Vitalik buterin bitcoin exchange rate
Announcing World Trade Francs: The Official Ethereum Stablecoin 01st April, Ethereum scalability research and development subsidy programs 02nd January, Note that this is distinct from a simple desire to support Bitcoin and make it better; such motivations are unquestionably beneficial and I personally continue to contribute to Bitcoin regularly via my python library pybitcointools.
Rather, it is a stance that building something on Bitcoin is the only correct way to do things, and that doing anything else is unethical see this post for a rather hostile example. However, is this ideology actually such a good thing for the cryptocurrency community?
And is its core claim, that network effects are a powerful force strongly favoring the eventual dominance of already established vitalik buterin bitcoin exchange rate, really correct, and even if it is, does that argument actually lead where its adherents think it leads?
First, an introduction to the technical strategies at hand. In general, there are three approaches to creating a new crypto protocol:. Meta-protocols are relatively simple to describe: The earliest meta-protocol to exist was Mastercoin ; Counterparty vitalik buterin bitcoin exchange rate a newer one. Sidechains are somewhat more complicated. The way it works is as follows. Once this transaction confirms, the user has the side-coin, and can send it at will.
When any user holding a unit of side-coin wants to convert it back into parent-coin, they simply need to destroy the side-coin, and then submit a proof that this transaction took place to a lockbox script on the main chain.
The lockbox script would then verify the proof, and if vitalik buterin bitcoin exchange rate checks out it would unlock the parent-coin for the submitter of the side-coin-destroying transaction to spend.
As we will see, each of these approaches has its own benefits, but it also has its own flaws. Now, vitalik buterin bitcoin exchange rate us get to the primary argument at play here: In general, network effects can be defined simply: For example, a language has a strong network effect: Esperanto, even if it is technically superior to English in the abstract, is less useful in practice because the whole point of a language is to communicate with other people and not many other people speak Esperanto.
On the other hand, a single road has a negative network effect: In order to properly understand what network effects are at play in the cryptoeconomic context, we need to understand exactly what these network effects are, and exactly what thing each effect is attached to.
Thus, to start off, let us list a few of the major ones see here and here for primary sources:. The first thing that we see is that these network effects are actually rather neatly split up into several categories: There is a substantial opportunity for confusion here, since Bitcoin is simultaneously a blockchain, a currency and a platform, but it is important to make a sharp distinction between the three.
The best way to delineate the difference is as follows:. To see how currencies and platforms are completely separate, the best example to use is the world of fiat currencies. Credit cards, for example, are a highly multi-currency platform. Someone with a credit card from Canada tied to a bank account using Canadian dollars can spend funds at a merchant in Switzerland accepting Swiss francs, and both sides barely know the difference.
Meanwhile, even though both are or at least can be based on the US dollar, cash and Paypal are completely vitalik buterin bitcoin exchange rate platforms; a merchant accepting only cash will have a hard time with a customer who only has a Paypal account. As for how platforms and blockchains are separate, the best example is the Bitcoin payment protocol and proof of existence.
Although vitalik buterin bitcoin exchange rate two use the same blockchain, they are completely different applications, users of one have no idea how to interpret transactions associated with the other, and vitalik buterin bitcoin exchange rate is relatively easy to see how they benefit from completely different network effects so that one can easily catch on without the other.
Note that protocols like proof of existence and Factom are mostly exempt from this discussion; their purpose is to embed hashes into the most secure available ledger, and while a better ledger has not materialized they should certainly use Bitcoin, particularly because they can use Merkle trees to compress a large number of proofs into a single hash in a single transaction. Now, in this model, let us examine metacoins and vitalik buterin bitcoin exchange rate separately.
With metacoins, the situation is simple: To see the former, note that users need to download a whole new set of software packages in order to be able to process Bitcoin transactions. To see the latter, note that, as mentioned above, Counterparty has its own internal currency, the XCP. Cross-chain centralized or decentralized exchange, while possible, is several times slower and more costly. Second, some features of Counterparty, particularly the token sale functionality, do not rely on moving currency units under any conditions that the Bitcoin protocol does not support, and so vitalik buterin bitcoin exchange rate can use that functionality without ever purchasing XCP, using BTC directly.
However, metacoins are most certainly not an all-purpose solution; it is absurd to believe that Bitcoin full nodes will have the computational ability to process every single crypto transaction that anyone will ever want to do, and so eventually movement to either scalable architectures or multichain environments will be necessary.
Sidechains have the opposite properties of metacoins. This has several pros and cons. In fact, Blockstream employees have themselves admitted that the process for converting side-coins back into bitcoins is relatively inefficient, to the point that most people seeking to move their bitcoins there and back will in fact use exactly the same centralized or decentralized exchange processes as would be used to migrate to a different currency vitalik buterin bitcoin exchange rate an independent blockchain.
Additionally, note that there is one security approach that independent networks can use which is not open to sidechains: The reasons for this are twofold. First one of the key arguments in favor of proof of stake is that even a successful attack against proof of stake will be costly for the attacker, as the attacker will need to keep his currency units deposited and watch their value drop drastically as the market realizes that the coin is compromised.
In a proof of stake sidechain, however, one can easily move a very large quantity of coins into a chain from the parent chain, an mount vitalik buterin bitcoin exchange rate attack without moving the asset price at all. Note that both of these arguments continue to apply even if Bitcoin itself upgrades to proof of stake for its security. Hence, if you believe that proof of stake is the future, then both metacoins and sidechains or at least pure sidechains become highly suspect, and thus for that purely technical reason Bitcoin maximalism or, for that matter, ether maximalism, or any other kind of currency maximalism becomes dead in the water.
Altogether, the conclusion from the vitalik buterin bitcoin exchange rate two points is twofold. Any software solution that makes it easy for Bitcoin users to move their funds to sidechains can be easily converted into a solution that makes it just as easy for Bitcoin users to convert their funds into an independent currency on an independent chain.
On the other hand, however, currency network effects are another story, and may indeed prove to be a genuine advantage for Bitcoin-based sidechains over fully independent networks. So, what exactly are these effects and how powerful is each one in this vitalik buterin bitcoin exchange rate Let us go through them again:.
Hence, the single-currency preference effect is likely the largest concern, followed by the size stability effects, whereas the market depth effects are likely relatively tiny once a cryptocurrency gets to a substantial size.
However, it is important to note that the above points have several major caveats. Second, those same strategies particularly the exogenous ones can actually be used to create a stable coin that is pegged to a currency that has vastly larger network effects than even Bitcoin itself; namely, the US dollar. The US dollar is thousands of times larger than Bitcoin, people are already used to thinking in terms of it, and most importantly vitalik buterin bitcoin exchange rate all it actually maintains its purchasing power at a reasonable rate in the short to medium term without massive volatility.
Want true innovation without speculation? Then perhaps we vitalik buterin bitcoin exchange rate all engage in a little US dollar stablecoin maximalism instead. Finally, in the case of transaction fees specifically, the vitalik buterin bitcoin exchange rate single-currency preference effect arguably disappears completely. Let a thousand cryptofuels bloom.
There is another class of argument, one which may perhaps be called a network effect but not completely, for why a service that uses Bitcoin as a currency will perform better: The argument goes as follows. Services and platforms based on Bitcoin the currency and to a slight extent services based on Bitcoin the platform increase the value of Bitcoin. Hence, Bitcoin holders would personally benefit from the value of their BTC going up if the service gets adopted, and are thus motivated to support it.
This effect occurs on two vitalik buterin bitcoin exchange rate There are several major counterarguments vitalik buterin bitcoin exchange rate this claim. First, it is not at all clear that the total effect of the incentive and psychological mechanisms actually increases as the currency gets larger. Although a larger size leads to more people affected by the incentive, a smaller size creates a more concentrated incentive, as people actually have the opportunity to make a substantial difference to the success of the project.
Perhaps a new protocol needs to have a concentrated set of highly incentivized stakeholders in order to seed a community, and Bitcoin maximalists are wrong to try to knock this ladder down after Bitcoin has so beautifully and successfully climbed up it. In any case, all of the research around optimum currency areas will have to be heavily redone in the context of the newer volatile cryptocurrencies, and the results may well go down either way. Second, the ability for a network to issue units of a new coin has been proven to be a highly effective and successful mechanism for solving the public goods problem of funding protocol development, and any platform that does not somehow take advantage of the seignorage revenue from creating a new coin is at a substantial disadvantage.
So far, the only major crypto 2. Both 1 and 3 are highly problematic; 3 because it means that few other companies will be able to follow its trail and because it gives them the incentive to cripple their protocols so they can provide centralized overlays, and 1 because it means that crypto 2. Thus, we see that while currency network effects are sometimes moderately strong, and they will indeed exert a preference pressure in favor of Bitcoin over other existing cryptocurrencies, the creation of an ecosystem that uses Bitcoin exclusively is a highly suspect endeavor, and one that will lead to a total reduction and increased centralization of funding as only the ultra-rich have sufficient concentrated incentive to be speculative philanthropistsclosed doors in security no more proof of stakeand is not even necessarily guaranteed to end with Bitcoin willing.
So is there an alternative strategy that we can take? Are vitalik buterin bitcoin exchange rate ways to get the best of both worlds, simultaneously currency network effects and securing the benefits of new protocols launching their own coins? As it turns out, there is: The dual-currency model, arguably pioneered by Robert Samsalthough in various incarnations independently discovered by BitsharesTruthcoin and myselfis at the core simple: Hayekian currency competition will determine which kind of Bitcoin, altcoin or stablecoin users prefer; perhaps sidechain technology can even be used to make one particular stablecoin transferable across many networks.
The vol-coin will be the unit of measurement of consensus, and vol-coins will sometimes be absorbed to issue new stablecoins when stablecoins vitalik buterin bitcoin exchange rate consumed to vitalik buterin bitcoin exchange rate transaction fees; hence, as explainted in the argument in the linked article on stablecoins, vol-coins can be valued as a percentage of future transaction fees.
Vol-coins can be crowd-sold, maintaining the benefits of a crowd sale as a funding mechanism. Another point to keep in mind is, what happens to the vol-coins themselves? Technological innovation is rapid, and if each network gets unseated within a few years, then the vol-coins may well never see substantial market cap. One answer is to solve the problem by using a clever combination of Satoshian thinking and good old-fashioned vitalik buterin bitcoin exchange rate punishment systems from the offline world: This would allow vol-coins to maintain continuity over the generations.
Bitcoin itself can be included among the list of ancestors for any new coin. Perhaps an industry-wide agreement of this sort is what is needed to promote the kind of cooperative and friendly evolutionary competition that is required for a multichain cryptoeconomy to be truly successful.
Fortunately, however, Ethereum allows users to create their own currencies inside of contracts, so it is entirely possible that such a system can simply be grafted on, albeit slightly unnaturally, over time.
I think this point is underemphasized. The really strong network effects happen when you get exponentially-increasing complexity as new applications rely on existing ones. When side-coin is converted back into, or into parent-coin, could we not see the same lockbox script mechanism used on the side chain to hold the side-coin instead of destroying the side-coin, and then a proof submitted that the side-coin is locked, in stead of destroying the side-coin?
From what I understand, the parent-chain program is designed to destroy the parent coin upon observing that the side coin is held. Think of the parent chain vitalik buterin bitcoin exchange rate the core program, it is automated according to a code which has been made public.
Vitalik buterin bitcoin exchange rate this reading we not only learn about crypto tech but also for common life: In this there is a bubble created by the inefficient system which bitcoin is then set to suck the value from exponentially? If we do I would think it is obvious.