November 28, 2017
By Michiel Mulders - November 27, 2017 (bitcoinmagazine.com)
There is no disputing the fact that the Bitcoin network has scalability problems. Micropayment channels are a solution to increase the transaction rate and speed. Yet, this is not the golden solution. This micropayments solution needs a fixed amount of funds to be locked into each channel’s multisignature wallet and requires a transaction for each channel creation and closure. This hinders the Blockchain network from upscaling to a global payment system because Bitcoin’s capacity is limited.
A recently published research paper by a university in Zurich suggests implementing a new layer in between the blockchain and payment channels that enables off-blockchain channel funding to reduce stress on the Bitcoin blockchain.
The paper mentions two challenges: “Micropayment channel networks create new problems, which have not been solved in the original papers. We identify two main challenges — the blockchain capacity and locked-in funds.”
Before we go any further into this proposed solution, it is essential to understand the concept of micropayment channels. Bitcoin’s blockchain network doesn’t allow you to send many micropayments of tiny amounts of bitcoin. Bitcoin’s block weight limit caps this at less than 10 transactions per second, on average.
Payment channels let users lock up a fixed amount of funds in a multisignature wallet controlled by the client and receiver. A channel can be opened by sending a transaction to the blockchain. Next, an unlimited amount of payments can be made between the client and receiver. These payments are performed off-chain and only exist between both participants.
Once a channel is closed, a final transaction containing end balances will be sent out to the Bitcoin network. This is the base implementation of micropayment channels; a more evolved implementation is the lightning network, which allows bidirectional payment channels.
Reducing many hundreds, thousands or even more transactions to just two transactions per channel are a drastic improvement. Still, it is not enough for bringing the Bitcoin network to the level of a world-wide payment system. A channel can only exist between two participants. So, if each person in a group of 20 wants to open five channels, this will require a lot of transactions — 200 to be exact. Besides that, there is no solution for when the amount of locked funds is exceeded for a specific channel.
The paper tells us about a new layer: “We introduce a new layer between the blockchain and the payment network, giving a three layered system. The new second layer consists of multi-party micropayment channels we call channel factories, which can quickly fund regular two party channels.”
The paper suggest a three-layered system in which the first and third layers already exist. The first layer locks the funds, and the third layer performs the actual transfers of currencies. The new second layer can be seen as a channel factory. It is responsible for creating multi-party micropayment channels and quickly refunding wallets when they are almost depleted. The paper calculated a savings of up to 90 percent for a group of 20 nodes with 100 channels in between them.
Instead of sending a blockchain transaction for each channel creation or closure, the paper suggests a system where just one transaction is needed to open multiple channels without further blockchain contact. Funds are locked into a shared wallet between a group of nodes instead of a specific channel. Furthermore, funds can be moved between groups with just an attached message with further details such as a receiver address. All of this happens off-blockchain.
The only addressed risk is that a user within a group can close the channel factory: the second layer. This induces a higher mining fee because more blockchain space is used. While this is not a big risk — a user won’t gain personal advantage by doing so — it does limit the usefulness of large groups.
Next, it is possible that the receiver doesn’t sign a transaction. The paper introduces the use of either timelocks or punishments for dishonest parties. They will focus on timelocks because they think it performs much better. After a timelock has elapsed, the current status of the channel will be broadcasted to the blockchain and the channel will be closed; no punishment is applied.
There is no risk in securing the funds. The multisignature wallet has a many-to-many constraint containing all signatures of the involved actors. Funds can only be spent when all actors have signed the transaction, so no one can be deprived of funds without signing for it themselves.
November 10, 2017
By Rhett Creighton - November 10, 2017 (cointelegraph.com)
Expert Blog is Cointelegraph’s new series of articles by crypto industry leaders. It covers everything from Blockchain technology and cryptocurrencies to ICO regulation and investment analysis. If you want to become our guest author and get published on Cointelegraph, please send us an email at firstname.lastname@example.org.
Calling off 2MB blocks marks the end of a 3-year effort between different political groups inside Bitcoin trying to come to a compromise. Core developers may feel like they have won the battle, but a silent majority will leave quietly, selling their coins and driving down price over time.
At the same time, it marks the beginning of a new age in human history. One where individuals have a freedom of choice, and a freedom of exit.
”New York Agreement” called off
I was fully expecting Nov 16th to be an apocalypse for Bitcoin. Over 80% of miners were signaling support for 2MB blocks, and several hundred of the largest Bitcoin exchanges and companies had signed an agreement to support the block size increase. Despite businesses planning for 2MB blocks, much of the Bitcoin user community and core development team was prepared to reject the software change, which would split the Bitcoin network in a most disruptive way.
The split would have been a disaster for Bitcoin. However, the price of Bitcoin has been reaching new all-time-highs because uninformed investors have been conditioned to think that a fork in Bitcoin means that you get free coins. That was the case with Bitcoin Cash, but the chain split planned for Nov 16th would have been very different.
Under the SegWit2x split scenario, I don’t think it would have been possible for anyone to agree which was the “real” Bitcoin chain anymore. Large companies like Coinbase had agreed to support both chains. The 2MB chain planned to launch with no replay protection for users, which would have caused massive confusion and loss of funds. As the first clean fork of Bitcoin, with a clear plan and goal of being business-friendly, I expected Bitcoin Cash to be a big winner. The price of Bitcoin Cash has gone up nearly 100% in the past two weeks with many investors speculating on a “Cashening.”
Bitcoin will lose market share
“When a party starts to suck, you leave. You can try to fix it, but the cleanest solution is to just get out… A lot of Blockchain is increasing the freedom for individuals, and part of that is having the flexibility to leave, and to make the choices that you want to, at any point in time.”
Two large factions of the Bitcoin ecosystem reached an impasse. For individuals and corporations who no longer find the transaction fees and scalability acceptable in Bitcoin, the simplest solution is to leave. Those individuals will dump their $7,500 (down to $6,600 at press time) Bitcoin on first time buyers as they slowly get out.
“Dumb Money” pouring into Bitcoin
People are exuberant about the price of Bitcoin increasing to nearly 7x the price it was at the beginning of the year. Real-life meetups are full of new faces and first-time investors. The Bitcoin subreddit is full of people cheering each other on about buying their first 0.1 BTC and expecting a 10x annual ROI.
One of the bullish pieces of news driving the mania is that the CME Group plans to add Bitcoin futures this year, potentially making Bitcoin available to billions of dollars worth of new investors. However, Wall Street hedge fund investors are not suckers. Even if a hedge fund wants to buy into Bitcoin, they might try to short it first to drive the price down and shake out weak holders. If they can cause a few billion in losses from the people who bought the top by shorting it all the way down to $3000 (where it was a few months ago), they will.
Blockchains: New kind of entity
Blockchains are a new kind of entity, much in the same way that corporations with shareholders were a new kind of entity invented 400 years ago. Today, corporations are able to lobby Congress and have many of the same rights as humans. We will see Blockchains also gain access to these rights in the near future.
I fully expect the market cap of all crypto tokens to increase exponentially over the next few years, but this is not a winner-take-all scenario. Today, mainstream media financial advisors are touting Bitcoin as “the new gold,” but it can’t ever be that. To get a sense of how it’s different, imagine a universe where anyone could create a new kind of metal with essentially the same properties of gold.
Expecting Bitcoin to have the majority market share of Blockchains in the future is about as ridiculous as expecting the East India Company to be more valuable than all other corporations combined today.
Demand for Bitcoin and rise of crypto-ruble
Through much of 2014–2015, the price of Bitcoin declined. However, in 2016–2017, we started to see some larger demand for Bitcoin driven by ransomware, Ponzi schemes like “MMM,” Chinese citizens evading capital controls, and a means of transferring value into other Blockchain tokens (“ICOs”).
Russia has recently announced that they are looking into developing their own “crypto-ruble.” The crypto-ruble will feature a 13% tax into and out of paper fiat if the redeemer is unable to provide documentation of the transaction history.
Because Russia will be much more centralized and efficient than Bitcoin at processing transactions, I expect the crypto-ruble to be an attractive alternative to Bitcoin for ransomware, people escaping hyper-inflation, and Chinese citizens circumventing capital controls (especially in the event of a Bitcoin bear market).
The Chinese government shut down the BTCC exchange last month with rumors that they may pursue a crypto-yuan as well. It’s clear that some very big players are ready to enter this market, and they aren’t interested in sharing their money with Mr. Nakamoto.
Disclaimer: The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.
helped create the Zclassic and Zen forks of Zcash (Over $50M market cap) and more recently, Whalecoin. He contributed to the Bitcoin Core test suite and is an MIT alum.
October 19, 2017
By Aaron van Wirdum, Staff Writer - October 19, 2017 (bitcoinmagazine.com)
Development of the lightning network, the highly-anticipated second-layer Bitcoin protocol for instant microtransactions, continues to inch forward.
Lightning Labs, major contributor to the lightning network daemon, lnd, announced its cross-platform Lightning Desktop App last week. The open-source lightning wallet is essentially a user interface (UI) built on top of lnd and powered by Lightning Labs’ new open-source Bitcoin light client, Neutrino.
“This is the first functioning user interface for both sending and receiving lightning transactions with a light client mode,” Lightning Labs CEO Elizabeth Stark told Bitcoin Magazine.
The lightning network is currently being developed by several teams working on different but interoperable implementations of the protocol. Several of these implementations are functional, though only on Bitcoin’s test network (“testnet”): a sort of copy of the Bitcoin network with valueless coins specifically designed for testing new applications and more.
But, while there are already several lightning daemons available for testnet, most are only usable via command line tools. Developers Olaoluwa Osuntokun, Bryan Vu and Case Sandberg collaborated to now extend lnd with the new Lightning Desktop App to provide a user interface.
“I think the big takeaway is being able to visualize this technology and see what an early UI might look like,” said Stark. “It's one thing to be using the command line, as our lnd testers and developers have been, but it's another to be able to download the app. Being able to see this kind of progress is important.”
As part of the announcement, Lightning Labs also introduced Neutrino, the new open-source Bitcoin light client that powers the Lightning Desktop App. As a main benefit, Neutrino users don’t need to download the entire Bitcoin blockchain, which is currently over 140 gigabytes in size. This makes the desktop app much more accessible to regular users who transact small amounts, for which the lightning network is particularly suited. And because Neutrino uses a new method of transaction filtering (client side instead of bloom filters), it offers more privacy than most light clients, too.
The release of the new Lightning Desktop App kicks off a two-week “testing blitz,” as the company described it in their accompanying blog post. Developers are invited to experiment with the desktop app itself, as well as with Neutrino. Further, it makes it much easier for anyone to play around with lnd and the lightning network itself.
“The really cool thing about having our desktop app out there is now there's an easy way for people to interact with all of the apps that developers are building on Lightning, such as Yalls,” said Stark.
After the two-week testing period, the implementation will enter a regular release cycle. Releasing the wallet for Bitcoin mainnet, however, could take a while longer still, Stark explained:
“We're working toward testing and making the software more stable before releasing a beta. This is financial software and its a protocol dealing with money, so we want to ensure people can have a good user experience.”
There is no specific deadline for the beta release, but Stark added that, "The next step is for us to gather feedback from testers and develop it further, along with improvements in lnd and Neutrino."
The open-source Lightning Desktop App code is available on GitHub.