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Blockchain Guide

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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