Some crypto projects I'm most looking forward to in 2016

As the year draws to a close I would like to list off a few projects that I find interesting and would like to see develop further in 2016. So, in no particular order...

Sidechains

For those that don't know what Sidechains are, it's essentially a technology that would allow us to move bitcoins out of the Bitcoin blockchain, lock it in place while they are handled on a separate network, and then be able to redeem them at a later date without relying on a centralized third party. This would allow us to implement a lot more projects that aren't currently possible on the Bitcoin network without having to bootstrap an entirely new currency to do so (say, like BitShares or Ripple).

While I might've complained that Liquid doesn't live up to the promise of Sidechains, I still believe that Sidechains are a very important technology that I'd love to see on the Bitcoin MainNet and Blockstream is probably the most likely company to bring us the technology. Here's for hoping we might get the required soft-fork at the same time we fix the blocksize problem...

Tether

I loved the idea behind Tether even before I heard about Tether. It essentially boils down to having dedicated companies (gateways) focus only on fiat deposits, withdrawals and safely holding onto customer funds, while issuing digital IOUs for their deposits. This in turn would allow people to build currency exchanges and other financial services without having to rely on reinventing the wheel and also getting all the banking setup needed to create a complete product. Moreover, if you'd have multiple exchanges using the same fiat IOUs, it would be theoretically possible to have very fast exchange-exchange settlement in both BTC and fiat allowing for better arbitrage.

While I might disagree with the choice of technology and a few design decisions of how Tether operates, I'm still very much interested in seeing this concept developed further.

Bitcoin bridges

A bridge is a service allowing one to seamlessly transfer money in and out of a network. While the term itself is mainly used in Crypto 2.0 networks like Ripple, we have a few examples of bridges cropping up in the Bitcoin space as well - Coins.ph, Living Room of Satoshi (both outbound bridges, doing BTC->fiat), or BitWage (essentially an inbound fiat->BTC bridge). Having such bridges functional in more countries would allow us to start building some pretty interesting solutions in the near future...

Abra

Abra is a peer-to-peer remittance project (still in development) that is said to use Bitcoin in the background to do international settlement. It can develop into a very interesting project is handled correctly, possibly becoming the Uber of remittance. Unfortunately, since everything is still in development, there isn't much else to go on. Hopefully 2016 will bring us some more light on the subject.

Interledger

Interledger is an interesting initiative to create a payment protocol that could work across multiple ledgers / blockchains / banking networks. If implemented correctly, it could augment the technologies like Tether, bridges, Ripple and a few others and possibly bring us some really interesting projects in the future. However, like with any project that size, I doubt we will see much progress in just a years time, but time will tell.

R3CEV

It seems that there are more rumours and discussions of said rumours about what R3CEV does on various social media, rather than actual information from informed sources. However, with the amount of banks involved and some of the people on the team, the project is in perfect position to deliver us a lot of interesting news over the next year.

Ethereum

While Ethereum has launched this year, I still think we haven't see it reach its full potential. Using it feels like a developer-grade software, rather than a consumer application. I would like to see what new and interesting applications are developed on the platform in the coming year.

Codius

Unfortunately from what I heard, the Codius project has been shelved for the time being. It was aiming to be a universal protocol and hosting standard for smart oracles, in which everyone could review the code that the oracle was to execute. This would allow for a lot of interesting projects - decentralized voting pools for cryptocurrencies, automated arbitrage bots, distributed messaging and so on. While I'm not holding my hopes up, it would be interesting to see the project revisited in the upcoming year.

Conclusions

So that's my list of project I'm looking forward to hearing more good news about in 2016. Beyond that, I hope we finally figure out how to scale our Bitcoin blockchain, have a mostly uneventful halvening event and not experience much of a dip in the coin price. Here's for hoping for another great year in the Bitcoin world!

To the moon!

An overview of eCurrency Mint

eCurrency Mint (not to be confused with MintChip) is a new startup backed by an eBay founder that is aiming to create what looks like a Crypto 2.0 network augmented with anonymous transactions. It looks to be aiming to create a digital cash system - allowing central banks to issue tokens that anyone can anonymously transact in, just like with physical cash. Lets have a look and see if the idea is feasible.

Features

Based on an article from Payments Source, the Mint appears to:

• Allow central banks to issue digital currencies
• The issued currency is untraceable ("eCurrency Mint [...] doesn’t let a central authority track the ownership and usage of the digital money"), although "individual countries could implement the technology differently"
• The currency would take a form of "cryptocomplexes", which would either be similar to Bitcoin transactions, or be their own atomic tokens (the text is unclear) ("[I]nstead of printing a billion one-dollar bills, [a central bank] would issue digital objects called cryptocomplexes that it would inject into the financial system much as it does cash today")
• "[E]ach [cryptocomplex] keeps track of itself. Through a unique identifier, each unit is forever associated with the original block from which it came. The central bank would know immediately if the total of all the pieces added up to more or less than a billion. But it wouldn’t know where each piece is, or who owns it."
• "There’s no general ledger like bitcoin's blockchain for eCurrency."

Analysis

Based on those features, it looks like we are dealing with a ledger-less currency similar to either Open Transactions or what MintChip was supposed to be.

The biggest design challenge of what was described is the anonymous aspect of the currency. While the details of what the author meant by "cryptocomplexes" remains unknown and more details would be needed for a proper analysis of the technology, what is being presented is not beyond the realms of possibility. We can look at Dash's DarkSend, BitShare's TITAN, Confidential Transactions proposed by Greg Maxwell as examples of how this can be achieved, at least in a ledger-based network. For a setup like Open Transactions, you would probably use some scheme based on blind signatures for the notaries.

While what is presented is technologically possible, the scheme could be found illegal under various rulings, such as the 2013 FinCEN guidelines on Virtual Currencies. While it would be feasible to perform full KYC on when the currency enters or exists the system (at least until there is even a need for such transfers before money becomes completely digital), losing the ability to track, freeze, seize and audit the financial records of various people might be seen as helping money laundering and criminal activities.

Conslusions

The information presented about the eCurrency Mint paint a technologically plausible picture of a new anonymous, ledgerless Crypto 2.0 system similar to some of the features described by MintChip. It would be interesting to see more technical explanation of the proposed system, as well as an overview of how such a system could fit into the existing regulatory framework.

Due to the heavy emphasis on anonymous transactions, I doubt the eCurrency Mint will ever be considered for adoption by any government or central bank in its current form.

Related articles:

• Sample bankchain feature set
• BitUSD vs USD IOUs
• The rise of fiat-denominated cryptos

The speculation market of everything

Sometimes it is very interesting to take a step back and look at how we act in the modern world. We seem to be striving for passion and excellence in everything. If it can be compared, we are becoming connoisseurs in it. If it can be done, we will compete in who can do it best. And if it can be sold, it is very likely there will be plenty of room for us to speculate on.

Magic the Gathering and Bitcoin

Magic the Gathering and Bitcoin have some interesting history. One of the first and biggest Bitcoin exchanges originated from "Magic the Gathering Online eXchange" - MtGox. However, that is not the story we'll be talking about today.

A few months back at /r/Jobs4Bitcoins subreddit someone was paying people to buy out and burn some Magic card - Seance. Fast forward a few months to 5 days ago and the same user offered a bounty of $40k to a any pro tournament player who would build and play a deck in a Magic tournament around that specific card (the text of the original thread appears to be removed unfortunately). Some people are already putting up some theoretical decks around it, while a lot of people are asking what's going on. Some more astute redditors have already seen through to the real motivation behind those actions - market manipulation.

Yes, it looks like speculating on the market of Magic the Gathering cards is an interesting investment. If a card becomes popular to play in some tournaments and it is in limited supply, it can appreciate in value.

Even if you are not affecting the market, there seem to be a lot of people speculating on price of various cards. Some are also gambling on opening packs of old cards in full latex gloves in hopes of finding mint condition rare cards to later have them sealed and graded for resell value.

The unregulated, legal inclusive investment market of... sneakers

Collectible card games is not the only game in town when it comes to speculation, investments and human ingenuity when it comes to making money with a passion. Apparently, the secondary market for Nike shoes is quite interesting:

If you are savy enough, you can build your own portfolio of shoes, track its worth over time, and hopefully gain better return than investing in Apple stocks. The resell market for Nike shoes is apparently even bigger than the actual market for Nike's biggest competitor... Just watch the video - it's fascinating.

Everything else

It seems that this sort of behaviour is rather common in many places. Awhile back someone in the EVE Online subreddit described how he made his Internet fortune buying and selling limited-edition items (unfortunately, the original thread seems to be deleted). His total net worth was about 2.5 trillion ISK, worth about $40k at today's PLEX value of $20 - 1.2 Billion ISK (explanation on how this works). There are plenty of other stories from the EVE universe on people creating monopolistic cartels or speculating on future patches.

Of course, a lot of people will also point out the notable stories of Beanie Babies and the Tulip Mania bubbles and they would be right to do so. Collectors markets are inherently speculative and sitting under the Damocles Sword of the company that is creating the items. If they created it once, they could recreate it again and destroy any value such items would hold.

The future?

With all that being said, it would be interesting to see more sophisticated speculation markets pop up for collectible commodities. Being able to invest in portfolios of art, speculate on drug research, short some overhyped videogames, or perhaps bet on whether or not a terrorist attack might take place.

If there is money on the line, there is a room for a speculation market...

Related articles:

• Non-fungible currencies - gold bars and art
• On Eve, Plex, ISK and Bitcoin

Irrational Bitcoin mining

Last week we discussed the economics of P2Pool mining with low-powered miners. One of the more interesting comments I came across while doing some research for the topic talked about the possibility of companies like 21 Inc creating a scenario where the Bitcoin mining becomes completely unprofitable for anyone that has to pay their electricity bills. Lets examine how this scenario might impact Bitcoin.

Creating irrational miners

In game theory, one generally assumes that every player in the scenario behaves rationally, that is to say - they are motivated by maximizing their own profits. In the Bitcoin mining world, every large-scale miner is rational - they care about their bottom line and profits. If it is profitable to mine, they mine, if not, they either switch to more efficient hardware (CPU->GPU->FPGA->ASIC->better ASICs), don't turn on their miners (minimizing losses), or outright buy bitcoins from the market (if they aim to accumulate bitcoins).

Since the Bitcoin difficulty is self-correcting, eventually the market weeds out the most inefficient miners until mining becomes profitable again. All in all, it's a strange mix between the tragedy of commons and an arms race that makes Bitcoin more and more resilient to attacks (a potential attacker would have to incest more money into the attack than everyone else combined).

However, earning money from mining is only one motivator a potential miner might have. Just like Google indirectly benefits from laying down Google Fiber that gets more people onto the Internet where Google can monetize them with ads, Bitcoin companies might devote some of their resources to mining even at a loss. For example, SatoshiDice might want to have its own mining pool to push through all of its pending transactions that some other pools might consider to be spam. Big exchanges would similarly want to make sure all of their deposits and withdrawals are processed faster than its competitors, etc. Lastly, companies might want to mine just to make sure the Bitcoin network is more decentralized.

And now, with companies like 21 Inc pushing for inclusion of their mining chips into various devices, we might see an emergence of essentially botnets of low-powered miners contributing their hashing power to their creators.

Botnet mining

Botnet mining bitcoins isn't really all that new. We had some mining viruses bundled with torrents, esports server code, or even embedded in websites through WebGL. However, since nowadays mining with anything short of a dedicated ASIC chip is worth less than the coding time required to run it. However, if we start embedding small ASIC chips into devices, things might get more interesting...

It would be possible for hardware manufacturers to include physical bundleware / crapware into their products similar to how phones nowadays come with pre-installed bloatware. Like 21 Inc's investor slides suggest, those mining chips would probably come with pre-defined address they will be always mining a portion of their income to, creating a revenue stream for the chip or phone manufacturers, or perhaps network operators or the like. I would also suspect that for some amount of time most of those chips would be locked in to a specific pool (similar to carrier-locking), which means most of the value of the chip will probably be extracted in a controlled fashion.

All in all, what would this boil down to? Most likely, the people that purchase the device with a bundled miner that would mine for a specified pool say, when the device is plugged in or charged. Maybe if we're lucky, those devices would mine on something like P2Pool, but that has its own problems. The customers might not notice their devices eat up a few extra dollars of electricity and could break down faster after the warranty is over. They would get some dust balances to use in the Internet of Things, but that wouldn't matter much in comparison to some other implications.

The Bitcoin difficulty could be pushed up over time, accelerating its already fast growth. Traditional for-profit miners would have harder and harder time competing in the market against the botnet. If the miners would really be pushed into every device, they would probably be unable to compete shy of plugging new chips in straight from the factory for mining before consumer electronics devices would go through the process of production-shipping-sale-mining. ASIC manufacturers would probably start offering their own mining chips and compete to build their own botnets of devices with bundled miners. Perhaps there would be some market for second-hand mining chips - the manufacturers would first mine with a fresh batch of chips to get in on the lower initial difficulty (possibly under the pretext of "stress testing"), then when it becomes unprofitable, the chips would be sold to consumers, a bit like what Butterfly Labs was doing, only on a bigger scale.

At that point, we would probably see traditional Bitcoin mining pools be replaced with pools owned by chip / hardware manufacturers or network operators. While the talk of "redecentralizing Bitcoin" is all well and good, when push comes to shove I doubt final consumers would be mining through P2Pool if the profits could instead be directed through some big corporation's pocket. Providing the cost of running such a pool would be small, you could still squeeze in a bit of money out of your consumers by making them pay for the electricity used in mining.

Getting your bitcoins for cheap / free might be undesirable, if you subscribe to the labour theory of value (a good is worth about as much as it costs to produce it). While a mining pool today might be more careful with its hard earned coins - selling them for as much as possible, waiting to sell if the price dips, etc. - a botnet mining pool might not care as much. They might also not care as much about various Bitcoin issues - they might not vote on various BIPs, not care if their software provider creates a pool that censors some transactions, create empty blocks, be easier to sell their mining power to "double-spend-as-a-service" pools, etc. If the mining is forced onto the users, they can't vote with their feet unless they are willing to unplug their electronics completely.

Conclusions

While the current state of largely centralized mining pools might be a potential Sword of Damocles hanging over the Bitcoin network, they have a strong incentive not to attack the network:

If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.

Giving the mining power to everyone through a P2Pool-like solution might be seen as similar to low information voters - a lot of them would not know what to do.

If embedded mining chips become more widespread, we could see them disrupting the current mining status-quo, but I ultimately doubt the new mining pools would be much more decentralized than the current ones. They would also have less incentives to care about the Bitcoin network - it's not their main business.

Only time will tell how this will play out.

P2Pool and low power miners

Recently, we got a new insight into 21 Inc's plans for its mining computer / chips - allowing the device to connect and mine on any pool, and ultimately - mining on a P2Pool-like network to further "redecentralize Bitcoin". This got me thinking about whether P2Pool would actually be compatible with a potential large swarms of low-power devices mining together. Lets see how it might work.

What is P2Pool?

P2Pool is an interesting idea that came about around 2011 to address the growing centralization of Bitcoin mining in mining pools. Instead of connecting to a centralized pool, a miner would instead join the P2Pool decentralized network and start mining there. The block reward would be split between peers based on how many "shares" they contributed to the decentralized network - essentially creating a decentralized "Pay Per Last N Shares" mining pool.

What is very interesting about P2Pool is that it allows for the decentralization of mining - anyone can join the network and contribute, you are free to mine for any valid block as long as you respect the mining reward distribution and all in all it once again allowed smaller miners to mine for Bitcoin blocks without relying (or giving power to) any centralized third party.

However, P2Pool is not without its disadvantages.

It is reportedly underperforming / being "unlucky", indicating that it might be experiencing a higher rate of orphaned blocks. This could be due to traditional mining pools optimizing their new block discovery time (I heard someone mentioning a dedicated communication network for the mining pools, but I can't find a source for that claim currently), while P2Pool might be reliant on the Bitcoin network itself, which can take a few extra seconds to populate.

P2Pool coinbase transactions are pretty big in comparison to the traditional mining pools' transactions. This means the blocks themselves can process a few fewer transactions, and there is a practical limit to how many outputs one can reasonably fit into a transaction to pay for the last N mining shares.

Mining at a traditional pool uses about 20MB per day, or 600MB per month. In comparison, P2Pool puts a much higher burden on the data transfers at about 38GB per month before we start taking the resources used up by BitcoinQT which you also have to run.

All in all, if you are mining on a computer with a good internet connection, a reasonably powerful set of miners attached and you don't mind earning a few percent less than you otherwise could, then P2Pool is not a bad choice.

However, what if you are dealing with mobile devices equipped with low-power mining chips?

21 Bitcoin Computer with P2Pool

Looking at the limitations of P2Pool and what 21 Inc is aiming to do with their mining computer, there are a few problems that stand out.

Currently, P2Pool pays its miners directly in the block coinbase, while 21 Inc prefers to buffer the balances at its shared wallet before letting you withdraw the mined dust to a wallet. If the 21 Bitcoin Computer was instead to be paid directly with the coinbase, you might quickly run out of block space. Looking at some sample P2Pool coinbases (1, 2), we can see about 200-250 outputs being included on average, taking up about 8kB of space. This roughly puts an upper cap of 32'000 outputs on a transaction before a whole block is filled with only the coinbase. Equally divided, every output would receive about 78125 satoshis, worth about 27 cents (at  current 356 USD/BTC exchange rate). This would represent about two days of mining for one of the 21 Bitcoin Computers.

32k computers mining a block every two days is fairly incompatible with 21 Inc's vision of "buffered pool mining" (quick way of mining coins to use for transaction) and putting a mining chip into every gadget.

Based on the amount of unique entities you want on the Bitcoin network, we can start extrapolating how often they could get paid on average. Sticking with the 32k outputs per block, we would have 4'608'000 daily outputs. If we looked at the sales of only iPhones in Q4 2015 (48.05M), we would require over 10 days worth of blocks to credit each of those devices individually. This is all before those transactions are again spent, before taking into account all the other smartphones, quarters and every other potential device one could think of in the Internet of Things world. All in all, Bitcoin couldn't handle this level of spam even if the blocks were increased.

Looking at the mobile data plans of a company like AT&T, 40GB/month would cost one about $300, or about $10 per day. The data price for P2Pool alone is 37 times more than the 21 Bitcoin Computer would earn. Mining at a pool would cost somewhere between $20-$30 worth of a data plan, making the data only twice more expensive than the bits one would earn before taking electricity costs into consideration.

Optimizing for your needs

All in all, it would appear that with mining, like with project management, you have three variables:

• Centralization vs decentralization
• Low vs high variance
• Whether small devices can efficiently mine or not

But we can only pick two of them. Decentralized low variance mining but not good for small miners? That's P2Pool. Centralized low variance mining for any device? Centralized pools. Decentralized mining for any device but with high variance? Solo mining.

Possible solutions?

While with the current technology it might be rather impossible to achieve what 21 Inc is aiming to achieve in full, there are some ways one could compromise while still achieving some of the desired outcomes.

First of all, one could try creating an intermediate solution between a fully decentralized P2Pool and a completely centralized mining pool. Perhaps we could see a lot of new, smaller mining pools popping up based on carrier, manufacturer, geography, etc. that the devices could connect to and contribute the mining power to instead. This would allow the balances to be stored on shared wallets and used accordingly, perhaps aggregated into bigger payments or some off-chain settlement between those nodes (and oh god, we're coming back to the tired 2013-era block size debate and ways of settling without bloating the blockchain...).

We could focus on creating bigger mining devices that would power our mobile wallets. This device could stay at home and mine coins using the standard P2Pool protocol, rather than having a miner in every device. This would probably just get us back to the buy vs mine debate once more though. We could even do without all the physical mining and purchase some virtual mining contracts instead... Moreover, the situation is no different than what one can currently do with the existing mining hardware and since we don't seem to be doing that en masse suggest we wouldn't do it in the future either.

Lastly, we could just ignore the variance and mining profitability altogether and just starting to waste money for the benefit of the Bitcoin network. While this might sound crazy, it might not be that far-fetched of a plan. Chip manufacturers would probably make more money than the chips could ever mine, so they could just fork over some money to pay the mining rewards in a Pay-Per-Share scheme. Mining would still go to secure the network, perhaps in an inefficient way, and we might just end up with the entire Bitcoin mining ecosystem being generally unprofitable to mine in. Since the cost of mining would be distributed between potentially many millions of people, the individual burden might be small in comparison. However, this entire idea would best be suited to an entirely separate post I might do at some other time.

Conclusions

All in all, P2Pool currently is rather incompatible with low-power miners, especially if data bandwidth and profitability is an issue. If there is some way to solve the the underlying problems with how P2Pool operates to address those issues, I would love to hear more, but I doubt we'll see any concrete informations on the subject any time soon.