BitCoin

  • Posted on: 15 December 2017
  • By: admin

Here is an example of what BitCoin is, why it was introduced, how to make it and the political voice and power it extends to the people. You are an inmate in a luxury hotel. Locked in your soundproof suite, you hear nothing and see nothing. Liveried butlers bring you meals on silver carts. You have plenty of time to read, think, and listen to music. All the riches of culture can be called down at your whim. But you are trapped, too, and desperate to talk.

One day, you look under your dinner plate and discover a note. ARE YOU THERE? You write back, tucking your reply under the plate. YES, WHO ARE YOU, WRITE SOON. In the morning you find replies. It doesn’t take long before you realize that notes are being shared, passed, and shuffled, among perhaps dozens of inmates being held in dozens of rooms. Before blockchain: The common knowledge enabled by the blockchain used to be created in spaces like the Kiva, a reconstructed version of which is shown here.

Communication is easy, but it’s hard to tell who knows what. Messages pass one another in corridors; conversations fragment. When A replied to B, had she received your message yet, or was she reading C’s? Did she ignore what you said because she didn’t like it, or because it had yet to be delivered? When D proposes a simultaneous attack on the wardens as they deliver dinner, how many people received it? When A confirms to D that she’s in, will D see the message in time? Will D know that B saw it?

Here’s one solution, if a strange one. Write a message with a very difficult mathematical problem on it—a problem so hard that it would take a month of concentration to solve. Now wait. Perhaps nothing happens. But perhaps, just perhaps, you find the answer under breakfast one morning.

There’s a room sunk into the ground at the Bandelier National Monument, a few miles from Los Alamos, New Mexico. In plain view for seven centuries, among the ruins left behind by the native peoples who lived there, the circular room, about the size of a high-school classroom, is called a Kiva. A bench formed out of straw and mud used to run around the perimeter.

One thing Kivas were used for is politics. The circular floorplan made it possible not just for everyone to be heard, but to be seen. When someone spoke in the Kiva, he could see his fellows and his fellows could see him. The circle also meant that his fellows could see each other seeing him; at a glance they could take in not only the speaker, but the faces of their colleagues doing the same.

It is not enough to dislike a government; you need to know that others do too.

That matters because politics is not just what you think and believe. If I’m trying to do something that requires your cooperation I need to do more than say I’m willing. I need to know that you know I’m willing.

In cognitive science, we call this common knowledge. To know something is one thing; but to know it with others, know that others know it, and know that they know that you know it, and all the way up the tower—this is another thing altogether. It’s what you need for costly cooperation. What teammates on the field and business partners in the boardroom signal when they look each other in the eye is a mental moment at the origin of society.

Common knowledge is power. It is not enough to dislike a government; you need to know that others do too. When you’ve built that common knowledge in secret meetings and basement cafes you might go out into the street. In a crowd, common knowledge is obtained without needing to look: The roar of a crowd is the roar an entire crowd can hear.

Totalitarian societies know the power of common knowledge very well. When Gary King’s Institute for Quantitative Social Science reverse-engineered the Internet censorship practiced by the Chinese government, they found that the government cared less about insults and criticisms than one might expect. What it censored aggressively were social media posts making plans to meet in person. Online, talk is cheap: but face-to-face people can build common knowledge.

Back in your luxury hotel prison, the moment comes: You see an answer to your mathematical problem under your dinner. What does that tell you? At the very least, your message must have reached someone else.

You ponder a bit, and write down a different problem. More than a brainteaser, this one has a funny property: It’s impossible to solve except by guess-and-check. And, while it’s easy to check whether your guess is correct, it’s very hard to find the right guess. If you guessed once a minute it would take you 10 years, say, before you got the answer.

A week later, a solution arrives. What does that tell you? For the answer to be struck so quickly, there must have been many people who saw your problem and worked on it. Indeed, somewhere around 500.

Now you’re in business. You make the second problem. It has the same properties as the first, plus it incorporates the solution to the first problem. (If you like, imagine that the problem involves a collection of numbers; the new problem takes as one of its numbers the solution of the first.)

You send it back out. You wait. A week later, an answer to the second problem comes back.

What do you know now? Well, as before, you know that a large number of people saw the second problem. And, since the problem included the message from the first problem, you know that everyone saw that as well, and can reason in a similar fashion. A rough, statistical form of common knowledge has emerged.

The luxury prison of voices is the Internet.

As long as you’re willing to keep solving problems like this, you can thread together a conversation. If someone wants to reply to you, they can add the solution to your problem to their message. Now you know that the message really is responding to yours, since it couldn’t have been written by someone until your message was shared and solved, and when the problem is solved, you know others know it too.

You have started a chain. And every element of that chain, as well as the existence of the chain itself, is common knowledge.

The luxury prison of voices is the Internet. Messages are passed back and forth as Internet packets. Problems are solved by custom-built computing machines. The use of these problems to solve the common knowledge problem is called “Proof of Work.” And the string of messages threaded from one problem to the next is the blockchain.

When common knowledge becomes possible, what will be the first order of business in your communication with your fellow inmates? It will be how to get out, and who will lead the effort. It will be politics.

When I was a graduate student, I was, for a time, in charge of taking lunch orders for a Thursday seminar series (called Thunch, or Thursday Lunch). Students would log onto the central mainframe and use a specially-written command to place an order. Around 11:30 I would print out the order database and ride my bicycle over to the sandwich shop to place it. Accounts were kept in a text file in the mainframe, and once every few weeks I would stroll the halls collecting debts.

For all of the complexity of our financial system, this is basically how money works. People have accounts: a set of numbers, kept in a text file, or a ledger, or a database somewhere at a bank. We agree on rules for how those numbers change. We serve Thunch.

BitCoin is a currency that lives on the blockchain. The only messages that can be sent are “transactions,” transfers of a fictitious unit of money, or bitcoins, between accounts. Like any financial system, BitCoin has its own set of rules. No account can go below zero. People who take the time to solve the proof of work puzzle are awarded a unit of currency.

Currency is just one use of the blockchain. There are lots of others. Etherium is another blockchain that not only keeps accounts, but also allows users to upload fragments of computer code that govern transfers in increasingly complex ways. Basic government functions, such as the registration and transfer of automobile titles and real estate, the signing of public contracts, and even voting, can be done on blockchain. So can the establishment of new prediction markets that allow participants to bet an internal currency on real-world events.

These are all variations of the conversation at the Kiva. Which is to say, they are political. And that merger of technology and politics produces an unexpected paradox.

While blockchains are excellent at forming common knowledge according to a set of rules, those rules are set by hand at the very beginning. Blockchains in place to date do not include a process for amending their constitutions. That means participants are trapped in the logic set by their founders. As systems grow, this constraint leads exactly where you would expect: to disagreement, divergence, and, finally, revolution.

In the world of blockchains, that’s called a “fork”: when sufficiently many members of the chain want to change the rules, they can go rogue, publicizing a new set of rules and attempting to lure others to divert their computer power to solving proof-of-work problems for their new republic. Forks have happened repeatedly in both BitCoin and Etherium, usually over technical questions, although Etherium has also forked over the question of how to respond to looting.

This process is familiar to us from political history. Tribes don’t have constitutions, and neither did the monarchies of Europe. Change could be confusing, abrupt, and often violent.

It’s easy to become enchanted with the dizzying profits being made with BitCoin, and with the elegance of the mathematics beneath it. But it’s dangerous to forget that the point of these systems is to bring the political power of common knowledge into the Internet age, together with all of its potential for disruption and conflict. China’s response to the blockchain exemplifies the uncertain landscape. On the one hand, they banned residents from trading on cryptocurrency exchanges—but, on the other, they invest large amounts of money into developing high-speed hardware custom-built to solve proof-of-work puzzles.

The blockchain is no less a social creation than the Kiva. We haven’t outrun politics yet, and it doesn’t look like we will.

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This paper identifies and analyzes BitCoin features which may facilitate BitCoin to become a global currency, as well as characteristics which may impede the use of BitCoin as a medium of exchange, a unit of account and a store of value, and compares BitCoin with standard currencies with respect to the main functions of money. Among all analyzed BitCoin features, the extreme price volatility stands out most clearly compared to standard currencies. In order to understand the reasons for such extreme price volatility, we attempt to identify drivers of BitCoin price formation and estimate their importance econometrically. We apply time-series analytical mechanisms to daily data for the 2009-2014 period. Our estimation results suggest that BitCoin attractiveness indicators are the strongest drivers of BitCoin price followed by market forces. In contrast, macro-financial developments do not determine BitCoin price in the long-run. Our findings suggest that as long as BitCoin price will be mainly driven by speculative investments, BitCoin will not be able to compete with standard currencies.

Ciaian, P., Rajcaniova, M., & Kancs, D. (2016). The digital agenda of virtual currencies: Can BitCoin become a global currency? Information Systems and eBusiness Management, 14(4), 883-919. doi:http://dx.doi.org.ezproxy.lib.ou.edu/10.1007/s10257-016-0304-0

Following the publication of a white paper by Satoshi Nakamoto in 2008, bitcoin was quietly introduced to the world in 2009 as not much more than an obscure piece of code. For more than a year after its introduction, each bitcoin in circulation trailed for pennies as a community of coders made minor modifications and refinements to the open-source client at the system's core. Opinions regarding the future of bitcoin are mixed. Jennifer Shasky Calvery, the director of the Financial Crimes Enforcement Network, suggests bitcoin could become "a significant player in the financial system" (2013). Others express optimism regarding the underlying blockchain technology but reserve judgment on bitcoin in particular. The biggest obstacle to the widespread adoption of bitcoin is the incumbent-monies problem. Bitcoin represents a technological advance in the processing of payments. It is always difficult to predict the future, but technological advancements tend to be put to good use -- at least until something better comes along.

Luther, W. J. (2016). Bitcoin and the future of digital payments. The Independent Review, 20(3), 397-404. Retrieved from https://search-proquest-com.ezproxy.lib.ou.edu/docview/1757073054?accoun...

Bitcoin is a cryptocurrency. It is not a legal currency but a private monetary system that manages itself and does not depend on central banks or governments. Since the development of Bitcoin , its trading volume has been increasing largely and rapidly. Some fear the increase in Bitcoin usage as it is quite different from traditional currencies; however, its use is spreading all over the world. This paper examines empirically whether or not weekly price anomalies exist by checking the market efficiency of Bitcoin . The empirical results show that the Bitcoin market is not efficient. However, the empirical results show that Bitcoin transactions are becoming and can become more efficient. The results suggest that Bitcoin returns will be random in the future.

Kurihara, Y., & Fukushima, A. (2017). The market efficiency of bitcoin: A weekly anomaly perspective. Journal of Applied Finance and Banking, 7(3), 57-64. Retrieved from https://search-proquest-com.ezproxy.lib.ou.edu/docview/1898423137?accoun...

Nowadays the financial system has been affected dramatically by the development in the era of information and communication technology. One of these phenomena, is Crypto Currency Bitcoin is the most famous among them. In the reviews of Crypto Currency and Bitcoin , we can pay special attention to the public opinion, because it can have a significant impact on the future of money. The aim of this study is to identify the preferences of people using Bitcoin as a novel product introduced by human into the financial system. For this purpose, the important factors in choosing Bitcoin have been checked. In terms of practical purpose and collecting descriptive information, this research is survey - correlation. In this study the important factors in the selection of Bitcoin through the investigation of the opinions of experts and consumers, offering model by patterning the technology acceptance and innovation publication models, interviewing with experts using a questionnaire and the analysis of the model through PLS partial least square method using Version 2 SMARTPLS software. The results show that the variables of infrastructure, structural, individualistic and cultural factors through perceived value have a significant and positive impact on the intention of using people. Meanwhile cultural ...

Pakrou, M., & Amir, K. (2016). The relationship between perceived value and the intention of using bitcoin. Journal of Internet Banking and Commerce, 21(2), 1-18. Retrieved from https://search-proquest-com.ezproxy.lib.ou.edu/docview/1826918180?accoun...

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