Defining Blockchain

Blockchain is a key component of how Bitcoin works. It is a technology that is implemented in so many different ways and is a revolutionary new way of securing highly sensitive information, which can be turned into all kinds of platforms that would make many different every day tasks much easier.

As we approach 2016 there seem to be endless discussions about ‘blockchain’. It’s a term that is ever-more frequently cited in even mainstream journalism, while in the FinTech space alone there are a slew of would-be suppliers and would-be users claiming that ‘blockchain’ will revolutionize any number of applications.

This now-common usage suggests it must be something precisely defined and well understood, but this seems to be more a matter of mantra than comprehension.

The echo chambers of the Internet reverberate to many opinions, but attempts to find a precise meaning seem to find a dismaying lack of agreement. To be anything more than marketing hyperbole we really need the answers some questions.

What is it? What isn’t it? What might it be? Can it be something that will allow us to build new and enduring systems? In short, what is the essence of blockchain?

The Satoshi white paper

Almost every discussion of blockchains starts with the Satoshi white paper, but it is this very foundation that starts us on a path to confusion. Neither the terms ‘blockchain’ or ‘block chain’ appear there; there are 67 uses of ‘block’ and 27 of ‘chain’, but zero of ‘block chain’ or ‘blockchain’. This aside though, let’s see where this origin leads us.

The white paper is short; it’s just nine pages long. The first mention of ‘block’ and ‘chain’ starts at the bottom of page 2, section 3, where there is a discussion of a basic timestamp server. Prior to this the white paper describes a series of design goals associated with the bitcoin design, such as the ability to allow two parties to transact without needing to trust a third party.

The statement of the design goals are fundamentally important. They set the scene for an implementation to meet those goals in which characteristics are layered upon each other, but it is informative to look at what each new layer does.

In our quest for the nature of a blockchain we need to be careful to look for things that are its attributes, rather than characteristics of this first implementation.

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BitCoin 2016

2016 is going to be an exciting year. We are already seeing some fascinating developments in the BitCoin realm. There are five obstacles that Bitcoin really needs to overcome in order to skyrocket to the next level and these things are entirely possible, maybe even this year. Check out this interesting piece.

There have already been dozens of 2016 prediction lists emanating from the broader bitcoin and blockchain community over the past several weeks, so I’ll avoid contributing to the cacophony. After the abysmal results with my personal predictions for 2014-2015, I’ve finally learned to ask more questions and offer fewer forecasts, anyway.

Instead of prognosticating, I’ll offer 10 simple questions for the bitcoin and blockchain industry going into this year.

Next week, I’ll address the broader blockchain ecosystem. This week, I’ve got five questions for bitcoin in 2016:

1. How will scalability be solved?

The growth in bitcoin transaction volumes shows no sign of abating, and yet the 1MB block data limit is no closer to being raised than it was six months ago. Whether and how it is raised (via hard fork or changes to Bitcoin Core) will have lasting repercussions, and changing one of bitcoin’s fundamental rules will have unintended, unpredicted and perhaps negative consequences.

One of bitcoin’s earliest contributors has now written off bitcoin as a failed experiment.

So it helps to remember that the important question this year is not necessarily how bitcoin is scaled, but whether it is allowed to scale without a dogfight.

There are currently only four ways to scale bitcoin today: via lightning networks, via sidechains, via off-blockchain transactions batched by third parties (eg: Coinbase), or by increasing the block-size.

Lightning networks and sidechains aren’t yet ready for prime time, and most technologists would agree that increasing the clout of third-party transaction processors goes against bitcoin’s intended design. No offense to the segregated witness enthusiasts, but that doesn’t sound like a true scaling solution either – more like an optimization.

This means that by mid-2016, we’ll either see a stop-gap resolution to increase the block-size, a hard fork, or a spike in bitcoin transaction fees for smaller transactions. All have their associated risks.

So here’s my question: will the Bitcoin Core block-size limit increase or remain at 1MB?

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The Current State of Bitcoin

The current state of Bitcoin is changing depends on who you talk to. This is because Bitcoin has always been a highly intellectual concept and is a theory at work. Much like how most people don’t understand what an algorithm does, Bitcoin sometimes falls prey to a lack of understanding or a limited scope on what it can do. Check out this interesting editorial from Coindesk. 

“Consensus is hard.”

Issued by developer Peter Todd, the statement does much to sum up the state of debate in the bitcoin community, the loose term for the sprawling network of users, miners, node operators, global investors, hobbyists and CEOs who have an interest in the future of bitcoin, an open-source software project responsible for managing $5.7bn in value.

While prone to controversy, the bitcoin community is in the midst of one of its biggest debates yet, one compounded by a high-profile article that, while presenting a compelling character portrait of a prominent community member, has lead to a wave of coverage that has colored public perception on a highly complex and divisive issue.

Depending on which media outlet you prefer, bitcoin is either “failing“, in the process of “breaking up” or has “failed” already

However, the headlines draw not from any actual observation about the network’s performance, but on mounting disagreement over what bitcoin was intended to be, how it was performing against this ideal and the steps the industry can take to achieve a unified path forward.

The problem is that not everyone in the industry sees the bitcoin network in the same terms.

Indeed, attempts to characterize the argument often lead to a series of extended qualifications. Though widely known as the “block size debate“, there is by no means agreement in the bitcoin community that bitcoin needs to change the size of the network’s data blocks in order to achieve a more scalable platform.

There have even emerged solutions to the debate that do not involve changing the block size at all. Far from fringe opinions, such an idea has been put forward by members of Bitcoin Core, the bitcoin network’s everyday development team.

In the wake of what is the latest popular mischaracterization of events in the industry, community members are increasingly taking to blogs to discuss the state of the network and their views on the path ahead.

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BitCoin: British Invasion

BitCoin is alive and thriving in the United States, but many other large nations in the European Union have not yet started implementing blockchain technology. A new report seeks to change that by urging the UK to test blockchain for themselves and see all of the great things they could do and bad things they could prevent with the use of Bitcoin and Blockchain technology.

A new report from the UK Government Office for Science has recommended a broad government effort to explore and test blockchain and distributed ledger technology.

The report, spearheaded by the government’s top scientific advisor Mark Walport, contained proposals aimed at pushing for segments of the UK government to pursue applications of the technology.

The recommendations include the development of standards for the technology’s use; the creation of new roles in the government to demonstrate proofs-of-concept; and the establishment of a roadmap for further exploration and utilization.

The report highlights the potential benefits of using the technology, writing:

“In summary, distributed ledger technology provides the framework for government to reduce fraud, corruption, error and the cost of paper-intensive processes. It has the potential to redefine the relationship between government and the citizen in terms of data sharing, transparency and trust.”

Notably, the report pushes for comprehensive testing of blockchain tech, advocating that agencies within the government as well as elements of the country’s research community collaborate on such initiatives.

“Understanding the true potential of distributed ledgers requires not only research but also using the technology for real-life applications,” the report states. “Government should establish trials of distributed ledgers in order to assess the technology’s usability within the public sector.”

Among the potential applications identified in the report include uses for government aid payment systems and tax monitoring.

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