or: The antithesis to authority
This page is always expanding/improving as decentralization progresses (tips are welcomed!) (some info may be outdated)
Decentralization seems to be one of the most impactful ongoing processes in our society. Let's start with Wikipedia's definition:
Decentralization (or decentralisation) is the process of redistributing or dispersing functions, powers, people or things away from a central location or authority. While centralization, especially in the governmental sphere, is widely studied and practiced, there is no common definition or understanding of decentralization. The meaning of decentralization may vary in part because of the different ways it is applied. Concepts of decentralization have been applied to group dynamics and management science in private businesses and organizations, political science, law and public administration, economics and technology.
Decentralization is the antithesis to centralization, which includes the process of centralization of power, which is what "government" is. Decentralization replaces centralized authority, so it is the antithesis to any "authority"-based systems, including "government" and man-made "law".
The progress toward decentralization marks the beginning of the end of the debt-based money scam, the most intrinsic component of the control system, in the sense that it converts work (energy) into an abstract token representing wealth, which can then be partially stolen (taxed) without the workers (slaves) even noticing (by means of word magic), and thus slowly over time concentrate the wealth in the hands of fewer and fewer people.
The difficulty lies not in the new ideas, but in escaping the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.
As Alex Gorale explains in his article Bitcoin Begins The End Of 100 Years Of Slavery:
The crux of the Federal Reserve's power lies in centralization. They have no competitors, and their dominance is assured by the military of the United States government. Having as many countries and people accepting dollars as possible gives the Federal Reserve the ability to extract wealth from those people through printing money, the same way I did in my example. If you want to stop them good luck negotiating with the military industrial complex. Oh yeah, don’t forget, dollars aren’t backed by anything other than the government saying dollars have value.
Betting Our Children’s Future
Taxing your labor is the power of government. Fiat is not the government’s ability to say “One piece of paper buys one candy bar.“ Fiat is the ability of the government to reach into your pocket without reprisal. When the government takes on debt, extends credit, or prints money, any fidelity they have hinges on their ability to tax you. Their net worth relies on how much wealth they can extract from the economy while enacting policies that diminish the amount of wealth produced by an economy. It doesn’t matter if they take your property, or the currency you earn, what matters is their ability to extract value. That ability scales to the extent the government is willing to use fear, threats, coercion, or violence.
Bitcoin is a peaceful, nonviolent, way of withdrawing from a system that snowballs your tax dollars into fighting foreign wars to maintain an outdated, failing monetary policy. It’s storing your wealth in a place soldiers, and spies cannot reach. It’s securing your present wealth from the mismanagement of other human beings who have never met you, who care nothing for you and know nothing about you. They make decisions that have a greater effect on your life than your own. Participating in Bitcoin is volunteering to be the guinea pig for what you hope is a better, brighter future, with just that much less violence in it for ourselves and our kids.
A benign decentralized autonomous software that maintains a scarce digital resource backed by nothing and supported by a network of impartial processing power isn’t the epitome of money. But It’s just a hell of a lot better than a currency backed by bombs.
As the blog The Rule of Freedom — The Manifesto of the Sovereign Community points out, "freedom must be defended by decentralised forces" — not by gangs of thugs (warlords) desiring ever-increasing central control due to operating out of fear-based belief systems presenting their controlled subjects with a grandiose illusion of choice.
As the article The Blockchain and the Rise of Networked Trust explains:
In the current centralized financial systems, trust is mediated by a hierarchical outer authority. This intermediary discourages the two parties (financial providers and consumers) from developing personal relations of trust as a fundamental element in their transaction.
Bitcoin offers a new trust model. Silicon Valley tech entrepreneur and author Andreas Antonopoulos describes bitcoin’s security model as "trust by computation":
Trust does not depend on excluding bad actors, as they cannot ‘fake’ trust. They cannot pretend to be the trusted party, as there is none. They cannot steal the central keys as there are none. They cannot pull the levers of control at the core of the system, as there is no core and no levers of control.
Bitcoin's decentralized trust eliminates the need for any centralized authority and brings the source of legitimacy in the realm of finance back to individuals.
Anyone can download an application on their computer or smart phone and start their own money system or bank. Trust that is generated horizontally becomes an essential undercurrent of exchange.
By choosing to abide with algorithmic consensus, we participate in creating a society based on our trust in ourselves and our fellows.
This emerging 'networked trust' unleashes something that has been stagnated by hierarchical institutions. With bitcoin, currency regains its true meaning – flow.
Antonopoulos has described how currency comes from the word for ‘flow’ in Latin, adding that "there never was a currency that had flow like bitcoin, which has no borders, no checkpoints, no intermediaries."
Until now, economic activities have been geared to bend toward the rich, while bitcoin’s neutrality works to rebalance power toward economic justice. The blockchain-based approach to economic interaction works toward empowering the masses whenever the scales of power are out of balance.
The "scales of power" are always out of balance, by necessity, because "[political] power" is based on the premise of the legitimacy of the idea that "authorities" have a legitimate monopoly on (the initiation of) violence because there is "consent of the governed". The more understanding of "what authority is" one obtains, the more one approaches the understanding of anarchy, and the understanding that one was only a statist because, like everyone, one('s ego) was tricked into buying into fear-based belief systems originating from the control system that has been steering humanity into darkness for thousands of years — but which is now being transcended dimensionally by "simply" choosing to raise our frequency and vibrational resonance from the 3rd to the higher densities — the ongoing transformation of human consciousness known as Ascension.
Decentralized ledger technology
Created by Satoshi Nakamoto in 2008, the revolutionary invention that has made decentralization possible is the decentralized ledger, more technically called the block chain or (as a neologism) blockchain. A bank is nothing but a ledger that keeps a record of assets and liabilities (deposits, loans, etc). A bank's walls, building, staff, owners, even business model, can change, but the concept of the bank itself remains so long as its ledger exists (provided its executives don't do something really stupid like over-exposure to derivatives or a bank run occurs).
In the abstract of his Bitcoin whitepaper (2008), Satoshi Nakamoto wrote:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
The double-spending problem
Wikipedia defines this "double-spending problem" that eluded cryptographers for decades, for which Satoshi found a solution:
Double-spending is a failure mode of digital cash schemes, when it is possible to spend a single digital token twice. Since, unlike physical token money such as coins, electronic files can be duplicated, and hence the act of spending a digital coin does not remove its data from the ownership of the original holder, some other means are needed to prevent double-spending.
This is usually implemented using an on-line central trusted third party that can verify whether a token has been spent. This normally represents a single point of failure from both the technical and trust viewpoints.
By 2007, a number of distributed systems for double-spending prevention had been proposed.
The cryptocurrency Bitcoin implemented a solution in early 2009. It uses a scheme called proof-of-work, to avoid the need for a trusted third party to timestamp transactions. These timestamps are recorded in its public ledger called the block chain. This avoids anyone double-spending the currency.
Put another way:
A specific problem that an internet payment system must solve is double-spending, whereby a user pays the same coin to two or more different recipients. An example of such a problem would be if Eve sent a bitcoin to Alice and later sent the same bitcoin to Bob. The bitcoin network guards against double-spending by recording all bitcoin transfers in a ledger (the block chain) that is visible to all users, and ensuring for all transferred bitcoins that they haven't been previously spent.
The solving of the double-spending problem by Satoshi Nakamoto is the technological breakthrough that cypherpunks dreamed of.
Cryptocurrencies are the first type of decentralized application. Bitcoin, the first cryptocurrency, is the first successful decentralized payment system. It is a type of money, and its own type of currency: cryptocurrency (some even argue that fiat qualifies as currency but not as money, while Bitcoin qualifies as both).
Cryptocurrency is the decentralization of money, a type of creative destructive process — it destroys the old (technologically obsolete) system (centralized debt-based scam) incessantly from within, until the point that the old system falls by the wayside from its own dead weight and irrelevance.
The value of currency
No article about decentralization or cryptocurrency would be complete without a reference to Andreas Antonopoulos, the "voice of Bitcoin" — who has the greatest ability to explain how "disruptive" (to the status quo) this technological breakthrough is:
Andreas Antonopoulos - Best of The Future of Cryptocurrencies
Bitcoin is clearly the most exciting Internet protocol today. The Texas Bitcoin Conference will allow attendees to explore this new technology from a host of angles. It will help answer the questions a range of people have about Bitcoin and what it means, to them personally, to their businesses and to the future. The Conference will be organized into three speaking tracks, an exhibit hall in the pit lane garages, an open air networking lobby and a number of additional opportunities. No matter your knowledge level or involvement with Bitcoin, you will feel welcome and come away with valuable information putting you ahead of the curve.
Antonopoulos relates the story of Joshua Abraham Norton — a citizen of San Francisco who in 1859 kept proclaiming he was "Norton I, Emperor of the United States", "Protector of Mexico", etc, to whom nobody paid any attention or took seriously, until the media ran a report mocking him — and suggests that, in a sense, Bitcoin may be the next Emperor Norton,
.... because now, combined with the cultural artifact of money, we have the mechanics, the technology, of unforgeable, instant, secure, cheap, fast, asset transfer over an information network.
An understanding of how cryptocurrencies work on a user level is recommended before proceeding with all the ideas presented below.
Though Bitcoin remains by far the most popular cryptocurrency, there are already over 1,000 clones of the Bitcoin software, known as altcoins. Altcoins are distinguished from crypto 2.0 coins (more on that below) by the fact of being no more than clones with a few alterations of various parameters (such as coin name, block time, max minted coins, block reward, deflationary mechanism, pre-mine, etc). The most successful altcoins are:
- Litecoin (one of the earliest altcoins, successful because its developer was motivated by innovation rather than greed),
- Dogecoin (a cryptocoin based on a silly meme (very silly) intended as a joke that became successful precisely because of its memetic nature), and
- Namecoin (the very first altcoin, which also functions as a DNS system, allowing websites to have a censorship-resistant .bit pTLD).
Altcoins is sometimes also used to mean all non-Bitcoin cryptocoins. Cryptocurrency researcher Josiah Wilmoth explains alcoins in this more general sense:
The word “altcoin“ is an abbreviation of “Bitcoin alternative,“ and thus describes every single cryptocurrency except for Bitcoin. Altcoins are referred to as Bitcoin alternatives because, at least to some extent, most altcoins hope to either replace or improve upon at least one Bitcoin component.
There are hundreds of altcoins (CoinMarketCap listed 478 at the time this guide was written), and more appear each day. Most altcoins are little more than Bitcoin clones, changing only minor characteristics such as its transactions speed, distribution method, or hashing algorithm. Most of these coins do not survive for very long. One exception is Litecoin, which was one of the first altcoins. In addition to using a different hashing algorithm than Bitcoin, Litecoin has a much higher number of currency units. For this reason, Litecoin has branded itself as "silver to Bitcoin's gold."
However, some altcoins innovate by experimenting with useful features Bitcoin does not offer. For example, Darkcoin hopes to provide a platform for completely anonymous transactions, BitShares describes itself as "a fair version of Wall Street," and Ripple serves as a protocol users can employ to make inter-currency payments with ease. Some altcoin ecosystems, such as CounterParty and Mastercoin, even utilize the Bitcoin blockchain to secure their platform.
Many Bitcoin enthusiasts argue that altcoins are completely unnecessary and will not succeed because they cannot rival the infrastructure Bitcoin boasts. However, altcoins serve an important role. Decentralization is one of Bitcoin's most prominent goals, and altcoins further decentralize the cryptocurrency community. Moreover, altcoins allow developers to experiment with unique features. While it is true that Bitcoin can copy these features if the developers or community desires, fully-functioning altcoins are much better "cryptocurrency laboratories" than Bitcoin's testnet. Finally, Altcoins give Bitcoin healthy competition. Altcoins give cryptocurrency users alternative options and forces Bitcoin's developers to remain active and continue innovating. If users do not feel that Bitcoin satisfies their digital desires, they can adopt an altcoin. If enough users left Bitcoin for a particular altcoin, the Bitcoin developers would have to adopt the features the community desired or risk losing its place as the preeminent cryptocurrency.
Decentralization is the replacement of central authority with fool-proof automatic systems, which requires a kind of proof of genuinety shared by the majority of the participants (nodes) in the network in order to secure the network against malicious participants. The first one of these proof systems, used by Bitcoin, is called Proof of Work (PoW), which uses the processing power of PoW-algorithm-solving new-bitcoins-generating profit-seeking miners to secure the transaction ledger (blockchain):
A proof-of-work (POW) system (or protocol, or function) is an economic measure to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. The concept may have been first presented by Dwork and Naor in a 1993 journal. The term "Proof of Work" or POW was first coined and formalized in a 1999 paper.
A key feature of these schemes is their asymmetry: the work must be moderately hard (but feasible) on the requester side but easy to check for the service provider. This idea is also known as a CPU cost function, client puzzle, computational puzzle or CPU pricing function. It is distinct from a CAPTCHA, which is intended for a human to solve quickly, rather than a computer.
PoW was followed by Proof of Stake (PoS), used by many altcoins:
Proof-of-stake is a method by which a cryptocurrency blockchain network aims to achieve distributed consensus. While the more mainstream proof-of-work method asks users to repeatedly run difficult hashing algorithms to validate electronic transactions, proof-of-stake asks users to prove ownership of a certain amount of currency (their "stake" in the currency). Peercoin was the first cryptocurrency to launch using Proof-of-Stake. Other prominent implementations are found in BitShares, Nxt, BlackCoin, NuShares/NuBits and Qora.
Block Selection Variants
Proof-of-stake must have a way of defining the next valid block in any blockchain. Selection by account balance would result in (undesirable) centralization, as the single richest member would have a permanent advantage. Instead, several different methods of selection have been devised.
Proof of Work relies on energy use. According to a Bitcoin mining-farm operator, energy consumption totaled 240kWh per Bitcoin in 2014 (the equivalent of 16 gallons of gas). Moreover, these energy costs are almost always paid in non-cryptocurrency, introducing constant downward pressure on the price. Proof of Stake currencies can be several thousand times more cost effective.
The incentives of the block-generator are also different. Under Proof-of-Work, the generator may potentially own none of the currency he is mining. The incentive of the miner is only to maximize his own profits. It is unclear whether this disparity lowers or raises security risks. In Proof-of-Stake, those "guarding" the coins are always those who own the coins (although several cryptocurrencies do allow or enforce lending the staking power to other nodes).
Some authors argue that proof-of-stake is not an ideal option for a distributed consensus protocol. One problem is usually called the "nothing at stake" problem, where (in the case of a consensus failure) block-generators have nothing to lose by voting for multiple blockchain-histories, which prevents the consensus from ever resolving. Because there is little cost in working on several chains (unlike in proof-of-work systems), anyone can abuse this problem to attempt to double-spend (in case of blockchain reorganization) "for free".
Many have attempted to solve these problems:
- Peercoin uses centrally broadcast checkpoints (signed under the developer's private key). No blockchain reorganization is allowed deeper than the last known checkpoints. The tradeoff is that the developer is the central authority controlling the blockchain.
- Nxt's protocol only allows to reorganize last 720 blocks. However, this only rescales the problem: a client may follow a fork of 721 blocks, regardless of whether it is the tallest blockchain, preventing consensus.
- Ethereum's suggested Slasher protocol allows users to "punish" the cheater, who mines on the top of more than one blockchain branch. This proposal assumes you must double-sign to create a fork and that you can be punished if you create a fork while not having stake.
Statistical simulations have shown that simultaneous forging on several chains is possible, even profitable. But Proof of Stake advocates believe most described attack scenarios are impossible or so unpredictable that they are only theoretical.
Other ideas for consensus mechanisms include:
- Proof-of-Capacity (hard drive space)
- Proof-of-Burn (destroying one cryptocurrency to generate another, i.e. bootstrapping one cryptocurrency off of another)
- Proof of Heart (a cryptocoin for Palestine)
- Solar Proof of Generation
- Proof of Authority
- Proof of Face (PoF)
Multi-sig is an advanced feature of Bitcoin (and altcoins) that allow more than one person to own/spend the bitcoins pertaining to an address. Crypto developer Vitalik Buterin has called multi-sig technology "Bitcoin 1.5":
Bitcoin multisig wallets have tremendous potential for increasing the security of funds and giving technology tools to enforce corporate governance. Over the past month we have seen a large number of Bitcoin services dramatically fall over into the abyss. Silk Road 2, the intended successor to the Silk Road anonymous marketplace that was shut down in October last year , lost $2.7 million worth of BTC consisting of all of its users’ account balances and is struggling to figure out how and if it will ever be able to relaunch.
MtGox, once the world’s largest Bitcoin exchange with over 90% market share, stopped processing withdrawals early in February  and has since shut down entirely, admitting to having lost a staggering 750,000 BTC. Flexcoin, an old “bitcoin Bank“, shut down after having lost 900 bitcoins, and a site called Poloniex gave its users a Cyprus-style haircut after finding out that it was short around 75 BTC.
Some people, initially including myself, are seeing this as a “changing of the guard“ moment for the Bitcoin community, where it was amateur and badly managed services that were at fault for their own thefts and professionals would soon come in and take over. If this was a mere one or two thefts, then this would indeed be a reasonable, and fully satisfactory, explanation.
In reality, however, Bitcoin users and services are losing substantial sums of bitcoin every week, and without chargeback-like consumer protections there are several high-profile stories of companies particularly in the Bitcoin mining industry taking users’ bitcoins and only delivering a low-quality product several months too late, if at all. Given the sheer number of these cases, and the sheer difficulty that even highly competent individuals face trying to secure their funds, a large portion of the intelligentsia, and the press, is willing to pronounce Bitcoin 1.0 dead unless there is more use of Bitcoin multisig wallet.
As it should be; Bitcoin 1.0 has been around for five years and given what we know now is already very much an outdated technology. Rather, now is the time for Bitcoin 1.5 to shine.
Enter a Bitcoin Multisig Wallet
So what is Bitcoin 1.0, and what is this Bitcoin 1.5 that I am so boldly claiming will come to replace it? In short, Bitcoin 1.0 can be described as a simple send-receive system. In a Bitcoin account, there is a set of 34-character Bitcoin addresses, like 1JwSSubhmg6iPtRjtyqhUYYH7bZg3Lfy1T, that you can use to receive bitcoins, and each address has an associated 64-character private key, in this case c4bbcb1fbec99d65
bf59d85c8cb62ee2 db963f0fe106f483 d9afa73bd4e39a8a, that can be used to spend bitcoins that are sent to the address.
Private keys need to be kept safe and only accessed when you want to sign a transaction, and Bitcoin addresses can be freely handed out to the world. And that’s how Bitcoin multisig wallets are secured. If you can keep the single private key safe, everything’s fine; if you lose it the funds are gone, and if someone else gains access to it your funds are gone too – essentially, the exact same security model that we have with physical cash, except a thousand times more slippery.
The technology that I am calling Bitcoin 1.5 is a concept that was first pioneered and formalized into the standard Bitcoin protocol in 2011 and 2012: multisignature transactions. In a traditional Bitcoin account, as described above, you have Bitcoin addresses, where each address has one associated private key that grants the keyholder full control over the funds.
With bitcoin multisignature addresses, you can have a Bitcoin address with three associated private keys, such that you need any two of them to spend the funds. Theoretically, you can have one-of-three, five-of-five, or six-of-eleven addresses too; it just happens that two-of-three is the most useful combination.
Choose Your Own Arbitrator
So how can multisig be used in practice? The first major use case of the protocol is consumer protection. When you make a payment with a credit card, if later on you do not get the product that you paid for you can request a “chargeback“. The merchant can either accept the chargeback, sending the funds back (this is what happens by default), or contest it, starting an arbitration process where the credit card company determines whether you or the merchant have the better case.
With Bitcoin (or rather, Bitcoin 1.0), transactions are final. As soon as you pay for a product, your funds are gone. And in Bitcoin 1.0, we saw this as a good thing; although it harms consumers to not have chargebacks, we would argue, it helps merchants more, and in the long term this would lead to merchants lowering their prices and benefitting everyone. In some industries, this argument is very correct; in others, however, it’s not. And in Bitcoin 1.5 we recognize that, instead providing a real solution to the problem: escrow.
Multisignature escrow works as follows. When Alice wants to send $20 to Bob in exchange for a product, Alice first picks a mutually trusted arbitrator, whom we’ll call Martin, and sends the $20 to a multisig between Alice, Martin and Bob. Bob sees that the payment was made, and confirms the order and ships the product.
When Alice receives the product, Alice finalizes the transaction by creating a transaction sending the $20 from the multisig to Bob, signing it, and passing it to Bob. Bob then signs the transaction, and publishes it with the required two signatures. Alternatively, Bob might choose not to send the product, in which case he creates and signs a refund transaction sending $20 to Alice, and sends it to Alice so that Alice can sign and publish it.
Now, what happens if Bob claims to have sent the product and Alice refuses to release the funds? Then, either Alice or Bob contact Martin, and Martin decides whether Alice or Bob has the better case. Whichever party Martin decides in favor of, he produces a transaction sending $1 to himself and $19 to them (or some other percentage fee), and sends it to that party to provide the second signature and publish in order to receive the funds.
Currently, the site pioneering this type of approach bitrated.com; the interface at Bitrated is intuitive enough for manual transactions such as contracts and employment agreements, but it is far from ideal for consumer to merchant payments. Ideally, marketplaces and payment processors like BitPay would integrate multisig technology directly into their payment platform, and Bitcoin multisig wallets would include an easy interface for finalizing transactions; if done correctly, the experience can be exactly as seamless as Bitpay or Paypal are today.
So all in all, given that this multisig approach does require intermediaries who will charge fees, how is it better than Paypal? First of all, it’s voluntary. In certain circumstances, such as when you are buying from a large reputable corporation or when you’re sending money to an employee or contractor you have an established relationship with and trust, intermediaries are unnecessary; plain old A to B sends work just fine.
Solving the Bank Problem
Although multisignature escrow is a very interesting application in its own right, there is another, much larger issue that multisignature transactions can solve, and one that has been responsible for perhaps the largest share of Bitcoin’s negative associations in the media, dwarfing even Silk Road, in the last three years. That issue is the concern of security and trust.
One of the larger philosophical divides throughout the course of human history has been one between two different methods of achieving security. One of these is individualism: every person having the power, and responsibility, to directly protect themselves and their families by putting the ultimate, base-level tools for doing so directly under their control.
The other is delegation: trusting centralized authorities with high levels of resources and expertise to manage security for everyone. In the United States, this is the dichotomy between every family keeping a gun in their cupboard and not having any civilian-owner guns at all and letting the police do the work. In Cyprus, it’s the question of whether to store one’s money under one’s mattress or in the bank. In every case, both sides of the debate have their merits and both sides have their faults.
And the same situation is true with Bitcoin. Some people, faced with the large number of exchanges getting hacked, see technologies like paper wallets, offline laptops and brainwallets with prepended usernames and twenty-character passwords as the solution; essentially, a return to the tried-and-tested best practices for storing gold in the twentieth century, plus a bit more complex technical magic built in.
Others, however, see the sheer difficulty that even technically skilled individuals face properly securing their funds, and see better centralized services, like Coinbase, as the solution. In the case of physical security, either the wholesale victory of one strategy or some crude linear combination of the two – centralized storage of 90% of one’s cash and local storage of 10%, or keeping a gun but having it locked up in a safe in the basement, are the only possibilities.
And in the case of Bitcoin 1.0 exactly the same holds true as well. In the case of Bitcoin 1.5, however, we are dealing with a world of factum law and decentralized technology, so we can be much more clever with how we combine two approaches – arguably, in fact, it is possible to get the best of both worlds.
Leading the Charge
The company leading the charge with Bitcoin multisig wallet technology is Armory. They already innovated the entire concept of cold storage and are the leading provider of enterprise grade Bitcoin security software. Now they released Lockboxes. With Armory you are in complete control of the creation and storage of all Bitcoin private keys. Additionally, each key in the bitcoin multisig wallet can be protected with its own security profile.
Another company bringing Bitcoin 1.5 technology to the world at large is CryptoCorp, created by Tradehill co-founder Ryan Singer. CryptoCorp’s core offering is something that a large number of people, including myself, have been trying to implement and push forward for nearly a year: multisignature transaction wallets.
The Future of Cryptocurrency
So what will the Bitcoin world of 2015 look like? First of all, if either CryptoCorp proceeds according to plan or CryptoCorp fails and some competitor decides to take charge, nearly every address will start with a ‘3’. The question of “where do you store your funds?“ will be dead; instead, the question will be: “what are the withdrawal conditions of this account, and what is the policy of each key?“.
Consumer wallets will all be 2-of-3 multisig, sharing the keys between either a low-security local-storage key, a high-security key in a safety deposit box and a central provider, or two central providers and a low-security key. The way CryptoCorp is designed is as a highly modular “verification oracle“ service that anyone can plug in.
If a user wants to make their wallet have CryptoCorp as one of the keyholders, they will be able to. If a company wants to have CryptoCorp, and a similar competitor, serve as two of their five treasurers, they will be able to; the underlying math is exactly the same.
In the long term, the Bitcoin multisig wallet story gets even more interesting once cryptocurrency 2.0 technologies go into full tilt. Next-generation smart contract platforms allow users to set arbitrary withdrawal conditions on accounts; for example, one can have an account with the rule that one out of a given five parties can withdraw up to 1% per day, and three out of five parties can withdraw anything.
One can make a will by setting up a account so that one’s son can withdraw any amount, but with a six-month delay where the account owner can claw the funds back if they are still alive. In these cases, CryptoCorp-style oracles will play an even larger role in the cryptocurrency world, and may even fuse together with private arbitration companies; whether it’s a consumer-merchant dispute, an employment contract or protecting a user from the theft of his own keys, it’s ultimately all a matter of using algorithmic and human judgement to decide whether or not to sign a bitcoin multisig transaction with a Bitcoin multisig wallet. As we sit here today on the other end of what may well come to be known as the “great crisis of MtGox“, the merger of cryptography and finance is only just beginning.
Summed up in a more technical way by researcher Meni Rosenfeld:
A multi-signature address is an address that is associated with more than one ECDSA private key. The simplest type is an m-of-n address - it is associated with n private keys, and sending bitcoins from this address requires signatures from at least m keys. A multi-signature transaction is one that sends funds from a multi-signature address.
The primary use case is to greatly increase the difficulty of stealing the coins. With a 2-of-2 address, you can keep the two keys on separate machines, and then theft will require compromising both, which is very difficult - especially if the machines are as different as possible (e.g., one pc and one dedicated device, or two hosted machines with a different host and OS).
It can also be used for redundancy to protect against loss - with a 2-of-3 address, not only does theft require obtaining 2 different keys, but you can still use the coins if you forget any single key. This allows for more flexible options than just backups.
It can also be used for more advanced scenarios such as an address shared by multiple people, where a majority vote is required to use the funds.
As of 2015, multi-sig technology still hasn't become as widely adopted as many were expecting, due to the difficulty in implementation and complexity of usage.
The uses for the decentralized ledger (blockchain) technology extend far beyond cryptocurrency, however, as this long and detailed infographic effectively illustrates.
This isn't just a payment network; this is the world's first truly programmable trust and payment mechanism that is truly decentralized.
Beyond Bitcoin clones (altcoins), the decentralized ledger technology that underlies cryptocurrencies is giving rise to diverse crypto 2.0 projects that will unfold throughout the second lustrum of the 2010's. Analogously to the idea of the "Web 2.0" (semantic web), crypto 2.0 (or Bitcoin 2.0 or cryptocurrency 2.0, although these terms are less accurate because their uses extend beyond currency) refers to the next generation of decentralized cryptosystems. The current theoretical extent of decentralization — what could be termed crypto 3.0 systems — include ideas such as the replacement of the useful functions of "government" with automated processes — the cryptostate — though that would be not earlier than 2017. The article Blockchain Is The New Bitcoin sums up crypto 2.0 this way:
Building on these insights a host of next-generation blockchain based platforms and startups have risen, known commonly as Bitcoin 2.0 projects. These include blockchain based platforms like Mastercoin, Counterparty & Nxt, which allow for decentralized financial exchanges including smart property & smart contracts. In addition, startups like Maidsafe, OpenBazaar and Popcorn Time are among the first generation of Dapps - decentralized applications.
Ethereum is one of the most promising (though some would say overhyped) crypto 2.0 projects.
What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.
Ethereum is how the Internet was supposed to work.
Ethereum was crowdfunded during August 2014 by fans all around the world. It is developed by ETHDEV with contributions from great minds across the globe.
In the introduction to the Ethereum white paper, lead developer Vitalik Buterin wrote:
When Satoshi Nakamoto first set the Bitcoin blockchain into motion in January 2009, he was simultaneously introducing two radical and untested concepts. The first is the "bitcoin", a decentralized peer-to-peer online currency that maintains a value without any backing, intrinsic value or central issuer. So far, the "bitcoin" as a currency unit has taken up the bulk of the public attention, both in terms of the political aspects of a currency without a central bank and its extreme upward and downward volatility in price. However, there is also another, equally important, part to Satoshi's grand experiment: the concept of a proof of work-based blockchain to allow for public agreement on the order of transactions. Bitcoin as an application can be described as a first-to-file system: if one entity has 50 BTC, and simultaneously sends the same 50 BTC to A and to B, only the transaction that gets confirmed first will process. There is no intrinsic way of determining from two transactions which came earlier, and for decades this stymied the development of decentralized digital currency. Satoshi's blockchain was the first credible decentralized solution. And now, attention is rapidly starting to shift toward this second part of Bitcoin's technology, and how the blockchain concept can be used for more than just money.
Commonly cited applications include using on-blockchain digital assets to represent custom currencies and financial instruments ("colored coins"), the ownership of an underlying physical device ("smart property"), non-fungible assets such as domain names ("Namecoin") as well as more advanced applications such as decentralized exchange, financial derivatives, peer-to-peer gambling and on-blockchain identity and reputation systems. Another important area of inquiry is "smart contracts" - systems which automatically move digital assets according to arbitrary pre-specified rules. For example, one might have a treasury contract of the form "A can withdraw up to X currency units per day, B can withdraw up to Y per day, A and B together can withdraw anything, and A can shut off B's ability to withdraw". The logical extension of this is decentralized autonomous organizations (DAOs) - long-term smart contracts that contain the assets and encode the bylaws of an entire organization. What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create "contracts" that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
Now revised/summarized/simplified to this:
Satoshi Nakamoto's development of Bitcoin in 2009 has often been hailed as a radical development in money and currency, being the first example of a digital asset which simultaneously has no backing or "intrinsic value" and no centralized issuer or controller. However, another, arguably more important, part of the Bitcoin experiment is the underlying blockchain technology as a tool of distributed consensus, and attention is rapidly starting to shift to this other aspect of Bitcoin. Commonly cited alternative applications of blockchain technology include using on-blockchain digital assets to represent custom currencies and financial instruments ("colored coins"), the ownership of an underlying physical device ("smart property"), non-fungible assets such as domain names ("Namecoin"), as well as more complex applications involving having digital assets being directly controlled by a piece of code implementing arbitrary rules ("smart contracts") or even blockchain-based "decentralized autonomous organizations" (DAOs). What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create "contracts" that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
In the abstract of the Ethereum yellow paper, lead developer Gavin Wood wrote:
The blockchain paradigm when coupled with cryptographically-secured transactions has demonstrated its utility through a number of projects, not least Bitcoin. Each such project can be seen as a simple application on a decentralised, but singleton, compute resource. We can call this paradigm a transactional singleton machine with shared-state.
Ethereum implements this paradigm in a generalised manner. Furthermore it provides a plurality of such resources, each with a distinct state and operating code but able to interact through a message-passing framework with others. We discuss its design, implementation issues, the opportunities it provides and the future hurdles we envisage.
Thursday was, I think, a historic day–though whether it becomes a memorable milestone like the launch of the Altair 8800, or an obscure footnote à la CP/M, remains to be seen. Thursday was the day that the Ethereum Project finally launched, after much sound and fury, including raising ~US$10 million (in Bitcoin.) It’s a fascinating, wildly ambitious project, and it is vaporware no more.
To explain Ethereum, let’s first go back to Bitcoin. By now it’s widely understood that Bitcoin is a virtual currency secured by cryptography and the computing power of its decentralized mining network. It’s less well understood that Bitcoin is more than just bitcoins; every Bitcoin transaction is actually a program written in a custom scripting language. That language is not Turing-complete, though, meaning, basically, it’s not a full-fledged programming language.
(Turing-complete is not a particularly high bar. PostScript is Turing-complete. TrueType fonts come with a Turing-complete scripting language. Bitcoin’s scripting language isn’t because that was a deliberate security/performance decision by Satoshi Nakamoto.)
Ethereum, like Bitcoin, is built on a blockchain, and has a decentralized mining network. Its coins are called “Ethers“; it raised its millions in seed money by pre-mining and selling a large quantity of ethers to believers/investors. But its scripting language is Turing-complete and full-featured, which vastly expands the kinds of smart contracts that it supports. Indeed, Ethereum is intended not as a new cryptocurrency, but as a massive virtual machine running atop a decentralized blockchain.
To me, the two most interesting things about Bitcoin are that it is fully decentralized, and it is programmable money. Ethereum is both of those things on steroids. It is explicitly designed to “decentralize the web,“ i.e. provide services and content that are maintained by its entire network, without having to rely on, or trust, any particular company or server cluster. (The pedant in me wants to argue that “decentralize the Internet“ is both more accurate and more meaningful, but never mind.)
The potential applications are extraordinarily wide-ranging. Decentralized web sites. Decentralized messaging. An interesting forecasting / early-warning-system prediction market named Augur has already alpha launched atop Ethereum. I expect, eventually, whole categories of smart-contract applications that don’t yet exist at all — such as decentralized autonomous systems — because blockchain-based virtual machines are whole new kind of platform.
…OK, let’s cease the starry-eyed handwaving and return to earth for a bit. These are very early days; this is only the first preliminary phase of a multi-stage launch. (One which will theoretically end with an eyebrow-raising transition from proof-of-work to proof-of-stake, for you hardcore cryptocurrency nerds out there.) Even then, performance will be terrible; it will be a decentralized virtual machine, but a painfully slow and weak one compared to the computer on your desk, or even the one in your pocket.
The article The Upcoming Decentralization Singularity by Giulio Prisco summarizes the idea and expands on the ideas that Ethereum (and crypto 2.0 projects more generally) will enable:
A Social Operating System
Ethereum can be thought of as a programmable distributed network, resistant to tampering and fraud. Besides financial agreements and transactions, Ethereum will permit a range of other solutions to problems regarding identity and verification, with applications to voting, registration of legal documents, reputation systems, and decentralized marketplaces based on smart contracts.
“A decentralized version of Ebay could for example interact with an escrow contract, a reputation service, a postal delivery tracking service and a distributed storage layer.“
Ethereum, which has been called a “social operating system,“ can enable even more futuristic and revolutionary concepts, such as “Decentralized Autonomous Organizations“ (DAOs) that operate automatically and transparently without human management for as long as they continue to offer valuable services to users and earn revenue sufficient to cover survival costs.
It’s becoming evident that the once free Internet can’t survive without a radical switch to a distributed, decentralized infrastructure without central point failures.
As of September 2015, there were already over 100 Dapp projects being built on the Ethereum platform; over 150 as of February 2016; over 300 as of October 2016; and over 580 as of July 2017.
Another of the major revolutionary ideas enabled by the blockchain technology is smart contracts, which separate the ideas of contracts and (man-made) law:
Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses. Proponents of smart contracts claim that many kinds of contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security superior to traditional contract law and to reduce other transaction costs associated with contracting.
The first cryptocurrency to implement smart contracts was BURST (which uses Proof of Capacity):
BURST at present can support five kinds of smart contracts with plans for additional five later on. The smart contracts are
- Atomic cross chain transactions allow for truly decentralized trading between cryptocurrencies. This can, for example, enable a trader exchange BURST with a coin that provides a mixing service for the purposes of privacy, and then send it to a new wallet.
- Auctions: Participants in the auction would send money to the contract, and anytime anyone sends more money than the previous bidder, the previous bidder’s money is automatically refunded. There would also be a “Buy Now“ function.
- Crowdfunding: If an account receives enough money from a certain block, the project funds are released. If not, the money is refunded to the senders.
- Dormant funds transfers: enables an account to be dormant for a specified period, to automatically forward the balance to another account. This could be useful as a Last Will and Testament and or backup for funds in case the account holder loses a password.
- Lotteries: Replacing the existing Bitcoin lotteries (such as satoshiDICE), smart lotteries would allow truly decentralized zero-fee lotteries.
Future smart contracts that BURST intends to support include autonomous corporations, gambling, self-mixing and smart properties.
Smart contracts are being touted as the “killer app“ of the cryptocurrency industry, and the race is on to develop applications that will radically transform our work, life and play going forward into the future.
Decentralized Autonomous Organizations
An organization without a central authority to "call the shots"? As one YouTube commenter put it:
For instance, the idea of a Decentralized Autonomous Organization that truly isn't controlled or owned by any particular individual isn't only revolutionary on a political or social level. One is almost tempted to call it an ontological revolution, one that redefines the basic categories of what is objectively real and what is simulated.
What is a Decentralized Autonomous Company and how will it change the way the world works?
When altcoins first began arriving on the scene, it became apparent that many were trying to fill specific niches in the market–to bring cryptocurrency to specific industries and fulfill specific market needs. From coins with specific features (like Darkcoin and Monero’s attempts to achieve anonymous transactions), to coins with little innovation that were simply banking on using specific brand positioning as coins of choice for certain industries (Sexcoin and Gamecoin come to mind), it was clear that blockchain protocols wanted to be used in multiple areas of society.
Though the creators of these coins were visionaries with respect to how blockchain tech could be used, it was clear that the open beta technology that was Proof of Work (PoW) was not up to the task of scaling to enterprise transaction speeds and volumes. Equally as important, the power grew more centralized away from holders due to economies of scale and the use of Algorithm Specific Integrated Circuits (ASICs). PoW also unnecessarily taxed the holders of system tokens, essentially paying power companies inordinate sums in order to secure the network.
Proof of Stake (PoS) intended to be the solution to PoW but fell short with respect to enterprise scalability. It became clear that we had to rethink blockchain tech in terms of something broader and more expansive than a use as a “Gold-equivalency“ of digital currency. It became evident we needed blockchains built specifically for business.
When members of the crypto-community began thinking in these terms, it was not long after that technologies like Transparent Forging and Delegated Proof of Stake (DPoS) came onto the scene. These technologies were engineered with business in mind and it was apparent. They began touching upon the ability of blockchain technology to create decentralized companies that provide specific services owned and controlled by stakeholders–not by force (hashpower).
NXT and its clones like Horizon (HZ) and New Economy Movement (NEM) intuitively understood this, and engineered their infrastructure to become exchange platforms with far higher scalability potential. They did this while while making it possible to maintain a level of decentralization of control that was the primary draw for cryptocurrency users from the very beginning.
Although NXT, HZ, and NEM intuitively understood this, it was the vision of Dan Larimer (aka Bytemaster) of the BitShares Project who actually outlined the dynamics of such systems, recognizing decentralized exchanges as only one of many potential Decentralized Autonomous Companies (DACs) that could exist to use blockchains. In fact it was Dan himself who coined the term “DAC“.
Perhaps we can attribute some of Dan’s insights to multiple in-depth interactions with Satoshi himself, or perhaps Satoshi was drawn to Dan’s understanding and expansive vision of how blockchain protocols could be used, and as such BitShares’ innovation is solely that of Dan’s creation. Whichever is the truth of this matter, BitShares is important because it’s founder and chief engineer recognized the necessity to “reinvent the wheel“ to build blockchain technology that can be truly be considered as the likely gold standard for blockchain protocols made for decentralized control and ownership of businesses.
Decentralization researcher Brian J. Robertson explains how it's already beginning to happen:
Holacracy: How to Decentralize Your Company for Higher Performance with Brian Robertson
[Published on Dec 11, 2015] Brian Robertson has become one of the major proponents of a revolutionary idea: Get rid of the bosses.
For centuries we’ve been laboring under the idea that societies can effectively be managed from the center (central planning). And for almost as long we’ve thought those companies that performed best would be scientifically managed (Taylorism). In other words, people should be assigned according to their functional role in a hierarchy -- to be ordered around or put to use like a cog in a machine. People could be made productive.
But this view of organizations and human beings will soon be obsolete. Why? Because paradoxically, people are more productive when they’re treated more like people than machines. They’re more creative when they have greater autonomy. And they’re more efficient when everyone is focusing on the mission, rather than managing others.
The companies that decentralize will outperform those who do not. Hierarchies become holarchies. In other words, holacracy tells us that organizations should be build around capabilities. It is not just a way to transform your organization. It’s scalable to all of society.
Curious about getting rid of bosses? Watch this talk.
A single point of failure is a sure way to test Murphy's Law (can go wrong, will go wrong), and when dealing with a massive store of wealth, in bitcoins or otherwise, this is not a law you want to prove.
Ever since the failure of Mt. Gox and the subsequent centralized Bitcoin exchanges which have been hacked, proved insolvent, have been the object of exit scams, or buckled under the weight of obvious manipulation, there has been clamor toward a decentralized exchange. There exists technology on which this can be done, escrow services and multi-signature addresses, but these methods, by themselves, add even more complexity to Bitcoin trading than already there. Thus the question has been – can we have a decentralized experience that doesn't feel like one? A decentralized exchange that works as flawlessly as the centralized counterparts (until they are robbed blind by their owners or hackers)?
Coinffeine has created a platform that does not want to hold your bitcoins. Instead, you use the Coinffeine desktop wallet and trade directly from it. It integrates the functionality of exchanging bitcoins and allows for the use of local payment rails. It varies from LocalBitcoins in that your bitcoins remain local until you execute a trade.
Let's look at this in real world terms. Suppose we're going to market to buy some watermelons. The centralized model requires that when you get to the market, you hand over the money you intend to spend before spending it, with no veritable way that you'll ever actually get your money back or the value. The Coinffeine decentralized model is truer to life: you hold your money until you are ready to spend it.
At present, you must have an OKPay account to use the software, but the company intends to expand to PayPal and others later on. Also, the service is not yet global, offering services now in 70 countries where it is apparently not illegal, including China, Russia, and Brazil.
Whatever drawbacks there may be with Coinffeine, it is the first in a groundbreaking wave of Bitcoin trading technology that will enable a future free of exchange heists and fraud.
Decentralized instant messaging
GEMS, powered by Counterparty (a crypto 2.0 project itself running on top of the Bitcoin blockchain), is the first decentralized messaging system — which, if truly secure and sufficiently user-friendly, might eventually replace WhatsApp and Facebook on smartphones, and Skype and other IM applications on PCs:
The beauty of recent developments based on the innovative Bitcoin technology is that they allow the public to claim control over previously centralized endeavours. By creating automated, trustless interactions over the network, we can now build systems that do not require concentrated power to maintain order in. Rather, the power is spread throughout the network and is left in our hands, the active participants in it.
The Bitcoin revolution has brought us control over our money. In this position of control, we are its owners and we decide what to do with it, uninhibited by the interests of those in positions of great influence. Here at GetGems, we are attempting to do the same, only with the basic communication method of the Information Age - text messaging.
Current IM applications, such as Skype or WhatsApp, use the information you provide to them for their own benefit. They maintain huge databases characterizing you and your behavior in an attempt to profit from it. From the networks that you create with your friends and family. In this unique point in time, we are able to take this power from them, and keep the value we create in our networks to ourselves.
By disconnecting the application from its current axiom of generating revenue for its corporate owner, we can move development in the direction of supporting the network and its users. It becomes an ever-evolving social product, shaped to facilitate our need and desire to communicate.
The primary goal of GetGems is to make it easy for millions of people to adopt bitcoin.
Decentralized prediction markets
Augur has launched the world’s first decentralized prediction market that would be open to the general public. Prediction markets work on the idea that large groups of people are able to make much more accurate predictions than, small teams of experts. Augur enables participants in its prediction markets to now put their money where their mouth is.
Participants back their beliefs by placing wagers on the outcomes of diverse events, that range on everything from politics, the economy and even the environment itself. The funds are stored securely on Augur’s platform, and are accessible only to the owners of the funds. The decision on the outcome of events is made by the consensus of Reputation token holders.
Do you see the Augur model completely disrupting more established methods such as opinion polling and surveys, or will it settle to become just one of the available alternatives?
Jeremy Gardner: Absolutely. Why try to reach a random sampling population when so many folks don’t have land lines and don’t pick up for random numbers, nor want to talk to the (often inaccurate) pollsters? And who likes surveys? When people put their money where their mouth is, we derive real opinions, not just stated beliefs. If Augur gets popular, it will be the most powerful forecasting and crowd consensus tool in human history.
Prediction markets, to the extent that they have a central point of failure, are necessarily limited in their usefulness, staying power, and authenticity. Augur finally brings decentralization to prediction markets, and if you're not scared and fascinated by the potential therein, then you're not paying attention.
Prediction markets are a powerful tool for crowdsourcing information from the free market. Augur's decentralized design makes that technology - and information - widely available, a transformative and positive event.
Cryptovoter is the first to pull this off:
Decentralized blockchain voting eliminates trusted-third-parties so users' Bitcoins never leave their wallets to vote. And the source-code is published on github with compiling instructions for Windows and Linux so you don't have to trust us either!
The first Bitcoin (BTC) blockchain vote will be on October 23, 2015. Prior to the initial Bitcoin vote, we will have two preliminary blockchain votes using an exact clone of Bitcoin (e.g., the Bitcoin-sCrypt (BTCS) altcoin) so users can get comfortable with voting before the first official Bitcoin (BTC) Blockchain Vote (or meta-vote).
As this infographic explains, blockchain voting "works by using vanity voting blockchain addresses to let users cast votes without ever needing to give up control to trusted-third-parties... ever." A vanity address is a public key generated to match a particular pattern (for example: "1pattern..." or "1vot3Address"), using a vanity address generator like vanitygen. It is a trial-and-error process and the number of characters in the pattern and processing power determines how long it will take to generate a matching address; for Cryptovote only about 4 characters ("1Q15A...") are required, which is a matter of microseconds.
Another decentralized voting system is Bitcoinocracy, which offers a "free and transparent voting mechanism to facilitate decentralized decision making in the Bitcoin ecosystem and to determine the truth backed by real monetary value" — although it's more complicated to use because one has to use the command line interface to sign a statement with one's specific Bitcoin address(es), which can get impractical if one's bitcoins are spread out over many addresses, which is not uncommon.
Decentralized darknet markets
The invention of Bitcoin has given rise to darknet markets, which has allowed easier access to any goods the people who call themselves "government" want to control to such a degree that their minions — the conscience-less order-followers — will kidnap, and if necessary injure and kill, anyone they find in possession of such goods in any context (regardless of whether anyone is being harmed). Thus, free exchange or creation or use of the most interesting psychoactive molecules, even nature's primary medicine (cannabis) and our brain's own hyperdimensional frequency neuromodulator, is falsely believed by statists to constitute a crime.
A darknet market or cryptomarket is a commercial website on the dark web, operating on top of darknets such as Tor or I2P. Most function as black markets, selling or brokering transactions involving drugs, cyber-arms, weapons, counterfeit currency, stolen credit card details, forged documents, unlicensed pharmaceuticals, steroids, other illicit goods as well as the sale of legal products. In December 2014, a study by Gareth Owen from the University of Portsmouth suggested the second most popular content on Tor were darknet markets.
Contemporary markets are characterised by their use of darknet (typically Tor) anonymised access, Bitcoin payment and escrow services, and eBay-like vendor feedback systems.
The problem is that, when centralized, darknet markets are vulnerable to both the "law enforcers" (conscience-less order-following thugs), who may eventually be able to "seize" (steal) the hidden central server (and kidnap its owner), and to fraudulent/dishonest administrators who can "exit scam" (disappear without a trace) and likewise steal all the cryptocoins pertaining to the addresses belonging to its user accounts. Decentralized options already exist, but are more cumbersome to use. Wikipedia mentions five decentralized darknet markets:
Items on a typical centralized darknet market are listed from a range of vendors in an eBay like marketplace format. Virtually all such markets have advanced reputation, search and shipping features similar to Amazon.com.
Following repeated failures of centralised infrastructure, a number of decentralised marketplace software alternatives have arisen using block chain technology, including OpenBazaar, Shadow, BitBay, Bitmarkets, and Nxt.
Of these the most prominent seems to be OpenBazaar:
Following a wave of Dark Net arrests that brought down the famous anonymous drug market Silk Road 2.0, all eyes have turned to a marketplace called OpenBazaar that is designed to be untouchable.
OpenBazaar is the heir apparent to a lucrative empire of illicit, anonymous, online trading worth hundreds of millions of dollars at least. And if that’s not enough, it’s also meant to beat online shopping heavyweights like eBay and Alibaba by cutting the middleman out of online shopping entirely.
Described as the “next generation of uncensored trade“ and a “safe untouchable marketplace,“ OpenBazaar is fundamentally different from all the online black markets that have come before it, because it is completely decentralized. If authorities acted against OpenBazaar users, they could arrest individuals, but the network would survive.
"I want a free market online to exist unencumbered because that is going to result in personal freedom, personal liberty, wellbeing in perpetuity," Sam Patterson, OpenBazaar’s operations lead, explained on a panel last night.
OpenBazaar is open-source software that runs a peer-to-peer network that can be used with the Tor anonymizing network. With no leader, each member of the Bazaar is equal, removing not just the fees associated with black markets but also the threat of scammers like the owners of the Sheep Marketplace, who stole as much as $100 million from customers and sellers.
Instead of relying on a highly targeted single leader like Silk Road's notorious Dread Pirate Roberts, OpenBazaar allows users to choose the best third parties to arbitrate transactions. Tamper-proof and authenticated contracts (known as Ricardian contracts) are established between buyers and sellers so that third parties can audit and arbitrate every sale fairly and easily.
The mainstreaming of Bitcoin?
Even on the level of pure economics, the idea of decentralized darknet markets seems like a "safer" bet in the coming years. As cryptocurrency researcher Justus Ranvier writes:
[...] This can not be emphasized strongly enough: the underground economy employed half the world’s workers as of 2009, and is growing rapidly.
Remember this fact when you hear people talk about how Bitcoin needs to clean up its hypothetical image problem in order to “go mainstream“. The regulated, above-the-table, law-abiding economy is a shrinking minority – a dying paradigm. What is called “mainstream“ is not worth losing any sleep over, and it’s certainly not worth compromising Bitcoin in order to win.
Every single person who has been beating the drums of regulation, compliance, and conformity is proposing that we change Bitcoin’s fundamental value proposition in order to cater to a segment of the economy that is predicted to shrink from less than 1/2 of the global workforce to less than 1/3 over the next six years, while simultaneously shunning the only segment of the economy which is growing.
They might as well be advising us to buy our tickets for the Titanic or hitch a ride on the Challenger. Follow their advice if you want Bitcoin to fail and take you with it.
For everyone else who wants Bitcoin to succeed, these facts suggest an easy way to evaluate every innovation in the general cryptocurrency space. Every time a new startup launches, or a new software project announces, ask one question: “Does this new thing improve the black market?“
If the answer to this question is “no“, then the thing is useless.
Harsh? Not really. In any other context would you even ask the question, “If we have a choice of focusing on two customer bases, one which is projected to grow by 50% over the next six years while the other is projected to shrink by 33%, which one should we choose?“
So bring on the money laundering, tax evasion, drug marketplace, and unregulated taxi service software. Anyone who isn’t actively working to expand and empower the informal economy is wasting their time.
Holarchical voluntary governance systems
A holacratic organization is the opposite of a hierarchical one, in which each participating individual is honored to the same extent. Crypto 2.0 project BitNation has been created to advance this idea:
BITNATION is a decentralized, open-source movement, powered by the Bitcoin blockchain 2.0 technology, in an attempt to foster a peer-to-peer voluntary governance system, rather than the current ‘top-down’, ‘one-size-fits-all’ model, restrained by the current nation-state-engineered geographical apartheid, where your quality of life is defined by where you were arbitrarily born.
We’re a holacratic organization and we strive to become a fully functional Decentralized Autonomous Organization (DAO). This means that there are no old-school management structures or barriers to entry. Anyone can join or create a team (‘holon’), whether for-profit or nonprofit, and benefit from the support and technological infrastructure of the BITNATION community.
Decentralized court / digital jurisdiction
One of the dapps being developed on the Ethereum network, Aragon, aims to enable the idea of a digital jurisdiction with a decentralized court system:
The Aragon Network (AN) will be the first DAO whose goal is to act as a digital jurisdiction that makes it extremely easy and friendly for organizations, entrepreneurs and investors to operate.
Aragon organizations will be able to be seamlessly upgraded and solve human disputes using a decentralized court system.
The Aragon Network has its own token, ANT, which will be used to govern every single aspect of its functioning.
This decentralization of the application of law away from centralized government systems is indeed where it seems we need to go, for, as researcher Mike Adams put it:
When peak idiocy has run its course, let us hope that whomever survives does not repeat the critical mistake in believing that centralized, tyrannical governments run by power-hungry, incompetent conformists can ever serve the interests of humanity. The real future belongs in the radical decentralization of all political power to the most “local” level possible. Only then can human civilization hope to live in anything resembling peace, sanity and sustainability.