September 2016 Journal
WORDS is a monthly journal of Bitcoin commentary. This issue collects the September 2016 writing in the WORDS archive. For the uninitiated, getting up to speed on Bitcoin can seem daunting. Content is scattered across the internet, in some cases behind paywalls, and content has been lost forever. That’s why we made this journal, to preserve and further the understanding of Bitcoin.
Bitcoin, Lobbying and Anonymity
By Beautyon
Posted September 9, 2016
Some Bitcoin projects are fundamentally incompatible with democratic structures and can never be incorporated in them intact.
Recently we’ve learned that a Bitcoin privacy software project has joined an alliance of lobbyists tasked with “explaining” Bitcoin to the US government. This project seeks to make Bitcoin completely anonymous so that nothing can be known about the participants in any Bitcoin message session (what people characterize as “transactions”). This project brings to Bitcoin, the same privacy that you get with a completely legal, First Amendment of the Constitution protected GPG encrypted message; no one can know the important details of the message. This very strange joining of opposing forces is going to shine a light on the limits of the State and expose the lobbyist’s fundamental misunderstanding of what Bitcoin is for and why it was created. If they did not fundamentally misunderstand Bitcoin, they would never have asked this project to join them in the first place.
Any lobbying group that tries to smooth the path to the state accepting Bitcoin has a hard task in front of them. First, they have to make computer illiterates understand a class of software that even seasoned developers have either a hard time understanding or no experience of. Then they have to explain the economic arguments; how can a money with a permanently limited supply ever work? How can a money without a central issuer work at all leaving aside the incomprehensible “tech details”?
For the sake of argument, lets suppose that the lobbyists have managed to spark a glimmer of broad overview understanding on these people by using analogy and a hands on demonstration of a wallet. In the case of Bitcoin, the lobbyist can calm the fears of the legislators by saying KYC/AML can make Bitcoin “safe”; exchange owners must be subjected to vetting that includes fingerprinting, huge surety bonds, mandatory insurance, embedded Compliance Officers and all the other trappings of the old world that makes them feel safe. But then, something happens.
A New Challenger Arrives
A new addition to the protocol enters the scene, that offers 100% anonymous Bitcoin transactions putting it beyond the reach of any government. How can a lobbyist possibly sell this, even with the developers of the software on board?
This horse will never stop being a horse.
Assuming the software developers are men of integrity and have no intention of adding back doors or any other crippleware features to their tool, there is nothing that the lobbyist can say to them to make them corrupt their software. When the lobbyist goes for a hearing in front of a panel of law makers, all they can do is throw their hands up and say, “We can’t change the software, but at least now you know about it”. The legislators will cry, “SOMETHING MUST BE DONE TO PROTECT THE PUBLIC!”. The lobbyist will go back to the developer, with a list of crippling features who will say something along the lines of, “No”.
We can say for sure that this outcome is absolutely inevitable. The people working on privacy software are motivated by principle, not expedience. They will never corrupt, cripple, weaken, back door, subvert or in any way spoil their software on the advice or pleading of a robotic lobbyist “for the good of society”, because of course, they are making anonymity enabling software for the good of society. And here is the problem; both of these groups believe that what they are doing is for the good of society, they just don’t agree on what that means.
By all means, you can create a lobbying group, spend a million dollars a year on it, write shabby and misleading reports and lobby legislators; in the end, this will not have any effect on the software that is written. If software really is “eating the world” it makes no sense to fight against it, and incorporating its developers into worthless, toothless structures can’t stem its flow either.
Software is being written everywhere on Earth. It can be sent and executed anywhere without permission, and this cannot ever be stopped. The world works well precisely because software can flow where it is needed and be improved upon without permission. Any attempt to interfere with this flow will have catastrophic consequences for the jurisdiction insane enough to try it, and in the case of The Bitcoin Network, interference in it will have catastrophic economic consequences.
We have a foretaste of what this will look like by examining the online Poker industry and how countries that disallow this form of gaming do not collect revenues from that activity, the captive citizens playing online through proxy servers to free countries where the taxes are collected. This will happen with Bitcoin but on a global scale with amounts of money measured in hundreds of billions of dollars.
Bitcoin GitHub History Visualized
You can’t stop The Bitcoin Network and the advance of anonymity by bringing the developers of the tools “on board”. Nothing you can do will stop the inevitable global embrace of Bitcoin on its own terms. The experience of other softwares shows this assessment to be correct; any attempt to stop it is completely fruitless and illogical in addition to being profoundly unethical. Software is not about personal relationships, forming cleverly named groups, attending public hearings or publishing policy statements. It is about one thing, and one thing only; the running binaries.
Eat, or do not eat. It’s binary.I choose eat.Grilled monkfish, mash, house white↴
No, non-Bitcoin blockchains are not “disrespectful” to Satoshi
By Erik Voorhees
Posted September 14, 2016
In a recent interview with Tuur Demeester, Paul Sztorc made the interesting claim that “non-Bitcoin blockchains are disrespectful to Satoshi.” He has elsewhere and for a long time criticized non-Bitcoin digital assets of all forms. He generally refers to anyone not building exclusively with Bitcoin as a scammer, including me.
Sztorc, while clearly a brilliant technical thinker and a man who has made great contributions to Bitcoin and blockchain theory, is misguided in his vilification of all things non-BTC.
At least, he is partly misguided. He is right to be skeptical and suspicious of alts, generally. Indeed, many (most?) have existed somewhere between horrible idea and outright scam. When he refers to the “giant graveyard of projects,” he’s right. There are hundreds of failed and failing blockchains, and good riddance to the vast majority of them.
Unfortunately, Sztorc’s antagonism ventures beyond healthy skepticism into the tribal and religious. He is not opposed to alternative assets due to their specific flaws, necessarily (for that requires thoughtful analysis of each individual case). Rather, he is opposed to the very idea that utility can exist on an alternative blockchain. He believes all use cases, and all possible utility, can and should be crafted only upon Bitcoin proper. That is more religious, than academic. I get it, I used to believe similar notions.
So let’s examine this “Bitcoin maximalism,” as it’s known.
On a high level, it seems odd to me that an industry built on the principle of decentralization should be so afraid of the existence of a constellation of blockchains. Even if Bitcoin’s chain was “the best for all possible purposes in all situations at all times” (which it’s not), wouldn’t there still be value in an environment of interlocking assets, as opposed to all structures being built upon one monolithic chain? That seems almost self-evident. Removing central points of failure is a tenant of this technology, and that means avoiding anything monolithic, including the “one chain to rule them all” model. That doesn’t mean every alternative chain should be welcomed and embraced “just because decentralization,” but it does mean a world of 1 blockchain may be fundamentally less resilient than a world of 1+X blockchains.
More fundamentally, though, the notion that Bitcoin’s blockchain is “the best for all possible purposes in all situations at all times” is demonstrably false. Let’s start with the issue of time, and opportunity cost.
Of all the features and tools that could theoretically be built upon Bitcoin, most don’t yet exist today. You have a use-case requiring fast blocks? Bitcoin can’t help you, today. You have a use-case requiring true untraceability? Bitcoin can’t help you, today. You have a use-case requiring 20 txs per second? Bitcoin can’t help you, today. Transaction fees of $0.20, or $0.50, or $0.10, or $unknown make your project infeasible due to cost and uncertainty? Bitcoin can’t help you there, and won’t any time soon. You have a use-case that really isn’t related to money at all and has very little need for Bitcoin’s structure? Sztorc believes you should still use Bitcoin. You want to build smart-contracts? Bitcoin is very awkward for that, today. It might be better in the future, so Sztorc thinks you should wait. You want a different security mechanism than proof-of-work (maybe for centralization fears, economic inefficiencies, or environmental considerations)? Well, Bitcoin can’t help you there right now, either. (For the record, I like Bitcoin’s proof-of-work, but alas I’m only one market participant).
Yes, some day, all the myriad virtues sought by market participants may exist in beautiful production-ready form on Bitcoin. But not yet, and there is no guarantee that they all will, or that any will, or that they all should, or that they can all fit together. And those virtues that do come about may take years. The blocksize debate has certainly cast a pall in some peoples’ minds that Bitcoin can (or that it even should) adapt to new features and functions. Whatever your opinion, Bitcoin moves slowly, carefully, and along a certain path. That path, and that timeframe, are not appropriate to all market participants in all cases.
That is why alternative chains exist, and the industry is better for it.
Sztorc suggests that it’s “hubris” to believe you can build something useful outside of Satoshi’s temple. Perhaps, instead, it is hubris to believe you can understand all possible use cases and utility functions and declare them appropriate for your preferred platform, exclusively?
But Bitcoin can do it!
Are there whitepapers out there explaining how smart-contracts can work on Bitcoin? Yes absolutely. In fact, I’m wearing my beloved Rootstock shirt right now (thanks, Rodolfo and Diego!). I’ll be thrilled when smart-contracts can be efficiently built upon Bitcoin. Today, they can’t. And yet, on Ethereum, smart-contracts can and are being built, right now. ShapeShift is working on a couple smart-contract based projects, and from our review, they just weren’t feasible upon Bitcoin. That doesn’t mean Bitcoin is inferior to Ethereum (indeed, the DAOsaster demonstrated the virtue of a simpler, more cautious, and more immutable ledger in Bitcoin), but it does mean that right now, today, we as a company have found economic utility in both Bitcoin’s blockchain, and its structure, and also in Ethereum’s blockchain, and its structure. Both are useful, both enable unique tools and utility to be realized, and thus both exist, with merit and purpose.
As a concrete example, let’s consider the topic of privacy, for we all know Bitcoin is not very anonymous. This is a problem for that portion of economic participants that desire fuller privacy. Along come projects like Monero, like Dash, and like the upcoming Zcash (which reveals not even the amount sent in a transaction, how cool!) These are non-Bitcoin blockchains, though they’ve all been inspired by, and further inform, Bitcoin’s own technology. Ought they be dismissed as useless scams, because they aren’t the one true chain, as Sztorc laments?
Can Bitcoin someday be upgraded with better privacy features? Sure. But today, all manner of surveillance software is viewing down upon that blockchain, and is it not fortunate that more private alternatives exist? Sztorc believes, due to his loyalty to a flag, that the world today would be better off with fewer privacy options when it comes to cryptocurrency, merely because his flag may someday be as private as he feels is sufficient. That is not decentralization. That is the path to monolithic stagnation.
And if Bitcoin ever changes to truly become anonymous, it may indeed tank the market for alternative anoncoins. Fine, that’s a healthy competitive market at work. But should we scorn the existence of innovative alternatives in the meantime? Should we assume that Bitcoin will be the best of all things to all people? Do we “know” that Bitcoin will inevitably possess the best privacy in the industry? Is that not hubris, Mr. Sztorc? I try to avoid such assumptions. Markets are too complex. There are too many needs, nuances, and unknowns. I don’t pretend to know the development path that Bitcoin will take, and I don’t assume it can follow every path for every person, regardless of the clear innovation and value of sidechains.
We could look at other features, but the principle remains: Bitcoin, while it has proven “very good” at a set of cryptocurrency demands, is not perfect in every way. Nothing is. As a form of money, and as a technology platform, Bitcoin has specific attributes (excellent attributes, imho). These attributes are not, however, universally ideal for all possible use cases of blockchain technology. And changing one attribute to improve Bitcoin in one way, may plausibly change another attribute to diminish Bitcoin in another. That’s okay, but it means the concept of Bitcoin as the monolith is flawed.
With respect to the work Sztorc has done, dismissing all the various chains in existence as “scams” just because he believes feature x, y, or z could be built better upon Bitcoin someday is presumptive, centralizing, and intellectually lazy. A vast swath of this industry is not content to sit around and wait for every possible feature and attribute to be crafted carefully into Bitcoin’s protocol. First, not everything will be. Second, not everything should be. And third, that which will be, and should be, may not arrive upon a timeframe congruent with market demand. And that’s okay.
Is Satoshi a Bitcoin maximalist?
Finally, let’s address the Satoshi comment, directly. Are alternative chains “disrespectful” to Satoshi? This is a weird appeal to authority, but in any case, Satoshi’s motive was to free the world from a centralized, censorable financial system; to build a non-state peer-to-peer money. He succeeded, and Bitcoin continues to grow and develop, furthering that motive.
And yet, Satoshi’s invention was so profound, that it not only spawned one new protocol and product, but a growing galaxy of technological, economic, and social experimentation. How can that be anything but the highest praise for his work? Think of the industry Henry Ford spawned. Is Maserati an insult to his work? Did Maserati put Ford out of business? Did Maserati set the auto-industry back, or move it forward (and outward)? Should Maserati try to be Ford? Should Ford try to be Maserati? Would the world be wealthier and more prosperous if Ford was the only automobile platform? (but think of all the efficiencies gained if mechanics didn’t have to know dozens of systems!)
The myopic view of Bitcoin as the only valuable blockchain technology is deficient. It dismisses the nuanced desires of market participants. It dismisses the opportunity costs of change. It overly simplifies the interworking attributes of any chain, falsely assuming a specific map of complex pieces will be optimal for every demand. It fails to grasp the industry as an industry, instead of a single product. And indeed, it needlessly falls into the same pattern so unfortunately common in our world, tribalism.
Nothing suggested above implies that every blockchain should be equally respected. Not at all. Most chains and digital assets, both historically and into the future, may rightly be dismissed. But, their dismissal should rest upon examination of their specific attributes, not wholesale dismissal as something alien, and not on appeals to the monolith. And indeed, while most may rightly be dismissed on their attributes, most =/= all.
The variations and patterns of this expanding technology deserve critical examination and thought, not wholesale vilification upon a declaration of non-conformity. There is no benefit in stoking crypto-xenophobia. It does not help the industry, nor Bitcoin, nor certainly Satoshi’s legacy.
Erik Voorhees http://www.ShapeShift.io Erik Voorhees, CEO of leading digital asset exchange ShapeShift.io, is among the top-recognized serial Bitcoin advocates and entrepreneurs, understanding Bitcoin as one of the most important inventions ever created by humanity. Erik’s former project, the groundbreaking gaming phenomenon SatoshiDICE, was, at its peak, responsible for more than half of all Bitcoin transactions on Earth and popularized the concept of “provable fairness.” Having been a featured guest on Bloomberg, Fox Business, CNBC, BBC Radio, The Peter Schiff Show, and numerous Bitcoin and industry conferences, Erik humbly suggests that there is no such thing as a “free market” when the institution of money itself is centrally planned and controlled. This blog is about the human struggle for the separation of money and state, and about Bitcoin as the instrument by which it will happen.
You can start editing here.
Redactable Bitcoin
By Elaine Ou
Posted September 21, 2016
Update: I made some redactions corrections.
Bitcoin people frequently criticize banks for claiming to build blockchains while discarding proof-of-work, so here comes Accenture with their own version of a blockchain. It keeps Bitcoin’s proof-of-work, and adds a master key.
(More specifically, it takes Bitcoin’s exact protocol but replaces the double-SHA256 hash with a chameleon hash inside a SHA256 hash. A chameleon hash is a hash function that contains a trapdoor.)
I suspect that Accenture’s Financial Services group does not know what it is actually getting here. Their whitepaper begins by asserting that Bitcoin’s blockchain contains illegal porn that needs to be redacted. Good grief.
Then they spend two pages talking about the DAO.
The problem isn’t the redactability – sure, maybe Accenture’s Group Exec wants to scrub those bookings at the no-tell hotel from his credit card statement. I can sympathize with that. The problem is that Accenture misrepresents what a blockchain even is.
Accenture employees might be clueless, but their academic co-authors cannot possibly be ignorant of the fact that an application that runs on a blockchain (the DAO) is separate from the blockchain itself (Ethereum). And, having modified Bitcoin Core, they know full well that porn cannot be stored on Bitcoin’s blockchain.
Look, it’s fine if people want to make grandiose claims about how blockchains will revolutionize the universe. It’s good for business around here. But now you guys are just making shit up to exploit the technological ignorance of banks. This is exactly how industries start getting regulated. Cut it out.
Bitcoin and child porn: Yes, Bitcoin’s blockchain contains transactions that have encoded URLs of child porn sites. So does this web page. In fact, this is an encoded URL, right here: “1HJCcziSCEkUcDq5aRC68vxVdx6enWUrvf” (the link goes to a transaction in the Bitcoin blockchain explorer, not a porn site). If you know where to find this data on the blockchain, AND you know the algorithm for decoding the data, AND you actively take the time to decrypt it, AND you paste the decrypted URL into your web browser, then yes, I suppose you can get child porn from Bitcoin’s blockchain. You’ll have a hard time blaming Bitcoin for this one though.
See Also: G. Ateniese, et al. Redactable Blockchain — or — Rewriting History in Bitcoin and Friends. Cryptology ePrint Archive: Report 2016/757 When a Blockchain isn’t a Blockchain –Bloomberg
Corrections: Redactable Bitcoin
By Elaine Ou
Posted September 25, 2016
This is a follow-up to an earlier post about Accenture’s creation of a Redactable Bitcoin.
Bitcoin Porn:
Jeff Garzik points out that porn can be embedded in any medium, whether it’s smoke signals or semaphore. So it’s not fair to say that porn can’t exist on the Bitcoin blockchain. Granted, the “porn” will look like nothing more than a series of transactions, unless you know how to decode and interpret it.
Accenture and the Mutable Blockchain:
Previously I said that Accenture’s redactable Bitcoin uses proof-of-work, an assumption made based on the specs of an earlier prototype. Accenture’s Media Relations rep contacted me to say that their new prototype still uses Bitcoin core, but without the mining. Also, in response to my characterization of their thing as a horribly inefficient Excel spreadsheet, he says:
“That small addition[of a master key] is actually likely to make DLT[distributed ledger technology]more efficient (enabling pruning, compression, potentially reducing the number corrective transactions by half).”
So not only did Accenture solve Bitcoin’s immutability problem, they also solved the blockchain-is-too-damn-long problem. And because the nodes receive updates from a “designated authority”, they also solved the network broadcast problem.
Don’t ever take a fence down until you know the reason why it was put up. –G.K. Chesterton
Bitcoin is one of the most secure pieces of financial infrastructure in existence. It’s not missing a master key simply because Satoshi somehow overlooked that feature. Bitcoin is missing a master key because it was entirely designed to avoid a master key!
Decentralization is a substitute for a designated authority. See, blockchains doesn’t store information, nodes do. The raw transaction blocks that make up a “blockchain” are mainly used to relay information to others. Nodes themselves maintain an unspent-transaction-output (UTXO) database to validate new blocks and transactions1. After processing each new block into the UTXO database, nodes can prune or archive their local blockchains to save disk space. They don’t need a designated authority to tell them how to do this.
Bitcoin works because every node enforces identical rules, and decentralization prevents them from colluding to break the rules. Bitcoin miners could mine invalid blocks with all the hashpower in China; it won’t matter as long as nodes commit to ignoring invalid blocks.
Bitcoin users ascribe value to bitcoin with the expectation that nodes continue to enforce predetermined rules. The minute that Bitcoin nodes allow exceptions to the rules via master key, the price of Bitcoin will fall to zero2.
I make fun of R3 Consortium for pretending to do blockchain while actually producing data standards, but they did get one thing right. If you want to create a decentralized clearing and settlement system, the first thing you gotta do is get everyone to agree to the same rules.
1. Bitcoin uses double-entry bookkeeping, where every transaction has a corresponding debit and credit. The unspent transaction outputs represent remaining credits.
2. It’s comparable to the value of a fiat currency where the central bank takes too many liberties with its monetary policy. People lose confidence in the government’s ability to keep its promises, and thus devalue the currency.