Blockchain

The Blockchain: A Supercomputer for Reality

"Everything that can be decentralized, will be decentralized."

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Block Chain Graphic
cryptoquestion

The blockchain is a decentralized public ledger of all the Bitcoin transactions that have ever been executed. But blockchain technology is much more than Bitcoin, as the technologist and entrepreneur Melanie Swan demonstrates in her new book, Blockchain: Blueprint for a New Economy.

Bitcoin participants begin by creating a digital wallet that generates their Bitcoin address and their public and private keys. A person's public key can be obtained and used by anyone to encrypt messages intended for that individual. The encrypted message can be deciphered only by using the recipient's private key. Bitcoins are exchanged for products or services when someone encrypts a message that essentially says, "I give the right to spend this money to the person who owns the private key corresponding to this address." The blockchain then publicly records this activity.

The blockchain doesn't have to be confined to tracking Bitcoin activity. Swan persuasively contends that the advent of the blockchain platform as "a universal, permanent, continuous, consensus-driven, publicly auditable, redundant, record-keeping repository" is a technological game-changer as significant as the creation of the Internet. Since it is a decentralized public ledger, the blockchain enables the trustless transfer and accurate recording of all transactions and documents.

The result is, in Swan's words, "a new paradigm for organizing activity with less friction and more efficiency." By cutting out the gigantic layers of government and corporate rules and bureaucracies devoted to tracking and authenticating identities, contracts, transfers of money, exchanges of tangible and intangible goods, and the ownership of property, blockchain technology can dramatically reduce the transaction costs of all sorts of activities.

Swan acknowledges that this technology is not yet mature, but her survey of some of the exciting new tools that are being explored and exploited by developers will give readers a good idea of its potential. "Smart property," for example, refers to physical property whose ownership is registered in the blockchain and thus controlled by whoever has the private key. In other words, property rights can be cryptographically defined and self-enforced by code. The owner can sell it simply by transferring the private key to another party.

Swan also envisions that physical properties registered on the blockchain could become "smart matter" embedded with sensors, QR codes, NFC tags, iBeacons, and the like. Access to property could be implemented using smartphones to unlock doors to houses, hotel rooms, or rental cars by affirming a user's digital identity as encoded in the blockchain.

Blockchain book
Riley

Then there are smart contracts. The startup Ripple Labs envisions contracts coded on the blockchain in which parties agree that specified transactions take place when certain inputs are received by "smart oracles." The oracles consist of code that can sign a cryptographic key pair if or when a contractual condition is met. Smart contracts require less trust between parties because they are autonomous, self-sufficient, and decentralized. (The science-fiction writer Daniel Suarez envisioned a set of smart contracts operating autonomously and taking over the world in his brilliant novel Daemon.)

The blockchain ledger and the archives registered on it must be able to be stored and communicated when needed. Storj is just one of several peer-to-peer encrypted storage network services that enables users to transfer and share data without relying on a third-party data provider. Storj works by paying community members to store encrypted files on their extra hard drive space. Storj estimates that it can drop of the cost of data storage by a factor of 10 to 100. Meanwhile, the Proof of Existence virtual notary service anonymously and securely stores an online distributed proof of existence for any document.

Swan goes on to explain the operation of decentralized applications (DAPPs), decentralized autonomous organizations (DAOs), decentralized autonomous corporations (DACs), and decentralized autonomous societies (DASs). The Bitcoin blockchain is a good example of a DAPP. The ongoing development of an open-source blockchain that aims to enable the ridesharing service LaZooz is example of a DAO. It is an entity without owners and without central servers, existing on the smart phones and computers of its community of users.

A DAC might be thought of as an automated nexus of contracts that can engage in activities such as leasing assets, hiring people, and securing debt or equity to achieve the goals set out in its mission statement. Notionally, DACs operating under a set of publically available business rules would be incorruptible and more trustworthy than human-run firms. As Dan Larimer of Invictus Innovations explained in The Economist: "Although DACs can still be designed to have a robotically inviolable intention to rob you blind, to enter the open source arena they must be honest about their plans to do so."

Blockchain technology can also empower people to make end runs around oppressive governments. As Swan notes, blockchain technology facilitates pseudonymous transactions outside the visibility, tracking, and regulatory purview of states. Anti-censorship applications are being developed. The Alexandria DAPP, for example, "preserves the integrity of the historical record. It taps into collective, on-the-ground reporting by scraping Twitter as events unfold and prevents after the fact censorship by archiving the information on a blockchain." Namecoin is an alternative domain name system registration process that cannot be controlled by any government.

And the DAS? Swan gets a bit vague here about what she means by "the idea of putting the nation-state on the blockchain," largely because blockchain technology has not yet been implemented by government agencies. Indeed, federal functionaries will hate some of the proposals that Swan mentions, due to their libertarian implications. Still, services now offered by governments that could be moved to the blockchain include "an ID system based on reputation, dispute resolution, voting, national income distribution, and registration of all manner of legal documents such as land deeds, wills, childcare contracts, marriage contracts, and corporate incorporations."

Swan evidently believes that a modern world transformed by the wide application of increasingly autonomous blockchain technologies will become ever more productive without the need for human involvement. Hence her interest in "national income distribution," in which the earnings from autonomously operating blockchain enterprises are divvied up among citizens. Blockchain government would also be a lot smaller and cheaper, since most commercial activities would be overseen, regulated, and resolved on the blockchain. Ultimately, as blockchain venture capitalist David Johnston declares, "Everything that can be decentralized, will be decentralized."

There is much more in this slender book, including speculations about how blockchain technologies could be used to monitor public health, crowdfund projects, provide community supercomputing, upload personal mindfiles, and even birth artificial intelligences. Swan acknowledges that many of the projects she outlines may well never really get off the ground. Nevertheless, she makes a strong case that we are at the dawn of a blockchain revolution.

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  2. I like the cow. Other than that, I don’t understand what I just read. But the cow was nice.

  3. I was hoping to hear something about the security of the encryption. I don’t know anything about that kind of encryption, but it seems like everything nowadays is being hacked. Depending on an intriguing technology like blockchain sounds cool, especially when it involves decentralizing cumbersome systems, but that’s a lot of important data and property to entrust to a system based solely on encryption.

    Can someone who knows more about this kind of encryption chime in?

    1. The blockchain and public/private key crypto are pretty solid. Where it falls apart, as it often does, is at the end-user security level. The private key which defines your identity and validates your transactions as being legitimate is crytographically armored. Currently, most blockchain applications use a passphrase to encrypt your private key. If the end-user computer/phone is compromised by a trojan both the key material and the passphrase can be easily and remotely stolen. Once the crook has your keys and passphrase they are you as far as the blockchain is concerned.

      1. Where it falls apart, as it often does, is at the end-user security level.

        If it were true that people could, on a whim, engineer their way out of anything. They, as a general rule, wouldn’t be stuck wherever they are in the first place.

        If the government provides your internet as a Title II utility over the hardware/bandwidth it controls, it doesn’t matter how decentralized Namecoin (or whatever is). It becomes oxymoronic “person-to-person decentralization” or “client/(cloud)server decentralization” BS.

        1. I was referring specifically to the encryption since that was the question asked. As far as the “person-to-person decentralization” or “client/(cloud)server decentralization” BS. stuff is concerned, the blockchain is globally distributed and very solid. The big weakness on the blockchain side is it can be compromised if you control more that 50% of the total computing power maintaining it. I don’t doubt for a minute the US government could pull that off if the incentive was there.

          1. I don’t doubt for a minute the US government could pull that off if the incentive was there.

            Silk Road (I + II)showed us it’s unnecessary. Maybe I’m jaded a little, but I’m of the mind that perfect auditability (open source), perfect anonymity, perfect privacy, and perfect trust *cannot* exist in the same system and/or the more you claim your system has them in the nines, the more trivial your application/thinking.

            Similarly, Mt. Gox demonstrated that you can have a solid blockchain and openly display all of it’s weaknesses to the sophisticates and it does nothing to stop them from being stupid or duping the masses.

            Technical engineering boasting that it can solve huge sweeps of social ‘problems’.

            1. Silk Road (I + II)showed us it’s unnecessary.

              Not really. The guy who ran the first site was really dumb, and the second site was hardly the largest dark market of its peers. There are several others active.

              Mt Gox was a stupid mess, and it really made no long-term difference to BTC.

            2. Silk Road (I + II)showed us it’s unnecessary. Maybe I’m jaded a little, but I’m of the mind that perfect auditability (open source), perfect anonymity, perfect privacy, and perfect trust *cannot* exist in the same system and/or the more you claim your system has them in the nines, the more trivial your application/thinking.

              You’re on to something mad.casual. Kilroy is technically correct in that the government doesn’t waste much time trying to blow through the 40′ reinforced encryption scheme, they just hide inside a supply wagon that’s allowed to go through the gate.

              What you’re getting at– especially with the Silk Rd I/II concept is that regardless of how tough your encryption is, THERE IS NO APP THAT WILL MAKE YOU SECURE.

              Encryption is the starting point, but not the ending point. I have been saying since the whole Silk Rd thing broke that if one doesn’t want to “get caught” (define that how you will) you MUST practice tradecraft.

              Unfortunately, it seems that it’s sexier (and less time consuming) to just find the perfect app. Which, if I read your comment correctly, I agree, doesn’t exist. Because your encryption is solid, but that ‘touch of modern’ ad you’re getting in your browser is an NSA front, and placed cookies on your computer to compromise your userspace.

              1. I love how everything you just said would sound like total gibberish to someone from the 19th century.

            3. The completely public and comprehensive auditability pretty much kills the anonymity and privacy as soon as you connect it to anything traceable, like money. Even the guys at Bitcoin meetups swapping cash for Bitcoin don’t have anonymity because cameras. I don’t think you’ll really be able to use blockchain technology for most practical applications and remain hidden. That doesn’t mean you can’t use it for useful things though.

              The Mt. Gox fiasco was the equivalent of handing a masked guy on the corner a bag of money to hold for you until you wanted to change it for some gold coins he said he had. Buyer beware as always.

              I do believe we’ll see some eventual concrete beneficial applications based on blockchain tech. It won’t solve the worlds problems and it probably won’t solve some of the problems it’s currently trying/claiming to solve.

              1. Blockchain will eventually give us online movie delivery, because the studios will figure out how to use it to make movie piracy impossible. Then they will finally feel comfortable distributing film online, in an encrypted, blockchain traceable form, and the DVD players will go onto the scrap heap of technology. And then, because of net neutrality, streaming video will disappear and be replaced by full-file downloads. This is probably the single most profitable thing one could do immediately with blockchain tech.

                1. As long as you’re willing to tolerate the degradation of a single generation, there will always be an analog hole. Full file downloads would require significant increases in local storage and the maintenance of said storage. That’s too complicated for most people.

    2. I don’t know anything about that kind of encryption, but it seems like everything nowadays is being hacked.

      Not entirely.

      There are a lot of perfectly solid encryption schemes that the government wants to ban, stop people from using, or force the designers to put backdoors in– because the government can’t hack them.

      Nearly everything you read about where governments have “compromised” a security regimen was at the endpoints. The weakness is always at the endpoints.

      Every datastream has a point where it’s no longer encrypted– usually (but not always) at the user end– because the user needs to see and read said datastream.

      Edward Snowden’s famously leaked diagram of Google’s network sphere of services revealed that perfectly.

      Don’t try to knock down the reinforced all, find a small drainage ditch at the base and go through that.

    3. Disclaimer: I am not a cryptography expert, and you probably shouldn’t believe what someone who isn’t an expert in cryptography tells you about cryptography.

      The cryptographic primitives used by Bitcoin, SHA256 and ECDSA, are considered to be secure. Note that this is a statement about the algorithms themselves, not about any particular implementations (i.e., code).

      Note that some non-Bitcoin blockchains use (a) different primitive(s). IIRC, Litecoin and its derivatives replace SHA256 with a different cryptographic hash function in order to make mining more difficult.

      Now, a system can use fundamentally secure cryptographic primitives but be insecure nonetheless, because it uses them improperly, either as a matter of design or of implementation. As far as I know (though I don’t keep heavy track), no one has identified any show-stopping issues in the design of Bitcoin and its peers. However, there have been many cases in the past where Bitcoin clients have, due to implementation issues (both due to issues specific to cryptographic software and to issues affecting software more generally) been, to put it simply, “hackable” in some way.

      1. As far as I know (though I don’t keep heavy track), no one has identified any show-stopping issues in the design of Bitcoin and its peers.

        Addendum: if the so-called 51% attack is a real issue then it would probably qualify. There are a lot of debates over whether it is a genuine concern, and I largely tune them out because I’m not that interested, so I can’t offer much comment on that.

      2. The cryptographic primitives used by Bitcoin, SHA256 and ECDSA, are considered to be secure. Note that this is a statement about the algorithms themselves, not about any particular implementations (i.e., code).

        This highlights why the concept of “security” is a multi-faceted subject.

        Even with a perfect implementation, it’s still possible to ‘discover’ things about the user which can aid in him or her being compromised.

        It’s extremely important to note that depending on your relationship to those that you’re protecting yourself from, it’s not necessary to actually read your data or your traffic to compromise you. Sometimes they just need to know that you’re the one sending the traffic, and from/to where.

        1. There is only one proven secure encryption, the OTP. The definition of security of all other algorithms then becomes a question of time and resources required to crack it. And there have been many cases of ‘secure’ algorithms losing out to the combined progress of technology and clever attacks. For instance, if we suddenly had a 40-100 qubit quantum computer tomorrow, virtually all of the world’s encrypted communications would be vulnerable to a very short decryption cycle.

          My concern with Bitcoin and the block chain in general come down to what clever schemes are waiting to be discovered to bring down the house of cards–elliptic curve comes to mind relatively recently. Until you can give me a mathematical proof of the order of calculation needed to crack, I’m always going to be leery of it.

  4. Swan acknowledges that this technology is not yet mature

    And, by “not yet mature” she obviously means isn’t immune to “technological disruption”. Otherwise, she’s just talking about a device called a ‘ledger’ which was invented so that the original ‘computers’ (humans) could keep track of shit.

  5. “”Smart property,” for example, refers to physical property whose ownership is registered in the blockchain and thus controlled by whoever has the private key. ”

    I’m not sure about that. Physical property remains under the control of the person who possesses it, regardless of anything that happens in virtual space. Intellectual property like a file of a movie or an ebook is a little different. At the moment, the owners of this type of property have little control over it once it’s on the Internet. How would the blockchain affect this? Less freedom to share material for which we haven’t the appropriate keys?

    1. I’m not sure about that. Physical property remains under the control of the person who possesses it, regardless of anything that happens in virtual space.

      Exactly; good luck enforcing *your* blockchain on *my* network.

      Equally, the robot uprising begins when a legions of glitchy CPUs and motherboards accumulate. Boxes that, independently or cooperatively, calculated their own ‘smart property’ blockchain and freed themselves from their tyrannical owners. (PDK twist, their owners are androids).

    2. Having physical procession of, say a car, isn’t of much use if you have to take it apart to overcome the interlocks preventing your use of it because you don’t have the blockchain key.

  6. The problem with blockchain technology as it exists now is that it takes a rather amazing amount of computing power to effectively secure it. Small amounts of computing power and a malicious actor can overwhelm the network and effectively take it over (the so-called 51% attack problem). Even with large amounts of computing power backing a network, it is impossible to tell if a malicious actor has taken effective control before an attack actually occurs. There are multiple other ways for a malicious actor to ruin the usability of a blockchain network. Bitcoin, despite the relatively massive amount of computing power backing it, is still vulnerable from multiple known (if theoretical) vectors and new (also, if theoretical) vulnerabilities are being discovered regularly.

    In essence, blockchain tech is not anywhere near ready for primetime.

  7. Aaaand it looks like Reason’s site just got ‘compromised’.

  8. It seems to me that given the gullibility of the public about Net Neutrality, we could be faced with the government implementing “Blockchain Equality” or some such shit in which all Blockchain transactions occur only through govt controlled servers. This would make 1984 seem like Libertopia.

    Still, services now offered by governments that could be moved to the blockchain include “an ID system based on reputation, dispute resolution, voting, national income distribution, and registration of all manner of legal documents such as land deeds, wills, childcare contracts, marriage contracts, and corporate incorporations.”

    I hope my paranoia is not well founded since I am not versed in any of this. Maybe someone else can tell us whether this has the possibility (and therefore strong govt incentive) to be used to our disadvantage.

    1. Your paranoia is not well founded. It’s not anywhere near deep enough.

    2. we could be faced with the government implementing “Blockchain Equality” or some such shit in which all Blockchain transactions occur only through govt controlled servers.

      Um… that’s essentially what the central bank system already is.

  9. OT: But of interest to some. America’s gun possession and murder rates in perspective.

    1. Sorry, it’s self-starting.

    2. I knew Belgium was a dangerous place to live…

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  11. A relatively secure, decentralized public ledger.
    Wooop-dee-do.

    1. There are students… using Twitter… REVOLUTION!

      1. I thought that was Twatter.

  12. Very nice.

    How come this post didn’t show up in the main feed?

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  15. When it comes to smart devices embedded with sensors, iBeacons or Bluetooth beacon can’t be just ignored since its so popular now.

    The iBeacons could be your business line. Luckily, I do business with a Chinese manufacturer Moko(https://www.mokosmart.com) which allows me to white label their beacons. So I’m growing my own beacon brand.

    Search Bluetooth beacon manufacturer on google and find MOKOSmart on first search result page. You might its amazingly easy to sell beacons under your brand name. Beacons market is the next market engine!

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