Category: Blockchain

Block Chain. Hype, the future, fiction or a scheme?

A month or so ago I was asked to speak to an assembly of bankers and processors at the Atlanta Federal Reserve on Cryptocurrencies and blockchain.

 Yesterday over a lunch I ended up synthesizing my thoughts into a neat little package that I would like to start sharing.

Those who extoll the virtues of Block Chain  speak of:

  • Immutability – Cryptographers and mathematicians will prove the immutability of the algorithms, at least for now
  • Distributed – as long as there a multiple diverse and competing stakeholders this is great
  • Trustless – I keep asking the same question Who defines the content of the Block or the ledger or the transaction?  Everyone ultimately agrees a body of people and I sit there and say that sounds like a governance model.  Be it a currency, a ledger, a contract two or more must agree to structure format, content and rules.
  • Consensus – Great as long as we never exceed the 51% participation by A party, the model is superb.

I then think about Work and the reward

Be it Proof of Work or Proof of Stake the entities that do the work are intermediaries and will want to be rewarded for their work.

Then one must think about shifting from a solution that rewards someone with a coin to a system that rewards someone with a fee earned.

I then reflect on Bit Coin and its use of Proof of Work

Coins are created by the party who figured out the Nonce, as a reward for solving the cryptographic puzzle.

  • Once they earned 25 Bitcoins
  • Today they earn 12.5 Bitcoins
  • At some point, in the future, the reward will be cut in half and then half again

The challenge

As the chain gets longer the work gets harder

As time moves forward and the number of coins in circulation grows

The reward decreases in notation value. 

Sounds like inflation is built in. 

Real estate, computers and electricity cost money. 

As the work expands the costs increases!

In conclusion

There is inherent Inflation built into the Bit Coin Model.

We simply replace intermediaries with Nodes and Miners.

We require a governance model so we simply change the governor to another.

People will want to be paid for the work they do to build the block or assure consensus of the chain

What is truly revolutionary? 

The math, ok maybe. 

Immutability, it is done today with cryptography, without a block chain.

Multiple copies of the ledger spread around the world.  Yes, as long as we address confidentiality.

We have governance, sure we can always elect a new government

What is so magical?

 

DIY the Cyber Guy a conversation about Bitcoin and EMV 

https://www.voiceamerica.com/promo/episode/104814

A interesting discussion withDavid the the Cyber Guy.  We spoke of the inherent risk of Bitcoins and the essential issue of the secret and a BitCoin folders resoponsibility to make sure they never lose the secret.

We then wandering off to talk about EMV or Chip and Pin.

Always a pleasure to work with David.

ICO Independent Coin Offer

Fantasy or a new reality. November 2nd 2017 I attended a conversation about the legal, accounting and tax implications of an ICO. Nelson Mullins was our host and brought their legal might to the discussion.

Language is the first concern in embracing and understanding. The first phrase requiring an appreciation is the “White Paper”. For me, this is something people or entities write to explain a concept; most often intended to educate and inform. In the world of ICOs the meaning is very different. This document is intended to explain what the entrepreneur is trying to do and what the investor is investing in. In other word the “White Paper” is the “Business Plan” or better said the Prospectus.

Next word is “Security”. Here I must admit I was out of my depth. First let’s be clear, the use of this word is not about securing something, it is about an instrument one invests in and ultimately expects to profit from. Having spent 9.

Years immersed in Capital Markets understanding what stocks, bonds and commodities are, this should have been easy. The challenge is we are trying to figure out how to not be classified as a security.

To fully appreciate the discussion one needed to be steeped in the regulations and opinions of the courts and regulators at a national and regional “State” level. What I understood, a key reason ICOs emerged is as a method to avoid the complexity of the regulations surrounding the sale and trading of securities.

Next term is “token”. Once again a term we are constantly confronted with as we move from a physical to a digital environment. I am not exactly sure what a “token” is in the context of the ICO discussion, save ti say it represents something. I appreciate it is another term one must properly framed when discussing ICOs.

With these familiar terms with new meanings it is clear, this digital ecosystem built on the complexity of Block Chain, as a technology, is either a long term transformational technology or a magical mystery tour that will end in confusion and discomfort.