Santander Bank to Launch Blockchain Challenge

Bitcoin Magazine
Santander Bank to Launch Blockchain Challenge

Santander Innoventures, the $100 million fintech venture capital fund of multi-billion dollar Spanish banking group Santander, has partnered with startup agency OneVest to run a Distributed Ledger (DL) Challenge for early-stage startups.

Specifically, the bank will be actively searching for blockchain-based startups targeting mortgage processing, trade finance and asset leasing, and technologies which could help the bank bridge conventional payment systems with decentralized payment networks like the blockchain.

“Distributed ledger technologies will create huge value for customers, banks and entrepreneurs who create new businesses around it. The Challenge will spark and accelerate that process for fintech startups,” announced Santander InnoVentures managing partner Mariano Belinky.

The DL Challenge will be one of many financial technology initiatives the bank will direct, as announced during its participation in the tech industry WebSummit event in Dublin.

The winner will receive a US$15,000 grand prize and guaranteed investment from the bank’s venture capital fund. Other promising startups will also receive the opportunity to pitch for potential investment from its partnering venture capital funds and angel investors.

Prior to today’s announcement, Santander Group recently joined other global strategic investors to lead Ripple’s $32 million Series A funding round. The bank aims to maintain close relationships with Ripple Labs and its blockchain-based startups to explore potential use-cases of the blockchain technology in the traditional financial sector.

The blockchain technology could help banks cut between US$15-20 billion annually by 2022, the bank explains. The transparency and solid security protocols of the distributed ledger technology could reduce bank’s infrastructure costs in securities trading, asset settlement and regulatory compliance.

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Are Blocks Filling up, and Is That a Problem?

With the recent spike in bitcoin’s exchange rate, there has been a surge in transaction volume on the Bitcoin network, too. And while most in the Bitcoin community welcome the significant uptrend, some have also expressed concern. This might be the first “Bitcoin boom” to be influenced by the 1 megabyte maximum block size, which limits the number of possible transactions on the network to about three per second.

Bitcoin XT developer Mike Hearn, in particular, predicted in May of this year that a new hype-cycle could lead to full blocks, rising fees, increased confirmation times, a bulging memory pool, nodes dropping of the network, more attempted double spends, and ultimately, users leaving Bitcoin for good.

So how are we doing so far?

Are blocks filling up?

Yes.

Blocks are filling up, or at least some of them are. The number of transactions on the Bitcoin network has roughly doubled over the past weeks, which has resulted in an average block size of about 700 kilobytes (0.7 megabyte). That is still below the maximum of 1 megabyte, but that is to be expected; for various reasons some miners produce some of their blocks well below the maximum capacity.

Are fees rising?

Yes and no.

The average transaction fee has been relatively stable over the past weeks. However, this is mostly because users (or their wallets) refrain from paying a higher fee, even though that would shorten the time for their transaction to confirm.

Unfortunately, statistics on the average fee required to have a transaction confirmed in the very next block are currently unavailable. But over the past week the average fee required to have a transaction included in the next two blocks has increased from 140 bits to about 200 bits.

Are confirmation times increasing?

Yes.

Average confirmation times have increased quite a bit. Transactions were previously included in blocks within some 12 minutes on average. At the height of the price spike, transactions took an average of about 30 minutes to confirm.

(Of course, as explained above, users who want to be relatively sure their transaction is included in the next block can opt to pay a higher fee.)

Is the memory pool building up?

No.

Well, not to problematic levels, that is. Of course, the memory pool – consisting of unconfirmed transactions waiting to be included in a block – is building up in between blocks. That is how Bitcoin is designed, and happens regardless of how full blocks are.

But so far, the memory pool has not been building up to unusual levels, and has been much larger in the past.

Are nodes dropping of the network?

No.

On average, there are no nodes dropping of the network. Over the past week, the number of full nodes has been stable at around 5,500. And this number has even risen a bit over the past couple of days.

Are double spends increasing?

Unknown.

Unfortunately, there are no reliable statistics available concerning the amount of attempted double spends by users who believe their transactions take too long to confirm. The only statistics that come close concern the number of failed transactions. These appear to be very high, but that is mainly because of the ongoing transaction malleability attack. As such, the statistics on actual double spends are skewed, and cannot be trusted.

Are users leaving?

Probably not.

While it is practically impossible to know for sure whether some users are disappointed in Bitcoin’s performance and leave completely, it seems unlikely for now.

Save for a slight increase of confirmation times (or required fees), Bitcoin is performing quite well. Moreover, volume on exchanges is huge and, based on the increased exchange rate, it seems fair to assume that more new users want to get in rather than out.

Conclusion

Despite some alarming forum posts, tweets and other reports, the spike in bitcoin’s exchange rate has so far not caused any serious capacity problems for the Bitcoin network.

Of course, this does not disprove Hearn’s theory, and does not in itself mean there is no reason for concern. If bitcoin’s surge maintains, and if volume on the network continues to grow, this might still lead to complications at a later stage.

But so far, all is well on Bitcoin’s blockchain.

Thanks to Blocktrail CTO Ruben de Vries for providing additional statistics.

The post Are Blocks Filling up, and Is That a Problem? appeared first on Bitcoin Magazine.

Can Flexcaps Settle Bitcoin’s Block Size Dispute?

The block size dispute, perhaps the first ever real political controversy within the Bitcoin community, has raged for years, with no clear long-term solution in sight.

Seven relevant BIPs (Bitcoin Improvement Proposals) have been submitted that could increase the maximum block size in order to allow for more transactions on the Bitcoin network, and alternative Bitcoin implementation Bitcoin XT is even attempting a blockchain fork to increase the limit.

But none of the proposed solutions seem to be gathering enough support to establish a new consensus. And even if a consensus is to be found before the end of the year, as desired by prominent industry leaders, it will most likely be a temporary solution designed to win some time.

However, there is some light at the end of the tunnel as far as long-term solutions go. So-called flexcaps, in particular, are favored by a significant segment of the development community. And at least one such a solution is submitted for consideration at the Scaling Bitcoin workshop in Hong Kong next month.

What are flexcaps and why are they needed?

Flexcaps are, as the name suggests, flexible caps on the block size. As opposed to hard limits – 1MB, 8MB, programmed growth, a voted maximum, etc. – flexcaps allow each block to vary in size, determined by the miner who mines the block.

Explaining why this might be a useful, Bitcoin Core developer and one of the flexcap auctor intellectualis’ Gregory Maxwell told Bitcoin Magazine:

Specific limits are almost always politically unstable. No one loves the particular number, whether it’s maximum immigration numbers, or limits on rent, or minimum wages… Even if people agree on the fundamentals of the trade-off, very few agree on the particular number that is set. The number stays where it is only because of constant political battling. In the case of Bitcoin, moreover, strict limits on the maximum block size don’t handle boost activity well. Short periods of time where for whatever reason the number of transactions on the Bitcoin network rises significantly, might cause problems at each pre-set limit.

In a post on Bitcointalk, mathematician and Bitcoin expert Meni Rosenfeld explained that he – like Bitcoin XT developer Mike Hearn – expects the Bitcoin network to crash if transactions systematically fill up blocks. But unlike Hearn, Rosenfeld believes the main problem is not so much the size of blocks themselves. Instead, Rosenfeld sees the fact that the Bitcoin network cannot handle full blocks all too well as the real problem, which is why he suggested a flexcap (“elastic cap”), too.

“[I]f Bitcoin can’t gracefully degrade in the face of rising transaction volume, we will have problems no matter what the current block size limit is,” Rosenfeld explained. “We should instead focus on fixing that problem.”

The proposed solution, therefore, is to allow miners to increase the limit on blocks they mine – but at a cost. By effectively charging miners for the creation of bigger blocks, there is an incentive for these miners to keep blocks smaller. Meanwhile, miners have the option to scrape up additional mining fees by (temporarily) creating bigger blocks. If the additional fees are worth more that the additional cost, it makes sense to increase size of a particular block.

These opposing incentives should result in a balance, a block size that is acceptable to developers, miners, users, and other network participants – at least in theory.

How does it work?

Flexcaps can be realized in several ways, with no fundamental difference between the different approaches. Whether to use one or the other is mostly a matter of personal preference, and it seems unlikely to cause great controversy.

The most basic type of flexcap was proposed by Rosenfeld. In Rosenfeld’s design, miners will need to pay a “fine” if they increase the size of their block. More specifically, a cut is taken out of their block reward. Instead of 25 freshly minted bitcoin, for example, they would receive only 24, or 20, or whatever the protocol dictates depending on the size of that block. And to prevent that the remaining bitcoin are lost forever, they are paid to the miner who finds the next block; a “rollover fee.”

Maxwell’s flexcap design has a similar goal as Rosenfeld’s: increasing the cost of creating bigger blocks – but achieves it in a different manner. Rather than cutting into the block reward, Maxwell’s flexcap design requires miners to mine at a higher difficulty level. If a miner wants to a create block 10 percent bigger than the norm, it needs to “pay” for that by mining the block at an increased difficulty, in effect needing to invest more energy (hence, money) on hashing.

It should be noted that neither solution would really solve the problem of over-sized blocks. They would, however, counter one possible attack on the Bitcoin network. Since bigger blocks favor bigger miners (presumably pools), any block size policy that allows miners to increase the block size incentivises big miners to do so; in effect centralizing the mining ecosystem. This includes any policy where the block size is adjusted on the basis of previous blocks, since miners can send themselves transactions for free, allowing them to create artifically big blocks and game the system.

Because flexcaps include a cost to increase the block size, the system cannot be gamed for free. After all, even if miners send themselves transactions, they still need to pay the flexcap “fine” for increasing the block size.

“The problem [of big blocks] remains, but users would have to pay fees to support it, Maxwell explained. “Miners can’t drive other miners off the network without actual activity in it. Miners can pay fees to themselves, but the cost they can’t pay to themselves is the higher difficulty of decreased block reward. They have to do more work to produce a block.”

It should be noted, however, that one remaining attack would be an “investment attack.” Big miners with deep enough pockets could pay the price for increasing the block size over a long period of time, simply to get rid of smaller competitors in order to gain a larger profit later on. While unlikely, this might still be a profitable strategy.

Limits and parameters

Flexcaps will not completely remove the need for limits on the block size. Most importantly, they still require a default maximum, above which a miner is “fined” one way or another. So how are these limits set?

In short: Setting default limits is not a problem flexcaps solve in and of themselves. But flexcaps can be combined with all sorts of other block increase proposals. Whether these are hard limits, or growing limits, or voted limits of any sort, a flexcap can typically be added “on top.”

One such solution is submitted to be presented at the Scaling Bitcoin workshop in Hong Kong by Bitcoin Core developer Mark Friedenbach. Friedenbach’s proposal uses a play on Rosenfeld’s rollover fee system, but with an added advantage for miners who prefer to create smaller blocks – which, among other advantages, could counter an investment attack.

Speaking to Bitcoin Magazine, Friedenbach explained:

Rather than simply gift the foregone subsidy to some future miner, the flexcap proposal I am working on would require the future miner to constrain the block they are working on to a smaller size in order to claim the held funds. If a miner creates a slightly larger block by claiming only 24 bitcoin, the next miner can create a slightly smaller block and claim 26 bitcoin.

In Friedenbach’s proposal, the default block limit is based on the size of previous blocks. While the parameters of this proposal are not set in stone yet, the network might take the median block size of the past two weeks, and set that number as the default limit for the next two weeks.

“By allowing and providing incentive for the block size to adjust both up and down as demand requires, we can ensure that the block size remains tied to the demands of users via the fee market,” Friedenbach explained. “This is really about making the fee market set the block size. It is the users who are voting with their money. Since there is a cost to raising the block size, rational miners will only do so if they are compensated with fees. So users who are willing to pay a sufficient fee, are in effect voting for a higher block size.”

The End of Politics?

In an ideal scenario, the limits and – perhaps more importantly – parameters used in a flexcap solution follow more or less naturally from experimentation and testing. However, the fact that limits or parameters need to be selected by humans means it still involves some level of politics.

Rather than removing politics completely, flexcap proponents hope that this solution could allow the Bitcoin network to release some steam when under pressure. This could solve the problem of oversaturation to great extent, which in turn might prevent the debate itself from overheating as much as it did in the past.

“The flexcap should be combined with a hard limit, but we can be much more giving with these hard limits,” Maxwell said. “They can be bigger, allowed to grow faster, and made easier to change. Flexcaps make the situation more politically stable.”

“With [flexcaps] in place, we no longer run the risk of a crash landing, only rising fees – giving us an indication that something should be changed,” Rosenfeld said. “And then, we can go back to arguing what the block size should be, given the trade-off above.”

The post Can Flexcaps Settle Bitcoin’s Block Size Dispute? appeared first on Bitcoin Magazine.

Slock.it to Introduce Smart Locks Linked to Smart Ethereum Contracts, Decentralize the Sharing Economy

Smart contracts, a feature of “Bitcoin 2.0” technologies such as Ethereum, could soon operate on the Internet of Things (IoT), control objects in the physical world, and power a new decentralized version of the sharing economy, for example sharing services similar to Uber and Airbnb that operate in pure P2P mode without centralized management.

Smart contracts represent a disruptive innovation with a huge potential. In 2001, legendary cryptographer Nick Szabo spoke of smart contracts that solved the problem of trust by being self-executing and having property embedded with information about who owns it. For example, the key to a car might operate only if the car has been paid for according to the terms of a contract.

“[Smart contracts] embed contracts in all sorts of property that is valuable and controlled by digital means,” wrote Szabo in 1997. “Smart contracts reference that property in a dynamic, often proactively enforced form, and provide much better observation and verification where proactive measures must fall short. [These protocols] would give control of the cryptographic keys for operating the property to the person who rightfully owns that property, based on the terms of the contract.”

Now Slock.it, a German startup specialized in blockchain and IoT applications, is moving to realize Szabo’s vision of smart contracts embedded in IoT-enabled devices. The company will sell smart locks linked to the Ethereum blockchain. “If you can lock it, we will let you rent, sell or share it,” promises the company’s website.

“When someone purchases a Slock, it will be connected to the Slock smart contract in the Ethereum blockchain and controlled by it,” says Slock.it co-founder Christoph Jentzsch. “The owner of a Slock can set a deposit amount and a price for renting his property, and the user will pay that deposit through a transaction to the Ethereum blockchain (without us), thereby getting permission to open and close that smart lock through their smart phone.”

“The deposit will be locked in the Ethereum blockchain until the user decides to return the virtual key by sending another transaction to the Ethereum blockchain,” continues Jentzsch. “Then the contract will be automatically enforced. The deposit will be sent back to the user minus the price for the rental, which will be automatically sent to the owner of the Slock. All of this happens without any assistance from a third party!”

International Business Times notes that smart-lock technology could decentralize the sharing economy, empowering anyone to easily rent, share or sell anything that can be locked, which means disrupting the disruptors, including companies such as Airbnb and other intermediaries based around some form of physical access.

“I use [Uber and Airbnb] and appreciate the progress they are making in bringing awareness to the sharing economy, but I would prefer a system that would allow me to deal directly with the owner without any third parties skimming off the top,” says Jentzsch.

Smart locks could also control access to cars, bicycles and storage units. While bicycles and storage units are ideal initial use cases, unlikely to present too many regulatory obstacles, cars with smart locks for access control are a potentially disruptive use case that could threaten the business model of Uber and Zipcar.

Cars could be parked in city roads waiting for the next customer, located with a phone app, rented by the hour and unlocked with the app by “paying the lock” in the Ethereum blockchain, used, and parked again. Around 2020, rental cars with smart locks could be also self-driving and pick up new customers autonomously. It’s evident that these innovations could radically change city life.

Jentzsch is scheduled to unveil more information in a talk at Ethereum’s Developer Conference, DEVCON , in London on Thursday, November 12.

“Could the existing ‘sharing economy’ companies soon become irrelevant?” reads the announcement of the talk . “That’s what the German startup Slock.it hopes to demonstrate next week when it unveils a technology promising to empower anyone to easily rent, share or sell anything that can be locked.”

The post Slock.it to Introduce Smart Locks Linked to Smart Ethereum Contracts, Decentralize the Sharing Economy appeared first on Bitcoin Magazine.

Publicly Traded Bitcoin Instruments See High Volumes amid Price Rise

During the price gains over the last several weeks, the focus has been on the big bitcoin exchanges, particularly the Chinese exchanges that are trading at a premium to U.S. exchanges. That being said, the two publicly traded vehicles that offer investors exposure to bitcoin have also been seeing considerable volume.

XBT Provider manages Bitcoin Tracker One and Bitcoin Tracker Euro, which are exchange-traded notes (ETNs) that allow people to buy exposure to bitcoin on public markets such as Nasdaq OMX Stockholm. Because of this, the ETNs offer investors worldwide the opportunity to invest in bitcoin. Every share of the ETN represents 0.05 BTC. Over the past few days, and yesterday in particular, the trading volume and price for Bitcoin Tracker One have increased significantly.

While these ETNs have been trading approximately 650-750 bitcoin per day, on November 3rd, the exchanges saw 2,688 bitcoin traded. XBT Provider is able to issue more ETNs by purchasing bitcoin on the open market and holding it securely.

“We are currently seeing a very high demand from both retail and institutional investors. We believe, however, that institutional investors will play a bigger role in the future,” said Christoffer De Geer, marketing manager at XBT Provider, in an interview with Bitcoin Magazine.

Another RECORD DAY for @BitcoinTrust (symbol: $GBTC) – trading volume hit a new all-time high: 71,697 shares and >$3.2MM in notional value!

— Grayscale (@GrayscaleInvest) November 3, 2015

The Bitcoin Investment Trust (GBTC), which is a Digital Currency Group product, has also experienced unprecedented volume increases. Its 30-day average volume is 8,291 shares. However, GBTC experienced volume of 71,697 shares yesterday. One share of GBTC is approximately 0.1 BTC before fees.

These two bitcoin instruments are attractive to investors because investors can gain exposure to bitcoin without the work involved in setting up a secure wallet and a trading account at a bitcoin exchange. Instead, institutional investors can use the tools and markets they are trading on every day and purchase bitcoin just like a stock or commodity. Buying shares of GBTC or what XBT Provider offers is as simple as buying a share of Apple. Further, investors can take advantage of tax advantages found within IRAs to buy these shares, giving them further incentive to participate in the rally, which doesn’t appear to be slowing down.

As Bitcoin Investment Trust’s founder tweeted, as the wheel continues to turn, it gets faster and faster:

Watch the bitcoin flywheel effect begin… https://t.co/cmBoyD3pta

— Barry Silbert (@barrysilbert) November 2, 2015

Jacob Donnelly is a full-time product manager and freelance journalist covering stocks, business and bitcoin. He runs a weekly digital currency and blockchain newsletter called Crypto Brief.

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