Innovations in payment technologies and the emergence of digital currencies [pdf]

bankofengland.co.uk

12 points·FatalLogic··2 comments

That's a useful article. As they point out, "the key innovation of digital currencies is the ‘distributed ledger’ which allows a payment system to operate in an entirely decentralised way, without intermediaries such as banks." That's what made Bitcoin work. There's no need for a central trusted authority.

The problem is who has authority over the validity of the distributed ledger. For Bitcoin, it's the biggest mining pools. The top one or two pools together have over half the hash rate, which gives them control. That wasn't the intent, but it's now the reality. Now we're back to a central trusted authority.

Not quite, though. It's possible for anyone to tell if the central authority is cheating, because everyone can see the ledger.

Still a serious problem. Transparency is still a unique property but decentralization is important for a variety of reasons. In the end-game the miners will be important to processing of transactions. If there is only a few major players with necessary infrastructure because everyone has giving up on mining then that will give them immense power over the currency. Its for reasons like this that bitcoin might not survive the crypto-currency wars.

Reply on news.ycombinator.com