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Bitcoin Cypherpunk

Bitcoin Has Redefined Money

Bitcoin is a digital phenomenon that will continue to spread until it is as socially accepted as email is today. In this post, I will explain not only why this rapidly expanding computer network has changed the paradigm on what defines money, but why the blockchain represents a historical image of the digital economy and provides a record of any past activity due to the nature of peer-to-peer timestamp verification.

The Blockchain Is A Monetary Image

For the purposes of illustrating why bitcoin has redefined money, let us assume there exists two users on a blockchain – User A and User B. User A controls 3.0 million bitcoin on the entire network. User B controls 3.6 million. There also exists 14.4 million unmined bitcoin.

User A has used their private key to authorize a transaction to User B worth 1.8 million bitcoin. User A sends this amount to User B’s public key. At this point, the transaction has been authorized by User A and is in the process of being confirmed by miners of the network.

After the transaction has been confirmed, the bitcoin network now reflects the change in hands of the 1.8 million bitcoin User A sent User B.

Note that no currency has moved from point A to point B, but an authorization on behalf of User A to alter the network in a way which increases User B’s control of the blockchain by a measurement of 1.8 million bitcoin at the expense of User A. In bitcoin, this ledger payment system is the money supply and is radically different from any type of money we have previously seen.

When an individual makes a transaction on the bitcoin network, no actual currency is moved. That is – no file has moved. No commodity or asset has moved. No private or public key has moved. Rather, the only thing which changes is the percentage of the blockchain ledger which User A & B claim control over. When a transaction occurs in the realm of bitcoin, the image of the blockchain is altered. Nothing ever changes but the composition of this blockchain record.

The blockchain is a historical record of the bitcoin economy. There is no separation to be made between the blockchain and bitcoin. They are one in the same. Without the blockchain, you have no bitcoin ecosystem. Without an accompanying cryptocurrency, you have no measuring tool to determine the ownership of the blockchain.

Money is now an image, rather than something which can be separated from the system itself. This image of money is being constructed, altered, and verified by the thousands of machines acting as miners across the globe, and it’s a composition on public display for all to see. The miners are the painters of this network composition. The users, the brush and strokes.

In the bitcoin digital economy, money is an image continuously being constructed, verified, and reattributed by way of cryptographic authorization.

“Tangible money, old-fashioned money … is a phantom from the past, an anachronism. In its place is an entirely new form of money based not on metal or paper, but on technology, mathematics, and science. This new ‘megabyte’ money is creating a new and different world wherever it proceeds. Money now is an image.”

– Joel Kurtzman, The Death of Money

With the intrinsically valuable property of decentralization, we have a monetary system that comprises a historical record of purchasing power at any point of time in existence. The timestamping function of the blockchain allows anyone to go back and publicly determine the holdings of any address (perhaps soon any individual).

A payment conducted with bitcoin represents a paradigm shift in our concept of money – one where there is no division between currency and the system through which it flows.

Bitcoin has redefined money. Money is now an image.

Categories
Cypherpunk Ethereum

How The Ethereum Virtual Machine Could Run The World

Since the beginning of 2016, anyone with a pulse on the digital currency industry has watched with bated breath the smart contracting platform Ethereum rise to meteoric highs. As a relatively new development utilizing bitcoin technology, Ethereum aims to implement a globally decentralized, digital computer for executing peer-to-peer contracts. Such an innovation could eliminate censorship, fraud, and the role of the third party in online collaboration.

Unlocking The Ethereum Virtual Machine

By taking the cryptographic payment structure of bitcoin and adding a Turing complete scripting language, Ethereum is attempting to create the most viable tool for executing smart contracts using blockchain technology. The term Turing complete here means a system capable of performing any logical step of the computational function. A technology in wide use today which employs Turing completeness is JavaScript, the programming language which powers the worldwide web.

Smart contract technology would describe a computer protocol which obviates the need for a contractual clause and instead is self-executing and self-enforcing.

What differentiates Ethereum from bitcoin is that it doesn’t stand first to be a payment system, but rather a computing platform. The cryptocurrency of Ethereum, ether, acts as a sort of fuel to power the engine of this computing platform. Ether is consumed by miners for accessing resources of the network. The more ether a user holds, the more “gas” they can pump into the computational engine of the Ethereum virtual machine.

This combination of cryptographic architecture and Turing completeness, could enable entirely new industries to spawn, where traditional business models occupying the role of middleman, will increasingly feel the pressure to innovate or die.

Ethereum is a world computer you can’t shut down and you can’t turn off.

Autonomous Corporations

One of the defining features of the 21st century corporation is populating the role of the employee with machines rather than humans. Bitcoin is one of the first models of such a corporation. The miners of the bitcoin network can be seen as employees rather than as humans were in the traditional corporate model.

Ethereum takes this development one step further.

Interestingly, the role of the customer (which is currently populated by humans) stands to be dominated by machine function as smart contracting systems enable end-to-end payments without requiring a human initiator. What Ethereum will help facilitate is an economy of interconnected devices where machines can transmit money and data in a manner which dwarfs the efficiency of human input. Businesses which overlook this trend, will pay dearly due to new supply channels which disintermediate the old world’s necessary third parties.

Ethereum today is where bitcoin was in 2010 – raw infrastructure, lack of developers, and plenty of skeptics. Competitors, such as Rootstock, add legitimacy to the use case Ethereum is attempting to bring to market.

From trustless crowdsales to democratic organizations, smart contracting platforms could unlock a new frontier in internet enabled innovation.

Categories
Bitcoin Cybereconomy

Bitcoin Introduces Digital Scarcity

Scarcity, the idea that some one thing is finite, has been thus far not applicable to the digital realm. Until the arrival of bitcoin, nearly anything that was of digital nature could be duplicated without recourse. Due to the ease of reproducing computer code, the problem of double-spending was the unsolved mystery of viable digital money. However, the innovation of the blockchain ledger has added a potent economic function to the equation of online exchange: digital scarcity.

The Introduction of Digital Scarcity

Beyond the realm of money supply, bitcoin has enabled everything from informational products, media, art, and more to be delivered in a manner where ownership is mathematically verified. Because digital ownership can now be determined, it proliferates a scarce quantity of goods. Digital scarcity marks the emergence of a new cohort of potential business models.

“Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.”

– Eric Schmidt, CEO of Google

The attribute of scarcity in bitcoin is not necessarily derived from the actual file information itself, but the method in which the information is stored. The difficulty in reworking the cryptographic proof-of-work which has hashed and timestamped the property with the creator’s digital signature represents the construct of scarcity. The difficulty of reworking this cryptographic chain then, is directly correlated with the difficulty of duplication (double-spending), as more hash power would be required to retroactively alter the information’s assigned ownership. Information hashed at the very beginning of the blockchain for example (such as the genesis block), could be viewed as nearly unforgeable in comparison to information hashed in the last 10 minute block because it would take magnitudes more computational power to rework that section of the chain.

The Digital Economy’s Missing Layer

Scarcity is a fundamental layer of any economic system. Without scarcity, there be no need for money. In a perfectly abundant world, resources would be limitless and money would serve no need because exchange would be entirely unnecessary.

Bitcoin introducing digital scarcity represents a milestone in the development of a totally digital economy, one which has the capacity to stand independent of national economies. In the years ahead, it is likely we will see new business models arise from the potent characteristic of digital scarcity.