Bitcoin-like innovation without cryptocurrency

by on January 9, 2014 at 3:11 am in Economics, Web/Tech | Permalink

Eli Dourado reports:

Bitcoin also has applications that are not purely payments. As a distributed ledger, it can function as a notary service, providing proof that a given document existed at a particular time and date. Another innovative idea is to use Bitcoin as a bonded identity service. The proposal is to create a system of “Passports,” secure identities verified by the blockchain, backed by “fidelity bonds.” Essentially, you would create a unique identity in the system and then verifiably give a non-trivial sum of bitcoins away to whichever miner randomly processes your transaction. By making it costly to create an identity, this system could be used to ensure that dozens of new accounts are not simply created to engage in fraud, spam, or sock-puppetry. Passports could be portable across different online services, creating a persistent identity that is both pseudonymous and reputable. Reputation rating services could develop to ensure that Passport-holders who misbehave on one service are shunned on other services.

There is more here.

David January 9, 2014 at 3:30 am

Would it be possible to make a 100% dollar backed cryptocurrency for these purposes?

Gabriel January 9, 2014 at 4:32 am

Of course, all you’d need is a trusted third party that requires confirmation from X bodies that you have “bought into” the crypto currency with Y dollars. Once those Y dollars are validated, then the bitdollars can be created and added to your account.

This would probably mean that someone needs to mine those bitdollars separately and keep them “unclaimed” until the trusted third party confirms all OK, and then sell them for a fee (say, 2% of the value of your bitdollars).

Gabriel January 9, 2014 at 4:33 am

And you’d need a trusted party to keep the dollars in a ledger to ensure that the coins are still backed by those dollars.

Alistair Cunningham January 9, 2014 at 5:46 am

…and if that third party happened to be the central bank of the backing currency (the Fed in this case), they needn’t even validate the dollars. They can just issue bitdollars as and when they think appropriate.

nickik January 9, 2014 at 5:16 am

There are different cryptocurrency’s for different things. There those like bitcoin that try to be a thing on its on and there are crypto systems that only contain whatever you put in it. This works like bank notes in a free banking system, Bank X signs your 100$ note and then you can spend it to anybody who trusts bank X.

This idea is called E-Cash. See: http://en.wikipedia.org/wiki/Ecash http://en.wikipedia.org/wiki/David_Chaum

Now this system does not do all the other things that bitcoin does, it does not allow to identify people or anything like this. To use a bitcoin like system for the hole economy would be very bad because it only allows for transactions while you have a internet connection and every transaction takes more time then you normally want to spend in everyday payments.

Also I don’t rally want the government to know every dollar I own and how I got it and where I spend it. 90% of the reason to use crypto is to avoid governments.

Govco January 9, 2014 at 12:26 pm

I think that’s why governments have strongly discouraged bearer bonds, harder to track the owner.

ummm January 9, 2014 at 5:50 am

just another reason why bitcoin is far from being just another fad or a bubble

prior_approval January 9, 2014 at 6:58 am

Unlike gold, you mean?

Jon Teets January 9, 2014 at 7:47 am

Yes, and it should also make it clearer that network effects are going to be about more than a cryptocurrency’s utility as a currency, store of value, unit of account, etc. Once contracts, notarized documents and assertions of any kind proliferate in the blockchain, anyone (and that means corporations) who has an interest in their non-repudiation has incentive become a miner and they won’t care about getting bitcoins for their work, nor will they care to collect a transaction fee. Buying drugs, cashing in on deflation, being anonymous, micropayments, driving out Western Union, gambling, low transaction fees, etc., while sexy, may not be where the network effects are located.

The assertions can be high-minded whistleblowing or vindictive character assassination. The point is, that they can’t be repudiated or expunged without either taking over the network and destroying the common resource (and all the money, I might add), or without very sophisticated firewalling, which, of course, just gets the arms race started. This is a case where if you follow the money, you’ll get lost because it’s only part of the story. This use of P2P would have put Winston Smith out of a job.

Ray Lopez January 9, 2014 at 7:28 am

Eli Dourado should be software patenting his suggestions, instead of giving them to the world (where later they will be software patented by businessmen adopting specific instantiations of these ideas). Why doesn’t Eli D do dis? For the same reason ancient Greeks disdained practical ideas: they were considered vulgar, not worth of academics. This is one reason IMO we are still stuck in the technological dark ages (only the last 200 years has seen a tech boom)–invention and innovation do not pay. I once saw an anthropological explanation for this: in the days of hunter-gatherers and cavemen, innovation or deviation from established norms often resulted in failure (as it does even today) and back then failure was not just embarrassing, but it could result in the death of the entire tribe (“What? You put out the sacred eternal flame we carry around because you invented something called ‘matches’ that now won’t light to start a fire?! We’re toast!”)

NK January 9, 2014 at 8:41 am

Because these ideas have been known for months and (IIRC) originate from several authors.
And even if they get patented by 3rd parties, why would any crypto currency developers give a damn?

F. Lynx Pardinus January 9, 2014 at 8:53 am

The Venn diagram of “people who think cryptocurrencies are a good idea” and “people who think software patents are a good idea” has an incredibly small intersection section.

Eli Dourado January 9, 2014 at 10:41 am

Correct, Lynx. Ray Lopez should check out my paper (with Alex) on intellectual property!

Ray Lopez January 10, 2014 at 2:27 am

I did check out this paper, and found it solid in theory but not much by way of praxis. At best you can say the paper underscores we need a better patent system: “Thus, when IP law is well designed,those drawing on the intellectual commons leave more and better left for everyone else.”

Here is my “eight-fold” path way of improving IP in the USA (I’ve shared some of these ideas with Alex T by email):

1) Have a ‘right-of-first-to-invent’ defense even if you did not file for a patent – if something was invented before the patentee, instead of invalidating the patent you can raise this defense to defeat the patentee (it’s a subtle change from existing law, since existing law requires the person to invalidate the patent by showing the invention was published to the world before the patentee filed, which is hard to do)

2) adopt the British rule where the loser of a patent case pays the other’s costs (cuts down on trolls, and this session of Congress has such a bill pending)

3) adopt the German and Japanese variants where it’s illegal for an employee to assign all rights to an invention to the employer before being hired, as now occurs in the USA. For truly pioneering inventions the inventor should by law have kind-of-like ‘droit moral’ rights of copyright (i.e., inventor will get some money from the government for truly pioneering inventions, can cannot automatically assign away such rights)

4) offer prize funds for breakthrough inventions that can be given to teams first to reach certain milestones. Then the invention becomes ‘public domain’

5) Have several “Patent Offices” with different strength (by law) patents. You want a simple ‘design patent’ that’s weak? You’ll get almost no examination from the Patent Office but you don’t get much protection. You want a strong patent that can nuke your competitors? You must go through a *rigorous* evaluation that’s open to the public. Maybe the US Patent Office will issue 100 such inventions or less a year (just to throw out a number), instead of the 320k patents issued last year.

6) give patent examiners more time to do their job instead of the quota system they have now, and fire the bad ones.

7) have a special court like the Fed. Cir. but faster and cheaper. Subsidize it for deciding cases, or have it based on market cap (bigger companies pay more–differential pricing)

8) reserved for future use…oh! i just thought of one: bring back the ‘must file a working model’ for most inventions (abolished in the late 19th century), to cut down on harmful “paper patents” that really don’t work except conceptually. Or better have a very weak form of protection for a ‘paper patent’ (one not actually reduced to practice to work), since anybody can file a paper patent for ‘going to the moon in a rocket’ but few can actually make a multi-stage rocket work in practice, and those few should ultimately be rewarded with a limited monopoly.

Let’s face it: “inventors just invent as evidenced by Nobel Prize winners who do it for the fame so no need to compensate them” has been the model for innovation since time immemorial. Nobody really helps inventors financially as they do middlemen, doctors, lawyers, and that’s wrong. Google “GE vs MRI Damadian Fonar v. General Electric ” “Edwin Howard Armstrong suicide”, “Gould laser patent litigation”. Not to mention watch the film “Tucker: The Man and His Dream (1988)” (LOL, I’ve never seen it but can imagine)

dead serious January 9, 2014 at 12:03 pm

Winner winner, chicken dinner.

Pshrnk January 9, 2014 at 11:19 am

Hard to be “toast” without the fire :-)

Millian January 9, 2014 at 7:43 am

Tyler, note that the UK is now debating restrictions on slot machines. The Labour Party has called for local regulation or tight stake limits on fixed-odds betting terminals, which they made more readily available in 2001. Prime Minister David Cameron has now signalled his openness to regulation once a report has been delivered early this year.

Dan Weber January 9, 2014 at 8:25 am

Anyone can write arbitrary amounts of small information into the bitcoin database, at the cost of a fractional bitcoin. But we already had the ability to, say, post your information to usenet groups or send a classified ad to the New York Times. It’s technically interesting but not brand-new.

Explodicle January 9, 2014 at 10:08 am

What’s new is that there is no longer a need to trust anyone. You don’t need to trust that the Usenet group or NYT hasn’t been forced to provide admin access to the NSA with a gag order.

John Schilling January 9, 2014 at 11:03 am

What does “provide admin access to a Usenet group” even mean?

Dan Weber is right – the supposed “notary” function of bitcoin could have been trivially and securely implemented via usenet, on as large or small a scale as anyone wanted, and nobody wanted to. Actual notaries work well enough for just about anyone, and are trusted by just about everyone in ways that novel cryptographic schemes never were. But if you care, I believe usenet is still around.

Explodicle January 9, 2014 at 12:46 pm

Usenet groups are hosted on centralized servers, and those central servers have admin access. Control the servers and you can change the dates or content. If you just control one server, you can make a fake post in the past and other servers will generally assume it’s accurate. If you’re just downloading movies you only need one good file at one time, but notary customers need to be sure the same source will remain valid in the future. Usenet is no more secure than email.

How come no one wanted to implement this with Usenet in 30 years, but they already exist for bitcoin? Example: http://virtual-notary.org/

John Schilling January 9, 2014 at 3:31 pm

Usenet servers are the exact opposite of centralized, so no. It is probably true that if you control a single server you can introduce fake uncontroversial posts, but if someone has reason to challenge the authenticity of a claimed post, comparing notes across multiple servers will reveal the deception fairly quickly and unambiguously.

Explodicle January 10, 2014 at 12:54 pm

100% p2p is the exact opposite of centralized, and any client-server model is either something in between (at best) or completely centralized (at worst). Since it’s quick and unambiguous, would you please post your method of choosing which servers to check?

Computer Scientist January 9, 2014 at 11:38 am

First, they can’t – the transaction log as it currently exists doesn’t support functionality like that, AFAIK.

Second, this provides a distributed and serverless database that can be updated and verified by the collective processing power of the network. Calling this “technically interesting but not brand-new” is like calling Google the same, because we had regex.

Z January 9, 2014 at 8:43 am

This is interesting. I like the digital ID or passport. Tracking each and every human in the physical world as well as the virtual world is a top priority. This does look like an interesting step in that direction or at least furthering the pursuit of the goal. Tying your cryptoID, for lack of a better word, to your DNA would solve some problems too. Then you can add in other physical attributes like fingerprints, retina, facial recognition and so on. The goal then is the state can monitor public spaces for enemies of the state. Put someone on a terrorism list, for example, and they would have trouble traveling in public without being detected. Develop attributes from e-mail habits, surfing habits, shopping and so forth and you can do something similar in the virtual space.

dead serious January 9, 2014 at 12:05 pm

Someone should write a book or make a movie about this.

A.B. January 9, 2014 at 10:06 am
dead serious January 10, 2014 at 9:43 am

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