Blockchain exists for ~10 years and still there are no mainstream use cases where it replaced the incumbent tech, other than illegal activity. There is a fundamental reason for that.BCh offers a single unique feature: distributed trusted transaction (DTT). DTT competes with a centralized transaction == transaction with a trusted third party (T3P). DTT is by definition distributed and as such is *always* more expensive than a T3P all other things being equal: reaching consensus with multiple parties is harder than with a single party. In order for DTT to be competitive with the old tech T3P, the distributed nature of DTT must offer some advantage for people to be willing to pay the required premium. So far the only use case where people or willing to pay this premium is circumvention of regulation, when the trusted third party does not exist. This brings us to this list of use cases:1. Circumvention of regulation.This is the only meaningful use of DTT.China has capital flow controls which effectively bar companies and individuals from moving money out of China. To get around these regulations people buy video cards and electricity in China for CNY, mine cryptocoins, sell them in the States for USD. That’s the largest market right now, much bigger than buying drugs on the likes of Silk Road. This use case also includes ICOs and other pump and dump schemes.2. Selling picks and shovels.Derivative of (1). If 1 goes away, 2 will go away too.https://finance.yahoo.com/quot… [yahoo.com]3. Marketing & FMOAdd blockchain to the company name and see your valuation pop.”We must work on blockchain because it’s the future”.All kinds of blockchain projects in banks, etc which are going mainstream “any time now”. All of them can be done easier/cheaper/more reliably with a T3P, no exceptions.Reply to This Share
Pierce, meanwhile, was about to try to repeat his success in e-sports when people began mentioning cryptocurrency to him roughly a year after the first Bitcoins were mined. Pierce was shocked that he’d never heard of it. “There were no storytellers who knew how to convey the information in simple insights, so it required a lot of real heavy lifting to figure out,” he says. “I didn’t have the time to appreciate the power of decentralization at first. The day I got it, I knew that was it.”Bannon recently took a leap into cryptocurrency as well, not just because of its financial implications, but because of its political ones. “This whole populist revolt is going to come down to this concept of currency,” he says. “You can see the forces that are aligned to take advantage of it. Every smart person that I admire in the world, and those I semi-fear, is focused on this concept of crypto for a reason. They understand that this is the driving force of the fourth industrial revolution: steam engine, electricity, then the microchip – blockchain and crypto is the fourth. There’s going to be a war for control for this.”Once Pierce caught on to the potential of this new digital cash, he became an evangelist, giving away Bitcoins to everyone he could, whether to an influencer or to the audience at one of his talks. He eventually stopped giving the money away because “no one appreciated it, then they lost it, and it was a waste of my fucking time. I get messages all the time from people saying, ‘I think of how much I lost because I didn’t take it seriously.’ ”
Ironically, Bitcoin’s success depends on the same critical factor as a state-issued “fiat” currency: the collective trust of its community of users. Their confidence in the accuracy of the ledger of all Bitcoin transactions is what makes the currency viable. Law-abiding citizens want efficient, reliable payments. Bitcoin’s mysterious creator, Satoshi Nakamoto, realized this. His 2008 white paper said a great deal about cutting out banks; it said nothing about evading the rule of law.
I am proposing that the second point on Bitcoin’s risk spectrum should be LNRR, the Lightning Network Reference Rate. Routing fees earned on bitcoin staked to Lightning payment channels can be expressed as an interest rate. The rates received on the payment channel or node level can be hashed and cryptographically provable. Node operators can opt-in to publish realized interest rates on their capital. If a consensus can be reached on an interest rate calculation protocol, capital providers can publish interest rates in an open and transparent way. Positive interest rates will attract bank-like entities that believe they can earn positive return using effective payment channel management and security techniques. Some bitcoin previously held in cold storage will seek the income attainable in Lightning Network, the first ever example of an opportunity cost tradeoff in bitcoin that doesn’t require additional counterparty risk. Bitcoin staked to Lightning is the most unique income producing asset in all of monetary history: income with zero counterparty risk. The historical implications of this on capital markets are tremendous.
Cryptocurrencies: Looking Beyond the HypeCryptocurrency technology comes with poor efficiency and vast energy use.Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value.Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.The underlying technology could have promise in other applications, such as the simplification of administrative processes in the settlement of financial transactions. Still, this remains to be tested.
Bitcoin’s mining hardware (hashrate) has tripled since December, as can be seen above, even while price has fallen by 3x since December.It is now therefore a lot more expensive to mine a bitcoin than in December, while at the same time one mined bitcoin is worth a lot less.At some point miners are unable to afford energy costs or to keep up with adding more and more hardware as their old one becomes useless due to the constant increase of hashrate difficulty. So they close shop.Some miners, however, like Bitman, have lower costs, presumably because they manufacture themselves the mining hardware.So as other miners struggle, like Bitfury which has now dropped to 2%, Bitmain starts gaining more and more hashrate to the point they are now nearing 51%.The above bitcoin hashrate chart, however, even in a common sense way, looks quite unusual because it rarely goes down, if ever.Rather than responding to the price action, the hashrate appears completely detached. A situation that can not go for much longer because that increased new hardware itself puts pressure on price as the new barely profitable miners need to sell everything to cover costs.
Cryptocurrency researchers from FECAP University in Brazil have shown that it would take only around $1.5 million to attack the ETC network and still pull a nice little profit. With $55 million dollars, you could effectively bankrupt the currency, netting nearly $1 billion in straight profit.If a party that controlled just 2.5% of the Ethereum hash rate switched to ETC, they’d instantly control over 51% of the total network hash rate. The attack wouldn’t even be absurdly expensive. It’d cost what you would earn mining on the ETH network with 2.5% of the hash rate, which equates to roughly 525 ETH, or $318,000.
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Despite these advances, there has been a growing backlash from opinion leaders as the technology’s drawbacks become better known. Perhaps you’ve heard that Bitcoin alone uses 0.25% of the world’s electricity? Other blockchain systems, such as Ethereum, use similar approaches that require computers to burn electricity unnecessarily. Perhaps you are concerned about the number of accidents, hacks and scams possible in this new space, where the law has not yet found its feet? Or you may have heard that crime and terror networks could use these technologies to transfer funds. Blockchains and digital currencies pose important questions to both their advocates and regulators.Pioneers in the industry are alert to such concerns and have attempted collective self-regulation. The Brooklyn Project, an industry-wide initiative to support investor and consumer protection, was launched in November 2017.“By acting responsibly today, we can help make sure we are collectively able to reap the benefits of this powerful technology tomorrow,” explained co-founder of Ethereum Joseph Lubin. The following month, a coalition of cryptocurrency organizations and investors representing $650m in market capitalization established Project Transparency. It seeks to protect investors by enabling more disclosure within the digital currency sector.
Limits to arbitrage can help explain why Bitcoin has been so bubble-prone. Until recently, it was easy enough to take a long position, but expensive and risky to bet against the cryptocurrency. Things really changed in December, when U.S. regulators allowed the trading of Bitcoin futures. That move came in the middle of a historic runup in the price of Bitcoin and other cryptocurrencies. But as soon as futures contracts began to trade, an interesting thing happened — futures prices suggested that Bitcoin’s growth would slow.What happened next is historic. Bitcoin’s price crashed from a high of about $19,000 to less than $7,000 as of the writing of this article:
Tracing bitcoins has long been easy in theory: The blockchain’s public record allows anyone to follow the trail of coins from one address to another as they’re spent or stolen, though not always to identify who controls those address. But that tracing becomes far dicier when Bitcoin users put their coins through a “mix” or “laundry” service—sometimes in the form of an unregulated exchange—that jumbles up many people’s coins at a single address, and then returns them to confuse anyone trying to trace their path. In other cases, users bundle together their transactions through a process called Coinjoin that gives each spender and recipient deniability about where their money came from or ended up.For companies like Chainanalyis, Coinfirm, and Ciphertrace that offer to trace stolen or “tainted” coins—and who generally don’t make their methodology public— that leaves limited options. They can either treat any coin that comes out of a mix that includes tainted coins as fully “dirty,” or more reasonably, average out the dirt among all the resulting coins; put one stolen coin into a mix address with nine legit ones, and they’re all 10 percent tainted. Some academics have called this the “haircut” method.But Anderson argues that haircut tracing quickly leads to enormous parts of the blockchain being a little bit tainted, with no clear answers about how to treat an infinitesimally unclean coin. Often the fraction can be so small it has to be rounded up, leading to artificial increases in the total “taint” recorded.But when Anderson mentioned this problem in January to David Fox, a professor of law at Edinburgh Law School, Fox pointed out that British law already provides a solution: An 1816 precedent known as Clayton’s Case, which dealt with who should be paid back from the remaining funds of a bankrupted financial firm. The answer, according to the presiding judge, was that whoever put their money in first should take it out first. The resulting first-in-first-out—or FIFO—rule became the standard way under British law to identify whose money is whose in mixed-up assets, whether to resolve debts or reclaim stolen property.