Beyond bitcoin

As seen in the previous post, the Bitcoin technology is expanding since a few years beyond bitcoin it self.

More coins to start with ...

The first area of expansion has been in the crypto currency field : many other alternative currencies have been created such as Ripple, Litecoin to address specific needs like faster confirmations, lighter mining, … Those are still only currencies and there are hundreds of those mostly derived from bitcoin and litecoin, bitcoin being by far the one capturing the highest value. They differ mainly in terms of :

• Monetary policy
• Proof of Work / consensus mechanism

And then something more ...

Then came up the idea of using the bitcoin network for other assets than currencies. For this have been created the meta coins like Colored coins (painting a coin to express that it represents something different of a bitcoin) and Master coins

As said by the bitcoin inventor Satoshi Nakamoto, the bitcoin infrastructure is able of transacting other assets than currencies. Historically, the first one has been the Namecoin to manage dns like domain names.Then this concept has been extended to a large range of contracts such as market transactions. This is what is called blockchain v2

And finally everything in the blockchain !

Starting from there, ideas are blooming to use this infrastructure for a number of other domains touching intellectual property, notary, electronic id and even government topics like votes. This is what is called blockchain v3

Blockchain v2

Blockchain V2.0 is aiming to handle contracts and not only currencies. The development in this area is rather recent starting mostly in 2014

The main idea is to use the blockchain infrastructure to store any kind of contract on any asset transacted directly between two parties. This is bringing a generalization of the concept and hurting directly a number of market actors which are providing trust to the two counterparts of a transaction (Exchanges, Clearers, Custodians, …) As listed the technology can be used in a number of fields like :
• Financial transactions
• Public records
• Private records
• Attestations
• Physical asset keys
• Intangable assets like patents, trademarks

Financial transaction are quite close to currencies, the goal is there to trade an other type of asset. For records and attestations the goal is a little different for example your insurance company, instead of sending you a letter to prove that you are insured will send you as a blockchain transaction a proof that you own a contract. This can be reuse to attest that you own the contract you pretend owning.

DAC are companies that operate in a decentralized manner like SETI@home does for years, distributing tasks automatically to lots of agents. Distributed applications like blockchain are a first step in this direction : different mining companies operate the same application contributing to the blockchain infrastructure and earning transaction fees for doing this work.

Get rid of the man in the middle!

People say sometimes that blockchain is going to kill banks. This is not so sure, in their core business which is managing risk, all these technologies will help banks to increase efficiency. Some businesses (the man in the middle) will disappear and banks will have to adapt to this new landscape but for example risk transformation they perform will remain.

Ripple is offering connectivity between participants for clearing transactions directly. This is avoiding, for smaller banks the cost of correspondent banks to access the market. Fidor is one example of such a customer.

Ripple is currently pushing the concept further developing a smart contract stored in the blockchain. A smart contract is based on a Specific Domain Language which describes the terms of the transaction. This language can then dynamically alter the contract if some events are triggered. For example if a date or a market level is reached.

Ethereum is developing a full Turing machine on the top of Blockchain. This allows to build smart contracts that will be run in a distributed way and as for miners, the companies running the contract scripts will be rewarded. First version of this platform has been released in July

Bitshares on top of a smart contract technology is building a decentralized asset exchange which is going to be live next month. This exchange also provides the collateral mechanisms securing the transactions among participants

Crowdfunding can also be impacted : funders could directly transact with the company they would like to fund. Swarm for example is bringing crowd funding on blockchain.

All these examples clearlly show the trend we are heading for : connect directly counterparts together, getting rid of the man in the middle.

bitcoin or Bitcoin ?

This weird question is hiding a huge trend : the blockchain revolution. To be a little less cryptic, bitcoin comes in two flavours: a crypto currency (bitcoin) and the technology supporting it (Bitcoin). This is not only a little detail : the technology created for the bitcoin currency can be used for many other purposes and this is waht has been called blockchain v2 (and v3).

Under the hood, bitcoin is made of 3 elements :

The currency itself is only one of those components and the two others are the technology building the bitcoin system. The secured and open transaction database which is the heart of the bitcoin system is called blockchain. Because it stores transactions which appear to be on bitcoin but could be on any other asset, this technology is very attractive and reused in a number of projects under the banner blockchain v2.
The protocol is a peer to peer protocol used to connect all the bitcoin nodes together (remember that bicoin is a distributed system to be resistant to attacks).

What is all this technology bringing ?

Double spending

The Blockchain technology is solving the double spending issue which a very common issue even in the real world : how to avoid that a person is selling twice the same good ? We also face this problem through counterfeit money which is another type of double spending.

This issue is aggravated in an electronic world where everything can be copied infinitely.

Bitcoin infrastructure addresses this issue with the blockchain which validates the transactions in the mining process. All the valid transactions are confirmed by the bitcoin infrastructure and sends back unspent transactions output which are reflecting the new position.

Ensure trust

Trust is also a key issue over an insecure media such as internet. Messages exchange has to be reliable and secure. This is achieved through a peer 2 peer network which is less sensitive to attacks than any centralized architecture. The distribution is a key feature to ensure trust as all nodes run independently. Cryptography is also extensively used to protect content and ensure trust, making sure that sensitive content is not disclosed and that participants have clearly the rights they pretend.

Bring resilience

The distributed architecture not only makes the network more resilient it also avoids to centralize all the information in one location which could be more vulnerable to attacks, releasing sensitive personal data : no more honeypots so attractive to hackers! This is also making the system invulnerable to governments censorship.

The distributed architecture has been built not only to be more resilient to any kind of attack but also to avoid the man in the middle. In traditional processes, trust is ensured by a trusted body (state, central bank, exchange, ...) and transactions are flowing through this body which ensures trusts between counterparts. The blockchain technology brings this level of trust without any man in the middle which will have a huge impact on costs. Ripple which is, among other things, a money transfer agent is often viewed as the “Napster of payment”. It will have the same impact on Financial Services as Napster had on the majors of the music industry .