International the avanti group news blog gold 2.0 can code and competition build a better bitcoin


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International the avanti group news blog gold 2.0 can code and competition build a better bitcoin

  1. 1. Gold 2.0: can code and competition builda better Bitcoin?Original article:
  2. 2. Visit the originalsource of the articleat:
  3. 3. Gold 2.0: can code and competition build a better Bitcoin?, international the avantigroup news blogBitcoin has had a wild ride these past few months. The stateless digital currency’sprice has soared to new heights only to plunge back down to earth at less than halfits previous value. As the price of gold takes a nose dive of its own, some seriouseconomists have risen to Bitcoin’s defense as true believers urge traders to hangon. Others argue the electronic money scheme is either a dangerous fad, a formof Dadaist art, or more simply,not money at all. But even as the debate rageson, one thing thats fostering hope for Bitcoin as a stable store of value is the factthat, unlike a gold bar or a dollar bill, new code and alternative currencies beingbuilt alongside Bitcoin might help change it for the better.Since Bitcoin is open source, many of these solutions potentially lie within its ownthriving developer community. Take for example Bitcoin’s most advertisedfeature, its supposed anonymity. Everyone from the mainstream media toWikileaks to the now-disbanded hacker collective LulzSec has trumpeted Bitcoinas "anonymous." But the truth is that researchers have long since proven itsanything but — since every bitcoin transaction appears on a public ledgerdistributed to everyone in the network (called the "block chain"), tracking bitcoinsback to individuals is often trivial.
  4. 4. ZEROCOIN PROMISES TRUE ANONYMITY BY GIVING BITCOIN ITS OWNBUILT-IN MONEY LAUNDERING SYSTEMOne team of researchers is saying they might be able to fix that. Developed bycryptographers at Johns Hopkins University, Zerocoin is being proposed as akind of "plugin" for Bitcoin clients that promises true anonymity by essentiallygiving the Bitcoin network its own built-in money laundering system. Bitcoinlaundries normally work by taking your coins and mixing them up with otherpeoples’ in a big pool. But being as how theyre controlled by thirdparties, using a laundry means trusting your bitcoins with often-shadyintermediaries like Silk Road, the notorious darknet bazaar where you can findeverything from black tar heroin to contract killers.Thats not true with Zerocoin, since the laundry would be built into the Bitcoinnetwork itself by standardizing code across client software. If adopted, thenew functionality would allow you to add a transaction to Bitcoins block chainthat turns a bitcoin into a zerocoin — a “flipped” bitcoin, if you will. Then, whenyou redeem (“spend”) your zerocoins, your client scans the block chain andreturns a totally different set of coins, making it impossible to determine whothey really came from.
  5. 5. Transactions on a normal Bitcoin block chain (top) and one using Zerocoin (below).The special sauce is a zero-knowledge proof, a statement used to verify a piece ofsecret information without giving away the secret in the process. This makes it so thatif someone looks at the block chain, they’ll be able to see that you minted a zerocoin atsome point, but there will be no way to tell which one youre redeeming.Its a promising solution that tackles a crucial missing piece in the narrative of bitcoinsas "crypto-anarchist cash." But still unaddressed is the even bigger problem of liquidity— the fact that buying and trading bitcoins in the first place is still such a huge pain. It’sfor this reason that some economists believe the future of Bitcoin is not an upgrade tothe currency itself, but a new generation of digital currencies that take the best ofBitcoin while avoiding its weaknesses.
  6. 6. To that end, consider Ripple, another digital money scheme with its own transaction network anda shared public ledger very similar to Bitcoins. Although Ripple uses its own currency (known asRipples or XRP), the people behind it — including Jed McCaleb, creator of the P2P softwareeDonkey2000 and Bitcoin exchange Mt. Gox — are nonetheless directly appealing to Bitcoinusers.Its easy to see why. If you want to buy bitcoins right now you have a few options, and none ofthem are great. The easiest and (usually) safest method is using an exchange like Mt. Gox. Butthose trades can take time (the transaction must first be verified by number-crunching bitcoinminers) and of course forces you to trust in the reliability of a centralized third party. That trusthas been repeatedly shaken within the Bitcoin community followingmassive heists, DDoS attacks, and recurring downtime due to network overload — not to mentionthe recent closure of the fourth-largest bitcoin exchange, Bitfloor.RIPPLE PROMISESTO BE QUICKLY AND EASILY SWAPPED FOR ANY OTHER CURRENCYWhere Ripple starts to sound interesting for Bitcoiners is its promise to be quickly and easilyswapped for any currency — bitcoins, euros, rupees, whatever — with virtually no fees andwithout the need for these big centralized exchanges. There’s no mining, so ripples exist in a fixedamount, and a tiny fraction is destroyed in each transaction to prevent people from spamming thesystem (which should be no problem assuming the ripples value appreciates). Ripple’s built-inexchange system uses “gateways,” conversion portals which can be run by any individual orcompany connected to the Ripple network. The big difference here, Ripple’s creators say, is thatthe liquidity is “pooled” — if one gateway gets taken out by a DDoS attack, you can simply useanother.
  7. 7. “Trading can continue without interruption because it does not rely on a particularGateway,” explains McCaleb. He also points out that unlike bitcoin exchanges like Mt.Gox, the system is designed so that gateways can’t freeze accounts or seizefunds, “meaning it takes less trust to use a Gateway versus an Exchange.”But what’s more interesting is that the Ripple system also supports the opposite ofBitcoin’s “trustless” anonymous exchange: a form of trust-based P2P lending(pioneered by its original designer, Ryan Fugger) that lets you rely on thetrustworthiness of people in your social network rather than a gateway or exchange.
  8. 8. It works a lot like Facebook’s “friends-of-friends” mechanic: if I wanted to exchangeUSD for BTC, I’d find someone I trust in my social network who knows someone elsethat’s selling bitcoins. A line of credit would be created, using the credit limit and termsthat my acquaintance assigned to the person I’m buying from. In other words, everyonebecomes their own bank, issuing IOUs based on personal reputation.IEEE Spectrums Morgan Peck explains:When you join the Ripple network, you designate primary contacts and establish levelsof trust by choosing the amount of credit you are willing to offer each individual. Imight feel okay lending up to $1000 to a few close friends whom I know will have adeep obligation to pay me back, while making only $50 available to the man I talk toevery morning at the deli. But with Ripple, the credit isn’t only available to myacquaintances. It becomes available to anyone else who knows the people in mynetwork.Let’s say, for example, that I want to sell a Web application to Bob, who knows my closefriend Alice (credit limit $1000). Ripple allows Bob to trade with me using his credit limitwith Alice. If she trusts him for $100, that becomes his credit limit with me. I would sendBob the merchandise in exchange for his promise to pay. But instead of owing me, Bobwould actually owe Alice, who would in turn owe me. Once Bob satisfied his debt, theRipple network would destroy the entire chain of IOUs.
  9. 9. It’s hard to tell how most of this will actually play out in practice. Ripple is just gettingstarted, and the company behind it, OpenCoin, claims it will be “distributing” 100 billionripples among everyone who starts an account. That’s led to some ambivalence andsuspicion within the Bitcoin community — not to mention the fact that OpenCoin is a for-profit company, having just finished a major round of angel funding that brought in VCs likeLightspeed Ventures and Andreeson Horowitz. Still, Ripple and Zerocoin both stand topotentially improve things for Bitcoin in their own way. Of course that all depends on theirwidespread adoption — something that, in a community of traders founded on mutualdistrust, is always a hard sell.----- END OF SLIDE -----