Bitcoin Bits: 31 July 2016

It’s been a busy week, what with forks and splits and confusion and all… Here is the roundup of some of the articles that I found particularly interesting. There have been many great articles written about the Ethereum network this past week, but I don’t want to get monothematic, so I’ve chosen only one:

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A Painful Lesson for the Ethereum Community – by Frances Coppola, for Forbes

A disconcerting and even worrying article about the naiveté of the fork. Worrying because of the message, which on the whole I agree with, which is that a dangerous precedent has been set. And worrying because of what to me seems like misrepresentation.

The author points out that the decision to hard fork was probably inevitable, because those that vote had invested in the collapsed DAO and would understandably want to get their money back.

“The fact is that Ethereum has compromised its principles in order to rescue a client. Or, in the language of another world, the Ethereum central bank has directly recapitalized the DAO commercial bank by monetizing its debts. I could wax lyrical about the incestuous relationship of Ethereum and the DAO that made this decision inevitable: DAO investors and Ethereum miners are to a large extent the same people, and even some coders have money in the game. Moral hazard, much?”

It is true that some Ethereum stakeholders were DAO investors. But I very much doubt that they all were. And not all DAO investors were Ethereum miners. After all, there were around 16,000 of them. So I’m not buying the “incestuous relationship”. As Vitalik Buterin, the founder of Ethereum, pointed out in May:

Frances calls out the DAO’s principal coder Christoph Jentzsch, who bragged that “achieving consensus” was an “outstanding accomplishment”.

“Reaching consensus is an outstanding accomplishment, when the majority of people involved faced losing a lot of money if they didn’t reach consensus? Really?”

A good point, but I’d like to go further, and question their definition of consensus. To paraphrase, “really?”. Post-fork, it seems that 85% of miners have moved over to the new chain, judging from the hash rate and from Vitalik’s comments. 85% is not “consensus”. 15% seems to disagree with the fork, preferring to stick with and continue development on the “old” Ethereum. In tables maintained and published up until the fork, just over 9% of miners actually voted for. Almost 3% voted against. 88% didn’t vote. In a vote on whether Geth (the command line interface for running a full ethereum node) should default to yes-fork or no-fork, which was open to ether holders, only 85% of those that voted chose yes. And only 5% voted. I understand the rules of democracy. But in no way is this “consensus”.

So, not only am I not buying the “incestuous relationship” allegation, I’m also not buying the “inevitable” part of the fork. It was not a “slam dunk” as they say in basketball (I really should stay away from sports metaphors, especially ones that belong to sports I don’t play). Most didn’t vote/didn’t care. 15% of those that voted did care enough to protest. And we now have the very confusing situation (which is not good for a cryptocurrency that’s pretty confusing anyway) of having two different versions of Ethereum in the market.

For the record, I am in the “no fork” camp. I think that it does set a precedent. Vitalik is right when he points out that “Ethereum is still in development” (so why, then, was so much of investors’ money allowed to be at risk? Experimentation, I know) and that “as it grows, forks will be harder to do” (but not impossible, and who decides where that line is drawn?). But neither show that the next time something goes wrong (and it will), the investors won’t expect a bailout. And the backlash for providing one now and not then will be huge. And if you keep providing bailouts, who will really take risk seriously?

“No way is it ethical to persuade people to invest large amounts of money in a product whose key selling point is its immutability, then when it goes wrong claim that it wasn’t ready for release and needs to be changed.”

Blockchains are supposed to be immutable. Doing a hard fork to fix a mistake weakens that strength. The DAO was a risky investment, and investors supposedly knew that. Expecting a bailout is naïve. In the end, lessons have been learned and reputations have crumbled. And although I don’t agree with the hard fork decision, the Ethereum Foundation handled the crisis with more agility and aplomb than was fair to expect.

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In case it’s as hot where you are as it is here in Madrid:


Refreshingly beautiful, no? By photographer Julieanne Kost, via Colossal.

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Trustless is a Misnomer – by Nick Tomaino, via Medium

“Bitcoin, Ethereum and other permissionless blockchain platforms are distributed trust systems rather than trustless systems. When you hold BTC, or ETH in a user-controlled wallet (where you control the private keys), you’re actually trusting several parties: the miners to secure the network and validate transactions, the developers to maintain and improve the code, and the users to use the platform… While you’re not trusting one party with concentrated power in this scenario, at the end of the day when you use BTC, ETH or STEEM you are trusting the entire community.”

Good point…

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Here’s How Bitcoin Can Save Media From Broken Adtech – by Brady Dale, for Observer

We all know that the ad-based media model is dead. Even if we weren’t installing ad blockers in droves, we just don’t look at them. But we also know that people don’t want to have to pay subscriptions just to get the few articles they want to read.

We also know that micropayment trials have not worked. Sending small payments online has until now been too expensive, with bank fees far surpassing the value of the payment itself.

This is where bitcoin can help. Inexpensive, immediate micropayments are finally possible, and could make content payment easy and affordable. Could this be the new business model that allows creativity to be both objective and accessible?

“Imagine a world where users had a bitcoin wallet built into their browser and it authorized a few pennies to flow to a publisher every time they opened a new article. Or pushed a few more cents straight to a musician every time they played a song. Or a quarter to a director before viewing a short film on his site.”

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Venezuela’s Inflation to Reach 1,600% in 2017, Spurring Demand for Bitcoin – by Joseph Young, for Bitcoin Magazine

So, Venezuela is waking up the advantages of bitcoin, because of its rampant inflation and unstable currency. Sound familiar? Could bitcoin become as big there as it did in Argentina during its “troubles”?

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European Commission Proposes the Creation of a Bitcoin User Database – by Eduardo Gómez, for The Merkle

In spite of the spectre of increased surveillance in a decentralized, censorship-resistant value transfer network, I don’t have a problem with this. I don’t mind being in a database of bitcoin users (it’s not illegal, and I very much doubt it ever will be). It doesn’t mean that they’ll be tracking my every transaction. And if it makes the regulators more comfortable with the money laundering threat, and if their comfort pushes bitcoin closer to mainstream adoption, then good.

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Have an amazing first week of August! If you’re on holiday enjoy. If not, you can still pretend you are.

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