Bank of England: Bitcoin is “Harder Money” than Gold Due to Deflation

Bitcoin Magazine
Bank of England: Bitcoin is “Harder Money” than Gold Due to Deflation
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During a presentation on digital currencies entitled “Old Money, New Money,” Andy Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics of the Bank of England and his team stated that “Digital currencies are ‘harder money’ than a gold standard” because “sustained adoption [of bitcoin] would see ongoing deflation.”

Haldane began by explaining the basics of bitcoin and its “advantages and disadvantages” as a peer to peer payment system. Haldane and his team described bitcoin in 4 main aspects:

Distributed: greater resilience, no central control, a coordination problem
Pseudonymous (and possibly anonymous)
Push-only (no ‘direct debits’): payments are final and cannot be imposed
Individually cheap, but socially expensive (but this could be fixed)

Haldane continued to expound that bitcoin could disrupt the traditional financial industry, due to the world’s severely underbanked regions and the surge of increase in smart phone usages.

2 million UK adults do not have bank accounts and 2.5 billion people in the world have no access to financial services, said Haldane. However, given the estimate that 80% of the world’s population will own a smartphone within 5 years, Haldane believes that many could turn toward digital currency to store their savings.

Despite his positive comments and presentation on bitcoin, Haldane brought a closure to his talk by saying, “The least interesting thing about Bitcoin, and other distributed ledger systems, is that they are digital. Digital currencies are important for how they deploy the available technology in a new way.”

 

Photo Katie Chan / Wikimedia (CC)

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Glidera Launches First Non-Custodial Bitcoin Buying Service for Wallets
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The bitcoin space just got a bit more user-friendly as Glidera, a Chicago-based digital currency company, launches the first service to allow wallets to use an API that will allow users to buy and sell bitcoin directly from their applications.

By simply clicking a button, users will be able to buy and sell bitcoin from their wallets without going through an exchange or other third-party provider if those sites integrate Glidera’s new service.

“Much of our motivation in developing this new service was to further promote a decentralized bitcoin ecosystem – giving users increased control over their bitcoin and more independence from third-party institutions,” Glidera CEO David Ripley said in an interview with Bitcoin Magazine.

Unlike existing buy/sell services, Glidera never takes custody of a customer’s funds, but merely enables the transaction, ensures that it is “legal” and meets any regulatory requirements, and is 100 percent secure, the company says.

Glidera prides itself on its world-class security system that ensures users funds remain safe at all times.

“We see many fantastic wallets, applications, and developer tools in the bitcoin ecosystem, but nearly all do not enable users to buy and sell bitcoin,” Ripley noted. “Glidera lets any wallet developer offer the ease of use of an integrated conversion service.”

At launch on Friday, Glidera’s service will offer U.S. dollar/bitcoin for both buying and selling. The company has plans to expand to other digital currencies and is seriously looking to carry Ethereum’s currency, ether.

“We serve as the bridge between the traditional financial system and the bitcoin ecosystem, allowing developers to focus on what they do best: building great applications with a great user experience,” added Ripley.

“Glidera also provides a revenue-sharing program for wallet providers and application developers, providing a continual stream of revenue instead of a one-time sign-up bonus from other services.”

Glidera recently won best startup at the Inside Bitcoins convention in Chicago and was selected by Techstars Chicago, as one of the world’s premier startup accelerators.

Bitcoin developers can now begin using the Glidera development kit to build integrations into their applications.

 

Photo ulifunke.com / bitcoin.de

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Everything You Need to Know about the Proposed Changes to the Bitcoin Block Size Cap
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Bitcoin has entered into a new phase of its existence. Prominent developers Mike Hearn and Gavin Andresen have made changes to the alternative Bitcoin implementation Bitcoin XT, designed to fork Bitcoin’s blockchain in order to allow for bigger blocks.

Bitcoin users and – in particular – miners are, therefore, faced with a choice. Will they support Bitcoin XT and vote for an 8 megabyte block-size limit – doubling every other year? Or will they stick to Bitcoin Core with 1 megabyte blocks, limiting the Bitcoin network to a maximum of seven transactions per second?

Or at least that is the choice as it is often presented. In reality, the possibilities are not binary. At the time of publication of this article, two other Core developers have proposed three more Bitcoin Improvement Proposals (BIPs) to increase the block-size limit, and an even wider spectrum of ideas has been suggested on the development mailing list, forums, chat rooms and other media. This article presents an – undoubtedly incomplete – overview of these ideas, categorized in six types of solutions.

Solution 1: No Cap on Block Size

A first option is a full removal of the block-size limit. Such a cap on the block size, after all, constricts the number of transactions on the Bitcoin network, which could become a barrier to adoption or utility at scale.

Satoshi Nakamoto originally implemented the block-size limit as a quick fix to avoid denial-of-service (D0S) attacks on the Bitcoin network. But since Bitcoin’s creator has gone silent, most of Bitcoin’s developers have come to believe that the block-size limit might actually serve more purposes than just the prevention of DoS attacks. The arguments to keep a block-size limit today are diverse, but can be divided into two main categories.

First, a block-size limit might be needed to avoid centralization of the Bitcoin network, and, in particular, further centralization of mining. Perhaps most importantly, bigger blocks would take longer to propagate to other miners when first found. A longer propagation time should lead to a higher orphan rate, as more miners would be mining on older blocks, while newer blocks are still finding their way through the network. That would, in turn, incentivize miners to join larger miner pools, as they find blocks more often, and therefore don’t need to wait for the propagation of new blocks as often.

Second, facing a diminishing block reward, and barring radical alternative solutions, scarcity in the blocks might actually be needed to secure a long-term income for bitcoin miners. After all, miners effectively sell the space in blocks to fill them with transactions. But if the space in these blocks is not scarce, competing miners could always undercut other miner’s fees in a race to the bottom, until fees reach a near-zero level and miners earn close to nothing to reinvest in hashing power. The end result could be an insecure network.

Solution 2: A Fixed Cap on Block Size

The simplest and current solution to solve this problem is the implementation of a fixed cap; a block-size limit set by Bitcoin’s core development team and embedded in the Bitcoin protocol. This fixed cap is currently still 1 megabyte, as set by Satoshi Nakamoto, but is slowly coming within reach as the number of transactions on the Bitcoin network continues to increase.

In order to prevent blocks from filling up, several other limits have been proposed. As a last-ditch effort before shifting his efforts to Bitcoin XT, Andresen suggested raising the block-size limit to 20 megabytes– although this was never formalized into a BIP. A conglomerate of Chinese mining pools later indicated that 20 megabytes might be problematic, as “the great firewall of China” could limit the propagation of Bitcoin blocks over the network, and instead proposed a compromise to 8 megabytes. And since consensus was still not reached, Core developer Jeff Garzik recently submitted BIP102 to double the maximum block size to 2 megabytes in order to buy time to come up with better solutions. Naturally, every other size could be picked as a possible limit as well, whether it’s 4 megabytes or 400 gigabytes, or even a decrease in size as Core developer Luke Dashjr suggested.

A slight variation to this idea, as recently proposed by Core developer Sergio Lerner, is to hold onto the 1 megabyte limit, but speed up the block interval. If 1 megabyte blocks are found every five minutes instead of 10, that would allow for double the amount of transactions on the network while also decreasing confirmation times.

Solution 3: A Growing Cap

Arguably the biggest problem with a fixed cap – any fixed cap – is that it is hard to change. A change of the block-size limit requires a hard fork, meaning all users need to make the switch in order to not be left behind on the old blockchain. This is no easy feat on a decentralized network, especially if different participants of that network vary in their preferences. Furthermore, since the number of transactions on the Bitcoin network is optimistically expected to keep rising, while the cost of bandwidth and hardware is optimistically expected to keep falling, it is broadly assumed that the block size should grow over time.

This is why Andresen proposed a growing block-size limit. Based on Moore’s Law and Nielsen’s Law, his first public suggestion was to automatically increase the limit by 50 percent per year, which he later readjusted to 41 percent per year – or 100 percent per two years. Combined with an initial bump to 8 megabytes (a number picked in accordance with Chinese mining pools), he formalized this proposal in BIP101. Since it was not adopted by the Bitcoin Core development team, Andresen has programmed BIP101 into Bitcoin XT, to be triggered once 75 percent of hashing power has expressed support.

Another Core developer, Pieter Wuille, thinks Andresen’s preferred growth rate is much too progressive. Based on research by Blockstream colleague Rusty Russell, Wuille believes average internet connection speed will not be able to keep up with Andresen’s proposal. Wuille has, therefore, proposed to increase the block size limit by 17.7 percent per year starting in 2017, which he formalized in BIP103.

But much like the fixed cap, any set growth rate can theoretically be picked. Perhaps Russell’s revised figures – he now suggests 30 percent yearly growth should be OK – will lead to another BIP in the near future?

Solution 4: A Dynamic Cap

Regardless of the preferred figures, a set growth rate has its own problems. Most importantly, it typically includes predictions about the future – and no one can reliably predict the future. The growth of Bitcoin usage has proved to be rather unpredictable over the past years, and historic technological improvement rates defined by Moore’s Law or Nielsen’s Law are in reality not laws at all – rather, trends.

This is why some suggest that Bitcoin might need a dynamic cap instead of a fixed cap or a cap based on a set growth rate. A dynamic block-size limit would, much like the mining difficulty, readjust itself automatically, based on a pre-defined rule set. And again, there have been multiple ideas on how to define this rule set.

Another of Andresen’s suggestions is to readjust the block-size limit on the basis of the size of recent blocks. This in itself can be done in multiple ways, and Andresen agreed to take the average size of the last 144 blocks (about a day’s worth), and double it to represent the new limit. If the blocks of the past day were an average of 1 megabyte in size, the limit would automatically be set on 2 megabytes.

A similar proposal entailed to adjust the maximum block size once a certain threshold is reached. For instance, when a series of blocks would on average reach 90 percent capacity, the block size limit could automatically readjust upward. Or, if a series of blocks would not even reach 50 percent of the maximum allowed block size, the limit could automatically readjust downward.

But it’s also possible to use parameters not even directly related to the block size. The block-size limit could, for example, be linked to the total amount of fees in a block. Or it could be based on the mining difficulty, as proposed by Core developer Gregory Maxwell. As long as it’s an internal parameter, Bitcoin’s block size limit can be tied to it.

Solution 5: A Cap Chosen Through Voting

Almost all interesting dynamic cap suggestions, however, seem to have one common weakness: The data that informs the new dynamic cap on the block-size limit can often be manipulated. For instance, miners could send transactions to themselves in order to fill up blocks or to increase fees.

Therefore, a more transparent solution could be a direct vote, possibly on some kind of regular interval. This solution begs another question: Who gets to vote? An obvious option would be to allow all Bitcoin users a vote. But unfortunately, it’s not really possible to determine who Bitcoin’s users are, while it’s easy to game elections by posing as multiple entities.

However, it is possible to vote with bitcoin. This could easily be done by setting up burn-addresses as voting booths. Anyone could partake in the elections, though it would cost money to do so, as the bitcoin used to vote would be lost forever. This way, the side of the debate that is prepared to spend most bitcoin on its desired solution wins. Elections would literally, and intentionally, be up for sale.

It’s also possible to organize a one-bitcoin-one-vote election without the need to burn bitcoin. As endorsed by Core developer Peter Todd, bitcoin holders could vote on the block size with the bitcoin they control, meaning the biggest stakeholders in the Bitcoin economy would have most of the influence on the block-size limit.

And lastly, of course, there is the voting method that is already used to determine consensus within the Bitcoin network: hashing power. Hashing power currently gets to determine what the longest chain is, and it also could be used to vote on the block-size limit. This idea was formalized by Core developer Jeff Garzik in BIP100. BIP100 transfers the power to set the block-size limit from the Core development team to the Bitcoin miners by allowing miners to include a message into freshly mined blocks indicating they want to mine bigger – or smaller – blocks. If 90 percent of hashing power endorses either bigger or smaller blocks, the block-size limit will double or halve each 90 days.

As a possible downside of BIP100, miners – and especially large mining pools – would of course gain even more power over the network than what they have today. But at least it would be transparent.

Solution 6: Extension Blocks

A completely different solution is conceived by hashcash inventor and Blockstream CEO Adam Back. In what is perhaps the most advanced idea to date, Back proposed allowing so-called “extension blocks” on the Bitcoin network. In essence, extension blocks would be an opt-in solution. The 1 megabyte limit could remain intact, while users and miners who’d be willing to handle bigger blocks – say 10 megabytes in size – could run software to process these as well. This would introduce a new dimension to Bitcoin usage, as it would essentially create multiple blockchains with the same bitcoin – the 1 megabyte blockchain would simply be more secure than the 10 megabyte blockchain.

Furthermore, it would still be possible to accept, store and spend bitcoin on the 10 megabyte blockchain, while running only a full node for the 1 megabyte blockchain – or even no full node at all. Users could, for instance, run a full node for the 1 megabyte blockchain on which they store the bulk of their money, while using an SPV wallet for the 10 megabyte blockchain for day-to-day payments. Bitcoin would, of course, be transferable from the 10 megabyte to the 1 megabyte blockchain, though the decreased security on the 10 megabyte blockchain would suggest to wait for some extra confirmations before trusting the payment on the 1 megabyte blockchain.

Bonus Solution: Flexible cap

Finally, flexible caps deserve a mention. While not really a complete solution to the block-size issue as a whole – some type of limit still needs to be set somehow – flexible caps could relieve the Bitcoin network from a lot of stress. Separately proposed by Core developers Meni Rosenfeld and Gregory Maxwell, flexible caps don’t really have a hard limit on the maximum block size, but, instead, penalize miners for producing bigger blocks. As such, a sudden influx of new users, or a surge in transaction volume, would not lead to a severe backlog of transactions that could potentially crash the network. Instead, flexible caps would allow room for growth, while at the same time indicating the limit should be adjusted to improve network performance.

The Good News and the Bad News

The good news is that the block-size issue is being widely discussed by smart people coming up with inventive solutions. A number of new ideas have been proposed, while it’s also possible to combine different solutions into new proposals. A dynamic cap, for instance, could easily be combined with a voted cap. Or a flexible cap could be attached to a fixed cap. Or an extension block joined with set growth. It’s even possible to mix three or more solutions to construct a completely unique approach. And, who knows, maybe some genius mathematician or programmer will come up with an entirely novel long-term solution for the block-size issue.

The bad news, however, is that this long-term solution has probably not yet been conceived; every single possibility so far seems to effectively “kick the can down the road.” All sides of the debate acknowledge that Bitcoin will ultimately need additional scaling solutions built on top of the protocol layer, and possibly a revision of the funding structure to reward miners. Bitcoin is still an experimental work-in-progress, with no clear-cut solutions. In an often heated debate, that is the one thing practically everyone agrees upon.

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Erik Voorhees: The Separation of Money and State is the New Separation of Church and State
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Shapeshift.io CEO Erik Voorhees was interviewed by Decentralized Applications Fund Managing Director David Johnston at the Texas Bitcoin Conference in late March, and the topics covered in the fireside chat involved everything from Bitcoin regulation to Voorhees’ evolving stance on altcoins.

Near the middle of the discussion, Johnston asked Voorhees about his philosophical beliefs and what drives him to continue his successful work in the Bitcoin space. Voorhees responded with a fascinating analogy between the freedom to choose one’s religion and the freedom to choose one’s money.

The Separation of Church and State

When first asked about what drives him to continually push Bitcoin to as many people around the world as possible, Voorhees was quick to point to the separation of church and state. He explained that this is something nearly everyone in developed nations agrees with and understands, and he would like to see this freedom of choice applied to other areas of society:

“We all grow up in school – most of us, sadly, in public school – but, nevertheless, we learn about this thing that happened hundreds of years ago, which was the separation of church and state. We learn why that was so important that humans used to live in societies under which their religion – something very personal and precious to them as individuals — was under the management of an organization that could control those things. [They] could tell you what to worship and how, when and why. Somehow, society realized perhaps that was unethical – that we shouldn’t permit control of something so personal and important to your life to be controlled by the state.”

The Separation of Money and State 

After discussing the separation of church and state, Voorhees applied the philosophy of freedom of choice to money. The Shapeshift.io CEO claimed the freedom to choose your money is, for many people, more important than being able to choose a religion. He noted that a separation of money and state might be just as – if not more important than – freedom of religion:

“It is that narrative of human development under which I believe that we now have other fights to fight, and I would say in the realm of Bitcoin it is mainly the separation of money and state. Money is absolutely as fundamental to our lives as religion, and for many people it is far more fundamental to their lives as religion. It affects how your life unfolds. The choices that you make about money dictate the ramifications of your life and those around you. And so, to have an institution like money so controlled by a central entity — by a monopoly — is absurd. It is immoral. We should get rid of it.”

The idea of free markets is still somewhat popular in the United States, but this logic never seems to apply to money. Although many Republicans often espouse the benefits of the free market in various political speeches, essentially none of them bring up the idea of competing currencies. Most politicians in any part of the world seem rather selective when it comes to which markets are allowed to freely operate without government intervention.

Bitcoin Can Bring About This Much Needed Change

Due to the decision by lawmakers to create a monopoly on money in each, separate jurisdiction, it has been difficult for alternative forms of money, such as gold and silver, to compete. Although the struggle in the past has been to convince politicians to allow different forms of money to compete with fiat currency, Voorhees alluded to the fact that Bitcoin may create a situation where those politicians don’t have a choice in the matter:

“It seems crazy to say this, but perhaps we should permit competition in money, permit competition in financial structures, just as we permit competition in religion. We allow multiple churches to exist. Why do we do that? And why don’t we do that with money? I think it’s a hypocrisy that our children will someday look back on and realize, ‘Wow, that was really obvious.’ And Bitcoin is what will bring that change about.”

Bitcoin is already competing favorably against the Venezuelan bolivar when it comes to its usefulness as money, but it still has a long way to go before it can take down giants like the U.S. dollar or euro. Such a revolutionary change in what people use as money may never happen, but at least there is now competition for fiat currencies.

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Factom Launches Release Candidate 2 in Preparation for Beta
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On July 6, 2015, Bitcoin Magazine reported that the Factom Foundation had launched Release Candidate 1 (RC1), a crucial step for launching the Factom network. Over the ensuing 5 weeks, community developers and programmers have been testing and debugging the network in order to reach all the goals set out in Factom’s Milestone 1.

Today in a blog post, Factom has announced the launch of the Release Candidate 2 (RC2) version of the Factom Beta. Again, it is asking for developer input as it works toward its next milestone: Factom Genesis.

According to Factom’s post, RC2 includes the following:

Better Factom block syncing & downloading
Tested for high numbers of entries
Improved server to client messaging and error handling
Some limited code refactoring and reorganization

Once Milestone 1 is achieved, funding from the software sale will be released. At this point, holders of Factoids will be able to utilize their tokens on the network and to exchange them on Cryptsy and ShapeShift.

To celebrate the network’s progress, Factom will be hosting a launch party in Austin, Texas on Tuesday, September 1, featuring speeches from Peter Kirby and Paul Snow which will be broadcast to the community, along with a Q&A on Zapchain.

Earlier this year, Tatiana Moroz caught up with Tiana Laurence, chief marketing officer at Factom, to learn more about the project.

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