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Some time ago, I wrote an article about how Bitcoin’s breakthrough, the blockchain, was driving developers to create systems that were previously considered impossible. While, at that time, my hopes were focused primarily on Ethereum, which is still very exciting, recent developments have made it clear that other systems have the potential to deliver on much of Ethereum’s promise in a much shorter time-frame.
Coin Brief’s Ali Amin discussed the potential of this type of advancement months ago, with his articles about “Bit-thereum“, which is now becoming a very real possibility. Whether it is a system that is built on top of Bitcoin, such as Counterparty, one that works alongside it, such as Open Bazaar, or one that starts a completely new blockchain, such as Ethereum, we are sure to see some amazing advancements in the near future.
Not only are the well known systems and platforms, which I previously mentioned, driving innovation, but an entire ecosystem of new projects is springing up around the idea of blockchain-based decentralization. To start, lets take a look at one that has been getting a lot of attention lately, Open Bazaar.
Open Bazaar – The Leading Decentralized Market System
Open Bazaar’s beta 3.0 release has opened up the decentalized market platform, which utilizes Bitcoin for transactions, to a much larger userbase, thanks to the inclusion of a windows executable. Open Bazaar has the potential to become a system that could both rival mainstream eCommerce and auction sites, such as Ebay or Amazon, while also providing the black market with an outlet that has no centralized point of attack. Our own Sean Wince interviewed Sam Patterson, the Operational Lead Support for Open Bazaar, and discussed some of these topics (along with much more).
Unlike the Silk Road, or other darknet markets which have been taken down by the US government, Open Bazaar cannot be shut down by arresting the creators, or seizing servers. The network it is creating would continue to run, without interruption, even if the creators of the system were removed.
While this idea can be frightening to some, as a decentralized market such as this means that anyone could sell anything through a network that is out of the control of anyone, it is a necessary, and inevitable, next step in decentralization. The Silk Road, and other darknet markets, have focused on illegal and/or taboo goods and services. Open Bazaar will surely provide an outlet for these types of transactions, but it is unlikely that they will be anywhere near the majority of sales that go through the system. Instead, there is a good chance that Open Bazaar’s lack of required fees, and uncensored sales, will pull in users to sell a variety of goods and services that are too numerous to be mentioned.
Combining Open Bazaar’s decentralization with a fair, robust escrow and arbitrage system has the potential to open up many of the markets that are currently limited in the global economy. African, Asian, South American, and many other groups of manufacturers, businesses, and individuals, are often left out of global trade due to incredibly high banking fees, or lack of banking access altogether. This may soon come to an end.
Counterparty – Smart Contracts Built on Bitcoin
Counterparty shocked the digital currency world last week by announcing that it had successfully implemented the Ethereum Project’s programming language and virtual machine into Counterparty’s system. This is an incredible impressive feat, consider Ethereum generated over $30 million in funding to built a smart contract platform, while the Counterparty team actually required its initial investors to destroy, rather than donate, Bitcoin to start the project. This was called “Proof of Burn”, and is the mechanism which generated all of the Counterparty platform’s currency: XCP.
Counterparty’s currency was created in this way because it is built on top of Bitcoin’s blockchain, rather than creating its own, new network. To quote one of the Counterparty team members, known as Cityglut on the on the Bitcointalk forums:
If you are asking why we are using proof-of-burn to initialize balances, it is because Counterparty is a layer on top of Bitcoin, and so XCP are not mined; proof-of-burn initializes balances in a fair, distributed and transparent way.
If you are asking why Counterparty was created, it is because a peer-to-peer financial market within the Bitcoin protocol is a great addition to Bitcoin and cryptocurrencies in general, and one that people have been waiting for for a while.
This brings me to the original purpose of Counterparty. The smart contracts that have been added to the system are revolutionary, but the platform itself was already something quite amazing. Upon its initial release, it was already functioning as a basic peer-to-peer exchange, and provided the ability for basic contracts (rather than smart contracts), which resulted in a decentralized financial market.
With the inclusion of smart contracts, Counterparty now can provide developers with a platform to develop decentralized programs, protected and processed by the Bitcoin blockchain, and only limited by the developer’s imagination.
Ethereum – Leaving the Bitcoin Blockchain Does Have Advantages
Many are surprised that Counterparty managed to implement smart contracts using Ethereum’s own codebase, pythereum. However, users should pay attention to the last part of that sentence. The codebase, pythereum, was already available, and had been developed for Ethereum. The reason Ethereum is not available to the public today is not because they have not developed the software necessary for smart contracts, but because Ethereum is working to create a completely new type of blockchain.
Originally, Ethereum itself was to be built on top of Primecoin. Vitalik Buterin, the author of Ethereum’s whitepaper, and the first developer to work on the Ethereum project, recently put out a response to Counterparty’s integration of smart contracts, and explained why he chose to move toward an independent blockchain. More accurately, he pointed to a whitepaper he released in January that outlined the perceived advantages of creating an independent blockchain for this system:
The advantage of a metacoin protocol is that it can allow for more advanced transaction types, including custom currencies, decentralized exchange, derivatives, etc, that are impossible on top of Bitcoin itself. However, metacoins on top of Bitcoin have one major flaw: simplified payment verification, already difficult with colored coins, is outright impossible on a metacoin. The reason is that while one can use SPV to determine that there is a transaction sending 30 metacoins to address X, that by itself does not mean that address X has 30 metacoins; what if the sender of the transaction did not have 30 metacoins to start with and so the transaction is invalid? Finding out any part of the current state essentially requires scanning through all transactions going back to the metacoin’s original launch to figure out which transactions are valid and which ones are not. This makes it impossible to have a truly secure client without downloading the entire 12 GB Bitcoin blockchain.
The most important idea here is that building on top of Bitcoin makes it very difficult to use a light client. According to Buterin, this makes integration with phones, tablets, etc. potentially insecure. He also explained his later realization that:
by making an independent blockchain allows us to experiment with stronger versions of GHOST-style protocols, safely knocking down the block time to 12 seconds.
After this point, his post on the Ethereum blog dives into some much more difficult to grasp ideas, which are unlikely to be implemented into the initial release of Ethereum. That being said, he may have a point. If it truly is shown to be overly difficult, or impossible, to safely integrate systems that utilize smart contracts with phones and tablets, or if a blazingly fast block speed of 12 seconds is part of Ethereum’s initial launch, then Ethereum may prove to be the superior choice.
However, at the moment, no one knows how successful Ethereum will be in the long run. The development team certainly has enough funding to create something amazing, but until it is completed, we will not know what advantages this new blockchain will actually bring.
Eris, BitShares, and the Increasing Number of Decentalized Autonomous Companies/Corporations/Organizations
Decentralized Autonomous Organizations (DAOs), and Decentralized Autonomous Corporations/Companies (DACs) have been in development around various blockchains for quite some time. Invictus Innovations was one of the first groups formed to work toward the creation of various DACs and DAOs, resulting in BitShares. Others, such as Eris, created by another DAO-focused company, Project Douglas, came along later.
The idea behind DAOs and DACs is simple to explain, yet very hard to truly understand. In short, the goal is to create organizations, or companies, which either run themselves, or allow individual owners (with ownership based on a “coin” like Bitcoin) to vote on all decisions.
Eris: Decentralized Community Governance
Eris is not a replacement for government, as it may seem at first glance, but is an application that allows users to govern an online community without the need for central servers, moderators, or owners. The basic version of Eris is, in effect, something similar to a framework for a giant internet forum, or message board, similar to Reddit, Bitcointalk, or any other user driven content system.
While this may not seem like anything incredible at first, it has the potential to be built upon, and could truly be the start of something much bigger. Decentralized governance of an online community could be developed into decentralized governance of a physical community.
BitShares (PTS): An Altcoin For Building DACs
BitShares itself is not necessarily a next generation DAC, though it is closer than most altcoins. However, the community around BitShares has been built with the goal of creating DACs, and using BitShares as the method of investing in, or owning, these new platforms.
Thus far, DACs that will provide ownership of music, allow for decentralized voting, and be used for exchanging ownership of commodities, currencies, and more are being developed, though the timeframe for most of these systems to become fully functional is unknown.
Decentralized Voting?
Decentralized voting is one of the key components needed to make a DAC or DAO that is controlled by “share holders” function. Systems for this have already been developed, and are in use.
However, the idea of decentralized voting is being taken to the next logical step. Multiple groups are working on decentralized voting systems that would allow for two things that have never been truly possible before: fraud-proof voting, and instant, direct democracy.
By using the idea of the blockchain, votes can be verified without question, as the decentralized nature makes centralized manipulation impossible, and the confirmation method used by Bitcoin and other digital currencies eliminates the possibility of of counterfeit votes.
Once a system that allows fraud-proof, decentralized voting has been fleshed out, it would be simple to implement it in a way that allowed individuals to vote directly on issues each day/week/month from their computer, phone, or some other device with an internet connection.
Of course, for a system like this to actually have an impact would require a significant change in the functioning of the government it interacts with. Even so, at the very least, it could be used to influence those in power by presenting them with undeniable proof of the will of the people.
Two of the projects that are actively working on this are:
And
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