Part 3: Understanding the Blockchain

Why did the creator of Bitcoin want decentralized, digital cash?

My previous two articles came at making digital cash from an objective perspective. I explained the need for decentralization and also the need for “proof-of-work” to safely record who has what. This article is going to take a step back and look at the Big Picture picture — Why decentralize cash in the first place? Money is an abstraction, so any redesign will unavoidably include a philosophical angle. I believe Bitmark’s new model of trust and privacy are the two important characteristics that make it unique in our world of government issued currencies. This article is about trust and how it connects (in my opinion of course) to why Satoshi Nakamoto, the creator of Bitcoin, wanted digital cash to exist.

To get started, I want to show you the very first block in the Bitcoin blockchain. What does a block actually look like? It’s raw data. Here is it:

This first block — known as the genesis block — technically could have been empty of transactions. But it was not. Along with the normal data necessary for the block structure, Satoshi manually inserted a single transaction. Here is that message:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

This was probably intended as proof that the block was created on or after January 3, 2009. The message is a headline from this newspaper:

It’s obvious, but worth saying: Bitcoin emerged from a catastrophic financial crisis. The crisis was fundamentally a failure of trust. Satoshi programmed Bitcoin to have a radically different monetary policy, based on artificial scarcity and predictable issuance. In other words, it was based in mathematical trust.

The supply of Bitcoin is capped at 21 million. The protocol itself specifies that the reward for adding a block starts at 50 bitcoin and will be halved every 210,000 blocks. Each block is tuned to be found in roughly ten minutes. Thus, approximately every four years the block reward will drop in half. When the reward decrease to zero the process of record keeping will be rewarded by transaction fees alone.

What exactly motivated Satoshi to replace middlemen with math? I’ve read just about all of Satoshi’s public writings (thanks to Phil Champagne’s fantastic “The Book of Satoshi.”). I found this passage the most raw and revealing:

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”

Satoshi wanted digital cash, based on cryptographic proof, because without the need to trust a third party middleman, “money can be secure and transactions effortless.”

Trust and control of money are absolutely intertwinedIt’s important to always keep this in mind when thinking about digital cash. The blockchain wasn’t created as a way to make things faster. The real purpose was to remove censorship and central-control from money itself. Blockchain technology, properly understood, is a method to increase trust by removing central intermediaries and letting everyone, anywhere exchange value. And that is a radical idea whose time has come to reshape our world.

Continue with part 4: How Blockchain privacy protects consumers while thwarting mass surveillance.

By Sean Moss-Pultz on April 27, 2017.

Towards an Ecosystem of the Future by Property Rights

Towards an Ecosystem of the Future by Property Rights

Environmentalists advocate for the health of the natural environment through changes in public policy, for example groundwater management, and changes in individual behaviors such as recycling or donating land to public trusts, or introducing concepts like property rights to promote sustainability and stewardship of resources. This positive effect of property rights on the commons was demonstrated in 1960 by the economist Ronald Coase, who was later awarded the Nobel Prize for his theorem.

Similarly, the collective of internet users acting as digital environmentalists advocate for the health of the digital environment. Both as individuals and entities, they self-regulate, champion policies such as net neutrality that protect the digital environment and its users, and invent technologies that aid in empowering the inhabitants of the digital environment against unethical uses of the resources of the internet and Internet of Things (IoT).

It is necessary to build on the analogy of the natural environment for the digital environment. For many of us, by nature of our heavy use of the internet, mobile devices, smart accessories, and social media, the ecosystem that we inhabit is simultaneously both of these environments. By acknowledging these two, we can ensure the health of both. While our current ecosystem is these two distinct yet simultaneous environments, our far future technological and biological progress could lie in an ecosystem where there is no distinction between the natural and the digital.

Hence, establishing and adopting the concept of clean technology for the digital environment with the same intentions as it is used in the physical and natural environment is a forethought ensuring a healthy digital environment of the future. The efforts of resource management and sustainability of the environmental movement has generated clean technologies that work towards bettering the quality of the environment and lessening our negative impacts on it. Comparably we begin to see that many companies that have arisen for the necessity of a healthy digital environment can also be considered clean-tech for the internet.

These clean-tech companies span a spectrum of how they handle resources (data) in the digital environment:

  • Providing absolute privacy where little data as possible is put in the environment, like TOR browser and Signal;
  • Managing the data that is generated and exchanged, like identity management and self-sovereign identity with OpenID and uPort, password and security management such as LastPass and DashLane, or social media managers like Buffer, or an IoT manager like IFTTT;
  • Reinstating peer-to-peer trust by cryptographic proof and immutability of data by using blockchain technology, like Bitcoin.

In an ideal and healthy digital environment we know what is what, who is who, what belongs to whom, and what came from where. This can mean verifying data, verifying identity, verifying ownership, and verifying provenance of data, all of which can be private and anonymous. Any combination of the clean internet technologies outlined above aid us in being digital environmentalists and to tailor how we manage our data. However, currently our data is part of a commons—we’ve generated it through our use of internet companies like social media and our use of IoT technologies, but our data is sitting in a common grazing field for these companies to sell for profit. Where are our property rights to this data commons that is open to all for profit?

One of the most impactful essays for biologists is Garrett Hardin’s 1968 essay where he coins ‘the tragedy of the commons’ and introduces the concept of property rights to avert it. The example he gives of the tragedy is of the overgrazing of a common land by each herder who has access to it. Self-interest in the commons is not necessarily in the interest of the commoners as a whole. Since then, it has been repeatedly studied and proven that well-defined property rights applied to the commons creates incentives for each owner to act as a steward for the resource.

With the agency of ownership comes the responsibility of maintaining the integrity of the digital environment.

To answer the “tragedy of the commons” in the digital environment we need a new clean technology for the internet that gives us property rights to our data. These rights are not just for preventing ‘overgrazing’ by others, but to restore our power to our privacy with private property as opposed to common property, and to enable us to generate wealth from our data if we choose to. So the fourth type of internet clean-tech introduced above would be:

  • Enabling property rights to the data we generate.

This is what Bitmark does. It enables a transparent chain of ownership and attribution across the internet and Internet of Things that can be authenticated by anyone. With the agency of ownership comes the responsibility of maintaining the integrity of the digital environment of our collective data and digital assets.

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By Bitmark Inc. on April 6, 2017.