Lightning Network explained

Lightning Network explained

Bitcoin makes all banks look ridiculous!” This is a sentence I hear too often! Indeed, there are still many steps take before convincing our people to replace traditional currencies in order to benefit from the advantages of the blockchain. Indeed, the network is confronted with several limitations and today we will focus on one size limitation, I named scalability, the ability to use the blockchain network on a large scale. Without the possibility of making the Bitcoin usable by several thousand people simultaneously, the advantages of the blockchain are non-existent. In other words, the hardest work still needs to be done because the capacity to process banking transactions managed by visas has reached 50,000 peacefully. Concerning bitcoin, we are talking about 7 transactions per second and the number of transactions waiting to be processed is exploding as the enthusiasm around this technology increases. The solution designed to solve this problem is called the Lightning Network.

What is the Lightning Network?

It is a kind of network that overlaps with the Bitcoin network, which would make it possible to pay in pairs without transaction fees, at the rate of several hundred thousand transactions per second. In this case, transactions are made outside the blockchain.

How does the Lightning Network work?

The scripting language of Bitcoin is used to program intelligent contracts on which bidirectional payment channels will be based. This two-way channel should be considered as a tunnel with a safe in the middle of the road. In this tunnel, the buyer and seller must meet to engage a part of their fund as a signature in order to formalize the opening of the payment tunnel and ensure the next transaction is successful.

To explain more simply how it works, let’s say I want to pay a service to my friend Florian. To do this, we will both put into escrow an amount greater than the amount of the transaction as a guarantee. This money guarantees that there will be a transaction. Indeed, in the event that a person wishes to cheat by not honouring his requested transaction, he would take the risk of being penalized by losing all the funds committed.

Once the payment channel has been formed, both parties are free to proceed with any transaction agreement within the limit of the number of Bitcoin they have in their possession. This means that the bitcoins are not deducted directly from the accounts.

The payment channel remains open for the desired time and can be closed when both parties reach an agreement. We will not be able to recover all the money, i.e. our guarantee followed by the transactions carried out only when the payment channel is closed. Thus, the final balance of the parties will be credited according to the transactions previously carried out.

Video explanation

What software is used?

The number of companies developing the Lightning protocol implementation software can be counted on the fingers of one hand and look like the following ones:

lnd which is developed by Lightning Labs.
c-lightning which is supported by Blockstream.
Éclair which is developed by the French start-up ACINQ.

What about the protocol?

Following the deployment on the Bitcoin network during the “Segwit” update in March 2018, the Lightning protocol is still in the BETA test phase.

Did you know that on the Rompert.com website, you will be able to view in real time the different channels that are active at the moment? Try it and see for yourself!

Currently there are more than 25,000 payment channels for more than 3200 nodes and 665 BTCs.

Développement du Lightning Network

Advantages and disadvantages of using Lightning

Advantages

Transaction costs: being carried out outside the blockchain, transaction costs are considerably reduced. Transaction fees would only finance the opening and closing of the payment channel.

Increased transaction speed: While verification of a transaction through Bitcoin takes ten minutes after six verifications, the Lightning Network would allow payment to be made instantly and independently of the network’s transaction volume. This would initially allow us to compete with market giants such as VISA for example.

Scalability improvement: The protocol would theoretically handle up to one million transactions per second, 20 times the theoretical capacity of VISA. This is a key factor in the massive adoption of crypto-currencies.

Anonymity: Since transactions are carried out in OFF chain, exchanges that take place using these different channels are almost impossible to trace.

Disadvantages 

Technology in need of maturity: As long as the protocol is in the test phase, it is still difficult to see the theoretical advantages that can be drawn from this technology. Many technologies offer fast, secure and free payment methods. As a result, the road to success is still full of pitfalls for Bitcoin.

Payment Limit: Each payment channel has a maximum authorized amount that can be placed in a “common safe”. This greatly reduces the target of future users because they will not be able to transfer more money than they want.

Strengthening of centralization:  The way intermediaries are selected is called routing. Each payment will take a route from participant to participant until it reaches its recipient. The routing algorithm is struggling to find the optimal route for transactions. As a result, these often obstructed roads contribute to the weakening of the network. This does not correspond to the very ideology of the blockchain whose goal is the decentralization of all information

Plausible increase in costs: The last disadvantage is not related to the Lightning network itself, but to transaction costs on the main chain: if Bitcoin were massively adopted and the size of the blocks were not increased, there would be a record increase in costs, if only to open and close a payment channel. This is a rather serious problem when you know that you can be forced to close (non-consensually) a channel at any time.

A word from the CIA

Although the protocol is still in the test phase, the development of Lighting seems to be bearing fruit. Indeed, the number of payment channel networks and their reliability is constantly increasing. However, if you would like to test the Lightning Network, I advise you to take precautions and make small transactions first. Scalability being a major problem for the massive use of bitcoin, lightning will decongest the Bitcoin network. This bodes well for the cryptocurrency ecosystem. To be continued…

What is a cryptocurrency?

What is a cryptocurrency?

When you return from a tropical holiday, do you also regret finding yourself with extra tickets that you cannot exchange? Because of the expensive costs associated with the exchange rate and the commissions charged during the exchange? Do you also regret having to wait several days to make bank transfers after multiple communications with your financial advisor? Have you ever wished for an universal currency to overcome all these problems faced by millions of people? This has been the case for about ten years now with cryptocurrencies, very recently advertised to the whole world, I mean Bitcoin. Still a fuzzy concept due to its lack of maturity, the decentralized electronic currency is increasingly talked about, thus improving the development of an ecosphere.

What the F*** is a cryptocurrency ?

la cryptomonnaie cia 3

Although traditional money is also an electronic currency representing 90% of the world’s money supply, a cryptocurrency is a digital currency that uses encryption techniques to secure its transactions, known as cryptography. Unlike currencies whose flows are controlled by governments, cryptocurrencies are generated by softwares open to everyone and minors. These are Internet users who offer the computing power to form a network and contribute to its proper functioning by verifying and recording transactions and their history between the parties in an accounting register. Unlike banks and other centralized systems, the accounting book is distributed to all peers in the network so that a single person or organization can’t interfere with it. We are talking here about the Blockchain, a technology whose existence is only ensured by crypto-currencies. Decentralised digital money complies with the same rules as cash money, since it makes it possible to purchase products, goods and services, make transfers, store value or even exchange it for traditional currencies. The difference here between traditional currencies and crypto-currencies is the absence of a trusted third party or intermediary in the execution of a transaction. We are talking about a Peer to Peer or “P2P” transaction. What difference does it make, you say?

Here are the theoretical advantages we can expect:

  • Transactions are much faster: There is no waiting time to complete transactions and no one asks you the reasons of your transfer
  • Cryptocurrencies flows are determined as soon as they are created, making inflation impossible.
  • Banks do not own your money, you’re the only one with full power over it
  • Trust between the parties is strengthened without going through intermediaries who charge fees in addition to slowing down your transfer. Fees are reduced
  • Confidentiality is respected despite the transparency of the information
  • A means of tax optimization

How is this possible? How can we respect Internet users’ data with transparency in these public transactions?

To give a simple explanation, the blockchain encrypts exchanges, which means that you can see all exchanges in real time but you can’t know the identity of the parties, except for a series of numbers and letters called public addresses. The content of the information is only transmitted to individuals with decryption clearance. In concrete terms, this means that it is possible to know how much money the addresses have while respecting the anonymity of individuals, although it is easy for specialists to know our identity if they really want to. Of course, among the two thousand crypto-currencies available, some of them allow you to be completely anonymous. Thus thanks to cryptocurrencies and blockchain, users have access to a simple and secure system to spend their money.

Crypto-currencies reflect the evolution of digital exchanges and the public’s desire to regain the full power of their purchasing behavior as was the case with gold. In addition, gold and cryptocurrencies have many points in common, such as

  • Reserves are limited: gold is a rare commodity and cryptocurrencies are also limited since the number of units created is determined at the time of creation and their circulation is regulated according to the transactions check carried out by miners.
  • Both cannot be created industrially in unlimited number.
  • They require some effort to be acquired.
  • They are durable over time.
  • They can be used anonymously.

What is the purpose of cryptocurrencies?

Crypto-currencies have a specific use for each of them. Indeed, they allow you to benefit from the services offered by the company.

Here are some examples of how we can use the crypto-currencies:

  • Rental services (rent, equipment, computing power of your computer, vehicles…)
  • Transport services (holidays, plane tickets…)
  • Tuition fees for education
  • Purchasing services (home, cars, books, shopping)
  • Professional services (lawyer, accountant, notary, supplier, subcontractor)
  • Monitoring services related to the traceability of products and services
  • Insurance services (compensation for delayed travel)
  • Salaries and commissions

In short, it is possible to do many things with crypto-currencies, although many of them are not universal. You will not be able to buy the same thing with Ethereums or Vertcoins or other crypto-currencies than with Bitcoin.

Here are the disadvantages observed in the use of crypto-currencies:

  • The high volatility of stock market prices, makes it impossible to store them securely or to use them in everyday life.
  • This volatility is due to the speculation enjoyed by crypto-currencies owners, particularly during price manipulations by whales or during pump and dump movements.
  • The low transaction processing speed: compared to VISA whose transaction processing capacity is close to 50,000 transactions/second, the Bitcoin blockchain cannot handle more than 7 transactions per second (soon the arrival of the Lightning Network technology currently in the BETA phase, whose theoretical capacity is close to 1,000,000/second) is not scalable, which does not allow mass adoption. Indeed, to be successful worldwide, bitcoin should be able to support the load of several tens of thousands of transactions per second.
  • Since the transaction verification process is sequential and therefore inefficient in the context of mass adoption, the network quickly becomes saturated, thereby significantly increasing transaction costs. (In December 2017, to $10, you had to pay $55 in fees and wait several days to complete a transaction)
  • The increase in transaction costs creates an auction and a competition to verify them. In other words, the people who have paid the highest transaction fees have priority in the queue. This does not respect the promise of cost savings and the advantages of cryptocurrencies compared to traditional currencies are non-existent.
  • Lack of security: As it is the case in all sectors where it is possible to generate great wealth, the crypto-market is confronted with an increase in the number of scams. Indeed, hacking of exchanges or individuals, particularly with Ledger physical portfolios, but also fake ICOs and other types of fundraising that are rampant, may jeopardize the security of your money.
  • Very energy-intensive network: The network requires considerable computing power, to such an extent that its energy requirement is equivalent to nearly 7% of France’s electricity consumption, one of the world’s largest consumers, which is enough to make you dizzy when you understand that it would supply millions of people with electricity for a whole year.
  • The regulations that governments put in place to counter the development of cryptos (bans, penalties) are highly dissuasive.

In short, you have to be patient before blockchain becomes a norm in our society. But it should be mentionned that companies are adopting this technology more and more and are starting to explore potential synergies. Indeed, while public opinion played against crypto-currencies by assimilating them to the “currency of criminals”, large groups are beginning to integrate the blockchain into their services further democratizing it.

Will cryptos ever replace traditional currencies?

This is very unlikely or even impossible for the reasons mentioned above. However, with a loss of confidence in banks and rumors that the future financial crisis is imminent, many hope that crypto-currencies will explode at that time and that their use will evolve to the benefit of society. In the meantime, scientists agree that blockchain is a technology that will disrupt our economy.

Several types of cryptocurrencies

CRYPTOCURRENCY

You’ve probably heard about corners and tokens. But what is it concretely if they are cryptocurrencies? A side note: the term cryptocurrencies does not suit many corners and tokens because they do not function as a mean of exchange. But let’s assume that they are cryptomonal.

Tokens or tokens: this is a non-little crypto-currency using the blockchain of a corner and often working with the ERC20 protocol of the Ethereum.

Tokens have the advantageous feature of being able to be used as:

  • Stock market shares: Tokens come from an ICO, i.e. a fundraising that allows you to quickly obtain financing without control from an organization, as is the case with IPOs. By doing this, companies do not need to sell shares, which has the advantage of preserving full power to the company.
  • The creation of decentralized projects and applications is facilitated since it is not necessary to create a Blockchain from scratch
  • Serves as legal contracts by replacing intermediaries (notary, physical insurer, broker, lawyer)
  • Each token has its own utility in terms of functionality

 

Altcoins or coins: A corner is a cheap virtual currency alternative to Bitcoin and completely independent since it has its own Blockchain technology. This is particularly the case for Ethereum, Bitecoin, Ripple. In addition, each corner has its own criteria, codes, algorithms and performance. For example, a transaction with Bitcoin takes about 10 minutes to complete, while the Ripple allows it in a few seconds.

How to acquire it?

Did you know that it was possible to spend your cryptos at the local merchant who does not accept crypto-currencies? Thanks to some online banks that exchange your cryptos for “fiat” currencies (euros, dollars), here there is indeed an intermediary, but things are likely to evolve toward decentralization. The good news is that a growing number of companies are recognizing that crypto-money are an alternative mean of payment to traditional currencies.

At first glance, it may seem difficult to make your first purchase of cryptocurrencies, but after reading our tutorial, you will see that it is easy. Although there are many purchase platforms to buy and sell crypto-currencies and transfer cryptos to trading platforms, the CIA has its own preferences and offers several analytical articles to help you make the best decision.

The word from the CIA

evolution-bitcoin-cia

In other words, even if the adoption of crypto-currencies evolves in its favor, they are confronted with many limitations that greatly reduce their opportunity for democratization. Thanks to this article, you’ve probably understood that in view of the lack of regulation, you might as well say that it is a bit like the far west in the world of crypto. When a new crypto-money appears, many disappear, taking with them the fruit of several years of savings for many of us. This is why I strongly recommend not investing money that you can’t afford to lose.

In the midst of economic uncertainty, crypto-currencies are subject to many controversies. Will they soon collapse as many specialists predict, or will they shake up traditional currencies? No one knows the answer, not even Warren Buffet. In the meantime, capitalization has finally increased again after a difficult year and a half.

The revolution has begun. If multinationals, banks and governments are starting to buy crypto-currencies, it is because something is happening in our society. Crypto-currencies are starting to challenge the financial system.

How Blockchain Technology Contributes to the Financial Sectors

How Blockchain Technology Contributes to the Financial Sectors

The existence and democratization of Blockchain technology recently made a lot of noise. The first cryptocurrency of its kind, Bitcoin, officially launched in 2009, has enabled a large-scale democratization of the blockchain and its possibilities.

Over time, the importance and potential applications of this technology have grown and are now being considered in all sectors of activity. This would allow the financial and banking sector, for example, to reduce transaction costs, improve transparency and provide banking services to unbanked people. (It should be recalled that in Africa, 80% of the inhabitants do not have a bank account)

The “Popularity” of Blockchain Technology in Financial Sector

The blockchain is a kind of unique and advanced technology that brings many innovations. We are all aware of this, but it is probably in the financial sectors that the main technological innovations are to come.

Generally speaking, we all know that the banking sectors are strictly regulated and are of course centralised by default. This sector differs in its conservative attitude. Cryptocurrencies and the recent bubble have not, in general, pleased traditional finance. Aware that we are not fighting against technological progress, all the financial giants are rushing into the underlying technology of crypto-actives, the blockchain, while denigrating the crypto-currencies that obviously shade them.

How Can Blockchain Contributes to the Financial Sector?

Understanding the blockchain technology and its applications will influence how we treat this article and allow us to see the utility (or not) of this disruptive technology by the financial and banking sectors. The question is therefore whether this technology will be of great use and, above all, how.
In this article, we will try to show you how blockchain technology can positively contribute to and impact so-called “traditional” finance.

Blockchain offers faster financial transaction

Most of the time, the banking system needs time to process the transactions initiated on a daily basis by the world population.

In some cases, validations even take several days (compliance, identity check, amount limits, etc.). That’s where the blockchain comes in. This technology offers an alternative to the rigid and centralized structures of our old institutions.

Faster, the blockchain is validated by minors and does not require any intervention from a third party, the famous “trusted third party” (in this case, your bank that validates the transaction between you and the sender or recipient of the transfer).

Lower fees for financial transactions

We are often charged bank fees for making transfers or financial transactions. The interest of the blockchain also lies in its cost: it is much lower than that of traditional transactions (but not non-existent!). This is the main reason why banks are highly suspicious of this type of digital asset and it is even becoming increasingly difficult to acquire cryptocurrencies through certain banking groups (which is a desired internal choice and assumed by certain institutions, whose names we will keep silent here…).

Setting a Smart Contract

blockchain technologies smart contract

Blockchain has a great ability in storing a massive quantity of digital information. Therefore, establishing a smart contract in a certain transaction for the involved parties is a real advantage. Blockchain companies and bank sector can establish a great collaboration in order to create a certain smart contract for different kind of transactions.

Imagine for a moment: in the event of bad weather and heavy flooding, a farmer’s insurance must compensate him. It is necessary to declare the claim, that the claim is validated by a qualified person, that the transaction is validated internally, that the bank validates the payment… With a smart contract, no need for all this. Software detects that there has been bad weather (a mechanism connected to rainfall readings for example) and the smart contract automatically compensates the farmer, in a safe, inexpensive and fast way.

This simple example allows us to see the almost limitless possibilities of the disruptive technology represented by the blockchain and the applications that can be made of it, in all fields, by all sectors of activity.


Want to learn more? The following articles may be of interest to you

“Blockchain, good for your resume?”
“Understanding blockchain technology“
“The history behind Bitcoin and Blockchain”

Most General Types of Blockchain Consensus Mechanism: PoW and PoS

Most General Types of Blockchain Consensus Mechanism: PoW and PoS

Blockchain is probably something familiar to you, especially you may know it was first applied to the cryptocurrency. All you know about blockchain is about the technology underlining the creation of cryptocurrency, as a digital currency that sees its popularity increase in some recent years. However, blockchain is more than that, it is often defined as a distributed ledger containing records of previous transactions made in the past.

The key to operate the distributed ledger is by ensuring the whole network agrees with the content. And this is where the consensus mechanism enters into action. We can also say that there’s supposed to be a consensus mechanism behind the existence of cryptoassets.

The Importance of Blockchain Consensus?

The consensus is known as the “general agreement” this is essential in blockchain technology. It aims at verifying the information that is being added into a ledger as absolutely valid. Indeed, the authority to keep the centralized account in one entity such as a centralized payment or bank system will be processed by the blockchain technology or distributed ledger in order to record the information.

The consensus mechanism has two objectives to reach a fair agreement delivered to all involved parties. First, it has to ensure there is a valid block in the blockchain. Second, to ensure that there won’t be anyone able to successfully fork the chain.

Two Types of Blockchain Consensus Mechanism

There are actually some common consensus mechanisms that you may not know. But here, we are going to talk about some of the most general types of consensus mechanisms : Proof of Work and Proof of Stake.

pow

Consensus Mechanism 1: Proof of Work

This mechanism is the most commonly used and the oldest one introduced first by Cynthia Dwork and also Moni Naor in 1993. Then, in 1999, Markus Jakobsson coined its actual term of Proof of Work (PoW). In this mechanism, all computers in network miners will work in solving the cryptographic puzzle repeatedly, consisting of a mathematical hash or function. We can find the first invention of the protocol popularized by Bitcoin credited to Satoshi Nakamoto.

Transactions processed in the Bitcoin blockchain are concentrated in one memory pool. They call it “mempool” where a block is created every 10 minutes. It has to be verified to be accepted in the “mempool” for every transaction. Done by the miners, this process of transaction verification is called ‘mining’. PoW has a big responsibility for the whole mining process, operations, and power consumption.

The pros of PoW is that this is a proof the work was perfectly completed. The cons, it is criticized for its huge energy consumption and it is not well scaled with the big problem or issues in the transaction confirmation. Some coins using it are Ethereum Classic, ZCash, Monero Original, and some others.

Consensus Mechanism 2: Proof of Stake

This is a credible opponent to the PoW. In this case, Proof of Stake (PoS) will not require any computer in performing the repetitive computations. Therefore, it will be environmentally friendly. This consensus mechanism replaces the miners using validators in which they lock several of those coins as the stake. The group of validators is alternatively proposing and also voting for the next block. The weight of every validator voting will depend on the size of the stake.

Because this doesn’t require any miners, the validators will stake their own coins to bet which block will be valid in order to add it into the chain. When the fork happens, they will be consulted again on which fork is to be supported. In these fair conditions, the validator that chooses the wrong fork will lose the stake in the right fork.

The pros of this PoS lays on its efficient energy consumption and more decentralized system. But, it also has cons, in betting on the stake. Some coins apply this consensus mechanism such as DASH, Neo, PivX, and others.

Those are the two most common types of blockchain consensus mechanisms used so far. Understanding this information will help your researches about the different types of consensus mechanism in the blockchain.


Want to learn more? The following articles may be of interest to you

“The Blockchain Ethereum”
“How blockchain Technology contribute to the financial sector”

The history behind Bitcoin & Blockchain

The history behind Bitcoin & Blockchain

The origin of the phenomenon:

It all began with the 2008 subprime crisis in the US. These real estate loans appeared in the 2000s in the United States and were intended for people who were not eligible for a traditional real estate loan.

But financial institutions and various investors find a particular interest in these high-yield financial securities, this is the beginning of the accumulation of mortgage loans, called securitization.

During 2006, real estate market prices collapsed while key rates rose, which inevitably led to a lack of resources on the part of creditors, many of whom were unable to honour their monthly payments. We are therefore witnessing a mass seizure of real estate.

This neo-liberal trend had already become clear recently with the removal of barriers between commercial and investment banks. Allowing them to merge and speculate on their own behalf.

This crisis is quickly spreading around the world and is affecting the global economy as a result of the globalization. Although these subprime loans were granted only to American individuals, European banks had no hesitation in investing in these high-yield investments. With the example of BNP Paribas, which announced shortly afterwards, the freezing of three funds backed by subprime contracts for €2 billion. Banks  therefore restrict access to credit to restore a solvency ratio, which has an impact on the real economy. As a result, households reduce their consumption and companies have more difficulty investing.

During and after these events we observe a significant loss of trust in financial institutions by the general population

Finally. The IMF will affirm this trend in a June 2018 article entitled Monetary Policy in the Digital Age and explains that “The global financial crisis and the bailout of major financial institutions have rekindled scepticism in some quarters about central banks’ monopoly on money issuance. ( “Monetary Policy in the digital age” IMF).

This scepticism fuelled the creation of Bitcoin and other cryptographic assets, which challenged the state-backed currency paradigm and the dominant role of central banks and conventional institutions in the financial system. This crisis is only the reflection of a feeling that has been growing for several years now. Between the derisory financial lobbying, the lack of transparency of financial and government institutions, the practices of unorthodox banks for their own benefit.

The people are therefore beginning to question the abuse of power by financial institutions. It is therefore following this growing feeling that Bitcoin and blockchain were born.

Satoshi Nakamoto, the creator

Also in 2008 and in the midst of the economic crisis, an anonymous man named Satoshi Nakamoto published a document of about twenty pages on Internet explaining his project to create a virtual and decentralized currency.

He sums it up himself with these few words: “I have tried to work on a completely peer-to-peer payment system, by removing any intermediaries or “trusted third parties” “double spending” is made impossible within a peer-to-peer network with validation. There is therefore no longer a need for trusted third parties” (Satoshi Nakamoto, 2008).

Many more or less conspiratorial theories have emerged about this anonymous developer and some are willing to say that it would be Elon Musk, or the CIA, but the most likely theory would be that this assumed name brings together a whole group of developers and experts according to the complexity of the programmation of the bitcoin blockchain. The first blockchain was born.

When Satoshi Nakamoto officially opens the Bitcoin public blockchain, he mentions a newspaper title in the first block of the blockchain “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” (Satoshi Nakamoto, 2008).

65

This is the British daily newspaper of The Times dated 3 January and whose French title would be: “Le chancelier au bord du second plan de sauvetage pour les banques” (The New York Times, 2008). Experts express themselves on several occasions regarding this reference and affirm that it is a way to officially dating the launch of the blockchain, while clearly displaying a “revolutionary” ideology against the current financial system, and especially the banks.

First step on the market

At the beginning of this new era of the distributed economy, a famous cryptocurrency faces several obstacles in its use. Malicious users use the anonymity of Bitcoin to carry out illegal transactions, especially via the dark-net where dealers, arms dealers and illegal businesses of all kinds predominate. At that time, Bitcoin was regularly mentioned in the media as “the currency of drugs, weapons and illegal sex on the Internet” and its reputation was negatively altered in the minds of the general public.

The speed of transactions and the anonymity of the currency would have attracted the stakeholders of the underground economy and would have become a payment tool completely adapted to their “needs”.
This trend continues until 2013 and is marked by the history of Silk Road, one of the largest black markets of the time on the darknet where the majority of transactions would have been made in Bitcoins. At the end of 2013 the FBI arrested 17 people suspected of being major players in the SkillRoad network, which will lead its creator Ross William Ubricht to a lifetime sentence in jail. This event reassures the people about the anonymity of Bitcoin and shows everyone that these users are far from untouchable.

Indeed, although anonymous, one of the fundamental characteristics of Bitcoin is traceability and transparency. Each transaction is recorded in the Bitcoin blockchain in a way that is immutable and accessible to all. Of course, it is not your name that will be entered but your portfolio address, a long series of letters, hence the anonymous nature of the network. However, it is far from complicated to find the identity of a person from his portfolio address for an IT expert or any specialized legal entity.

To put an end to this reputation as “illegal currency” Marc Andreesen, founder of the first cryptocurrency web browsing network, addresses an ambiguous interview to the New York Times and quotes: “To all those who shout that Bitcoin is only used as a haven for criminal or terrorist activities, or that money can be transferred anonymously, you know nothing about it because it is a myth. Bitcoin works like email, which is easily traceable because it is in the form of a pseudonym and not anonymous. In addition, each transaction on the network is tracked and recorded in the Bitcoin blockchain, an unalterable register visible to all. Finally, Bitcoin is much easier for law enforcement to follow than cash, gold or even diamonds. It is much more discreet to buy your drugs in cash than in crypto-currencies.

Shortly afterwards, Les Echos revealed that only 3 to 6% of Bitcoin transactions were illegal in 2016, compared to nearly 40 to 50% at the beginning of the creation of the currency and until 2013.
The market is maturing and diversifying, the majority of transactions serve now speculative purposes. The 2.0 thugs have given way to white-collar workers who see Bitcoin as an ideal instrument for speculation, particularly because of its non-regulation.

Many practices prohibited on traditional and regulated markets are very present on the crypto-currency market. It is relatively easy for a person with high capital to manipulate the prices of a cryptocurrency and get the best out of it for small investors.


Want to learn more? The following articles may be of interest to you

“Most general types of blockchain consensus mechanism”
“Understanding blockchain technology“
“Security protocols”
“What is an ICO”

The different types of Blockchain

The different types of Blockchain

I often hear, wrongly, that the controversial Ripple (XRP) is a centralized crypto-currency because of its blockchain. We are far from the truth ! To fully understand the different existing Blockchain architectures (we will only talk about the main ones here), I invite you to read the following carefully.

Three main architectures can be noted

  • Public or distributed blockchain: Like the Bitcoin blockchain, its blockchain is accessible and modifiable by everyone thanks to their public source code. Its execution is based on a token, in this case, the bitcoin, the digital asset that can be exchanged on the decentralized network.
  • Authorized blockchain: Like the Ripple blockchain, its process works like a forum where the administrator decides on everyone’s roles. The process also includes the token, here XRP and its source code can be open source or not.
  • Private or centralized blockchain: This last process works in the same way as an ordinary blockchain but in a private way. Often used by companies or groups of people who prefer not to keep their payment information within everyone’s reach. Its source code is not open and their structures are often much smaller than the previous ones.

We can, therefore, observe that one of the fundamental characteristics of the blockchain, decentralization, is at the heart of a debate among its users. Users in the same vein as Satoshi Nakamoto advocate a libertarian spirit and distributed architecture and militate against private blockchains and their lack of intrinsic transparency.

On the other hand, it is understandable that a company using the blockchain for its transactions does not want anyone to have access to its information, whatever it may be. For reasons of confidentiality, this information cannot be disclosed and many external actors, such as competitors or the media, could benefit from information from a public blockchain.

Private blockchains have another major flaw, it would only take one user to access the blockchain in question to change its code, which would be a disaster for companies using the blockchain in question.

Disintermediation (which involves decentralization) is also another disadvantage because it disappears in favor of an administrator, who would be placed above the others in a centralized hierarchy and therefore similar in every aspect to a “classic” company, which is precisely what we are trying to avoid by using open architectures, such as Bitcoin.

 

32

Representation of the different types of blockchain

On the example above, we can see the obvious difference between centralization (A), partial decentralization or consortium blockchain (B) and fully-open or distributed blockchain (C).


Want to learn more? The following articles may be of interest to you

Understanding blockchain technology
The history behind Bitcoin and Blockchain”