Bitcoin blockchain problem
Ryan T. Dunn, J. Gregory Jenkins, Mark D. Issues in Accounting Education 1 February ; 36 1 : 43— This case examines auditing implications of Bitcoin and blockchain, and is intended for either undergraduate or graduate auditing and assurance courses.
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Content:
- Blockchain can solve some of the world's most pressing challenges. Here's how
- Beyond Bitcoin: The hidden side of blockchain and its effect on ESG
- How Safe Is Bitcoin, Really?
- The Future of Crypto Is Bright, But Governments Must Help Manage the Risks
- The biggest problem with blockchain and how to solve it, illustrated
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Blockchain can solve some of the world's most pressing challenges. Here's how
All over town, the parking meters are disappearing. Drivers now pay at a central machine, or with an app. Both my car and my smartphone know my location via GPS. My phone already couples to my car via Bluetooth. An app could prompt me to pay for parking upon arrival. Or imagine this: My car, which is already mostly a computer, enters an agreement to lease time from a parking lot, which is managed by another computer.
Scenarios like this are possible when blockchain—the digital transaction record originally invented to validate Bitcoin transactions—gets used for purposes beyond payment. In certain circles, the technology has been hailed for its potential to usher in a new era of services that are less reliant on intermediaries like businesses and nation-states.
But its boosters often overlook that the opposite is equally possible: Blockchain could further consolidate the centralized power of corporations and governments instead. Making sense of it first requires deciphering the political assumptions that inspire it. Bitcoin is an expression of extreme technological libertarianism. This school of thought goes by many names: anarcho-capitalism or ancap for short , libertarian anarchy, market anarchism.
Central to the philosophy is a distrust of states in favor of individuals. Its adherents believe society best facilitates individual will in a free-market economy driven by individual property owners—not governments or corporations—engaging in free trade of that private property.
And Silicon Valley takes a broader approach to the liberating capacity of technology: Facebook hopes to connect people, Google to make information more accessible, Uber to improve transit, and so on.
The ancap worldview only supports sovereign individuals engaging in free-market exchange. Neither states nor corporations are acceptable intermediaries. That leaves a sparsely set table. At it: individuals, the property they own, the contracts into which they enter to exchange that property, and a market to facilitate that exchange.
Ordinarily, money would be sufficient. But currency troubles market anarchists. The central banks that control the money supply are entities of the state. They attempt to provide a technological alternative to currency and banking that would avoid tainting the pure individualism of the ancap ideal. Those services just provide a more convenient computer interface to bank accounts and payment cards.
For anarcho-capitalism to work in earnest, it would need to divorce transactions entirely from the traditional monetary system and the organizations that run it. Central banks and corporations could interfere with transactions. And yet, if individuals alone maintained currency records, money could be used fraudulently, or fabricated from thin air.
To solve these problems, Bitcoin is backed by mathematics instead of state governments. Each one can thus be mathematically verified to be valid. The community of Bitcoin users does the work of verification. To incentivize the onerous work of cryptographically verifying each transaction in the chain that precedes it, the protocol awards a bounty—in Bitcoin of course—to the first user to validate a new transaction on the network.
But the key to Bitcoin is that the network distributes copies of one common record of all Bitcoin transactions, against which individuals verify new exchanges. Anarcho-capitalism might seem fringe and unfamiliar to most people, but at least it helps explain the rationale behind cryptocurrency and blockchain. Unfortunately, those topics become even more confusing when Bitcoin and its kin get used in ways incompatible with their original inspiration—which turns out to be most of the time.
As a medium for exchange, Bitcoin is relatively limited. Some retailers, many tech-oriented, accept the currency for purchases, but it remains best known as a means to buy black-market goods on darknet exchanges like Silk Road.
The fact that such uses were illicit in the first place, the anarcho-capitalist would point out, is precisely the reason individual freedom-fighters should demand a decentralized market unbeholden to governments. Each Bitcoin transaction adds more encrypted data to the blockchain, requiring increasingly more computer power to verify and to earn the associated commission. More computing power means more energy cost to run and cool the machines, which requires more capital and physical infrastructure to support.
Those rising costs inspire centralization. Adam Greenfield tells me that two Chinese giants can control over half of the global Bitcoin mining operations. If they collaborate, a majority-control of the blockchain could allow them to manipulate it. More often, Bitcoin has been used as a financial instrument instead of a currency. From tulips to tech start-ups, market capitalism is flexible enough to turn anything into a tradable security or futures commodity. Bitcoin hype has made it appealing for speculators certain to transfer their gains back into more stable state currencies, although its volatility makes it a difficult case either as a store of value or a medium of exchange.
The same hype driving cryptocurrency speculation has also attracted banks, governments, and corporations—exactly the authorities it was designed to circumvent. Financial services firms have taken an interest in cryptocurrency.
Federal Reserve chair Janet Yellen has called for the Fed to leverage blockchain. Canada has been experimenting with a blockchain-backed version of its national currency, called CAD-Coin. Future cryptocurrencies operated by banks or governments might enjoy more productive use than Bitcoin. Corporations and governments re-centralize control, for one. But also, they undermine the discretion and anonymity that accompanies free trade in the ancap fantasy. When the local or central bank manages the cryptocurrency platform, it also gets a record of every transaction that takes place in that economy.
Or imagine if the North Carolina State legislature decided to issue all food stamp vouchers in crypto form to better manage their future use. In theory, any internet-connected device could participate in verified, distributed transactions. Greenfield offers a simple example: the German startup Slock. Networked locks are nothing new, thanks to the internet of things. But a blockchain-backed connected lock offers some additional capabilities.
If attached to an AirBnB rental, such a lock could be programmed to automatically release when a smartphone belonging to a pre-paid renter approaches.
Kik, a startup that makes a messaging app popular among teens, offers a more recent example of distributed-ledger tech in action. The company recently announced plans to introduce its own cryptocurrency, called Kin. Kik will automatically dole out Kin as rewards for developers who build apps on its platform, like stickers or chat bots.
Kin is built atop a platform called Ethereum , which is based on the same distributed ledger as Bitcoin. But Ethereum uses that technology to express a different aspect of the ancap model: contracts. If Bitcoin is digital money for people, Ether is digital money for computers. It decides how to spend itself via software automation. Why tout a private, distributed-ledger currency as an agent of liberation when it amounts to a complicated, software-backed, company-town store?
One answer: It could give the workers a stake in the company store. In theory , that value will increase if the platform becomes popular, creating a valuable base investment for its initial users. In the extremist libertarian aspiration, smart contracts would allow anonymous actors to trade anything whatsoever in an untraceable way, via unregulatable markets. Instead, actual smart contracts, ICOs, and distributed ledger-backed devices mostly offer new ways to interface with the private technology industry.
For example, in Brooklyn, a solar microgrid startup called Transactive sells clean energy to a community via Ethereum. And Toyota just announced a partnership with MIT to develop distributed ledger-based infrastructure for future autonomous vehicle services. On that front, the anarcho-liberatarians share something in common with the plain-vanilla technolibertarians: a belief in the wisdom and righteousness of a fully computational universe.
They might become more than that, of course. But in order to do so, something terrifying has to happen first. Consider an off-the-cuff example of smart contracts from an Ethereum advocate:.
An individual wants to purchase a home from another person. Traditionally there are multiple third parties involved in the exchange including lawyers and escrow agents which makes the process unnecessarily slow and expensive. With Ethereum, a piece of code could automatically transfer the home ownership to the buyer and the funds to the seller after a deal is agreed upon without needing a third party to execute on their behalf.
It sounds so easy. Who needs real-estate agents, closing attorneys, assessors, mortgage brokers, title insurers, municipal tax authorities, and all the rest? Just transfer some Ether after the computers shake hands. But absent a global ancap revolution, those intermediaries are unlikely to disappear.
Consider what would be required for distributed-ledger scenarios like this one become reality. Smart contracts require computational intermediation everywhere. Non-computational devices like parking lots and door locks and property deeds must become connected to computers. People would have to become willing to use machines that enter into decentralized contracts with other machines absent intermediary protection of government, law, banking, and other legacy infrastructures.
The problems with those old institutions are many. In a widely shared tale of voter suppression in the election, Eddie Lee Holloway Jr.
But an error on his birth certificate prevented him from getting a new ID. For the tech evangelist, it offers a rational solution that would solve social ills by means of impartial technology. On that note, blockchain-based digital IDs have also been proposed for refugees. It sure sounds good.
But the scenario only works if the entire system of contemporary life becomes sufficiently interconnected to make it possible. All the departments of public health and the DMVs and the voter registration venues—not to mention the parking spaces and the automobiles and the power grids and all the rest—would have to cohere around a common understanding, so that the machines could execute smart contracts on their behalf.
This would require a complete reinvention of public and private life. A different reinvention is more likely. Instead of defanging governments and big corporations, the distributed ledger offers those domains enormous incentive to consolidate their power and influence.
Beyond Bitcoin: The hidden side of blockchain and its effect on ESG
El Salvador has been using technology from crypto software firm AlphaPoint to fix a series of problems that have plagued its state-run bitcoin wallet Chivo, the government and the company announced on Tuesday. But the parties didn't disclose the arrangement until Tuesday. The change of supplier comes after hundreds of Salvadorans complained that hackers had illegally activated wallets associated with the nine-digit numbers on their identity cards and dozens reported on social media that money had disappeared from their Chivo wallets. Before AlphaPoint, the operator of bitcoin automated teller machines, Athena Bitcoin, provided the technology infrastructure for the Chivo wallet, Athena Bitcoin told CoinDesk. The company did not specify the reasons for the contract's termination. AlphaPoint has been in operation for nine years and currently has more than 50 clients, although the agreement with El Salvador is its first with a government. According to Telyatnikov, AlphaPoint had unsuccessfully applied to be the software provider for the Chivo wallet before its launch in September.
How Safe Is Bitcoin, Really?
One of the primary concerns of any cryptocurrency developer is the issue of double-spending. This refers to the incidence of an individual spending a balance of that cryptocurrency more than once, effectively creating a disparity between the spending record and the amount of that cryptocurrency available, as well as the way that it is distributed. A transaction using a digital currency like bitcoin, however, occurs entirely digitally. This means that it is possible to copy the transaction details and rebroadcast it such that the same BTC could be spent multiple times by a single owner. Below, we'll examine how cryptocurrency developers have insured that double spending cannot happen. The blockchain which undergirds a digital currency like bitcoin is not able to prevent double-spending on its own. Rather, all of the different transactions involving the relevant cryptocurrency are posted to the blockchain, where they are separately verified and protected by a confirmation process. In the case of bitcoin and many other cryptocurrencies, transactions that have been confirmed in this way become irreversible; they are posted publicly and maintained in perpetuity.
The Future of Crypto Is Bright, But Governments Must Help Manage the Risks
While the activities using the peer-to-peer cryptocurrency Bitcoin swing between legal and illegal, the attention has been increasingly shifting to the technology underlying Bitcoin, known as blockchain. The mechanics and economics of Bitcoin have been reviewed in a previous Bruegel blogpost. In this blog review we explain, or at least attempt to, what blockchain is and whether it contains the extraordinary innovation potential that its proponents believe it to have, or perhaps such hype is oversold. The Economist explains that in order to understand how blockchain works, first we need to distinguish between three things: the bitcoin, the cryptocurrency, the specific blockchain underlying it and blockchains in general.
The biggest problem with blockchain and how to solve it, illustrated
George: that they would not mine cryptocurrency. It was a desperate attempt to deal with what has become an intractable problem: chronic energy shortages in Svaneti due to unscrupulous use of power-hungry computers mining cryptocurrency. Svaneti is best known for its towering, snowy peaks, picturesque stone-hewn hamlets, and strict traditional code of honor. Increasingly, however, it is also known for cryptocurrency production. Some residents have been taking advantage of a government program providing free electricity to mountain regions, with the aim of keeping the remote communities alive, and using the subsidized power to churn out virtual money in their medieval towers.
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Among the displacements wrought during Covid, many consumers have left legacy banking for the world of cryptocurrencies and decentralised finance. Reasons include fear of contaminated cash, distrust of ballooning central bank balance sheets and the absence of meaningful interest on savings. The trend is unlikely to abate. Unfortunately, these new adopters will encounter a gamut of crimes for which they are ill-prepared: hackers stealing passwords, fraudsters inducing irreversible transactions and exit scams, to name a few. If these same crimes were committed against customers in the banking and brokerage sectors, law enforcement would be piling up arrests and private attorneys would be filing class actions.
Those affected, one storing Ethereum and one Binance Smart Chain tokens, "carry a small percentage of assets on BitMart and all of our other wallets are secure and unharmed", it said. Bitmart is suspending customer withdrawals until further notice. And it would try to "maintain transparency" as it dealt with the aftermath of the attack. Many investors recommend moving large amounts of crypto-currency not needed for day-to-day trading to "cold" storage, disconnected from the wider internet.
Blockchain: so cool, what a breakthrough — soon almost everything will be based on blockchain technology. If you bought all of that, then I might just disappoint you. This article will discuss the version of blockchain technology that is used for Bitcoin cryptocurrency. I consider the Bitcoin technology itself revolutionary. Unfortunately, Bitcoin has been used for criminal activities far too often, and as an information security specialist, I strongly dislike that practice. Yet, technologically speaking, Bitcoin is an obvious breakthrough.
We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. To learn more or opt-out, read our Cookie Policy. The Biden administration is taking a more hands-on approach to the highly volatile, little understood, and barely regulated cryptocurrency industry. Cryptocurrencies are decentralized digital currencies secured by blockchain technology. Bitcoin, ethereum, and other cryptocurrencies have become almost as accessible as government-issued currency in recent years, but the government offers few consumer protections for them. The Securities and Exchange Commission SEC — led by Gary Gensler, who taught a class on cryptocurrency at MIT — is trying to make the case that it can and will regulate whatever cryptocurrency investment schemes it decides fall under its purview.
CTO at Coro Global Inc, the creators of CORO , a mobile payment app that combines gold with the world's most advanced and secure hashgraph distributed ledger technology. With CORO anyone can exchange, send and save gold and dollars instantly, seamlessly and at low cost. While gold has shown time and time again that it is a resilient form of money, the price of Bitcoin saw the biggest single crash in its history at the beginning of the year.
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