Enabled By Blockchain Technology

Many crypto-currencies, Bitcoin being the most prominent, are reliable electronic payment systems that operate without a central, trusted authority. They are enabled by blockchain technology, which deploys cryptographic tools and game theoretic incentives to create a two-sided platform. Profit maximizing computer servers called miners provide the infrastructure of the system. Its users can send payments anonymously and securely. Absent a central authority to control the system, the paper seeks to understand the operation of the system: How does the system raise revenue to pay for its infrastructure? How are usage fees determined? How much infrastructure is deployed?

A simplified economic model that captures the system’s properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system’s limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions.

The paper, Monopoly Without Monopolists, is here. 1

Enabled By Blockchain Technology

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  1. One of the things we’ve always found interesting about blockchain technology that they can not only form the basis of a currency, but also the basis of an e-contract: If Y occurs, X will receive… The best part is this is “auto-magically” enforced, without courts.


When the Honduran police came to evict her in 2009 Mariana Catalina Izaguirre had lived in her lowly house for three decades. Unlike many of her neighbours in Tegucigalpa, the country’s capital, she even had an official title to the land on which it stood. But the records at the country’s Property Institute showed another person registered as its owner, too—and that person convinced a judge to sign an eviction order. By the time the legal confusion was finally sorted out, Ms Izaguirre’s house had been demolished.

It is the sort of thing that happens every day in places where land registries are badly kept, mismanaged and/or corrupt—which is to say across much of the world. This lack of secure property rights is an endemic source of insecurity and injustice. It also makes it harder to use a house or a piece of land as collateral, stymying investment and job creation.

Such problems seem worlds away from bitcoin, a currency based on clever cryptography which has a devoted following among mostly well-off, often anti-government and sometimes criminal geeks. But the cryptographic technology that underlies bitcoin, called the “blockchain”, has applications well beyond cash and currency. It offers a way for people who do not know or trust each other to create a record of who owns what that will compel the assent of everyone concerned. It is a way of making and preserving truths.

That is why politicians seeking to clean up the Property Institute in Honduras have asked Factom, an American startup, to provide a prototype of a blockchain-based land registry. Interest in the idea has also been expressed in Greece, which has no proper land registry and where only 7% of the territory is adequately mapped.

The Hash



… Money €™s gotten buggy. People who don €™t realize this might be in high finance €” indeed, we €™ve gotten very good at moving the revenues of entire generations within a precise number of femtoseconds €” but what if you €™re just trying to buy a smoothie?

Bitcoin is the Internet, applied to Money.

I walked into a Jamba Juice recently, and was informed in no uncertain terms that if I attempted to use anything larger than a $20 bill, or if my credit card was demagnetized, no smoothie for me. (I can €™t even imagine the blank look I €™d have gotten if I €™d tried to pay with a personal check.)

We do have credit cards. But credit cards change money from something anyone can give anyone (peer to peer) to something with a consumer class (client) and a merchant class (server). There are innovative startups that attempt to reverse that, and every time one of these systems pops up €” Square, Stripe, Venmo €” billions of dollars starts flowing through them.

We wouldn €™t get this sort of growth without pent-up demand. But even the new systems find themselves failing €” I love Paypal, but is there anyone who hasn €™t either had their account suspended, or knows someone who has? I €™ve certainly never had a $20 in my pocket go dark for 48 hours.

Bitcoin €™s got its issues. But it is not competing with perfection. 1

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  1. My favorite line: “Bitcoin €™s a dollar bill, with a teleporter built in.”

Bitcoin Redux

…Bitcoin isn €™t the only cryptocurrency out there. Several others are also surging in popularity and value, and they claim to offer technical improvements that make them better suited to mainstream use.

Some of these competing currencies already represent significant stores of value. The value of a single bitcoin on the most popular exchange was $93.70 at time of publication, and the total value of all bitcoins in circulation just over $1 billion (it was over $2 billion at the market €™s high point last week). The largest alternative cryptocurrency, litecoins, were worth $2.31 each and $38 million in total; the next largest, PPCoin, were worth $0.22 each adding up to a total value of $4 million.

Bitcoin is based on mathematical techniques that control the production of new bitcoins, make it possible for a person to verify money sent to them is genuine, rule out counterfeiting, and limit the maximum number that can ever exist (to 21 million) (see €œWhat Bitcoin Is, and Why It Matters €).

The Bitcoin alternatives are inspired by that design, which is published openly, and try to offer improvements.

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Après l\’Euro

Maybe Bitcoin €™s devotees are right, and it €™s the currency of the future. Or perhaps it €™s a ridiculous joke €”a speculative, hilarious enterprise taken to its most insane conclusion. Given that the founder is nowhere to be found, it feels like a hoax, a parody of the global economy. That the technology used to implement it has, so far, shown itself to be impeccable and completely functional, and that it €™s actually being exchanged, just makes it a better joke. The truth is, it doesn €™t much matter if it €™s a joke or not. It works.

What’s interesting here is the steady move away from money as a palpable object to money as trust: first (relatively speaking) we based our economy on gold; next it was all about the paper money; finally(?) it’s become all about trust.

I suppose you could argue it’s always been about trust: money is purely notional, after all.

We once relied on the Federal government to maintain stores of gold, the price of which determining the amount of currency issued. But the price of gold itself was always subjective.

When we untied that apron string and started issuing currency based merely on the ‘faith and full backing of the United States government’ we simply cut out the golden middleman; U.S. currency was valid because we said it was.

Bitcoin is valid tender simply because it exists.

Much in the same way labor and barter for same is valid.

This  will be fun to watch. 1

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  1. As a thought experiment, go get one. It’s fascinating.