Tim Richer on Twitter

"Over 85 members contributing to open standards and open innovation for #blockchain with the @Hyperledger" -John McLean with @IBM at #sibos— Tim Richer (@T_Richer) September 26, 2016

Guest Post: What Is the True Meaning of “Decentralization” in Blockchain Technology?

Recent years have brought significant misunderstanding of the term decentralization as it pertains to Bitcoin. Literally, it means the dispersal of nodes, data, miners and developers; according to some, the dispersal of miners (everyone mining with a consumer PC) is the original vision of Satoshi, and that vision supports One CPU/One Vote, meaning every single user mines with a home PC and a smartphone. People who modified algorithms to antagonize the R&D of AISC chips were hoping to avoid the centralization of computation power that these chips would bring. Inevitably these efforts were in vain: algorithms could stall the birth of specialized mining chips, but not prevent it.The truth is, everyone-mines-with-PC — the One IP/One Vote ideology — is exactly what Satoshi opposes. If every miner’s PC were to contribute as a full node, all the IP addresses of all of the nodes will be empowered equally. As a result, those who have the power to distribute a large sum of IP addresses, say a botnet, could dominate the Bitcoin network. A botnet could comprise hundreds of thousands of nodes; e.g. the Baofeng Trojan Horse controls 250,000 nodes, much more than Bitcoin’s 6,000 to 8,000 full nodes. The botnet controlled by the Baofeng Trojan Horse could then easily launch 51 percent attacks.Instead, what Satoshi really meant with “One CPU/One Vote” is that one computational unit represents one unit of power. More computational units equals more power: This is represented by Computation is Power in the proof-of-work (PoW) system.It sounds like a truly fair and decentralized utopia if everyone gets to mine with PCs and smartphones. But why is the stability of a blockchain compromised in this context? Simple, decentralization is not a term describing a status, but a process in aggregate. Decentralization of status does not necessarily mean the decentralization of the process.Nodes are dispersed in a botnet in terms of the status, but they are highly identical in terms of behavioral patterns. In contrast, true decentralization is measured by the degree of freedom allowed for joining in the consensus-making. Given that the codes are open source and that this information is equally accessible, freedom of decision-making is an indication of fairness. One enjoys the power to participate, as well as the power to quit.Another way to understand decentralization is to think of it like an investment portfolio. A portfolio demands the diversification of risks and assets. This is a viewpoint that dates back hundreds of years. In the words of Antonio in Shakespeare’s  The Merchant of Venice:My ventures are not in one bottom trusted,
Nor to one place; nor is my whole estate
Upon the fortune of this present yearAs the common saying goes, don’t put all your eggs in one basket.However, if the assets in one basket are related, a diversification of the portfolio, no matter to what degree, will not diversify the risks. In a downward market, a portfolio of related assets could lead to a loss. In such a situation, a long shot like allocating all capital to one item could be a better choice.Should the degree of the relationship among these assets be unknown, then the Principle of Maximum Entropy may apply: assume these assets are of a maximum randomness. For a blockchain, assume the nodes enjoy absolute freedom of decision-making and are not entrusting developers with disproportionate power and also delegating them to do the bookkeeping.Princeton University’s open course in Bitcoin and Cryptocurrency Technologies suggests Bitcoin’s consensus algorithm is highly dependent on randomness. Instead of setting specific timing for the process of consensus making, it posits that, over time, the probability of some blocks achieving consensus recognition will increase, while the probability of conflicting viewpoints emerging will decrease exponentially.The everyone-mines-with-PC model may appear to be more dispersed. However, should these PCs get infected with a bot virus, their behavior will be affected as one. No matter how great the number of nodes, they actually can be seen as just one node.Another example would be the use of multi-sig security by the Bitfinex exchange. Because the private key kept by BitGo automatically signs for all requests from the Bitfinex server, this 2-key system is a de facto 1-key system. No matter how many private keys are used in a multi-sig system, or how dispersed they are, as long as the behavioral pattern of these keys is identical, this multi-sig system is compromised.By contrast, though the PoW incentive causes the appearance of centralization of computational power (in fact it’s dispersed, although a few hands control the greatest amount of computational power), nobody could stop you from joining in the mining or the R&D of mining devices. It’s a decentralized process of free competition. It’s like voting in an election: While a democracy could produce a Canadian prime minister like Justin Trudeau (son of former prime minister, Pierre Trudeau) thereby creating a blood succession in appearance, the decentralization of the democratic process empowers its legitimacy.Decentralization is not a new word. Think of the “invisible hand” of Adam Smith; It’s competition in a free market. With competition, the centralization of computational power is not a bad thing. On the one hand, the high cost of computation makes it impossible for pools and miners to launch 51 percent attacks as they are rational economic participants. On the other hand, irrational actors, say a pool with a large portion of computational power, cannot sustain an attack. The computational powers of a pool do not truly belong to it, and it will face constant challenges from new powers and new players.The centralization of computational power is the natural result of market competition. Specialized labor is the natural result of free competition in any open system, pretty much like a biological organism. Professional miners, professional payment processors and wallets, professional blockchain data providers: These are the natural results of the decentralization of a blockchain, not the consequence that should be deliberately avoided.The post Guest Post: What Is the True Meaning of "Decentralization" in Blockchain Technology? appeared first on Bitcoin Magazine.

Blockchain Summit Day Two: End-Of-Conference Highlights From Shanghai

Financial services firms and startups looking to be the bridge to blockchain ledgers continued to dominate presentations on the second and final day of the Blockchain Summit, ending International Blockchain Week in Shanghai that also saw Devcon2 and a startup demo competition.CME Group’s Daily and Reference Rates for BTCHeavyweight derivatives exchange CME Group, investment bank and financial services giant UBS,  Russia’s largest bank Sberbank and other financial service firms spoke in the first half of the day.Sandra Ro of CME, the world’s largest futures exchange, officially announced the company’s daily and reference rates for bitcoin, aimed at helping the trade of the digital currency. The beta version is set to debut October 3.Ro said the firm started “quietly researching” bitcoin in 2012, and formalized its digitization group this year.She noted that $5.3 trillion in currencies are traded per day, compared with $50 million to $200 million in bitcoin.“If you asked a room of foreign traders how many people trade bitcoin, a small minority would raise hands,” she said, citing liquidity and regulator fears.CME hopes to be a bridge for foreign exchange traders, she said, an aim that would be echoed by several presenters.“If you think about trading bitcoin right now, it's not really easy,” she said. “Not yet.”The State of Russian AdoptionFrom the banking sector, Alex Batlin of UBS discussed blockchains in the industry, and Pavel Khodalev of Sberbank discussed the outlook in Russia among banks and the government.Khodalev noted how the central bank of Russia has interbank operations written to a blockchain, but said wider adoption is still hampered by a “chicken or the egg” problem regarding standards and regulations, as well as the question of whether to wait for clear standards to develop or to encourage the Russian government to take action.Blockchains for FintechOther speakers presented their fintech infrastructure companies as a bridge to distributed ledgers, like Dominic Williams of Dfinity, Mark Smith of Symbiont, David Johnston of Factom and Rich Teo of Itbit and Paxos, each presenting solutions for recording and facilitating asset transactions.A Post-Capitalist WorldTempering this was Han from Otonomos, which focuses on expediting clients’ business requirements with the aim of freeing resources to simply run core operations. Han, who only goes by one name, dwelt on the promise held by “ubiquitous computing” and predicted that it would lead to a post-capitalist world. He derided traditional systems by noting the physical paper that represents corporate shares have been in use since the 1600s, and that companies still use wax stamps.Pushing for ProtocolsThough not always explicit or technical, implementations naturally underpinned most presentations of blockchain service companies, and the topic was directly addressed in talks by Zcash and Bloq.From the former, Zooko Wilcox described how their Zero-Knowledge Security Layer, or ZSL (a nod to Secure Sockets Layer, the internet’s first widespread encryption scheme) would offer “selective disclosure.” The system would use keys to limit read access to specific parts of a transaction, enabling direct parties as well as regulators and clearing houses to view details, while trade-reporting repositories and market data aggregators might see only what was traded and at what price.The Linux AnalogyBloq’s Jeff Garzik took the stage next and immediately gave a nod to Wilcox for implementing privacy and security in a unique way. He gave an example of having Apple and Microsoft’s transactions on the same blockchain, and asked whether they would want each other to have access their transaction data.Garzik drew on lessons from working at Red Hat in the early days of Linux Enterprise, and discussed the “missing pieces from DIY, download-it-yourself” programs for enterprise deployments serving corporations that need service and maintenance.For that, he was betting on open-source community development.“Imagine if Goldman or JPMorgan had private blockchains. Are students going to stay up coding for it?” Garzik asked the audience. “No, they're going to code where the other developers are.”Challenges for EnterpriseGarzik noted the problems that arise with the demands of enterprise clients.“They're not simply going to go to a website and run multi-million-dollar payment networks on that. Similarly, you don't want to run your business off volunteers. In the real world, we have deadlines,” he said.He said Bloq aims to be the bridge for traditional companies using blockchains by being in the middle, offering support, maintenance and legal guarantees. Speaking to Bitcoin Magazine during the event, he said they use “the battle-tested blockchains,” Bitcoin and Ethereum.“There are other blockchain peddlers who are making stacks that are incompatible,” Garzik said.He drew a comparison to the very early days of Linux, when “a very large Japanese multinational hardware producer” wanted to contribute to and support its hardware.“You know the normal development process: submit patches, review, merge. There was culture clash. Sometimes it’s difficult to deal with the developer community. On the first patch they submitted, it was met with skepticism, four-letter word insults. It was so ugly, and that resulted in a year loss in contributions from that company.”He cautioned against such frictions between blockchain firms and established corporations today.“Similarly, we have lots of very liberal, anarchist, crypto people in our community, who have zero interest in working for big banks.”On the other hand, he said, “You want to avoid an IBM running the table.”The TCP/IP of blockchainIn moving toward future protocols, Garzik pointed to the BIP and EIP systems for deciding on standards, and said that he thought Hyperledger would be a good forum for that.“Ethereum or Bitcoin,” Garzik said, “is going to be the TCP/IP of blockchain.”Want to find out what happened on Day One?  Check out our highlights from the first day of Blockchain Summit at International Blockchain Week, Shanghai.The post Blockchain Summit Day Two: End-Of-Conference Highlights From Shanghai appeared first on Bitcoin Magazine.