Intrinsic uses of bitcoin

One often sees the false assertion that bitcoin has no intrinsic use in the sense that one can use gold to make jewelry (although such use a counts for a tiny percent of overall market cap in gold.)

Bitcoin does have intrinsic uses. For example, one can encode a hash value of arbitrary data in a transaction for purpose of depositing that hash on the blockchain, which is an immutable record. Thus, it is like a trustless spin on a public notary. There are other intrinsic uses which leverage the double spend protections to implement trustless mechanisms for tracking transfers and exchanges of physical or other virtual assets, via rigorous analogy to bitcoin - by encoding representations in literal bitcoin.

When seeing the assertion that there are no intrinsic uses, it may be worth asking how well researched the piece as a whole is likely to be. These uses have been recognized for some years now.

How do you authenticate this blog? Why not use Tesla / DCKR?

If I used HTTPS, then you might decide to trust each and every one of the zillion CAs selected by your operating system and/or browser, to not vouch for this site unless someone paid them money for a certificate and if that person also had control of this domain, and then you might hope that person furthermore happens to be me. This seems to be a popular choice.

Or... you can view a summary of the site, current as of 12/21/2017, here:
https://drive.google.com/open?id=1Us2BfQL76H17Py6GYRnSD5I4KA-fOYCK

You could also download and record this signature for safe keeping (quickly - it expires Monday!)

https://drive.google.com/open?id=1mdM5csi7Z1Gf9NnvRWFGHslAcgKa1VYZ

You could then come back a week (or more) later to see if I have signed anything else. If I have, you could download that signature as well, then check the three inputs (signature, data, newer signature) with this python 3 script:

https://drive.google.com/open?id=17IMiE2dIOFNcJXre1CXEvKy6Gd0Ee8Wc

That program would use the more recent signature for the purpose of extracting the key used to sign the first signature, so it can then check that signature for validity. It would then go on to confirm that this key relates to my public key. Of course, encoded in that script is my public key, and maybe someone tampered with it or else with the algorithm itself? So as a one-time exercise, you would want to confirm that you truly have the correct script. This would have to be done out-of-band, for example you could call me and ask me to confirm the sha1sum checksum (which happens to be 28867e62adb0271779f75509cc91f76acdb9afca, not that you should trust this post on that last point.)

This script is of course a prototype, but why not give it a spin? Later, I might implement a crossword puzzle signature as well.

78.4%

For 78.4% of American history, money was understood to derive its value from one or more precious metals.

Introductory animation to blockchains

Imagine that the envelopes are transparent, so the wax seal (the "Proof of Work") serves to protect the integrity, but not the confidentiality, of enclosed data. Notice that the more deeply nested a transaction becomes, the more seals one would have to break and reseal in order to modify it undetected. Even worse, since the mining continues to nest on top of that transaction while you are mounting an attack, you have to race and overcome all of the mining which takes place over the duration of the attack!

Many thanks to Los Alamos National Laboratories

Many thanks to Los Alamos National Laboratories for hosting me this week. The research community over there is amazing. One rarely finds so many intelligent and passionate individuals in one organization. I can only hope they enjoyed learning from me as much as I enjoyed learning from them!

Why "market capitalization" matters for bitcoin

People often talk about the "market capitalization" of bitcoin, which is simply the money supply (how many bitcoins are out there) multiplied by the current USD exchange rate. There is good reason for monitoring this.

Bitcoin aspires to become the default international money. But first, it must overcome technical, political, and economic barriers. Programmers are working on the technical barriers right now, but you cannot address politics or economics with code alone. Market capitalization is the best metric for monitoring progress against one of the three economic barriers which bitcoin must overcome.

Money has (classically) three economic attributes:

• Store of Value
• Means of Exchange
• Unit of Account

I put these in the approximate order that bitcoin must address them. First, it must become a store of value, of both sufficiently large AND sufficiently stable value, for the latter two applications to then become practical and interesting. If the entire market capitalization of bitcoin was $100, then it could not facilitate enough exchange to be worth the bother, nor then would there be any reason to use it as a unit of account. If market capitalization exceeded global USD M3 however, that would probably suffice for as much trade as USD directly facilitates today. Also, small market caps result in large fluctuations in value even with small entrances and exits, so stability of value also requires a usefully large market capitalization.

Any editorial lamenting the use of market capitalization would do well to either propose an alternative, or else to explain why a currency need not fret over its function as a store of value. So long as we see this as core to the very definition of a currency however, it then follows we should find some way to measure it.

Flaws that linger

This is not surprising, I am sorry to say.

https://arstechnica.com/information-technology/2017/12/a-worrying-number-of-sites-remain-open-to-major-crypto-flaw-from-1998/

Network sniffers are useful

I've come to realize that fewer people know about network sniffers and how to use them, than probably should. Sniffers are useful for a wide variety of tasks, including some tasks related to security. They are also useful for learning how things work, or checking that they work the way you suppose they do.

https://www.wireshark.org

Lightning network compatability

This is big.

https://medium.com/@lightning_network/lightning-protocol-1-0-compatibility-achieved-f9d22b7b19c4

Is cryptocurrency the mechanism of Friedrich Hayek's denationalisation of money?

In 1976, Nobel laureate Friedrich Hayek proposed that money should be denationalized, such that privately issued moneys would compete over their relative ability to retain stable value. In 1978 he revisited this concept, adjusted a few of his predictions about the ensuing dynamic (placing more emphasis on the role of network effects), and published his findings in "Denationalisation of Money: The Argument Refined". I will not recount the argument here, since the book does so well enough.

Perhaps history will one day find irreparable fault in Hayek's thesis, who knows. But even if so, the idea was no more foolish than would intrigue an economist celebrated for his insight into money.

If Hayek erred, I have yet to read an analysis which shows me how. Cryptocurrency skeptics could improve their credibility if they first acknowledge the plausibility of the thesis, and then proceed to counter rather than duck the logic behind it.

The petro and Friedrich Hayek, on paper

The petro is a clever idea, although I'm not sure the, uh, tension between Venezuela's executive and legislative branches makes a credible petro very likely. Even if that political problem did not exist, Venezuela has not earned the credibility in monetary governance that would be necessary for one to believe any peg reliant on Venezuela's active defense.

As an academic exercise however, it is fun to consider this concept in the context of Nobel laureate Friedrich Hayek's 1976 versus 1978 books about the denationalization of money. This seems very well aligned with Hayek's original 1976 vision of global currencies competing over their mechanisms for managing valuation, but perhaps not so well aligned with the rethinking present in Hayek's 1978 revised argument, where he decided that network effects would likely displace such competition in the long run.

Why the crossword puzzle signature scheme is not patentable

First a disclaimer: I am not a lawyer, so what do I know. Please don't assume I know what I am talking about in this post.

BUT... it seems pretty clear to me from the 2014 Supreme Court ruling in Alice Corp. v. CLS Bank International, that abstract ideas do not become patentable merely by saying "... and then you go implement this on a computer". That would seem to exclude a great variety of algorithms, including the abstract idea of demonstrating prior knowledge via efficient creation of crossword puzzles.

So then what might be patentable even when meant to be implemented on a computer? One example which comes to my mind would be computer simulation of a patentable hardware design for the purpose of analyzing (or some such) that very specific and patentable hardware design. But note it would be only the simulation of that specific design, not the abstract and general notion of simulating hardware designs (of which there also happens to be prior art, but prior art is a different topic).

Another example which comes to my mind would be software whose design is itself highly customized for a very specific hardware design. Confusingly, the example of cryptography did pop up during oral arguments, which one might find odd as cryptography often boils down to very abstract mathematical concepts. But on the other hand, cryptographic algorithms are sometimes tailored very precisely to the specific performance characteristics of particular hardware, and such instances would seem to me as, just maybe, representing "significantly more" than the mere abstract idea which it also embodies. There is precedent in another Supreme Court ruling after all, that one must consider what remains after removing the abstract idea embodied, and see if it adds "significantly more".

But again these are the musings of someone with no formal legal training whatsoever, and this is not legal advice. As a citizen, I am pleased that the patent in this instance was found invalid. Now if only the USPTO would stop issuing so much crap.

https://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf