Blockchain Challenge by Bank of England
blockchain.bankofenglandearlycareers.co.uk
blockchain.bankofenglandearlycareers.co.uk
[1] http://www.darkpolitricks.com/2013/01/who-owns-the-bank-of-e...
I'm not exactly a fan of his public policy positions.
Therefore I may happen to agree with Andrew Jackson on some things, but appealing to Andrew Jackson as an argument for those things is still a bad argument.
But yeah, he also slept around, so by that logic who cares right ?
Big finance doesn't give a sh*t about bitcoin. They don't see it as a threat, it barely registers. What they do see is the enormous applications and potential cost-savings that blockchains could enable - in areas like settlements, transaction signing, new products and so on. Hence coverage is moving from "Bitcoin" to "Blockchain".
If you take away proof-of-work, then it's no longer a blockchain. It's just a unary Merkle tree, an idea which has been around for a long time. You can't surgically extract out the most fundamental and important part of a given idea and then call what remains the same thing.
Just because there haven't been any wildly successful block chain implementations doesn't mean that the technology can't be employed elsewhere. Many technologies are in play today that were once deemed as not being useful, and even though I'm critical of block chain, I can still think of a few validation use cases for big banks with it.
That's going to be changed fairly soon.
I suspect that a lot of people are just going to use the bitcoin blockchain out of inertia, just because it's easier to use a proven platform than something you build yourself.
Unless someone needs a feature that bitcoin doesn't provide, I don't see any competing blockchain taking its place.
No, it's not. We have already seen four individual proposals to the network to increase the block size. Each requires a consensus by the miners and each was shot down.
The miners are incentivized not to increase the transaction rate, because they profit from the increased competition and fees from smaller blocks. By design, the decentralized control of bitcoin is actually what is preventing it from improving itself.
No they aren't.
The miners are rational actors and incentivized to do what's best for themselves, not Bitcoin. The entire network is built on the premise that the miners are rational, and it has been demonstrated four times already.
Bitcoin is an example of how Tragedy of the Commons applies to digital networks.
In my view, anything using blockchain technology that isn't actually using Bitcoin's blockchain is a nonstarter. It's a fundamental misunderstanding of what Bitcoin's strengths are. It'd be like trying to come out with a new model of car that can't run on the existing roads (which actually has instructive parallels to the complete failure of earlier self-driving car attempts of the 60s that needed specialized roads).
If 10 m people used side chains (just for today), it would take some of their transactions up to 40 days to fulfill. If 10 m used it again (just tomorrow), it would take almost 3 months for some transactions to fulfill.
Most merchants will not wait that long for an I.O.U., especially with fluctuating BTC exchange rates, making side chains much worse and less competitive than ACH.
What does the second have to do with the first? Just because bitcoin was the first to use it, doesn't mean everything that uses same mechanism suddenly is "Bitcoin", at least not in the commonly used sense.
The "blockchain" works because all the mutually-distrustful participants' incentives are roughly aligned (in theory). You can't attack the network without spending a huge amount of money on mining hardware, and as long as you're financially motivated you'd be better off just mining (again, in theory)
You could have a "blockchain" without mining, but it wouldn't provide the same properties Bitcoin does, and solutions that give you similar properties to such a system have been around for a long time, and are probably faster and more efficient.
I think banks are now interested in the "blockchain" because of some combination of hype, FOMO, and fundamentally misunderstanding Bitcoin/blockchain.
A blockchain without a currency or decentralized network is called a database. All banks currently use one already. There is no reason for any of this. Think of it like intranet (blockchain) vs. internet (bitcoin). Sadly, many do not realize this.
The cool part is that it's decentralised, and you can only do that with bitcoin, or some equivalent decentralised value token (call it a currency if you want, doesn't matter but there has to be a token with value).
Big finance has very silly ideas about a bitcoinless blockchain. No other POW or equivalent protocol has a value token anywhere near the size of bitcoin, and thereby nowhere near the security. The blockchain is nothing without bitcoin, until it is usurped and there's zero indication of that happening.
There are lots of 'internal' blockchain ideas floating around right now, i.e. not decentralised, proprietary 'blockchains', which are really just ordinary centralised databases which have nothing to do with the concept 'blockchain' at all and are not novel in any way and have been around for many, many years, and Big Finance is eating that stuff up. It's nonsense really.
Ripple is overly complicated, includes the XRP currency for the sole purpose of enriching the founders, and has been shown to not be secure on networks larger than one node. There's no real reason for a bank to use it instead of just building their own application with the underlying technology. When I see comments like this, I always assume the commenter owns XRP or BTC.
Yes I do hold XRP, Bitcoin, and a number of other digital assets, which is consistent with my view that they could become valuable in the future. That doesn't mean I think banks should adopt these protocols to transfer conventional assets. But when I read a press release talking about "blockchain technology" I assume the author either does not understand bitcoin or else is making a wrong prediction about the future.
> I'm arguing that the bitcoin protocol without the Nakamoto consensus is not an improvement over conventional clearing technology
As an analogy, let's say you design a car with no engine, but still insist on calling it a car because it looks like a car and it has most of the same parts. It's not really an illuminating discussion to keep debating whether or not it should be called a car so long as you understand the objection that the car-shaped-object is no longer useful for the purposes that people commonly associate cars with serving.
... but not the other way around, hence it can be omitted.
"The Blockchain" (big B) is the original blockchain (small b) used for Bitcoin, but it's only one possible implementation. It's like saying Postgres, MySQL, etc. aren't 'true' SQL databases only Codd's original implementation is -- now, obviously the metaphor doesn't quite hold because of the distributed nature of blockchains, but it's disingenuous to say that there's only one canonical implementation of a technology.
The Blockchain and Bitcoin are valuable proof-of-concept implementations of blockchains, but there's value to be gained from separating the general ideas from specific instances.
Realistically, most "blockchain" tech these days is actually using the bitcoin blockchain, because it is the most secure and widely-supported blockchain available.
Oh - and of the thousands of blockchains out there, only one is worth a damn. The others are barely burning more than $10k per day in anchoring their objective truth.
The mental image of 'burning' increasing amounts of wealth for a financial instrument of dubious value gets more strange the more you think about it, like a funeral pyre or a hugely destructive potlatch.
The intrinsic value of bitcoin is censorship resistant storage. The speculative value of bitcoin is somewhere above 0.
If you don't need censorship resistance - don't use it. But if you think no-one needs censorship resistance, then you are empirically wrong, as demonstrated by the hundreds of thousands of transactions per day in Bitcoin.
As for burning increasing amounts of wealth - well, the network is pretty well calibrated. It's not a chain reaction that will take over the world, it'll scale to precisely the size that the market demands.
There has to be an incentive for miners to work with the network, but it doesn't have to be intrinsic to the network.
Even if you have a central organizer/bank, you are simply using their currency as the native token. You could use a native token which has external value _if_ you have the authority to issue that token (e.g. a fiat currency if a central bank decided to create their own blockchain), but that doesn't remove the need for the network to have a native token.
You can have a relatively smaller number of actors incentivized by other means on a network - e.g. organizations in an industry that validate transactions amongst each other.
If the transactions are small and numerous, it would seem easier to maintain a block chain ledger than managing multiple write points and masters for a decentralized database. I'm not saying it's concrete, but it would be an interesting experiment at least.
If each participant individually judges the merits of other participants, then everything will quickly diverge as some blocks are accepted by some participants but not by others, and the whole network collapses into forks.
Mass decentralization is only a selling point for Bitcoin, but even then the Bitcoin organization (who controls the code) has authority to push a hard fork on the miners. They won't do it obviously (e.g. increase block size), because it would alienate their user base.
Miner validation can be controlled by the same organization in charge of the code, which isn't aligned with any one competitor in the industry.
In practice you probably want a special purpose computer that is GOOD at calculating SHA256 hashes. But anyone can acquire these without limitation or restriction.
It's not a "vs. bitcoin" comparison... just an example of how organizations in an industry would use block chain to store numerous small transactions, instead of a decentralized database.
If you're getting frustrated and think that is deflecting then it's possible you have a cognitive bias.
(As for invalid blocks - in the absence of a bug in the code that runs the system, all validators will say no to the invalid block(s), so there's no disagreement, and things carry on.)
The mining incentive can just as easily be usage of service provided by the network which uses the given blockchain.
Even if the miners weren't interested in consuming the provided services on their own, the network could rely on miners being rewarded with services which they then sell access to.
'Blockchain has the potential...' should probably be 'Blockchains have the potential...'. "Blockchain" is not a single technology but a group, it's like saying "teleporter can move you from place to place" vs "teleporters can move you from place to place". Blockchain isn't a proper noun, but a plural grouping of many implementations.
One of the obvious things about Merkle ledgers is that everyone can have their own. You could have one per tradeable instrument on an exchange, for example. Anyone can start an altcoin; why not the BoE?
The proof-of-waste system allows the system to be fully distributed by continuously burning electricity such as to push up the minimum cost of overwriting some other node's choice of doublespend (note: NOT ability to forge transaction!) to very high levels.
If you discard the "distributed" requirement, you can save a lot of electricity by having a single or multiple CA-like series of authorized stamp-issuers. It then looks a lot more like Chaum's digital cash.
If you discard "pseudonymous" as well, noting that bitcoin pseudonymity is both fragile and directly contrary to KYC/AML, you can make further optimisations.
signature verification, P2P, cryptographic hashing, public-key cryptography
Old, but not yet widely deployed outside of the browser-CA system. Getting banks to use proper digital signature technology would be a major upgrade.
(Also, remember in the UK we have both EMV and "faster payments", so the US problems of stolen magswipes and waiting for cheques are not so prevalent.)
If you drop the distributed requirement you can run an equivalent system on on a pentium 4 in someone's basement, without wasting GWs of power and spewing carbon dioxide into the atmosphere.
Huh? Exponentially? The difficulty level is rising exponentially, but that's owing to continued investment in specialized hashing hardware. I certainly don't think that the actual amount of electricity being put into hashing is still growing exponentially. It would only grow exponentially if the price of Bitcoin continued to appreciate exponentially, and that hasn't been the case in years.
Gasoline at least gets you from A to B. Burning cycles is much more wasteful. Bitcoin's proof of work/waste is really something like 'I can prove that it is statistically likely that I wasted a shit-ton of power heating this data centre, doing SHA hashes, trying to find one that has a high number of leading zeros.' That's pretty wasteful IMO.
There's also proof-of-burn in the context of bidding for the right of block validation, though that's far less developed than proof-of-share.
If you haven't heard of Ethereum, check it out. It seems to be one of the leaders in blockchain platforms. Even Microsoft is working with it, along with many others.
Bitcoin, although the largest chain right now, will be a small player in an enormous field. The idea of one cryptocurrency to lead them all is not going to work. In fact, the 'currency' part is somewhat insignificant relative to what the blockchain industry will be. Every 'token' or 'currency' that represents an asset in a smart contract, or an asset such as cash, will be easily and instantly exchangeable for any other liquid asset. (i.e. U.S. Dollars). Having something like bitcoin is actually little use to us. That's not saying I think bitcoin was stupid or bad, it has done much to further the blockchain advancement.
> Ethereum's chain is a mess.
I'm unsure what you mean here.
> It's only burning 25k USD per day, and the project plans to switch off of it entirely.
Burning 25k USD of what? Switch off of what?
> The claim that this project can cure whatever ails you on such a weak foundation is at best dubious, and probably just a scam.
Which claims are you referring to. What part of Ethereum is a scam?
Vitalik knows the Ethereum chain won't scale so he's renovating the entire thing to Proof of Stake. (Which is a bad idea as well). Hunt around this is public knowledge.
Claims: There are so many. If you haven't seen them , watch the videos of the Ether team during the crowdsale.
Thus far it is shaping up to be a powerful platform with some realistic potential to changes to how internet software is built.
I don't know how you can say this with any degree of certainty (read: I want your crystal ball). Network effects are incredibly important here, as the security of the system is exactly its total hashing size. Bitcoin has such a head start that I don't see how anything could overtake it without providing incredible new features that can't be implemented even as side-chains.
I can make a token and call it 'potPlantCoin'. That token can be valued at '1 potted plant' of a certain size in my neighborhood blockchain, whereas, the token is backed by a potted plant... I could then effectively have a distributed, decentralized ledger in my neighborhood that uses the value of a potted plant as the means of exchange. I don't have to worry about any other network than the small amount of processing power within the nodes in my neighborhood.
Maybe that example helps you understand how the blockchain doesn't need a 'leader' or something like bitcoin that is 'so far ahead'. Bitcoin is completely irrelevant in my neighborhood. Sorry, no crystal ball here, but I do have an extremely high degree of certainty =p
That's why you use the biggest existing blockchain, not a separate one. There's no way in hell I can cheat you if we do our transactions on the Bitcoin blockchain, because I can't beat the overall hashing power of the system, but I sure as hell can beat your hashing power if we have a blockchain that's only for two people, or just for a neighborhood.
(This is probably what you want, anyway, when the value of the assets that back the network exceeds the value of mounting an attack! You might argue againt the wisdom of having the network secured by general mutual mistrust, but it's no worse than relying on cost.)
First, bitcoin was completely unknown.
Then, bitcoin was outright laughed at (some HN commenters are still at this stage of evolution).
Next, people jumped on "blockchain" as a sort-of gateway drug, using it in sentences which amount to: "Well, computers are useless. But the Internet, the Internet is where the real power comes from!".
Eventually, we will come full circle and people will realize that you cannot have a blockchain without bitcoin (or a close analog), which is what the bitcoin fanatics were saying right from the start.
Not to mention sharding solves a lot of scaling issues.
I think it's quite a cool little idea for them to get people from non-traditional backgrounds into the BoE. Most crypto people would never think of applying to the BoE for an internship normally I don't think.
Hopefully, anyone that fits in A&B would agree with you and wouldn't submit. For everyone else, this seems like a fun way to add to their resume.
My advice would be to not share your ideas with anyone who would take ownership of them when the possible "reward" is minimal.
> You’ll win a six-week paid internship if you’re in your first, second or penultimate year of study.
I don't know much about UK culture, but it's possible that this is quite valuable.
Also, if I really had a cool idea that I could execute on that could potentially change the world of finance, why would I give it up for a measly six week paid internship? I'd do a start-up, of course.
I assume you mean "capability"? If so, the BoE has about as much as anyone else.
And wouldn't it be up to the entrants to decide whether they want the reward? Sure they might not enjoy it, but it would certainly be educational.
I don't think the BoE has this capacity, as demonstrated by the design of this landing page. I'd be willing to bet that the BoE thinks blockchains are for checksumming.
While this seems like a great opportunity for some, and not so for others, I urge you to think it over yourself first.
Yes, this could actually be a very good opportunity for the right student to get an internship/possible job in a market that will be extremely hot. It it's a good way for BoE to find students that want to get involved in this industry.
On the other side, please know that this is not the only way. The community in many growing blockchains is very good. There are many resources that are available and free for you to explore your idea and create something new that is actually YOURS.
I'm not saying you should try and do something on your own out of school, it is perfectly okay to get a regular job, and this might be what you want. However it is also perfectly okay for you to not participate and expand on your idea on your own or with partners. There are/will be many opportunities and positions out there in this industry in the near future, this is not your only option.
EDIT: Another interesting point is the time frame which this challenge is allowing. I do not know when it was announced, but I'm assuming based on the timer that, when it started, the time given is 24 hours. It seems odd to me. This is a challenge that should be given more time, especially given how many students are wrapping up their semester and will be heavily involved in projects/finals right now.