Tag: iota

Bitcoin: how many exist, lost and its quantum computing future

Let’s start by setting up a context of just how much it costs to verify one Bitcoin transaction. A report on Motherboard recently calculated that the cost to verify 1 Bitcoin transaction is as much electricity as the daily consumption of 1.6 American Households. Bitcoin network may consume up to 14 Gigawatts of electricity (equivalent to electricity consumption of Denmark) by 2020 with a low estimate of 0.5GW.

There is much written about theft of Bitcoin, as people are exposed to cyber criminals, but there are also instances where people are losing their coins. In case of loss, it’s almost always impossible to recover lost Bitcoins. They then remain in the blockchain, like any other Bitcoin, but are inaccessible because it’s impossible to find private keys that would allow them to be spent again.

Bitcoin can be lost or destroyed through the following actions:

Sometimes, not only individuals but also experienced companies make big mistakes and loose their Bitcoins. For example, Bitomat lost private keys to 17,000 of their customers’ Bitcoins. Parity lost $300m of cryptocurrency  due to several bugs. And most recently, more than $500 million worth of digital coins were stolen from Coincheck.

Lot Bitcoin losses also come from Bitcoin’s earliest days, when mining rewards were 50 Bitcoins a block, and Bitcoin was trading at less than 1 cent. At that time, many  didn’t care if they lost their (private) keys or just forgot about them; this guys threw away his hard drive containing 7500 Bitcoins.

Let’s briefly analyse Bitcoin’s creation and increase of supply. The theoretical total number of Bitcoins is 21 million. Hence, Bitcoin has a controlled supply. Bitcoin protocol is designed in such a way that new Bitcoins are created at a decreasing and predictable rate. Each year, number of new Bitcoins created is automatically halved until Bitcoin issuance halts completely with a total of 21 million Bitcoins in existence.

While the number of Bitcoins in existence will never exceed 21 million, the money supply of Bitcoin can exceed 21 million due to fractional-reserve banking.

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Source: en.bitcoin.it

As of June 23, 2017, Bitcoin has reached a total circulation amount of 16.4 million Bitcoins, which is about 81,25% of the total amount of 21 million Bitcoins.

2017 research by Chainanalysis showed that between 2.78 million and 3.79 million Bitcoins are already lost or 17% – 23% of what’s been mined to date.

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How much Bitcoin exactly has been lost? It’s a pretty tough question considering there is no definitive metric for finding the answer. A good estimate is around 25% of all Bitcoin, according to this analysis (this research concludes 30% of all coins had been lost, equating to 25% of all coins when adjusted for the current amount of coins in circulation, which can be done as bulk of lost Bitcoins originate from very early and as Bitcoin’s value has been going up, people lose their coins at a slower rate).

With advent of quantum computers, future of Bitcoin might be perilous. One researcher suggested that quantum computers can calculate the private key from the public one in a minute or two. By learning all the private keys, someone would have access to all available bitcoin. However, a more extensive research shows that in short term, impact of quantum computers will appear to be rather small for mining, security and forking aspects of Bitcoin.

It’s possible that an arms race between quantum hackers and quantum Bitcoin creators will take place. There is an initiative that already tested a feasibility of quantum-safe blockchain platform utilizing quantum key distribution across an urban fiber network.

The below image shows encryption algorithms vulnerable and secure for quantum computing.

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Source:  cryptomorrow.com

And while work is still ongoing, three quantum-secure methods have been proposed as alternative encryption methodologies for the quantum computing age: lattice-based cryptography, code-based cryptography, multivariate cryptography. IOTA already  deploys Winternitz One-Time Signature (OTS) scheme using Lamport signatures, claiming to be resistant to quantum computer algorithms if they have large hash functions.

The no-cloning theorem will make it impossible to copy and distribute a decentralized ledger of qubits (quantum units of information). As qubits can’t be copied or non-destructively read, they will act more like real coins (no issue of double-spending). Quantum Bitcoin miners might support the network by doing operations which amount to quantum error correction (which might replace current Proof-of-Work or Proof-of-Stake systems) as the use of quantum entanglement will enable all network participants to simultaneously agree on a measurement result without a proof of work system.

And while we are waiting for quantum-era Satoshi to rise, check out this THEORETICAL account of how quantum computers may potentially create Bitcoin, which also contains primers on quantum computers and Bitcoin mining.

P.S. Satoshi is estimated to be in the possession of over one million coins

View at Medium.com

 

Survival of blockchain and Ethereum vs. alternatives

As outlined in my previous post, blockchain faces number of fundamental – technological, cultural, and business – issues before it becomes mainstream. However, potential of blockchain, especially if it were coupled with AI, cannot be ignored. The potent combination of blockchain and AI  can revolutionise healthcare, science, government, autonomous driving, financial services, and a number of key industries.

Discussions continue about blockchain’s ability to lift people out of poverty through mobile transactions, improve accounting for tourism in second-world countries, and make governance transparent with electronic voting. But, just like the complementary – and equally hyped – technologies of AI, IoT, and big data, blockchain technology is emerging and yet unproven at scale. Additional, socio-political as well as economic roadblocks remain to blockchain’s widespread adoption and application:

1. Disparity of computer power and electricity distribution

Bitcoin transactions on blockchain require “half the energy consumption of Ireland”. This surge of electricity use is simply impossible in developing countries where the resource is scarce and expensive. Even if richer countries assist and invest in poorer ones, the UN is concerned that elite, external ownership of critical infrastructure may lead to a digital form of neo-colonialism.

2. No mainstream trust for blockchain

Bitcoin inspired the explosive attention on blockchain, but there isn’t currently much trust in the technology – as it’s relatively new, unproven and has technical problems and limitations – outside of digital currencies. With technologies still in their infancy, blockchain companies are slow to deliver on promises. This turtle pace does not satisfy investors seeking quick ROI. Perhaps the largest, challenge to blockchain adoption is the massive transformation in architectural, regulatory, and business management practices required to deploy the technology at scale. Even if such large-scale changes are pulled off, society may experience a culture shock from switching to decentralised, automated systems after a history of only centralised ones.

3. Misleading and misguided ‘investments’

Like the Internet, blockchain technology is most powerful when everyone is on the same network. The Internet grew in fits and starts, but was ultimately driven by the killer app of email. While Bitcoin and digital currencies are the “killer app” of blockchain, we’ve already seen aggressive investments in derivative cryptocurrencies peter out.

Many technologies also call themselves “blockchain” to capitalise on hype and capture investment, but are not actual blockchain implementations. But, even legitimate blockchain technologies suffer from the challenge of timing, often launching in a premature ecosystem unable to support adoption and growth.

4. Cybersecurity risks and flaws

The operational risks of cybersecurity threats to blockchain technology make early adopters hesitate to engage. Additionally, bugs in the technology are challenging to detect, yet caused outsized damage. Getting the code right is critical, but this requires time and talent.

While relatively more known Bitcoin’s PoW-based blockchain systems and Ethereum see limelight and PR, there are number of alternative blockchain protocols and approaches, which are scalable and solve many of fundamental challenges the incumbents face.

PoW and Ethereum alternatives

Disclaimer: I neither condone, engage nor promote any of the below alternatives but simply provide information as found on websites, articles and social media of relevant entities and therefore not responsible whether the information thus provided is accurate and realistic.

1. BitShares, SteemIt (based on Steem) and EOS white papers which are all based on Delegated Proof of Stake (DPOS). DPOS enables BitShares to process 180k transactions per second, which is more than 5x NASDAQ transactions/s. Steem and Bitshares process more transactions/day than the top 20 blockchains combined.

In DPOS, each 2 seconds – Bitcoin’s PoW generates a new block each 10 minutes – a new block is created, through witnesses (stakeholders can elect any number of witnesses to generate blocks – currently 21 in Steem and 25 in BitShares). DPOS is using pipelining to increase scalability. Those 20 witnesses generate their own block in a specified order, that holds for a few rounds (hence the pipelining), after the order is changed. DPOS confirms transactions with 99.9% certainty in an average of just 1.5 seconds while degrading in a graceful, detectable manner that is trivial to recover from. It is easy to increase the scalability of this schema, by introducing additional witnesses either by increasing the pipeline length or using sharding to allow to generate in a deterministic/verifiable way few blocks during the same epoch.

2. IOTA (originally designed to be financial system for IoT) is a new blockless distributed ledger which is scalable, lightweight and fee-less. It’s based on DAG, and its performance INCREASES the bigger the networks gets.

3. Ardor solves the common (to all blockchains) bloat problem, relying on an innovative parent/child chain architecture and pruning of the child chain transactions. It shares some similarities with plasma.io, based on NXT blockchain technology and already running on testnet.

4. LTCP uses State Channels by stripping 90% of the transaction data from the blockchain. LTCP combined with RSK’s Lumino network or Ethereum’s Raiden network can serve 1 billion users in both retail and online payments.

5. Stellar runs off of Stellar Consensus Protocol (SCP) and is scalable, robust, got a distributed exchange and is easy to use. SCP implements “Federated Byzantine Agreement,” a new approach to achieving consensus in a real-world network that includes faulty “Byzantine” nodes with technical errors or malicious intent. To tolerate Byzantine failures, SCP is designed not to require unanimous consent from the complete set of nodes for the system to reach agreement, and to tolerate nodes that lie or send incorrect messages. In the SCP, individual nodes decide which other participants they trust for information, and partially validate transactions based on individual “quorum slices.” The systemwide quorums for valid transactions result from the individual quorum decisions by individual nodes.

6. A thin client is a program which connects to the Bitcoin network but which doesn’t fully validate transactions or blocks, i.e it’s a client to the full nodes on the network. Most thin clients use the Simplified Payment Verification (SPV) method to verify that confirmed transactions are part of a block. To do this, they connect to a full node on the blockchain network and send it a filter (Bloom filter) that will match any transactions affecting the client’s wallet. When a new block is created, the client requests a special lightweight version of that block: Merkle block, which includes a block header, a relatively small number of hashes, a list of one-bit flags, and a transaction count. Using this information—often less than 1 KB of data—the client can build a partial Merkle tree to the block header. If the hash of the root node of the partial Merkle tree equals the hash of Merkle root in the block header, the SPV client has cryptographic proof that the transaction was included in that block. If that block then gets 6 confirmations at the current network difficulty, then the client has extremely strong proof that the transaction was valid and is accepted by the entire network.

The only major downside of the SPV method is that full nodes can simply not tell the thin clients about transactions, making it look like the client hasn’t received bitcoins or that a transaction the client broadcast earlier hasn’t confirmed.

7. Mimir proposes a network of Proof of Authority micro-channels for using in generating a trustless, auditable, and secure bridge between Ethereum and the Internet. This system aims to establish Proof of Authority for individual validators via a Proof-of-Stake contract registry located on Ethereum itself . This Proof-of-Stake contract takes stake in the form of Mimir B2i Tokens. These tokens serve as collateral that may be repossessed in the event of malicious actions. In exchange for serving requests against the Ethereum blockchain, validators get paid in Ether.

8. Ripple’s XRP ledger already handles 1,500 transactions/second on-chain, which keeps on being improved (was 1,000 transactions/sec at the beginning of 2017).

9. QTUM, a hybrid blockchain platform whose technology combines a fork of bitcoin core, an Account Abstraction Layer allowing for multiple Virtual Machines including the Ethereum Virtual Machine (EVM) and Proof-of-Stake consensus aimed at tackling industry use cases.

10. Blocko, which has enterprise and consumer grade layers and has already successfully piloted/launched products (dApps) with/for Korea Exchange, LotteCard and Huyndai.

11. Algorand uses “cryptographic sortition” to select players to create and verify blocks. It scales on demand and is more secure and faster than traditional PoW and PoS systems. While most PoS systems rely on some type of randomness, algorand is different in that you self-select by running the lottery on your own computer (not on cloud or public chain). The lottery is based on information in the previous block, while the selection is automatic (involving no message exchange) and completely random. Thanks David Deputy for pointing out this platform!!!

12. NEO, also called “Ethereum of China,”  is a non-profit community-based blockchain project that utilizes blockchain technology and digital identity to digitize assets, to automate the management of digital assets using smart contracts, and to realize a “smart economy” with a distributed network.