Bitcoin Bits: 23 April, 2016

A roundup of some of the more interesting bitcoin and blockchain-related articles from the week:

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When bitcoin grows up: What is money? – by John Lanchester, via The London Book Review

Journalist and novelist John Lanchester  gives us a wide-ranging journey through the spectrum of money, with a closer look at the role that bitcoin and blockchains are playing/will play in its development. I’m reluctant to gush too much (not my style), but this is one of the best articles in bitcoin that I’ve read in a very long time.

“It’s time for the cryptocurrency to decide what it wants to be when it grows up. Blockchains could become merely a new technique to ensure the continuation of banking hegemony in its current form. That would be one of those final plot twists which leaves everybody thinking that although they enjoyed most of the show, the ending was so disappointing they now wish they hadn’t bothered. Or, along with peer-to-peer lending and mobile payments, they could have an impact as great as the new kind of banking introduced in Renaissance Italy. That would be more fun.”

Vast in scope with no shortage of insight and a smattering of humour, it’s a brilliantly written essay on the history of money, the history of bitcoin and the impact that blockchain technology could have on our current economic system.

“The possibility is that the blockchain could be adapted to do this [provide all sorts of government serices] with lower levels of friction, lower levels of cost and higher levels of security than any existing system. This may not be the blockchain in its original bitcoin form, but some other blockchain or blockchains, using subtly different versions of Satoshi’s brilliant technology. It’s this potential that has attracted the attention of – cue music that indicates the arrival of bad guys – the banks.”

John points out the paradox of the banks taking over a technology that was designed to remove them from the picture.

“Irony klaxon. The very first sentence of Satoshi’s original paper reads as follows: ‘A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.’ It looks as if, on the contrary, those very same financial institutions are going to use this new technology to keep themselves right where they are: in the middle of every possible transaction network, extracting all the rent they can.”

Robust revolution? Or brief innovation? Will the entrenched interests take over? Or is this the beginning of a civilization shift? John covers various conceptual “jumps” in the concept of money in recent history: the invention of balance sheets, note issuance, the invention of the central bank… “And we’re now at a point when another jump is possible.”

He doesn’t, however, sound very optimistic about the future of bitcoin as a currency, although he does recognize that it has proved remarkably resilient, and could well continue to do so.

“This history of criminality, fraud and disaster might well, you’d have thought, add up to a story of failure. It hasn’t. In parallel with the high-profile, front-pagey things that have gone wrong with bitcoin there has been a consistent trajectory of growth and increasing interest. For all the things that have gone wrong, the currency itself has not collapsed, and has not been shown to be mathematically or conceptually flawed. The fact that the world is full of crooks, thieves, con men and incompetents doesn’t invalidate the use of other types of money, so why should it invalidate bitcoin, just because it has so many criminal-friendly features.”

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by Aaron Li for Unsplash
by Aaron Li for Unsplash

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New York’s ‘Energy Czar’ Talks Future of Blockchain for Energy Grids – Michael del Castillo

A really interesting potential use case: electricity management. The state of New York is working with innovative tech companies to develop a new way to generate and distribute electricity. The objective: greater energy stability (fewer blackouts in storms) and cheaper distribution.

“Electricity companies are being refashioned into what the state calls distributed system platform providers (DSPPs) and mandated to upgrade the legacy system to transform the power grid into a patchwork of Mircogrids powered by the people.”

And this initiative is particularly interesting in that it is being funded with public money. The state of New York has set aside $40m to test the technology and to develop the network.

“”The utility grid we’re looking at for the future is going to look nothing like it does today. If things work well, you as a consumer are not going to be a consumer anymore, you’re going to be a prosumer.””

People making their own energy and selling excess to others across a distributed grid? Tell me that’s not revolutionary.

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Is Bitcoin Becoming More Stable Than Gold? – by Stephanie Yang, for the Wall Street Journal

Could bitcoin be entering a phase of stability? Could its historical volatility no longer be a deterrent? Over the past few weeks bitcoin has been less volatile than gold. That happened for a brief period in 2012, but this relative stability has more weight as bitcoin is much more active. Could this mean that bitcoin might replace gold as the financial “safe haven”?

“As bitcoin has gathered steam, it’s taken on a similar role to gold. Holding bitcoin or gold can appeal to a coinciding demographic of investors, since both may be used as an alternative when investors lose faith in traditional asset classes.”

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The 9 Mistakes I Made When Bringing Blockchain to My Startup – by John Rampton, via Coindesk

John Rampton, founder of the online payments company Due, generously shares some of the mistakes that he made with his blockchain startup. This is refreshing reading, given the fevered activity in the cryptocurrency/blockchain sector, amongst established enterprises but especially in the startup sector.

“As a relatively new concept, blockchain is still evolving, so it’s easy to understand how mistakes can be made in terms of how it can actually be used. Many processes are still being tested to see if private blockchain applications will work for various business functions. By sharing the mistakes I’ve made, hopefully others can learn and avoid the same pitfalls.”

The main mistakes:

  • Failing to understand how blockchain actually works (it takes time)
  • Not selecting the blockchain software that aligns with my business purpose (sometimes the obvious one is not the right one)
  • Being impatient and trying to rush the timeline for blockchain adoption (again, it takes time)
  • Thinking every business function can be improved with blockchain (understandable, given the hype)
  • Believing the system is already protected from user mistakes (which comes from not really understanding it)
  • Not limiting access to private keys (this is more complicated than it sounds)
  • Making the blockchain too ‘heavy’ (which also comes from not really understanding it)
  • Not realizing there are limitations to blockchain as a database (a mixture of 1 and 3)
  • Not seeing the potential flaws within blockchain (a mixture of all of the above)

“The most important lesson? Be open and curious to the potential that blockchain technology may hold for numerous applications – and then proceed thoughtfully with thorough research and testing.”

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Have a great weekend! Next week should be a good one…

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