Bitcoin Bits: 9 April, 2016

A roundup of some of the week’s more interesting articles on bitcoin and the blockchain:

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Can Bitcoin Be Used For Good? – by Chelsea Barabas and Ethan Zuckerman, for The Atlantic

“Something strange is happening to Bitcoin. Once viewed as a way to do business in the darkest corners of the web, the digital currency has rather suddenly become a favorite talking point among humanitarians and international development enthusiasts.

Bitcoin isn’t just for illicit transactions or Internet hobbyists anymore, but for helping the poor, the downtrodden, and the unbanked.

Perhaps Bitcoin can save them! Perhaps Bitcoin can save the world!

While that last part may be partially tongue-in-cheek, we have here an excellent and uplifting article from the quality mainstream press, focussing on the social good that bitcoin can do. It’s not about the drugs, it’s not about the illicit financing. It’s about protection, inclusion and efficiency. From digitalized and blockchain-ized property records that release buried value, to lowering the cost of sending money home to your family, the blockchain offers a way to increase transparency, remove the middle man and reduce costs.

And yet, it’s not as simple as it seems. Of course not.

“The idea that blockchain could be a transformative tool for social change underscores this same problem: People often don’t take the time to understand the problems they’re trying to solve, because they believe they already know the solution.”

Moving remittances onto the blockchain won’t save much money until the off-ramping becomes easy – not a lot of people in developing countries want to swap bitcoin for local currency in cash. And putting a land registry on the blockchain without taking account local tensions between governments, communities and large corporations is ignoring history and politics. It’s not just about efficiency.

“This doesn’t mean Bitcoin can’t serve individuals in need. Bitcoin has the potential to push forward the conversation about financial inclusion in really interesting ways, just not in the way it’s currently being discussed. Instead, Bitcoin is first pushing people to rethink the way financial transactions should and can work.”

So, given that blockchain technology is complicated, and developing world problems are very complicated, what then should we do?

Focus more on the origin of the problem, than on the potential solution.

“Understanding what Bitcoin can do for people in the developing world will first require a better understanding of the people who live there.”

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bitcoin
by Jamie Mink for Unsplash

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What Would a Bitcoin Gold Standard Look Like? – by Christopher Malmo, for Motherboard

I’ve seen a few articles recently on the potential economic impact of bitcoin as a reserve currency. This is one of the better and easier to understand ones. So far, all seem to agree that while the central banks should not be able to print as much money as they want (as they can do now), taking that ability away is also not a good idea. So it looks like there’s no ideal solution to this one (big surprise, we are talking about economics, after all). A world with just bitcoin as a currency would not necessarily be a more stable place.

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Bitcoin’s Blockchain Technology Proves Itself in Wall Street Test – by Telis Demos, for the Wall Street Journal

A group of banks including JP Morgan and Citibank have successfully tested the blockchain for managing credit default swaps, in, get this, “a move that could help it gain a foothold in mainstream finance”. Yes, those fantastically risky derivatives that helped to trigger the Great Recession of 2008. This isn’t scary at all.

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IoT and the development of a circular economy – by Sebastian Egerton-Read, for TechCrunch

This article goes beyond the typical hype of the Internet of Things, and brings up the concept of the circular economy.

“Identified as a significant business opportunity, circular economy models have gained increasing momentum over the last five years. Combine the principles of a regenerative and restorative economy, where the utilization and useful life of assets is extended, with IoT technologies, which provide information about the condition, location and availability of those assets, and there may be an even greater opportunity to scale new models more effectively, while providing new direction to the digital revolution.”

The circular economy is an interesting concept, and it’s not quite as hippy-dippy as it sounds. It’s only partially about sharing stuff, and making objects more efficient. While the potential economic impact from that is there – we would all save money – I don’t think that it’s very big. It would require a fundamental shift in human nature. Most of us like the idea of community, sharing and efficiency. But, most of us would no more invite strangers to share our car than we would invite strangers to share our home. (I would, but then I don’t have a car.)

Yet, that mentality is probably on its way out. More and more of us are “itinerant”, as we move from job to job, from freelance position to freelance position, from apartment to apartment. Millennials are less materialistic and more eco-conscious. And cultural shifts do happen over time. If your neighbours rent out their power drill, you might consider renting out your ladder. And in the end, we all save money and space.

But the economic impact of less production (instead of one electric wok per family, the target becomes one per building) and less consumption (why do I need to buy stuff if I can easily rent it?) will tie in with the economic impact of less paid work, and/or of falling wages. The result is a bit scary. But probably inevitable.

“A vision for the built environment where a digital library of materials is sourced from connected buildings, which also provide information that allows predictive maintenance and effective sharing and utilization of space and energy consumption, is sketched out in the report. The multiplier impact, in terms of benefit, of resolving a number of challenges with a single systemic solution is assumed to be significant.”

And what could that single systemic solution be? Glad you asked.

“For intelligent assets to create value in the circular economy the development of an open and global payment protocol is required. The technology behind the Bitcoin blockchain has the potential to enable the billions of internet devices that negotiate with each other to unleash market forces, to bring down the costs of goods and services for all.” (quoting Nicolas Cary, co-founder of Blockchain)

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Bitcoin Lightning Network Creators: Fees Will Be Effectively Zero – by Kyle Torpey, for Bitcoin Magazine

I’m including this article because the Lightning Network (I wrote about it a while ago) has potential to scale the bitcoin network (perhaps solving – or at least buying more time for – the block size debate), and to enable cheap and efficient microtransactions (which has a whole lot of potential uses). The actual launch is getting closer, and details are emerging about the economics:

“Some have also hinted that fees on the Lightning Network could be literally zero in certain cases due to the opportunities for collecting data on the network; however, it’s unclear how new privacy features could affect this profit model.

In terms of one’s ability to earn a profit on the Lightning Network, Dryja added, “Making money off the intermediary routing ‒ it’s really hard. It’s really easy to spin up new nodes.””

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The big reveal

So, apparently there’s a possibility that this weekend Craig Wright will demonstrate that he is Satoshi.

eye roll

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Have a great Sunday, everyone!

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