Bitcoin Bits: 24 July, 2016

Here’s the summery roundup of great bitcoin/blockchain articles from the previous week, plus one of my favourite posts on the concept from last year. Read on…

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The Central Bankers’ Bold New Idea: Print Bitcoins – by Jon Sindreu, for The Wall Street Journal

It’s really interesting to see how this idea is getting increasingly talked about. I wrote about it here, and am still not convinced that it could be pulled off without re-thinking the role of debt. But people who know a whole lot more than I do about Central Banks are doing serious thinking and research, and the paper that the Bank of England released this week is an example of the good work coming out.

“In a research paper published on Monday, economists at the Bank of England advocated that central banks issue their own kind of digital currency. Using the U.S. as a case study, they argued it could give a permanent boost to the economy of around 3% [through reductions in real interest rates, distortionary taxes, and monetary transaction costs], as well as providing policy makers with more effective tools to tame financial booms and busts.”

Some economists have for years been arguing the case for full-reserve banking, which would mean that commercial banks can’t leverage deposits to make loans (instead of just holding 10% of the deposits as reserves, for example, they would have to hold 100%). Would this boost economic activity, or cause it to crash? Not surprisingly, there is no hope of reaching consensus on this.

“Were central banks to issue digital cash and make it available to the general public, money would exist electronically outside of bank accounts in digital wallets, much as physical bank notes do. This means households and businesses would be able to bypass banks altogether when making payments to one another… This could trigger a radical reshaping of the financial system.”

There isn’t even consensus on whether or not the central bank would be able to have a greater influence on the economy this way, although most seem to concur that the money supply would be easier to control.

“The idea that controlling the amount of money in the economy will determine economic growth, inflation or credit creation has long appeared false. Since central banks started bond-buying programs in 2008, for example, the amount of central-bank money has exploded, but no inflation has materialized. Experiments to control the quantity of money in the 1980s, inspired by Milton Friedman, also ended in failure, with central banks fully reverting to using interest-rate policy by the 1990s.”

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Take a look at these iPhone Photography Award winners, truly breathtaking:

by Yongmei Wang
by Yongmei Wang

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So you want to use a blockchain for that? – by Anthony Lewis, on his blog Bits and Blocks

An interesting article that debunks some of the myths of the blockchain and pokes holes in the “blockchain will change everything” hype. We need more of these, and I speak as someone who does believe that blockchains are going to have a big impact on the economy. As with all “new technologies”, though, a lot of people are getting excited about the potential of blockchains without understanding how they work. This article helps.

For instance:

  • Bitcoin does have middlemen
  • Immutability is not always a good thing
  • Just because it’s on the blockchain, doesn’t mean it’s true
  • Storing documents on the blockchain is not the same as storing the hash
  • Blockchains are not encrypted by default
  • “Blockchain participants” is actually a very diverse group, with different motives and priorities

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Archy and Anarchic Chains – by Tim Swanson, on his blog Great Wall of Numbers

So, Ethereum went ahead with its hard fork a few days ago, in order to return money to those affected by the DAO hack. Was it a success? Well, that depends what you mean by “success”. Tim Swanson wrote about it how hard it is to tell at this stage:

“Public blockchains such as Bitcoin and Ethereum, intentionally lack any ties into the traditional legal infrastructure.  The original designers made it a point to try and make public blockchains extraterritorial and sovereign to the physical world in which we live in.  In other words, public blockchains are anarchic.

As a consequence, lacking ties into legal infrastructure, there is no recognized external authority that can legitimately claim which fork of Bitcoin or Ethereum is the ‘One True Chain.’  Rather it is through the proof-of-work process (or perhaps proof-of-stake in the future) that attempts to attest to which chain is supposed to be the de facto chain.”

And, there’s no recourse if it goes wrong, or if you’re unhappy with the result. And that creates fundamental problems of acceptance and concept.

“After all, who is financially, contractually, and legally responsible for the consequences of a softfork or hardfork on a public blockchain?

  • If it is no one, then it might not be used by regulated organizations because they need to work with participants who can be held legally accountable for actions (or inactions).
  • If it is someone specifically (e.g., a doxxed individual) then you have removed the means of pseudonymous consensus to create censorship resistance.

In other words, public blockchains, contrary to the claims of social media, are not “law” because they do not actually tie into the legal infrastructure which they were purposefully designed to skirt.  By attempting to integrate the two worlds — by creating a KYC’ed public blockchain — you end up creating a strange hydra that lacks the utility of pseudonymity (and censorship resistance) yet maintains the expensive and redundant proof-of-work process.”

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A Simple Model for Smart Contracts – by Richard Gendal Brown

A blast from the past, because why not? Here you have Richard Gendal Brown’s excellent post from over a year ago, about smart contracts. This article changed my way of thinking about the concept, largely by making it suddenly much easier to understand.

“It’s as if this program isn’t just a computer program: it’s an actor in its own right. It responds to the receipt of information, it can receive and store value – and it can send out information and send out value.

It would be just like having a human who could be trusted to look after assets temporarily and who always did what they were told.

And this idea is what I think people mean when they talk about Smart Contracts.”

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