The Status of the ‘Hong Kong Hard Fork’: An Update


Last February, in the midst of Bitcoin’s long-lasting block size dispute, a group of Bitcoin Core developers, Bitcoin miners, and representatives from the Bitcoin industry met in Hong Kong. Sealing their position with a signed letter, the attendees agreed to run only Bitcoin Core-compatible consensus software for the “foreseeable future.” This avoided a potential hard fork as proposed by Bitcoin Classic or Bitcoin Unlimited — at least temporarily.On their own behalf, the Bitcoin Core developers present at the meeting — Cory Fields, Johnson Lau, Luke Dashjr, Matt Corallo, and Peter Todd — agreed to propose a block size hard fork, with a deadline set three months after the release of Segregated Witness. If accepted by other Bitcoin Core developers and the broader Bitcoin community, the proposal could pave the way to a block size limit increase.After months of testing and some delay, Bitcoin Core 0.13.1 became available to the public in the last week of October. With that, Segregated Witness was officially released.Per the original agreement from February, this leaves the signatories to the agreement—who we’ll call the “Hong Kong developers”—with about 10 more weeks to propose a hard fork.Soft-hardforkA typical hard fork essentially creates a new protocol and network to which all users must migrate, abandoning the old protocol in the process. Unfortunately, this presents an inherent risk that not all users switch. The original protocol can live on, essentially creating two distinct networks and currencies: a coin-split. That’s exactly what happened on the Ethereum blockchain as a result of a contentious hard fork last summer, splitting into Ethereum and Ethereum Classic.The Hong Kong developers, therefore, prefer a “soft-hardfork,” also known as a “forced soft fork” or a “firm fork,” and sometimes referred to as an “evil soft fork.” Like a typical hard fork, a soft-hardfork can change any protocol rule, including the block size limit. As Peter Todd told Bitcoin Magazine, “Many prefer a soft-hardfork for the perceived reduction in the chance that the currency will split.”Specifically, miners apply a soft-hardfork, through hash-power majority, by only mining “empty” blocks on the original protocol — blocks that contain no transactions. Users that stay behind on this “old” chain therefore can neither accept nor send any payments. In other words, they run no risk of being defrauded on an otherwise abandoned network.Meanwhile, all new transactions are moved to a sort of “add-on” blockchain that only nodes that have upgraded for the soft-hardfork can see. While the original blockchain is still used for proof-of-work security, the new protocol exists in parallel.Coin-votingThe main drawback of a soft-hardfork is that it can be applied against the wish of users; in that sense, it’s somewhat coercive. Unless they want to await a possible “return” of miners to the original protocol, users have no choice but to upgrade to the new rules — or to hard fork to an entirely new protocol themselves, in effect creating a new network and currency after all.To avoid both a coercive situation and a coin-split, the Hong Kong developers want solid indication that a soft-hardfork has consent from the Bitcoin community. They have therefore been considering two types of solutions to measure consent, both of them based on the coins controlled by users. Knows as “coin-signaling,” this solution “would allow for much safer hard forks, by showing that Bitcoin holders and users actually approve of the fork,” Todd said.One of these methods — inspired by “hard fork opt-out bits” — lets users include extra data in all transactions they make, thereby signaling support for a potential fork. If all transactions over a certain time frame include this data, they serve as an indication that users are ready to fork.Todd also has been developing a solution to let users vote with the coins they hold, even if they do not transact. On his blog, Todd explained in August:“I’ve been working on coming up with more concrete mechanisms based on signaling/voting proportional to coins held, in particular, out-of-band mechanisms based on signed messages and probabilistic sampling that could potentially offer better privacy and censorship resistance, and give ‘holders’ who aren’t necessarily doing frequent transactions a voice as well.”The ProposalYet, when it comes to a concrete proposal, some uncertainty remains.Luke Dashjr, who in addition to Bitcoin Core also maintains Bitcoin Knots, presented an initial soft-hardfork proposal and preliminary code back in February, two weeks before the group met in Hong Kong. He kept improving it in the months that followed, and it’s this proposal that forms the most concrete basis of the proposed “Hong Kong hard fork.”This proposal would increase the block size limit, though the exact size of the increase is yet to be specified. According to the Hong Kong Roundtable consensus, the increase should be around 2 MB, but will also include a reduced “discount” on witness-data to ensure that adversarial conditions don’t allow blocks bigger than 4 MB. The proposal also includes further — rather uncontroversial — optimizations.Progress on development, though, has slowed down over the last months. This is in part because the Bitcoin miners did not seem very interested in the proposal, Todd said. Perhaps more importantly, several developers — both those in Hong Kong and others — consider the agreement to have been broken by at least one counterparty in the deal: the Chinese mining pool F2Pool.“The whole point of putting ‘Run Bitcoin Core compatible clients’ in the agreement was for miners to stop playing political games for a few months,” Todd explained, “and to give developers a reason to work with them. By not doing that, we’ve been totally unable to get any other developers to consider joining the effort, and if anything, the experience soured them on the very idea.”Additionally, most of the Hong Kong developers have seemingly come to believe that short-term community consensus on a block size limit hard fork is virtually impossible in the current climate.“The community clearly doesn’t want a hard fork, and the Ethereum fiasco just sealed that,” Luke Dashjr told Bitcoin Magazine.Moving ForwardThat said, the Hong Kong developers will continue to work on the proposal — something Todd noted they were planning to do either way. Whether it will be finished within the allotted three months after the Segregated Witness release remains uncertain.“Nothing in that agreement on the developers’ side was stuff we weren’t interested in doing anyways,” Todd said. “The whole point was to find some common ground that people didn’t previously know they had … So I’m still working on my part, which is to design and implement better approval mechanisms that don’t rely on miners to approve forks — both soft and hard.”Dashjr also said he will continue to work on the proposal. While he is no longer strongly committed to presenting fully finalized hard-fork code within the original three-month deadline, he might. And he remains hopeful the solution will eventually be adopted.“Maybe in a few years things will change,” Dashjr said. “After the ‘hard fork’ altcoiners go away.”The post The Status of the ‘Hong Kong Hard Fork’: An Update appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Op-Ed: China's Mining Subsidies Create Tension With Free Trade Rules


If the only tool you have is a hammer, it’s tempting to treat everything as a nail. Thus, most people in the technically-oriented Bitcoin community treat the specter of mining centralization as a problem to be solved chiefly by technical means. However, a substantial cause of mining centralization is Chinese government policy, which distorts the digital currency mining market. There are creative arguments that China is violating its international trade obligations. Given the consequences for mining centralization, government subsidy for digital currency mining might be added to the list of banned activities for World Trade Organization members.In international trade, “dumping” is a predatory pricing tactic in which manufacturers from one country export a product to another country at a price either below the price charged at home, or below its cost of production. Dumping seeks to kill off competition in the importing country, so firms in the exporting country can raise prices to supranormal levels.Something like dumping is recognizable in the world of bitcoin mining, where the advantages Chinese firms have in chip fabrication link up with access to deeply discounted, government-provided energy to produce an unusually strong mining industry. As a result, China’s mining community has a high percentage of the world’s hash power, and miners elsewhere, such as KnCMiner in Sweden, have gone bankrupt.Bitcoin Magazine recently reported that chip maker and miner, Bitmain, is building a major data center complex in the northwest of China to focus on Bitcoin. Its location, Xinjang, is ideal because of its cold, dry climate and “access to government-supported, low cost wind and solar electricity.”The World Trade Organization’s Agreement on Subsidies and Countervailing Measures (SCM) details what subsidies are subject to challenge by WTO members and on what terms. Cheap, government-supplied energy is a subsidy. According to the terms of the agreement it is: (i) a financial contribution; (ii) by a government or any public body within the territory of a member; (iii) that confers a benefit.Subsidies must also be “specific.” If a subsidy is widely available, it is presumed not to distort the allocation of resources. But if a government subsidy targets particular companies, sectors of the economy, regions or exports, that subsidy runs afoul of the rules.China’s hydropower glut almost certainly didn’t originate to bolster a bitcoin mining industry that wasn’t conceivable when the dams were built. But Chinese power subsidizes mining all the same, and it doesn’t just cause economic dislocation. It undercuts Bitcoin’s security. A blockchain system maintained by entities within a single government’s jurisdiction is at greater risk of political manipulation and censorship.The SCM delineates two types of subsidies: prohibited and actionable. Subsidies designed to directly affect trade and thus adversely affect other WTO members are prohibited. Actionable subsidies are those that may be shown to cause adverse effects to other WTO members. When goods are at issue, subsidies can be challenged either through multilateral dispute settlement, or through countervailing action. Subsidies for services are subject to “consultations,” according to WTO rules. The Trade in Services Agreement now being hammered out in Geneva might be expanded to explicitly bar subsidies for digital currency mining, or data processing generally.As a category buster, bitcoin and other digital currencies can be a poor fit with the traditional rules governing international trade. Anti-dumping law and the SCM apply only to trade in goods. The new bitcoins created with each block are arguably goods, even if they take digital form. The rest of the mining process is best thought of as providing transaction-inclusion services for digital currency users. When new bitcoins are no longer being created, mining will be a pure financial and data processing service.Bitcoin transactions also don’t generally have a “location.” This means inclusion of any particular transaction on the Bitcoin blockchain is not easily proven to be a subsidized service to a consumer outside China, and Bitcoin transactions within China are subsidized to the same degree as transactions outside the country. Countervailing measures such as tariffs would be very hard to administer.On the other hand, given the global trade and large proportion of Bitcoin transactions among users outside of China, bitcoins as goods and mining as transaction-inclusion services are clearly being provided to consumers outside China. These are exports, even though the precise place of purchase or location of service may be ambiguous.Bitcoin’s basis in math makes the case for wrongful subsidies much easier. The power consumption bitcoin mining requires and the hash power available to various mining groups is readily calculable, so it’s quite easy to measure the substantial benefits Chinese bitcoin miners enjoy from being given cheap power.If China were to build transmission lines that delivered energy more evenly across its economy, the argument that it was subsidizing its bitcoin mining industry would evaporate. The Chinese government may have international trade obligations that require it to withdraw the substantial benefit it now confers on its domestic bitcoin mining industry. Technological measures — such as, restraining blocksize limit, or fine tuning to reduce the amount of bandwidth it takes to propagate new blocks — are not the only tools in the Bitcoin community’s toolbox.This op-ed is a guest post by Arthur Hayes. The views expressed are his own and do not necessarily represent those of Bitcoin Magazine.The post Op-Ed: China’s Mining Subsidies Create Tension With Free Trade Rules appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Bitcoin Transactions and American Taxation: An Interview With Daniel Winters, CPA


The rise of bitcoin and other forms of digital currency is fueling a wealth of questions about tax enforcement: what sort of tax treatment guidelines exist for digital currencies? How are tax reporting agencies responding to the large number of digital currencies that now exist worldwide? To what extent is virtual money being used for tax avoidance purposes?All of this has sparked fervent conversations among those being paid in bitcoin, those simply investing in it, and many of the anarcho-capitalist bent who view taxation as theft. And given prevailing issues around tax havens, offshore accounts, encryption and the Panama Paper revelations, many would argue that prevailing tax monitoring systems are prime for disruption.In an interview with Bitcoin Magazine, Certified Public Accountant Daniel Winters, addressed ways to make sense of this increasingly complex U.S. taxation landscape. His boutique firm Global Tax Accountants is one of only a handful worldwide that focuses on the tax ramifications of digital currency and blockchain transactions.Winter’s journey to this narrowly defined niche is an interesting one. Hearing about bitcoin’s growing popularity in 2013, he ponied up some money and purchased a tiny amount. He became fascinated with Bitcoin’s trustless, peer-to-peer system of exchanging value that exists completely outside of the control of central banks or government. Over time he began to explore how this movement might align with his work as a CPA. Later, after reviewing the the guidance issued by the IRS on the taxation of virtual currencies in March of 2014, he elected to pivot his entire accounting practice last year toward the digital currency/blockchain niche  Today, Daniel has over 30 clients that include investors, contractors and businesses that have bitcoin earnings. He has presented on bitcoin and taxes at the Texas Bitcoin Conference and the New York Bitcoin Center, and was interviewed by Bloomberg regarding New Jersey’s tax treatment of bitcoin transactions.  In the following interview, Winters discusses the road ahead, as U.S. tax authorities and users alike seek to better understand tax policy in the rapidly expanding digital currency landscape.Is bitcoin considered money for tax purposes?Per IRS Notice 2014-21, bitcoin is considered a virtual currency and is thus treated as property for federal tax purposes.  In other words, the IRS views bitcoin as being similar to stocks and bonds.  So under federal tax law, if you purchase bitcoin and later sell it, you will have a gain or loss on the transaction.Bitcoin’s designation as a virtual currency connotes its use as a medium of exchange.  And the fact that it is traded on the market determines its value. However, as we know, it is not backed by any sovereign government and is not legal tender anywhere. So it functions as a currency, but only in the virtual world and electronically.Where was the definition derived from?  FinCen issued extensive guidance for the defining of digital currency. When the IRS issued their guidance in March 2014, they took the definition of a virtual currency directly from FinCen and then said okay, that is what virtual currency is and how it’s defined for tax purposes. Again the big takeaway from the IRS guidance is that bitcoin for tax purposes is property, not currency.But given bitcoin’s global nature, why isn’t it considered a foreign currency?The IRS does not view bitcoin as a foreign currency for tax purposes. Foreign currency has a different classification, and receives very different tax treatment.  In other words, bitcoin does not get treated the same way as if you bought some Euros in Germany and then had them converted into U.S. dollars.And what’s with all of the talk about bitcoin being classified as a commodity?There is a lot of misinformation out there about this. So for the record: bitcoin is also not treated as a commodity for tax purposes.  This confusion likely has ensued from the Commodity Futures Trading Commission (CFTC) that regulates financial derivatives. They have stated that bitcoin is a commodity for purposes of the CFTC. The Commission was created many years ago to regulate financial products, such as futures contracts or derivatives for the price of soybeans, corn or pork bellies.  A derivative is basically a contract whose value is dependent on the price of something else, such as the price of soybeans. So the CFTC regulates financial derivatives and futures contracts. What they were trying to convey with regards to bitcoin is that it is also essentially a futures contract or derivative, which they are charged with regulating. But this [the CFTC] has nothing to do with taxation.So why was it defined as a futures contract to begin with?Basically, a futures contract allows you to purchase the right to buy or sell a commodity or other asset for a set price at a future point in time. These contracts were originally created for farmers, who wanted to guarantee the price of their crops. These days, you can buy a derivatives contract for a vast array of financial assets, including bitcoin. Therefore, when the CFTC issued their notice concerning bitcoin, this just meant that bitcoin derivatives contracts are being regulated by the CFTC. Again, bitcoin is most definitely not a commodity for tax purposes.  So at the end of the day, is a bitcoin sale viewed in the same way as that of a stock?Yes. Since Bitcoin sales are treated like stock sales, the resulting gain will be either short-term or long-term and subject to those respective tax rates. Long-term sales, for which bitcoin is held for more than one year, are subject to a 15 percent capital gains tax for most taxpayers. Taxpayers in the top income bracket are subject to a 20 percent capital gains tax, which applies to income above $400,000 for single taxpayers, and $450,000 for married taxpayers filing jointly.  Short-term sales are those for which bitcoin was held for up to one year and are subject to ordinary income rates of up to 39.6 percent.How is all of this accounted for on a tax return?With respect to bitcoin, there are two things that need to be reported on a tax return: income or revenue and any capital gains on the sale of those assets.And how are capital gains calculated?Capital gain/loss is calculated by subtracting the purchase price, or basis, of the virtual currency from the sale price. The basis of a given amount of virtual currency is the fair market value, in US dollars, on the date of payment or receipt.  What that means for the average user is if they purchase $100 of bitcoin today, they own an asset with a cost basis of $100. Now let’s say that a year goes by and bitcoin goes through the moon, doubling in price. So it’s now worth $200. You then sell it and get $200. $200 minus $100 is $100 in capital gains, which must be reported on your tax return.But there are some that say that bitcoin becomes non-taxable if you convert it before it appreciates.That’s incorrect. If you receive $1,000 in bitcoin from, let’s say, a mining contract then you have $1,000 in income. And if it’s a business, it should be viewed as $1,000 of revenue. Bottom line, it’s $1,000 of ordinary income or revenue. But also keep in mind that it is also considered a capital asset, with a cost basis of $1,000. So unless you convert that bitcoin into dollars that day, you’re going to have a gain or a loss on the transaction.How do the tax guidelines apply to bitcoin miners and their earnings?The IRS says that if you are a miner that receives (bitcoin) revenue from a mining business, this equates to the U.S. dollar value of the virtual currency on the day you receive it. So as an example, say you are solo mining and you go a month and a half without getting paid. Then one day you suddenly become lucky and hit a big block with 12 coins. The complete dollar value of those revenues apply on the date you received them.How are taxes viewed for a mining business?Revenue reflects the dollar value of the bitcoin the business receives each day. Businesses can, however, reduce their revenues by any expenses they incur, irrespective of whether those expenses are paid in dollars converted from bitcoin or bitcoin itself. In other words, if you purchase a bunch of, say, power supplies for your mining business with bitcoin, your expenses are deductible.What about bitcoin received in exchange for goods or services?It is treated as ordinary income, the same as normal wages paid in fiat currency.What about a miner or freelance contractor that receives their pay in bitcoin?IRS stated very clearly that contractors who receive bitcoin or other forms of digital currency are subject to the 1099 reporting rule. That means that if you are a U.S. citizen or permanent resident and someone pays you in bitcoin, that company is obligated to provide a 1099 to you, provided that it was at least $600.And W-2 employees?If someone is a W-2 employee and their employer chooses to pay them in bitcoin, the IRS states that the dollar value of those wages gets added into any other dollars they’ve received during the year and that must be included on their end of the year tax document.  The IRS just recently released a new guidance report in September. Can you briefly discuss this?The IRS’ recent 31 page guidance report takes a broad look at bitcoin and virtual currency taxation, what the IRS has done so far to address it, and what they need to do in the future. The broad goals of this guidance are as follows: (1) determine if virtual currencies are widely being used as a method to hide income and avoid US taxation; (2) share virtual currency knowledge across the IRS; (3) identify audit techniques that can used to determine if taxpayers using virtual currencies in transactions, especially offshore arrangements, are attempting to conceal income and avoid US taxation.Is this part of a larger enforcement effort?Let’s just say that the IRS has a team charged with determining whether bitcoin is being used for tax evasion. This knowledge is being shared throughout the IRS and audit techniques are being identified to nail people who are hiding their income. They have given training to over 300 agents, providing a general overview of what virtual currency is and how it works.The IRS is well aware that most people, many people, don’t properly report their bitcoin transactions and they are well aware of the fact that their enforcement mechanisms are not sufficient.In your view how pervasive do you believe the use of bitcoin and other forms of digital currency will become as a tax-avoidance tool globally?It’s very difficult to answer that question.  Our firm doesn’t accept clients that are engaged in tax evasion. Bottom line, trying to use bitcoin to avoid paying taxes is not too smart. Since all bitcoin transactions are publicly available on the blockchain, if someone can associate your identity with a particular bitcoin address, your transactions are right there.Any final advice for those who are actively investing and/or being paid in bitcoin?Keep good records. This is particularly important given the history of instability among exchanges and the fact that they might go under at any moment. And honestly, I get asked all the time about tax avoidance. In my view, it is important to be compliant with the law and avoid any unnecessary complications with the tax authorities. That’s my passion: supporting people in achieving this aim.  Note: Daniel Winters holds a Master’s of Taxation and owns an accounting firm specializing in Bitcoin and virtual currencies. He has written a course for CPAs about Bitcoin & Taxes and has an excellent understanding of how the IRS treats Bitcoin transactions. Nonetheless, the information he offers in this post is NOT legal advice, nor does it constitute advice regarding your personal tax situation. Under IRS Circular 230, Winters has no responsibility for any positions you take on your tax return unless he has prepared and signed that tax return. For a detailed analysis of your tax situation, please consult your tax advisor.The post Bitcoin Transactions and American Taxation: An Interview With Daniel Winters, CPA appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Gates Foundation Grant Boosts Factom's Blockchain-Based Medical Record Development


Factom, an Austin-based blockchain technology company offering data management and record keeping support for business, announced it is the recipient of a Bill and Melinda Gates Foundation grant. The intent of this funding is to address one of the world’s most urgent problems — the maintenance of medical records that are secure, readily accessible and reliable.Prevailing medical record systems are typically paper-based and stored in hard copy files. This system becomes a problem, particularly in the developing world, when people relocate or if a region becomes politically or economically unstable. Creating an infrastructure for medical records  that is individual-based and secured via the Factom blockchain addresses both of these issues in a cost effective and pragmatic way, offering real benefits to poorer countries.With advances in this solution, medical providers and clinics will have a greater ability to address disease conditions and manage care in areas often lacking technological resources. By way of example, through the use of a smartphone a medical professional can access the record of a baby born in a remote area to ensure they are receiving correct vaccinations. The same for an HIV-infected person where viral load measurement results need to be identified. The hope is that blockchain technology will save lives as well as money in nations that are currently dealing with some of the world’s most deadly diseases.The broader objectives of the Gates Foundation align well with Factom’s core belief that people and institutions can solve hard problems and change the world for the better when they have a reliable framework to build on.“We for a very long time have been trying to make the world a more honest and transparent place,” Peter Kirby, CEO and Co-Founder of Factom said to Bitcoin Magazine. “Our work has led to the creation of some interesting materials on blockchain’s contribution to the records identity space and why that matters.”Kirby recounted the conversation with a Gates Foundation staff member who reached out to inquire whether Factom’s innovative solutions might work for some of the problems the foundation is trying to solve. “How can the blockchain be used in a way that allows people to have access to their medical records? How do you deal with places in the world where central databases and central governments are messy? What can be done to keep track of things like vaccine records? These were the type of questions they asked.”The good news, said Kirby, is that the blockchain’s attributes as a giant distributed data resource make these sorts of solutions possible. Describing the medical records realm as “one of the biggest, hairiest record-keeping problems on earth,” Kirby said that the biggest challenge in this quest is in how to deliver a solution that “balances privacy and transparency.” Another issue is how to make all of this work in environments that have low rates of web connectivity and a population without fancy smartphones.Kirby is quick to point out that Factom’s engineers have been pondering solutions to these sorts of questions for a very long time. “We have a pretty good strategy for it, although we are not disclosing all of the details yet. We’d like to build it and get it working before we show it off and talk about it too much.”The system for medical records in the U.S. is saddled with heavy regulatory burdens primarily focused on issues of privacy. There are often many hoops to jump through around Health Insurance Portability and Accountability Act (HIPAA) compliance and data integrity. Meanwhile, the developing world is also in urgent need of simple solutions in this space.The Gates Foundation specifically has a mandate to create these sorts of opportunities in the very poorest countries in the world, where the amount of money available to spend on essential projects is limited. Similar to the way that a big leap forward is taking place with mobile phones in the developing world, there is an expectation that the same can hold true for the blockchain in terms of record-keeping, identity, and privacy.“Our goal with this new partnership is to demonstrate how global identity and record-keeping as a public utility is possible,” Kirby said. “We hope to show how individuals can manage important, private records like medical records using very simple tools and a lot of backend cryptography. My belief is that the blockchain will be used more and more over time for these aims. If we all follow these core beliefs, we will get to a very, very good place in this world.”The post Gates Foundation Grant Boosts Factom’s Blockchain-Based Medical Record Development appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Slush Pool to Let Hashers Vote on Segregated Witness Activation: “Mining Pools Should Remain Neutral”


Bitcoin’s oldest mining pool, Slush Pool, will let its miners vote on the Segregated Witness soft fork proposed by Bitcoin Core. By passing this choice down to individual miners that connect to the pool (sometimes also referred to as “hashers”) Slush Pool hopes to remove itself as a decision maker from the equation.Speaking to Bitcoin Magazine, Slush Pool operator Marek “Slush” Palatinus stated:“Satoshi’s idea was not to have a few entities control the network. As a mining pool we shouldn’t rule.”Segregated WitnessMining pools offer Bitcoin miners a solution to combine their hash power, sharing any block rewards they may find. Last year, Slush Pool was the first pool to also offer their hashers a chance to indicate preference on a potential block size limit increase hard fork. Whenever a hasher participating in the pool finds a block, that specific block is tagged with the choice of the hasher.As a proposed soft fork per the requirement established by Bitcoin Core, Segregated Witness will require support from 95 percent of all hash power on the network to activate. Continuing its policy to put hashers in control, Slush Pool — which accounts for six percent of all hash power on the Bitcoin network — will let hashers vote in support of, or against, Segregated Witness activation.Speaking to Bitcoin Magazine, Palatinus explained why he believes Slush Pool should refrain from making decisions on behalf of its hashers:“Pools are just service providers for miners, which makes mining easier and optimizes costs. I don’t consider it much different from internet service providers, and I think we should adhere to similar principles of net neutrality. At Slush Pool, therefore, our long-term strategy is to remain neutral on potential hard forks and soft forks, and to offer tools for miners to decide for themselves.”Palatinus himself does hope the Segregated Witness soft fork will activate. The co-inventor of pooled mining believes that the proposal will offer significant benefits that improve Bitcoin overall, with little downside.“We see Segregated Witness as a fix of many holes left in the Bitcoin protocol, which do need to be fixed,” Palatinus said. “Problems like quadratic scaling during transaction signing, malleability issues, the inability to know the value of an input… Yes, Segregated Witness is a pretty complex solution, but these issues cannot be fixed much [more easlily]. It is also one of the most tested changes in Bitcoin history. There’s huge intellectual effort behind the whole concept, and I think it would be really sad if that won’t go through because of political games.”Despite its intention to remain neutral, Slush Pool did decide to enable Segregated Witness signaling as the default. If hashers don’t change their settings, they will signal support for Segregated Witness — but they can easily switch that support off.Block Size DebateWhile Segregated Witness offers several benefits, one of these has garnered a lot of attention in the context of the block size debate in particular. The proposed soft fork replaces Bitcoin’s block size limit with a block “weight” limit, which offers an effective block size limit increase of about 0.7 to 1.0 megabyte, depending on the types of transactions included in a block.Some proponents of a block size limit increase, however, prefer a hard fork to increase the block size limit instead. Perhaps most notably, the relatively new Chinese mining pool ViaBTC — controlling about eight percent of all hash power on the network — has indicated it will reject Segregated Witness in favor of a hard fork.Criticizing this approach, Palatinus said he does not believe Segregated Witness and a hard fork block size limit increase are mutually exclusive. Apart from Segregated Witness signaling, Slush Pool hashers can still mine blocks indicating support for a block size limit increase hard fork.“We don’t see Segregated Witness as a scaling solution primarily — though it will help a bit,” Palatinus explained. “And we believe that all scaling solutions — including Segregated Witness — should be adopted, regardless of politics. That’s why we let our miners vote for their preferred hard fork and soft fork at the same time, and give them an option to combine these votes. It’s not an either/or proposition.”Palatinus himself has been a long-time proponent of increasing Bitcoin’s block size limit through a hard fork. Though, when asked by Bitcoin Magazine, the pool operator also explained he’s not confident the solution, as proposed by Bitcoin Unlimited and endorsed by ViaBTC, is the way to go at this point.“I was in favor of increasing the block size limit because I think Bitcoin is quite anti-fragile, and do not share some of the disaster visions you hear,” Palatinus said. “However, what troubles me is that recent efforts to hard fork seem pretty light-handed and without serious research behind them. Proposals like Bitcoin Unlimited’s are adding another degree of freedom to Bitcoin’s economic model, and it is unclear how much this changes incentives and the overall balance of the network.“Simply put: I don’t believe there are simple solutions for complex problems.”The post Slush Pool to Let Hashers Vote on Segregated Witness Activation: “Mining Pools Should Remain Neutral” appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Why ViaBTC Rejects SegWit Soft Fork in Favor of Block Size Hard Fork: Interview With Haipo Yang


Set to offer an effective block size limit increase, a transaction malleability fix and more, SegregatedWitness (SegWit) could soon go live on the Bitcoin network. Starting tonight, miners can signal support for the proposed centerpiece of Bitcoin Core’s scalability roadmap. The soft fork will activate if 95 percent of hash power agrees.But Chinese mining pool ViaBTC, currently representing some 8 percent of hash power on the Bitcoin network, has indicated it will not support SegWit activation. Instead, the mining pool favors a hard fork to remove the one megabyte block size limit, as proposed by Bitcoin Core fork Bitcoin Unlimited.To learn more about ViaBTC’s motivation, Bitcoin Magazine reached out to CEO Haipo Yang.Haipo, you’ve made it clear you want a hard fork to increase the block size limit. Why do you consider this necessary?The past seven-year history of Bitcoin has proven that on-chain transactions are successful and needed by users. I think a hard fork to increase the block size limit is the only way for Bitcoin to develop moving forward, and the only way to preserve the bitcoin mining business model. I support a hard fork to stop Bitcoin from marching towards extinction.Since blocks first started filling up about a year ago, the bitcoin price has doubled. How does this indicate “a march towards extinction”?What influences short-term fluctuations in the bitcoin price comes from speculators rather than from fundamentals like transaction throughput. Bitcoin was valued over $1000 at one point. A rebound to $700 doesn’t seem all that unusual.Academic analysis suggeststhat Bitcoin needs a block size limit to guarantee miner income in the long-term. Wouldn’t you rather find out how much users will pay for transactions before worrying about Bitcoin failing?I think by the time we find out, it will be too late. Bitcoin offers no benefits over most altcoins other than a first-mover advantage and security. And Bitcoin can lose both these advantages. If there’s not enough capacity, people will use Litecoin instead — or Ethereum or Zcash, or another altcoin, and Bitcoin will be done for.Do you see increased transaction throughput in the short-term as the only road to success? For example, consider the “digital gold” value proposition, which doesn’t require as many cheap, on-chain transactions.Is Bitcoin a currency or a commodity? In my view, this is a bit like the relationship between water and a boat. If bitcoin does not have widespread acceptance as a currency, then its value as a commodity is an illusion. Limiting Bitcoin’s capacity is therefore a ridiculous strategy. It’s as if Facebook would have continued to only let users with a .edu email address register. If they had done that, there wouldn’t be a Facebook today.In your analogy, Facebook could just rent another server in order to meet capacity.  Increasing the block size presents a burden to each Bitcoin node. If you want to keep Bitcoin decentralized, it’s not as easy to scale.The large majority of Bitcoin users have no need to run their own nodes. By design, Bitcoin allows users to make choices when it comes to speed, convenience and trust. They can use a light wallet. The trade off for that convenience is that they give up a very small amount of trust.They give up this trust to miners. Don’t you think that having to trust third parties — in this case, miners — is against a principal goal of Bitcoin?Based on the current quality of hardware, I don’t think increasing the block size up to four megabytes will be a problem for the foreseeable future. Users would still be able to run full nodes if they want to.But surely you don’t think that four megabytes will be enough to meet any and all eventual demand?We don’t know how many potential Bitcoin use cases there are, and what scenarios they will be applied to. Perhaps we’ll find that four — or maybe eight — megabytes actually is enough. What we do know is that one megabyte blocks can’t meet present users’ demand — and Bitcoin must scale.Many use cases can also be realized through added layers. Some of these layers already exist, like ChangeTip or Coinbase’s off-chain transactions. And trustless layers like the lightning network are in production as well.I don’t deny that the lightning network and other second layer technologies have benefits. And plenty of off-chain transactions are indeed already happening, for example in exchanges. But many Bitcoin transactions also need to be made on-chain, where they can be traced. This is what second tier technologies cannot achieve.Additionally, opening a lightning payment channel requires users to lock-up funds, which is an extra barrier to entry. If that’s the only affordable option, some users will choose to leave Bitcoin and go elsewhere. On-chain transactions are a proven concept —technologies like the lightning network are not.The lightning network can prove itself once Segregated Witness is activated. And as a bonus, Segregated Witness almost doubles the effective block size. Yet, you intend to block its activation. Why?Segregated Witness can be implemented more simply and cleaner via a hard fork, but Bitcoin Core has opted for a more complex soft fork. This indicates they don’t want a hard fork at all, and don’t want to increase the block size limit either. If the soft fork is adopted, I think a hard fork will be off the table. My goal is not really to block Segregated Witness in and of itself, but to work towards a Bitcoin version I think is better.In your opinion, what must this hard fork look like, exactly?I have proposed to transition to Bitcoin Unlimited because Bitcoin Unlimited removes the hard-coded restriction on the protocol layer completely. Once the one megabyte hard limit restriction is removed, the block size can adjust dynamically in line with the needs of users and technological progress.In this scenario, the block size limit would effectively be controlled by a handful of mining pools representing a majority of hash power which does not sound very decentralized.You cannot say bitcoin mining is centralized just because most miners are located in China. There are more than 20 mining pools, where the biggest pool represents no more than 20 percent of hash power on the network. There are thousands of miners, and anyone is free to start mining. Besides that, Bitcoin is a proof-of-work system. Regular users can share their opinions to try to influence the miners, but ultimately the decision is made by the miners. And of course users want bigger blocks. Of course they want to be able to send more transactions, for a lower fee. Keep in mind that miners have invested millions of dollars in Bitcoin. They won’t do anything against the users’ interest.Imagine if “Dr. Evil” invests $100 billion in mining equipment next year. Or if the Chinese government decides to regulate Bitcoin on a protocol level. If a majority of miners can increase the block size limit to the point where users can’t run full nodes, won’t this hugely centralize—and perhaps destabilize—the system?Well yes, there is always the risk of 51% attacks. The security of Bitcoin requires that more than half of all miners are honest. The confidence people have in Bitcoin is based on this assumption. And Bitcoin will become safer when more investment is made in Bitcoin mining.The confidence people have in Bitcoin also lies in the fact that miners cannot arbitrarily change any protocol rule. If miners hard fork to a new protocol without support from users, they would effectively fork themselves of the network.If miners hard fork to a new protocol, why would users stay on a chain with no hash power? A network where transactions don’t confirm is useless.Perhaps users aren’t interested in a Bitcoin where miners control the block size limit. Perhaps they don’t support a contentious hard fork, etc. Users left behind on the original network may even decide to change the proof-of-work algorithm to “fire” the existing set of miners.I’m not at all worried about Bitcoin Core changing the proof-of-work algorithm. Such a big change in the consensus mechanism would not be accepted by the majority of the community, and as a result there would simply be one more altcoin.Both ends of the fork will probably consider each others’ chain to be the altcoin…In that case we’ll let the market choose which side is Bitcoin.In that case, why not have ViaBTC hard fork right now and let the market decide straight away?I prefer not to see a currency split, and I don’t think it will happen if we get 75 percent of all hash power on board. But Bitcoin Unlimited miners currently only control about 10 percent of hash power on the network. If we’d hard fork now, we probably wouldn’t get enough user acknowledgement and support — and meanwhile we’d undertake a tremendous opportunity loss. As a rational businessman, I won’t do that.Let’s say your hard fork succeeds. Several Bitcoin Core developers have already indicated they have no interest in joining this new network. Who will maintain and develop this Bitcoin?I think if Bitcoin Unlimited becomes the main chain, a rather high ratio of developers will turn to contribute. The Bitcoin code is much less complicated than that of Linux or other open source software, so in this world there are plenty of people with the ability to maintain Bitcoin.Where are all these people, and why aren’t they maintaining Bitcoin right now?I could do it if I wanted to.Why don’t you?Nobody is paying me to do it. And I can earn more by doing other things.Couldn’t it be argued, though, that insofar as Bitcoin Core developers are paid at all, they could probably be earning more by doing other things as well?That is wrong. They should be paid. I personally already pay two Bitcoin XT developers, and if a fork happens, I’m sure there are many more people that can fund development. Roger Ver, Jihan Wu… And there will be more mature companies in the Bitcoin ecosystem, which all have momentum to support and cultivate more Bitcoin developers too.Do you think that the Bitcoin Core development team should be fired?I believe that the Bitcoin Core developers currently have too much power; there’s no system of checks and balances for them. They can decide to make massive changes to Bitcoin based on their own personal preferences, and then force those changes on to the users.Neither users nor miners are forced to run Bitcoin Core. You know that, since you are, in fact, not running Bitcoin Core. Developers make a proposal; the community decides whether or not to accept it.There’s not enough competing implementations to take that position seriously. We already had some competition, but none of these alternative clients posed a threat to Bitcoin Core. A hard fork to Bitcoin Unlimited may change the developer environment. That is what we need. No one should be able to control Bitcoin.Is that, perhaps, what this is really about? Control?I do think the centralization of Bitcoin development is an even bigger issue than the block size limit or Segregated Witness. Bitcoin Core has a privileged position as the “reference client.” And only a few people have the rights to merge code in it.Bitcoin Core is a relatively loosely-knit group of volunteer developers. They choose to cooperate because they agree that’s a more effective way of getting things done. Besides, anyone can fork their code. What alternative do you propose?I have some thoughts about that, but haven’t worked out all of the details. I think Bitcoin Core’s code should not define Bitcoin. Like many other successful open source projects, there should be a specification document to define Bitcoin. This will help alternative implementations become compatible with Bitcoin Core, meaning they can effectively compete —rather than just follow.I think everyone would agree a specification document would be welcome. But in the end, Bitcoin is the code people run on their computers, is it not?I believe the consensus should not be code, it should be English. It should be understandable for most Bitcoin users and companies. This way more people can have a voice, an impact.Speaking of control, who controls the hash power on ViaBTC? Some say it’s Bitmain.Our pool system is highly available, stable and efficient. We have not produced a single orphan block, and we give all mining fees to miners. This is what’s attracting hundreds of miners to our pool, big and small. The idea that Bitmain controls the hash power on ViaBTC is totally ridiculous.The post Why ViaBTC Rejects SegWit Soft Fork in Favor of Block Size Hard Fork: Interview With Haipo Yang appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Expect a “Surge of Blockchain Adoption” Across South Korean Business and Industry Sectors


Having passed the evaluation phase, a number of South Korean financial institutions and firms are now working toward implementing blockchain technology into their services and infrastructures.”At the moment, South Korea is the hotspot of blockchain adoption, with actual businesses and users making use of it on daily basis. South Korea has always been a pioneer in adopting new technologies and blockchain technology is no exception,” Won-Beom Kim, CEO of Blocko, told Bitcoin Magazinein an interview. “We expect a surge of blockchain adoption cases next year in a wide area of industries in South Korea, including banking, insurance, credit card businesses and the Internet of Things (IoT).”As private blockchain technology matures, many are looking to replace their existing legacy ledgers and networks with the new technology, which promises to improve user experience and security.  “Blockchain is seen as a key technology to boost information and business process sharing, and the fact that many companies in South Korea are connected through business conglomerates will make the practice more attractive in South Korea than in other countries,” Kim said.Currently, the most active area of interest is supplementing or replacing the National Public Key Infrastructure (NPIK) by using public key infrastructures built on blockchain, Kim said, adding that passwordless authentication using NPIK is already a common practice in the country.Blocko researches and develops blockchain solutions for enterprise. Coinstack, the company’s proprietary blockchain-based development platform, provides developers with the environment, development tools and building kits to design and deploy applications.Yesterday, the Korea Exchange launched a new marketplace for the trading of equity shares of startup companies. The platform, called the Korea Startup Market (KSM), uses Blocko’s Coinstack technology for document and identity authentication.Aside from having collaborated with the Korea Exchange in the development and launch of the KSM, Blocko is also working with the likes of Lotte Card, Cisco Korea and Samsung SDS on other blockchain projects.Lotte Card, a subsidiary of the Lotte conglomerate, is one of the largest credit card companies in South Korea. It is using CoinStack to build its own Public Key Infrastructure on a private blockchain.”We call it a LPKI (Lightweight Public Key Infrastructure) and the LPKI is enabling hundreds of thousands of Lotte Card’s customers to utilize a biometric-based authentication system on their apps for mobile payment,” Kim explained. “We would call this the first large-scale deployment of blockchain technology in the wild, serving actual users in a large number.”With Cisco Korea, Blocko is applying the same blockchain-based LPKI to connected cards and IoT devices. Kim said that his company has also partnered with a number of local telecommunication companies to further explore blockchain applications in the IoT area, notably for usage over wireless protocols such as Long Range Radio (LoRa).As for Samsung SDS, Blocko is exploring blockchain use cases that include identity authentication based on Fast Identity Online (FIDO) biometric technology, and supply chain management, Kim said.Blocko raised US$1.3 million in a Series A funding round led by Samsung Ventures in July 2016.The post Expect a “Surge of Blockchain Adoption” Across South Korean Business and Industry Sectors appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Is Bitcoin Mining Destined for Data Centers?


For many, Bitmain’s recent announcement of the realization of a major data center in northwestern China served as a reminder of the level of mining centralization in Bitcoin. Although the Beijing-based company will not own the entire complex, and the whole facility will not necessarily be dedicated to bitcoin mining, in theory over half of all hash power securing the Bitcoin network could be concentrated in a single data center.For some, this is reason for concern. If bitcoin mining is dominated by one or even several data centers, these could represent a single point of failure — something Bitcoin was specifically designed to avoid.Much of Bitcoin’s future may therefore depend on a reversal of the trend toward further centralization. And there is reason to believe the trend may indeed reverse.Centralization ConcernsIn 2009, the first year of Bitcoin’s existence, there was little difference between running a node and mining. The typical Bitcoin-Qt wallet allowed regular users to invest spare CPU power to try and earn some coins.By the end of that year it was first suggested that GPUs — mining with video cards — could be more effective. In response, Bitcoin’s inventor asked users to refrain from doing so — at least for the time being.“If everyone bought faster machines, they wouldn’t get more coins than before,” Satoshi Nakamoto wrote on Bitcointalk. “We should have a gentleman’s agreement to postpone the GPU arms race as long as we can for the good of the network. It’s much easier to get new users up to speed if they don’t have to worry about GPU drivers and compatibility.”Regardless, the shift towards GPUs occurred throughout 2010. And with it, bitcoin mining increasingly shifted from regular users to dedicated specialists. Setting up mining rigs in basements and attics, a lot of these specialists started out as hobbyists. Over time, however, the competitive nature of mining ensured only the most efficient of them remained profitable.The introduction early in 2013 of field-programmable gate arrays (FPGAs) was a first real step towards the professionalization of mining. From 2013 onward, application-specific integrated circuit (ASIC) chips really changed the game. The specialized hardware, which required a significant investment to produce, transformed the mining ecosystem into an industry.This is when data centers became an attractive option. It makes sense to have few specialists oversee large mining farms for maintenance; and it helps if the facility is well-suited for mining — for example, if it is dust-free.A more important factor in favor of data centers was the exceptional pace of improvement of ASIC chips. The lifespan of mining hardware can be as short as several months, when it gets made obsolete by a newer generation. This means that mining equipment should ideally be put to work in the near vicinity of the chip production factory.As Andreas Antonopoulos explained at the d10e conference in San Francisco last summer:“If you try to put [an ASIC miner] on a ship [from China] and take it across water, it leaves your shores as fantastic mining equipment and arrives in California as scrap metal three months later.”But one factor in favor of data centers probably trumps all others. Since proof of work in essence amounts to burning energy, low cost electricity is vital. Unsurprisingly, bitcoin mining is often concentrated near power plants with excess energy production, in areas where power is subsidized by governments, or where miners are able to strike a good deal with local energy producers.Back in 2014, R3CEV’s Director of Market Research, Tim Swanson, wrote in Bitcoin Magazine:“[M]iners in China … have found the right people to partner with (at least for the moment). One such team is working within the current system and has access to a double digit megawatt power facility, which when coupled together with 3rd party chips, the production costs of which are less than $2.00 / gigahash.”Mining at HomeBut the trend toward centralization may reverse.Speaking at the Web Summit 2014 in Dublin, former Bitcoin Core lead developer Gavin Andresenargued:”Centralization of mining is going to go in waves. Now you see economies of scale for companies that create huge mining farms where electricity is inexpensive. Once those [ASIC] chips become commodities and inexpensive, you’ll see it decentralize again.”Indeed, the rapid technical improvement of ASIC chips has been slowing down. Last year, 21 Inc. CEO Balaji Srinivasan wrote on his company website:“Now that mining chips are typically manufactured at the latest process nodes, further improvements in mining chips will not come fast and furious as they did over the March 2013 – October 2014 time period. Instead they will be gated by the 18-24 month wait of Moore’s law — just like CPUs.”Perhaps unsurprisingly, therefore, Bitmain recently started selling the Antminer R4, which makes less noise than typical miners and is specifically designed for in-home use. And BitFury ships the BlockBox, a shipping container-sized mobile data center.And home mining does have some cost advantages over data centers as well. Perhaps most obviously: storage is free. And while data centers are indeed still at an advantage when it comes to energy-costs, this may very well change in the future.Blockstream mathematician Andrew Poelstra explained in a paper published last year:“China’s increasing wealth is causing their regulatory and environmental costs to come in line with Western nations; there will also be pressure against this sort of monopolistic behaviour,” Poelstra wrote. “Highly centralized power production is inefficient because of line losses. As technology, such as solar power, matures, it will be possible to produce power more locally with lower startup costs and less dependence on geopolitical factors.”One other big benefit home miners have over professionals: they don’t necessarily need to turn a profit. Some hobbyists or idealists may want to support the network, simply because they enjoy it at break-even rates or at a small cost.21 Inc.’s Srinivasan, furthermore, thinks regular users will be willing to “swap” electricity to get small amounts of bitcoin, as this is potentially useful for micropayments.Srinivasan explained on his company website:“[W]e may be able to distribute mining chips with CPUs, as a new kind of co-processor — much like GPUs or networking cards added new functionality to complement CPUs … We think that the next step after pooled data center mining is massively distributed and decentralized mining, such that millions of mining chips worldwide each generate a small stream of bitcoin.”Somewhat similarly, Bitmain recently introduced the AntRouter R1. This router serves as a typical wireless networking device, but with an embedded mining chip. Mining with the device is explained as entering a “bitcoin lottery” held once about every ten minutes: lucky winners can hit a jackpot of at least 12.5 bitcoins. While entering this lottery may not be profitable on average — lotteries never are — it can still be fun to participate.Heat GenerationBut the most important factor in favor of home mining over data centers is probably heat.As Poelstra explained in his paper, “[I]t is easier for two physically-separated actors to dissipate heat than for just one. Therefore, in the thermodynamic limit we have a physical incentive for decentralization.”Crammed in rows and full racks in data centers, heat generated by ASIC miners requires extensive cooling to remain functional. Which, in turn, requires additional electricity.At home, on the other hand, the heat generated by miners can actually be beneficial. Since all power consumed by these machines ends up as heat, they are fine substitutes for electric space heaters. Not only would these miners consume the same amount of electricity a space heater would have consumed otherwise, they provide the added benefit of generating an income in bitcoin.Gavin Andresen suggested the future may even witness bitcoin mining equipment that utilizes the generated heat for household equipment, like electric blankets. And indeed, at least one startup — hotmine.io  — is currently offering water boilers and other household products that mine bitcoin.Still, some remain skeptical. Speaking to Bitcoin Magazine, Bitmain’s international marketing manager Nishant Sharma said:“The idea of a space heater-cum-bitcoin miner has been around since 2010, or even before. But we haven’t seen this idea being successfully realized in a consumer product yet. This is most likely because it is difficult for such a product to be competitive in either mining or space heating.”Thanks to Jop Hartog for added information.The post Is Bitcoin Mining Destined for Data Centers? appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

SEC Panelists on “Astonishing” but “Not Very Sexy” Blockchain: Achieving Network Effect Will Produce Winners


Distributed Ledger Technology (DLT) is recognized as amazing to some and potentially valuable to many others in the financial services sector, according to various panelists in the Fintech Forum of the U.S. Securities and Exchange Commission (SEC), held November 14.However, while DLT is probably “game changing” in terms of improving transactional efficiency, it is “not very sexy” in terms of where it sits relative to the existing fintech ecosystem and powerful factors such as cloud technology, said Brad Peterson, EVP and CIO/CTO for Nasdaq.Peterson participated in a forum session focused on the impact of recent innovation on financial trading, settlement and clearance activities, which was moderated by Valerie Szczepanik, an attorney who is Head of the SEC Distributed Ledger Technology Working Group and Assistant Director, SEC Division of Enforcement.They were joined by Chris Church, Chief Business Development Officer, Digital Asset Holdings (DAH); Emin Gün Sirer, Associate Professor Computer Science, Cornell University; Grainne McNamara, Principal in the Capital Markets unit at PricewaterhouseCoopers; and, Mark Wetjen, Head of Global Public Policy at the Depository Trust & Clearing Corporation (DTCC). Opening the session, Szczepanik noted that DLT emerged from recognition that the technology, originally associated only with Bitcoin, could function as a means of value exchange, immutable documentation and a trust-building consensus mechanism for transactions.DisruptionNasdaq’s Peterson stressed that “innovation combinations” — a business model meeting an alternative technology — have regularly proven their impact in other sectors.He listed Charles Schwab’s emergence as a disruptive discount broker (1975); eBay’s disruption of “garage sales and swap-meets” (1995); PayPal’s electronic money transfer entry (1998); and Napster’s peer-to-peer music file sharing innovation(1999).Peterson’s backstory set the stage for discussion of DLT, with a subtext of pragmatism, diligence and the inevitability of change.The main reason users will adopt blockchain is cost reduction, Peterson said. Then comes the learning phase, in which engineers, product managers and others acquire the needed skill and confidence to move projects forward.Pain and TrustPwC’s McNamara said, “I’ve never quite seen what I’ve seen happening since I’ve locked onto blockchain,” which she described as an “astonishing and new” technology. Adoption is coming on a “grand scale,” she said.She explained that due to the Great Recession (2007-2009) and ensuing capital requirements and other strictures, bank stocks are trading at a 1X book value, versus 2X book pre-recession.”Banks have almost missed out on an entire business cycle of innovation,” because of such pressures, she said.The resulting pain, particularly the need to improve banks’ return on equity, has prompted the search for ways to reduce inefficiencies, while improving productivity and innovation, she said.Evaluation of DLT options must include the classic “4 Ps”: proof of concept, prototype, pilot and production applications, she continued. Other focal points include security, scalability, network capacity and the needs of each asset class. Ultimately, the projected return on DLT investment must also be assayed.PwC is working on DLT proof of concept (POCs) and validation engagements in healthcare, industrial supply chain and internet of things (IoT), as well as financial services, said McNamara.The Good, the Bad  Cornell’s Prof. Sirer also made clear he’s no fencesitter when it comes to discussions of digital currencies, DLT and new ideas like Digital Autonomous Corporations (DAC), the latter an automated organization run by rules encoded in smart contracts.Sirer said unequivocally that the introduction of Bitcoin and blockchain, including the consensus system introduced by Satoshi Nakamoto in 2009, represent “an amazing breakthrough.” And smart contracts, he said, have “amazing implications.”Sirer said he is not oblivious to risks that may come with expansion of blockchain’s spread.Deterrents to blockchain could include scams, software developers resistant to change, and companies and institutions slowed by inertia, among other possibilities. Meanwhile, blockchain itself still needs work. Sirer pointed out that the performance of Bitcoin is not yet what it needs to be. He said Bitcoin’s transaction processing speed is a minute fraction of the speed of large incumbent exchanges.Investment pouring into DLT startups will doubtless spur new offerings, he said.”I also suspect,” said Sirer, “there will be many, many, many absolutely horrible systems” and some “disasters” that will be widely reported. He added, investors “will be amply rewarded” for their successes.LeadershipPanelist Chris Church of DAH noted that the Australian Securities Exchange (ASX), is far along in considering the creation of a blockchain replacement for its entire clearing and settlement system, with full production likely to proceed next year.Church said the latest ASX tech push sprang from taking a fresh look in 2015 at how to become more competitive with large peer exchanges, while reducing costs for the ASX and its member firms.Church warned his audience against complacency, given that he views blockchain as advancing in many quarters. “Don’t be fooled,” he said.Both Sirer and Church urged their audience to reach out to colleagues in other organizations that are already deep into blockchain.Sirer said interest in blockchain is high in many academic centers, pointing to the Center for Cryptocurrencies at his Cornell University, of which he is Co-Director, and related initiatives at Massachusetts Institute for Technology (MIT).Church singled out the nonprofit Linux Foundation’s open source Hyperledger project as an important source of expertise, as well as counterparts in Britain, Canada, Australia, Singapore and other nations, as well as in the SEC.Alluding to industry fear of disintermediation and loss of jobs in the financial services sector, Church said he doesn’t see traditional bricks-and-mortar banks, custodians and others being generally disintermediated, unless individual players fail to transition to advancing technologies.He added that “people who roll-up their sleeves and really get involved” in DLT transformation will not only drive down their costs — they will also be reap rewards when the focus shifts from improving efficiency toward generating new revenues.DTCC’s Wetjen said his organization has focused on reducing process costs since financial reforms in 2009 brought capital requirements that shrank global Clearing and Depository Services (CDS) volumes, resulting in more pressure for innovation.In 2015, DTCC subsidiaries processed securities transactions valued at more than $1.5 quadrillion, and it provides custody and asset deposit services for securities issues from more than 130 countries and territories valued at $45.4 trillion, according to its website.Citing DTCC’s exploration of DLT, Wetjen referred to his company’s ongoing proof-of-concept (POC) effort with Axoni and others, involving testing the use of DLT for credit default swaps (CDS). A DTCC decision on whether to proceed with implementation for that purpose is pending and could translate into “re-platforming” its Trade Information Warehouse (TIW) for derivatives transactions.Additionally, Bitcoin Magazine reported in March that DTCC and Digital Asset Holdings would collaborate on POC development for a blockchain solution for the $2.6 trillion market associated with U.S. Treasury, Agency and Agency Mortgage-Backed repurchase agreement (repo) transactions. That work is underway, a DTCC spokesperson said today.As reported in January, DTCC participated in a $52 million capital raise by Digital Asset Holdings. DAH is ASX’s preferred partner and strategic investor for blockchain development, according to an ASX statement of June 22.The webinar will be publicly archived here.The post SEC Panelists on “Astonishing” but “Not Very Sexy” Blockchain: Achieving Network Effect Will Produce Winners appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com

Colu Announces Colored Coins and Lightning Network Integration


Colu, an Israeli provider of blockchain-based technologies, has built a version of Lightning Labs’ code that is compatible with Colored Coins. This would allow for the peer-to-peer (P2P) transfer of digital assets with effectively no verification time, a higher transactions-per-second (TPS) rate and almost no fees.Colored Coins is an open source Bitcoin 2.0 protocol that enables developers to create digital assets on top of the Bitcoin blockchain. These can be used to issue financial assets and proofs of ownership, to store documents or to create smart contracts. Current projects leveraging the Colored Coins protocol include Mycelium, Swarm and DXMarkets.The new version uses Lightning technology to transfer digital assets in payment channels and uses the Bitcoin blockchain as a settlement layer and dispute resolution mechanism that secures the assets.In a new blog post released today, Colu’s Co-Founder and Vice-President, Mark Smargon, wrote:”The decentralized nature of the Lightning protocol is an excellent choice for scaling Colored Coins because it provides the functionality of a true P2P transaction layer that doesn’t compromise security, and gives users control of their funds. Looking forward, we are excited about the possibility of being interoperable with all of the tools and services that adopt Lightning technology, as well as compatibility with other blockchains than Bitcoin as Lightning technology matures.”The Lightning Network, a protocol for scaling and speeding up blockchains, was first proposed by Joseph Poon and Thaddeus “Tadge” Dryja well over a year ago. The payment layer utilizes Bitcoin’s basic programmable features and allows users to establish networked payment channels on top of Bitcoin. It promises to support a virtually unlimited number of off-chain transactions among users, at nearly no cost. Initially designed to solve some of the technical limitations of the Bitcoin blockchain, the Lightning Network protocol can be implemented on top of any blockchain.Prior to launching Colu, founders Amos Meiri, David Ring and Mark Smargon had worked on the Colored Coins project since 2012.The team is now working with Lighting Labs to build overlaying protocols to create native compatibility with the official Lightning code, Smargon said.Meiri, Ring and Smargon launched Colu in 2014 to provide governments, businesses and consumers with the capabilities to create local digital currencies, and allow for the exchange of digital cash directly with one another.Users engage via a mobile app, alongside a merchant dashboard containing comprehensive tools to manage transactions and discoverability features.”Colu came about as a direct result of our previous venture, Colored Coins, which applies a blockchain digital-tag to assets, promoting decentralized control over the consumer transaction of goods,” Colu’s CEO and Co-Founder, Amos Meiri, told Bitcoin Magazine. “After further development and deployment of the service, feedback and usage data indicated that 60 percent of use cases for the technology were for local currencies. Realizing the gap in the market for a secure local currency solution, we developed the Colu of today, creating a channel … to build stronger urban economies and tight-knit communities through localized currencies. “According to Meiri, local digital currencies in communities and cities can help “stimulate local growth, adding value to every dollar that is reintroduced to a local market, create jobs, strengthen socio-economic potential, encourage positive community action and improve the payment network infrastructure by making it accessible to real users.”Despite the apparent potential, local digital currencies are still in their infancy when it comes to the general public’s understanding of the core benefits and the underlying technologies that make it possible, Meiri said.Colu has already achieved significant milestones, having collaborated with fintech startup, Bitt, and the Central Bank of Barbados on the Barbadian Digital Dollar earlier this year, and getting established in Israeli cities like Tel Aviv through the Pishpesh Shekel project in the Jaffa area, and the Florentin Shekel project in Florentin, Israel.One of the company’s latest achievements has been its debuts in Liverpool and the Camden area of London, a move that is part of Colu’s expansion plans to move into the European market through the U.K. before tapping into the U.S. market.”Entering into new markets is a point of pride as we take Colu to the next level and establish the company as a world leader in open source payments and an innovator in blockchain technologies,” Meiri said.The post Colu Announces Colored Coins and Lightning Network Integration appeared first on Bitcoin Magazine.
Source: bitcoinmagazine.com