Bitcoin Bits: 26 February, 2016

There was a lot of good bitcoin content this week, and choosing only four was not easy. Here are some of the articles that I found most interesting:

Japan considers making bitcoin a legal currency – by Richard Smart, for The Guardian

Here we go! It would be amazing if one brave country started the ball rolling…

“Japan considers bitcoin a commodity. The new definition would consider anything that can be exchanged for goods and services or legal tender as a currency, bringing bitcoin, dogecoin and many other cryptocurrencies into the fold.”

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by Chris Lu for Unsplash
by Chris Lu for Unsplash

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My view on the current situation of Bitcoin and the Blockchain – by Joi Ito

This powerful piece by Joi Ito highlights the dangerous intersection of the huge amount of investment going into the space, and the shortage of talent.

“There are a small number of people who understand cryptography, systems, networks and code and are capable of understanding the Bitcoin software code… Like any free and open-source software community on the Internet, it’s a bunch of people who know each other and mostly, though not always, respect each other, but which fundamentally holds a near monopoly on talent.

Unfortunately, the wild growth of Bitcoin and now “the Blockchain” has caught this community off guard from a governance perspective, leaving the core developers of Bitcoin unable to interface effectively with the commercial interests whose businesses depend on scaling the technology. When asked “can you scale this?” They said, “we’ll do the best we can.” That wasn’t good enough for many, especially those who don’t understand the architecture or the nature of what is going on inside of Bitcoin.”

Joi Ito is, among many other things, the Director of MIT’s Media Lab, which currently houses the Digital Currency Initiative. The purpose of the Digital Currency Initiative is to bring together experts in all areas concerning digital currencies (crypto, law, economics, etc.), and boasts the presence of three of the original core bitcoin developers: Gavin Andresen, Wladimir van der Laan, and Cory Fields. So, when Joi Ito writes about bitcoin, it’s worth reading what he has to say.

“The future of Bitcoin, decentralized ledgers and other Blockchain-like projects depends on this community. Many people call them “Bitcoin Core” as if they are some sort of company you can fire or a random set of developers with skills that you can just train others to acquire. They’re not. They’re more like artists, scientists and precision engineers who have built a shared culture and language. To look for another group of people to do what they do would be like asking web designers to launch a space shuttle.”

Usually bullish and visionary, in this post he issues a wake-up call to the tensions that threaten the ecosystem, and the conflict brought about by the entrance of so many players with different priorities and levels of knowledge.

“If you try to build “something like Bitcoin but better!” it will probably turn out insecure, underwhelming, and will go against the fundamental principles that give Bitcoin the potential to be as impactful to banking, law and society as the Internet has been to media, communication, and commerce.”

With economic interests threatening to drown out the original technological and philosophical goals, the original community is being besieged by public quarrels and internal confusion.

“Lastly, but most importantly, we’re burning out those developers who we most need to be focused on the code and the architecture. Many are dropping out or threatening to drop out. Many are completely discouraged and depleted by the public debate. Even if you believe that we will eventually have a new generation of financial cryptographers, you can’t train them without this community.”

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How Bitcoin Startups Can Survive the End of the Unicorn Era – by John Biggs, for CoinDesk

John Biggs reassures us that the upcoming pop of the unicorn bubble will not derail the potential of the bitcoin sector.

“There is one rudimentary concept that we should never ignore: a great business concept plus strong execution equals an investable business. Strong, diligent investors – regardless of the overall funding environment – will always fund those types of businesses.”

And he follows with sound advice for the new or would-be entrepreneurs in the crypto sector: don’t mention bitcoin (focus on the blockchain), cultivate fintech investors, and move to New York or London. Oh, and hire a designer.

“We are living in an era that will be very familiar to some older hackers: this perfectly mirrors the rise of the Internet. Bitcoin is a place full of acrimonious debate; fear, uncertainty and doubt; undercutting and silly feuds. It is a place where big business is “dipping a toe” into the blockchain space by making their own private blockchains.

After all that worked so well when they tried to build private networks not connected to the Internet back in the mid-1990s.”

A good dose of common sense.

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Technical Roadblock Might Shatter Bitcoin Dreams – by Tom Simonite, for MIT Technology Review

It turns out that bitcoin needs a major re-design for it to become widely used.

Well, we sort of knew that, didn’t we?

Yes, but it turns out that the re-design the authors are talking about is not a block size increase. It’s not Segregated Witness or Lightning networks.

“Factions in the community are arguing over proposals to adjust Bitcoin’s software so it can handle more than a measly seven transactions a second across the whole world. Yet no tweak to Bitcoin could allow transactions at a scale close to that of conventional payment processors such as Visa without compromising the digital currency’s decentralized design.”

According to a recently published study by a group of researchers largely affiliated with Cornell University, the protocol could handle at most 27 transactions per second, even with a four-fold increase in the blocksize. Above that, the number of computers that could handle the transactions dwindles, leading to a more centralized system.

“Some people believe that Bitcoin can be useful without operating at vast scale, for example functioning as a gold-like asset generally held for long periods. But some of the biggest Bitcoin companies are built on the idea that Bitcoin will come to support a very large transaction volume.”

So what should we do? Keep chugging along anyway, working on scaling proposals and testing new innovations that could alleviate some of the pressure. Something will come of it, surely.

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That’s it for today… Have an inspiring weekend!

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