Blockchain Technology

Balancing Balance Sheets - The Tragedy of  'Too Complex to Manage' rather than 'Too Big To Fail'.

 

BitcoinSatoshi Nakamoto - Peer-to-Peer Electronic Cash System -

Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone. 

The system requires trust in technology, not trust in people. (a big punt, remember pilotless airplanes & driverless cars?)

Block = data (from / to / $$$s)  +  # in fingerprint  +  # finger print

Tamper check = 10 minute delay as computers compete to verify consistency and be rewarded.

Block added to the chain on everyone's distributed ledger 

Other People's MoneyBlockchain Ledger is public and available to be inspected by anyone, anywhere, anyhow. The software runs on a network of dispersed computers. Each network 'node' stores it's own copy of the blockchain. Each set of transactions in the ledger are processed into blocks, secured & verified by the miners, and added to the blockchain. Computing power is rewarded by payment for maintaining the integrity of the ledger. The transactions (deals; agreed transfers of ownership of value) are fully transparent and unencrypted, only the 'keys' which are ownership titles (claims) to a Bitcoin are encrypted to protect from theft. Your very own Bitcoin can be anywhere in the global ledger but its value belongs to you and you can cash the value in or pass it on as you wish, you are passing on the 'value' not the specie. And that value is determined by supply and demand on the exchanges. The deals can involve anything of value in exchange, the Blockchain application is not confined to currencies it is a record of transactions, independently verified by others, third parties, that is the trick. When a 'block' is verified itis added to the chain and local ledger which is copied to everyone as a verified block. The next trick is that the leger is not in one place it is dispersed and held in many nodes on the internet. Ownership is defined by the previous deal in the chain. Fraudulent changes by hackers would not be verified by miners and changes to one ledger copy would not change all the other true verified other copies. Thus the correct ownership of each & every Bitcoin in the system is verified and broadcast to every copy on everybody's computer. Each transaction output become an input to the next transaction form a 'chain'. Got it? If you haven't don't mess with it and stick to what you think you understand!

If we wish and we trust one another, our peer to peer deals can continue and accounts can be kept without the approval or interference of irrelevant Bishops, Princes, Generals nor Bureaucrats. Tax, waste & print cycles require territorial jurisdiction. Many dispersed copies, accessible to all participants. Efficient, safe, fast, reliable, transparent ... welcomed by regulators!! But confidence, trust, bankruptcy (Due Diligence, Caveat Emptor) persistently remain.

Bitcoin Value Measurement Units are capped by the software and valued by supply & demand on the exchanges. Units flow from wallet to wallet throughout the global digital internet as ownership title changes; instantly, unhindered, without permissions, irreversibly, at the voluntary touch of a button which seals the deal.

Immune to borders, regulation, inflation, manipulation, corruption ... all transactions are fully transparent and available on every computer plugged into the internet network.

Bitcoins don't 'exist' what exists is a record of deals and ownership changes of goods & services. 

Bitcoin Wallets are identified to the world and protected by encryption algorithms and hash functions, there are no names and addresses, so identity theft is impossible. You alone have the key to your wallet which is identified only by a Bitcoin address, but you can still be conned and hand over your money to a crook, so Due Diligence & Caveat Emptor apply. It is your responsibility to safeguard your money there are no policemen to help find con men and no help if you forget your password.

Start with a wallet which provides ownership claims to Bitcoins circulating in the ledger. Wallets do not contain Bitcoins, the Bitcoins are all circulating in the ledger. Each Bitcoin has a 'public key' which identifies it in the ledger and a 'private key' which identifies it in a wallet. Ownership can thus be 'proved' and deals 'change of ownership' accounted for.

A digital signature is created (which proves you have the 'password' without revealing it) with a private key (the true 'password') and verified with a public key (the 'send to' addresses) with proof of ownership of the public key that anyone can use to check. 

Type of wallets - don't put all your eggs in one basket - encrypted data will be sent to Bitcoin 'nodes' plugged into the internet and thus current IP addresses with be known ... but can be changed at every deal.

- online wallets are 'hosted' on a cloud and plugged into the trading network as you buy & sell. At the mercy of the provider.

- software wallets function the same way but are 'resident' on your hardware / mobile apps. Your responsibility.

- physical paper printed codes / keys. Lost if burned, no one else knows 'private' keys.   

- offline hardware product not connected to the internet but stores the keys. If stolen it can be reactivated only by an 12-24 digit 'seed' only you have.

To buy cut & paste the 'public key' of the merchant seller into your wallet 'send' and send your 'private key' to the merchant to transfer ownership of the Bitcoins. Currently about 100,000 and growing, merchants accept Bitcoin.

Bitcoin Exchanges provide exit routes into 'conventional' currencies at market exchange rates determined by supply & demand. The exchanges are, of course, 'outside' the blockchain and like all commodity exchanges which do require personal identifications and trust in people, 'my word is my bond'. Prices were initially 'agreed' on forums of enthusiasts but now the value is determined on the exchanges, as with any commodity, by supply & demand within the community. Somebody is always willing to sell you some, at a price. Folk agree and speculate on the value between themselves other wise they wouldn't trade. Of course speculation on news & rumours can cause wide fluctuations in price, especially initially.

Exchanges & wallets can store Bitcoins and fiat currencies for you like a Bank Account service.

They are 'outside' the Blockchain and require set up, fees and proof of identity ... and vulnerable to hacking & theft and a risky 'store of value' better to keep your wealth in commodities?

Bitcoin Supply comes from purchase at Bitcoin.com or from ATMs or from 'mining'. The software limits the the creation of Bitcoins to 21 million although there are unit subdivisions. Values will grow with more users and trust. More merchants will charge and receive more bit coins for their offerings than spent on their business costs as recorded in the ledger. In exactly the same way as fiat money is created by commercial banks te ledger must balance.

Purchase - join a club or an ATM and exchange $s for Bitcoins at market prices, supply & demand.

Mining is the act of processing and verifying transactions on the Bitcoin network and securing them into the blockchain.

What you purchase are Bitcoin 'keys' which are stored in your wallet or spent on deals with your mates.

Mental entry barriers to overcome?

1. any post deal CHANGES invalidates ALL future deals

2. REWARDS are accrued for work which adds VALIDATED deals to the chain

= a shared, decentralised, definitive record of entitlement

but nothing about CAVEAT EMPTOR & DUE DULIGENCE of any assessment of VALUE.

Moral sentiments & immunity = Trust in technology?

Rewarding bad behaviour = money laundering easy?

Opportunity for criminals? Yes but more difficult than the existing system.

Force Majeure = inflexible deals ... errors and accidents were permanent?

Verification CPU power is wasteful = high cost but cheaper than back office clerks and paper?

Synergies of specialisation & scale = Tolerance

Behavioural rules of thumb = cultural evolution

No person, organisation nor government can 'control' the encrypted, decentralised network.

Software can be rewritten but its use depends community trust, everybody has a copy ...

Any malicious hacking/meddling and folk will stop using the currency ... there are alternatives.

Who gets the fees?

Government 'guarantees'? - anathema, money can be privatised after all?

How does it start up?

Sources?

Massive fraud? = encryption cheaper than regulation?

Rewrite the open source software?

... but better than the existing alternatives??

Cool instant digital innovation software for trading (exchange of ownership and capital raising) not for storing value (volatiliy, fraud, theft). Private and decentralised modern economy without top down 'intention' of middlemen, States, Googles, Facebooks ... surveillance & inflation.
BUT how do you trust software when code is continually 'improved' via AI logrithms which have a life of their own and no one person understands?

Nigerians must by pass bribery & corruption and expensive & price fixed $s ... regulation & 'stamp of approval' not required as transparent maths is continually checked for authenticity.

China state backed preserves all the old problems of price fixing & surveillance & inflation  ... with no diversity fed innovation.

In the US cryptocurrencies were steeped in the language of libertarianism, in China the digital currency was tied up to the Communist party’s drive to maintain control over society and the economy ... go figure ... ?

It was a new way to establish trust & security by awarding 'miners' coins in return for intensive puzzle-solving on the blockchain, making it a so-called 'proof of work' coin. The puzzles are sufficiently hard to prevent hackers and other nefarious actors from taking control of the network, and the faster that miners can submit random numbers into the bitcoin algorithm, the more likely they are to unlock the coins. This all demands powerful machines running at full tilt ... a vast energy consumption ... but does it 'save' the vaster energy consumption of clerical work and mishaps associated with the 'almithy $s'?

 

 

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