“To hack the blockchain would take more than the top 500 super computers combined” – Don Tapscott
Bitcoin, Blockchain explain it to me again?
If you’re reading this as an absolute crypto-newbie and you’d like to really get your head around some of the technical concepts at a high-level, we strongly recommend first checking out Khan Academy’s brief course on Bitcoin and blockchain.
And before we dive into bitcoin it’s important to first talk about blockchain. Again if you’re reading this and you know very little about blockchain and bitcoin, we recommending checking out this great primer “What is blockchain?” by BlockGeeks for a background understanding.
So let’s do a quick refresher for all you crypto-experts 😉 Blockchain is essentially a record of consensus with a cryptographic audit trail that is maintained and validated by several separate nodes. Since the data is not controlled by one central authority, it is distributed across every node in the network and there is no trusted third-party needed to maintain and govern the system. Bitcoin itself is a cryptocurrency and blockchain is the technology that enables it to function as a currency.
The other property that makes the bitcoin blockchain so desirable is its security. Through the wonders of modern cryptography, it would take more than the top 500 supercomputers in the world combined to even get close to hacking it.
Enter your email below and you’ll be the first to know when Xinja is ready to launch.
WARNING: THIS NEXT PARAGRAPH IS ONLY FOR TECH SUPER-NERDS (like #dataxinja)!
For all our physics readers, yes it is theoretically possible to hack a blockchain with a quantum gater computer using Grover’s algorithm to find the merkle root in the block, however, if quantum adoption were to take place it would simply require a hard fork where nodes would also upgrade and use a quantum computer to double or triple the key size. However, if one could get the required number of qubits it is possible to use Shor’s algorithm to hack any keysize in polynomial time.
“It is not wise to ignore cryptocurrencies” – World Bank leader Christine Lagarde
So what’s the hype around crypto and why is my 70 year-old grandmother investing in it?
Recently, The Wall Street Journal covered a story of a 70 year-old grandmother who managed to convince her grandson to invest her savings into “big coin [bitcoin]”. However impressive the story of old Rita’s investing prowess is, it’s a close second to the formidable price surge in bitcoin, where it has just skyrocketed past $10,000 USD, landing on a record high of $13,750 as of the date of publishing this article.
Fintech’s love hate relationship with Bitcoin
To give some context, from exactly one year ago bitcoin has achieved an 11-fold increase in price, leading many individuals to believe that crypto is experiencing a tulip bulb, financial crisis-like bubble.
Those bagging bitcoin include the The Economist, Wall Street Journal, Warren Buffett and most notably J.P Morgan CEO Jamie Dimon who earlier this year stated “if you’re stupid enough to buy it, you’ll pay the price for it one day” and “the only value of bitcoin is what the other guy’ll pay for it.” Ironically, despite Dimon’s criticism J.P Morgan announced earlier this week announced they will be facilitating Bitcoin futures.
On other end of the spectrum are the crypto-evangelists that include Security and Internet entrepreneur John Mcafee and World Bank leader Christine Lagarde who stated that “it is not wise to ignore cryptocurrencies” and the “the best thing to do as a central bank is to be open to new technologies.”
Mass adoption of Bitcoin is starting to take place in countries such as Japan. Since the supply of bitcoin is capped at 21 million coins that can be put into circulation, and if bitcoin were to reach escape velocity and become accepted as a global currency internationally, subject to the laws of supply and demand a value of $500,000 to $2million price at that point in time would be more than justified.
Bitcoin has some serious scalability issues that result in exorbitant transaction fees
How much would it cost me to purchase a cup of coffee with a bitcoin?
Just for a moment imagine that your local cafe accepts bitcoin, every regulatory constraint has been overcome, and your bank (Xinja of course 😉 ) allows you to make a transaction with bitcoin. You pull out your card and find that your flat white costs you $10…WAIT WHAT?????)
No, the $10 price is not due to excessive Sydney cafe prices nor has the Aussie economy experienced a wave of inexplicable inflation. The fact of the matter is that bitcoin has some serious scalability issues that result in these exorbitant transaction fees. According to Blockchair it’s sitting at about $7-9 AUD dollars per transaction.
With Bitcoin once heralded as the gateway to enabling micropayments, it now seems ridiculous to think that anybody would make a payment with these types of fees. About 30mins to 2 hours to process each payment on top of all that.
“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run” – Amara’s Law
So what’s with all the fees and how the fork is bitcoin going to scale?
It’s a little technical and best kept out of the scope of this article but if you’ve got the technical know how check out this article describing the scalability issue in more depth.
Every technology, no matter how revolutionary still needs the capacity to evolve and avoid becoming obsolete and bitcoin is no exception.
Whilst there is no shortage of brilliant ideas in this space, there is currently no clear path to resolving this issue. Solutions such as increasing the block sizes, Segwit2x and even the lightning network all have theoretical limits or require an excessive amount of centralisation that don’t appear to come close to achieving the required number of transactions per second bitcoin needs to rival a payments network like Visa that averages around 8,000 transactions per second.
Here at Xinja each of us have our own individual opinions of where bitcoin will go, but what we all agree on is that it is (near) impossible to project the heights (or lows) bitcoin will go to in the coming future. Where we reach consensus is that (in the word’s of Amara’s law) we tend to always “overestimate the effect of a technology in the short run and underestimate the effect in the long run” To compare to the internet, back in the 1990s, no-one could’ve projected the emergence of smartphones and even the blockchain technology itself. Whether you believe bitcoin is a bubble waiting to burst or a revolutionary payments network, only time will tell.