Bitcoin Basics Explained: The ABCs of BTC (Q – U)

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So far in this series, Bitcoin Basics Explained: the ABCs of BTC, I have reviewed topics from “A is for Acceptability” all the way to “P is for Public.” Let’s keep exploring. Please remember that the intention is not to go into great depth but to review the basics of each topic.

Q is for Quantum Computing

Quantum computing applies quantum mechanical phenomena, such as superposition and entanglement, to the performance of operations on data. It says so right there in Wikipedia. That same overview informs us that while ordinary computers work with bits of data, where each bit is either a one or a zero, quantum computers work with qubits (“cubits”) that are either one, zero, or a quantum superposition of those two states. The quantum effects of superposition, entanglement, and quantum tunnelling are being applied to enable quantum computers to consider and manipulate all combinations of bits simultaneously, creating the potential for a computer that is unimaginably powerful and fast.

The point of quantum computing is to be able to perform certain kinds of calculations much more rapidly. So, what is the application to Bitcoin? Well, it turns out that among the kinds of calculations that are interesting to the developers of quantum computers are the kinds of calculations needed to break strong encryption…and Bitcoin’s core protocol is essentially the application of cryptography to economics.  Many have mentioned that a quantum computer could destroy Bitcoin mining, by quickly mining everything up to the next difficult adjustment, causing an increase in difficulty that would make it nearly impossible for anyone else to continue mining.  Beyond that, if a quantum computer were to break Bitcoin’s encryption algorithms, people fear that it could potentially modify the blockchain, bruteforce wallet addresses, or do a number of other nefarious things.

How important is this situation? D-Wave computers claims to be building a 512-qubit computer, which doesn’t sound like much. But, “According to physicist David Deutsch, this parallelism allows a quantum computer to work on a million computations at once, while your desktop PC works on one. A 30-qubit quantum computer would equal the processing power of a conventional computer that could run at 10 teraflops (trillions of floating-point operations per second). Today’s typical desktop computers run at speeds measured in gigaflops (billions of floating-point operations per second).” (Quote from Howstuffworks.com.)

Bruce Schneier, writing in 1996, said, “brute-force attacks against 256-bit keys will be unfeasible until computers are built from something other than matter and occupy something other than space.” Unfortunately, David Deutsch has theorised that quantum computing reflects the “many worlds” or inflationary-universe theory of physics, and quantum computers are making use of hundreds of thousands of computers in parallel dimensions operating simultaneously.

Commenting on the implications for Bitcoin, after Edward Snowden’s revelation that the USA National Security Agency is working on quantum computers to break commercial cryptography, Chris Pacia writes, “Bitcoin uses several cryptographic algorithms―The Elliptic Curve Digital Signature Algorithm (ECDSA) for signing transactions and the hash functions SHA-256 and RIPEMD160. If the NSA succeeds in developing a cryptologically useful quantum computer, ECDSA would fall while SHA-256 and RIPEMD160 would remain secure.” The balance of his article is deeply mathematical, and should reassure users of Bitcoin that alternatives exist to the problems implied by the advent of quantum computers.

Vitalik Buterin, commenting on the same issues, finds Bitcoin has definite weaknesses exposed by the arrival of quantum computing. He supplies not only an excellent mathematical analysis, but some reasonable alternatives that can be provided to the Bitcoin core protocol to alleviate quantum vulnerability.

In summary, Bitcoin has some vulnerability to quantum computers, assuming that they are put into operation and work as promised. The vulnerability involved can be addressed by making changes to the Bitcoin core protocol to allow other algorithms to be used for the signature function…algorithms that would not be vulnerable to quantum computing.

R is for Regulations

There are two major schools of thought about Bitcoin regulation by governments. One school believes that Bitcoin is a protocol, much like the Internet protocol, that creates technological opportunities which don’t need government regulation to excel. The other school seems to take the position that everything is going to be regulated, eventually, anyway, and the sooner the government takes official notice of Bitcoin, regulates it, licences those players it deems appropriate, the better off the industry will be.

The extreme views of the two schools of thought on this issue are, on the one hand: Bitcoin doesn’t need to be regulated because government regulations don’t work, at all, in the industries where they are implemented, to protect anyone but the vested economic interests that run businesses in those industries. On the other hand: Bitcoin needs to be regulated, immediately, or there can be no meaningful investment in new products and services based upon Bitcoin.

My own feelings on this matter reflect the most extreme view of the “regulations are not needed” school. Moreover, there seems to be plenty of evidence that people cannot trust governments. I’ve written extensively on the topic. Others who have chimed in on the topic include Trevor Murphy of BitStash writing for CNBC, the staff of The Daily Bell, and multiple members of Coin Brief’s team, including Evan Faggart and Dustin O’Bryant.

The other school of thought seems to be represented by Barry Silbert of the Bitcoin Investment Trust who says, “it may be appropriate to regulate any transaction that involves an unregulated intermediary converting Bitcoin to dollars on behalf of a third party.” A similar, and even more enthusiastic view for greater regulation comes from Manhattan district attorney Cyrus R. Vance Jr. who testified that “we need stronger tools to combat new emerging threats derived from these payment systems.”

A sort of middle-of-the road approach is represented by Dr. Primavera de Flippi, PhD who concludes that self-regulation may be the place to start.

The most egregious attempt at regulation came last Summer with the BitLicence efforts of the state of New York. New York State Department of Financial Services Superintendent Benjamin Lawsky developed proposed rules in July 2014 which came in for considerable criticism and which did not become law. Revised rules were developed and issued in early February 2015, indicating that the proposed licence would cost the applicant $5,000.

Whether Bitcoin is regulated in your country or not, you can be sure that regulations of Bitcoin are going to be a topic of conversation for years to come.

S is for SilentVault

SilentVault is a new technology developed to provide for peer-to-peer payments and exchanges with anonymity among a growing variety of asset classes, and I am one of the creators of this system. SilentVault is an open source peer-to-peer anonymous Bitcoin wallet with built-in exchange and embedded escrow; the wallets are multi-asset and can hold any supported asset types side-by-side. SilentVault allows cryptocurrency adopters to spend and receive Bitcoin and Litecoin entirely off the blockchain enabling users to freely transfer assets to and from regular Bitcoin and Litecoin addresses rapidly and anonymously.

Unlike ordinary Bitcoin exchanges, which require the user to hold their entire balances within the exchange and use a browser to log in and trade, SilentVault uses a built-in trading floor within the anonymous wallet. Users can exchange assets with other users anonymously and choose to fund escrow for the trades they enter or accept. Assets traded with SilentVault are stored in the wallets at all times if the user doesn’t choose to trade using escrow.

SilentVault provides a completely private client network and considers all aspects of conducting business including communication. SilentVault wallets communicate using XMPP (Jabber chat), within private servers with no public-facing IPs. End-to-end peer-to-peer encryption ensures that not even SilentVault can monitor private chats or access other wallet related information bringing complete anonymity and privacy to users.

T is for Tyrants losing control.

One of the important developments brought about by the Internet is the widespread availability of information. Not only are there now many more media outlets, not only are there new resources for news media provided by online access to information, but also there have been significant releases of information to a global audience that were never before possible. The “Arab Spring” that was first described with that term in January 2011 came about as a result of the release of diplomatic cables by Wikileaks in November 2010. None of that information would have been available all over the world if it were not for the Internet.

The events involved caused rulers to be forced from power in Tunisia, Egypt (twice), Libya, and Yemen (twice). There were also civil uprisings in Bahrain and Syria. Major protests broke out in Algeria, Iraq, Jordan, Kuwait, Morocco, Israel and Sudan. Minor protests occurred in Mauritania, Oman, Saudi Arabia, Djibouti, Western Sahara, and Palestine. There were also protests in the United States relating to the diplomatic cables as well as other information leaked by Chelsea Manning.

More recently, NSA contractor Edward Snowden fled the United States after revealing extensive information about espionage activities by various US government agencies. His most recent revelation indicates that British and American spy agencies have cooperated to steal encryption keys from a major cell phone provider.

These are only a few of the leaks about global surveillance and policy-making. Evidently, there is quite a lot going on in governments around the world about which ordinary people should be concerned.

One of the basic questions that sometimes gets asked is: where do you get money for all this spy stuff? The answer turns out to be pretty basic. Governments simply create money. True, they have various agencies and rules about how they do so, but the short answer is: governments create money out of nothing. So, if you are concerned about governments having too much power, and using that power abusively, Bitcoin is a breath of fresh air.

Bitcoin is not created by any government. It is simply a protocol. Like the Internet protocol that came before it, Bitcoin represents a change in the way people think about money. By any measure, that should do a great deal of good.

U is for User Interfaces

When you decided to use Bitcoin you may have been introduced to the Bitcoin Core protocol. Bitcoin Core is now in its tenth major revision. It is not, by far, the only user software available for Bitcoin.

There are scores of front-ends for Bitcoin as well as dozens of Bitcoin wallet programs. Even within a given client, there are often many different user interfaces, including very compact approaches for mobile devices.

How you interact with Bitcoin may have a great deal to do with the user interface you are using. So, if you find Bitcoin “clunky,” “slow,” or “hard to use,” you may want to shop around for a different wallet, a different front-end, or a different user interface. Bitcoin development is very widespread.

Not all Bitcoin clients were created equal. Some clients pull in the entire Blockchain while others keep that information on a server for access as needed. Given the tens of gigabytes involved in the block chain, and the daily transaction activity running above a hundred thousand events some days recently, handling the data involved can be very challenging. If your device runs slowly when dealing with Bitcoin, try changing to a different wallet, client, or front-end. Or, if you have the ability to do so, consider upgrading your device.

Bitcoin is a very exciting area of activity, and there are still more topics in my next installment.

Intoduction: A – D | E – H | I – L M – P | Q – U

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Coinbrief

Coin Brief is an open source website for digital news. It provides cryptocurrency tools, mining calculators, tutorials, and more. It was acquired by 99Bitcoins on September 2015.

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