Litigation Support Tip of the Night

May 16, 2018

In order to get a better idea of what Blockchain technology is all about it's a good idea to take a look at Bitcoin: A Peer-to-Peer Electronic Cash System, published in 2008 by Satoshi Nakamoto.  (Nakamoto apparently being a pseudonym of some person or group of people.)    This paper is the origin of the bitcoin cryto currency, and the first representation of the blockchain concept.  

The basic idea is for digital signatures to be used for electronic cash transactions without the involvement of a third party institution.   Double spending is prevented through use of a public ledger that hashes timestamped transactions. 

On the second page of his (her?) paper, Nakamoto demonstrates the basic idea of electronic currencies in a chart that shows how use is made of public and private keys.

The trouble is that an institution must issue an electronic coin for each transaction in order to avoid double spending.    Nakamoto's proposed solution is to use a timestamp server to hash a block of items and publish it.  Each timestamp includes the previous timestamp in its hash.   

The integrity of the chain depends on CPU power, since altering any one block would require altering all blocks in the chain, and then catching up with new genuine blocks.    The very fact that computing power generates Bitcoins protects the blockchain against attacks:

"If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth. "

While the blockchain model makes transaction public it maintains privacy by keeping the identity of the parties anonymous.  The paper includes another chart illustrating the difference between public trades on a stock exchange and blockchain transactoins:

January 25, 2018

There is a theoretical limit to the number of Bitcoins that can be mined - which is tied to the data structural limits of a blockchain.    Only about six new blocks (a reference to a new transaction, a preceding transaction, and the answer to a complex mathematical problem) of bitcoins can be generated each hour.    The Bitcoin system is designed to reduce the number of Bitcoins that can be generated by 50% every four years.   About 94% of Bitcoins will have been mined by 2024,  however assuming that processing / mining power remains constant the maximum of 21,000,000 may not be reached until more than a century after that point. 

January 24, 2018

Even with the recent decline the value of Bitcoins, blockchains are still a widely discussed and yet poorly understood in the business and legal worlds.   An excellent O'Reilly Blockchain Guide by Melanie Swan is available here.    Here's a summary of the key points made in the guide, Blockchain: Blueprint for a New Economy.

A. General

     1. Blockchain 1.0 - digital currency

     2. Blockchain 2.0 - smart contracts.

     3. Worldwide, public record for the registration and transfer of all assets  - finances, property, votes, software. 

B. Bitcoin 1.0 Currency

     1. Three Layer Technology Strack

          a. Cryptocurrency: Bitcoin; Logecoin; LItecoin

          b. Bitcoin protocol and client: software programs that conduct transactions. 

          c. Bitcoin blockchain: underlying decentralized ledger. 

     2.  Hundreds of cryptocurrencies exist, each may have its own blockchain or run on the Bitcoin blockchain. 

   

C. Blockchain 2.0 Contracts

     1. Bitcoin as conceived by Satoshi Nakamoto was designed to be more than a digital currency. 

     2. Decentralization of markets in general

     3. Blockchain 2.0 includes:

          a. Bitcoin 2.0

          b. Bitcoin 2.0 protocols

          c. smart contracts

          d. smart property

          e. dapps (decentralized applications)

          f. DAOs (decentralized autonomous organizations)

          g. DACs (decentralized autonomous corporations).

     4. Can be used to transfer stocks, bond, mutual funds, annuities, land titles etc..

D. Blockchain 3.0 Justice Applications Beyond Currency, Economics, and Markets

     1. Blockchain can also be used to organize physical assets and human activities. 

     2. Namecoin is used to verify Domain Name System (DNS) registration - not controlled by any government or corporation. 

     3. Digital Identity Verification - OneName and BitID - confirm a person's identity to a web site. 

     4. Digital art - registry of intellectual property. 

     

E. Blockchain 3.0: Efficiency and Coordination Applications Beyond Currency,Economics, and Markets

     1. Peer to peer distributed computing projects providing unused computing cycles for web based computing projects. 

    2. Bitcoin mining algorithm must make hashes verifiable in one direction but not the reverse.  Use of blockchain for science could address the wastefulness of bitcoin mining which consumes a lot of electricity. 

F. Advanced Concepts

    1. Hayek's concept of a competitive private market for money.

    2. MIT Bitcoin drop - free distribution - in Dominica to encourage adoption. 

    3. Demurrage Currency - carrying cost - losing value over time.  

G. Limitations

     1. Ethereum - alternative to the Bitcoin blockchain. 

     2. Ripple -- does not use blockchain. 

     3. Throughput - bitcoin can only process one transaction per second. 

     4. Latency - Each transaction block takes 10 minutes. 

     5. Bloat The blockchain is 25 GB and growing. 

     6. Security - 51 per cent attack - one entity could take control and double spend previously transacted coins into its own account. 

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Sean O'Shea has more than 15 years of experience in the litigation support field with major law firms in New York and San Francisco.   He is an ACEDS Certified eDiscovery Specialist and a Relativity Certified Administrator.

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