcoin has had an easy ride so far, but it’s getting serious enough to attract the attention of real capital, the big boys who will not hesitate to crush the nerds and take all their lunch money.

Just in passing, I would note that one of the actual positive benefits of hated financial regulation is to prevent this kind of anti-competitive behavior by the big boys.  Kind of ironic to see Bitcoin struggling because of the lack of government regulation, huh?