It’s time to check back in to what’s happening in the world of cryptocurrencies! Which—give it credit—is never, ever boring. Some things seem evergreen; the Bitcoin civil war is resurgent; the Ethereum’s growing pains continue. But out there on the horizon, some strange and interesting things are happening. I give you, for instance, appcoins, Blockstack, and Zcash.
Forget Bitcoin, say the appcoin true believers; forget Ethereum; heck, forget venture capital. Any project that can find a way to implement some time of internal cryptocurrency–an “appcoin” used to pay for goods or services within that project’s remit–can use that, first to crowdfund millions of dollars’ worth of initial development costs by selling “pre-mined” coins, then to share the rewards of success with those lucky / visionary initial users and investors.
It sounds appealing! It has precedent; it’s exactly how Ethereum itself was funded, after all, and plenty of early Bitcoin enthusiasts got rich from that enthusiasm. You can see why blockchain enthusiasts unhappy with Bitcoin’s direction of late, such as Coinbase co-founder Fred Ehrsam, are so excited about the idea.
But — totally aside from questions of whether this is technically legal — like all crowdfunding, appcoins run the risk of questionable incentivization; “make a lot of money up front” is a lot more tempting than “build something extraordinarily difficult and cutting-edge, and then see if there’s money in it,” as Bitcoin and Ethereum did. Appcoin poster child Steemit, for instance, provoked so much skepticism they were reduced to posting “7 reasons Steemit is not a Ponzi scheme” on their official blog. That’s never good.
ETA: sooooo, this is embarrassing, but I somehow initially conflated a Steemit user post with their official blog above. Apologies for my sloppy confusion. My larger point holds, though…
More to the point, we’ve been here before; Ethereum isn’t just the second big blockchain, it’s the only one of many post-Bitcoin blockchains to have any real impact. So-called “altcoins” faded away because they were buggy, insecure, untrustworthy, and/or provided no lasting value beyond de facto gambling. As the always-interesting Preston Byrne, an attorney and co-founder of permissioned blockchain startup Monax, points out:
Back in 2014, it seemed a new hot “bitcoin 2.0” was being released every other week (be it Dogecoin, Auroracoin, Maidsafe, SwarmCoin, Bitshares, or otherwise). Most of these experiments ended in failure or a slow fade. Now, it seems, for reasons known only to God, the appcoin concept is back on the table again
Things aren’t quite the same now. (Also, MaidSafe isn’t really a cryptocurrency.) Today, appcoins are being woven into projects which use them as their internal currency, rather than simply existing for their own sake. But it’s still far from clear that we are moving into a world of many independent “appcoin” blockchains. In some especially technologically ambitious cases — such as Ethereum — a new appcoin / blockchain may be called for … but absent such ambition, such an approach often smacks painfully of a solution searching for a problem. Appcoin caveat emptor.
What interests me most about cryptocurrencies is neither the “crypto” nor the “currency” part. What interests me is that they are decentralized, permissionless services, which rely on — and thus can be curtailed by — no central controller. People say the Internet is about disintermediation, but in fact an astonishing amount of our online activity is conducted via the five Stacks: Amazon, Apple, Facebook, Google, and Microsoft. The notion of disintermediating them some — now that’s interesting and disruptive.
Hence my interest in decentralization technologies such as IPFS and, lately, Blockstack, a Union Square Ventures / Y Combinator startup which is trying to construct
a new internet for decentralized, server-less applications … The blockchain is utilized to maintain a cross-application identity system, securely mapping user IDs to usernames, public keys, and data storage URIs. Developers don’t have to worry about running servers, maintaining databases, or building out user management systems
Which, as a software developer myself, sounds lovely, but also very much like one of those very many tools / frameworks which sound great until you get deep into their weeds, after which you ultimately realize that their technical limitations ultimately tend to cause more problems than they solve. Perhaps I am wrong; I hope I am wrong. Perhaps I am being reflexively cynical because it sounds so exciting. Perhaps we shall see when its browser emerges from public beta.
That browser, as I understand it, builds web pages out of decentralized data stored by individual users, in Dropbox or similar services, without any central servers being required. What’s more, it would use blockchain (Bitcoin’s) for domain registration, something I’ve been calling for for a long time. “All of this, by the way, also makes building websites easier,” enthuses The Observer. As a frequent website builder, I remain skeptical until I see the details. But I am hopeful.
Which is also how I feel about
which also just launched, and which I’ve been looking forward to for some time. It’s another cryptocurrency, but it’s not just another cryptocurrency: to quote, er, myself, it
would allow transactions that did not contain any public information about their sender or receiver or amount — but all of these things can still be verified using zero-knowledge proofs memorably known as zk-SNARKs, for “zero-knowledge Succinct Non-interactive ARguments of Knowledge.”
This is pretty remarkable. And I know I just spent a paragraph waxing skeptical about new blockchains, but Zcash is — like Ethereum was — a fundamental technological advance, not just a new project using the same technology. The prospect of truly anonymous transactions may sound alarming to some, but in a world in which privacy withers further away every day, it can also sound a lot like a reassuring bulwark.
More prosaically, to quote founder and OG cypherpunk Zooko Wilcox
in this great IEEE piece about Zcash:
“There are regulatory and commercial and moral reasons for privacy from all sectors,” he says. To give a commercial example: Apple wouldn’t want Samsung to be able to track its transactions and gain valuable competitive intelligence.
Wilcox sounds appropriately inspirational: “I want to be able to say we were there, pushing for that great transformation that began to wash away the suffocating mass of inefficiency, corruption, and isolation — the transformation that unlocked the potential of billions of humans who had been trapped behind walls — cooperation boundaries!” And, encouragingly, ZCash paid for a pre-launch security audit, which will hopefully help them avoid some of the roadblocks that Ethereum has hit.
…Of course, once again, when you get into the weeds, you always find skeptics with coherent arguments. Here’s one touting its competitor Monero, which uses ring signatures rather than zk-SNARKs to anonymize transactions.
But the weirdest and most cinematic thing about ZCash is not abstruse arguments about relative efficacy: it’s the esoteric ceremony with which it had to be initiated, after which occult secrets had to be destroyed. No, seriously. An unavoidable side effect of the math is (to oversimplify) when the ZCash blockchain is initially set up, it is possible for its originators to retain “secret keys” that will allow them to anonymously create and spend new counterfeit ZCash whenever they like.
ZCash itself calls these secret keys “toxic waste,” and they report that last week they went through a mathematically and physically elaborate ceremony in which the network was initiated and the “toxic waste” was then destroyed. Their blog post explaining this is both deeply surreal and truly awesome.
Does the world possibly want to adopt a currency whose viability fundamentally requires this to have happened? …I don’t know! (The parameters can be swapped out, if believed compromised, but how can you guarantee the next set of parameters?) Still, regardless of whether ZCash as currently enacted will become an economic force, I am bullish on its technology; it is a major and impressive next step towards guaranteed privacy and, therefore, all–important fungibility.
Back in the cryptocurrency mainstream, if there is such a thing, the Big Two blockchain ecosystems of Bitcoin and Ethereum have been awfully busy as well. Ethereum hard-forked, again, to deal with an attacker targeting its security flaws, again! (Told you so.) The Bitcoin community is at war with itself, again!
…Also, beyond the sturm und drang, a lot of interesting stuff is happening. Blockcerts, “an open standard for digital academic certificates on the Bitcoin blockchain” from the MIT Media Lab, has launched. In a world awash in fake credentials, this looks like it could take off. Meanwhile, as banks and big companies dip their toes into the blockchain pool, the “first global trade between two independent banks using blockchain and smart contract technologies” has finally been completed. They’ll have to move a lot faster than that, though, if they hope to keep up with today’s pace of change.