Bitcoin: More Important Than You Think

2014-01-25 Bitcoins

I’ve noticed a couple of really interesting articles going around about how, in order to create Bitcoin, Satoshi Nakamoto1 may have actually created something much more important than even the biggest fans of Bitcoin realize. As Business Insider reports:

By many accounts, Satoshi came up with a real-world solution to a longstanding computer science paradox known as the double-spend problem, or the Byzantine General’s problem (the professor who named it explains why he did so here). The challenge is how to send and receive money online without the need for a trusted third party, such as PayPal, ensuring that the same digital credit standing in for the amount being exchanged isn’t being spent twice…Satoshi does not appear to have been looking to solve this problem when he created Bitcoin. But his design for the blockchain, which he spelled out in his 2008 Bitcoin spec paper2 (PDF), has profound implications.

Look out for that word “blockchain.” You might start hearing it a lot. The concept of the blockchain is, in a way, nothing less than a solution to the problem of distributed trust. It’s not a perfect solution. If you read the paper, you’ll see that being able to trust a transaction in Bitcoin depends on the honest nodes in the network having more combined CPU power than any collection of attacking nodes, and even when the majority of the network nodes are honest you don’t get guaranteed validity. You get pobabilistic validity. In other words: there’s a chance that someone could try to spend their Bitcoins twice (think of someone dropping a coin into a vending machine and then yanking it back out again to reuse), but it’s a very small chance. That’s a mature approach to security. In the real world you can’t really prevent attacks. You can just make them too expensive to be worth the effort.

Well, what if instead of using the blockchain to verify transactions, you use it to verify files? Turns out somebody has already done that:

Perhaps the most straightforward example of a post-Bitcoin service using Satoshi’s blockchain is Proof of Existence. Created by Manuel Araoz, a 25-year-old developer in Argentina, the site allows you to upload a file to certify that you had custody of it at a given time. Neither its contents nor your own personal information are ever revealed — rather, all the data in the document gets digested into an encrypted number. Proof of Existence is built on top of the Bitcoin blockchain (there’s a 0.005 BTC fee), so the thousands of computers on that network have now collectively verified your file.

There are other ideas too, and they could be really, really important. For example, what about replacing ICANN (the organization that oversees web addresses on the Internet) with a blockchain? You know all those fights about whether the US should maintain control of the Internet or hand it over to the UN? They could potentially (potentially) be sidestepped.

The folks at TechCrunch are even more excited:

You see, it’s not that hard to imagine other blockchain-based systems which aren’t currencies and don’t attract as many “colorful personalities.” Suppose you replaced the Internet’s centralized Domain Name System with a blockchain for Internet names (like Namecoin) such that every DNS request included some proof-of-work effort. Or you used any blockchain (including Bitcoin’s) as a notary service. Or you built a new blockchain for crowdfunding. Or you replaced a centralized system which absolutely does need to be scrapped — that horrific barrel of worms known as TLS/SSL Certificate Authorities — with a blockchain-based solution powered at the browser level.

Or you built a new distributed email service, with a blockchain for email addresses, and every time you checked your email you contributed to the network. Or a new distributed social network, with a blockchain verifying identities, powered by code that ran every time its users launched its app or visited its web page.

For me, this is a really big “ah ha” moment. It’s always been a bit confusing that a serious guy like Andreessen Horowitz would put his capital into what was, until now, basically understood to be more of a goldrush / speculative gamble than a new technology. Well, it turns out that he’s been talking about this for months already.3 Horowitz gets it, and now I get why a serious guy like Horowitz is so vested in Bitcoin. It’s not about Bitcoin. It’s about the blockchain. It’s about a distributed trust system.

This is a big deal. If you’re interest is as piqued as mine was, here are a couple more articles for you to check out.

Bitcoin 2.0: Unleash The Sidechains

“Cryptocurrencies will create a fifth protocol layer powering the next generation of the Internet,” says Naval Ravikant. “Our 2014 fund will be built during the blockchain cycle,” concurs Fred Wilson. And Andreessen Horowitz have very visiblydoubled down on Bitcoin.

Tomorrow’s Apps Will Come From Brilliant (And Risky) Bitcoin Code

The bitcoin platform (or blockchain) allows for the deployment of decentralized applications that combine the benefits of cloud computing — in terms of ubiquity and elasticity — with the benefits of P2P technologies in terms of privacy and anonymity.


1 thought on “Bitcoin: More Important Than You Think”

  1. The most interesting work going on right now is in a bitcoin successor called Ethereum, which makes it possible to execute arbitrary code on a blockchain. This will unleash an economic revolution as distributed autonomous organizations begin to carry out human wishes and engage in arbitrage of micro-transactions at a far more efficient level than humans ever could.

    Ethereum will be launching publicly before the end of the year and is expected to reach parity with bitcoin shortly after its launch. There will be a buy-in period before the launch that will require people to buy-in with bitcoins in exchange for “ether.” So get some bitcoins ready for launch time. I expect that initial investors will reap huge returns.

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