Tag Archives: blockchain

The_Rise_and_Rise_of_Bitcoin

Review ‘The rise and rise of Bitcoin’

The rise and rise of Bitcoin (TRARB) follows the path from the invention of Bitcoin and its the rise in the early years (until 2014) through the eyes of documentary maker Nicholas Mross. His brother Dan Mross is a Bitcoin enthousiast and computer scientist. He is the main person in the documentary, interviewing important names in the Bitcoin world and participating in events like Bitcoin conventions. The double ‘Rise’ title can be explained due to the volatile nature of Bitcoin, where more than once Bitcoin seemed to go definitely down, only to re-emerge with a higher price and bigger importance.

In 2012 Dan understands that the developments around Bitcoin could become important enough to start documenting them. Dan is followed through his personal involvement: mining Bitcoins. Mining is the process of earning a Bitcoin reward by offering computer processing power enabling the Bitcoin transactions. By the end of the documentary it is becoming clear that the days for mining are over for the ‘hobbyist geeks’. The market has become highly competitive and Dan decides to stop mining and sell his mining rig.

Throughout the actual developments and interviews the documentary is very useful to watch for people who are new to Bitcoin because with clear visuals its roots and the technology behind Bitcoin are being explained. A counter in the lower side of the screen reminds the viewer of the US dollar price of the Bitcoin of that moment in time during the documentary. Usually it fluctuates in the range of $1 to $250. It is not until the latest shots of the documentary that it passes the $ 1.000 landmark.

Bitcoin was invented as an alternative to the banking system and especially its 2008 collapse when worldwide banks needed to be bailed out at the expense of the taxpayer. The idea behind Bitcoin was that it couldn’t be manipulated by a central authority. Only a fixed amount of coins are issued, following a fixed set of rule.This is structurally different from how the fiat system works, where printing takes place in accordance to policies from a central bank. Satoshi Nakamoto was the mysterious person behind the Bitcoin principles and until now his identity is unknown. His 2008 white paper was a brilliant vision on bringing together technologies (like cryptography, peer-to-peer networking and proof of work) that would lead to the design and implementation to the world’s first cryptocurrency.

The Cyprus crisis in 2013, where consumers were cut off from their bank deposits gave Bitcoin for the first time an excellent use case: if the consumers had deposited their money in Bitcoin then it would have stayed out of reach from authorities, instead of being deprived from their deposits. Also in later cases (Zimbabwe, Venezuela) and in countries where there is no tradition of private banking, Bitcoin would prove to be an excellent reason for consumers to turn to Bitcoin.

An interview with Gavin Andresen is one of the interesting pieces in this documentary. Andresen kept a close (business) relationship with Nakamoto. Nakamoto gradually disappeared from the Bitcoin community around 2010-2011. In one of his last postings he regrets that his invention is now being used by the likes of Wikileaks to accept anonymous contributions. Andresen would be become the most influential developer until 2016 (when Andresen himself stepped down).

One aspect about Bitcoin would be a constant factor through the years: the very tense relationship with authorities. Mt. Gox, originally a trading card platform before it was transformed to become the world’s largest exchange would be subpoenaed by American authorities. A hack of the exchange in early 2014 send Mt. Gox into insolvency prematurely. The Mt. Gox episode is a very crucial element in early Bitcoin history and the documentary is probably the only filmed material from inside the company. The ‘dark web’ website ‘Silk Road’ would be very early on the radar of authorities. Silk Road made it possible to buy  drugs and medicines online. Payment could be settled only by transferring Bitcoin. In 2014 the website was dismantled by authorities and leading engineer Ross Ulbricht was arrested and send to jail.

Charlie Shrem (CEO of BitInstant) can be seen explaining his fear of going to jail or becoming a martyr. His company needs to spend large sums on lawyers to stay legally compliant. Besides these legal trouble it becomes clear that due to the popularity of Bitcoin his company has increasingly difficulties in handling the client transactions in a properly manner. Ultimately Shrem would also be arrested in 2014 and sent to jail on charges of money laundering.

Consumers would have their own struggles to keep their investment safe because of the many attempts of hacking exchanges, the worst example being the already mentioned Mt. Gox exchange. Throughout the documentary it becomes clear that after the wild first years the Bitcoin was becoming a more professional, streamlined industry. Many companies from the early years would be forced to stop (BitInstant, Tradehill) and be replaced by companies backed by large investment parties (like BitPay and Coinbase).

After the documentary was released there would be another development in the Bitcoin industry: the rise of alternative coins and hard forks from Bitcoin (like Litecoin and Bitcoin Cash). Vitalik Buterin appears as the lead writer for the Bitcoin Magazine. He would later become the founder of Ethereum, the largest competitor of Bitcoin. Roger Ver is portrayed in the documentary trying to convert Japanese retailers to use Bitcoin for client payments. Ver would become the man behind the Bitcoin Cash hard fork.

TRARB is a must see documentary for anyone who is interested in the short and turbulent history of Bitcoin and wants to know more of its origins. It will give a good insight to the big names in crypto. Throughout the documentary I felt an often returning feeling how fast all developments have gone in just a few years. This documentary will remain an important document on how a technological development revolutionised the financial-economic world. Maybe in 10 years we will look back at it as a fad that faded in oblivion or as a starting point of a technological development like the rise of internet in the mid 90’s.

Nootdorp, March 2018

Apple Pay evolution to the blockchain

In its current format Apple Pay is depending on traditional banking and credit card institutions. This has not proven to be a guarantee for a fast world wide roll out of the service. There are tough negotiations involved both on the side of merchants as well as the financial institutions.

For example in The Netherlands there have been talks about rolling out for more than a year. Finally next month things should be ready for ‘prime time’. I have no idea what the final ‘service’ will look like in the Netherlands. It surely will be along the lines of scanning your bank debet card(s) and credit cards (hopefully all financial institutions will be involved) in order to enable transactions. The final seal of the transaction will be made through the Touch ID of Face Recognition when iPhone X will make its way to the community. There is the challenge to attract  merchants to accept Apple Pay. Judging from the acceptance in the USA where Apple pay already is active, another possible factor that the final service will be somewhat crippled from the start.

Suppose that in the near future Apple would be skipping the financial institutions and operate as a financial intermediair supported by a decentralised public ledger (blockchain). It would look something like this.

Blockchain, currency

Apple starts the blockchain with its own currency, opening the ‘to be’ blockchain to miners processing transactions and offering financial compensation delivering the computational power for transaction processing.

Consumer

The consumers are able to buy Apple’s own currency, exchanging fiat money for the Apple Currency (which I shall name ACX for convenience reasons). This process is from a consumer perspective similar to buying something from the App Store. Only the exchanged money does not land on Apple’s bank account but on the blockchain, so Apple has a function here as an exchange institution (from fiat money to ACX). As soon as the exchange transaction is processed (all made possible through an Apple device like an iPhone, iPad with a dedicated app) the ACX balance of the consumer is updated and visible from the app.  The consumer will now be able to spend his ACX balance online or through Apple Pay at physical stores.

Transaction with merchant

The merchant who is affiliated with Apple Pay is then capable of adding balance to his Apple business account also stored on the blockchain. The transaction between consumer and merchant takes place between two Apple devices for example an iPad on the merchant side and an iPhone on the consumer side. There must be a kind of handshake between the two devices, finalized by a ID on both merchant and consumer side. The consumer will be debited for the transaction, the merchant credited. Apple will allow the merchant as well as the consumer to exchange their ACX for fiat money (USD, EUR etc.). Transaction will processed by decentralised processes on the blockchain enabling miners to receive a fee for the transaction.

Conclusion

I am sure that solutions along the lines as described above will be made available in the near future. I can imagine that Apple choses its own blockchain, it has the financial power to do so. Not only by Apple but all the major big players (Google, Facebook, Microsoft etc.) wil start offering services along these lines. I use the example of Apple because they are probably already ahead of the bunch and already have an integrated ecosystem.

The implications are far stretching: Apple becomes a financial institution itself and largely independent from the traditional banking and credit card institutions. Therefor it may decide to start a specialised branch named Apple Pay. The underlying blockchain technology will be essential to guarantee the integrity and security of the ecosystem. I also understand such a scenario will have far reaching fiscal and financial consequences which I will not address here, but in general Apple’s dedicated branch will behave very much like a traditional financial institution from a fiscal and financial perspective.

The Hague, October 21th 2017