Unless you've been living under a rock for the past few years, you'll have heard about bitcoin, but how much do you really know about this form of cryptocurrency? Find out with our Bitcoin Basics Quiz.
Quiz image via Shutterstock
Unless you've been living under a rock for the past few years, you'll have heard about bitcoin, but how much do you really know about this form of cryptocurrency? Find out with our Bitcoin Basics Quiz.
Quiz image via Shutterstock
JPMorgan CEO Jamie Dimon issued new remarks on bitcoin and the blockchain as part of the Barclays Global Financial Services Conference in New York today.
During a 40-minute question-and-answer session, the noted bitcoin skeptic suggested that JPMorgan is optimistic about the potential use cases for bitcoin's underlying distributed ledger, the blockchain, and other distributed ledgers.
According to a report by American Banker, the CEO further spoke to the growing interest among major banks in blockchain technology and its applications, stating:
"We have a study group on this whole thing. I think most of the banks do at this point."
However, he cautioned that it's still unclear whether blockchain-based solutions will be more efficient and secure than post-trade financial services products such as those offered by companies like Depository Trust & Clearing Corp.
The statements followed the news that the global financial giant had partnered with distributed ledger startup R3CEV alongside companies including BBVA, Credit Suisse, Goldman Sachs and UBS.
As part of the deal, announced Tuesday, R3CEV will work with JPMorgan and its eight partner banks on unspecific proofs-of-concept relating to use cases for blockchain technology.
The Bank of England’s top economist has suggested that a digital currency based on bitcoin could alleviate monetary policy problems.
Andrew Haldane, the UK central bank’s chief economist and executive director for monetary analysis and statistics, spoke at the Portadown Chamber of Commerce in Northern Ireland on 18th September. During his speech, Haldane offered several ways in which central bankers can conduct monetary policy during a period when interest rates are close to or below zero.
Haldane suggested that central bankers consider making measures like quantitative easing a permanent part of their policy toolkit. However, he warned that trust in central banking could be marred as a result.
One solution, he said, would be for the Bank of England to issue a state-backed digital currency based on bitcoin. Supporting this initiative would be a negative interest rate levied on paper currency relative to the digital currency. Conversely, Haldane suggested that paper money be banned entirely.
On the subject of bitcoin, Haldane joined a growing chorus of central bank figures in pointing to the benefits of bitcoin and, more broadly, blockchain-based transaction systems. He said in the speech:
“What I think is now reasonably clear is that the distributed payment technology embodied in bitcoin has real potential. On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. Bitcoin’s 'blockchain' technology appears to offer an imaginative solution to that distributed trust problem.”
Yet the issue of opting to use a digital currency backed by the Bank of England, according to Haldane, is still very much unresolved.
“Whether a variant of this technology could support central bank-issued digital currency is very much an open question,” he said. “So too is whether the public would accept it as a substitute for paper currency. Central bank-issued digital currency raises big logistical and behavioural questions, too. How practically would it work? What security and privacy risks would it raise? And how would public and privately issued monies interact?”
“These questions do not have easy answers,” he added, before noting that Bank of England researchers are currently working on such initiatives.
Bank of England image via Shutterstock
A California politician has become embroiled in a growing controversy surrounding an investment company, an alternative digital currency and investors who say they’ve been duped.
According to reports by The Pasadena Star-News, state and federal regulators are investigating US Fine Investment Arts Inc (USFIA), a company backing a digital currency called Gemcoin. The Los Angeles Times reports that the US Federal Bureau of Investigation (FBI) is also speaking with investors who have accused the company of running a scam.
An official with the California Department of Business Oversight confirmed that an investigation was underway, the Star-News reported, but declined to comment further.
As a result of the growing controversy, Arcadia City Councilman John Wuo – who earlier this year made appearances at local events hosted by the company behind Gemcoin – has faced calls to resign. According to the LA Times, Wuo once called Gemcoin a "breakthrough in finance" and something that "has great potential for our economy".
A website associated with the digital currency, states that Gemcoin is "guaranteed by $15bn" and "perfectly legal".
Gemcoins are said to be earned when customers purchase a precious stone called amber. USFIA uses Gemcoins as a kind of reward token. According to the website, a purchase of $1,000 worth of amber gemstones would net 7.6 Gemcoins. A purchase of $30,000 worth of amber gemstones would result in a reward of more than 230 Gemcoins.
Wuo is now denying any wrongdoing, stating that his appearances were part of his duties as a local politician who supports local businesses.
"I haven't done anything. I don't have any association with [Gemcoin]," Wuo told the Times.
Further, the councilman has said that his likeness was unlawfully used by the company to promote Gemcoin. The Gemcoin website cites Wuo’s support at its events, including a launch party in September 2014.
Andrew Beal, corporate counsel for the company, told the LA Times that critics are wrong about Gemcoin and the company behind it. He said that the currency currently exists as a rewards program and will be converted into cryptocurrency tokens later this year.
Image via Shutterstock
The chairman of the Australian Securities and Investments Commission (ASIC) believes blockchain technology has the potential to fundamentally change the world's existing financial system.
Greg Medcraft, appointed chair of ASIC in 2011, made the comments during his speech at Australia's Carnegie Mellon University earlier this week.
According to Medcraft, distributed ledger technology could result in greater efficiency and speed, disintermediation, reduced transaction costs and improved market access.
Following an explanation of the blockchains's characteristics, Medcraft noted its potential rests on a series of factors:
"Naturally, harnessing this potential will depend on the integrity, capacity and stability of blockchain technology processes. It will also depend on industry's willingness to invest in, and make use of, new ways of settling and registering transactions."
"The potential is, nonetheless, enormous. Industry is seeing that potential and is looking to see how it and the markets might benefit," he continued.
Medcraft moved on to note the various ways in which regulators are responding to blockchain technology, saying:
"I have talked about the opportunities blockchain offers. But, as I have said, these opportunities can also threaten our strategic priorities of investor trust and confidence and fair, orderly, transparent and efficient markets."
Although he said it was not currently possible to know exactly how blockchain technology would evolve, he believes it will continue to do so.
Medcraft also said the implications for regulators were profound, but should not hamper innovation.
"As regulators and policymakers, we need to ensure what we do is about harnessing the opportunities and the broader economic benefits – not standing in the way of innovation and development. At the same time, we need to mitigate the risks these developments pose to our objectives. We also need to ensure those who benefit from the technology trust it," he noted.
Medcraft said ASIC was working to ensure the opportunities around innovation were being harnessed and in so doing was focused on five key areas, which included the education of market participants.
Additionally, the chairman noted that ASIC was also engaging with, and providing guidance to, industry players.
"I want to mention two particular activities. The first is our cyber resilience work ... the second is our Innovation Hub ... designed to make it quicker and easier for innovative startups and FinTech businesses to navigate the regulatory system we administer," he added.
The chairman also believes surveillance is key, explaining that ASIC monitors the market to understand not only how investors use technology and financial products, but also the risks that arise. He added:
"In the case of blockchain, there is a need for regulators to focus on and understand a series of issues, including how blockchain security might be compromised – who should be accountable for the services that make the blockchain technology work – how transactions using blockchain can be reported to and used by the relevant regulator."
Lastly, Medcraft highlighted ASIC's role in enforcement and issuing policy advice whilst pointing out the commission's intention to continue monitoring regulation:
"We will continue to review the current regulatory framework, analyse how new developments, such as blockchain, may fit into the framework and identify where changes may be required."
The chairman's comments come after the Australian Senate Economic References Committee asserted that digital currency transactions should be treated in the same way as fiat transactions when it came to Goods and Services Tax.
Australia flag image via Shutterstock.
The question of how to best increase the transaction processing capacity of the blockchain may be bitcoin's current crisis, but that isn't stopping researchers from working to solve more forward-looking issues.
Held last weekend in Montreal, the inaugural Scaling Bitcoin marked the first major conference for developers, and as such, it featured a broad sampling of technical experts working on solutions to problems that may come to light as knowledge of blockchain technology advances.
One of the more novel proposals to debut at the event was developed by Cornell post-doc student Ittay Eyal, PhD student Adem Efe Gencer, computer science professor Emin Gün Sirer and research scientist Robbert Van Renesse. Called Bitcoin-NG (the "NG" is short for "next generation"), the proposal is envisioned as a solution to "inherent problems" in blockchain design, both in bitcoin and alternative distributed ledgers such as Ethereum.
Eyal said that behind Bitcoin-NG is the belief that there are more fundamental issues with the design of blockchains that will make scaling any implementation, public or private, a challenge.
Eyal told CoinDesk:
"For securities markets, for transacting digital assets, if you want to have all of these on a blockchain, you will need significant scaling."
One of the most pressing problems, the team behind Bitcoin-NG argues, is that as the size of data blocks on a blockchain increases, so does the risk that the blockchain forks, resulting in competing versions of the public record of past transactions and inefficiencies in network communication.
Bitcoin-NG, according to Eyal, was an exercise in identifying issues that arise when individual transactions and blocks of transactions are verified and propagated over a blockchain network, as well as the benefits that should be maintained in any redesign.
Ultimately, the researchers behind Bitcoin-NG came to the conclusion that blocks on a blockchain have two separate functions – electing a 'leader' that decides which transactions are included in the main blockchain and distributing a reward to the miner.
"When you place a block in the [bitcoin] blockchain, then you implicitly say I'm the leader from the previous block until now and that's the order of the transactions I decide for this period," he explained.
Bitcoin-NG proposes composing a blockchain of two separate types of blocks: 'key blocks' that decide a 'leader' and 'microblocks' that feature transactions for a specific amount of time in the future.
Leader miners would be awarded the entirety of the block reward, while splitting fees on transactions between keyblocks with the previous leader.
Eyal indicated that it took the team a while to hone in on a central thesis for its research, that forks, while currently happening a few times a day in bitcoin, will be more common should transaction blocks be larger.
The researcher suggested that this problem can't be solved by changing the block size or frequency of a given network, and that scalability will require greater changes. First, however, Eyal said metrics for the analysis needed to be identified.
"You need metrics to realize what you're trying to optimize and the metrics are intuitively very clear, you want a transaction to be placed in a blockchain as fast as possible, you want to see it there and you want to be able to place as many transactions as possible," he said.
The most important metric developed during the process, according to Eyal, was the idea of "consensus delay", or how long into the past most nodes agree on the state of the blockchain.
"Everyone agrees on everything that happened in the blockchain history from one hour ago and back. But what about inside one hour? If there are forks and there are a lot of forks, then surely we don't agree," he continued.
Additional metrics used by the researchers included "time to prune", or the time it takes for miners whether they are on the correct "branch" or version of the blockchain they are processing transactions. As block sizes increase, Eyal suggested time to prune increases.
Also considered were mining power utilization, or the ratio of completed blocks that end up on the main chain, and 'time to win', the period of time before all miners agree that a given version of the blockchain is the longest so as to expend resources accordingly.
As for inspirations, Eyal cited Greedy Heaviest-Observed Sub-Tree (GHOST), a research proposal that envisions how a main chain could be better selected from the variety of competing forks.
Proposed by researchers Yonatan Sompolinsky and Aviv Zohar in 2013, GHOST was also considered during the development of the alternative blockchain Ethereum, which aims to serve as a network for distributed applications.
"There were two points made in the paper," Eyal explained. "GHOST has a different way of choosing chains. In bitcoin, you choose the longest chain and it becomes the main chain. This is popularly known as an orphan block. This is the wrong word, it's a pruned branch. GHOST has a different way of choosing the longest branch."
Eyal indicated that the longest chain doesn't necessarily have the most blocks, and that in bitcoin, one with less blocks, but more branches, could be selected.
"The other thing they add is the idea of inclusive blockchain where if you have a branch you can later merge transactions back into the main chain," Eyal continued.
To better facilitate these processes, Bitcoin-NG's system is one in which keyblocks use proof-of-work like bitcoin and only leaders generate microblocks, though they come in shorter intervals. In the proposal, keyblocks are generated every 10 minutes, while microblocks are generated every 10 seconds.
Sixty percent of mining fees generated during this time go forward to the next miner, Eyal said, motivating it to place itself in the chain as last as possible. The current leaders get 40% of fees.
"Why 40%? Because we have to make some assumptions about the size of the attacker, and we don't want the attacker to be motivated about mining multiple blocks, it becomes complicated. It could be 10%, but then larger miners might be motivated not to place transactions in blocks," Eyal said at the conference.
To date, Eyal said that Bitcoin-NG has already been implemented on bitcoin's code case, and that this network has been the subject of some experimentation.
Still, he said it would likely be some time before anything like Bitcoin-NG is implemented on the bitcoin network, mostly due to the difficulty of reaching consensus given the disparate stakeholders in the open-source project.
"In theory, it's possible to just fork bitcoin or hard fork bitcoin to use this new protocol and increase scalability for much better latency and bandwidth. As you saw with the blocksize discussion it is difficult to make changes, let alone major changes with this consensus mechanism," he said.
Currently, Bitcoin-NG is operating as a testbed running 1,000 nodes. Eyal and his team are using a Cornell data center for the experiment, with 150 machines running seven clients.
Going forward, he said the team hopes to conduct its work on a larger scale, publish a white paper and ultimately release Bitcoin-NG to the public.
Though testing needs to be done, Eyal was optimistic Bitcoin-NG could contribute to the current blocksize debate through the metrics it used to determine its design, concluding:
"We saw that we were able to do something that you don't get to do a lot, improving bandwidth and efficiently. We're trying to see how far we can get without changing the properties, we want the same level of security, bandwidth and latency [as bitcoin], or better."
For more information on Bitcoin-NG, read the full transcript from Eyal's Scaling bitcoin talk here.
Computer networking image via Shutterstock
Bitcoin in the Headlines is a weekly analysis of bitcoin media coverage and its impact.
The bitcoin and blockchain industry have a new major newsmaker: distributed ledger startup R3CEV.
Leaving behind a week filled with impressive funding rounds, the coverage over the last few days has been largely dominated by the company's partnership with nine well-known banks including JP Morgan and Goldman Sachs.
Journalists from across the world jumped at the chance to cover the news – perhaps still a sign that mainstream media will deem industry events newsworthy if traditional finance is involved.
In stark contrast, more negative news events received less attention, and were far more focused on the other half the blockchain – bitcoin, the digital token for which the blockchain acts as a ledger.
BitPay's phishing attack – which resulted in the loss of $1.8m – received less widespread, but more derisive coverage. Elsewhere, reports about Mt Gox CEO Mark Karpeles' charge with embezzlement carried over from last week.
The news that nine of the world's biggest banks had partnered with distributed ledger startup R3CEV caught the attention of the Financial Times' Philip Stafford, who began his piece emphasizing the group's intention to drive the adoption of blockchain technology.
Stafford wrote:
"Nine of the largest investment banks, including Goldman Sachs, JPMorgan and Credit Suisse, are planning to develop common standards for blockchain technology in an effort to broaden its use across financial services."
Stafford continued to note that the blockchain, which he described as bitcoin's underlying "computer network", had caught the eye of the financial services industry in the past six months for "its potential to overhaul the sprawling and complicated network of bank payments and settlements".
Interestingly, the journalist's assertions follow on from Blythe Masters' comments during a panel at Consensus 2015 – CoinDesk's inaugural conference held in New York last week – where she noted how distributed ledger technologies could serve to eradicate the pain points affecting the financial industry and its ecosystem.
The article, which then went on to give an overview of the financial industry's interaction with blockchain technology, also noted:
"Banks, exchanges and settlement houses are exploring ways to harness the much-hyped technology to reshape many of their daily operations, from upgrading old back-office systems and outsourcing billions of dollars in costs to automatic execution of contracts."
The Wall Street Journal's Paul Vigna was also quick to point out Wall Street's increasing interest in blockchain technology:
"This year has seen a number of efforts on the Street, from both startups and established banks, to use blockchain as the basis of new platforms and products."
Examples cited by Vigna included Blythe Masters' appointment as CEO of Digital Asset Holdings and itBit's plans to reveal its own distributed ledger, BankChain.
Global financial services association BAFT is set to drive bitcoin and blockchain awareness with the launch of its new FinTech scheme.
The association, which deals with a wide range of topics affecting transaction banking, launched the initiative in an attempt to draw attention to the various innovative technologies that are currently transforming services such as cross-border payments and trade finance.
Tod Burwell, BAFT president and CEO, said:
"Emerging technologies such as blockchain technology, distributed ledgers and virtual currencies are redefining how supply chains operate and payments are executed. Our members understand the critical impact this will have on our industry and have made it a top priority."
With the launch, the association will also attempt to serve as a vehicle for addressing regulatory issues for both banks and FinTech companies and will attempt to engage more of the latter as members.
Additionally, BAFT will create a FinTech and Innovation Council to guide its efforts around emerging technology and payments and drive execution.
Among other tasks, the council will be responsible for building on the association's seven-part webinar series on blockchain technology, which launched on 15th September.
The association will also hire a senior vice president of payments and innovation.
Bitcoin image via Shutterstock.