Polkadot, founded by Gavin Wood of the Ethereum foundation, is a multi-chain blockchain technology that allows different blockchains to interact with increased security and performance. Before talking about what you can do with Polkadot, a little background on how we got here.
In the beginning, there was Bitcoin, a peer to peer digital currency, secured and propagated by a proof of work consensus algorithm. People saw the utility of this decentralized scheme and wanted to apply it to other areas such as a decentralized DNS, smart contracts, financial agreements, user identity registers, and more using a similar decentralized scheme. The problem is that each new application would need its own blockchain network and would need to get user adoption so that they could secure that blockchain.
Enter Ethereum, which is a blockchain built with a general purpose programming language which allows decentralized applications to be built while letting them leverage the security of a mature blockchain.
So, if Ethereum solved this multi-chain problem, why do we still need multiple chains? There are cases where you might still want your own blockchain. For instance, some big banks and enterprise companies are building solutions involving private blockchains so that they can keep their data on trusted hardware. However, now we have a new problem. Blockchain solutions introduce radical transparency and reduced reliance on trust at the tradeoff of efficiency. So, aren’t private blockchains the worst of both worlds–slow and require trust?
Enter Polkadot. With a system like Polkadot that allows blockchains to be interoperable, you could have a transaction that is first verified by your bank on your bank’s private network, and is then gets published to the Ethereum network. Or, an insurance companies private chain could read from public chains to assess damage for a weather event and distribute a token to pay out damages. You could also have multiple public chains interact and leverage each other’s functionality, for example you could have a decentralized exchange protocol by which a user could deposit Ethereum anonymously using the zero knowledge proofs of the Zcash chain. These are really just the tip of the iceberg for use cases of blockchain interoperability.
Polkadot also has the added benefit of increasing security and performance. Under the hood, Polkadot works by decoupling two vital components of a blockchain network: state transition and consensus. In the Ethereum network, state transition is controlled by the EVM, whereby state is updated by applications making changes to smart contracts. The consensus portion means that once some data is written to a smart contract, then the change must be sent to everyone in the network so that it can be added to the chain. Updating the state and ensuring the transition is valid is computationally intensive, while the consensus portion is not very computationally difficult but requires communication and broadcasting information to other nodes. By decoupling these two vital functions, Polkadot increases efficiency and allows computationally difficult tasks to be done in parallel on a sub-set of the network specializing in computationally intensive tasks, called parachains, and then allow the network to synchronize all these constituent chains by communicating with each other, with what is called a relay chain.
Solutions like Polkadot will allow the decentralized ecosystem to grow and let projects build on top of the advancements of other projects. It will help to secure these applications and speed up throughput in these networks. All these improvements are great for user adoption of cryptocurrency and decentralized applications. Polkadot has recently decided to delay their crowdsale, but they are expected to announce an update around the crowdsale late 2017 or early 2018.
Crypto 2.0 investment fund
Bitcoin is the currency of choice on the multiple darknet markets. These are hidden sites mainly used for drugs and other contraband. Bitcoin’s psuedo-anonymity and decentralized nature make it appealing for online transactions of this nature. Bitcoin has been used extensively on the darknet since Silk Road launched in 2011.
A lot has changed since Silk Road. Cryptocurrencies have gotten more complex and improved on Bitcoin’s innovative design. In particular, cryptocurrencies Monero and Zcash both have built in privacy protection and absolute transaction anonymity that Bitcoin doesn’t have. Bitcoin has also recently had problems with high transaction fees and slow confirmation times, so these other coins will likely be able to handle more transactions simultaneously. AlphaBay, the leading darknet market, began accepting Monero in August 2016, and you can see the effect on the price in the chart:
While users like the privacy features, the lower fees, and faster transaction times, they complain that the existing tools for Monero, like wallets, are hard to use and they have concerns about price volatility. As developers improve on these problems and the ecosystem evolves further, it’s not hard to foresee Monero getting more mileage. AlphaBay also recently began supporting Zcash.
Bitcoin still has some advantages at the moment. It was the first mover and first to achieve widespread adoption by users and marketplaces, thus every market accepts it. With adoption comes a community with tools and support. For example, while Bitcoin does not have the built in privacy features of Monero or Zcash, there are multiple coin tumblers or coin mixers that make it more difficult to track transactions (though these methods have their drawbacks). Bitcoin is also the easiest to exchange for cash using sites like Local Bitcoins. This means someone selling drugs would first have to exchange their Monero for Bitcoin in order to turn their profits in to cash.
The online drug marketplace was an early, substantial business use case for Bitcoin and what happens there may be a precursor for other markets. The darknet is a also big business, with some estimates that Silk Road alone pulled revenues of over $100 million per year. Right now, some competing currencies offer technical advantages over Bitcoin. Will users move to using these competing currencies or will Bitcoin maintain dominance?
What is Augur and why is it cool?
Augur is a decentralized prediction market built on Ethereum. Think of it like a market place where you can bet on future events, like the outcome of the 2020 US Presidential Election. The benefits of this are 2 fold. First, Augur is a peer-to-peer prediction market place with all the benefits of a decentralized system, such as censorship resistance, lower fees, reduced trust reliance on a third party, and more. The second benefit is a little more technical.
One thing on the horizon that will fundamental change the nature of computing and security is quantum computing. Google (arguably) has one, and it’s not crazy to think the NSA has an even better one. Given that a quantum computer could possibly crack all existing encryption methods, and cracking Bitcoin’s or Ethereum’s encryption would mean an attacker could determine your private key and get access to your wallet, this poses the natural question: could the NSA crack Bitcoin or Ethereum right now if they wanted to?
The answer is that they possibly could, but they definitely won’t. The reason is that you would never blow the lid off of your quantum computer project for such small peanuts. As Andreas Antonopoulos puts it, “The last thing they’re going to use that on is Bitcoin, because the moment you use it on Bitcoin and you announce to the world we have quantum cryptography that can build elliptic curves, guess what happens?” Your rivals try to implement quantum resistance. “You just blew all of your advancements in that technology.”
There is historical precedent for this. In WW2, British Intelligence cracked the Enigma machine, allowing them to decode German communications. They started becoming aware of German movements, including imminent attacks on vulnerable targets. However, they could not act on every bit of intelligence without alerting the Germans that they had cracked the Enigma machine. Ultimately, boats were sunk and people died because British Intelligence had to keep their discovery secret.
If you’re still paranoid, I recommend generating a new address every time you do a transaction in tokens on the blockchain and don’t leave any tokens left over when you’re done. An attacker can only attack addresses that are known by the network (i.e., has been involved in a transaction), and by the time your address is known you will have already sent all the tokens out of it. This method should let you sleep at night until the underlying protocol is updated to be quantum resistant.
I’ve never heard of anything like this before. MelonPort just had it’s ICO sell out within the first 5 minutes of opening, raising $25 million. That’s over 1000 Ether per second. This incredible movement of money shows how powerful the ICO model can be for blockchain companies.
MelonPort is seeking to build an open protocol for asset management on the blockchain. They have an impressive team and set of advisors, including CEO Mona El Isa, previous VP at Goldman Sachs. They believe MelonPort will be a paradigm shift for asset management backed with the security and scalability of the Ethereum blockchain.
Read the round up in their own words here.
According to their website, Matchpool is “a decentralized matchmaking protocol which uses group dynamics to help participants match with each other”. The idea is that anyone can create and cultivate their own matchmaking community and make money doing so. Picture Meetup with a romantic angle and mix in a sharing economy. The online dating space is a billion dollar industry and Matchpool would be the first to be built on the blockchain.
Community building is emerging as a fantastic use case for blockchain technology. Contrary to centralized systems that provide the platform and extract value created from the users of the platform, the blockchain enables decentralized systems where participants in the network create value and also receive value in return. This is the sharing economy in its most basic form and it encourages voluntary, reputation driven communities and group participation.
Matchpool is still in development and they plan on doing a crowdsale in March. Check out their whitepaper here for more details.
Brian Schneider, Secretary of the Illinois Department of Financial and Professional Regulation (IDFPR), has requested public comments on Digital Currency Regulatory Guidance. Comments are due by January 18, 5:00PM CST. Comments can be submitted electronically here.
In the most simple of terms, the IDFPR is looking for commentary and guidance on the fundamental questions around how virtual currency business should be regulated and taxed in Illinois. Virtual currencies do not fit under the current statues, and the IDFPR would like guidance on how the current statutes, such as TOMA, should apply to virtual currencies.
Coinbase just announced that it has received the BitLicense from the State of New York. The BitLicense is a special business license governing activities associated with virtual currencies which officially authorizes Coinbase to continue to operate in New York. This appears to be a validation by the New York State government that they are willing to license and regulate cryptocurrency companies.
The intersection of Blockchain technology and government regulation is still developing. Blockchain technology enables unprecedented individual freedom, as President Obama said “everybody is walking around with a Swiss Bank account in their pocket.”. Governments have an interest in regulating virtual currencies, but do not want to discourage innovation or deny economic opportunities created by Blockchain transactions and companies.
We need to come up with a governance model that makes sense in the decentralized economy and it’s up to us to determine the nature of the relationship between government and the Blockchain.