A whirlwind tour of Defi, paying close attention to protocols that we’re leveraging at Genesis Block.submitted by mickhagen to genesisblockhq [link] [comments]
This is the third post of Crypto-Powered — a new series that examines what it means for Genesis Block to be a digital bank that’s powered by crypto, blockchain, and decentralized protocols.
Last week we explored how building on legacy finance is a fool’s errand. The future of money belongs to those who build with crypto and blockchain at their core. We also started down the crypto rabbit hole, introducing Bitcoin, Ethereum, and DeFi (decentralized finance). That post is required reading if you hope to glean any value from the rest of this series.
97% of all activity on Ethereum in the last quarter has been DeFi-related. The total value sitting inside DeFi protocols is roughly $2B — double what it was a month ago. The explosive growth cannot be ignored. All signs suggest that Ethereum & DeFi are a Match Made in Heaven, and both on their way to finding strong product/market fit.
So in this post, we’re doing a whirlwind tour of DeFi. We look at specific examples and use-cases already in the wild and seeing strong growth. And we pay close attention to protocols that Genesis Block is integrating with. Alright, let’s dive in.
StablecoinsStablecoins are exactly what they sound like: cryptocurrencies that are stable. They are not meant to be volatile (like Bitcoin). These assets attempt to peg their price to some external reference (eg. USD or Gold). A non-volatile crypto asset can be incredibly useful for things like merchant payments, cross-border transfers, or storing wealth — becoming your own bank but without the stress of constant price volatility.
There are major governments and central banks that are experimenting with or soon launching their own stablecoins like China with their digital yuan and the US Federal Reserve with their digital dollar. There are also major corporations working in this area like JP Morgan with their JPM Coin, and of course Facebook with their Libra Project.
Stablecoin activity has grown 800% in the last year, with $290B of transaction volume (funds moving on-chain).The most popular USD-pegged stablecoins include:
tablecoins are playing an increasingly important role in the world of DeFi. In a way, they serve as common pipes & bridges between the various protocols.https://preview.redd.it/v9ki2qro12b51.png?width=700&format=png&auto=webp&s=dbf591b122fc4b3d83b381389145b88e2505b51d
Lending & BorrowingThree of the top five DeFi protocols relate to lending & borrowing. These popular lending protocols look very similar to traditional money markets. Users who want to earn interest/yield can deposit (lend) their funds into a pool of liquidity. Because it behaves similarly to traditional money markets, their funds are not locked, they can withdraw at any time. It’s highly liquid.
Borrowers can tap into this pool of liquidity and take out loans. Interest rates depend on the utilization rate of the pool — how much of the deposits in the pool have already been borrowed. Supply & demand. Thus, interest rates are variable and borrowers can pay their loans back at any time.
So, who decides how much a borrower can take? What’s the process like? Are there credit checks? How is credit-worthiness determined?These protocols are decentralized, borderless, permissionless. The people participating in these markets are from all over the world. There is no simple way to verify identity or check credit history. So none of that happens.
Credit-worthiness is determined simply by how much crypto collateral the borrower puts into the protocol. For example, if a user wants to borrow $5k of USDC, then they’ll need to deposit $10k of BTC or ETH. The exact amount of collateral depends on the rules of the protocol — usually the more liquid the collateral asset, the more borrowing power the user can receive.
The most prominent lending protocols include Compound, Aave, Maker, and Atomic Loans. Recently, Compound has seen meteoric growth with the introduction of their COMP token — a token used to incentivize and reward participants of the protocol. There’s almost $1B in outstanding debt in the Compound protocol. Mainframe is also working on an exciting protocol in this area and the latest iteration of their white paper should be coming out soon.
There is very little economic risk to these protocols because all loans are overcollateralized.I repeat, all loans are overcollateralized. If the value of the collateral depreciates significantly due to price volatility, there are sophisticated liquidation systems to ensure the loan always gets paid back.
InvestmentsBuying, selling, and trading crypto assets is certainly one form of investing (though not for the faint of heart). But there are now DeFi protocols to facilitate making and managing traditional-style investments.
Through DeFi, you can invest in Gold. You can invest in stocks like Amazon and Apple. You can short Tesla. You can access the S&P 500. This is done through crypto-based synthetics — which gives users exposure to assets without needing to hold or own the underlying asset. This is all possible with protocols like UMA, Synthetix, or Market protocol.
Maybe your style of investing is more passive. With PoolTogether , you can participate in a no-loss lottery.
Maybe you’re an advanced trader and want to trade options or futures. You can do that with DeFi protocols like Convexity, Futureswap, and dYdX. Maybe you live on the wild side and trade on margin or leverage, you can do that with protocols like Fulcrum, Nuo, and DDEX. Or maybe you’re a degenerate gambler and want to bet against Trump in the upcoming election, you can do that on Augur.
And there are plenty of DeFi protocols to help with crypto investing. You could use Set Protocol if you need automated trading strategies. You could use Melonport if you’re an asset manager. You could use Balancer to automatically rebalance your portfolio.
With as little as $1, people all over the world can have access to the same investment opportunities and tools that used to be reserved for only the wealthy, or those lucky enough to be born in the right country.
You can start to imagine how services like Etrade, TD Ameritrade, Schwab, and even Robinhood could be massively disrupted by a crypto-native company that builds with these types of protocols at their foundation.https://preview.redd.it/agco8msx12b51.png?width=700&format=png&auto=webp&s=3bbb595f9ecc84758d276dbf82bc5ddd9e329ff8
InsuranceAs mentioned in our previous post, there are near-infinite applications one can build on Ethereum. As a result, sometimes the code doesn’t work as expected. Bugs get through, it breaks. We’re still early in our industry. The tools, frameworks, and best practices are all still being established. Things can go wrong.
Sometimes the application just gets in a weird or bad state where funds can’t be recovered — like with what happened with Parity where $280M got frozen (yes, I lost some money in that). Sometimes, there are hackers who discover a vulnerability in the code and maliciously steal funds — like how dForce lost $25M a few months ago, or how The DAO lost $50M a few years ago. And sometimes the system works as designed, but the economic model behind it is flawed, so a clever user takes advantage of the system— like what recently happened with Balancer where they lost $500k.
There are a lot of risks when interacting with smart contracts and decentralized applications — especially for ones that haven’t stood the test of time. This is why insurance is such an important development in DeFi.
Insurance will be an essential component in helping this technology reach the masses.Two protocols that are leading the way on DeFi insurance are Nexus Mutual and Opyn. Though they are both still just getting started, many people are already using them. And we’re excited to start working with them at Genesis Block.
Exchanges & LiquidityDecentralized Exchanges (DEX) were one of the first and most developed categories in DeFi. A DEX allows a user to easily exchange one crypto asset for another crypto asset — but without needing to sign up for an account, verify identity, etc. It’s all via decentralized protocols.
Within the first 5 months of 2020, the top 7 DEX already achieved the 2019 trading volume. That was $2.5B. DeFi is fueling a lot of this growth.
There are many different flavors of DEX. Some of the early ones included 0x, IDEX, and EtherDelta — all of which had a traditional order book model where buyers are matched with sellers.
Another flavor is the pooled liquidity approach where the price is determined algorithmically based on how much liquidity there is and how much the user wants to buy. This is known as an AMM (Automated Market Maker) — Uniswap and Bancor were early leaders here. Though lately, Balancer has seen incredible growth due mostly to their strong incentives for participation — similar to Compound.
There are some DEXs that are more specialized — for example, Curve and mStable focus mostly only stablecoins. Because of the proliferation of these decentralized exchanges, there are now aggregators that combine and connect the liquidity of many sources. Those include Kyber, Totle, 1Inch, and Dex.ag.
These decentralized exchanges are becoming more and more connected to DeFi because they provide an opportunity for yield and earning interest.Users can earn passive income by supplying liquidity to these markets. It usually comes in the form of sharing transaction fee revenue (Uniswap) or token rewards (Balancer).
PaymentsAs it relates to making payments, much of the world is still stuck on plastic cards. We’re grateful to partner with Visa and launch the Genesis Block debit card… but we still don’t believe that's the future of payments. We see that as an important bridge between the past (legacy finance) and the future (crypto).
Our first post in this series shared more on why legacy finance is broken. We talked about the countless unnecessary middle-men on every card swipe (merchant, acquiring bank, processor, card network, issuing bank). We talked about the slow settlement times.
The future of payments will be much better. Yes, it’ll be from a mobile phone and the user experience will be similar to ApplePay (NFC) or WePay (QR Code).
But more importantly, the underlying assets being moved/exchanged will all be crypto — digital, permissionless, and open source.Someone making a payment at the grocery store check-out line will be able to open up Genesis Block, use contactless tech or scan a QR code, and instantly pay for their goods. All using crypto. Likely a stablecoin. Settlement will be instant. All the middlemen getting their pound of flesh will be disintermediated. The merchant can make more and the user can spend less. Blockchain FTW!
Now let’s talk about a few projects working in this area. The xDai Burner Wallet experience was incredible at the ETHDenver event a few years ago, but that speed came at the expense of full decentralization (can it be censored or shut down?). Of course, Facebook’s Libra wants to become the new standard for global payments, but many are afraid to give Facebook that much control (newsflash: it isn’t very decentralized).
Bitcoin is decentralized… but it’s slow and volatile. There are strong projects like Lightning Network (Zap example) that are still trying to make it happen. Projects like Connext and OmiseGo are trying to help bring payments to Ethereum. The Flexa project is leveraging the gift card rails, which is a nice hack to leverage existing pipes. And if ETH 2.0 is as fast as they say it will be, then the future of payments could just be a stablecoin like DAI (a token on Ethereum).
In a way, being able to spend crypto on daily expenses is the holy grail of use-cases. It’s still early. It hasn’t yet been solved. But once we achieve this, then we can ultimately and finally say goodbye to the legacy banking & finance world. Employees can be paid in crypto. Employees can spend in crypto. It changes everything.
Legacy finance is hanging on by a thread, and it’s this use-case that they are still clinging to. Once solved, DeFi domination will be complete.https://preview.redd.it/svft1ce422b51.png?width=700&format=png&auto=webp&s=9a6afc9e9339a3fec29ee2ae743c07c3042ea4ce
Impact on Genesis BlockAt Genesis Block, we’re excited to leverage these protocols and take this incredible technology to the world. Many of these protocols are already deeply integrated with our product. In fact, many are essential. The masses won’t know (or care about) what Tether, USDC, or DAI is. They think in dollars, euros, pounds and pesos. So while the user sees their local currency in the app, the underlying technology is all leveraging stablecoins. It’s all on “crypto rails.”
When users deposit assets into their Genesis Block account, they expect to earn interest. They expect that money to grow. We leverage many of these low-risk lending/exchange DeFi protocols. We lend into decentralized money markets like Compound — where all loans are overcollateralized. Or we supply liquidity to AMM exchanges like Balancer. This allows us to earn interest and generate yield for our depositors. We’re the experts so our users don’t need to be.
We haven’t yet integrated with any of the insurance or investment protocols — but we certainly plan on it. Our infrastructure is built with blockchain technology at the heart and our system is extensible — we’re ready to add assets and protocols when we feel they are ready, safe, secure, and stable. Many of these protocols are still in the experimental phase. It’s still early.
At Genesis Block we’re excited to continue to be at the frontlines of this incredible, innovative, technological revolution called DeFi.---
None of these powerful DeFi protocols will be replacing Robinhood, SoFi, or Venmo anytime soon. They never will. They aren’t meant to! We’ve discussed this before, these are low-level protocols that need killer applications, like Genesis Block.
So now that we’ve gone a little deeper down the rabbit hole and we’ve done this whirlwind tour of DeFi, the natural next question is: why?
Why does any of it matter?Most of these financial services that DeFi offers already exist in the real world. So why does it need to be on a blockchain? Why does it need to be decentralized? What new value is unlocked? Next post, we answer these important questions.
To look at more projects in DeFi, check out DeFi Prime, DeFi Pulse, or Consensys.
Other Ways to Consume Today's Episode:
Download the app. We're a digital bank that's powered by crypto:https://genesisblock.com/download
Link to our article: https://block.co/blockchain-in-healthcare/submitted by BlockDotCo to u/BlockDotCo [link] [comments]
There’s never been a better time to provide proof-of-health solutions in the healthcare system globally. While it’s difficult to comprehend the significance of the role that technology may offer in such difficult times, essentially it can be nailed down to its basic concept of simplifying work and coordinating activities, which could have helped avoid the worst crisis people have experienced in their lifetime. If the healthcare system would adopt technological innovations in the early stages, it could have benefited and saved many lives.
Although the healthcare system has traditionally been slow in embracing the latest digital solutions, just like many other industries, we’ve observed in a previous article how the Covid-19 crisis has accelerated the adoption of digital technologies on a global scale in several industries, including healthcare.
The latest webcast brought to the audience by Block.co hosted some high profile experts from the industry. They illustrated how blockchain especially, together with other technologies such as IoT, and AI could in the future help elevate prompt responses, and provide more secure and efficient storage of data, something that has been missed in the recent pandemic.
Ahmed Abdulla from Digipharm, Dr. Alice Loveys from EY, and Dimitrios Neocleous from VeChain were hosted by Georgina Kyriakoudes, one of the first in the world to hold an MSc in Digital Currency, founder of Dcentric.Health and creator of the permissioned blockchain ecosystem app called Aria, which aims to transform the patient healthcare experience by giving individuals full control of their medical records.
Blockchain’s benefits in healthcare are primarily identified by efficiency, specifically on the transfer of data, facilitation of goods transport via the supply chain, prevention of counterfeit medicines sale, secure storage, and exchange of data around ID management. The impressive projects all the webcast guests have developed in the industry enable just these features, from the digitization of patient records to storage and exchange of medical data as well as easier processing of funds.
Ahmed Abdulla founded Digipharm with the idea of issuing tokens to allow patients to be in control of their medical records at all times. Moreover, tokens are issued to be paid for anonymously sharing personal medical data to help research; pay for healthcare based on how it has improved quality of life.
“We have experienced a disparity in Covid-19 tests costs around the world. For instance, getting tested in Cyprus costs around €60 while in the US it may add up to a few thousand dollars. This is due to the way countries arrange payment setups from payers to providers. Blockchain empowers people to take ownership of their records and funds while providing transparency of processes. This is where blockchain can be robust, by increasing transparency and allowing the patient to secure money transfer and hold their own records”, stated Ahmed.
His work as blockchain advisor at the UN Economic Commission for Europe is helping set up standards for the blockchain ecosystem, namely how the system should be used safely, and in a way that benefits all stakeholders.
“I lead the blockchain and healthcare team at the UN center for trade facilitation and e-business where we developed a blockchain and trade facilitation white paper; the second phase will soon provide an advanced technology advisory board to advise private or public stakeholders on what’s the best technology to use. It might not always be blockchain, hence we first understand and then advise if the tech is right for them or not. Blockchain is clunky, expensive, and not always proper for the organization we work with”, continued the blockchain expert.
Most people may prefer public and permissionless blockchain because it has major advantages over a private and permissioned one. Transparency stands out for the way the ledger is shared and for due diligence becoming unnecessary as a result. This means costs are also cheaper, in the range of 100% lower. On the other hand, a public decentralized blockchain has a major disadvantage since no legal framework is laid out. This means uncertainty as there is still a grey area in the legal field that might create confusion.
Dimitrios Neocleous is Ecosystem Manager at VeChain Tech and directly supported digital and technological solutions provider I-DANTE with the creation of the E-NewHealthLife and the E-HCert for the Mediterranean Hospital of Cyprus. Both apps give patients control over their health records, improve medical data sharing, and increase hospital operational efficiencies by simplifying the process of visiting a hospital.
E-NewHealthLife is a complex ecosystem solution that starts from a patient’s visit to an emergency room. A card with the reason for a patient’s visit is issued; it gets time-stamped; the patient is sent to the waiting room; once the patient’s turn comes and the medical check is completed, the card is scanned and the visit is closed. Patients can digitally access all diagnoses that took place anytime at the hospital.
“The platform produces a digital health passport, which is an encrypted non-fungible card that patients can use to identify themselves automatically when registering at the hospital’s emergency room. The passport is stored within a mobile app called E-HCert, which keeps track of each patient’s medical data and can be shared as needed”, announced Dimitrios.
E-HCert App is a Covid-19 lab test electronic wallet and pushes up the results of a patient who’s been tested for COVID. It has been proven to be very successful so far; currently, 2000 people who transited through the Larnaca airport in Cyprus have downloaded the app. With time-stamped records, it’s able to provide data such as the day and time when the sample was collected, it offers immutability, security, and integrity of data.
“Covid-19 showed a deficiency in healthcare. The spread of the virus could have been prevented if we had digitization of processes and transparency of data through blockchain, and transfer of data through an authorized share of records. An open permissionless decentralized blockchain helps bring ownership of medical records back to the patient, and that is not possible in a centralized system”, continued the VeChain representative.
Dr. Alice Loveys is EY ‘s healthcare blockchain leader in the US and has been at the forefront of emerging healthcare technologies for her entire career including being a pioneer in electronic health record adoption, health information exchange, and privacy and security.
She believes that “blockchain technology is like a plumbing system that brings clean and transparent trusted data that can be used. It’s not proper for a track and trace system as it invades privacy unless there is the consent from patients, in that case, blockchain transparent share of data would be extremely useful for medical research and testing”.
One problem we experienced during the crisis is the confusion that arose with divulged information and the frustration that comes with it. People do not understand anymore which information can be trusted; at first, it looked like COVID-19 symptoms were not dangerous, then it came out that they actually were. Masks were not useful at the beginning, then they suddenly became necessary.
“Blockchain could have prevented lockdown and economic crisis through data management in that a much faster response would have been provided to tackle misinformation because blockchain can help manage data from different sources”, continues Dr. Loveys. “Moreover, it’s a great way to protect the database. Instead of moving any private sensitive medical data through the more traditional digital systems, blockchain simply allows us to send an algorithm, encrypted data that safeguards the information. It’s not a great use as a database as it does not scale, therefore we would not be able to store information for billions of people in it. But for the data that is in the blockchain, using algorithms, makes it very convenient and secure”.
Another topic discussed during the webcast was the GDPR compliance for blockchain. GDPR (General Data Protection Regulation) was created before blockchain therefore it doesn’t account for decentralized technologies. Generally speaking, it all comes down to how the technology is used and what kind of data is incorporated in it. Timestamping data without invading anyone’s privacy, or timestamp of consented data, should determine no issue at all. This is what privacy by design stands for, taking human values into account in a well-defined manner throughout the whole process.
Block.co, powered by the University of Nicosia, is establishing itself as a global leader in the issuance of digital immutable and secure certificates timestamped on the Bitcoin blockchain. In the field of healthcare, it could include medical records, prescription issuance, insurance disputes, supply chain documentation, and any type of verifiable certificate that requires authenticity at its core.
For more info, contact Block.co directly or email at [[email protected]](mailto:[email protected]).
Tel +357 70007828
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L-CAD assets can only be redeemed for Bitcoin. They cannot be redeemed for a fiat currency payment.Liquid CAD is a unique project rethinking the concept of fiat-pegged assets, avoiding the banking business model of “fiatcoin” (aka stablecoins) in favor of a prepaid payments model entirely centred around Bitcoin on-ramp and off-ramp. Liquid CAD is not a currency, nor is it a security: it is a prepaid card.
“Bitcoin will not be eagerly adopted by the mainstream, it will be forced upon them. Forced, as in “compelled by economic reality”. People will be forced to pay with bitcoins, not because of ‘the technology’, but because no one will accept their worthless fiat for payments. Contrary to popular belief, good money drives out bad. This “driving out” has started as a small fiat bleed. It will rapidly escalate into Class IV hemorrhaging due to speculative attacks on weak fiat currencies. The end result will be hyperbitcoinization, i.e. “your money is no good here. Bitcoins are not just good money, they are the best money. The Bitcoin network has the best monetary policy and the best brand. We should therefore expect that bitcoins will drive out bad, weak currencies. My own prediction is that slow bleed has been accelerating and is only the first step. The second step will be speculative attacks that use bitcoins as a platform. The third and final step will be hyperbitcoinization.”Different representations of Canadian dollars compete to be used as payment methods (cash, bank balances, PayPal balances, closed-loop prepaid cards, open-loop prepaid cards, etc.) and that the winner will be the one that has the best Bitcoin saleability, i.e. which can be most easily sold for Bitcoin at a moment’s notice.
submitted by jigsonsaid to Crypto_Investments [link] [comments]
In the world today, there are many upcoming blockchain projects with great potentials, each aiming to bring a change to what we know and see in different systems be it in the healthcare industry, financial industry and so on. It is worthy to know that blockchain technology has contributed a lot to the development of many projects owing to its features such as decentralization, tokenization, use of smart contracts etc. Also, in addition to being based on blockchain, many platforms have different consensus algorithms which are believed by the team to help them in achieving their aim. With this being said, there is a blockchain platform known as LEASEHOLD, which aims to bring a change in the property industry.
A REVIEW ON LEASEHOLD PLATFORM
A review helps many potential investors have a feel or glance of what a particular project or platform is all about, before proceeding to read further via the project's whitepaper etc.
WHY LEASEHOLD IS WORTHY OF ATTENTION
a. The Leasehold team aims for success thus setting strict growth policies which will make it possible for the platform to always acquire more and more property in its life cycle.
b. By allowing ownership of profits to take place in the property rental industry, Leasehold succeeds in bringing liquidity. To make it more interesting, people can buy and sell the rights to profits without having to pay the unnecessary charges of Deed registration and property acquisition.
c. In the world today, the cryptocurrencies are gaining more attention which is seen in Airbnb now accepting Bitcoin, with this in mind, the Leasehold team believes that more platforms are likely to follow hence creating its very own booking system within the ecosystem that will allow users to book holidays with LSH token.
d. Leasehold platform is all about success and growth and with this in mind, the team has already 4 signed contracts for 4 separate apartments which started this month (April 15th). Not only that, but the team is also on the verge of signing more as time goes by.
e. Leasehold has many partners including; i. Booking.com. ii. Airbnb. iii. NightsBridge. iv. HouseME. v. HomeAway. vi. Bookme. vii. Airdna. Read more on partners.
f. For security sakes, and in order to stand out as well, Leasehold created its own wallet which is available and active on different operating systems such as Windows, Mac etc. Steps; i. Download your desired Leasehold Wallet application from the link. ii. Install. iii. Use the option "Create an account" to create an account. Most importantly, remember to save the passphrase, which will enable you as the owner to be able to access the wallet in the future. iv. Login to have a feel of what the wallet looks like.
g. Leasehold token has the ticker LSH, it was forked from Lisk as well as being the first "Lisk Side-chain off Lisk" with a total supply of 100,000,000. Owing to what Leasehold token is backed by, the tokens will be appropriate for trading, holding and booking apartments in the near future. In the same way, to be transparent as regards its buybacks, the necessary information will be available to the public in the form of e-mail and website updates, through this way, users will be able to keep track of the entire platform's Income.
h. Hardly can anyone invest in what he won't profit from; in the case of Leasehold, the team will use the funds generated for property acquisition this means that there will be a strong profitable business built by the team. With this move by the Leasehold team, token holders will grow together with the platform while profiting as well.
TO KNOW MORE ABOUT LEASEHOLD
Join the Telegram Group: https://t.me/Leaseholdchat
Follow on Facebook: https://m.facebook.com/Leasehold-101658667937642/
Follow on Twitter: https://twitter.com/LeaseholdHQ
About the team: https://leasehold.io/team/
Writer’s Bitcointalk Username: Emmy92
Writer’s Bitcointalk Profile Link: https://bitcointalk.org/index.php?action=profile;u=1329140
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A lot of people on Reddit think of Bitcoin primarily as a competitor to card payment networks. I think this is more than a little odd-- Bitcoin is a digital currency. Visa and the US dollar are not usually considered competitors, Mastercard and gold coins are not usually considered competitors. Bitcoin isn't a front end for something that provides credit, etc.by nullc (Mr. Gregory Maxwell) submitted to the bitcoin subreddit
Never the less, some are mostly interested in Bitcoin for payments (not a new phenomenon)-- and are not so concerned about what are, in my view, Bitcoin's primary distinguishing values-- monetary sovereignty, censorship resistance, trust cost minimization, international accessibility/borderless operation, etc. (Or other areas we need to improve, like personal and commercial privacy) Instead some are very concerned about Bitcoin's competitive properties compared to legacy payment networks. ... And although consumer payments are only one small part of whole global space of money, ... money gains value from network effects, and so I would want all the "payments only" fans to love Bitcoin too, even if I didn't care about payments.
But what does it mean to be seriously competitive in that space? The existing payments solutions have huge deployed infrastructure and merchant adoption-- lets ignore that. What about capacity? Combined the major card networks are now doing something on the other of 5000 transactions per second on a year round average; and likely something on the order of 120,000 transactions per second on peak days.
The decentralized Bitcoin blockchain is globally shared broadcast medium-- probably the most insanely inefficient mode of communication ever devised by man. Yet, considering that, it has some impressive capacity. But relative to highly efficient non-decentralized networks, not so much. The issue is that in the basic Bitcoin system every node takes on the whole load of the system, that is how it achieves its monetary sovereignty, censorship resistance, trust cost minimization, etc. Adding nodes increases costs, but not capacity. Even the most reckless hopeful blocksize growth numbers don't come anywhere close to matching those TPS figures. And even if they did, card processing rates are rapidly increasing, especially as the developing world is brought into them-- a few more years of growth would have their traffic levels vastly beyond the Bitcoin figures again.
No amount of spin, inaccurately comparing a global broadcast consensus system to loading a webpage changes any of this.
So-- Does that mean that Bitcoin can't be a big winner as a payments technology? No. But to reach the kind of capacity required to serve the payments needs of the world we must work more intelligently.
From its very beginning Bitcoin was design to incorporate layers in secure ways through its smart contracting capability (What, do you think that was just put there so people could wax-philosophic about meaningless "DAOs"?). In effect we will use the Bitcoin system as a highly accessible and perfectly trustworthy robotic judge and conduct most of our business outside of the court room-- but transact in such a way that if something goes wrong we have all the evidence and established agreements so we can be confident that the robotic court will make it right. (Geek sidebar: If this seems impossible, go read this old post on transaction cut-through)
This is possible precisely because of the core properties of Bitcoin. A censorable or reversible base system is not very suitable to build powerful upper layer transaction processing on top of... and if the underlying asset isn't sound, there is little point in transacting with it at all.
The science around Bitcoin is new and we don't know exactly where the breaking points are-- I hope we never discover them for sure-- we do know that at the current load levels the decentralization of the system has not improved as the users base has grown (and appear to have reduced substantially: even businesses are largely relying on third party processing for all their transactions; something we didn't expect early on).
There are many ways of layering Bitcoin, with varying levels of security, ease of implementation, capacity, etc. Ranging from the strongest-- bidirectional payment channels (often discussed as the 'lightning' system), which provide nearly equal security and anti-censorship while also adding instantaneous payments and improved privacy-- to the simplest, using centralized payment processors, which I believe are (in spite of my reflexive distaste for all things centralized) a perfectly reasonable thing to do for low value transactions, and can be highly cost efficient. Many of these approaches are competing with each other, and from that we gain a vibrant ecosystem with the strongest features.
Growing by layers is the gold standard for technological innovation. It's how we build our understanding of mathematics and the physical sciences, it's how we build our communications protocols and networks... Not to mention payment networks. Thus far a multi-staged approach has been an integral part of the design of rockets which have, from time to time, brought mankind to the moon.
Bitcoin does many unprecedented things, but this doesn't release it from physical reality or from the existence of engineering trade-offs. It is not acceptable, in the mad dash to fulfill a particular application set, to turn our backs on the fundamentals that make the Bitcoin currency valuable to begin with-- especially not when established forms in engineering already tell us the path to have our cake and eat it too-- harmoniously satisfying all the demands.
Before and beyond the layers, there are other things being done to improve capacity-- e.g. Bitcoin Core's capacity plan from December (see also: the FAQ) proposes some new improvements and inventions to nearly double the system's capacity while offsetting many of the costs and risks, in a fully backwards compatible way. ... but, at least for those who are focused on payments, no amount of simple changes really makes a difference; not in the way layered engineering does.
It has recently come to my attention that there is a great deal of confusion revolving around the Lightning Network within the Bitcoin and Bitcoin Cash communities, and to an extent, the greater cryptocurrency ecosystem. I’d like to share with you my thoughts on Bitcoin, Blockchain, and Lightning from a strictly networking background.
To better understand how blockchain and the lightning network work, we should take a step back from the rage-infused battlegrounds of Twitter and Reddit (no good comes from this 😛) and review the very network protocols and systems that power our Internet. I believe that there is a great wealth of knowledge to be gained in understanding how computer networks and the Internet work that can be applied to Bitcoin’s own scaling constraints. The three protocols I will be primarily focusing on in this article are Ethernet, IP, and TCP. By understanding how these protocols work, I feel that we will all be better equipped to answer the great ‘scaling’ question for Bitcoin and all blockchains alike. With that said, let’s get started.
In computer networking, the two most common forms of data transmission today are broadcast and unicast. There are many other forms such as anycast and multicast, but we won’t touch up on them in this article. Let’s first start by defining and understanding these data transmission forms.
Broadcast — a data transmission type where information is sent from one point on a network to all other points; one-to-all.
Diagram: Broadcast Data Transmission https://cdn-images-1.medium.com/max/800/1*xbgXKepaeHZRqmHWsCb_qw.png
Unicast — a data transmission type where information is sent from one point on a network to another point; one-to-one.
Diagram: Unicast Data Transmission https://cdn-images-1.medium.com/max/800/1*i18TOm6hT_h7UQ8cnt8U_Q.png
Based on our understanding of these types of data transmission forms, we very quickly discover that blockchain transactions resemble Broadcast-like forms of communication. When a transaction is made on the Bitcoin network, the transaction is communicated or broadcasted to all connected nodes on the network. In other words, for a transaction to exist or happen in Bitcoin, all nodes must receive and record this transaction. Transactions on blockchains work very similarly to how legacy, ethernet hubs handled data transmissions.
A long time ago, we relied on ethernet hubs to transfer data between computers. Evidently, we discovered that they simply did not scale due to their limited nature. Old ethernet hubs strictly supported broadcast transmissions, data that would come in through one interface or port would need to be broadcasted and replicated out through all other interfaces or ports on the network. To help you visualize this, if you wanted to send me a 1MB image file over a network with 100 participants, that 1MB image file would, in turn, need to be replicated 99 times and broadcasted out to all other users on the network.
In Bitcoin, we see very similar behavior, data (a transaction or block) that comes from one node is broadcasted and replicated to all other nodes on the network. Blockchains similarly to old, legacy ethernet hubs are simply poor mediums to perform data transmission and communicate over. It is simply unrealistic to me as a network engineer to even consider scaling a global payment network such as Bitcoin via Broadcast-based on-chain transactions. Even to this very day, us network engineers take great care and caution in spanning our Ethernet and LAN networks, let alone on a global level.
To put it into perspective, if we were to redesign the Internet by strictly relying on broadcast data transmissions as exhibited in blockchains and ethernet hubs — we would have effectively put every single person, host, and device in the entire world on the same LAN segment or broadcast domain. The Internet would have been a giant, flat LAN network where all communication would need to be replicated and broadcasted to every single device. In you opening up to read this article, every other device on the Internet would have been forced to download this article. In other words, the internet would come to a screeching halt.
In computer networks, the most frequent form of communication relies on unicast data transmissions, or point-to-point. Most of the communication on the internet is routed from one computer to another, we no longer need to rely on blind broadcast transmissions of data with the hopes that our recipient will receive it or see it. We are able to accurately send, route and deliver our messages to our receiving party(ies). We learned that the transfer of a 1MB image file in a broadcast network would require the file to be replicated and broadcasted to every participant on that network. Instead, in a network that supports unicast data transmissions, we are able to appropriately route that image file from source to destination in a clearcut manner.
To me, the Lightning Network is the IP layer of Bitcoin. (I understand that these data transmission forms exist in both Ethernet and IP.) But, I do feel that these analogies help us to better understand these complex and largely abstract ideas: blockchain, lightning, channels, etc.
Let’s take a moment and ignore all explanations and overly simplistic definitions of Lightning that are perpetuated from both sides of the debate for a moment. Instead, lets objectively take a close look at Lightning and determine what we know. What do we know about lightning? It allows us to lock our Bitcoin and form channels with others. What else do we know? We can bidirectionally send and receive transactions between the two points that constitute the channel. What else do we know? We can further route transactions to their correct destination.
Based on these key understanding points, we are able to see that lightning enables unicast transactions in a system [Bitcoin] that previously only supported broadcast transactions. To me, Lightning nodes in Bitcoin are the equivalent of IP hosts — where we can finally conduct or route one-to-one or point-to-point transactions to their appropriate recipients. In traditional IP, we send and receive data packets; in Lightning, we send and receive Bitcoin. IP is what allowed us to scale our small and largely primitive networks of the past into the global giant that it is today, the Internet. In a similar manner, Lightning is what will allow us to scale our global Bitcoin network.
Where Lightning Nodes can be seen as IP hosts, I view Lightning Channels as established TCP connections. On the Internet today, when we try to connect to a website for example, we open a TCP connection to a web server through which we can then download the website’s HTML source code from. Alternatively, when we download a torrent file, we are opening TCP connections to other computers on the Internet which we then use to facilitate the transfer of the torrent data.
And in Lightning, we establish channels with our respective parties and are able to directly [point-to-point] send and receive data (transactions) similarly to TCP. Where Blockchain is similar to Ethernet, Lightning Nodes are our IPs and Lightning Channels our TCP connections.
To conclude, I see many similarities to our pre-existing network technologies and protocols that power our computer network(s) and I feel that we are redesigning the Internet. From a technical point of view, I don’t believe that scaling Bitcoin on-chain will ever work and fear broadcast storm-like events in the future. I welcome our new unicast transaction methods enabled by the Lightning Network. Even more so, I am excited for the ‘web’ moment in Bitcoin.
While everyone has their eyes fixed on blockchain technology, I look towards Lightning. Lightning is the TCP/IP stack of Bitcoin. Lightning is where we will transact on. Lightning is where everything will be built on. Lightning is what will power and enable our applications and additional protocols and layers. With this said, what is to become of the main Bitcoin blockchain? It will and should remain a decentralized, tamper-proof, immutable base or foundation layer which will provide us with cryptographic evidence of what is a Bitcoin.
Some individuals and groups within our communities and ranks spread fear and warn us of false narratives of “lightning hubs”, but fail to grasp that their scaling approach of on-chain transactions only pushes us in the direction of an actual (ethernet) hub design. If Bitcoin loses decentralization on its base layer, then we will lose Bitcoin. The past 9 years of work will have only resulted in a large, centralized broadcast hub with only a few remaining with the ability to operate such a monstrosity.
I wrote this article with hopes that it will help clear up the ongoing confusion about Bitcoin, Blockchain, and Lightning. It is designed to help better explain Blockchain and Lightning through analogies to concepts that we may be more familiar with. I also wrote this very quickly and it may contain typos. If you notice any typos, please bring it to my attention.
$ du -hs .bitcoin/ 125G .bitcoin/ I am using ZFS. Turned off compression after I noticed that this is a unnecessary bottleneck. Not sure how much of the data is compressed. After blockchain was synced it takes little system resources and my computer is usable for other things (like browsing Reddit and watching CoinMarketCap compulsively). Bitcoin Core initial synchronization will take time and download a lot of data. You should make sure that you have enough bandwidth and storage for the full block chain size (over 200GB). If you have a good Internet connection, you can help strengthen the network by keeping your PC running with Bitcoin Core and port 8333 open. Bitcoin is a distributed, worldwide, decentralized digital money. Bitcoins are issued and managed without any central authority whatsoever: there is no government, company, or bank in charge of Bitcoin. You might be interested in Bitcoin if you like cryptography, distributed peer-to-peer systems, or economics. Yes, sadly it is very slow to import the whole blockchain. The bottleneck is mostly I/O, so a faster disk helps a lot. Edit1: I probably should mention that it is much, much faster to download the latest Bitcoin blockchain torrent and import that and the download the rest. It will literally save you days of downloading via the protocol. If you’ve tried to use Bitcoin recently, you’ve probably noticed its getting expensive. The average fee spiked as high as $9 recently. There’s only 1MB of data allowed per Bitcoin block, or
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