Bits – 12 February 2017

It was an epic week in terms of posts from some prominent figures in the bitcoin/blockchain space. Summaries and links below.

And I gave a talk on blockchain business models a few days ago, so there’ll be more meandering thoughts on that slippery subject over the coming days.

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First, though, take a look at these stunningly haunting photographs of Hong Kong at night, by Marylin Mugot (via MyModernMet). I could look at them for hours…

by Marilyn Mugot, via MyModernMet
by Marilyn Mugot, via MyModernMet
by Marilyn Mugot, via MyModernMet
by Marilyn Mugot, via MyModernMet

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Back to cryptocurrencies: Vitalik Buterin, the founder of Ethereum, wrote about the philosophy of decentralization, and the different ways to achieve it.

Blockchains are “logically centralized” – there’s one way they can work. Languages (such as English) are “logically decentralized”, with changing rules and hundreds of versions accepted around the world. Democracy is politically decentralized, but architecturally centralized – one structure, several competing ideas.

Why do we want decentralization? For its resistance to attacks, collusion and technical faults. However, blockchains are not as resistant as we think. And each “fix” gives rise to new risks. We need to stop talking about absolutes, and focus on choosing which risks are bearable and putting in counter-incentives.

“Many communities, including Ethereum’s, are often praised for having a strong community spirit and being able to coordinate quickly on implementing, releasing and activating a hard fork to fix denial-of-service issues in the protocol within six days. But how can we foster and improve this good kind of coordination, but at the same time prevent “bad coordination” that consists of miners trying to screw everyone else over by repeatedly coordinating 51% attacks?”

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Nick Szabo, one of the most respected thinkers in the cryptocurrency sector, made me realize how much we take for granted.

This week he published a mega-post that went deep on “social scalability”, and on the tools that we use to eliminate the need to trust strangers. Examples are alphabets, symbols, traffic lights, matchmaking, money and, of course, bitcoin.

“The secret to Bitcoin’s success is that its prolific resource consumption and poor computational scalability is buying something even more valuable: social scalability. Social scalability is the ability of an institution … to overcome shortcomings in human minds and in the motivating or constraining aspects of said institution that limit who or how many can successfully participate.”

Social scalability is about human limitations, not technological ones. We simply can’t handle many relationships simultaneously, so we construct aids to eliminate certain steps, such as the time needed to get to know someone, verify details, etc.

“One way to estimate the social scalability of an institutional technology is by the number of people who can beneficially participate in the institution. …  The cultural and jurisdictional diversity of people who can beneficially participate in an institution is also often important, especially in the global Internet context. The more an institution depends on local laws, customs, or language, the less socially scalable it is.”

He gives a great Alfred North Whitehead quote:

“Civilization advances by extending the number of important operations which we can perform without thinking about them.”

This highlights the need to keep up the trend of facilitating transactions (new payment methods, marketplace platforms, etc.)

“When we can secure the most important functionality of a financial network by computer science rather than by the traditional accountants, regulators, investigators, police, and lawyers, we go from a system that is manual, local, and of inconsistent security to one that is automated, global, and much more secure.”

This comes with tradeoffs – with its current structure and consensus method, bitcoin is not scalable. But that doesn’t matter:

“Bitcoin supports a lower rate of transactions than Visa or PayPal, but due to its stronger automated security these can be much more important transactions. …  Lower value transactions with lower fees will need to be implemented on peripheral bitcoin networks.”

So, it seems that technological progress and limitations are not the only thing we need to look at when it comes to introducing structural changes. We also need to consider human progress and human limitations.

“Due to the massive improvements in information technology over recent decades, the number and variety of people who can successfully participate in an online institution is far less often restricted by the objective limits of computers and networks than it is by limitations of mind and institution that have usually have not yet been sufficiently redesigned or further evolved to take advantage of those technological improvements.”

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Eric Voorhees, bitcoin luminary and founder of Shapeshift, wrote about the lack of transparency surrounding bitcoin transaction fees, and how it’s hurting the network. It’s not just the fee that costs… it’s the time spent waiting for a transaction to be confirmed, which can be days if the fee paid was not high enough.

Even worse, the realization that fiat is probably more convenient probably does the most damage.

“The community needs to take at- or near-capacity blocks seriously, and yet many have dismissed the issue, saying silly things like “well when fees rise it’s just the free market at work.”  Sure it is, and when users leave Bitcoin, or never bother a second transaction because their first was obnoxious and unreliable, their preference of alternatives will also “just be the free market at work.””

Nor is Voorhees going to let us affix a label to the system just so that it can better fit into a convenient paradigm that confirms the current state of the network.

“And let’s end this silly false dichotomy of Bitcoin as a “payment system” vs a “settlement system.” Such distinction is a relic of fiat banking networks and has no place with blockchain-based assets. The reality is this: every payment on a blockchain network is a settlement, and the cheaper these transactions, the more widespread uses the platform will find”

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Meltem Demirors of Digital Currency Group (DCG) published a compilation of reactions from DCG’s portfolio companies on the scaling issue, most of which supported Voorhees’ take.

Here are some of the quotes that I found most interesting:

  • “Bitcoin is starting to make SWIFT look attractive.”
  • “We don’t want to be anti-SegWit or pro-SegWit, just pro-pragmatism. There seems to be a disconnect between what the devs are developing, and what business actually need and want, which is a bigger problem about how resources are directed.”
  • “Some people apparently think that if they don’t get their way then Bitcoin is over, and it’s the end of the world, and they might as well go find a different industry or meaning in life or whatever. That feeling probably makes negotiated compromise impossible.”

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Jon Evans wrote a characteristically excellent piece for TechCrunch, called “Technofascism and the three percent”. The sobering message seemed to be that technology encourages the intransigence of minorities through the filter bubble, and that there is no easy solution if we are to continue to tolerate intolerance. A vicious circle, a moral dilemma, and a high price to pay if we get it wrong.

“So what is to be done, in this brave new political world of multiple intransigent subgroups, multiple staunchly believed claims of fascism, and the ignoble failure of the anti-fascist tactics of the past? …I don’t pretend to know, but I suspect that, as is so often the case, technology can provide the solution to the problem it provoked. Regardless, it’s important to recognize that such is the world in which we now live.”

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Art + electricity + long nights + a city that I love = Toronto’s Light Festival. (Via Colossal.)

via Colossal
via Colossal

 

via Colossal
via Colossal

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I’m travelling next weekend, so will have to skip Bits. I will, however, be collecting cool stuff for the following week! Have a good one…

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