Some time ago I wrote the following and sent it to a podcast but nothing came out off it. Though I had ASICs inn mind at the time, I feel like this text is still relevant in the context of coin validator and all the drama.
Have a nice read
The Case Against Centralized Money ==================================
In 1790 Mayer Amschel Rothschild said “Let me issue and control a nation’s money and I care not who writes the laws.”
Technically speaking it is relatively easy to create a centralized currency. Basically speaking you just create one ledger and let all users transact downstream. What you get is your typical waterfall, old school hierarchy kind of system. We all know what it looks like. A decentralized system is kind of difficult to get going, but still possible. The precious metals are for instance decentralized money, in the sense that there is not a single entity doing all of the mining operations and the metals can be mined all over the world. From the precious metals we learn that money can be a decentralized thing, but from the history of money we also learn that the issuing/minting process can be centralized.
Decentralized Virtual Money ===========================
Information technology is amazing because it lets you reproduce information at very little cost. But money that can be double spent would not work. Bitcoin solves this problem by introducing a ledger. However that is not enough, because the entity that controls the ledger can still edit the ledger. So, what Bitcoin does is to put the ledger in the hands of all its users so that the integrity of the ledger becomes a majority decision.
In his white paper Satoshi Nakamoto writes: "Proof-of-work is essentially one-CPU-one-vote."
Now, this model works as long as we have one-User-one-cpu-one-vote. If we have one-Superuser-with-all-cpu-power-and-the-only-vote we no longer have decentralized money. That is the kind of money that Amschel Rothschild was talking about, and it is that kind of system that Satoshi arguably rebelled against.
A Bitcoin proof-of-work Flaw ============================
A flaw in the proof-of-work, is that it do not assert that the proof-of-work have been carried out by the majority of its users. It does not take into account, who owns the majority of the processing power.
Is that even possible to do? How could a computer program tie one person to one CPU? It seems to me as a super difficult problem to solve. Especially since the solution can not rely on some kind of central authority or something else which can not be corrupted. The reason why the hashing mechanism works, is because we can not change the math. We need something like that to prove that each and every one user is only running one mining machine and is controlling only one vote.
Maybe if I was smarter I could figure out a way to do it. But I am not that smart.
The Bitcoin Open Source Flaw ============================
Since everyone can download the code, review it, improve on it, compile it and connect it to the network, Bitcoin becomes decentralized. If it was not open source, it would not be decentralized because we would have to rely on one or two entities controlling the whole thing. But, this also means that the code can be reproduced and thus at very little cost new types of Bitcoin can be created.
So even though the supply of Bitcoins can not be inflated, the number of blockchains can. And the more chains we get, the lesser the relative value of Bitcoins. Simply put, when someone chooses to buy Litecoins over Bitcoins, it is Litecoins that increase in value and not Bitcoins. Bitcoins as a store of value is affected.
So while the open source nature of Bitcoin is necessary, it comes at a cost.
The Two Issues Resolving Themselves ===================================
First we have the issue with centralization. Since only those with money can afford to buy machines that can compete in the mining sector, it means that only those that already have money can make more money from mining. Those trying to make money mining Bitcoin with their CPU have little success, which means that they do not get to participate in the majority vote.
Then we have the issue with AltCoins. The more people investing in them, the less valuable Bitcoins relatively speaking become.
Now, lets re-visit the two flaws: Bitcoin becoming centralized and AltCoins competing with Bitcoins. Well what do you know, isn't that the system sorting itself out?
If you stop thinking of it as the Bitcoin space and start thinking of it as the blockchain space, you realize that all of these chains competing for users is actually a fragmentation process that brings about decentralization.
The AltCoins are not the problem, they are the solution to the problem of Bitcoin centralization!
Already Happening
=================
Since it is cheaper to create a new AltCoin, then to build a new specialized hardware for mining that particular coin, the software could outpace the hardware specialization and thereby centralization. Take Bitcoin as an example. Since Bitcoins are unprofitable to mine for CPU miners, it have pushed them into other blockchains where they are still able to vote.
With many blockchains, what is happening is that the money people invest in the blockchain space is distributed on all of the chains. This decreases the risk of a single point failure and the blockchain space seen as a whole thereby becomes more robust.
Lets for a moment forget about the Bitcoin network and consider all of the blockchains as members of the same ecosystem. Sure there is competition among the members, but that only pushes the technology forward.
New technology is emerging to cope with this situation. One example is a tool to automate coin switching; which is when a miner mine only the coins that are the most profitable to mine. Then there are bots profiting from arbitrage between exchanges, which decreases volatility and the ability for single entities to manipulate single exchanges.
It is a fragmented market, a decentralized self-organizing thing we got going here and I would argue that this is a good thing.
Ecosystem
=========
One could argue about whether this or that coin is a scamcoin, which coin is the best one and so forth and so on. What I believe is that blockchain diversity is a phenomena that is here to stay and that it is a good thing. Because of the competition between blockchains, developers get an incentive to improve on the code base and since it is open source everyone stands to benefit.
What I would love to see, is people working _with_ this process instead of against it. There certainly are pump and dump coins, scamcoins and what not. This is a reality and it can not be ignored. Why even try to? Why not deal with the fact and try to leverage it in favor of the blockchain space itself.
Ecosystem Tools
===============
There is talk about decentralized exchanges and I guess that could be thought of as a step in the right direction. Perhaps in time it will be easier to buy Litecoins, without having to buy Bitcoins first.
But is it safe to hold many different coins? Well, is that not the same thing with stocks and bonds? They go up and down all of the time. It could even be argued that Bitcoins themselves are unsafe because of the volatility. Besides, whether you are aware of it or not, your money is always at risk and one of the best hedges against total loss is by diversification.
But perhaps it is possible to push this even further. Maybe it is possible to create a Metawallet that could be configured to hold the exact amount of coins, percentage wise, of the coins they you prefer to hold on to.
Metawallet Userstory
=====================
When transacting with another Metawallet, you could with a click of a button transfer 50% Bitcoins, 40% Litecoins and 10% Primecoins of the total cost, to your counter party.
With paper money and precious metals, it would be difficult to transact like so, but since coins are digital we could automate it. The program would just match the wallets, agree on what coins to transact with and then listen to the blockchains.
We might even discover unexpected benefits to this. For instance, while Bitcoins could be considered as a better store of value, they are likely to confirm slowly. So perhaps there is a benefit to receiving 10% of the cost in Primecoins almost instantly.
The Future
==========
Is Bitcoin only about Bitcoin? I think not. While Bitcoin is getting recognized by the public at large, I think it is a technology still in its infancy. It is difficult to predict what will happen and while Bitcoin certainly turned on the switch, I am not certain that it ends with Bitcoin.
In my mind Bitcoin is just another information technology and the thing about IT is that it changes, adapts and merge with the network. In a sense I think Bitcoin gives us a glimpse of something that is bigger then the Bitcoin protocol itself.
The question is, what kind of technology will be built around Bitcoin? Will Bitcoin be a single point of failure for all of those technologies that will rest on top of it, or will we see diversification and get a more robust system?
Why not leverage the fact that we are dealing with an ecosystem of blockchains and build something on top of that instead. Then coins could come and go, but decentralized virtual money would still prevail. In the end that is what we care the most about anyway, right?
Satoshi Nakamoto
================
When Nakamoto created Bitcoin, was it a pump and profit? My bet is that it was not. I believe that it was politically motivated and if I am right, then why would Nakamoto be against a thriving ecosystem with competing blockchains? Why would redundancy, less single points of failure and so forth and so on be a bad thing?
I am not to sure Amschel Rothschild would be to happy about it, but why would Nakamoto be against decentralization?
