Bitcoin Protocol

= on the the Bitcoin protocol (BCP) as distinguished from the Bitcoin currency (BTC)

Discussion

The Bitcoin Protocol Is More ‘Cloud’ Than ‘P2P’

BY PRIMAVERA DE FILIPPI:

"For many, bitcoin — the distributed, worldwide, decentralized crypto-currency — is all about money … or, as recent events have shown, about who invented it. Yet the actual innovation brought about by bitcoin is not the currency itself but the platform, which is commonly referred to as the “blockchain” — a distributed cryptographic ledger shared amongst all nodes participating in the network, over which every successfully performed transaction is recorded.

And the blockchain is not limited to monetary applications. Borrowing from the same ideas (though not using the actual peer-to-peer network bitcoin runs on), a variety of new applications have adapted the bitcoin protocol to fulfill different purposes: Namecoin for distributed domain name management; Bitmessage and Twister for asynchronous communication; and, more recently, Ethereum (released only a month ago). Like many other peer-to-peer (P2P) applications, these platforms all rely on decentralized architectures to build and maintain network applications that are operated by the community for the community. (I’ve written before here in WIRED Opinion about one example, mesh networks, which can provide an internet-native model for building community and governance).

Thus, while they enable a whole new set of possibilities, blockchain-based applications also present legal, technical, and social challenges similar to those raised by other P2P applications that came before them, such as BitTorrent, Tor, or Freenet. But some of these challenges haven’t been seen before in the context of traditional P2P networks.

Although all blockchain-based applications are based on a decentralized network architecture, most of these applications distinguish themselves from standard P2P applications in at least two ways:

Users’ data (including personal data) are not stored locally into users’ devices. They subsist “in the cloud”, in the sense that they are hosted in a distributed database — the blockchain in this case — that is shared amongst all users in the network. This means that data is ubiquitous: It can be accessed at anytime and from anywhere, regardless of the user’s device. But the data is also more transparent: All actions or transactions performed by users are recorded on the blockchain and thus publicly available to everyone (although the identity of users can be kept secret and the content of such transactions can of course be encrypted).

Instead of being run locally, blockchain-based applications operate globally. They are deployed on the blockchain itself and are run — in a distributed manner — by relying on the resources provided by all users connected to the network. Although each client runs locally on the user’s device, these applications are constantly available, even when individual devices are turned off (as long as there are enough resources dedicated to them).

In this sense, blockchain-based applications are — in spite of their inherently decentralized nature — more similar to cloud-based services than traditional P2P applications.

However, these applications do significantly differ from traditional cloud-computing applications in that they are autonomous and independent from any central server or authority in charge of regulating or managing the network. Applications are run through an aggregate of individual, peer-to-peer clients that contribute their own resources to the network. In addition to being autonomous, the network is also more resilient and anonymous: no single point of failure, no single point of control.

We need to make sure we don’t exchange the tyranny of large online operators for the “tyranny of code” instead. As such, the bitcoin platform (or blockchain) allows for the deployment of decentralized applications that combine the benefits of cloud computing — in terms of ubiquity and elasticity — with the benefits of P2P technologies in terms of privacy and anonymity. Even though the blockchain is inherently transparent (as every transaction is recorded on a public ledger), users can have multiple identities that don’t necessarily relate to their real persona.

Blockchain-based applications can therefore address user’s privacy through anonymity." (http://www.wired.com/2014/03/decentralized-applications-built-bitcoin-great-except-whos-responsible-outcomes/)

The World According to Bitcoin Protocol

Dan Robles:

"The first line of Satoshi Nakamoto’s white paper reads as follows: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” The goal is achieved quite simply by removing three frictions to the exchange of value among people.

The First Friction:

The Bitcoin protocol goes to great effort to foil the bad players and reward the good kids with game based incentives. The probable cost of an attack is greater than the likely benefit of attempting to do so. This wipes out the massive and hugely expensive vetting apparatus of verification, fraud investigators, audits, charge backs, legal claims, and courts.

The Second Friction:

With the judicial use of cryptography, the BCP wipes out a colossal industry of third party brokerage activity that withholds information about transactions ostensibly in the name of trust, fairness, and privacy.

The Bitcoin Protocol Analogy

The most obvious Bitcoin analog is to Gold; everyone gets this. Due to the economics of scarcity, miners have an incentive to expend resources in order to add more gold to circulation. However, as the scarce resource becomes more expensive to extract, the incentive shifts to transaction fees as reward for participating in the digital value exchange.

Transactions are abundant. There is potentially no limit to the amount of transactions that can take place. Participating in a transaction today does not remove future transactions from the account balance. In fact, transactions can be created by anyone at any time, and combined or subdivided in any number or ways.

The Third Friction:

The social analogy should be crystal clear, if not prophetic. As Consumption Capital becomes unsustainable, Abundance Capital will emerge as the primary generator of value creation between people. As such, the strategy for success in the BCP era, is not in the domain of tangible consumption, it is in the domain of intangible transactions. In other words, everything that we call “intangible” in the Era of Scarcity, becomes “tangible” in the Era of Abundance, and vice versa.

The New Tangibles:

The tangibles assets of the post BCP era are knowledge, innovation, and wisdom of people and communities of people as an abundant and recurring resource. The business methods of the post BCP era will require the promotion, exchange, and manifestation of knowledge, innovation, and wisdom among communities of people.

New Factors of Production:

Productivity is in the old economy meant increasing the amount of stuff that can be made a certain amount of time. In the new, productivity will involve maximizing the interaction of people within a certain amount of time, where the largest denomination is a natural lifetime. The World According to the BCP is the world that was meant to be, not the world that exists today." (http://www.ingenesist.com/general-info/the-world-according-to-bitcoin-protocol.html)