Bitcoin is a new kind of money. It's the first decentralized electronic currency not controlled by a single organization or government Bitcoin has a range of features that makes it superior to normal money,
1) Easy: You can send bitcoin from your computer, tablet, smart phone or other device, to anyone, anywhere in the world, day or night.
2) Secure: Bitcoin verifies transactions with the same state-of-the-art encryption that is used in military and government applications.
3) Open: Bitcoin is open-source. Nobody owns it; the most popular client is maintained by a community of open-source developers.
4) Fair: Using the Bitcoin network is free, except for a voluntary fee you can use to speed up transaction processing.
These features make sure that bitcoin is more efficient than normal, physical money. Since there will be a limited amount of bitcoin, 21 million to be precise, they will be worth a lot of money if they are adopted on a global scale. Even if bitcoins are just used as a speculative store of value, like gold or silver the value of each bitcoin will increase drastically in the coming years.
-- transition to broad conception of bitcoin--
--transition to bitshares x--
lørdag 16. august 2014
Proof of Work, Proof of Stake and Delegated Proof of Stake
How does Bitcoin pay for the decentralized group of people who update and secure the network?
Answer: The bitcoin system uses inflation to pay those who update and secure the network, the "miners".
In fact, as of 2014, the bitcoin system imposes a 10% inflation rate per year, and all the newly created bitcoins and as well as all the transaction fees, go to the miners who update and secure the network, which brings the costs to about 500 million per year for the bitcoin system.
This hidden cost of having to pay 1 out of every 10 bitcoins we own to the people who secure the network has been obscured by the fact that the bitcoin market cap has been rising at an alarming rate.
If there was no alternative, we might settle for this. The bitcoin system would still be cheaper and more environmentally friendly than the mesh of people and brick and mortar buildings that normal businesses employ to get their work done. However, there is an alternative. It is called Proof of Stake (PoS).
To understand why PoS makes a difference we first must understand bitcoins Proof of Work.
In essence, Proof of Work is the method bitcoin uses to update and secure the network, and it relies or heavy duty work from computers that need to "mine" for difficult to compute mathematical numbers. This is why bitcoin needs to spend their 500 million dollars a year to pay the miners. The computational work costs a lot both in terms of electricity and hardware.
In contrast, Proof of Stake is the new method that many alternative cryptocurrencies have been using to update and secure their network. Instead of relying on heavy duty work from computers to do work, it relies on giving people with stocks in the company a means to secure the network.
In this way it gives power to the people who have a stake in the system and who want the system to keep operating without failure. The "miners" in bitcoin by contrast need have no stake in the system, and can sell the bitcoins they earn as soon as they computers have done the requisite computational work.
Another problem with mining is that mining is cheaper to do when you put lots of money into developing specialized hardware and large computer "farms." Since this way of mining is more profitable, the little guy will be pushed out, and this is just what we are witnessing - mining is profitable only for Big Corp.
However, even Proof of Stake (PoS) has its disadvantages. Unfortunately, it is also unprofitable for people with little stock in the company to help secure the network when the PoS system scales. This means that only the people with large stakes in the system can help secure the system without losing money doing so. Thus only a few will end up securing the system, making the rich richer and the system more and more centralized.
When both PoW and PoS tends towards centralization and bad actors having more control and more power, the situation begins to look grim. Luckily there is another alternative that might fare better than its predecessors. This alternative is a modification of PoS called Delegated Proof of Stake (DPoS). In contrast to Proof of Stake, it allows the little guy to Vote for the people who update and secure the network.
In DPoS we get the following advantages,
- More people have a voice
- Bad Actors can be Excluded regardless of stake.
- Large shareholders need approval of smaller shareholders
- Increases Flexibility
- Maintains Decentralization at Scale
- Optional Source of Trust
Because DPoS is a new system, and we know the current ones will fail at scale, it is worth considering this new technology to see if it can finally offer what we are looking for, a decentralized system that is both transparent, secure, anonymous and that does not succumb to centralization with scale.
Answer: The bitcoin system uses inflation to pay those who update and secure the network, the "miners".
In fact, as of 2014, the bitcoin system imposes a 10% inflation rate per year, and all the newly created bitcoins and as well as all the transaction fees, go to the miners who update and secure the network, which brings the costs to about 500 million per year for the bitcoin system.
This hidden cost of having to pay 1 out of every 10 bitcoins we own to the people who secure the network has been obscured by the fact that the bitcoin market cap has been rising at an alarming rate.
If there was no alternative, we might settle for this. The bitcoin system would still be cheaper and more environmentally friendly than the mesh of people and brick and mortar buildings that normal businesses employ to get their work done. However, there is an alternative. It is called Proof of Stake (PoS).
To understand why PoS makes a difference we first must understand bitcoins Proof of Work.
In essence, Proof of Work is the method bitcoin uses to update and secure the network, and it relies or heavy duty work from computers that need to "mine" for difficult to compute mathematical numbers. This is why bitcoin needs to spend their 500 million dollars a year to pay the miners. The computational work costs a lot both in terms of electricity and hardware.
In contrast, Proof of Stake is the new method that many alternative cryptocurrencies have been using to update and secure their network. Instead of relying on heavy duty work from computers to do work, it relies on giving people with stocks in the company a means to secure the network.
In this way it gives power to the people who have a stake in the system and who want the system to keep operating without failure. The "miners" in bitcoin by contrast need have no stake in the system, and can sell the bitcoins they earn as soon as they computers have done the requisite computational work.
Another problem with mining is that mining is cheaper to do when you put lots of money into developing specialized hardware and large computer "farms." Since this way of mining is more profitable, the little guy will be pushed out, and this is just what we are witnessing - mining is profitable only for Big Corp.
However, even Proof of Stake (PoS) has its disadvantages. Unfortunately, it is also unprofitable for people with little stock in the company to help secure the network when the PoS system scales. This means that only the people with large stakes in the system can help secure the system without losing money doing so. Thus only a few will end up securing the system, making the rich richer and the system more and more centralized.
When both PoW and PoS tends towards centralization and bad actors having more control and more power, the situation begins to look grim. Luckily there is another alternative that might fare better than its predecessors. This alternative is a modification of PoS called Delegated Proof of Stake (DPoS). In contrast to Proof of Stake, it allows the little guy to Vote for the people who update and secure the network.
In DPoS we get the following advantages,
- More people have a voice
- Bad Actors can be Excluded regardless of stake.
- Large shareholders need approval of smaller shareholders
- Increases Flexibility
- Maintains Decentralization at Scale
- Optional Source of Trust
Because DPoS is a new system, and we know the current ones will fail at scale, it is worth considering this new technology to see if it can finally offer what we are looking for, a decentralized system that is both transparent, secure, anonymous and that does not succumb to centralization with scale.
Bitcoin as stock in the Bitcoin Company
Bitcoin can be viewed as a spreadsheet that keeps track of who owns what. It is decentralized with no single point of failure because the history of transactions is updated each ten minutes by participants in the network from all over the world. This makes bitcoin a technology that is both open and secure at the same time.
As it turns out the bitcoin technology can be used for a lot of other things in addition to currency. A few of the usecases are voting, asset exchange, confirmation of identity, storage of information, gambling, prediction markets, DNS registration, and many other things. All of these usecases inherit the same advantages as we see with bitcoin; global, transparent, and extremely secure with no single point of failure.
In light of these other usecases it can be useful to understand bitcoin and related systems not as a currency but rather as stocks. For instance, bitcoin is both the name of the underlying bitcoin system, and the name of the currency that exists in that system. Instead, we can view the currency as a stock, and the bitcoin system as a company. With this metaphor in hand we can now understand that bitcoin technology in fact makes,
Decentralized Autonomous Companies (DACs) possible. DACs are autonomous bitcoin-like systems that exist entirely in code. Like bitcoin they are global, transparent and secure with no single point of failure. Like companies they can take profits, from transaction fees, and they have expenses, like securing the network.
With this change of metaphor is is natural to ask, how does Bitcoin pay for the decentralized group of people who update the "spreadsheet" in a secure and transparent manner? Answer: The bitcoin system is actually inflationary, and it uses this to pay those who update and secure the network.
In fact, as of 2014, the bitcoin system imposes a 10% inflation rate per year, and all the newly created bitcoins and as well as all the transaction fees, go to the so-called "miners" who update and secure the network, which brings the costs to about 500 million per year for the bitcoin system viewed as a company.
Of course, this hidden cost of having to pay 1 out of every 10 bitcoins we own to the people who secure the network is currently being obscured by the fact that bitcoin has been rising at an alarming rate.
If there was no alternative, we might settle for this. The bitcoin system would still be cheaper and more environmentally friendly than the mesh of people and brick and mortar buildings that normal businesses employ to get their work done. However, there is an alternative. It is called Proof of Stake (PoS).
To understand why PoS makes a difference we first must understand bitcoins Proof of Work.
In essence, Proof of Work is the method bitcoin uses to update and secure the network, and it relies or heavy duty work from computers that need to "mine" for difficult to compute mathematical numbers. This is why bitcoin needs to spend their 500 million dollars a year to pay the miners. The computational work costs a lot both in terms of electricity and hardware.
In contrast, Proof of Stake is the new method that many alternative cryptocoins have been using to update and secure their network. Instead of relying on heavy duty work from computers to do work, it relies on giving people with stocks in the company a means to "vote" for the people who secure and update the network.
In this way it gives power to the people who have a stake in the system and who want the system to keep operating without failure. The "miners" in bitcoin by contrast need have no stake in the system, and can sell the bitcoins they earn as soon as they computers have done the requisite computational work.
As it turns out the bitcoin technology can be used for a lot of other things in addition to currency. A few of the usecases are voting, asset exchange, confirmation of identity, storage of information, gambling, prediction markets, DNS registration, and many other things. All of these usecases inherit the same advantages as we see with bitcoin; global, transparent, and extremely secure with no single point of failure.
In light of these other usecases it can be useful to understand bitcoin and related systems not as a currency but rather as stocks. For instance, bitcoin is both the name of the underlying bitcoin system, and the name of the currency that exists in that system. Instead, we can view the currency as a stock, and the bitcoin system as a company. With this metaphor in hand we can now understand that bitcoin technology in fact makes,
Decentralized Autonomous Companies (DACs) possible. DACs are autonomous bitcoin-like systems that exist entirely in code. Like bitcoin they are global, transparent and secure with no single point of failure. Like companies they can take profits, from transaction fees, and they have expenses, like securing the network.
With this change of metaphor is is natural to ask, how does Bitcoin pay for the decentralized group of people who update the "spreadsheet" in a secure and transparent manner? Answer: The bitcoin system is actually inflationary, and it uses this to pay those who update and secure the network.
In fact, as of 2014, the bitcoin system imposes a 10% inflation rate per year, and all the newly created bitcoins and as well as all the transaction fees, go to the so-called "miners" who update and secure the network, which brings the costs to about 500 million per year for the bitcoin system viewed as a company.
Of course, this hidden cost of having to pay 1 out of every 10 bitcoins we own to the people who secure the network is currently being obscured by the fact that bitcoin has been rising at an alarming rate.
If there was no alternative, we might settle for this. The bitcoin system would still be cheaper and more environmentally friendly than the mesh of people and brick and mortar buildings that normal businesses employ to get their work done. However, there is an alternative. It is called Proof of Stake (PoS).
To understand why PoS makes a difference we first must understand bitcoins Proof of Work.
In essence, Proof of Work is the method bitcoin uses to update and secure the network, and it relies or heavy duty work from computers that need to "mine" for difficult to compute mathematical numbers. This is why bitcoin needs to spend their 500 million dollars a year to pay the miners. The computational work costs a lot both in terms of electricity and hardware.
In contrast, Proof of Stake is the new method that many alternative cryptocoins have been using to update and secure their network. Instead of relying on heavy duty work from computers to do work, it relies on giving people with stocks in the company a means to "vote" for the people who secure and update the network.
In this way it gives power to the people who have a stake in the system and who want the system to keep operating without failure. The "miners" in bitcoin by contrast need have no stake in the system, and can sell the bitcoins they earn as soon as they computers have done the requisite computational work.
søndag 3. august 2014
How can we trust Bitcoin?
Internet piracy has caused no end of annoyance to the music and movie industry. As music and movies are stored as information on our hard drives, and as we are free to communicate and exchange information through the internet, it is inevitable that people will share copyrighted information like music and movies.
This problem will only go away if our freedom to communicate across the internet is compromised.
With the advent of bitcoin it is natural to ask,
If bitcoins are just information stored on our harddrives and sent across the internet, why aren't people just copying their bitcoins to print more money?
Of course, with bitcoin sitting at a 8 billion dollar market cap, bitcoin must have a trick up its sleeve. If it was this easy to con the bitcoin system the whole thing would collapse.
So how does bitcoin solve this problem? What bitcoin is doing to solve this problem is twofold,
1) The bitcoin system is constantly making a list of all the transactions that have ever been made and are currently being made.
2) The bitcoin system is distributed across the computers of thousands of people that are each independently verifying the running history of transactions being made.
With this clever method bitcoin ends up with a decentralized spreadsheet or ledger (called the "blockchain") that gets updated once every 10 min or so by by people all over the world to include the latest transactions in a manner that end up, amazingly, being both secure and open for anyone to verify.
If we zoom out a bit we see that bitcoin has accomplished something very impressive. In one fell swoop it has solved the problem that the music and movie industry have been so annoyed with. It has solved the problem of how to create information that is free and yet has a designated owner.
If you see this as being applicable to patents and serial keys, you'd be right. Currently, we rely on a patent office to verify patents and some central server (e.g. Microsoft's server) to validate your serial key, just as we rely on our governments to back our money and validate our identity.
With bitcoin and related technologies it is now easier than ever to keep track of who owns what. As this is done in an open and transparent manner, the possibility of corruption, theft and failure is reduced. Since it is distributed live on the internet, the capabilities are fast, cheap and smart.
As we will explore in a later post, these capabilities extend to innovative new applications that go far beyond Bitcoin. While bitcoin is exclusively using the decentralized "blockchain" as book-keeping for the bitcoin currency, other applications for this type of technology are possible.
New startups in the cryptocurrency industry, such as BitShares, are developing bitcoin-like systems that can handle identity management, gambling, voting, asset exchange, and much more!
This problem will only go away if our freedom to communicate across the internet is compromised.
With the advent of bitcoin it is natural to ask,
If bitcoins are just information stored on our harddrives and sent across the internet, why aren't people just copying their bitcoins to print more money?
Of course, with bitcoin sitting at a 8 billion dollar market cap, bitcoin must have a trick up its sleeve. If it was this easy to con the bitcoin system the whole thing would collapse.
So how does bitcoin solve this problem? What bitcoin is doing to solve this problem is twofold,
1) The bitcoin system is constantly making a list of all the transactions that have ever been made and are currently being made.
2) The bitcoin system is distributed across the computers of thousands of people that are each independently verifying the running history of transactions being made.
With this clever method bitcoin ends up with a decentralized spreadsheet or ledger (called the "blockchain") that gets updated once every 10 min or so by by people all over the world to include the latest transactions in a manner that end up, amazingly, being both secure and open for anyone to verify.
If we zoom out a bit we see that bitcoin has accomplished something very impressive. In one fell swoop it has solved the problem that the music and movie industry have been so annoyed with. It has solved the problem of how to create information that is free and yet has a designated owner.
If you see this as being applicable to patents and serial keys, you'd be right. Currently, we rely on a patent office to verify patents and some central server (e.g. Microsoft's server) to validate your serial key, just as we rely on our governments to back our money and validate our identity.
With bitcoin and related technologies it is now easier than ever to keep track of who owns what. As this is done in an open and transparent manner, the possibility of corruption, theft and failure is reduced. Since it is distributed live on the internet, the capabilities are fast, cheap and smart.
As we will explore in a later post, these capabilities extend to innovative new applications that go far beyond Bitcoin. While bitcoin is exclusively using the decentralized "blockchain" as book-keeping for the bitcoin currency, other applications for this type of technology are possible.
New startups in the cryptocurrency industry, such as BitShares, are developing bitcoin-like systems that can handle identity management, gambling, voting, asset exchange, and much more!
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