A bit more on Bitcoin-based innovation

Such “permissionless innovation”, in the jargon, should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” to come with conditions: for instance, it might be released only if a third person agrees.

Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such “smart property” would turn the blockchain into a global registry of ownership in physical assets.

All that may sound like science fiction, but a growing number of startups are working on bringing such applications to market. Coloured Coins and Mastercoin will soon release software that enables trade in other financial assets, including stocks and bonds. The most ambitious project is Ethereum: it will launch a new blockchain, similar but unrelated to Bitcoin, with a programming language to encode financial instruments and other contracts.

From The Economist there is more here.

Comments

Can the bastards still hotwire my fractional BitCar?

The biggest hurdle would be if you lost the bitcoin token, you lost the asset. Or if someone with enough resources forks the blockchain, they could steal your secured asset right out from under you.

Isn't another hurdle that bitcoin validation isn't instantaneous. So you would put the key into the car and then just wait until the block is validated. That's much better than what we have now!

You don't understand the proposal. Each Bitcoin address is a public-private key pair: to unlock the car, you'd simply sign a challenge from the car with the authorized address/key. No reason this couldn't happen as fast as, say, visiting a HTTPS-enabled website.

(It might take 10 minutes to *create* an entirely new authorized key, but that's still way better than how long it takes to rent a rental car...)

Not true if you do an equivalent comparison--renting after you have arranged a standing contract, zip car or a frequent rental program.

In addition 10 minutes is an arbitrary setting. Now Bitcoin per se is a bit uptight, there might be some pushback from that community about changing it, but it would be trivial to make Keycoin with different settings.

Oh great, I'm stuck behind that annoying old fogey who wants to use a bitcoin in the express lane, why can't he just write a check or something?

The same is theoretically true of many tokens we already use, like that stub the dry cleaners gives you. Especially since there is no shortage of concern for this particular problem, it will be overcome, rather easily I would think.

Well, no, you lose your ticket you can usually tell the guy details and generally he knows you and you get your shirts. And if you don't, it's shirts. It's not the bulk of your savings, or a car.

I'm not saying it's a problem that can't be overcome, but you shouldn't just hand-wave it because there's concern so it will get fixed.

I don't think the person who wrote the article understands the problems of digital security that some of us deal with every day. First, we have the issue that the link between the digital and the analog cannot really be enforced. There's always a transformation step, and if I can hack that step, the cryptography is useless. Just like the best lock in the world will not stop someone from entering a house through a window, or through the rest of the door. So, in practical terms, this crypto provides no advantages whatsoever for the physical.

For the digital, some of the advantages of cryptography are actually disadvantages in many cases. Lose the key, or get the key stolen and then changed, and for all intents and purposes, you have lost the item. We see plenty of problems like that already when securing valuable digital items, like very sellable accounts to digital services. A Steam account, for instance, can be worth thousands of dollars. Right now, if it's stolen, you have out of band ways of proving your identity, and recover a hacked account. In a Bitcoin inspired world, that's impossible, by design. So if I take your twitter account, like it happened to @N not so long ago, there'd be no way to take it back.

And let's not forget the problems of scale. A distributed, consensus-based ledger still requires enough quorum as to not scale linearly when transaction numbers increase. With the current computer capacity, transactions already take many minutes to 'clear', and that's with a transaction volume that was beaten by telcos 15 years ago. There's no computing power in the world to run the NYSE under Bitcoin's architecture.

So yeah, more snake oil salesmen.

Scaling is definitely an issue for blockchain tech, but your last paragraph misunderstands. The ~10 minute clearing time (block time) of a Bitcoin transaction is an arbitrary constant and a holdover from years ago when there was much less hashpower in the network. Transaction volume is not driving the block time. The transactions/day limit is also an arbitrary constant.

Dogecoin is 1 minute and it processes usually the 2nd most transactions after Bitcoin and has done more on some days. There are a number of 30 second coins, 12 second FastCoin, and 5 second NimbleCoin, though I don't know how well <10s times work practically.

Bob, Timothy, you both sound like intelligent practical people. How far do you think we are from putting fraudsters with below 120 IQ completely out of business? It seems to me like the trend has been going the other way for the last couple of decades, in favor of mediocre fraudster criminals, due to the default position of intelligent people towards believing that we live in a world of trust, where only smart people are interesting, and where any other approach is tedious or boring or sacrilegious or something.

Do you mean by bitcoin specifically? I don't think it will have much effect on human nature or the prevalence of con men or anything like that, merely present the opportunity for different cons.

I have someone following me on Twitter who is just openly running pump and dumps. Like his handle is along the lines of "AlwaysPump" and he'll shout "OK LETS GO PUMP XYZCOIN!" I bet they get enough marks.

I have been robbed once of hundredths of a cent worth of BTC leftover on an exchange, which I guess is paying me back. I have been maybe scammed for maybe ~$20 worth of crypto in various ways but it's been "well this looks kind of shady but I guess I'll risk $2 on it" - and a lot of it is maybe scam, maybe incompetence. But for a small amount, I am not going to waste 10 minutes investigating if I am going to be scammed for $2.

Thanks that was informative. It takes a lot of energy(for me, at least) to figure these things out.

"I don’t think the person who wrote the article understands the problems of digital security that some of us deal with every day. First, we have the issue that the link between the digital and the analog cannot really be enforced."

Yes, you are right about this, if someone has physical access and is persistent there's no digital security in the world that can stop them. However if enough of the economy is Bitcoin based then they can still hold physical control, but cannot access basic economic functions. For example suppose the financial system was entirely Bitcoin based, corporate shares would be secret-sharing based control of the Bit-titles to the physical corporate assets. (With debt holders having distributed conditional control of the physical assets).

Financial assets that didn't hold the Bitcoin title to the physical property would probably trade at a steep discount because financiers would not have the security of cryptographic protection of the underlying assets. Say the government of Argentina wanted to seize the property of American corporations. They certainly could, they still have guns and sovereign rights. But the seized property would be worth far less than normal because it wouldn't have access to the mainstream Bitcoin economy. They'd have trouble selling it, borrowing against it, leasing it to mainstream economic participants, etc. Thus it significantly reduces the temptation as compared to our current system.

It could also program prices to depend on how many bitcoins a purchaser has -- you can call this price discrimination or redistribution.

It makes sense for something like bitcoin to eventually replace money because all money is doing is moving information around:

http://informationtransfereconomics.blogspot.com/2014/03/how-money-transfers-information.html

Bitcoin can even be used for research to establish priority ..the possibilities are endless just for the timestamped record keep aspect

Can you elaborate how this would work? Sounds interesting.

Add a digital signature of the document into the blockchain (I speculating here, but the bitcoin transaction format is probably open-ended enough to do this). If you like, you can encrypt the that document until you are ready to reveal the results. When you do, the signed, timestamped cryptotext will serve to prove when you knew them.

The crucial thing here is that block-chain is already a public register of cryptographically signed documents with publicly attested timestamps. The coins and finance are only relevant to the extent that it gives people an incentive for maintaining that register. Thus you might need to throw in a transaction fee if you want your notarisation to actually happen.

Yep, you can embed a signature in the blockchain. You don't even need to embed the entire document, just the signature. This proves that at time t you had possession of the document that produced that signature.

Ah! Ok. Makes sense. Sounds a bit like using a cannon to kill a mouse though?

If you just published your document's hash on many public servers or uploaded them to a peer to peer system (BitTorrent?) that ought to suffice, right?

"...used to transfer ownership ... of any kind of financial asset."

Wall Street bankers and mortgage originators beat them to it, creating the near impossibility of determining ownership of property that presented a "nuisance" to neighbors, to understate the problem. Socialized costs to the community while privatizing and profits from the community rebuilding from the mess the "bitcoin" economy created.

How is having multiple people compete in a problem designed to require an amount of work cheaper than having one or more record keepers validate the transaction using biometrics, passwords, or other technology?

Central trust systems suck. They're extremely vulnerable to all sorts of nasty exploits.

I think the whole idea of digital currencies is really neat. That said when you embed a turning complete programming language inside of a currency you're creating something that embodies a lot of what's wrong with a central trust system. A lot can be hidden inside of piece of software - not just look at the code and have no idea what it does, but have a perfect idea of what it does that's also perfectly wrong. Look at obfuscated C contests. Ethereum is a really cool idea but I'd be reluctant to put a lot of trust in it.

Not sure how we got onto Ethereum.

Could another term for "decentralized exchanges" be "banks" ?

Banks imply centralization.

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