Distributed Consensus Protocols

Blockchain technology is the greatest computational advancement we have seen in the past 5 years. In terms of available information, real-time market effects, network effects, sentiment, research, feedback loops for price, volume, transaction levels; there is currently nothing as open and riveting. It is a new distributed database that can potentially be the foundation for an unlimited range of decentralized applications.

How can a decentralized database be that disruptive and what enterprise problems does it solve?

The more you look at blockchain technology, the more you learn about all of the adjacent fields needed to get a full understanding of what the technology actually is. It could be learning law, cryptography, economics, finance, psychology the list goes on. It is really profound that I am reading  or even rereading whitepapers now to understand or get to the bottom level of a certain blockchain application. Even reading through a piece of legislation and commenting on what cybersecurity and auditing concerns could be actually be addressed through using the blockchain. 

So before I go any further, what is the blockchain?

A blockchain is a timestamped transaction ledger. What this means is it is a record of a chronological series of transactions that a network of nodes distribute to each other. The first instance of a blockchain was Bitcoin. A bitcoin unit in a blockchain represents an unspent transaction output that is written to a globally distributed, replicated, undeletable, timestamped database. It simply means that anyone in the world gets the same answer when querying the system. The value in this technology is that anything can be etched into this type of ledger to create a distributed consensus protocol. This could be money, title, copyright, notarization, real-time triple entry accounting, data storage, stocks, votes, digital or tokenized physical assets; it’s essentially creating a distributed proof of ownership that is logically centralized and organizationally decentralized. Before the blockchain, there was no sort of computational system that enabled this.

 Organizationally centralized Organizationally decentralized
Logically centralized eg Paypal Blockchains (Bitcoin)
Logically decentralized eg Excel eg e-mail

Chart Source: (http://continuations.com/post/105272022635/bitcoin-clarifying-the-foundational-innovation-of)

  • A decentralized transaction network
  • A store of value
  • A callable global ledger

This ledger can be referred to by people and machines enabling p2p, b2b, and m2m transactions from a decentralized global distributed consensus protocol.

Let’s take a look at the different Distributed Consensus Protocols:

Bitcoin and Blockstream

Let’s start with Blockstream, the Bitcoin blockchain and sidechains. Blockstream is a company which aims to create pegged sidechains. This would ultimately make Bitcoin the global reserve currency of all of the other cryptochains. Sidechains would enable a way to transfer value between chains for faster confirmation times, different unit accounts and different specific use cases. The value of the coin would be transferred from the bitcoin blockchain to the sidechain creating a stasis of the original coin. The coin now on the sidechain can move to other sidechains and transverse back to the Bitcoin blockchain activating the original coin again on the Bitcoin blockchain. No separate platform, just multiple blockchains interconnected with the Bitcoin blockchain and each other.

Counterparty and Hyperledger

Counterparty and Hyperledger are both enabling users to create and issue their own assets.

Counterparty is a platform and wallet built on top of the Bitcoin blockchain that enables user created assets through tokenization. Counterparty has it’s own coin called XCP.  The currency is used on the platform to create assets and users can also create smart contracts on the Counterparty platform that execute through a fee of XCP. These assets are divisible and callable. This means that once tokenized, the asset can be sold in division down to 8 decimal places and called back at a certain price of XCP at a certain point in time established when the asset is orginally issued. The asset can be sent from one users address to the others in many different ways such as a bet, a CFD, a dividend, an order, creating a situation where the counterparty risk is avoided.

Hyperledger is an open source project that is creating a decentralized ledger platform that represents assets. It registers the ownership of the asset through a network of distributed  nodes creating a callable and cryptographically secure ledger. Each asset has its own ledger. The ledger can be a public international ledger or a private ledger with a limited number number of users. The main difference with Hyperledger is there is no native currency, no blockchain, and the confirmation time is a few seconds. When a message is sent over the platform, nodes relay the transaction. If 2/3 of the nodes agree upon the validity of the transaction is it confirmed. The platform allows users to engage in p2p transfers of ownership whether it be a user created currency, a financial instrument, or the rights to a physical assets.

Ethereum and Eris

Eris and Ethereum are both platforms that enable the creation of various types of decentralized distributed applications.

Ethereum is a scripting platform that enables distributed applications and smart contracts. The Ethereum platform has its native currency, ether, which is used as a primary liquidity  layer and for transaction fees to execute the code in the smart contracts. This cryptofuel to the platform is used in Turing-complete scripts that enable the transfer of any type of  programmable asset  or arbitrary consensus-based application. The logic is written in code and embedded in the platform creating a state transition system based upon met or unmet value inputs and outputs from outside data sources or other contracts. Any imaginable contract, application, organization, or protocol that can be expressed logically in code can be built on top of Ethereum.

Eris is a framework that aims to enable the creation and effective use of server-less distributed web applications. Each application uses a distributed blockchain created on the Ethereum network as the server to achieve a shared consensus state that can be referred to. The application’s user interface is built using html, css, and javascript; essentially any sort of existing web application can be recreated on the Eris platform. A forum, a crowdfunding website, a social network, a marketplace. Within each application, Ethereum smart contract models are built and reused to manage the reputation of users and enable levels of functionality based upon the user’s activity and contributions to the application. The contracts are executed on the application’s blockchain using ether creating an organization that can function autonomously and facilitate decentralized decision making.

In conclusion:

Asset creation built from the Bitcoin blockchain = Sidechains

Asset creation built off the Bitcoin blockchain = Counterparty

Asset ledger creation built on distributed nodes = Hyperledger

Application and smart contract creation = Ethereum

Application framework built on top of Ethereum = Eris

Maybe I am still a little evangelical; it’s the foundation for a new age of computing, a shift in the paradigm for database security, the emergence of distributed consensus protocols.

Sources:

http://hyperledger.com/

https://bitcoin.org/bitcoin.pdf

https://eris.projectdouglas.org/

https://www.ethereum.org/

http://www.blockstream.com/sidechains.pdf

http://counterparty.io/docs/protocol/

A simple model to make sense of the proliferation of distributed ledger, smart contract and cryptocurrency projects

http://unenumerated.blogspot.co.uk/2014/12/the-dawn-of-trustworthy-computing.html

http://continuations.com/post/105272022635/bitcoin-clarifying-the-foundational-innovation-of

http://joel.mn/post/103546215249/the-blockchain-application-stack

Digital Wage

The job market for current college graduates is at a crossroad. In our new digital age, as Marc Andreessen once said, “Software is eating the world”. The internet has emerged as the foundation for our rapid advancement in information technology and the tools and products built on top of it only continue to grow. Because of this rapid advancement, many companies have cannibalized their brick and mortar business models for new digital strategies. Once dominant companies that failed to adapt have been displaced by their digital counterparts (e.g. Amazon has substituted for Barnes and Nobles and Netflix has substituted for Blockbuster). Each time a company pivots towards a more digital strategy, there comes the need for a new set of talent to lead it. It takes highly skilled engineers to create these products, design their user experience and interfaces, and build the network infrastructure to deliver them around the world. Though the demand for workers with these types of skills has increased dramatically over the past decade, the supply has not. There are more and more of these high level, high paying jobs and not enough qualified candidates to fill them. Companies are now competing for a relatively small talent pool of graduates with computer science and software engineering skills. In this research paper I will explain why there is a shortage of these highly skilled workers, what human resource managers are doing to recruit ideal candidates for these positions, and what types of resources are available to increase the number of these highly skilled workers.

Why is there a shortage of highly skilled workers in today’s job market? Shouldn’t there be more full stack software developers, data scientists, and user-experience designers? At first glance it is because the acquisition of these skills take time, practice, and years of dedication. Engineers are paid high salaries because coding is hard, it is not something intrinsic to us, and in today’s job market programmers are a rarity. Right now we live in a world where software engineers from all over the world come to Silicon Valley to work for startups or blue chip tech giants like Apple, Facebook, and Google. In Seattle, technology companies are competing with one another for talent by offering a better Zen lounge or better free cafeteria. There is a definite shortage in the number of graduates with the computer programming skills sought out by these companies. From 1970 to 2011, the number of students with a bachelor degree in computer science has remained fairly stagnant at around 3% of all graduates (ITWorld). However, in the past 4 years that number of students studying computer science in the United States has increased. Due to growing popularity, over the next few years Harvard is increasing its computer science staff by 50% (Harvard Gazette). There is a growing demand of workers for this exponentially growing industry. Software is moving into every business model due to its cost effectiveness and its ability to reach anywhere in the world with an internet connection. Software is also making the scale of difference between companies much greater. The best company in a particular market could have 10x market share compared to the second best. This Pareto curve law only becomes more self-evident each time an industry becomes more digital. The dozen largest tech companies in the US are worth more than $2 trillion dollars, more than all other tech companies combined (Thiel). This power law creates winner-take-all economics (Brynjolfsson). Companies know this and are in constant competition for the best engineers in order to create the best products in their particular market. This trend towards investing in high skilled workers and digital technology is also affecting labor intensive business practices. We now have machines there are substituting jobs that can be easily automated because a capital investment in machinery is less expensive then hiring and training a human to do the same job. This then leads to the need for even more engineers to make changes to the capital investments when needed by upper level management (Brynjolfsson). The need for engineers and investments in machinery will only increase as more companies switch towards these digital models. The tools and skills that are currently being learned by the vast majority of college graduates may not be the technical skills needed for this rapidly evolving technology industry. We need to increase the number of students learning the computer programming and technical skills needed for the jobs of the 21st century. Data compiled by Code.org show that at current rates, the country will have 1 million more computer science jobs than students with computer science degrees by 2020 (code.org). The process for finding those 1,000,000 graduates to fill the jobs is also changing rapidly for HR departments. They too are increasingly using digital technologies to augment their search process and bridge this massive talent gap.

The HR search process for software engineers has changed due to the increase of software based search models and the lack of people with computer science degrees in the job market. This has led to a drastic increase in the competitiveness with other tech companies. The company has to differentiate itself to make itself look like the ideal place to work. They now are also the ones having to contact possible employees as opposed to employees contacting them. The current recruiting process for an HR officer is reaching out into the global pool of talent and finding those that can fulfill its current needs as a business. It starts at the identification level online, through email or some other digital resource. This then leads to a phone call to get a first impression, to the interview in person to see if they will be a good culture fit, to the hiring and training process. The first step is probably the hardest and the most that time is spent with. Often current employees are offered large bonuses for referring qualified computer programmers to the company. One of the digital resources recruiters use to find programmers is GitHub. GitHub is not only for version control and collaborative projects, but it also serves as a repository that recruiters can go and look at to see what particulars languages the programmer is proficient in and what contributions to open source projects they have made. As open source development continues to grow, GitHub will be an invaluable network to connect programmers to companies. LinkedIn has also proven to be another great tool that many HR officers, recruiters and job seekers rely on. One of the most important things with LinkedIn is being specific with word choice in company and personal profiles. Often companies will have scripts search through thousands of employees for certain words that are in their profile summaries. This could mean all the difference for someone who just has “software engineer” versus a “Node.js specialist” or “proficient in Salesforce.com”.  The process for finding and hiring engineers that are from the United States is becoming more and more competitive because of relatively small number of students studying computer science. Because of this, software companies will look to find engineers from outside of the US. Companies are willing to pay for working permits and a more complicated hiring process in exchange for top level software engineers from countries like China and India. They want to find the best of the best to develop and keep them competitive in their given field. The jobs of the 21st will only continue to grow specifically in these technical related fields. How do we increase the size of this pool of talent domestically and connect high level skilled employees with great companies?

There are a number of ways someone can acquire the high level skills that are sought out by today’s technology companies. At its core the resource or track should be tailored to what would be needed over the next decade. There are a many websites that offer free online courses to enable someone to learn these skills. Code.org has partnered with Codecademy to provide a great resource that anyone can use to learn basic HTML, CSS, JavaScript, JQuery, Python, Ruby, and PHP. The organization offers many free interactive courses that teach the coding basics of the specific language and include projects that can help develop the skills. Knack is another great resource that allows someone to play cognitive and neuroscience based games that figure out what their current technical strengths are. Then they can analyze the results and share them with employers which could possibly lead to an opportunity. Top Coder is a resource that employers can use to find the winners of open contest in graphic design, development, and data science. In doing so it increases the programmer’s skills and allows them to create a portfolio that employers can look at. These resources all allow someone to build programming skills, get a foot in the door with a company, and lastly they are free, giving anyone with the desire to learn these skills the chance to. Another new technology that could prove to be very effective is the MOOC. MOOCS are Massive Open Online Courses. They are offered to students through some of the top universities and they enable people around the world to learn in a digital and collaborative environment. MOOCS may be the beginning of the hyper deflation of education. We need new digital models of learning and teaching that are not just a technology overlay on old modes of teaching and learning (Brynjolfsson). Stanford, MIT, and Yale are just some of the universities that provide MOOCS and other courses through websites like Coursera and Udemy. Although these are an excellent resource to teach computer related skills, the tradeoff is they do not lead to a diploma from the University. Another great resource that can teach a variety of computer related skills is Khan Academy. Khan Academy is free, globally accessible, and provides videos and exercises in a wide range of academic disciplines. Salmon Khan, the founder, has teamed up with many different organizations to bring education to the masses. His latest partnership with Bank of America aims to provide financial education to people to learn how to build credit, stay out of debt, and give a better understanding of personal finances. Udacity is a program that offers nanodegrees, specialized courses in Front-End Web Development, Full Stack Web Development, Data Science, and iOS development.  They have partnered with companies such as AT&T, Google, and Salesforce.com to engineer these courses. Adam Selligman, VP of Developer Relations at Salesforce says, “We see a huge demand for Salesforce developer skills in the marketplace. The Udacity course on building mobile apps empowers anyone to become a Salesforce developer. We are excited for nanodegrees, as they look to be a great way to skill up millions of people to match the need in industry.”(Udacity) The technology industry is changing so quickly it really is about tailoring the program to what would be needed over the next decade. All of these online resources create tracks and are cost effective even for post-graduates with student loan debt who want to learn some new technical skills needed to put them in a position to succeed in the job market.

There has been another trend of private institutions teaching specific skill sets such as ITT Technical Institute. This private institution trains people in a specific technical field and then links them to companies that need those certain skilled workers. They have different schools within the program that offer a whole new path that financially makes more sense to some people than the four year university loan driven program. The school of information technology offers programming classes that can be very rewarding upon graduation. These institutions are around the country and offer a great way to learn some of today’s most prevalent technological skills. Another great track that enables someone to learn the most forward technical skills needed in today’s economy is with the United States military. The Army, Air Force, and Navy all offer programs that teach enable men and woman to acquire many different high level technical skillsets needed in today’s job market. These include many non-combat tracks that teach information technology, cryptology, information warfare, and computer science (Navy). The military is one of the best resources to not only learn emerging technologies and programming skills, but also disciplinary and leadership skills as well.

It is important to note that although a degree is a necessity nowadays for today’s job market, a GitHub profile of a programmer can prove competency in a developer or technical related field. All of these self-paced, self-organized learning environments and programs lead to skills that are sought after by the most innovative and growing companies in the world. My high school college counselor told me not to take computer programming because it was too hard and I should focus on classes that I knew I could pass. It has become self-evident that being able to build software or have a proficient understanding of computer science is the future for many jobs. We need to augment our ability to learn these skills by starting the process at a young age. In K-8, the computer curriculum shouldn’t just be learning how to type, it should be learning how to code. Federal and State Policy should mandate and challenge our students to learn the newest technologies, almost all which are based in the ability to read and write computer code. The access to this information has never been more available and for a lower-cost using the various digital resources, some of them do not even require internet access. A great example of this is a new program at San Quentin Federal Penitentiary north of San Francisco. Code 7370, is teaching prisoners how to code while they serve their sentences. A select group of inmates take the class four days a week, eight hours a day for six months (Ars Technica). They save their work locally to be reviewed by experts from Hack Reactor, an organization partnered with the program. The hope is that when they get out they will be able to find a job as a programmer and it will decrease the rate of recidivism. If we take a step back and look at what constitutes an effective education, it is not as important as where you went, but what you technical skills you acquired during your time there.  The San Quentin case is an extreme example of this but it still demonstrates that computer skills can be taught and learned by anyone, with minimal costs, and within a relatively short period of time. It is about what you can effectively create using various digital tools and what you will be able to do as technologies continue to advance and build on top of each other.

In conclusion, the number of resources available to enable to the acquisitions of high level skills needed in today’s economy continue to grow. Universities are expanding their computer science departments by hiring more staff and investing in more computing infrastructure. Organizations are launching more free, globally accessible courses to learn how to code, design graphics, and make sense of big data. Companies are creating more training programs for new hires. HR departments and recruiters continue to use digital technologies to move through a global pool of talent in search of the people who have acquired these engineering skills. These companies are now faced with the challenge of having to separate themselves as places to work and to attract the best candidates to their organization. As we move farther into this digital age, the programmers will continue to be the ones leading the way. They will develop the next application we all use and love. They will develop the machine learning algorithms that better understand and improve our world. They will engage with robotics and help them recognize patterns and complex communication. The advancement of technology is happening at an exponential pace and the internet is going to reach bring 5 billion people around the world into the digital economy by 2020 (Thiel). It is not exaggeration to say that they will have a printing press, reference library, school, and computer all at their fingertips (Brynjolfsson). They will all be able to utilize these technologies and create and share with the world unlike any other point in human history. The acquisition of the high level technical skills that augment their ability to use these tools will be invaluable as the world continues to shift towards digitization. The more we can build and use these skills to interact, collaborate, and work with others around the world, the more we can learn about what is needed to build the future we want to live in.

 

Sources:

 

Brynjolfsson, Erik, and Andrew McAfee. The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. N.p.: n.p., n.d. Print.

 

“Major Boost for Computer Science.” Harvard Gazette. N.p., n.d. Web. 08 Dec. 2014.

 

“The $7,000 Computer Science Degree — and the Future of Higher Education | TIME.com.” Business Money The 7000 Computer Science Degree and the Future of Higher Education Comments. N.p., n.d. Web. 08 Dec. 2014.

 

Time, For The First. “Hire a Coder at San Quentin.” CNNMoney. Cable News Network, 05 Dec. 2014. Web. 08 Dec. 2014.

 

2015

2014- I mined just about .99 bitcoin, graduated from college, and became captivated by Bitcoin and the future of blockchain technology.

As I read and research, and reread whitepapers and write, combine, edit, and go back and reedit; in the process I gain a greater understanding and become more cognizant of what this technology actually will enable.

Bitcoin going into 2015

Stocks

I haven’t been betting to much on any sector or company in particular. Still doing pretty well on stockwars. Currently like 10-15k outa 210k.

Interesting buzz words I keep hearing in regards to crypto:

Naked short selling

ACH ( Automated Clearing House)

DTCC (The Depository Trust & Clearing Corporation)

T+3

2015

I was asked two pretty similar questions around the last two  months and both of them kinda stuck with me.

What differentiates you?

What do you do for a living, man?

I didn’t really know how to answer the first one. It was in regards to Bitcoin and the industry and my kinda of path in through mining and writing. It is important that I know I couldn’t answer the first question. Not just what differentiates you in anything, but the scale of difference, is drastically important. The power law or Pareto Curve is becoming more and more of a factor as our digitization and networks grow. The superstars in certain fields pull away. The best in something is going to have magnitudes more of a market share then even the second best in something.

Mining would probably be the closest though I dont have a couple 100 Terrahash farm in Norway… yet. Still, Be the expert. It could be by far bar none the best Bitcoin blogger, bitcoin miner, bitcoin advocate, bitcoin speaker. Right now I understand on a macro-scale that Bitcoin is going to be big. Now , it really is about the taking that knowledge and applying it to a microscale and understanding the ins and outs of that particular, then just be great at it, the expert at it.

The other one was while at a bank as I was closing a few accounts. A 35$ overdraft fee is analogous to a late fee at Blockbuster. I’ll leave it at that.

Next

Bitcoin, International Business, and building with software. The team is what matters. It is going to be international. It really goes back to the team, the people on the team, learning and growing from the best of the best.

Indefinite optimism is not necessarily a good thing on a macro scale, but most of the time on a micro scale as far as winging it, I usually do pretty well, or end up getting lucky as people call it. There are some ups and downs but you just ride the wave and know that you’ll be on top soon enough. Same thing with being an insider and an outsider, time just promotes you or exposes you. Its not about being right or wrong, its about when you are right, how right are you. Apply this accordingly.

I am going to keep learning Chinese. I want to make a trip out to Macau. No no… I want to play BlackJack with Bitcoin in Macao, with a stache. Sometime this year.

I am going to keep diving into whitepapers  and try to make sense of the future of decentralized distributed universal transaction ledgers.

I also am going to read some good books, just started Dataclysm.

Probably reread Autobiography of a Yogi and Think and Grow Rich.

Github + Node.js + Heroku + WordPress + Plugins

I am really going to step up the Bitcoin blog game too.

  • I’m talking microtipping after each article
  • contributing authors
  • resharing great articles
  • I just passed 17k views I want to be at 40k by end of 2015.

Moving the blog over to wordpress.org.

I will also make the language in multilingual by micro tipping readers who translate and email me articles.

English, Spanish, Portuguese, Italian, German, Dutch and French.

I am really looking forward to being able to expand my knowledge of wordpress.org and mostly be able to use plugins. The pretty much is the  big advantage. I need to be able to use widgets and APIs from other websites.

I am going to keep learning  node.js, salesforce1 and heroku. Node.js and SDKs is the most intuitive for me. Creating the JSON package,  stating what npm modules are going to be needed, and building the html, css, javascript files, and javascript server.

Going to start looking at Salesforce Lightning and working with this new set of tools as well.

Stealth Startups to Watch

21e6

Eris

White Papers to Read or reRead

Storj – Decentralized File/Data Storage

Sidechains – Multiple Blockchains to the Bitcoin Blockchain

Factom – Blockchain File Recording/Proof of X

Ethereum – Decentralized Scripting and Contract Platform DAOs

Weird but Way to True

It is not to hard to explain this phenomenon, but the implications make you think… There isn’t such a thing as coincidence, when someone texts or calls me, maybe half a second later their name will show up in my phone. Or for example last night I am watching the 5 oclock news maybe a half hour after I finished my research paper about the need for more computer science studies and one of the stories is about an Hour of Code, uses two separate statistics I had in my paper(only 3% graduate with CS degrees, and 1,000,000 new jobs unfilled  by 2020), and it was to close in time, in detail, everything.

What I am getting at goes back to my post The Other Side of The Coin. I am not saying we live in the Matrix… but we definitely live in some sort of electrical digital connected world that could enable things we thought would only be possible in a sci-fi movie. I don’t know… stuff like Telepathy, Time Travel… Simulation Argument, Simulation Theory, Singularity, the development of Artificial Intelligence… After reading Our Final Invention and hearing from Elon Musk, Stephen Hawking, about the implications of runaway superintelligence… it’s a little scary.

Last but not least… 

My 2014 Bitcoin Articles by Month

If you made it down here, feel free to throw me a tip through ChangeTip or Coinbase.

January

February

March

April

May

June

July

August

September

October

November

December

 

Smart Contracts and Chains of Distributed Ownership

Blockchains and sidechains: decentralized and distributed store of value and transfer networks that consist of replicated, unalterable, and time-stamped transaction ledgers.

Smart contract: a legally enforceable agreement written in computer code made by competent parties, to perform or not perform a certain act.  Contracts may be express or implied, bilateral or unilateral, executory or executed, and void, voidable, unenforceable, or valid. The contract is executed on the blockchain based upon met or unmet inputs.

Everyone who has been following the development of Bitcoin now understands that this is something way more profound then a new way to transfer money to the other side of the world in 10 seconds. We are now moving into the infrastructure that will enable the creation of a blockchain for any type of asset or organization. We know that the blockchain is a true computational advancement and it will be the foundation for a whole new ecosystem of financial technology. A new proposal by Blockstream, pegged sidechains, creates an internetwork of blockchains that are able to transverse to and from one another. This creates a fluid interoperable network of blockchains that have their own properties, rules, and units which can be pegged and transferred back and forth from the Bitcoin blockchain and other sidechains. It creates a complete new form of verifying and transferring ownership of assets, commodities, currency, and value in a distributed, unalterable, globally accessible network. Take any existing trust based business model that can be decentralized, apply this 10x blockchain technology and it will be decentralized (Johnston’s Law).

To be able to use this blockchain technology, you have to buy a unit of the network e.g. a bitcoin. There are only so many of these bitcoin units for the exponential number of people and things that will be using the network. This creates scarcity, value, and a number of network effects that further increase the liquidity of the bitcoin blockchain. By buying units of the network, you’re buying a globally transferable credit. You can program these credits into smart contracts which effectively let you determine when to allocate the units to other parties based upon met or unmet inputs. In doing so, you eliminate counterparty risk and can alternate between an internetwork of transaction ledgers without the need for a trusted third party. This concept effectively could bring everyone and everything onto the same financial grid to negotiate and authorize trade. You could authorize the transfer of title and a time stamped key to your secondary home. You could create an escrow smart contract on the blockchain that executes once both parties have fulfilled their promises in the bilateral agreement. You could buy or sell financial instruments and have same day affirmation. Not only does this augment p2p exchange, but also m2m or machine to machine. Autonomous vehicles communicating for road space, your refrigerator communicating with your solar panel for energy storage, your hard drive negotiating data storage space with another computer. It is a layer of value transfer without the need for a processor, an irrefutable layer of ownership without the need for an agent, a secure layer of storage without the need for a physical vault. The challenging part of this next stage is creating a UX that allows someone to build the bridge between the language of a legal contract and the language of a developer. It needs to be consumable by the general audience. Easier to implement and use then going through a specialized agent and trusting that they are going to not make any mistakes. For the consumer, the lexicon used in the contract model has to be simple enough to understand but detailed enough to cover all of the possible outcomes.

They will take time to implement, but the combination of smart contracts and side chains will undoubtedly bring us into a new age of distributed trust and ownership. We want to have a secure protocol that lets us move value from one chain to another but the Bitcoin blockchain wasn’t intended to scale or be used for anything other than bitcoin transactions. The problem is it is too risky to make a hard fork to the Bitcoin source code that is not backward compatible.

Sidechains

We know that some amount of hashing power will move the coin from the bitcoin blockchain to the sidechain. It is not feasible to provide a full proof in the entire history of the blockchain to bring that coin back to the bitcoin blockchain. When you run a full node, your node checks every single block. Your node checks the height from block 332,000 all the way down to the genesis block making sure that it is first linking the entire train and making sure every transaction is valid. The sidechain proposal is a (Simplified Payment Verification) SPV proof, a method that shows the path of an asset to verify that each transaction in its history in the sidechain was valid. With an SPV, it uses the block header to check the blocks depth in the blockchain, or how many blocks it has been since the transaction took place. If it has been 10 blocks since the transaction took place, we have 10 blocks of trust versus the entire block chain of trust or 322,000 blocks of trust.  When you move something from a sidechain back to bitcoin blockchain the problem is that that move requires a proof of hashing power to verify the transactions that happened in the sidechains were valid. The bitcoin is held in stasis until there is proof that it is valid and come back to the bitcoin blockchain. If the pool is hacked or 51% attack takes place on the sidechain, it could permanently destroy the bitcoins that were moved to that sidechain.

Is Mergemining a valid solution?

With mergemining the same hashing power that keeps bitcoin secure, keeps the sidechain secure. The mining part is zero different, you just have to setup a full node and download the entire blockchain of the sidechain. Namecoin is an alternative decentralized domain name system that reuses the bitcoin blockchain for hashing its chain. The same hashing power that keeps bitcoin secure, keeps Namecoin secure. The incentive for mergemining is the miners get to mine both coins. In fact 3/4 of the bitcoin hashing power is also mining Namecoin. So say all of these SHA 256 based cryptocurrency sidechains start emerging. You realize there are an unlimited number of chains that you can mine at the same time. Any sidechain that uses a SHA 256 merge mining protocol. The only additional overhead is additional data storage to keep the the entire blockchain of each sidechain. So in theory you can build a miner that has every single blockchain downloaded to it, and this thing would be an absolute cryptomachine mining like 2500 different blockchains. This mergemining is allowing you to use the SHA 256 to record and verify because it uses the same work. You could mine thousands of chains but there is a maintenance cost for mergemining; setting up a node for each blockchain. You can mine all of these different sidechains and this is great but ultimately the big issue is that mergemining leads to further centralization. These sidechains need honest miners with lots of hashing power running full nodes to secure the network. The security is in the mining, its the backbone of the technology. How the mining process is organized. If mergemining isn’t a long term solution to achieve scalability, fluid interchangeability, and security for user created assets, then what is?

Treechains

A new proposal, treechains, would take the block and divide it up into levels of binary branches. So what is this effectively doing and why does it secure the mining? The process is bringing specialization and decentralization to the transaction recording and verification process. Instead of linearly recording and verifying each block, you can split the block up to be worked on at different levels. You sign and timestamp transactions a few levels down, not even knowing what they mean and if they are valid, but your signature verifies that they existed at the point in time. You act as a notary and some other miner for whom the transaction is significant to can come back and act as the verifier. The transaction is proven to have existed because of your signature validating its existence at the previous point in time. This then creates a new form of trust that validates the transaction path of a coin from when it left the original blockchain and when it was brought back. By going through the path that the coin took and verifying that all of the transactions were valid, it verifies that the asset is valid and it is brought back to the bitcoin blockchain.

This is a system where there is a root parent blockchain. Right now we have a linear where another follows another that follows that forms a chain of blocks. Now this proposal is saying that miners can work on different parts of the block and everyone is contributing  at random. So we have this huge tree structure. At the first level down you would have two branches – left (0) and right (1) – and you could only mine one of them. The mining difficulty is 1/2 of that at the top level. Let’s go one more level down. We are now at 4 branches- left left(0-0), left right(0-1), right left(1-0), and right right(1-1) – each with a difficulty 1/4 of that at the top level. Now the levels we can go down are unlimited, and the difficulties get lower and lower. There is a distribution within the data structure as opposed to a distribution of nodes in pools. Not all branches need to be verified right away, just recorded. When is a transaction confirmed? It is not absolute. The transaction publisher doesn’t move value from one block to another, the miner comes back to the transaction and the mining mechanism now can be specialized to recording without verifying and announcing. In theory, you could solo mine a branch that is 40 levels down with a 336MH/S USB Stick miner. So what is this effectively doing and why does it secure the mining? The miner is basically publishing the transaction and the validation can be retrieved in a merkel tree. A merkel tree is simply describing a path of coins as they changed hands in a way that you can validate the data structure that is a map of who held the asset. So what does this all lead to? You can let miners work on different parts of the block simultaneously and effectively determine if it has a valid transaction history.

In conclusion, these proposal are ways to augment the protocols ability to tackle the problems of scalability, fluid interchangeability, security, decentralization, scripting, and unification all in different ways. Whether its Ethereum creating their own new blockchain, Counterparty creating tokenized assets, sidechains creating a two way peg, treechains specializing the mining process; it comes down to making something that works but doesn’t completely compromise the existing Bitcoin network. It is now about making the most effective way to create a scalable internetwork of p2p, b2b, m2m decentralized asset ledgers.