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What is Bitcoin Mining?

What is Bitcoin Mining?


Mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the blockchain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.

The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system. If you clicked the button above, then you are currently mining bitcoin, the math-based digital currency that recently topped $1,000 on exchanges. Congratulations. (It won’t do anything bad to your computer, we promise.)

New bitcoins are created roughly every 10 minutes in batches of 25 coins, with each coin worth around $730 at current rates. Your computer—in collaboration with those of everyone else reading this post who clicked the button above—is racing thousands of others to unlock and claim the next batch. For as long as that counter above keeps climbing, your computer will keep running a bitcoin mining script and trying to get a piece of the action. (But don’t worry: It’s designed to shut off after 10 minutes if you are on a phone or a tablet, so your battery doesn’t drain).

So what is that script doing, exactly?

Let’s start with what it’s not doing. Your computer is not blasting through the cavernous depths of the internet in search of digital ore that can be fashioned into bitcoin bullion. There is no ore, and bitcoin mining doesn’t involve extracting or smelting anything. It’s called mining only because the people who do it are the ones who get new bitcoins, and because bitcoin is a finite resource liberated in small amounts over time, like gold, or anything else that is mined. (The size of each batch of coins drops by half roughly every four years, and around 2140, it will be cut to zero, capping the total number of bitcoins in circulation at 21 million.) But the analogy ends there.

What bitcoin miners actually do could be better described as competitive bookkeeping. Miners build and maintain a gigantic public ledger containing a record of every bitcoin transaction in history. Every time somebody wants to send bitcoins to somebody else, the transfer has to be validated by miners: They check the ledger to make sure the sender isn’t transferring money she doesn’t have. If the transfer checks out, miners add it to the ledger. Finally, to protect that ledger from getting hacked, miners seal it behind layers and layers of computational work—too much for a would-be fraudster to possibly complete.

And for this service, they are rewarded in bitcoins.

Or rather, some miners are rewarded. Miners are all competing with each other to be first to approve a new batch of transactions and finish the computational work required to seal those transactions in the ledger. With each fresh batch, winner takes all. It’s the computational work that really takes time, and that’s mostly what your computer is doing right now. It’s trying to solve a kind of cryptographic problem that involves guessing and checking billions of times until it finds an answer. If this all seems pretty heady, that’s because mining is an elaborate solution to a tough problem that plagues every currency—double spending.

Double spending and a public ledger

As the name implies, double spending is when somebody spends money more than once. It’s a risk with any currency. Traditional currencies avoid it through a combination of hard-to-mimic physical cash and trusted third parties—banks, credit-card providers, and services like PayPal—that process transactions and update account balances accordingly.

But bitcoin is completely digital, and it has no third parties. The idea of an overseeing body runs completely counter to its ethos. So if you tell me you have 25 bitcoins, how do I know you’re telling the truth? The solution is that public ledger with records of all transactions, known as the blockchain. (We’ll get to why it’s called that shortly.) If all of your bitcoins can be traced back to when they were created, you can’t get away with lying about how many you have.

So every time somebody transfers bitcoins to somebody else, miners consult the ledger to make sure the sender isn’t double-spending. If she indeed has the right to send that money, the transfer gets approved and entered into the ledger. Simple, right? Well, not really. Using a public ledger comes with some problems. The first is privacy. How can you make every bitcoin exchange completely transparent while keeping all bitcoin users completely anonymous? The second is security. If the ledger is totally public, how do you prevent people from fudging it for their own gain?

Is there no such thing as a bitcoin account?

Bitcoin’s ledger deals with the privacy issue through a bit of accounting trickery. The ledger only keeps track of bitcoin transfers, not account balances. In a very real sense, there is no such thing as a bitcoin account. And that keeps users anonymous. Here’s how it works: Say Alice wants to transfer one bitcoin to Bob. First Bob sets up a digital address for Alice to send the money to, along with a key allowing him to access the money once it’s there. It works sort of like an email account and password, except that Bob sets up a new address and key for every incoming transaction (he doesn’t have to do this, but it’s highly recommended).

Chuck Reynolds


Is Bitcoin Mining Profitable in 2017?

Is Bitcoin Mining Profitable in 2017?

The short answer would be “It depends on how much you’re willing to spend”. Each person asking himself this will get a slightly different answer since Bitcoin Mining profitability depends on many different factors. In order to find out Bitcoin mining profitability for different factors “mining profitability calculators” were invented.

These calculators take into account the different parameters such as electricity cost, the cost of your hardware and other variables and give you an estimate of your projected profit. Before I give you a short example of how this is calculated let’s make sure you are familiar with the different variables:

Hash Rate – A Hash is the mathematical problem the miner’s computer needs to solve. The Hash Rate is the rate at which these problems are being solved. The more miners that join the Bitcoin network, the higher the network Hash Rate is.

The Hash Rate can also refer to your miner’s performance. Today Bitcoin miners (those super powerful computers talked about in the video) come with different Hash Rates. Miners’ performance is measured in MH/s (Mega hash per second), GH/s (Giga hash per second), TH/s (Terra hash per second) and even PH/s (Peta hash per second).

Bitcoins per Block – Each time a mathematical problem is solved, a constant amount of Bitcoins are created. The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years). The current number of Bitcoins awarded per block is 25. However soon enough the block halving will occur and the reward will be downgraded to only 12.5 Bitcoins.

Bitcoin Difficulty – Since the Bitcoin network is designed to produce a constant amount of Bitcoins every 10 minutes, the difficulty of solving the mathematical problems has to increase in order to adjust to the network’s Hash Rate increase. Basically, this means that the more miners that join, the harder it gets to actually mine Bitcoins.

Electricity Rate – Operating a Bitcoin miner consumes a lot of electricity. You’ll need to find out your electricity rate in order to calculate profitability. This can usually be found on your monthly electricity bill.

Power consumption – Each miner consumes a different amount of energy. Make sure to find out the exact power consumption of your miner before calculating profitability. This can be found easily with a quick search on the Internet or through this list. Power consumption is measured is Watts.

Pool fees – In order to mine, you’ll need to join a mining pool. A mining pool is a group of miners that join together in order to mine more effectively. The platform that brings them together is called a mining pool and it deducts some sort of a fee in order to maintain its operations. Once the pool manages to mine Bitcoins the profits are divided between the pool members depending on how much work each miner has done (i.e. their miner’s hash rate).

Time Frame – When calculating if Bitcoin mining is profitable you’ll have to define a time frame to relate to. Since the more time you mine, the more Bitcoins you’ll earn.

Profitability decline per year – This is probably the most important and elusive variable of them all. The idea is that since no one can actually predict the rate of miners joining the network no one can also predict how difficult it will be to mine in 6 weeks, 6 months or 6 years from now. This is one of the two reasons no one will ever be able to answer you once and for all “is Bitcoin mining profitable ?”. The second reason is the conversion rate. In the case below, you can insert an annual profitability decline factor that will help you estimate the growing difficulty.

Conversion rate – Since no one knows what the BTC/USD exchange rate will be in the future it’s hard to predict if Bitcoin mining will be profitable. If you’re into mining in order to accumulate Bitcoins only then this doesn’t need to bother you. But if you are planning to convert these Bitcoins in the future to any other currency this factor will have a major impact of course.

Chuck Reynolds


Top Cryptocurrency Projects Created Before Bitcoin

Top Cryptocurrency Projects Created Before Bitcoin

Even though a lot of people seem to think Bitcoin was the first cryptocurrency of its kind, this is not entirely true. Bitcoin is by far the most successful project in the modern era, but the concept of decentralized digital money was not an invention by Satoshi Nakamoto. Four different currencies were well ahead of Bitcoin, each of which deserves a mention.


Very few people will recall the days of B-Money, as this type of cryptocurrency was first introduced in 1998, predating bitcoin by more than ten years. However, B-Money is very different from Bitcoin, even though developer, Wei Dai, focused on anonymity and a distributed way of issuing coins.

A whitepaper was released to accommodate the introduction of B-money, which has the same basic principles of modern cryptocurrencies. Digital pseudonyms can send and receive currency on a decentralized network, and even enforce contracts among themselves without third-party involvement. Unfortunately, B-Money never got off the ground past the whitepaper.

Bit Gold

Shortly after the B-Money whitepaper was released publicly, Nick Szabo launched a very similar project known as Bit Gold. This electronic currency system had its very own proof of work system, not all that different from how Bitcoin is minted today. All solutions were cryptographically put together and published for the public, mimicking a modern blockchain.

More importantly, Bit Gold was the first concept to move away from relying on centralized authorities to avoid double spending of the currency. Instead, Szabo wanted to recreate the characteristics of gold by cutting out the middleman altogether. One could say that Bit Gold and Bitcoin are not all that different, despite being created more than ten years apart.


Not to be confused with DigitalCash (currently known as DASH), Digicash was created back in 1990, meaning that it even predates both B-Money and Bit Gold. Designed by David Chaum, it was the first type of electronic money that offered anonymity due to its usage of cryptographic protocols. At the time of development, Digicash was a revolutionary concept and one of the earliest forms of electronic money.

By using public and private key cryptography, it also allowed anyone to become his or her own bank and control their funds without third-party oversight. Issued payments would be untraceable for banks and governments. Unfortunately, the company behind Digicash filed for bankruptcy in 1998, and sold in 2002. It is evident that Digicash was a great concept, but well ahead of its time.


One cannot talk about cryptocurrencies without paying respect to the Hashcash project first. Although this currency was designed to be used for different purposes (limiting email spam and preventing DDoS attacks), it made quite a name for itself back in 1997. Using a proof of work algorithm for the generation and distribution of new coins, a lot of Hashcash’s features ended up in the Bitcoin protocol developed by Satoshi Nakamoto.

As more emails were sent through the system, Hashcash required growing numbers of computation resources. Back in 1997, that seemed far more unmanageable than it is today. Low-end systems would eventually have limited accessibility to verify email headers, thus reducing the effectiveness of the system. It was a rudimentary project with a lot of advantages, but also with some flaws that needed to be ironed out. Eventually, most of the Hashcash features became part of the Bitcoin protocol, current spam filter protection, and several email clients.

Chuck Reynolds


Reciprocity is the Key to Growing Cryptocurrency Communities

Reciprocity is the Key to Growing Cryptocurrency Communities

With Bitcoin trading well over $1000 right now and its popularity higher now higher than ever, Bitcoin and cryptocurrencies at large still have a long way to go. If one goal of cryptos is to have a wider adoption and use, then something needs to change from the current implementation and advertisement of bitcoin and altcoins.

It seems that the average user of cryptocurrencies is a miner, a trader/investor, or a technophile. In no way am I suggesting that these users are not important pillars of coins, but it does create an environment which may be daunting for the average joe. Lack of guidance, lack of technical knowledge, and skepticism of others could turn away potential new crypto enthusiasts. To draw a parallel to fiat currency, the vast majority of Americans do not know how fractional reserve banking (FRB) works or what the Federal Reserve Bank is, but they use currency generated by FRB and issued by the Fed on a daily basis.

French sociologist Marcel Mauss’ seminal work The Gift may be able to lend some valuable insight into building the crypto communities. Mauss suggests that communities and interpersonal relationships are built on the foundation of reciprocity, gift giving, and social debts. This is to say that the creation of social obligation forges bonds between individuals. He argues that these gifts were given usually were self-interested If you give a good or service to someone, they become indebted in some way. It mandates engagement with others.

I’ve actually witnessed a similar kind of reciprocal crypto community already: Dogecoin. At the height of active users in the Dogecoin community, they were sending teams to the Olympics, funding a NASCAR sponsorship, and helping provide clean water to less fortunate communities. In addition to these large philanthropic endeavors, dogecoin remained very active among smaller time cyrpto users as well via giveaways and tipping. Since Dogecoin is relatively cheap and rather stable against fiat, members of the community will often give away small amounts of coins to other users to keep everyone excited. They’ll also tip some coins during discussions about anything ranging from the future of the coin to how an individual is feeling that day.

The creation of these social debts created opportunities and obligations to have community members return often and participate. This is where Mauss’ idea seems obvious to me. Obligation to participate grows a community. For a fair amount of time, Dogecoin was one of the most traded altcoins. Sadly, the same is true about less frequent participation. Dogecoin’s active members have seen a downtick recently, which have affected popularity and participation.

Bitcoin also used to have an easy way to tip others on the Internet via ChangeTip. This service allowed easy mircopayments between individuals across a plethora of social media and networking platforms. ChangeTip was very popular. It saw over $250,000 worth of tips sent and received with most tips hovering around $1. Despite this, the service shut down in November 2016. Maybe we need a new alternative to ChangeTip?

In no way am I suggesting that everyone start throwing large amounts of bitcoin around at each other in the same way Doge was able to. However I am suggesting that if small crypto tips are not available, that we think of Mauss and gift what we can to newcomers and veterans alike. This can be small amounts of altcoins (if the transaction fees allow), but more so knowledge and guidance. Helping individuals get started with crypto is the single easiest way to create that social obligation, to engender participation. Because participation is likely the most effective way to wider adoption and use.

Chuck Reynolds


Indian Bank Wants Joint Effort To Share Data On Blockchain

Indian Bank Wants Joint Effort To Share
Data On Blockchain

Recently, the Bank of Uganda has warned citizens against investing in cryptocurrencies, putting Onecoin and Bitcoin in the same trash buсket. What is behind the positions of governments of developing countries like Uganda and Nigeria? Before Uganda, such warnings have come out of some other developing countries like Nigeria.

So today in Nigeria a lot of individuals now take extra care when making transactions in local banks for Bitcoin-related products or services. Users most often clearly advise depositors not to include such in the description of the purpose of a transaction, so as to avoid having their bank accounts blocked or frozen.


A lot of individuals have fallen victim to cryptocurrency scams by investing in what they thought were real and genuine cryptocurrencies. Many experts and economists consider OneCoin as the current number one scam coin in the world. It does not possess the fundamental characteristics of a genuine cryptocurrency, instead, its followers pursue the cause of OneCoin as a religion. But why Bitcoin gets mixed up with that “currency” that is built similarly to other MLM pyramids?

Government position

Data Architect at Central Bank of Nigeria, Ayodeji Odusote thinks that there are technical differences in the warnings from Nigeria and Uganda. While Nigeria addressed specifically stakeholders in the regulated financial services sector, Ugandan authorities appealed to the wider public.

Odusote notes however that both governments did not make any distinction between genuine and scam cryptocurrencies for a simple reason that "from a currency perspective, the veracity of a cryptocurrency is irrelevant as it poses a direct threat to the authority of the regulator to control the money supply." According to Odusote, for both governments, it is irrelevant whether the cryptocurrency is genuine or fake. Both do not serve their financial objectives.

Odusote says:

“The perspective of these regulators, owing to their publications, is strictly monetary. It futile to say something is genuine, yet unacceptable and another is fake, which is also unacceptable. Both are not. So there is no need for distinction.”

But for regulators who have identified the opportunities offered by the technology embedded in cryptocurrencies, the Blockchain, such distinction might be important.


CEO of Hyperchain Technologies, Chigozie Ononiwu thinks that linking Bitcoin to Onecoin is wrong in any case. Ononiwu describes Onecoin as a mediocrity compared with Bitcoin. While Ononiwu describes Bitcoin as “innovation”, he suspects policymakers of developing countries in corrupt practices regarding Bitcoin. Ononiwu thinks some of these leaders may acquire Bitcoins for themselves while introducing measures to keep the people away from doing the same thing:

“They're busy stockpiling Bitcoin while scaring everyone off.”

To avoid problems, Ononiwu suggests that any cryptocurrency offering HYIP should be barred from transactions, and every company dealing in Bitcoin and Blockchain tech should be properly and transparently vetted.

Ononiwu concludes:

“Government needs to encourage mass adoption by partnering with companies like ours. Our Virtual Bitcoin ATM is a clear example that Bitcoin can be purchased by all with ease.”

Chuck Reynolds


Blockchain explained

Blockchain explained

If electronic money is just data, nothing physically stops a currency holder trying to spend it twice.
Enter the Bitcoin blockchain.


Blockchain is an algorithm and distributed data structure designed to manage electronic cash without any central administrator. The original blockchain was invented in 2008 by the pseudonymous Satoshi Nakamoto to support Bitcoin, the first large-scale peer-to-peer crypto-currency, completely free of government and institutions.

Blockchain is a Distributed Ledger Technology (DLT). Most DLTs have emerged in Bitcoin's wake. Some seek to improve blockchain's efficiency, speed or throughput; others address different use cases, such as more complex financial services, identity management, and "Smart Contracts".

Seemingly every day there's another story about Internet of Things devices being compromised or used for large-scale attacks. Here's how to ensure that your deployment remains secure.The central problem in electronic cash is Double Spend. If electronic money is just data, nothing physically stops a currency holder trying to spend it twice. It was long thought that a digital reserve was needed to oversee and catch double-spends, but Nakamoto rejected all financial regulation and designed an electronic cash without any umpire.

The Bitcoin (BTC) blockchain crowd-sources the oversight. Each and every attempted spend is broadcast to a community, which in effect votes on the order in which transactions occur. Once a majority agrees that all transactions seen in the recent past are unique, they are cryptographically sealed into a block. A chain thereby grows, each new block linked to the previously accepted history, preserving every spending ever made.

A Bitcoin balance is managed with an electronic wallet, which protects the account holder's private key. Blockchain uses conventional public key cryptography to digitally sign each transaction with the sender's private key and direct it to a recipient's public key. The only way to move Bitcoin is via the private key: lose or destroy your wallet, and your balance will remain frozen in the ledger, never to be spent again. The blockchain's network of thousands of nodes is needed to reach consensus on the order of ledger entries, free of bias, and resistant to attack. The order of entries is the only thing agreed upon by the blockchain protocol, for that is enough to rule out double spends.

The integrity of the blockchain requires a great many participants (and consequentially the notorious power consumption). One of the cleverest parts of the BTC blockchain is its incentive for participating in the expensive consensus-building process. Every time a new block is accepted, the system randomly rewards one participant with a bounty (currently 12.5 BTC). This is how new Bitcoins are minted or "mined".

How Blockchain Will Evolve In 2017



In the past, blockchain — which is known as a distributed ledger technology for both financial and non-financial transactions — seemed like a mysterious concept that only technologists could understand. However, the various advancements in blockchain applications in 2016 helped more people and more businesses see its potential. For others in the business environment, blockchain is something they're still just exploring. But as we get further into 2017, there are a few trends that I think will be interesting to trace as the year progresses.

In working with blockchain myself as part of the payments industry, where most applications are tied to some type of banking or financial application, I see some of these trends already in progress. However, some of them go beyond payments and may offer applications for other business segments, helping startups and established businesses address a particular need.

Growth In Applications

With ongoing research and greater understanding of how the blockchain works, one of the biggest trends I predict in 2017 is the use of this technology in new application areas across industries. I see this happening especially in business segments that have always had a middleman as part of the transaction. This means that many service-oriented businesses decentralize. For example, ride sharing transactions could be handled directly by drivers and passengers using the blockchain, which could then give once-disruptive companies like Uber and Lyft a run for its' money.

Other applications include streaming services. We could let artists decide how their music is sold and shared, and everyone — from the writer to the producer to the singer — could receive a payment immediately through the blockchain when a song is downloaded, rather than getting their share later on. Rather than waiting for royalty checks to arrive that are processed by a publishing company, the artist can take greater control over their process from publication to payment through blockchain applications.

Regulatory Frameworks

One of the most challenging aspects of giving blockchain the space to grow into what it is capable of becoming is the lack of a regulatory environment that would help countries feel more comfortable about its use. Recently, countries like Japan have gone as far as to create legislation that would regulate bitcoin in their country, while other countries have formed task forces to research what’s involved in the use of bitcoin and blockchain. These are both major first steps toward a larger global framework.

Since everything to date has been fragmented in terms of a standardized regulatory framework to allow blockchain to work across geographical borders, blockchain has been slow to catch on. However, there are signs that greater progress will be made across multiple countries to determine some type of regulatory process that will increase use.

Chuck Reynolds


How to Stay Focused With Your Social Media Marketing

How to Stay Focused With Your Social Media Marketing

Chuck Reynolds


The True Cost of Bitcoin Transactions

The True Cost of Bitcoin Transactions


It seems the Bitcoin community is not correctly tallying the true cost of Bitcoin transactions.

The belief is that Cost = Miner Fee. We’ll show why this is wrong, but the fee is of course part of the cost, so let’s examine it first… Fees are currently averaging in the range of $0.30 to $1.00 per transaction. Here’s an anecdotal sample as I’m writing this:

Block #451871   $1,287 in fees / 1347 txs = $0.95 avg fee

Block #451872   $1649 in fees / 2161 txs = $0.76 avg fee

Block #451873   $1,497 in fees / 1450 txs =  $1.03 avg fee

Block #451874   $1,209 in fees / 1582 txs =  $0.76 avg fee

Block #451875   $1,591 in fees / 2180 txs =  $0.73 avg fee

Total:   $7,233 fees / 8720 txs = $0.83 avg fee

83 cents per transaction on average…

Is that “too expensive?” That’s a judgement call, and sincere people can disagree about what is “too expensive.” It depends what one uses Bitcoin for.

Some people, indeed, are using Bitcoin to move “normal” amounts of money around (ie – like a “peer-to-peer cash system”). This doesn’t refer to “micro transactions,” which are fractions of a dollar and have been impractical in Bitcoin for years, rather it refers to casual payments of $1-$50 in value, which make up the vast majority of human economic activity broadly, and a great deal of Bitcoin activity, specifically. An $0.83 fee doesn’t matter for a $2,500 payment, but it matters if you’re sending $7 to a friend. Indeed, it will actually preclude a $3 daily wage payment. Consider that a great way to make Bitcoin centralized is to reduce its utility to only the world’s richest.

And those who imagine such users to be using Bitcoin “wrong” are perhaps not understanding what consequences that sentiment invites: such users, finding less utility in Bitcoin, will be incentivized to go to other platforms or just stick with the status quo: fiat. How tragic that someone would actually prefer fiat, but many will if Bitcoin is too expensive to use as a peer-to-peer cash system. So on the topic of the explicit miner fee, maybe $0.83 is too high, and maybe not. It depends what a user is trying to accomplish. But $0.83 isn’t the true cost… and this is a point most observers are missing.

The true cost of a Bitcoin transaction can be better considered as:

Cost = F + T + Ru

Cost = Fee + Time taken to determine fee + Risk of uncertainty. What do I mean by this?

Those people who are using Bitcoin today pay more than a miner fee, they pay in time and uncertainty (risk). As blocks are full, users often need to change the fee they add to their transaction (before or after they send it). Some wallets do an okay job of this, but most don’t (and before you vilify wallet creators, realize that “smart fee policy” is nowhere near a science yet, and changes all the time). So, in addition to the $0.83 miner fee, the user currently has to also spend Time to determine that it ought to be $0.83 in the first place.

A highly-skilled Bitcoiner can figure out an appropriate fee in a minute, but Bitcoin cannot be imagined as a platform only for highly-skilled Bitcoiners. If that is the target market, then the project is doomed. A normal user (meaning most users) struggle with the fee estimation (hell, I’ve been doing Bitcoin for six years and I’m not the most graceful at fee calculation myself). Many casual (read: normal) users of Bitcoin get horribly confused, and if they even bother trying to figure it out, they may wander over to /r/bitcoin to ask advice.

We should realize how awkward and confusing that is for a normal Bitcoin user (ie – a non-technical person who wants a system that is easy and convenient). And at least that comment was trying to be helpful. Jesus. Add in the misery of dealing with people like /u/MinersFolly and it’s amazing Bitcoin is gaining users at all. So back to our equation, the true cost of a transaction is $0.83 (maybe?) + time to determine $0.83 + Risk of uncertainty. What do I mean by uncertainty? Well, even if a user figures out a recommended fee, there is no guarantee it will be confirmed in the next block. Using a recommended fee gives zero guarantees of delivery time.

Here’s a depressing real world anecdote: A couple months ago I had some friends over for a Civ 6 LAN party. One guy didn’t have the game, so I offered to buy it on Steam for him (they accept Bitcoin!). I paid the BitPay invoice for the Steam game and waited. And waited. And waited. 25 minutes later it still hadn’t shown up. Three blocks had already happened. Everyone is sitting around waiting. Ultimately, I just pulled out a credit card and bought the game (paying again) so that we could all play. A year ago, this would not have happened. What went wrong? Was my fee incorrect? (I paid the high fee option in Jaxx wallet). Was the mempool too full? We just wanted to play, so back to the 50-year-old credit card technology, I went.

There are some in the community who read the above and actually think, “meh, what’s the big deal?”  Or perhaps respond, “just wait two years for Lightning!”  Cool, tell me that when I’m trying to buy Civ 7.

Back to the present… because of this uncertainty users are facing, one of two consequences happen:

1) the user gets annoyed at the delay, or actually suffers some kind of economic loss, or

2) the user can’t use Bitcoin for this tx at all because it is time sensitive and the user can’t risk the uncertainty.

And be careful not to discount the utility loss to a Bitcoin user, who was getting excited about making a Bitcoin transaction (the future of money!), only to discover his tx is stuck in the mempool for 33 hours. We’re lucky if that user ever gives Bitcoin another chance. Fee + Time + Risk of uncertainty (F+T+Ru). Since T and Ru are not measurable, it seems most engineers in the industry have been completely oblivious to them. The costs are more apparent to an economist and are very apparent to anyone in business with actual users (there’s a reason why nearly every Bitcoin business with more than ten thousand users is very eager to see both SegWit and a hardfork blocksize increase… but that’s another topic).

As blocks approach capacity:

1)     Miner fees get more expensive

2)     Time/effort to determine fees rises

3)     The reliability of transactions falls toward zero (risk of hours-long delay for first confirmation, even with “good fees”)

Many people have only been considering #1, above.

Those who look at a recent tx fee of $0.30 and obnoxiously proclaim, “transactions are cheap, you can’t expect the system to be free!” are really missing the point and are harming the prospects of this project. The miner fee is only part of the cost that users are dealing with, and if peoples’ time and sanity are worth anything, it is the lesser part. And let’s end this silly false dichotomy of Bitcoin as a “payment system” vs a “settlement system.” Such distinction is a relic of fiat banking networks and has no place with blockchain-based assets. The reality is this: every payment on a blockchain network is a settlement, and the cheaper these transactions, the more widespread uses the platform will find, meaning greater utility, a broader and more decentralized user-base, higher market capitalization, more liquidity, and therefore more hash power dedicated to it, and more security derived therefrom.

If Bitcoin transactions are too expensive (considering F+T+Ru), people will use other platforms instead for some or all of their economic activity, period. As I tweeted yesterday, I’ve found myself now holding a modest balance of Ethereum merely for the purpose of small (not micro) payments to friends. It’s just cheaper and more reliable. And I’m doing that with more allegiance to Bitcoin than almost anyone on Earth, how dedicated will a normal person be to a platform that isn’t helpful to them?

The response of some has been, “so what, good riddance.” Such people are being arrogant, naïve, and suffering from a disease common in the business world: not listening to or respecting customers. Such people are free to have that sentiment, of course, just as they are free to end up on a lonely platform.

Now, obviously a blockchain cannot (and should not) handle all the world’s transactions on chain, but that doesn’t mean we shouldn’t do all we can to acquire as much transaction market share as safely possible. This is a platform about network effects, after all. Just because it’s true that Bitcoin’s blockchain can’t handle Visa-level scale on-chain, doesn’t mean we should be comfortable and complacent about a 5 tx/sec threshold today, especially during Bitcoin’s formative years, while the world is still watching and waiting to see if it catches on as the money protocol of the future (those who think Bitcoin’s dominance is “inevitable” are, again, suffering arrogance).


The community needs to take at- or near-capacity blocks seriously, and yet many have dismissed the issue, saying silly things like “well when fees rise it’s just the free market at work.”  Sure it is, and when users leave Bitcoin or never bother the second transaction because their first was obnoxious and unreliable, their preference of alternatives will also “just be the free market at work.”  The goal should be to do everything practical to make Bitcoin cheaper and more efficient because if we don’t, it leaves a huge opportunity for Bitcoin’s successor. Bitcoin is free-market money. It competes, and it must be competitive.

As the true cost of Bitcoin transactions rises, utility at the margin falls, and the platform’s fundamental value as a tool for human economic interaction declines alongside. Reduce the number of use-cases for which Bitcoin makes sense and the quantity and quality of people willing to hold a portion of Bitcoin declines. As will the price, as will the promise.

Chuck Reynolds


Jumping on the blockchain bandwagon

  Jumping on the blockchain bandwagon

Jumping on the blockchain bandwagon

It’s always a bit of a push and an invitation to hype to declare “the year of” anything.  That being said, 2017 could well be the year blockchain takes off. Given that the cryptographic ledger technology behind the Bitcoin digital currency already has been widely touted as a new way of solving a multitude of cybersecurity issues, one could say blockchain has already been hyped. But it’s also gained firm adherents in some areas of government.

The Department of Health and Human Services is certainly one supporter. Last year HHS issued a series of public challenges for ideas about how blockchain could be used to address privacy, security and scalability challenges in managing electronic health records. It announced the 15 winners in September, with several chosen for presentations at the Office of National Coordinator for Health IT’s Blockchain & Healthcare Workshop.

It will consolidate that interest next month when the HHS’ Office of the National Coordinator for Health Information Technology sponsors the Blockchain in Healthcare Code-A-Thon, apparently, the first-ever blockchain hackathon hosted by a government entity. The Washington, D.C.-based Chamber of Digital Commerce will be a co-host, and results of the hackathon will be announced at its March 14-15 D.C. Blockchain Summit.

The fact that HHS has put its name behind a cyber security hackathon, where contestants compete to produce real and actual solutions to problems, indicates a real intent to deploy. HHS here is signaling its intention to go ahead and use blockchain for its needs. Other government agencies have also realized the importance of blockchain technology. The U.S. Postal Service, for one, believes blockchain could disrupt many of the industries it services, and so is worthy of closer study. The technology is also seen as potentially having a major transformative impact on cities.

IBM surveyed some 200 government organizations around the world about blockchain and found fully nine in 10 plan to invest in blockchain technology for projects such as financial transaction, asset, and contract management. Around 14 percent — a group IBM labels as the trailblazers in this area — plan to have blockchain in production and “at scale” in 2017. “These findings reveal that blockchain adoption is accelerating faster than originally anticipated,” the IBM report said, “with government executives identifying key areas and benefits to explore.”

Blockchain might be ramping up quickly, but there are still plenty of people on the sidelines, at least according to a Deloitte Consulting survey that found that around 40 percent of those industry executives it questioned still have little or no knowledge of blockchain. Of those that do, however, more than a quarter list it as one of their top five priorities for 2017, and over half believe they’ll be less competitive if they don’t adopt the technology.

Another mark of how far blockchain fever has spread comes in an article by the World Economic Forum explaining what blockchain is, its history and how it might be of advantage to the Forum’s global business, government and industry audience. The WEF believes blockchain could be the technology that “helps globalization work for everybody.” In January this year, it formally announced the formation of its Global Futures Council on Blockchain.

So activities galore, but does this translate into a real interest to adopt and exploit blockchain for real-world security problems? It’s not a silver bullet by any means. For one thing, there are still many questions about the security of blockchains themselves, at least as they are now being used. But the technology offers too tempting an answer for a range of pressing problems for it to be held back very long, as the Department of Homeland Security indicated last year in a solicitation for the use of blockchain in identity management solutions.

So, while calling 2017 “the year of blockchain” might be pushing it, this seems to be the year when blockchain hype dissipates and it becomes a major, if still early-stage, cybers cyber security.

Chuck Reynolds


Hardware Play: How Accenture Plans to End Blockchain’s Security Debate

Hardware Play:
How Accenture Plans to
End Blockchain's Security Debate

The ethereal world of blockchain tech is increasingly being tethered to more tangible, saleable solutions.

As major institutions have sought software concepts that rethink or remove bitcoin's proof-of-work mining mechanism, so too have the firms involved with those products needed to seek hardware solutions that provide a similar level of security to their desired distributed ledgers. Most recently, the $75bn consulting firm Accenture unveiled a patent-pending security layer integrated with a hardware security module (HSM) made by Thales – a global security firm already protecting the passwords and encrypted data of some of the most high-value assets around the world.

While the distributed nature of the blockchain itself is designed to ensure the soundness of each transaction, applications built on the technology and distributed solutions with fewer nodes (and therefore less protection) remain vulnerable, according to Accenture’s general manager, David Treat. In conversation with CoinDesk, Treat said his firm's decision to integrate with existing, government-certified hardware is about more than just having a new product to sell to existing and future clients. Instead, it's about entering the fray by implementing real-world blockchain solutions.

Treat said:

"Our focus on building this HSM integration layer is part of a whole innovation campaign that we have right now to think about all the different facets of what it’s going to take to bring blockchain systems out of the PoC and prototype phase and into production."

Eliminating debate

In Accenture's Thales integration, private keys essential for conducting transactions are stored within nShield hardware certified by the US National Institute for Standards and Technology (NIST) in conjunction with the Canadian Communications Security Establishment.

Developed in London with support from Accenture’s team in Rome, the security system is initially based on the Hyperledger Fabric platform and integrated with Thales’ nShield HSM, already being used by the French company to protect UK tax payers, Samsung cellphones and fighter jets. The as-yet unbranded blockchain integration is expected to be formally named later this week, alongside the launch of a new website designed to integrate with any number of distributed ledgers, blockchains and competing HSMs.

Treat positions the hardware as part of blockchain’s natural evolution, as regulators, existing financial infrastructure providers and banks move to capitalize on the faster settlement times and easier auditability of shared, trusted ledgers, but hesitate out of a number of security and privacy concerns. Instead of storing private keys that are essential to confirming identity within the application layer of the protocol, the Accenture solution is designed to keep them in a physical HSM architecture.

"It’s eliminating that part of the debate of how secure are the keys,” Treat said. "It comes as a much simpler answer if you see we are adhering to the high level of standards associated with the current certification of security infrastructure."

Hardware competition

Exactly how Accenture will market this 'blockchain agnostic' integration layer has yet to be determined, or at least publicized. But, much can be learned by taking a closer look at the burgeoning blockchain hardware ecosystem. Among the unknowns at Accenture, are whether the integration layer will be sold through a subscription model or flat rate offering. However, the customers Accenture will be marketing to are more certain.

Treat told CoinDesk that customers who already have their own HSM solution will be able to hire Accenture to integrate it to their blockchain, or blockchains, of choice. New customers, on the other hand, or those with a "heightened need for security" would go to Thales or another HSM provider to buy their hardware stack "and come to us to install our integration layer on top of it". Accenture distinguishes itself from the recent proliferation of consulting firms offering blockchain services by being among the first to also join the rapidly growing blockchain hardware industry. So far, blockchain infrastructure providers have tended to lease services for periodic fees, while cryptocurrency companies charge based on transaction size.

For example, IBM currently charges $10,000 a month to give blockchain users high-security access to its HSM network, whereas venture-backed Xapo offers its customers free access to its 'vaults' stored offline and "deep underground in geographically dispersed locations", in exchange for charging various fees to move the funds associated with an account. But perhaps the most informative example of the young industry is Intel’s software guard extensions (SGX) – hardware designed to isolate keys and other valuable information. SGX has been proposed for use in both more general blockchain applications and a cryptocurrency-specific use case. In each case, concerns over using hardware quickly became apparent.

Last year, when Intel proposed using SGX at the core of its Sawtooth Lake blockchain implementation, it sparked a heated debate over using trusted hardware to run a network with the potential to run without a trust. Then, weeks later, the Initiative For CryptoCurrencies & Contracts (IC3) proposed using SGX to help scale bitcoin, setting off  similar disputes.

Pushing the limits

Accenture's David Treat is joined by Thales CTO Jon Geater in arguing that the limits of blockchain aren’t in the technology itself, but in the way it is implemented. In interview, Treat highlighted exchanges such as Mt Gox and Bitfinex, which were hacked through poor key management practices, as evidence of such concerns. But Geater, who helped integrate Accenture’s software into his company’s hardware, focused more on potential limitations of smaller private networks when creating more sophisticated assets than cryptocurrency.

Further, for private networks that have fewer nodes than the 5,800 nodes live at any given time on the public bitcoin network, Geater argues the ability to protect each node from a wide variety of potential attack vectors is exponentially more important. "When you’ve got a very small population," he told CoinDesk, "some of these threats become much more real, and so having trustworthy hardware underpinning is clearly more valuable for peace of mind, for speed of adoption and for business agility." Couple that with concerns Geater has over highly regulated digital assets, and certified hardware becomes essential to widespread industry adoption, he said.

Not everyone agrees, however. The movement to push blockchain security into hardware owned by third parties is part of Accenture’s broader, and controversial, push to make distributed ledgers more appetizing to legacy financial infrastructure providers and other organizations held accountable to regulators.

The 'redactable blockchain'

In December, Accenture published an article in the New York Times relaying its vision for 'redactable blockchains' that, instead of relying on a consensus-driven hard fork like the one experienced by ethereum to undo transactions, relies on the ability to edit their history using highly protected private keys. While critics have jumped on the idea as contrary to the underlying benefits of a distributed network, Geater argued that blockchain redaction, accompanied by certified, secure hardware is the only way to get the current financial leaders to truly buy into the technology.

"In the real world, you have overrides and you have lawyers. You have disputes, and you need to code all of that kind of process and authority into the system," he said.

"Whereas bitcoin is almost entirely anti-authority and anti-centralization, what Accenture is doing is bringing most of the benefits of that technology, but applying it to cases where businesses do actually have some authority of legal override."

The debate over whether hardware, hard fork or another solution is more desirable remains unresolved, with pre-emptive solutions around standards also springing up. But, according to Treat, the ability to edit a blockchain and the hardware to protect the keys to those crucial editing rights are inevitable. "A part of our answer in designing solutions," he said. "we would absolutely store the shared copies of those keys in HSMs as a further ability to allow people to trust that system,” Geater concluded that more sophisticated implementations of blockchain than cryptocurrency require more imaginative solutions:

"That doesn’t translate at all to other use cases; it doesn’t translate as soon as you’re trying to do things like regulatory compliance or multi-way asset trading, rather than coin trading. It doesn’t apply when you’re trying to overlay a real business relationship, and implement it in terms of blockchain, rather than using blockchain itself."

Chuck Reynolds