"Mathematicians build code to take on toughest of cyber attacks"

Wow.  This article by Phys.org is so appallingly bad i just have to tell you about it.

Lets start with the obvious stuff.  This is an article about a paper that doesn't even link to the paper.  It also doesn't mention the names Merkle or Hellman (which appear in the first sentence of the paper).  It also completely misrepesents the content of the paper:

Washington State University mathematicians have designed an encryption code capable of fending off the phenomenal hacking power of a quantum computer.

Etc. etc.  As you can tell, the phys.org author really wants to talk about quantum computing.  Unfortunately the paper barely mentions it other than to point to a single reference from 2003.  Also unfortunate is that quantum computing is largely irrelevant to real world infosec anyway.  No mention of discrete logarithms and how they also aren't vulnerable to attack by Shor-type algorithms.

Now we have some key phrases:

to create an online security system...

that can't be broken by the usual cyber attack methods...

...The system is based on the factoring of impossibly large numbers and, so far, has done a good job keeping computers safe from hackers...

Yeah.  There's a lot to take in here.  First of all we should point out that hackers created computers in the first place and are the ones who make them secure, and that the authors of the paper are hackers for hacking the knapsack problem by injecting integer representations.  Also there is no context by which "usual cyber attack methods" has meaning here.

In the end I guess my biggest problem with this piece is that it implies that what we need for better infosec is a better public key cryptography system.  In point of fact our public key crypto is absolutely not the weak point, while it is the authentication system that is completely broken.  SSL has in no way done a good job at "keeping computers safe", kind of like the author of the piece has in no way done a good job of reporting on this paper.  SSL is not even named, even though it is implied by the reference to "buying books over the internet", a process by the way which also involves the protocols of certificate authentication, credit cards, and fiat currency which by comparison make RSA public key cryptography look like perfection itself.

Anyway, the algorithm itself does look interesting.  Unfortunately no code is included nor specs or tests so I don't think it's quite ready to support a coin yet.

The Dollar Market and a Game Theory Example

Have you been following the USD market?   A lot of bitcoin users follow the dollar market carefully.  Today the dollar is worth about 4 millies, down from about 1000 millies just a few years ago.  It has gone as low as 1 millie, about a year ago.  How quickly will this decline continue to occur and what is the psychology driving the market?  A game comes to mind which you might consider relevant.

In this game, you are told to pick a number between 0 and 100.  Everybody in the room is told to pick a number and write it down with their name and submit it, not telling anyone.  The winner of the game will have selected the number closest to 1/2 of the average of all the numbers.  Simple rules, but a complex game.

So what is the optimal strategy here?  The difficulty is that the quality of your guess depends not on mathematics or logic but on what other people choose.  So, everybody in the room needs to judge the decision making of everyone else.  If you imagine all the people in the room to be random number generators, then you expect the average of the guesses to be 50.  Your choice should then be 25 (or a bit less depending on the number of people, as your choice also affects the average).  But wait, maybe everybody is using that decision making process.  In that case your guess should be 12.5.  If you continue this process for a bit, it won't be too hard to convince yourself that in the case of 100% rational thinkers in the room, every one of them will guess 0, and they will split the reward evenly.  That is the game theory equilibrium solution to this game.

There isn't any motivation to leave this equilibrium for any single participant.  If I am one out of 10 players and all have picked 0 but I chose 1, then the average is 0.1.  One half of the average is 0.05, and so the people guessing 0 are a lot closer to this than I am with 1.   All I have done is give up my cut of the reward.

So now that you understand this game and it's solution among rational players, let me ask you this.  If you play this game with a randomly chosen group of 10 people, what number will you choose?  Chances are, you won't expect 10 of 10 randomly chosen people to understand game theory.  Therefore your choice probably isn't 0.  If you have chosen a number larger than zero, you are gambling on people being stupid.  In this game the possibility that other people will not be rational is incentive for you to behave in a way that would also be considered not rational, as compensation.  When in stupid, do (a little bit) as the stupids do.

So what is the relevance to the dollar market?  Well in the dollar market this game is played over and over again.  In this game the one who knows what the market will do is the day's winner, not the one who knows what the eventual equilibrium will be.  What the market does depends only on the choices of the participants.  Most of us know what the equilibrium will be.  If the world were populated with 100% rational thinkers, we would already all be using sound money and wouldn't put value in something that has a zero cost of production.  In case you haven't noticed, we don't live in that world.  There are a very large number of people who participate in the market, who don't consider rational behaviour but do things out of tradition or habit or just because they are told or because they see others doing it.  Even the smart ones are gambling on other people's stupidity, and thus behaving irrationally.  That's why my bet is on it taking a generation or more for the equilibrium to be reached.

Extra Credit

Lets look at this from a different viewpoint.  Suppose I tell you that I explained this game to 100 people, and the average of all their guesses was 30.  What would you think about the intelligence of those 100 people?

Suppose I introduced bitcoin to a planet of hominids who had been using a fiat currency system.  After 5 years, bitcoin still had only ~0.01% of the monetary base of the world.  What would you think about the intelligence of the inhabitants of this planet?

Top 5 incorrect things often said about bitcoin

Please!  just stop.  I will keep coming back to update this as I see more errors in the wild 🙂  If you think i'm wrong, please let me know.

1) "Bitcoin is Deflationary"

One way people like to posture as though they had a clue is to repeat other people.  This works reasonably well in established subjects but in bitcoin there aren't that many established texts on the topic.  So, this strategy backfires terribly.  Did Krugman use this word?  Must be true then right?

Lets make it 100% crystal clear: bitcoin currently is inflating at 2.5 billion satoshi every 10 minutes.  End of story.  Stop calling attention to your own idiocy by saying bitcoin is deflationary.  OK, maybe it is less inflationary than fiat, maybe the inflation is public and algorithmic, maybe in a century or so it will be very slightly deflationary due to people losing more coins than are issued.  Well why not say these things then instead of being completely wrong?

2) "Bitcoin is unregulated"

This proof of ignorance statement comes in close at number two.  It's kind of fun to hear somebody say this.  Look around the room at the coin users in the audience making mental notes to themselves: try not to laugh, total cluelessness noted.  Lets face it: Bitcoin is the most regulated currency ever invented.  Not only are all transactions public and audited by any participant but every satoshi created is 100% mathematically regulated and auditable by any person forever.  Imagine if you asked Bank of America to submit to that kind of regulation?  lol, right?  Perhaps you meant to say that anonymous currency exchanges operated in eastern europe are not regulated by New York City commissioners?  If that's what you meant, you should have said it.

3) "Bitcoin is encrypted money"

Nope!  Guess again.  The bitcoin network operates in plain text.  Nothing is encrypted.  Sure if you want to encrypt your private key on your own dime that is probably a smart move, but that is optional and not part of the network anyway.  Bitcoin is public money, all transactions are public and unencrypted, and the entire money supply is public and unencrypted.  If you meant to say that it is possible to encrypt private keys, or that the network relies on cryptography for digital signatures, you should have said those things.

4 and 5) "Bitcoin can't be confiscated" / "Bitcoin is difficult to secure"

Seriously, people say both those things together.  As if logic just wasn't applicable to this arena.  In case you were wondering, yes, those two sentences are obviously contradictory.  Yes, they are both also wrong.  Just ask Ross Ulbricht about the first.  It might be easier than any other previous kind of money to hide, but that doesn't mean thieves won't take it.  It is possible to confiscate bitcoin.  On the other hand, bitcoin is easier to secure than any other currency or form or wealth.  Can you put 100kg of gold on a piece of paper and hide it in a book?  Can you hold a million dollars in a passphrase in your mind that nobody other than you could touch?  These things are easy to do with bitcoin.  And that is just the beginning.  Multisignature techniques allow you to secure money in ways that make it even more secure.

 

Bitcoin is AI

Lets think for a minute about the importance of an established internal consensus as an indication of awareness or intelligence. Bitcoin implements a consensus network capable of solving the decision problem. These first aware machine networks are incapable of the complexity of thought that we see even in unicellular life, however they represent an important first step on the road to more complex intelligence.

Fooling Humans – does it really take intelligence?

There was recently much reporting and buzz amongst AI researchers about the program “Eugene” which was able to produce text conversation and fool 30% of judges that it was human. The program was often passing the Turing test.  Sadly these AI researchers are completely missing the show. It turns out that fooling humans is not a sign of true self awareness and the Turing test is mostly useless as a criteria of AI. It's main real use today is in playing whack-a-mole layered security to prevent script kiddies from performing Sybil attacks on service providers.

I first realized the true futility of using the Turing test as a criteria of self aware machine intelligence when I wrote a program that imitated a human and did so with 98% success. Amazingly I was able to do this basically with one line of code. My task at the time was to write a program that could imitate a human player in a game and so continue to gain game credits while I did something more interesting such as sleep. The solution was simple: when a Turing test was given to my program, it called an API function that routed the test to the desk of a human volunteer who could answer the question in real time in exchange for a small payment. This is called a Decaptcha service.

Perhaps this is “cheating” on the Turing test. However, there is not a clear criteria of what is or is not cheating in this task of fooling humans. If I cannot route an API call to somebody's desk, should I be able to draw from a dictionary prepared by humans? Is it cheating to draw from a database of conversations prepared by genuine humans? To attempt to draw a line here in terms of what is or isn't cheating on a Turing test is pointless: we are taking the wrong test. A wax model can pass this test, it has nothing to do with machine awareness. It turns out fooling humans doesn't take true intelligence. Or perhaps it does take true intelligence, but in this case we have been proven only that Eugene's creators are intelligent.

Human language interaction: not an entirely useless endeavor

Before you get all upset with me for telling you your research is not relevant to AI, I should point out that this research is indeed important and will lead towards useful new technologies. Work on imitating human intelligence gives us interfaces that we are coming to rely on, and also gives us great insight into linguistics and how our own neural nets work. Douglas Hofstader is a brilliant author, voice and language interfaces are incredibly useful, and this line of research is interesting. It just isn't AI. It is UI. Also, if you want something to imitate a human for you, consider hiring one of us. We're amazingly cheap.  Drop me an email.

OK so what is intelligence / consciousness / self awareness?

Well, this is really a fundamental question that needs a lot more discussion than I am going to give you here. Inherent in this question is another: what is life? One mistake people make in trying to answer it is to focus on ourselves, another would be to focus on fooling ourselves as we would do by emphasizing the Turing test. There is a complex system going on in vertebrates and so to understand it we should start with simple parts and build up. So lets consider three examples of intelligence / cognition / consciousness:

1 Phototropism

A plant is capable of sensing the amount of light incident on various portions of itself, and acting on this information to control it's growth and attitude to attempt to maximize the light energy available to it. We can refer to the light as the “external input”, the reaction of chloroplasts as “sensing”, the communication between cells or components of cells as “network activity” and the final repositioning of the various components of the plant as the “decision” or the “resulting action”.

2 Unicellular Memory

A paramecium is capable of sensing the amount of digestible sugars in it's environment, noting a change compared to its recent memory, and using this information to make a change in it's direction of motion as produced by the muscular motion of its cilia.

3 Weather Vanes

A weather vane is capable of sensing the direction of the wind and adjusting its position accordingly.

From these three examples we have two which show some basic intelligence and one that our intuition tells us is either not intelligent or a very different class of intelligence. The weather vane is “dumb matter” in that no communication is required between the various components of it to reach consensus. Or rather, the type of communication that goes on between the portions of the weather vane are the same types of communication that go on between atoms in a solid which tell it to “stay put”.  It is also more predictable (and reliable) than the other two.

The paramecium is perhaps not as intelligent as the plant as it uses a less complex internal communications network as it processes the information. The signals to the “muscles” of the cilia are most likely gradients in ion concentrations of some sort.

After considering these examples extremely briefly we will work from the following informal definition: An intelligence is some extended structure capable of taking external input and producing via internal communication a non-deterministic consensus course of action.

Enter Bitcoin

Before your Terminator instincts are triggered and you start thinking about how to shut down the entire internet to avoid skynet or superbrights, lets take stock of what this Frankenstein monster is capable of.  The external input that the bitcoin consciousness senses is blocks created and suggested by its nodes. New blocks magically appear as external input, just as light magically appears to the plant consciousness. Information about these new blocks are passed between the nodes of the coin network (the body) and a decision is arrived at. Sometimes the network will “change it's mind” which is known as a reorganization. To make a long story short the coin creature cares about only one thing: adjusting a single integer parameter called the difficulty in such a way that the timestamps on accepted blocks indicate 10 minute interval between the blocks. That's it! No three laws of robotics, no ravenous appetite for data, simply a driven conscious (?) behavior to move towards an attitude condusive to 10 minute blocks.  It's really just a clock.  A heartbeat.

The consciousness cares basically nothing about who pays who (transactions are decided by miners) or even what the absolute hash rate is, or if timestamps are accurate. As users of the network, we of course care about these things very much. They are also important in enabling the coin creature to live because without the secure network and the mining reward, nobody would bother running the code which enables this poor creature to be aware.

The network consensus awareness has a single possible action which it alone controls: setting the difficulty in order to keep the block timestamps as close as possible to 1 every 10 minutes. It does this in the simplest possible way from a control systems standpoint, pure linear feedback.  On the intelligence scale we should probably put this above the weathervane but below the paramecium.

Consciousness in a hostile environment

The mechanism by which a coin network achieves consensus is at first counterintuitive to those who first discover the proof of work system. If we had every one of our nerve cells working on arbitrary brute force arithmetic problems in order to arrive at a decision, we would be very different creatures. PoW is not the organic solution to the distributed consensus problem. Inefficient though it may be, it works in a hostile environment. Inside the body of a coin network, communications are not reliable, unauthenticated, and can be malicious. New nodes can and will jump into the network at any time. It is remarkable that consciousness can emerge from this environment at all.

What's next?

More complex creatures are emerging in a myriad of ways (pun intended). Specialized nodes on networks that perform specialized tasks based on other external input are feasible. In some sense, we have done very little here in making this step of creating the first machine intelligence.  One small step for Satoshi.

To see how little it matters from a practical standpoint, consider a robot which has 10 accelerometers and uses their readings to remain in an upright position. This robot takes the readings from all 10 accelerometers and pours current to its servo motors deterministically from a CPU.  Now consider a second robot which also has 10 accelerometers. Each of these accelerometers is connected to a node with a CPU which mines on an internal coin network. The robot brain now takes a consensus of their recommendations to decide the current to its servos. How can we compare these two robots? The second is slower, more complex, and also more likely to fall down. It is also more alive.

Now go do something useful with your time.

 

Market Fauna - Creatures of the Deep

Thinking about entering the marketplace? You'd better decide which creature you want to be.

A catalog of the creatures that inhabit the depths of public currency trading oceans

Whales

A whale is any trader whose size is big enough to noticeably move the surface of the ocean. In other words, whales can move the price substantially. These mammoths are also called market makers. Whales often have predictable habits and in good conditions can grow very quickly feeding on small surface krill and plankton moving the price cyclically. All the creatures of the ocean study and fear the whales, and none moreso than the other whales. A chance encounter with a larger whale can could cause considerable loss. Some people don't understand these creatures and refer to their habits as “market manipulation”. In fact these creatures are playing by the rules of the exchange just any other creatures do and can play an essential role in a healthy marketplace.

Plankton

Plankton are small traders who need to change coin to meet obligations. These are the “real users” and in a healthy ecosystem will make up the bulk of the metabolism. They buy and sell at the prices set by larger players. Without plankton the whole food chain falls apart as the whales can only eat each other. Sometimes plankton come and go rapidly, or in pulses as once a day some companies need to settle one asset for another or vice versa.

Bottom Feeders

Sometimes a drunken whale will rip through the marketplace and leave a fair amount of carnage. A well positioned bottom feeder can make a healthy living off the scraps. There are a range of bottom feeders from rapid small active movers to giant sleepers who rarely trade. The game can be rather simple, to place orders on both sides of the price hoping to catch a lucky break when some whale really bounces the price in one way or the other. Active bottom feeders move in very quickly looking for smaller but more regular scraps and fight amongst themselves for position. Because of their quick movements these traders are often called “bots”. There are usually several older and much slower bottom feeders near the very edges of the market, waiting for the impossible with a bid for 100 BTC at 0.01 USD each.  What they fear: Large and semi-permenent price changes. Low volatility.

A few famous bottom feeders:

The 102 guy (last seen buying btc in early 2014); the 1 yuan guy (last seen buying LTC for 1RMB on OKCoin; the guy who bought goxcoin for 1 cent in 2011.

Ramora and Pilot Whales

As the creatures of the ocean attempt to survive and grow, they all need to be aware of the whales. In this sense, all creatures are pilot whales. However some are much more adept at clinging to the behemoths than others. Some watch the surface carefully and at any signs of a whale jump to action. In fact there are so many of these creatures that in the passage of a whale it is not unusual to see 2 or 3 times the mass of the whale pass by in ramora slop. Of course not every one of these fish can predict exactly the whale's motion so there is always an overshoot. These things perish like lemmings overshooting the market quite regularly. Sometimes skillful whales will round up some of their hangers-on with a trap and devour them heartily.

Flying Fish

These traders leap from exchange to exchange quite nimbly to nab buildup of plankton at one or the other of any worldwide exchanges. Usually they are quick and effective but sometimes don't think very clearly and leap right onto a boat. Whales can fool these creatures by making them think there is an opportunity across exchanges when really it is just Jaws about to eat them.  What's a pirate's favorite way to trade? Arrrrrrbitrage!

The Kraken

The creatures described thus far play by the rules of the deep.  Once in while a sea monster will emerge that breaks everything.  By hacking into the exchange for example, or by operating it, one can play games too appauling to consider.  These are the sea monsters that all traders fear.

 

 

Godzilla vs. the 51% Attack

Sometimes we need to stare down the monster and say bring it on. If you ask me, there aren't enough mad 51% attackers.

OK so most people start their discussion of a 51% attack by looking at ASIC prices. We are going to take a different tack here. How much does it cost to mine a block of bitcoin classic? Let's use the easy answer: 25 BTC. Using this approach we can say that if you are starting from scratch it will cost you about 25 BTC every 10 minutes to maintain a 50% attack. This assumes a “perfectly liquid market in hashing” and various other things but we might get closer to the truth with this estimate than an hour of googling mining hardware scams.

So using this logic how much does it cost to reverse a transaction (double spend a TX) with one confirmation? 25 BTC. How much does it cost to reverse a transaction with no confirmations? This is a Finney attack and the cost according to my estimation method here is 0 BTC. Please note that this doesn't mean you shouldn't accept zero confirmation payments. Various services like Coinbase, Satoshidice, and lots of Restaurants and Bars and other point of sale merchants accept zero confirmation payments and with good reasons you can figure out for yourself.

But lets continue with double spend boogey man talk and look at a few coins and see how much we can trust to nameless faceless payers after an hour of confirmations. In other words, how much value can you accept from somebody and be confident that they are losing money if they make the effort to reverse the transaction?

(Exchange Prices June 2014)

Coin         Blocks/Hr Reward  Exchange        Safe Maximum / hr (BTC)

Bitcoin Classic      6       25          1                     150

Litecoin             24      50         0.017                  20.4

Dogecoin             60    125,000     0.0000006               4.5

Maxcoin              120     48         0.00012                0.7

42Coin               86   0.000042        12                  0.042

Darkcoin             24       4         0.017                  1.63

Bytecoin (BCN)       30   110,000      0.00000004              0.132

Monero               60      16.4       0.0025                 2.46

The right most column here is my estimate of how much it would cost somebody to reverse an hour of transactions. Exchange operators and anonymous auction providers be advised! Some anonymous services require three BTC confirmations. According to this research, these services should have a maximum immediate actionable credit upon deposit of 75 bitcoin.

Remember that in practice, as Bruce Schneier might say, most commerce is heavily robust against security bugs such as this one. In other words, people want to pay.  They are not prepared from any angle to carry out this perfectly liquid attack.  That's one reason it's OK that you don't secure finalized and irreversible payment for your customers before you even bring them menus.

A couple related points come up here:

Reward Schedule.

Notice that as the reward goes down, the security goes down. This is pretty straightforward. How much are you paying your banker to stamp your transactions as official? If it's not enough, a customer might pay the banker more to screw you over. Satoshi figured that in 210,000 blocks the real value of a bitcoin would be at least double. Many coins are going to have some trouble because they have a tight reward schedule. In my opinion, 4 years is tight already for BTC but some developers disagree and have set reduction schedules on the order of months or even quicker (AKA instamine). If the value of the coin has not increased increased enough due to adoption when the reward drop comes, this means the double spend security will decrease. This could be trouble for some struggling coins.

Team double spend

Here's a fun one. So you are operating an anonymous exchange and you have placed some limits on deposits (or rather, on withdrawals following deposits) according to my above guidelines. Traffic goes up a bit, and a ton of folks are depositing Foocoins to your service, selling them, and then withdrawing Barcoins, each one in amounts under the limits you have set of course. Yes, you know where this is going already. Suddenly a longer Foocoin chain emerges and the Foocoins see a chain reorg. The deposits you thought you received no longer exist. Your barcoins are already gone. You just got robbed by Sybil. Sounds bad? It gets worse. It turns out even putting limits on global deposit/withdraws (that is, treating all your customers as a single customer) won't solve this problem completely. The double spending team could divvy up it's resources amongst several exchanges.  So, you only saw 100 foocoin go in and it would cost 200 foocoin for a double spend? Guess what. The team also put 100 foocoin into 9 other exchanges. They paid 200 foocoin for a double spend attack that netted 1000 foocoin. How do you protect against that?

Scary stuff isn't it. But is this really so scary? It poses a theoretical risk to a certain class of large automated businesses that operate anonymously. Perhaps this is the kind of risk such businesses should be facing. While KYC might get a bad rep when it is imposed by uniformed gang members, it might work a little better when it is self imposed.  In practice, people with the wherewithal to perform such an attack have much sweeter and lower fruit available to them.

Some people say proof of stake is a possible answer to the double spend attack but I don't see it. If you have stake as something that enables a double spend in addition to hashing power then people will make a market for stake and we have essentially the same calculation: only trust in one block amounts less than the total block reward.

the psychopath

But we haven't yet touched on the real monster: the psychopath. This 51% attacker is so insane, they don't care how much they lose. They simply want to see you suffer. Great movie plot eh? Well, rather formulaic really. Usually this character is played by some national government agencies, because of course, we know from history these names attract the most psychopathic. Lets just assume that they are psychopathic enough to not only lose tons of money for themselves and their organization, but also to give up the opportunity to gain tons of new money and power (remember that's what they seem to like). Just or fun lets assume also that despite this obvious mental illness they have enough skills to organize and produce hash and valid blocks. They pay 25 coins every 10 minutes just to DDOS the network.

No Txs go through! At this point we have seige warfare. Real miners pull out the stops and try to compete with the attacker. Mempools fill up. Exchanges shut down. Panic in the streets, as people dump bitcoins off-chain for satoshis on the coin. The psycho can continue this for a month for only 100 million dollars. By that point, many of the miners will have given up, tired of seeing all their profits go orphan.

So what happens? Well the ending of this fake story is of course obvioius. This is not a sustainable role taken on by our psycho. Eventually they will run out of resources and hey presto, the coin is back.  Prices bounce back up (well actually they didn't go down, as no transactions went through).  Basically this is a hurricane power outage scenario.

Bitcoin's low transaction fees

Really! Let's talk about low fees. You want to? Because if we can talk fees it will take the huge weight on our shoulders off, the pressure we might feel to talk about something more important such as the massive weight our generation has dealing with the discovery of bitcoin and it's profound effect on the world.  We don't want to think about that; lets talk about fees instead.  Low fees are great!  So innovative.

Well currently a lot of clients are putting a default mining fee in the 0.0001 BTC range or 10000 sat. The fact that we call this a “mining fee” takes our attention away from the coinbase transaction. Oh yeah! Remember that? Gosh so many Txs in the block, I just missed that one.

Yes, in fact miners do get a little more for securing your transaction than just collecting dust. In fact the coinbase transaction is exactly a transaction fee, it is levied not directly on TX submitters but on all bitcoin holders through monetary supply inflation. Transaction fees total more than 3600 bitcoin per day now folks.

With me so far?  Good.  Now tell me what the fiat TX fees are.

Why is Hash Valuable?

Hashing as performed by bitcoin mining is the equivalent of digging ditches in the yard and then filling them in. Day in day out. It is “make work” in it's purest form. Quite early in the bitcoin learning curve, people usually come across this idea in some form or another. Wait a minute, all the miners are doing is hashing? What good is that? Well nothing really. It is inherently worthless. How could this coin be valuable?

Well the story brings us back to Marx, who wrote that currency should be tied to labor. Work. Proof of work. (Not proof of stake)

So the trouble is, how do you prove labor? If we tie currency to digging ditches, a crew could appear next to a ditch which has already been dug and claim work, effectively double spending the digs. And how can you tell that a ditch has been dug and refilled 35 or 36 times? It turns out that if hash functions work as advertised, that is if they are perfect random oracles, one can “prove” that specific make work has been done.

Don't believe me? Then you should try to come up with a list of 300,000 numbers which have double SHA256 hashes lower than those of the BTC blocks. When you try you will realize that this is going to take a lot of guesswork.

So the answer is simply that used hash has value simply because it is provable. Sure it's make work but at least you have proof that you did it.  Proof that energy was expended.  If you can come up with any other way in the world to prove that you applied a force over a distance, please let me know.

Climber's Guide to CoinSec

I've been thinking about this analogy a bit and it is standing up to the test of time at least well enough to let it see the light of day. You see, a lot of people point out that bitcoin sucks because it's totally unforgiving. True enough, in some ways. Kind of like gravity. So using coins is a bit like climbing. Keep in mind of course that your money is not your life and if you think it is you have a lot more problems than I can solve for you in this blog post. OK so the analogy has fallen flat already but let's continue on:

  1. Always triple check the position of your decimal point when sending coin.

    1. Relay essential communication ritually. 1: “Ready to receive at 1blahblah” 2: “Sending” 3: “Recieved to desired confirmation, thanks!”. When moving through areas of difficult connectivity be prepared with backup communication protocols.

    2. Cold storage anchors: Redundant, Equalized, Backed up.

    3. Can't hurt to test by weighting any system with a few millies.

    4. There are objective and subjective dangers. Plan accordingly.

Democoins?

 

So this is a two part post. First, I'm going to ramble on uselessly about the terminology we have, in particular the term “cryptocurrency”. The point is to introduce us to actual “kryptocurrency”, and in part two talk about some of the players involved in that scene to expose my ignorance there.

1) Watch your language

Science and technology have a lovely history of organically generating terminology that appear to be misnomers. For example referring to infinite precision quantities as “real numbers”. It appears that bitcoiners have jumped right in on this tradition.

Hmm, what shall we call a public, open, and unencrypted ledger? I know, let's use the Greek word for “hidden”!

This history goes back to about the 1970s when digital signature algorithms were first discovered. It's really an amazing technique. Their discovery came about as researchers were trying to make nifty ways to hide information, using asymmetric key pairs. It turns out, the same technique allows for unforgeable digital signatures to work. Because these digital signatures rose out of cryptographic research, they are sometimes called “cryptographic signatures” and because bitcoin relies on them, well you know the rest. Let there be Cryptos.

In fact, the real breakthrough and utility of the block chains as we know them may be their open and public nature. For this reason, we should call these coins demos, using the Greek for public.

Don't like democoins? Well then, how about we just call them bitcoin? Litecoin is bitcoin. Dogecoin is bitcoin. Heck even bytecoin is bitcoin. Both of them!

After all, can't I google something with bing? I know that shareholders, diehards, and copyright lawyers will try to argue but all I can really do is offer you a kleenex.

Of course when it comes to getting paid you had better make sure you have coke classic or BTC, at least if you are accepting stock certificates or block chain assets for your services.

  1. Kryptocurrency

Last week we talked about how Cryptos are really Demos. This week we will talk about kryptocryptos.

Or: “Yo dog I heard you liked cryptos so I encrypted yo cryptos so you can krypto while you crypto.”

So it turns out that not everybody wants their transactions, balances, and history of everything they spend public and easily accessible to any and all life forms. People want various degrees of pseudonymity, anonymity, and deniability. We're not just talking about encrypting our private keys here, we are talking about masking payments to avoid others seeing what we are doing. Keeping personal balances. Not reusing addresses. That kind of thing.

People who are interested in this kind of thing (lets call it kryptocurrency) basically fall into two camps:

  1. We can do our krypto on top of the open bitcoin networks
  2. We need more cryptography than the BTC network provides.

Of course as usual both camps are right. But we'll get to that.

The first choice has mostly been one of necessity. Mixing services have seen heavy use as people try to make it harder to trace coin motions. Now we have coinjoin being used regularly as a sort of mixer. In addition there are stealth addresses we can use to keep addresses hidden. And of course we can encrypt all our communication as we set up the deals.

For some people that isn't good enough. After all, cryptography offers a ton of amazing options that could give us all kinds of great anonymity that democurrency (that's bitcoin remember) just doesn't have out of the box. Enter Camp two members: zerocoin, darkcoin, bytecoin + friends.

Oh yeah, I said I was gonna come back to bytecoin?  Well if you want to hear my opinion about cryptonote you'll have to ask me in person because this post is over.