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but the Silicon Valley ethos of “break things first, then ask for forgiveness” has found its way to Wall Street.
Self-funded, decentralized organizations are a new species in the global economy that are changing everything we know about business.
The Internet was first conceptualized in the early 1960s to create resilient communication systems that would survive a nuclear attack on the United States.
the key to accomplishing such resilience was decentralization.
Interestingly, however, the Internet has become increasingly centralized over time, potentially endangering its original conception as a “highly survivable system.”
One of the keys to Graham’s book was always reminding the investor to focus on the inherent value of an investment without getting caught in the irrational behavior of the markets.
Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”
Satoshi’s choice first to employ this functionality by inscribing a note about bank bailouts made it clear he was keen on never letting us forget the failings of the 2008 financial crisis.
It operates in a peer-to-peer manner, the same movement that has driven Uber, Airbnb, and LendingClub to be multibillion-dollar companies in their own realms.
For a deep dive on cryptography, we highly recommend The Code Book: The Science of Secrecy from Ancient Egypt to Quantum Cryptography by Simon Singh.
The solution to this cryptographic puzzle involves combining four variables: the time, a summary of the proposed transactions, the identity of the previous block, and a variable called the nonce.
The nonce is a random number that when combined with the other three variables via what is called a cryptographic hash function results in an output that fits a difficult criteria. The difficulty of meeting this criteria is defined by a parameter that is adjusted dynamically so that one miner finds a solution to this mathematical puzzle roughly every 10 minutes.
called a coinbase transaction, as well as fees for each transaction.
difference between public and private blockchains is similar to that between the Internet and intranets.
We believe that over time the implementation of private blockchains will erode the position held by centralized powerhouses because of the tendency toward open networks. In other words, it’s a foot in the door for further decentralization and the use of public blockchains.
others that are exploring the applications of blockchain technology include the music industry, real estate, insurance, healthcare, networking, polling, supply chains, charities, gun tracking, law enforcement, governments, and more.
Just as machine learning is not just one thing, but composed of the Symbolists, Connectionists, Evolutionaries, Bayesians, and Analogizers,
If these distributed databases of value are to be truly transformational, they will have to interoperate and value one another.
For example, Ethereum’s goal was to serve as a decentralized world computer, whereas Bitcoin aimed to be a decentralized world currency.
The second movement that exploded on the scene questioned whether bitcoin, or any cryptoasset, was necessary to get the value out of blockchain technology.
welcome to the world of private blockchains.
Since Satoshi only places “proof-of-work” directly before “chain,” many early Bitcoiners are adamant that the term blockchain should only be used if it is proof-of-work based.
Since these computers don’t have to worry about attack from the outside—they are operating behind a firewall and collaborating with known entities—it removes the need for a native asset that incentivizes the build-out of a robust network of miners.
In other words, the value creation is in the cost savings, and the entities that own the computers enjoy these savings.
Over time, miner compensation will shift from the issuance of new bitcoin to transaction fees, and if global adoption is great enough, then transaction fees will be sufficient to sustain miners.
Some of the more famous examples include steam, electricity, internal combustion engines, and information technology.
Innovation Trigger • Peak of Inflated Expectations • Trough of Disillusionment • Slope of Enlightenment • Plateau of Productivity
While it’s hard to predict where blockchain technology currently falls on Gartner’s Hype Cycle (these things are always easier in retrospect), we would posit that Bitcoin is emerging from the Trough of Disillusionment.
A currency fulfills three well-defined purposes: to serve as a means of exchange, store of value, and unit of account.
In an increasingly digital world, it only makes sense that we have digital commodities, such as compute power, storage capacity, and network bandwidth.
something has value and can be used as a currency without government support and without a physical form is one of the most significant accomplishments in monetary history.
The difficulty of this proof-of-work process was recalibrated automatically every two weeks with the goal of keeping the amount of time between blocks at an average of 10 minutes.
It is bitcoin’s scarce supply schedule that makes many think of it as digital gold.14
block hashing algorithm called scrypt, which is memory intensive and harder for specialized chips like ASICs to gain a significant edge upon.
allow communities to create a system of money out of chains of trust.
Using this concept, payments can “ripple” through the network via these chains of trust.
What’s important to recognize is that Ripple’s consensus algorithm relied on trust of some sort, which was vastly different from Bitcoin’s proof-of-work design that assumed anyone could be a bad actor.
investor: with a new cryptocurrency, it’s always important to understand how it’s being distributed and to whom (we’ll discuss this further in Chapter 12). If
Ripple has since pivoted away from being a transaction mechanism for the common person and instead now “enables banks to send real-time international payments across networks.”
Markus’s team later chose to issue roughly 5 billion coins each year, and this created a vastly different supply schedule from those of the deflationary bitcoin and litecoin.
Dogecoin mostly gained traction amongst Internet tippers.
Auroracoin is a cautionary tale for both investors and developers. What began as a seemingly powerful and compelling use case for a cryptoasset suffered from its inability to provide value
Adam Back is considered the inspiration for Satoshi’s proof-of-work algorithm and is president of Blockstream, one of the most important companies in the Bitcoin space. In March 2014, he tweeted about CryptoNote, saying it was one of the few ideas in the cryptocurrency space outside of Bitcoin that held a “defensible rationale for existence.”50 Some may ask why
A key differentiator between a scam and good intent is the communication and rationale of the developer team behind the issuance model.
The most defining feature of Monero is its use of ring signatures, a cryptographic technology that had been evolving since 1991.55
While many are suspicious of such privacy, it should be noted that it has tremendous benefits for fungibility. Fungibility refers to the fact that any unit of currency is as valuable as another unit of equal denomination.
A danger for bitcoin, especially for balances known to have been used for illegal activity, is that if an exchange or other service blacklists that balance, then that balance becomes illiquid and arguably less valuable than other balances of bitcoin.
Monero’s supply schedule is a hybrid of Litecoin and Dogecoin. For monero, a new block is appended to its blockchain every 2 minutes, similar to Litecoin’s 2.5 minutes.
From our perspective, if there is a major disruption or error in the launch of a cryptocurrency that significantly skews its distribution, then that cryptocurrency should be relaunched.
The Zcash team is led by Zooko Wilcox, whom we have mentioned prior as an early employee at David Chaum’s DigiCash. Through his time at DigiCash and longstanding involvement in cryptography and cryptoassets, Zooko has become one of the most respected members in the community.
